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of <h1>Tribunal sets criteria for comparables in transfer pricing disputes.</h1> <h3>Radisys India (P.) Ltd. Versus Income-tax Officer, Ward- 5 (1), Bangalore</h3> Radisys India (P.) Ltd. Versus Income-tax Officer, Ward- 5 (1), Bangalore - TMI Issues Involved:1. Reduction of expenditure in foreign currency for computation of deduction under Section 10A of the Income-tax Act, 1961.2. Exclusion of comparables with turnover exceeding Rs. 200 crores for ALP analysis.3. Exclusion of comparables with Related Party Transactions (RPT) exceeding 15%.4. Rejection of comparables selected by the assessee.5. Inclusion of Kals Information Systems Ltd. and ICRA Techno Analytics Ltd. as comparables.Detailed Analysis:Issue 1: Reduction of Expenditure in Foreign Currency for Computation of Deduction under Section 10AThe Revenue challenged the DRP's direction to reduce expenditure in foreign currency on telecommunication and travel from both export turnover and total turnover for Section 10A deduction computation. The Tribunal upheld the DRP's decision, citing the jurisdictional High Court's judgment in CIT v. Tata Elxsi Ltd., which the Revenue had not accepted but was still binding. The Tribunal found no error in the AO's order and dismissed this ground.Issue 2: Exclusion of Comparables with Turnover Exceeding Rs. 200 Crores for ALP AnalysisThe Revenue contested the DRP's direction to exclude comparables with turnover over Rs. 200 crores from the list selected by the TPO for ALP analysis. The Tribunal referenced the Genisys Integrating Systems (India) (P.) Ltd. case, emphasizing the importance of size in comparability. The Tribunal supported the DRP's application of the turnover filter, agreeing that companies with turnover between Rs. 1 crore and Rs. 200 crores should be considered comparable. This ground was dismissed.Issue 3: Exclusion of Comparables with Related Party Transactions Exceeding 15%The Revenue objected to the DRP's exclusion of Larsen & Toubro Infotech Ltd., Persistent Systems Ltd., and R S Software (India) Ltd. based on RPTs. The Tribunal cited the 24/7 Customer.com (P.) Ltd. case, which set a 15% threshold for RPTs. Both parties agreed on this threshold. The Tribunal directed the AO/TPO to apply the 15% RPT filter and include comparables that meet this criterion. This ground was allowed for statistical purposes.Issue 4: Rejection of Comparables Selected by the AssesseeThe assessee challenged the rejection of Akshay Software Technologies Ltd. by the TPO due to unavailable RPT data. The Tribunal noted that the financial statements for FY 2010-11, which included FY 2009-10 data, showed an RPT of 4.33%. The Tribunal remitted the issue back to the AO/TPO for verification of these figures and reconsideration of Akshay Software Technologies Ltd. as a comparable. This ground was partly allowed.Issue 5: Inclusion of Kals Information Systems Ltd. and ICRA Techno Analytics Ltd. as ComparablesThe assessee contested the inclusion of Kals Information Systems Ltd. and ICRA Techno Analytics Ltd. due to functional dissimilarity and lack of segmental data. The Tribunal acknowledged the need for segmental analysis and proper verification of these companies' functional profiles. The Tribunal remitted the issue back to the AO/TPO for fresh consideration, ensuring that these companies meet the RPT filter and proper segmental data is obtained. This ground was partly allowed for statistical purposes.Conclusion:Both the appeals of the Revenue and the assessee were partly allowed for statistical purposes. The Tribunal directed the AO/TPO to reconsider specific comparables based on the established criteria and thresholds.
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