2015 (10) TMI 2242 - AT - Income Tax

Tribunal grants relief on comparability & directs deduction adjustments; upholds interest charge subject to re-computation.

M/s. Misys Software Solutions (India) Pvt. Ltd. Versus Income Tax Officer, Ward 12 (1), Bangalore

The Tribunal partly allowed the assessee's appeal by providing relief on the comparability of certain companies for transfer pricing adjustments and ... Transfer pricing adjustment - selection of comparable - Held that:- Three companies, namely Aztec Software Ltd., Geometric Software Ltd. and Megasoft Ltd. and KALS Infosystems Ltd. and Accel Telemetrics Ltd. shall be excluded from the set of comparables for the software development services segment of the assessee. Tata Elxsi Ltd. and Lucid Software Ltd. excluded from the list of comparables for the software development services of the assessee. Infosys Technologies Ltd. be excluded from the set of comparables in the software development services segment of the assessee. Deduction under Section 10A - Held that:- Taking into consideration the decision rendered by the Hon'ble High Court of Karnataka in the case of Tata Elxsi Ltd. (2011 (8) TMI 782 - KARNATAKA HIGH COURT ), we are of the view that it would be just and appropriate to direct the Assessing Officer that communication charges and expenses incurred in foreign currency are to be excluded from both export turnover as well as total turnover while computing the deduction under Section 10A of the Act, as has been prayed by the assessee in its alternate plea Interest under Section 234B is consequential and mandatory and the Assessing Officer has no discretion in the matter. Issues Involved:1. Transfer Pricing Adjustment2. Computation of Deduction under Section 10A3. Charging of Interest under Section 234BIssue-wise Detailed Analysis:1. Transfer Pricing Adjustment:The assessee challenged the adjustment in the arm's length price (ALP) of its international transactions with related parties. The primary contention was regarding the comparability of the companies selected by the Transfer Pricing Officer (TPO). The Tribunal noted that the assessee pressed only the grounds related to the comparability of companies and dismissed other grounds as infructuous.The Tribunal examined the inclusion of specific companies in the TPO's list of comparables:- Aztec Software Ltd., Geometric Software Ltd., and Megasoft Ltd.: These companies were excluded based on the Tribunal's earlier decision in the case of Huawei Technologies India Pvt. Ltd. for having related party transactions (RPT) exceeding 15%.- KALS Infosystems Ltd. and Accel Transmatics Ltd.: Excluded for being functionally different from the assessee, as they were involved in software products and training.- Tata Elxsi Ltd.: Excluded for being engaged in niche product development and research activities, making it functionally different from the assessee.- Lucid Software Ltd.: Remained in the list as the assessee did not raise any objection at earlier stages.- Infosys Technologies Ltd.: Excluded due to its significantly higher turnover and brand value, making it incomparable to the assessee.2. Computation of Deduction under Section 10A:The assessee contested the exclusion of expenses incurred in foreign currency and communication expenses from export turnover while computing the deduction under Section 10A. The Tribunal directed the Assessing Officer (AO) to exclude these expenses from both export turnover and total turnover, following the decision of the Karnataka High Court in the case of Tata Elxsi Ltd. This direction was based on the rationale that any expenditure excluded from export turnover should also be excluded from total turnover to maintain consistency.3. Charging of Interest under Section 234B:The assessee challenged the AO's action of charging interest under Section 234B. The Tribunal upheld the AO's action, stating that the charging of interest is consequential and mandatory as per the Supreme Court's decision in Anjum Ghaswala & Others. The AO was directed to re-compute the interest chargeable while giving effect to the Tribunal's order.Conclusion:The Tribunal partly allowed the assessee's appeal, providing relief on the comparability of certain companies for transfer pricing adjustments and directing adjustments in the computation of deduction under Section 10A. However, the Tribunal upheld the AO's action on charging interest under Section 234B, subject to re-computation.