Tribunal excludes company from comparables, deletes Transfer Pricing adjustment, penalty not upheld.

The Tribunal allowed the assessee's appeal, excluding TCS E-Serve Limited from the comparables list and deleting the Transfer Pricing adjustment from the book profit computation under section 115JB. The initiation of penalty proceedings under section 271(1)(c) was not upheld.

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Issues Involved:
1. Adjustment/addition on account of provision of back office support services to Associated Enterprises (AEs).
2. Addition of Transfer Pricing Adjustment to the book profit as per section 115JB of the Act.
3. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Detailed Analysis:

1. Adjustment/Additions on Account of Provision of Back Office Support Services to AEs:
1.1 Grievance: The assessee contested the upward adjustment of Rs. 3,21,72,400/- made by the AO/TPO/DRP, arguing that the international transactions related to the Information Technology Enabled Services (ITeS) provided to AEs were at arm's length.

1.2 Argument: The assessee argued that the benchmarking analysis and comparable companies selected based on contemporaneous data in the transfer pricing study report were disregarded by the AO/TPO/DRP, and the transfer pricing documentation maintained was rejected.

1.3 Comparable Companies: The AO/TPO/DRP erred in considering companies dissimilar to the assessee and not allowing the use of multiple-year data as prescribed under Rule 10B(4) of the Rules.

1.4 Specific Comparable - TCS E-Serve Limited: The assessee's main contention was the inclusion of TCS E-Serve Limited as a comparable. The assessee argued that TCS E-Serve had brand value, super normal profits, and peculiar economic circumstances, making it dissimilar.

1.5 Tribunal's Decision: The Tribunal found force in the assessee's argument, noting that TCS E-Serve's high brand value and different business profile made it an unsuitable comparable. The Tribunal directed the exclusion of TCS E-Serve from the comparability list, citing previous decisions where similar exclusions were upheld by the Hon'ble High Court of Delhi.

1.6 Conclusion: Ground No. 1, with all its sub-grounds, was allowed, leading to the exclusion of TCS E-Serve from the final list of comparables.

2. Addition of Transfer Pricing Adjustment to the Book Profit as per Section 115JB:
2.1 Grievance: The assessee contested the addition of Rs. 3,21,72,400/- on account of the Transfer Pricing adjustment while computing book profits under section 115JB of the Act.

2.2 Tribunal's Reference: The Tribunal referred to the Mumbai Bench decision in the case of Owens Corning [India] Ltd, which held that section 115JB is a self-contained code and does not permit adjustments for transfer pricing additions.

2.3 Tribunal's Decision: The Tribunal found that the AO's approach was incorrect and unfair, leading to undue hardship for taxpayers. The addition made by the AO was deleted.

2.4 Conclusion: Ground No. 2 was allowed, and the addition of the Transfer Pricing adjustment to the book profit was deleted.

3. Initiation of Penalty Proceedings under Section 271(1)(c):
3.1 Grievance: The assessee contested the initiation of penalty proceedings under section 271(1)(c) of the Act.

3.2 Tribunal's Decision: The Tribunal did not provide a detailed analysis of this issue, as the primary grounds were resolved in favor of the assessee.

3.3 Conclusion: The appeal of the assessee was allowed in its entirety, implying that the initiation of penalty proceedings was also not upheld.

Final Judgment:
The appeal of the assessee was allowed, with the exclusion of TCS E-Serve Limited from the comparables list and the deletion of the Transfer Pricing adjustment from the book profit computation under section 115JB. The order was pronounced in the open court on 02.04.2019.

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