Appeal partly allowed, exclusions from comparables list, working capital adjustment, interest charges upheld.

The appeal was partly allowed, directing the exclusion of Acropetal Technologies Ltd. and E-Infochips Ltd. from the list of comparables and allowing the actual working capital adjustment. The charging of interest under sections 234B and 234D was upheld, with the AO instructed to compute the interest chargeable.

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Issues Involved:
1. Transfer Pricing Adjustment
2. Exclusion of Comparables
3. Working Capital Adjustment
4. Charging of Interest under Sections 234B and 234D

Detailed Analysis:

1. Transfer Pricing Adjustment:
The assessee, a subsidiary of Microsoft Corporation, USA, filed its return of income for the assessment year 2011-12. The case was scrutinized, and the Transfer Pricing Officer (TPO) determined a transfer pricing adjustment of Rs. 4,05,33,797/-. The assessee's income was assessed at Rs. 11,88,59,576/- after the adjustment. The TPO rejected the assessee's economic analysis and conducted a fresh one, determining the Arm's Length Price (ALP) of the international transactions. The TPO selected 13 comparable companies with an average mean margin of 24.82%, leading to the adjustment. The Dispute Resolution Panel (DRP) excluded six companies from the TPO’s list, applying the turnover filter.

2. Exclusion of Comparables:
The assessee sought the exclusion of Acropetal Technologies Ltd. and E-Infochips Ltd. from the list of comparables. For Acropetal Technologies Ltd., it was argued that the company failed the employee cost filter of 25% and the 75% software development services revenue filter. The Tribunal agreed, noting that the income from software development services was less than 75% of total revenues. Following the decision in GT Nexus Software Pvt. Ltd., the Tribunal directed the exclusion of Acropetal Technologies Ltd. Similarly, for E-Infochips Ltd., it was argued that the company was functionally different and engaged in IT enabled services and product sales, failing the 75% revenue filter. The Tribunal, following the decision in Saxo India Pvt. Ltd., directed the exclusion of E-Infochips Ltd. from the comparables.

3. Working Capital Adjustment:
The assessee contended that the TPO erred in restricting the working capital adjustment to 1.63%. The Tribunal found that the restriction was not justified, as the adjustment seeks to remove differences in the working capital position between the assessee and the comparables. Following the decision in Moog Controls (India) Pvt. Ltd., the Tribunal directed the TPO/AO to allow the actual adjustment towards the differences in working capital position.

4. Charging of Interest under Sections 234B and 234D:
The assessee denied liability for interest under sections 234B and 234D. The Tribunal upheld the AO's action, noting that the charging of interest is consequential and mandatory, as upheld by the Supreme Court in CIT v. Anjum M.H. Ghaswala. The AO was directed to compute the interest chargeable while giving effect to the order.

Conclusion:
The appeal was partly allowed, with directions to exclude Acropetal Technologies Ltd. and E-Infochips Ltd. from the list of comparables, and to allow the actual working capital adjustment. The charging of interest under sections 234B and 234D was upheld, subject to computation by the AO.

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