Tribunal excludes Vimta Labs from comparables list, upholds CIT(A)'s decisions, revenue's appeal dismissed.

The Tribunal partly allowed the assessee's appeal by excluding Vimta Labs from the list of comparables for transfer pricing adjustment and upheld the CIT(A)'s decisions on other issues. The revenue's appeal was dismissed in its entirety.

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Issues Involved:
1. Transfer Pricing Adjustment
2. Deduction for Provision Made Towards Interest Payable
3. Deduction Under Section 80-O of the Income-tax Act
4. Deduction Under Section 80HHC of the Income-tax Act

Detailed Analysis:

1. Transfer Pricing Adjustment:
The primary issue in the assessee's appeal was the transfer pricing (TP) adjustment made by the Transfer Pricing Officer (TPO) under Section 92CA of the Income-tax Act, 1961. The assessee sought the exclusion of two comparable companies, Alpha Geo (India) Ltd. and Vimta Labs, from the final list of comparables for determining the arm's length price (ALP).

- Alpha Geo (India) Ltd.: The assessee argued that Alpha Geo was functionally dissimilar as it was involved in seismic services, which are different from the assessee's research and development activities in the automobile industry. However, the Tribunal found that both companies were engaged in research and development activities, albeit in different fields. The Tribunal emphasized that the transfer pricing exercise focuses on functions performed, assets used, and risks assumed rather than the specific products or services. Therefore, the Tribunal upheld the inclusion of Alpha Geo as a comparable company.

- Vimta Labs: The assessee contended that Vimta Labs should be excluded due to its high-profit margin and involvement in research and development of drugs involving human beings. The Tribunal agreed with the assessee, noting that the TPO had excluded Vimta Labs in the subsequent assessment year (2005-06) for the same reasons. Consequently, the Tribunal directed the TPO/AO to exclude Vimta Labs from the final list of comparables and re-determine the ALP.

2. Deduction for Provision Made Towards Interest Payable:
The assessee contested the disallowance of a deduction for a provision made towards interest payable to the Central Excise Department and Sales Tax Department amounting to Rs. 4,29,67,460/-. The Tribunal noted that this issue had been previously decided against the assessee in its own case for the assessment years 2000-01 and 2001-02. Respectfully following the earlier decisions, the Tribunal rejected this ground of appeal.

3. Deduction Under Section 80-O of the Income-tax Act:
The assessee also challenged the disallowance of a deduction under Section 80-O amounting to Rs. 64,28,890/-. The Tribunal referred to its earlier decision for the assessment year 2001-02, where it had extensively considered the issue. The Tribunal reiterated that the assessee failed to establish that the consideration received from Bosch was for the use of patents, designs, or inventions outside India. The Tribunal concluded that the assessee did not provide sufficient evidence to support its claim for the deduction under Section 80-O and thus rejected this ground of appeal.

4. Deduction Under Section 80HHC of the Income-tax Act:
In the revenue's appeal, the issue was the exclusion of 90% of the fee for design and development work received from Robert Bosch from the profits of the business for computing the deduction under Section 80HHC.

- Fee for Design and Development Work: The Tribunal upheld the CIT(A)'s decision, which followed the jurisdictional High Court's ruling in the assessee's own case for the assessment year 1994-95. The High Court had held that the consideration received for development work from Robert Bosch was not liable to be reduced under Explanation (baa) to Section 80HHC. Therefore, the Tribunal rejected the revenue's grounds on this issue.

- Net Interest Received: The Tribunal addressed the exclusion of 90% net interest received from the business profits for the purpose of deduction under Section 80HHC. The CIT(A) had followed the Tribunal's earlier orders in the assessee's own case for the assessment years 2000-01 and 2001-02. The Tribunal also referred to the Delhi High Court's judgment in CIT vs. Delhi Brass & Metal Works, which supported the assessee's position. Consequently, the Tribunal saw no reason to interfere with the CIT(A)'s order.

Conclusion:
In conclusion, the Tribunal partly allowed the assessee's appeal by excluding Vimta Labs from the list of comparables and upheld the CIT(A)'s decisions on other issues. The revenue's appeal was dismissed in its entirety. The judgment was pronounced in the open court on 20th August 2015.

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