Tribunal adjusts transfer pricing, allows deductions, and grants correct TDS credit in recent tax appeal decision.

The appeal of the assessee was partly allowed. The Tribunal directed the Transfer Pricing Officer to recompute the arm's length price by excluding certain comparables. The deduction under Section 10AA was adjusted by excluding telecommunication expenses from both export and total turnover. The disallowed deduction for employees' contribution was allowed, and the correct TDS credit was to be granted. The order was pronounced on October 15, 2019.

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Issues Involved:
1. Transfer pricing adjustment (TP adjustment) towards the International transactions of provision of Information Technology Enabled services (ITES).
2. Disallowance of deduction claimed under Section 10AA of the Income Tax Act.
3. Disallowance of employees' contribution under the Employee State Insurance Act, 1948.
4. Short-grant of credit of taxes deducted at source (TDS).

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment:
The assessee, a company providing ITES to its Associated Enterprises (AE), received Rs. 13,60,48,189/- for its services. To justify the arm's length price (ALP), the assessee used the Transaction Net Margin Method (TNMM) with an operating profit on total cost (OP/TC) of 14.60%. The Transfer Pricing Officer (TPO) accepted the method but selected additional comparable companies, leading to a TP adjustment of Rs. 1,49,79,297/-, later reduced to Rs. 1,31,74,095/- by the Dispute Resolution Panel (DRP). The Tribunal excluded Infosys BPO Ltd., TCS E-Service Ltd., and BNR Udyog Ltd. from the list of comparables based on functional differences and other factors, directing the TPO to recompute the ALP accordingly.

2. Disallowance of Deduction under Section 10AA:
The Revenue authorities reduced telecommunication expenses from the export turnover without reducing the same from the total turnover, affecting the deduction under Section 10AA. The Tribunal, referencing the Karnataka High Court's decision in CIT Vs. Tata Elxsi Ltd. and the Supreme Court's ruling in CIT Vs. HCL Technologies Ltd., held that such expenses should be excluded from both export and total turnover. The AO was directed to recompute the deduction accordingly.

3. Disallowance of Employees' Contribution:
The Revenue disallowed a sum of Rs. 1,19,694/- under Section 43B, being employees' contribution under the Employees' State Insurance Act, 1948, paid beyond the due date. The Tribunal, citing the Karnataka High Court's decision in CIT Vs. Spectrum Consultants India (P) Ltd., directed the AO to allow the deduction as the contributions were remitted before the due date for filing the return under Section 139(1).

4. Short-grant of Credit of Taxes Deducted at Source:
The assessee raised a grievance regarding the short-grant of TDS credit. The DRP directed the AO to allow credit as per law, but the AO failed to do so in the final order. The Tribunal directed the AO to consider the grievance and allow the TDS credit in accordance with the law.

Conclusion:
The appeal of the assessee was partly allowed with directions to the AO to recompute the ALP after excluding certain comparables, adjust the deduction under Section 10AA by excluding telecommunication expenses from both export and total turnover, allow the deduction for employees' contribution, and grant the correct TDS credit. The order was pronounced on October 15, 2019.

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