2016 (12) TMI 1655 - AT - Income Tax

Tribunal overturns transfer pricing adjustments & Section 10A denial, remands for reassessment.

The Tribunal set aside the TPO/AO/DRP's orders on transfer pricing adjustments and denial of the Section 10A claim. The matters were remanded to the ... TPA - comparable selection criteria - Held that:- Assessee being global leader in manufacture, integration and support of IP based, end-to-end networking and telecommunication solutions, set up its branch office in India in December 2001, to enable UTS US to offer its products and services in the Indian market. The assessee provides software development services and marketing support and IT Enables customer support services to UTS US Customers in Asia-Pacific region, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Benefit of section 10A - Held that:- Following the law laid down by Hon’ble High Court in DDIT vs. Virage Logic International (2016 (11) TMI 456 - DELHI HIGH COURT ), we are of the considered view that since assessee company has exported computer software from India to its Head Office in US as per its requirement and not sold to any third party, it is entitled to exemption u/s 10A, so AO / DRP have erred in denying the benefit of section 10A to the assessee. So, the matter is restored to the AO to decide afresh in accordance with the law laid down by the Hon’ble jurisdictional High Court and the directions issued herein before. Issues Involved:1. Transfer Pricing Adjustment2. Denial of Claim under Section 10A of the Act3. Interest under Section 234B of the Act4. Penalty Proceedings under Section 271(1)(c) of the ActIssue-Wise Detailed Analysis:1. Transfer Pricing Adjustment:- Incorrect Adjustment (Ground No. 1.1): The assessee argued that the TPO/AO made an incorrect transfer pricing adjustment of Rs. 2,07,82,181 instead of Rs. 23,98,098 by misconstruing the directions of the DRP. The DRP's directions required accurate information about payables and receivables for working capital adjustment, which the TPO failed to consider correctly. The Tribunal restored the matter to the TPO to recompute the working capital adjustment based on standalone balances of the assessee company.- Selection of Comparables (Grounds No. 1.2 to 1.9): The assessee challenged the selection of certain comparables by the TPO for benchmarking international transactions in the Software Development Segment (SDS) and IT Enabled Services (ITES) segments. The Tribunal excluded Infosys Technologies Limited, KALS Information Systems Limited, and Tata Elxsi Limited from the SDS segment due to functional dissimilarity and significant differences in business models. Similarly, in the ITES segment, the Tribunal excluded Vishal Information Technologies Limited, Triton Corporation Limited, and Maple eSolutions Limited due to differences in business models, outsourcing practices, and financial irregularities.2. Denial of Claim under Section 10A of the Act:- The assessee contended that the benefit of Section 10A was granted from AY 2003-04 to AY 2006-07 and should continue for AY 2007-08 and AY 2008-09. The Tribunal referred to the judgment in DDIT vs. Virage Logic International, which held that the transfer of computer software by the Indian branch to the Head Office is not a sale and is entitled to Section 10A benefits. The Tribunal restored the matter to the AO to decide afresh in accordance with this judgment.3. Interest under Section 234B of the Act:- The Tribunal did not adjudicate this ground as it is consequential in nature.4. Penalty Proceedings under Section 271(1)(c) of the Act:- The Tribunal found this ground premature and did not adjudicate it.Conclusion:The Tribunal set aside the orders of the TPO/AO/DRP regarding transfer pricing adjustments and the denial of the Section 10A claim, and restored the matters to the TPO/AO for fresh consideration in light of the directions issued. The appeal was allowed for statistical purposes.