Infosys BPO, Genesys excluded as comparables; Allsec included in transfer pricing under Section 92C

The ITAT Hyderabad held that Infosys BPO Ltd. and Genesys International Ltd. are functionally dissimilar and must be excluded as comparables in transfer pricing analysis. Cosmic Global Ltd. was excluded due to outsourcing activities unrelated to the relevant segment, and Accentia Technologies Ltd. was excluded due to extraordinary profit impact from acquisitions. Allsec Technologies Ltd. was included as comparable despite a minor filter ratio difference. The claim related to contribution to the gratuity fund was allowed following SC precedent. The decision was against the Revenue, directing the AO to exclude or include companies based on functional analysis and relevant criteria rather than arbitrary thresholds.

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Issues Involved:
1. Transfer Pricing Adjustments.
2. Credit for the correct amount of TDS.
3. Computation of interest under S.234B.
4. Inclusion/Exclusion of specific comparables in Transfer Pricing.
5. Deduction of contribution to the Gratuity Fund.

Detailed Analysis:

1. Transfer Pricing Adjustments:
The main contention revolves around the Transfer Pricing adjustments made by the Assessing Officer (AO) and Transfer Pricing Officer (TPO). The assessee, M/s. Capital IQ Information Systems (India) Pvt. Ltd., a wholly owned subsidiary of Capital IQ Inc, USA, filed a return declaring an income of Rs. 29,22,01,881. The AO enhanced the total income to Rs. 46,10,25,879 due to a transfer pricing adjustment of Rs. 15,20,07,732 based on the TPO's order. The assessee's Transfer Pricing Study, conducted by M/s. S.R. Batliboi & Co., used the Transactional Net Margin Method (TNMM) and selected six comparables, concluding an average profit margin of 12.15%, asserting that its international transactions were at Arm's Length Price. However, the TPO rejected this documentation, citing issues with multiple year data, improper export filters, and functionally dissimilar companies. The TPO then selected twelve different comparables, arriving at an average Profit Level Indicator (PLI) of 27.42%, adjusted to 25.23% after working capital adjustments, suggesting an adjustment of Rs. 15,20,07,732 under S.92CA.

2. Credit for Correct Amount of TDS:
The assessee raised Ground No.10, claiming that the correct amount of TDS credit of Rs. 2,28,156 was not allowed. The Tribunal directed the AO to verify and allow the correct TDS credit.

3. Computation of Interest under S.234B:
Ground No.11 pertained to the computation of interest under S.234B, where the assessee contended that the interest was wrongly computed at Rs. 3,13,02,184 instead of Rs. 3,00,01,783. The Tribunal directed the AO to verify and re-determine the interest accordingly.

4. Inclusion/Exclusion of Specific Comparables:
The assessee objected to six comparables selected by the TPO and sought the inclusion of two comparables it had selected. The Tribunal analyzed each comparable case by case:

- Infosys BPO Ltd.: Excluded due to functional dissimilarity, brand value, and asset base.
- Genesys International Ltd.: Excluded due to involvement in Geospatial Services and consulting activities, making it functionally incomparable.
- Eclerx Services Ltd.: Excluded as it provides high-end KPO services and lacks segmental data.
- Cosmic Global Ltd.: Excluded due to significant outsourcing of its main activity and low segmental revenue.
- Acropetal Technologies Ltd. (Seg.): Excluded due to involvement in high-end engineering design services and lack of proper segmental data.
- Accentia Technologies Limited: Excluded due to super profits and extraordinary events impacting its profit margins.

The Tribunal directed the inclusion of Allsec Technologies Limited, which was excluded by the TPO for not meeting the export sales filter but was found comparable based on a pragmatic analysis.

5. Deduction of Contribution to the Gratuity Fund:
The Revenue's appeal contested the DRP's direction allowing the deduction of the contribution to the Gratuity Fund maintained with LIC. The AO had disallowed the amount as the Gratuity Fund was not approved by the Commissioner of Income-tax Hyderabad for the assessment year 2009-10. The DRP allowed the deduction, following the Supreme Court's decision in CIT V/s. Textool Co. Ltd., which permitted allowability in terms of S.36(1)(v) under similar circumstances. The Tribunal upheld the DRP's decision, finding no merit in the Revenue's appeal.

Conclusion:
The assessee's appeal was partly allowed, directing the AO/TPO to re-work the Arithmetic Mean PLI and re-calculate the addition, if warranted, after excluding and including the specified comparables. The Revenue's appeal was dismissed, upholding the DRP's decision on the Gratuity Fund deduction.

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