Tribunal directs exclusion of comparables and adjustments in transfer pricing calculations.

The appeal was partly allowed for statistical purposes. The Tribunal directed the Assessing Officer/Transfer Pricing Officer to exclude certain comparables, consider segmental profits, and rework the addition and computation of income accordingly. The Tribunal upheld the Assessee's objections on various grounds, leading to adjustments in the transfer pricing calculations.

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Issues Involved:
1. Rejecting the contemporaneous data and undertaking fresh comparable.
2. Ignoring segment-wise data provided by the Assessee.
3. Wrongly applying ALP at entity level instead of restricting to transactions with AEs.
4. Selection of wrong comparables by the TPO.
5. Using a higher threshold for related party transactions.
6. Employee cost filter.
7. Improper calculation of working capital adjustment.
8. Setting off of brought forward losses and unabsorbed depreciation before giving effect to deduction u/s 10A.

Detailed Analysis:

(A) Rejecting the contemporaneous data and undertaking fresh comparable:
1. Assessee contended that the TPO used comparable data unavailable at the time of preparing the TP documentation, violating the principle of natural justice. The TPO should have allowed Assessee to re-prepare the TP documentation considering the data available during assessment proceedings.
2. The Tribunal held that comparable data available at the time of TPO's analysis should be used, provided it was made available to Assessee for objections. Since TPO provided enough opportunity to Assessee, the Tribunal found no merit in Assessee's contentions. Ground No. 3(i) was rejected.

(B) Ignoring segment-wise data provided by Assessee:
1. Assessee argued that it has three business verticals with separate profit centers, and the segmental data should be considered for benchmarking. The TPO rejected this data, citing it was not audited.
2. The Tribunal found merit in Assessee's contention, noting that the AO himself categorized profits for different units while considering deduction u/s 10A. The Tribunal directed TPO/AO to consider GIS services, Engineering Services, and Software services separately for benchmarking.

(C) Wrongly applying ALP at entity level instead of restricting to transactions with AEs:
1. Assessee argued that the TPO made the addition based on overall profit instead of considering the margin from AE transactions, resulting in an addition with reference to non-AE transactions.
2. The Tribunal upheld Assessee's objection and directed the AO to re-work the addition only with reference to AE transactions, not on non-AE transactions, following the decisions of coordinate benches.

(D) Selection of wrong comparables by the TPO:
1. Assessee objected to certain comparables selected by the TPO, arguing they were not comparable due to extraordinary events or different business models.
2. The Tribunal directed the AO/TPO to exclude certain companies like Accentia Technologies Ltd., Eclerx Services Ltd., Mold Tek Technologies Ltd., Vishal Information Technologies Ltd., HCL Comnet Systems & Services Ltd., Infosys BPO Ltd., Wipro Ltd., Asit C Mehta Financial Services Ltd., and Triton Corporation from the list of comparables while determining ALP.

(E) Using a higher threshold for related party transactions:
1. Assessee contested the higher threshold for related party transactions.
2. The Tribunal found no need to separately adjudicate on this filter as Assessee's objections to other comparables were already addressed.

(F) Employee cost filter:
1. Assessee contested the employee cost filter.
2. The Tribunal found no need to separately adjudicate on this filter as Assessee's objections to other comparables were already addressed.

(G) Improper calculation of working capital adjustment:
1. Assessee argued that the TPO did not correctly calculate the working capital adjustment by ignoring advances from customers.
2. The Tribunal restored the issue to the file of TPO to verify Assessee's claim and correctly compute the working capital adjustment.

(H) Setting off of brought forward losses and unabsorbed depreciation before giving effect to deduction u/s 10A:
1. Assessee contended that deduction u/s 10A should be computed without considering losses of other units, supported by the judgment of the Hon'ble High Court of Karnataka in the case of CIT v. Yokogawa India Ltd.
2. The Tribunal followed the decision of the Hon'ble Karnataka High Court and directed the AO to rework the computation of income, holding that deduction u/s 10A has to be computed prior to setting off losses of other industrial units.

Conclusion:
The appeal of Assessee was partly allowed for statistical purposes, with directions to the AO/TPO to exclude certain comparables, consider segmental profits, and rework the addition and computation of income accordingly.

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