Tribunal partially allows appeal, remands transfer pricing issues for fresh review

e4e Business Solutions India (P.) Ltd. Versus Income-tax Officer, Ward 2 (1) (2), Bangalore

e4e Business Solutions India (P.) Ltd. Versus Income-tax Officer, Ward 2 (1) (2), Bangalore - TMI Issues Involved:

1. Rejection of Transfer Pricing Documentation
2. Use of Multiple Year Data
3. Filters and Qualitative Criteria Applied by TPO
4. Information Gathered Under Section 133(6)
5. Treatment of Foreign Exchange Fluctuation
6. Computation of Operating Margins
7. Risk Adjustment and Working Capital Adjustment
8. Adjustment of Interest on Outstanding Debtors
9. Other Transfer Pricing Related Grounds
10. Charging of Interest Under Section 234B and 234C

Detailed Analysis:

1. Rejection of Transfer Pricing Documentation:
The assessee's transfer pricing documentation was rejected by the TPO and upheld by the DRP on the grounds that the data used in the computation of the ALP was "not reliable or correct" under Section 92C(3)(c). The Tribunal did not address this ground separately as it was not urged before them.

2. Use of Multiple Year Data:
The assessee argued that the use of multiple year data should be considered for determining the ALP. The DRP upheld the TPO's rejection of multiple year data. The Tribunal did not address this ground separately as it was not urged before them.

3. Filters and Qualitative Criteria Applied by TPO:
The TPO applied certain filters and qualitative criteria to select comparables. The Tribunal examined the inclusion/exclusion of specific companies:

- Accentia Technologies Ltd.: The Tribunal remanded the issue back to the TPO to evaluate the functional profile of the assessee and determine comparability.
- TCS E-Serve Ltd.: The Tribunal remanded the issue back to the TPO for a fresh analysis of the functional profile and comparability.
- BNR Udyog Ltd.: The Tribunal remanded the issue back to the TPO for examination of the functional profile and segmental information.
- Infosys BPO Ltd.: The Tribunal excluded this company from the set of comparables, citing functional differences and brand value.
- Caliber Point Business Solutions Ltd.: The Tribunal upheld the rejection of this company due to different financial year endings.
- Cosmic Global Ltd.: The Tribunal remanded the issue back to the TPO for fresh consideration, especially regarding the employee cost filter.
- Datamatics Financial Services Ltd.: The Tribunal upheld the rejection of this company due to lack of segmental information and failure of the export earning filter.
- ICRA Techno Analytics Ltd.: The Tribunal upheld the rejection of this company due to lack of segmental information.
- Jindal Intellicom Ltd.: The Tribunal remanded the issue back to the DRP for fresh determination after affording an opportunity to both the TPO and the assessee.

4. Information Gathered Under Section 133(6):
The Tribunal did not address this ground separately as it was not urged before them.

5. Treatment of Foreign Exchange Fluctuation:
The Tribunal remanded the issue back to the TPO for examination and consideration of details filed by the assessee, in line with the decision of the coordinate bench in the assessee's own case for AY 2009-10.

6. Computation of Operating Margins:
The Tribunal upheld the decision of the authorities below in rejecting the assessee's claim that miscellaneous income should be considered as operating income, due to lack of supporting details.

7. Risk Adjustment and Working Capital Adjustment:
- Risk Adjustment: The Tribunal dismissed the claim for risk adjustment due to lack of details provided by the assessee.
- Working Capital Adjustment: The Tribunal remanded the issue back to the TPO for proper computation, considering judicial pronouncements against negative working capital adjustment.

8. Adjustment of Interest on Outstanding Debtors:
The Tribunal remanded the issue back to the TPO/AO for examination of whether there was any agreement for charging interest on late payments and to perform a proper comparability analysis. The TPO was also directed to consider the alternate ground of benchmarking transactions with LIBOR.

9. Other Transfer Pricing Related Grounds:
The Tribunal did not address these grounds separately as they were not urged before them.

10. Charging of Interest Under Section 234B and 234C:
The Tribunal upheld the charging of interest under Sections 234B and 234C as mandatory and consequential, directing the AO to re-compute the interest while giving effect to the order.

Conclusion:
The appeal was partly allowed for statistical purposes, with several issues remanded back to the TPO/DRP for fresh consideration and proper examination.