2015 (12) TMI 1753 - AT - Income Tax

Tribunal remits issues for fresh adjudication, excludes comparables, penalty dismissed, interest levy consequential.

Starent Networks (India) (P.) Ltd. Versus Assistant Commissioner of Income-tax, Circle-6, Pune

The Tribunal partly accepted the assessee's appeal, remitting several issues back to the DRP and TPO for fresh adjudication. Specific directions were ... TPA - comparable selection criteria - Held that:- Assessee is into rendering software development services thus companies functionally dissimilar with that of assessee need to be deselected from final list. Issues Involved:1. Transfer pricing adjustment2. Rejection of transfer pricing analysis3. Eligibility under section 10A of the Act4. Use of single year data5. Use of additional filters/modification of filters6. Rejection of certain comparable companies7. Determining inappropriate companies as comparables8. Adopting inappropriate approach of selection of companies as comparables9. Adjustment for working capital10. Adjustment for risk difference11. Applicability of 5 percent variation from mean of comparable margins12. Penalty proceedings and levy of interestDetailed Analysis:1. Transfer Pricing Adjustment:The Tribunal dismissed the grounds related to transfer pricing adjustment as general in nature, thus requiring no adjudication.2. Rejection of Transfer Pricing Analysis:The Tribunal found that the transfer pricing analysis conducted by the appellant and the comparable companies identified were rejected without proper adjudication.3. Eligibility under Section 10A of the Act:The appellant did not press this ground, and it was dismissed as not pressed.4. Use of Single Year Data:The appellant did not press this ground, and it was dismissed as not pressed.5. Use of Additional Filters/Modification of Filters:The appellant did not press this ground, and it was dismissed as not pressed.6. Rejection of Certain Comparable Companies:The Tribunal remitted the issue back to the DRP for detailed reasons for selecting/rejecting each comparable, noting that the DRP had not considered the objections in an objective manner.7. Determining Inappropriate Companies as Comparables:The Tribunal excluded Compucom Software Ltd., Kals Information Systems Ltd., and Avani Cimcon Technologies Ltd. from the list of comparables, citing functional dissimilarities and excessive related party transactions. The Tribunal relied on various precedents, including the assessee's own case in assessment year 2006-07 and other decisions by the Pune and Bangalore Benches of the Tribunal.8. Adopting Inappropriate Approach of Selection of Companies as Comparables:The Tribunal remitted the issue back to the TPO to consider the appellant's suggested companies as comparables and pass a speaking order thereon, provided the appellant had furnished the data during the pendency of proceedings.9. Adjustment for Working Capital:The Tribunal noted that the DRP had summarily rejected the issue without proper adjudication. The issue was remitted back to the DRP for fresh adjudication, with the Tribunal noting that working capital adjustment had been allowed in subsequent assessment years.10. Adjustment for Risk Difference:The Tribunal remitted the issue back to the DRP for fresh adjudication, noting that the DRP had not properly considered the issue raised by the appellant.11. Applicability of 5 Percent Variation from Mean of Comparable Margins:The appellant did not press this ground, and it was dismissed as not pressed.12. Penalty Proceedings and Levy of Interest:The Tribunal found the issue of penalty proceedings premature and noted that the levy of interest under sections 234A, 234B, 234C, and 234D is consequential in nature. This ground of appeal was dismissed.Conclusion:The appeal of the assessee was partly accepted, with several issues remitted back to the DRP and TPO for fresh adjudication and detailed reasoning. The Tribunal provided specific directions to exclude certain companies from the list of comparables and to consider the appellant's suggested companies, ensuring a thorough and objective analysis in line with legal precedents.