Tribunal sets aside Transfer Pricing issue, directs fresh examination of Employee Stock Options, RSUs

The Tribunal allowed the assessee's appeal for statistical purposes, setting aside the Transfer Pricing issue and additional grounds related to Employee Stock Options and RSUs for fresh examination by the AO. The Tribunal directed the AO to consider the EOU's turnover for computing the deduction under Section 10A. However, no detailed analysis was provided regarding the levy of interest under Section 234B or the initiation of proceedings under Section 271(1)(c).

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Issues Involved:
1. Transfer Pricing Adjustment
2. Deduction under Section 10A
3. Additional Grounds regarding Employee Stock Options and RSUs
4. Levy of Interest under Section 234B
5. Initiation of Proceedings under Section 271(1)(c)

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment:
The first issue raised by the assessee concerns the Transfer Pricing Adjustment made by the Transfer Pricing Officer (TPO) in respect of international transactions. The TPO selected 20 companies to determine the Arm’s Length Price (ALP). The assessee challenged the comparability of certain companies selected by the TPO before the Dispute Resolution Panel (DRP) but was unsuccessful. Before the Tribunal, the assessee sought the exclusion of 13 companies from the set of comparable companies. The Tribunal noted that the assessee's turnover of international transactions was Rs. 22.88 Crores and agreed that a filter of 10 times the assessee’s turnover on both sides should be applied for selecting comparable companies. Additionally, the Tribunal decided that the Related Party Transaction (RPT) filter should not exceed 15%. Consequently, the Tribunal set aside the TP issue, including the selection of comparables and functional comparability, to the TPO for fresh examination and adjudication, ensuring the assessee was given a proper opportunity to raise objections.

2. Deduction under Section 10A:
The next issue involved the restriction of deduction under Section 10A of the Act. The Assessing Officer (AO) computed the deduction under Section 10A by taking the total turnover of the assessee at the entity level instead of the turnover of the Export Oriented Undertaking (EOU). The AO considered the total turnover of the assessee to be Rs. 29.04 Crores, whereas the turnover of the EOU was Rs. 22.88 Crores. The Tribunal directed the AO to consider the total turnover of the EOU for the purpose of computing the deduction under Section 10A.

3. Additional Grounds regarding Employee Stock Options and RSUs:
The assessee raised additional grounds concerning the cost of Stock Options and RSUs granted to employees by the holding company. The assessee claimed a deduction of Rs. 1,55,22,724, with Rs. 1,14,63,811 eligible for the EOU unit. The Tribunal acknowledged that this issue was not raised before the AO or the DRP and involved a mixed question of law and facts. Consequently, the Tribunal set aside this issue to the AO for proper examination and adjudication, considering all relevant facts and computations.

4. Levy of Interest under Section 234B:
The assessee contested the levy of interest under Section 234B amounting to Rs. 56,26,165. The Tribunal did not provide a detailed analysis of this issue in the judgment.

5. Initiation of Proceedings under Section 271(1)(c):
The assessee submitted that there was no basis for the AO to propose initiating proceedings under Section 271(1)(c) of the Act. The Tribunal did not provide a detailed analysis of this issue in the judgment.

Conclusion:
The Tribunal allowed the appeal of the assessee for statistical purposes, setting aside the Transfer Pricing issue and the additional grounds regarding Employee Stock Options and RSUs to the AO for fresh examination and adjudication. The Tribunal directed the AO to consider the total turnover of the EOU for computing the deduction under Section 10A. The issues concerning the levy of interest under Section 234B and the initiation of proceedings under Section 271(1)(c) were not elaborated upon in the judgment.

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