Appeal partly allowed, AO to re-examine comparables in software services and ITES segments. Dismissal of interest charge.

The appeal was partly allowed for statistical purposes, directing the AO/TPO to re-examine and exclude certain companies from the list of comparables in the software services and ITES segments based on specific criteria and previous Tribunal decisions. The issue of charging interest under section 234B was dismissed as consequential.

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Issues Involved:
1. Selection of comparables for determining the Arm's Length Price (ALP) under the Transactional Net Margin Method (TNMM) in the software services segment.
2. Exclusion of certain companies from the list of comparables in the ITES segment.
3. Charging of interest under section 234B of the Income Tax Act.

Detailed Analysis:

1. Selection of Comparables for Determining ALP under TNMM in Software Services Segment:
- Exensys Software Solutions Ltd.: The assessee objected to this company's selection as a comparable due to its involvement in software product development and an extraordinary event of merger with Holool India Ltd. during the relevant financial year. The Tribunal directed the AO/TPO to examine the issue afresh, following the decision in Intoto Software India Pvt. Ltd., where it was held that extraordinary events affecting financial results disqualify a company from being a comparable.

- Sankhya Infotech Ltd. and Four Soft Ltd.: The assessee argued that these companies are engaged in product development and have significant onsite income/expenses. The Tribunal directed the AO/TPO to verify if the onsite income/expenditure exceeds 75%, in which case these companies should be excluded as comparables.

- Thirdware Solutions Ltd.: The assessee contended that this company is involved in product development and distribution activities. The Tribunal, following the decision in Intoto Software India Pvt. Ltd., directed the AO/TPO to exclude this company from the list of comparables.

- Infosys Technologies Ltd.: The assessee objected to this company being treated as a comparable due to its high turnover and brand value. The Tribunal upheld the view that Infosys, being a giant in the sector with significant turnover and brand value, is not comparable to smaller companies like the assessee. The AO/TPO was directed to exclude Infosys Technologies Ltd. from the list of comparables.

- Tata Elxsi Ltd.: The assessee argued that this company, being a specialized embedded software development provider, cannot be treated as a comparable. The Tribunal remitted the issue back to the AO/TPO for reconsideration, following the decision in Intoto Software.

- Bodhtree Consulting Ltd.: The assessee contended that this company fails the Related Party Transaction (RPT) filter of more than 25% set by the TPO. The Tribunal directed the AO to examine this aspect and exclude the company if the RPT exceeds the threshold.

2. Exclusion of Certain Companies from the List of Comparables in the ITES Segment:
- Vishal Information Technologies Ltd.: The assessee argued that this company outsources a considerable part of its business, as indicated by its low employee cost. The Tribunal directed the TPO to verify this and exclude the company if the employee cost is similarly low, indicating outsourcing.

- Maple E Solutions Ltd.: The assessee objected to this company being treated as comparable due to its involvement in design services and the involvement of its directors in fraud. The Tribunal, following the decision in CRM Services India Pvt. Ltd., directed the AO/TPO to exclude this company from the list of comparables.

- Nucleus Netsoft and GIS India Ltd.: The assessee contended that this company fails the employee cost filter, indicating it outsources its work. The Tribunal directed the AO/TPO to examine this aspect and exclude the company if there is a substantial difference in employee costs.

- WIPRO BPO Solutions Ltd.: The assessee argued that WIPRO, due to its brand value, goodwill, and substantial revenue from premium products, cannot be compared to a captive service provider like the assessee. The Tribunal remitted the issue back to the AO/TPO for detailed examination of these factors and to decide on the comparability.

3. Charging of Interest under Section 234B:
- Interest under Section 234B: The issue of charging interest under section 234B was deemed consequential and not required to be adjudicated at this stage. The Tribunal dismissed this ground.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, with directions for the AO/TPO to re-examine and exclude certain companies from the list of comparables based on specific criteria and previous Tribunal decisions. The issue of charging interest under section 234B was dismissed as consequential. The order was pronounced on 17th January 2014.

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