Appeals Outcome: Depreciation allowed on leased assets; Comparable companies updated for transfer pricing.

The appeals were decided as follows: The CIT(A)'s decision allowing depreciation on leased assets was upheld. Allsec Technologies Ltd. was included as a comparable, while E-clerx Services Ltd. was excluded. Apitco Ltd. and ICRA Management Consulting Services Ltd. were excluded from the final set of comparables for benchmarking Business Support Services (BSS), and the TPO was directed to recompute the transfer pricing adjustment accordingly. Other grounds raised by the assessee were dismissed as not pressed due to adjustments in the comparables list.

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Issues Involved:
1. Reference to the TPO under section 92CA of the Act.
2. Adjustment of INR 52,13,311 in respect of international transaction of provision of Business Support Services (BSS) to AEs.
3. Disallowance of depreciation on assets (finance lease).
4. Adjustment of INR 1,05,26,570 in respect of providing Information Technology Enabled Support Services to AEs.

Detailed Analysis:

1. Reference to the TPO under section 92CA of the Act:
The assessee challenged the reference to the TPO without the AO applying his mind and without recording satisfaction, making the process invalid. The CIT(A) confirmed the AO's action, stating that the AO did not provide reasons to show that any conditions mentioned in clauses (a) to (d) of Section 92C(3) were satisfied before making an adjustment to the total income. The CIT(A) also noted that the AO did not demonstrate the motive of the assessee to shift profits outside India by manipulating prices in its international transactions.

2. Adjustment of INR 52,13,311 in respect of international transaction of provision of Business Support Services (BSS) to AEs:
The CIT(A) erred in determining the ALP for BSS provided to AEs at INR 9,01,18,079 instead of INR 8,49,04,768 determined by the assessee, confirming the addition of INR 52,13,311 made by the AO. The CIT(A) rejected TVS-E Service tec Ltd from the final set of comparables selected by the assessee for benchmarking margins earned from BSS to AEs on the ground of being functionally different. The CIT(A) accepted Apitco Ltd and ICRA Management Consulting Services Ltd as comparables for benchmarking the margins earned from BSS to AEs.

3. Disallowance of depreciation on assets (finance lease):
The AO disallowed depreciation claimed by the assessee on assets leased to M/s Reliance Industries Ltd., citing AS-19, which states that in a finance lease, all risks and rewards incidental to ownership are transferred to the lessee. The AO concluded that the assessee is not entitled to claim depreciation on the leased plant and machinery, following the decision of the Hon'ble Delhi High Court in Industrial Finance Corpn. of India v. Dy. CIT. The CIT(A) reversed this decision, relying on the Hon'ble Supreme Court's ruling in I.C.D.S Ltd. v. CIT, which allows depreciation in the hands of the owner of the property, irrespective of its location.

4. Adjustment of INR 1,05,26,570 in respect of providing Information Technology Enabled Support Services to AEs:
The TPO made an adjustment of INR 1,05,26,570 after rejecting certain comparables and selecting others, resulting in an average margin of 25.15%. The CIT(A) accepted Allsec Technologies Ltd. as a comparable, following the ITAT Mumbai's decision in Maersk Global Service Centres (India) (P.) Ltd. v. Dy. CIT, which held that a company cannot be rejected merely for incurring losses. The CIT(A) also rejected E-clerx Services Ltd. as a comparable, noting it provides high-end KPO services, which are not comparable to the low-end ITES provided by the assessee.

Conclusion:
The appeals were decided with the following key outcomes:
- The CIT(A)'s decision to allow depreciation on leased assets was upheld, following the Supreme Court's ruling in I.C.D.S Ltd. v. CIT.
- The inclusion of Allsec Technologies Ltd. as a comparable was upheld, while E-clerx Services Ltd. was excluded.
- Apitco Ltd. and ICRA Management Consulting Services Ltd. were excluded from the final set of comparables for benchmarking BSS, and the TPO was directed to recompute the transfer pricing adjustment accordingly.
- The other grounds raised by the assessee were dismissed as not pressed, given the adjustments to the comparables list.

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