Transfer Pricing Appeal: Exclusion of Comparables, Arm's Length Price Recomputation

The appeal in the case focused on transfer pricing adjustments and the exclusion of certain companies from comparables for the assessment year 2010-11. The Tribunal directed the exclusion of specific companies from the final list of comparables, re-computation of the Arm's Length Price, and verification of advance tax and TDS credits. The issue of interest under Section 234C was also remitted for verification and relief. The order was pronounced on 31st May 2016.

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Issues Involved:
1. Transfer pricing adjustments and the exclusion of certain companies from comparables.
2. Calculation and credit of advance tax.
3. Credit of tax deducted at source (TDS).
4. Consequential liability of interest under Section 234C of the Act.

Detailed Analysis:

1. Transfer Pricing Adjustments and Exclusion of Certain Companies from Comparables:

The primary issue in the appeal was the transfer pricing adjustments made by the AO, confirmed by the DRP and TPO, for the assessment year 2010-11. The assessee, engaged in software development services, contested the inclusion of four companies in the final list of comparables for transfer pricing adjustment: E-Infochips Bangalore Ltd, Kals Information Systems Ltd, Sasken Communication Technologies Ltd, and Tata Elxsi Ltd.

- E-Infochips Bangalore Ltd: The assessee argued that this company was functionally different and lacked segmental information. The TPO had used information from the FY 2010-11 annual report for FY 2009-10, which was not publicly available. The Tribunal found that the company was engaged in both software development and ITES, and segmental information was not available. Thus, it could not be considered comparable.

- Kals Information Systems Ltd: The assessee contended that this company was involved in software development and products, with significant inventories. The Tribunal noted that the company was engaged in software development and training, and its activities were functionally different from the assessee. Therefore, it was excluded from the comparables.

- Tata Elxsi Ltd: The assessee argued that this company specialized in embedded software development and had multiple segments. The Tribunal observed that Tata Elxsi was involved in complex activities and lacked segmental data, making it unsuitable as a comparable.

- Sasken Communication Technologies Ltd: Although not initially contested, the Tribunal remitted this issue for fresh adjudication by the TPO, considering the objections raised by the assessee regarding the company's involvement in product sales and telecommunication software services.

The Tribunal directed the exclusion of these companies from the final list of comparables and instructed the TPO to re-compute the Arm's Length Price and the adjustment under Section 92C of the Act.

2. Calculation and Credit of Advance Tax:

The assessee claimed that the AO had erred in granting credit for advance tax, crediting only Rs. 6,14,01,877 instead of the claimed Rs. 6,58,40,000. The Tribunal remitted this issue to the AO for factual verification and appropriate relief in accordance with the law.

3. Credit of Tax Deducted at Source (TDS):

The assessee also contended that the AO had granted TDS credit of only Rs. 22,40,040 against the claimed Rs. 23,58,189. This issue was similarly remitted to the AO for verification and granting of relief if justified.

4. Consequential Liability of Interest under Section 234C:

The assessee raised a ground against the consequential liability of interest under Section 234C of the Act. The Tribunal remitted this issue to the AO for verification and consequential relief.

Conclusion:

The appeal was partly allowed for statistical purposes, with the Tribunal directing the exclusion of certain companies from the list of comparables, re-computation of the Arm's Length Price, and verification of advance tax and TDS credits. The issue of interest under Section 234C was also remitted for verification and relief. The order was pronounced in the Open Court on 31st May 2016.

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