Transfer pricing appeal partially allowed, sections 10B & 10A deduction under review. Interest levy dismissed.

The Tribunal partially allowed the appeal, directing the AO and TPO to re-examine and recalculate the transfer pricing adjustment. The matter regarding disallowance of deduction under sections 10B and 10A was sent back to the AO for further review, ensuring the assessee's right to be heard. The issue of interest levied under Sections 234B and 234C was dismissed as consequential. The decision was issued on 27th April 2018.

---

---

Issues Involved:
1. Disallowance of deduction under section 10B and alternate claim under section 10A of the Income-tax Act.
2. Transfer pricing adjustment of Rs. 1,91,52,194/-.
3. Levying of interest under Section 234B and Section 234C of the Income-tax Act.

Detailed Analysis:

1. Disallowance of Deduction under Section 10B and Alternate Claim under Section 10A:
The Assessing Officer (AO) denied the deduction claimed by the assessee under section 10B of the Income-tax Act, citing that the approval was received from the Director of Software Technology Park of India (STPI) and not by the Board appointed by the Central Government. The AO also rejected the alternative claim under section 10A. The Dispute Resolution Panel (DRP) upheld these decisions. The Tribunal, considering the precedent set in the assessee’s own case for assessment year 2007-08 and the decisions of the Hon’ble jurisdictional High Court in Regency Creations Ltd. and Valiant Communications Ltd., restored the matter to the AO for examining the claim of deduction under section 10A, ensuring the assessee is afforded adequate opportunity of being heard.

2. Transfer Pricing Adjustment of Rs. 1,91,52,194/-:
The assessee, engaged in providing research and analysis services, reported an international transaction valued at Rs. 18,38,35,355/-. The Transfer Pricing Officer (TPO) rejected the use of multiple year data and applied certain filters, selecting 9 comparables and allowing working capital adjustment. The DRP upheld the TPO’s approach. The Tribunal examined the functional analysis of the assessee and adjudicated on the inclusion/exclusion of comparables:

- Infosys BPO Limited: Excluded due to its giant turnover compared to the assessee, following the precedent set by the Hon’ble jurisdictional High Court in New River Software Services Private Limited.

- Accentia Technologies Ltd.: Excluded due to the extraordinary event of amalgamation, following the Tribunal’s decisions in similar cases.

- TCS E-serve International (I) Ltd. and TCS E-serve Ltd.: Retained as comparables, as the Tribunal found them functionally similar to the assessee and rejected the argument of supernormal profit and brand impact.

- E4e Healthcare Services Pvt. Ltd.: The matter was restored to the TPO/AO to provide the Annual Report to the assessee and decide on its inclusion/exclusion.

- Fortune Infotech Ltd., Datamatics Financial Services Ltd., Optimus Global Services Ltd., and Sparsh BPO Services Ltd.: The Tribunal restored the issue of inclusion of these companies to the TPO/AO for fresh analysis based on factual nature and financial statements.

The Tribunal directed the TPO/AO to recompute the adjustment to the international transaction in light of the above directions.

3. Levying of Interest under Section 234B and Section 234C:
The ground was dismissed as infructuous since it was consequential in nature.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for re-examination and recomputation by the AO and TPO. The decision was pronounced on 27th April 2018.

---