Tribunal directs exclusion of companies in comparables list, adjustments to Arm's Length Price. Excludes communication charges from turnover.

The Tribunal directed the Assessing Officer to exclude specific companies from the comparables list and adjust the Arm's Length Price accordingly. It also instructed the exclusion of communication charges from the total turnover for computing the deduction under section 10A. The appeal of the assessee was allowed, with the Tribunal ruling in their favor on various issues including transfer pricing adjustments, depreciation on software, unexplained expenditure, and book profit under Section 115JB.

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Issues Involved:
1. Transfer Pricing Adjustment
2. Exclusion of Communication Charges from Export Turnover
3. Disallowed Depreciation on Software
4. Addition of Unexplained Expenditure
5. Increase in Book Profit under Section 115JB

Detailed Analysis:

1. Transfer Pricing Adjustment:
The assessee objected to the inclusion of certain companies in the comparability analysis performed by the Transfer Pricing Officer (TPO) and the Assessing Officer (A.O.). The Dispute Resolution Panel (DRP) had accepted the exclusion of one company but retained others. The Tribunal referenced a similar case, M/s. Invensys Development Centre India (P) Ltd., and directed the A.O. to exclude six companies from the comparables list, namely Infosys Technologies Ltd., Wipro Ltd. (Seg.), KALS Information Systems Ltd. (Seg.), Tata Elxsi Ltd. (Seg.), Avani Cimcon Technologies Ltd., and E-Zest Solutions Ltd. The Tribunal found that these companies were not functionally comparable to the assessee due to differences in scale, brand value, and the nature of services provided.

2. Exclusion of Communication Charges from Export Turnover:
The A.O. had excluded communication charges from the export turnover without making a corresponding reduction from the total turnover, which affected the deduction under section 10A. The Tribunal directed that if communication charges are excluded from the export turnover, they must also be excluded from the total turnover. This decision was based on precedents such as CIT vs. Mentor Graphics (I) P. Ltd. and the Special Bench decision in ITO vs. Saksoft. The Tribunal allowed the assessee's ground on this issue.

3. Disallowed Depreciation on Software:
The A.O. had treated software as intangible assets and allowed depreciation at 25% instead of the 60% claimed by the assessee. The DRP accepted the assessee's objection and directed the deletion of this adjustment. The Tribunal did not need to further adjudicate this issue as it was already resolved in favor of the assessee by the DRP.

4. Addition of Unexplained Expenditure:
The A.O. had added an amount as unexplained expenditure under section 69C. The DRP accepted the assessee's objection and directed the deletion of this addition. The Tribunal did not need to further adjudicate this issue as it was already resolved in favor of the assessee by the DRP.

5. Increase in Book Profit under Section 115JB:
The A.O. had increased the book profit under section 115JB to the extent of the transfer pricing adjustment. The DRP accepted the assessee's objection and directed the deletion of this adjustment. The Tribunal did not need to further adjudicate this issue as it was already resolved in favor of the assessee by the DRP.

Conclusion:
The Tribunal directed the A.O. to exclude the six specified companies from the comparables list and rework the Arm's Length Price (ALP) accordingly. It also directed the A.O. to exclude communication charges from the total turnover while computing the deduction under section 10A. The appeal of the assessee was allowed. The order was pronounced in the open Court on 17.06.2015.

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