Transfer Pricing Appeal: Key Adjustments to Comparables List and Profit Level Indicator Upheld

The Tribunal partially allowed the appeal, making significant adjustments to the comparables list by excluding companies with significantly higher turnovers like Infosys and Wipro. Grounds 1 and 2 were not adjudicated or dismissed, while grounds 4 and 5 became irrelevant due to the decision on ground 3. The inclusion of reimbursement amounts in the profit level indicator was upheld. The overall transfer pricing adjustments were impacted by these decisions, with the order announced on April 25, 2013.

---

---

Issues Involved:
1. Rejection of objections against comparables with minuscule turnovers.
2. Rejection of objections against comparables with significantly higher turnovers.
3. Inclusion of sales with non-associated enterprises in the arithmetic mean profit level indicator.
4. Inclusion of reimbursement amounts in the arithmetic mean profit level indicator.

Issue-wise Detailed Analysis:

1. Rejection of objections against comparables with minuscule turnovers:
The assessee's objections against the inclusion of comparables with significantly lower turnovers, such as Avani Cincom and Kais Information, were dismissed by the Dispute Resolution Panel (DRP). The assessee argued that these companies' turnovers were minuscule compared to its own, affecting the profit level indicator (PLI) calculation. However, this ground was not pressed further by the assessee during the appeal, leading to its dismissal as not pressed.

2. Rejection of objections against comparables with significantly higher turnovers:
The assessee contended that Infosys Ltd. and Wipro Ltd. should not be considered as comparables due to their significantly higher turnovers. The DRP had included these companies in the comparables list, leading to a higher arithmetic mean PLI. The Tribunal, referencing the Delhi ITAT decision in Agnity India Technologies and its own decision in Deloitte Consulting India Pvt. Ltd., agreed with the assessee. It held that the giant companies like Infosys and Wipro, with turnovers multiple times higher than the assessee, should be excluded from the comparables list. Consequently, ground No. 3 was allowed, and the DRP was found to have erred in considering their profit level indicators.

3. Inclusion of sales with non-associated enterprises in the arithmetic mean profit level indicator:
The DRP's inclusion of sales with non-associated enterprises while applying the arithmetic mean PLI for adjustment was contested by the assessee. However, this ground became infructuous following the Tribunal's decision on ground No. 3, which excluded the high-turnover comparables, thereby impacting the overall computation.

4. Inclusion of reimbursement amounts in the arithmetic mean profit level indicator:
The assessee argued against the inclusion of reimbursement amounts (Rs. 1,76,99,840) in the arithmetic mean PLI, stating that these did not result in any profit or gain. The DRP observed a lack of clarity on the nature of these expenses and refused to interfere with the Transfer Pricing Officer's (TPO) order. The Tribunal upheld the DRP's decision, noting the absence of additional information or clear explanation from the assessee regarding the reimbursement amounts. Consequently, the inclusion of these amounts in the PLI calculation was maintained.

Conclusion:
- Ground No. 1 was general and required no adjudication.
- Ground No. 2 was dismissed as not pressed.
- Ground Nos. 4 and 5 became infructuous due to the decision on ground No. 3.
- Ground No. 3 was allowed, leading to the exclusion of Infosys and Wipro from the comparables list.
- Ground No. 6 was dismissed due to a lack of clarity and additional information.

Result:
The appeal was partly allowed, with significant adjustments made to the comparables list, impacting the overall transfer pricing adjustments. The order was pronounced in the open court on April 25, 2013.

---