2017 (6) TMI 1295 - AT - Income Tax

Tribunal upholds Dispute Panel's directions on comparables, dismisses appeals on TDS, penalties. Revenue and assessee appeals dismissed.

The Tribunal upheld the Dispute Resolution Panel's directions on the inclusion/exclusion of comparables, dismissing appeals related to TDS mismatch and ... TPA - comparable selection - functional dissimilarity - HELD THAT:- As the assessee before us is a provider of software services, the two concerns i.e. FCS Software Solutions Ltd. and Infosys Technologies Ltd. have to be excluded from the final set of comparables as they are functionally not comparable. CAT Technologies Ltd. and RS Software (India) Ltd. - Any concern is to be included in the final set of comparables, where it satisfied the filter of more than 75% of earning from exports. Issues Involved:1. Inclusion/Exclusion of certain comparables in the final set of comparables.2. Addition to total income on account of mismatch of taxes deducted at source (TDS) amount.3. Initiation of penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961.4. Objections to the order of the Dispute Resolution Panel (DRP).Detailed Analysis:Issue 1: Inclusion/Exclusion of Certain ComparablesThe primary issue in the appeal filed by the Revenue was the inclusion of CAT Technologies Ltd. and RS Software (India) Ltd. in the final set of comparables and the exclusion of FCS Software Ltd. and Infosys Technologies Ltd. The assessee was engaged in software development and related services and had followed the Transactional Net Margin Method (TNMM) for benchmarking its international transactions. The Transfer Pricing Officer (TPO) had used certain filters for selecting functionally similar comparables, which were different from those selected by the assessee. The assessee objected to the use of multiple year data and the exclusion of companies with export sales less than 75% of total sales.The TPO included five companies as comparables, which the assessee objected to. The Dispute Resolution Panel (DRP) directed the exclusion of FCS Software Solutions Ltd. and Infosys Technologies Ltd. due to their high turnover and brand value, making them functionally not comparable. The DRP also directed the inclusion of CAT Technologies Ltd. and RS Software (India) Ltd. as they were primarily engaged in software development and consulting services.The Tribunal upheld the DRP's directions, stating that FCS Software Solutions Ltd. and Infosys Technologies Ltd. were not functionally comparable to the assessee, which was a provider of software services. The Tribunal also agreed with the inclusion of CAT Technologies Ltd. and RS Software (India) Ltd. as they satisfied the filters approved by the DRP.Issue 2: Addition to Total Income on Account of Mismatch of TDS AmountThe assessee's appeal included a ground regarding the addition of Rs. 14,79,098 to the total income due to a mismatch of TDS amount claimed in the Return of Income with the TDS reflected in Form 26AS. The learned Authorized Representative for the assessee pointed out that this claim had been allowed vide an order passed under section 154 of the Act, rendering this ground infructuous. Consequently, this ground of appeal was dismissed.Issue 3: Initiation of Penalty Proceedings under Section 271(1)(c)The assessee also appealed against the initiation of penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income. The learned Authorized Representative for the assessee admitted that this ground of appeal was premature. Therefore, this ground of appeal was also dismissed.Issue 4: Objections to the Order of the DRPThe assessee filed Cross Objections in support of the DRP's order, which included the inclusion of CAT Technologies Ltd. and RS Software (India) Ltd. and the exclusion of FCS Software Ltd. and Infosys Technologies Ltd. The assessee also raised issues regarding the inappropriate application of filters and the acceptance/rejection of certain comparables. However, these objections were rendered academic once the appeal of the Revenue was dismissed. Consequently, the grounds of objections raised in the cross objections were dismissed.Conclusion:The Tribunal dismissed the appeal of the Revenue, the appeal of the assessee, and the Cross Objections filed by the assessee. The Tribunal upheld the DRP's directions regarding the inclusion and exclusion of certain comparables, and the grounds of appeal related to TDS mismatch and penalty proceedings were dismissed as infructuous and premature, respectively. The order was pronounced on June 16, 2017.