Tribunal revises comparables & deducts telecom charges for transfer pricing relief. Interest charge issue dismissed.

The Tribunal partially allowed the appeal, providing relief by revising comparables for transfer pricing adjustment and directing exclusion of telecommunication charges from total turnover for deduction u/s.10B. The issue of charging interest u/s.234B was dismissed.

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Issues Involved:
1. Transfer Pricing Adjustment
2. Exclusion of Telecommunication Charges for Deduction u/s.10B
3. Charging of Interest u/s.234B

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment:

The assessee, engaged in the export of network security and administration software solutions, filed its return of income declaring a total income of Rs. 14,06,984/-. The AO completed the assessment determining the total income at Rs. 24,29,550/- by making three additions. The Ld. CIT assumed jurisdiction u/s.263 and set aside the AO's order, directing a denovo assessment. The assessee filed a report u/s.92E for international transactions with related parties, and a reference was made to the TPO u/s.92CA(1). The TPO observed discrepancies in the comparables used by the assessee and made adjustments, resulting in an addition of Rs. 2,73,94,482/- to the total income.

The DRP directed the exclusion of certain comparables and computed the Arm's Length Price (ALP) with an Arithmetic Mean of 22.86%. The AO made an adjustment of Rs. 2,09,68,688/- to the total income. The assessee contested the selection of comparables, arguing that the TPO cherry-picked high-profit companies and failed to consider functional and risk differences. The Tribunal examined the comparables and excluded ICSA (India) Ltd. and SIP Technologies Ltd. due to non-availability of relevant data and functional dissimilarities. The Tribunal also excluded VMF Soft Tech Ltd. due to its super profit margins, aligning with the exclusion of loss-making companies like Cressanda Solutions Ltd. The Tribunal included ABM Knowledgeware Ltd. and Ontrack Systems Ltd. as comparables, resulting in a revised Arithmetic Mean of 14.69%, close to the assessee's margin of 12.40%. Consequently, no adjustment was required to the international transaction.

2. Exclusion of Telecommunication Charges for Deduction u/s.10B:

The AO reduced the IAC/telecommunication charges from the export turnover for computing the deduction u/s.10B, resulting in a disallowance of Rs. 6,50,037/-. The assessee argued that if telecommunication charges are excluded from export turnover, they should also be excluded from total turnover, citing the decision of the Hon'ble Bombay High Court in CIT Vs. Gem Plus Jewellery India Ltd. The Tribunal upheld this argument, directing the AO to exclude telecommunication charges from the total turnover for computing the deduction u/s.10B.

3. Charging of Interest u/s.234B:

The Tribunal found that charging of interest u/s.234B is mandatory and consequential in nature, dismissing the assessee's ground on this issue.

Conclusion:

The Tribunal allowed the appeal partly, providing relief on the transfer pricing adjustment by revising the comparables and directing the exclusion of telecommunication charges from the total turnover for computing the deduction u/s.10B. The ground related to charging of interest u/s.234B was dismissed.

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