Tribunal grants relief to assessee, rejects Revenue's penalty appeal

The Tribunal partly allowed the assessee's appeal, directing the exclusion of certain comparable companies and adjusting the computation of the deduction under Section 10A. The Revenue's appeal was dismissed, upholding the cancellation of the penalty under Section 271(1)(c).

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Issues Involved:
1. Transfer Pricing Adjustment
2. Exclusion of Comparable Companies
3. Computation of Deduction under Section 10A
4. Penalty under Section 271(1)(c)

Detailed Analysis:

1. Transfer Pricing Adjustment:
The assessee's appeal was directed against the order of assessment for the year 2007-08, which included a transfer pricing adjustment. The Transfer Pricing Officer (TPO) and the assessee accepted the Transactional Net Margin Method (TNMM) as the most appropriate method. The TPO selected certain comparable companies and determined the Arm's Length Price (ALP), resulting in a transfer pricing adjustment of Rs. 2,28,50,421, which was later recomputed to Rs. 2,07,22,767 by the Assessing Officer (AO) after the Dispute Resolution Panel's (DRP) directions.

2. Exclusion of Comparable Companies:
The assessee contested the inclusion and exclusion of certain comparable companies selected by the TPO. The Tribunal referenced previous decisions and found that the following companies should be excluded due to functional dissimilarities or other reasons:
- Avani Cimcon Technologies Ltd.
- Infosys Technologies Ltd.
- Ishir Infotech Ltd.
- Lucid Software Ltd.
- Megasoft Ltd.
- Tata Elxsi Ltd. (Seg.)
- Wipro Ltd. (Seg.)
- KALS Information Systems Ltd. (Seg.)
- Accel Transmatic Ltd. (Seg.)
- Flextronics Software Systems Ltd. (Seg.)
- Helios & Matheson Information Tech. Ltd.

The Tribunal directed the AO to exclude these companies from the comparability analysis.

3. Computation of Deduction under Section 10A:
The issue was whether communication charges should be excluded from both the export turnover and the total turnover while computing the deduction under Section 10A. The Tribunal followed the decisions of the Bombay High Court in CIT vs. Gemplus Jewellery and the Special Bench of the Tribunal in ITO vs. Saksoft Ltd., directing the AO to exclude the communication charges from both the export turnover and the total turnover.

4. Penalty under Section 271(1)(c):
The Revenue's appeal contested the cancellation of a penalty imposed under Section 271(1)(c). The AO had imposed a penalty, treating the transfer pricing adjustment as concealed income. The CIT(A) cancelled the penalty, observing that the difference in ALP was due to different variables and filters used by the AO and the assessee, which constituted a difference of opinion rather than concealment of income. The Tribunal upheld the CIT(A)'s decision, noting that the Supreme Court's ruling in CIT vs. Reliance Petro-Products Pvt. Ltd. applied, as there was no inaccuracy or incorrect information provided by the assessee.

Conclusion:
The assessee's appeal was partly allowed, with the Tribunal directing the exclusion of certain comparable companies and adjusting the computation of the deduction under Section 10A. The Revenue's appeal was dismissed, upholding the cancellation of the penalty under Section 271(1)(c). The order was pronounced on 24th September 2015.

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