Tribunal grants Section 10A exemption, directs transfer pricing review.

The Tribunal ruled in favor of the assessee, allowing exemption under Section 10A of the Income Tax Act for its Gurgaon and Chennai units, based on a previous Tribunal order and High Court decision. Regarding transfer pricing adjustments, the Tribunal directed the Assessing Officer to re-examine the issue, excluding comparables with turnovers exceeding Rs. 200 crores, including finance and bank charges in operating expenses, and using segmental data for specific companies. The Tribunal's decision was pronounced on 12th September 2014.

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Issues Involved:
1. Denial of exemption under Section 10A of the Income Tax Act for Gurgaon and Chennai units.
2. Adjustment in transfer pricing made by the Transfer Pricing Officer (TPO).

Detailed Analysis:

1. Denial of Exemption under Section 10A:
The assessee contested the denial of exemption under Section 10A for its Gurgaon and Chennai units. The Tribunal found that the issue was already covered in favor of the assessee by a previous Tribunal order and upheld by the Hon'ble High Court. The High Court had dismissed the Revenue's appeal, confirming that the assessee had commenced production before the stipulated date, and the intimation to the Software Technology Park of India (STPI) was a ministerial requirement, not a precondition for registration. The Tribunal, following the High Court's decision, ruled in favor of the assessee, allowing the exemption under Section 10A for both units.

2. Adjustment in Transfer Pricing:
The assessee raised several issues regarding the TPO's adjustments in transfer pricing:

a. Turnover Filter:
The assessee argued against the TPO's application of a lower turnover filter of Rs. 1 crore and the absence of an upper turnover cap. The Tribunal agreed with the assessee, citing various judicial precedents that supported an upper turnover filter of Rs. 200 crores. The Tribunal ruled that companies with turnovers exceeding Rs. 200 crores should not be used as comparables for the assessee, which had a turnover of Rs. 23 crores.

b. Employee Cost Filter:
The assessee contested the TPO's exclusion of companies with employee costs less than 25% of total costs. The Tribunal upheld the TPO's application of this filter, stating that a service provider company must necessarily have high employee costs.

c. Inclusion of Specific Comparables:
The assessee objected to the inclusion of Avani Sincom Technologies, Kals Information Systems, Bodhtree Consulting Ltd., and LGS Global Ltd. as comparables, arguing that these companies were involved in product development and sales, unlike the assessee. The Tribunal directed the Assessing Officer to re-examine whether segmental data related to service provision were used for comparison. If segmental data were unavailable, these companies should be excluded as comparables.

d. Finance and Bank Charges:
The assessee argued that finance and bank charges should be considered part of operating expenses while computing margins. The Tribunal agreed, directing the Assessing Officer to include these charges as operating expenses for comparables.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes, directing the Assessing Officer to re-adjudicate the transfer pricing issue by excluding comparables with turnovers exceeding Rs. 200 crores, including finance and bank charges in operating expenses, and using segmental results for specific companies. If segmental data were unavailable, those companies should be excluded as comparables. The Tribunal's decision was pronounced in the open court on 12th September 2014.

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