Tribunal adjusts comparables for transfer pricing assessment, defers penalty & interest issues.

The Tribunal partially allowed the appeal of the assessee, directing the AO to re-compute the margins of comparables by excluding E-Infochips Limited and then compute the transfer pricing adjustment, if necessary. Other issues such as penalty proceedings initiation and levying of interest were deemed general/consequential/premature and did not require adjudication. The order was issued on 29th June 2018.

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Issues Involved:

1. Erroneous selection of comparable companies.
2. Erroneous rejection of comparable companies.
3. Erroneous selection of outliers companies as comparable to the Appellant.
4. Non-consideration of risk adjustment to the Appellant.
5. Transfer pricing adjustment without giving benefit of +/- 5 percent.
6. Initiation of penalty proceedings.
7. Levying of interest.

Detailed Analysis:

1. Erroneous selection of comparable companies:

The learned DCIT, pursuant to the directions of the Hon'ble DRP, confirmed the following companies as comparable: E Infochips Limited, Persistent Systems Limited, Sasken Communication Technologies Ltd, and Acropetal Technologies Ltd. The assessee argued that E-Infochips Limited was not comparable due to its engagement in manufacturing and trading of printed circuit electronic boards, and its business activity mainly being product designing. The Tribunal found that E-Infochips Limited is engaged in diversified activities without segmental data, making it non-comparable. Thus, E-Infochips Limited was directed to be excluded.

2. Erroneous rejection of comparable companies:

The assessee initially raised an objection regarding the rejection of Helios & Matheson Information Technology Ltd as a comparable company. However, this ground was not pressed by the assessee during the proceedings and was dismissed as not pressed.

3. Erroneous selection of outliers companies as comparable to the Appellant:

The Tribunal addressed the inclusion of E-Infochips Limited as an outlier, noting its abnormal profit trends and diversified activities. The Tribunal concurred with the assessee's contention and excluded E-Infochips Limited from the list of comparables.

4. Non-consideration of risk adjustment to the Appellant:

The assessee contended that the learned DCIT did not grant a risk adjustment. The Tribunal noted that this issue was not pressed before the DRP and was decided against the assessee in the previous assessment year. The Tribunal did not provide further relief on this ground.

5. Transfer pricing adjustment without giving benefit of +/- 5 percent:

The Tribunal directed the AO to re-compute the margins of comparables by excluding E-Infochips Limited and then compute the TP adjustment, if any. The assessee's contention was that if E-Infochips Limited is excluded, the margin would fall within the +/- 5% range, making the international transactions at Arms Length Price and rendering no adjustment necessary.

6. Initiation of penalty proceedings:

The assessee objected to the initiation of penalty proceedings under section 271(1)(c) of the Act. This ground was considered general/consequential/premature and did not require adjudication.

7. Levying of interest:

The assessee objected to the levy of interest under sections 234B and 234C of the Act, arguing that the shortfall in advance tax and excess refund resulted from the transfer pricing adjustment. This ground was also considered general/consequential/premature and did not require adjudication.

Conclusion:

The Tribunal allowed the appeal of the assessee partly for statistical purposes. The AO was directed to re-compute the margins of comparables by excluding E-Infochips Limited and then compute the TP adjustment, if any. Other grounds were rendered infructuous based on this decision. The order was pronounced on 29th June 2018.

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