2017 (1) TMI 1489 - AT - Income Tax

Assessee's Appeal Partially Allowed: Transfer Pricing Re-determination & Dispute Resolution Panel Decision Upheld

The Tribunal partly allowed the assessee's appeal, directing the Assessing Officer/Transfer Pricing Officer to re-determine the Arm's Length Price based ... TPA - comparable selection criteria - Held that:- Assessee is engaged in the business of computer software development services, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Computation of deduction u/s 10A - Held that:- Action of the DRP in directing the AO to exclude data link charges and freight charges both from turnover as well as total turnover while computing deduction u/s 10A, we do not find any infirmity in the order of the DRP as it is in conformity with the ratio laid down by the Hon’ble Bombay High Court in case of CIT vs. Gem Plus Jewellery (2010 (6) TMI 65 - BOMBAY HIGH COURT) as held that communication charges attributable directly to the export of article or thing outside India has to be excluded both from export turnover as well as total turnover while computing exemption u/s 10A of the Act Issues Involved:1. Selection of comparables for Transfer Pricing.2. Computation of deduction under Section 10A of the Income Tax Act.3. Short credit for tax deducted at source (TDS).Issue-wise Detailed Analysis:1. Selection of Comparables for Transfer Pricing:The primary issue raised by the assessee pertains to the selection of comparables by the Transfer Pricing Officer (TPO). The assessee objected to five specific companies being treated as comparables, arguing that they were not functionally similar. The Tribunal reviewed the objections and previous rulings to determine the appropriateness of these comparables:- Accentia Technologies Ltd.: The Tribunal noted that this company had extraordinary events and acquisitions impacting its financials. Citing previous rulings, the Tribunal directed the exclusion of this company from the list of comparables due to insufficient segmental data and the impact of acquisitions on its profit margins.- Acropetal Technologies Ltd.: The Tribunal found that this company provided engineering design services and had products in its inventory, making it functionally different from the assessee. Previous rulings had rejected this company as a comparable, and the Tribunal upheld this view, directing its exclusion.- Cosmic Global Ltd.: The Tribunal observed that this company had a low segmental revenue from its BPO segment and incurred significant costs through subcontracting. Previous rulings had excluded this company due to its low revenue and high outsourcing costs, and the Tribunal directed its exclusion.- Eclerx Services Ltd.: The Tribunal noted that this company provided diversified and KPO services, making it functionally different from the assessee. Citing previous rulings, the Tribunal directed the exclusion of this company from the list of comparables.- Genesys International Corporation Ltd.: The Tribunal found that this company provided geographical information system services, which were functionally different from the services provided by the assessee. Previous rulings had excluded this company due to its distinct services, and the Tribunal upheld this view, directing its exclusion.The Tribunal directed the Assessing Officer (AO)/TPO to re-determine the Arm's Length Price (ALP) based on the revised list of comparables.2. Computation of Deduction under Section 10A of the Income Tax Act:The assessee and the revenue both appealed against the computation of deduction under Section 10A. The Dispute Resolution Panel (DRP) had directed the AO to exclude data link charges from both export turnover and total turnover while computing the deduction. The Tribunal upheld the DRP's decision, citing the ratio laid down by the Hon'ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery and the ITAT, Chennai Bench (SB) in the case of ITO vs. Sak Soft. The Tribunal found no infirmity in the DRP's order and dismissed the revenue's appeal on this ground.3. Short Credit for Tax Deducted at Source (TDS):The assessee raised an issue regarding short credit for TDS. The Tribunal remanded this issue to the file of the AO with a direction to allow the TDS credit in accordance with the law.Conclusion:The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the revenue's appeal. The Tribunal directed the AO/TPO to re-determine the ALP based on the revised list of comparables and upheld the DRP's decision on the computation of deduction under Section 10A. The issue of short credit for TDS was remanded to the AO for re-evaluation.