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of <h1>Tribunal decision: RS Software in, Acropetal out. Cross-objection dismissed. Liberty to challenge comparables inclusion.</h1> <h3>Asst. C.I.T., Bangalore Versus M/s Herbalife International India Pvt. Ltd., Bangalore</h3> Asst. C.I.T., Bangalore Versus M/s Herbalife International India Pvt. Ltd., Bangalore - TMI Issues Involved:1. Application of 'onsite revenue filter' by the Dispute Resolution Panel (DRP).2. Exclusion of certain companies (RS Software Pvt. Ltd., Acropetal Technologies Ltd., L&T Infotech Ltd., E-Infochips Ltd.) as comparables.3. Use of multiple year data for determination of arm's length margin/price.4. Functional dissimilarities of certain comparables.5. Risk adjustment and working capital adjustment.6. Computation of interest under sections 234B and 234C of the Income Tax Act.Detailed Analysis:1. Application of 'Onsite Revenue Filter':The revenue challenged the DRP's selective application of the 'onsite revenue filter' to exclude RS Software Pvt. Ltd., Acropetal Technologies Ltd., and L&T Infotech Ltd. The DRP applied this filter without it being part of the initial transfer pricing study or the TPO’s analysis. The Tribunal agreed with the revenue that a filter cannot be applied selectively after the TP analysis is concluded. However, it also noted that Acropetal Technologies Ltd. and L&T Infotech Ltd. were excluded based on functional dissimilarities and lack of segmental information, making the revenue's grounds academic.2. Exclusion of Certain Companies as Comparables:- RS Software Pvt. Ltd.: Both parties agreed on its inclusion, and the Tribunal directed the TPO to consider it in the list of comparables.- Acropetal Technologies Ltd.: The Tribunal noted that the DRP excluded it due to functional dissimilarities and lack of segmental information. The Tribunal upheld this exclusion.- L&T Infotech Ltd.: Similar to Acropetal, it was excluded for functional dissimilarities and lack of segmental information. The Tribunal upheld this exclusion.- E-Infochips Ltd.: The DRP excluded it for failing the service income filter. The Tribunal upheld the exclusion, referencing previous decisions where the company was excluded for similar reasons.3. Use of Multiple Year Data:The assessee argued that the AO/TPO and DRP erred by rejecting the use of multiple year data and using only financial year 2010-11 data, which was unavailable at the time of transfer pricing documentation. The Tribunal did not specifically address this issue in the detailed analysis, implying that the primary focus was on the comparability of companies.4. Functional Dissimilarities of Certain Comparables:The assessee challenged the inclusion of Persistent Systems and Solutions Ltd., Persistent Systems Ltd., and Sasken Communication Technologies Ltd. due to functional dissimilarities. The Tribunal noted that the DRP's observations regarding these companies' financials were consistent with the annual reports. The Tribunal upheld the DRP's decision to exclude these companies based on functional dissimilarities.5. Risk Adjustment and Working Capital Adjustment:The DRP allowed working capital adjustment but rejected risk adjustment. The Tribunal did not find it necessary to delve into this issue in detail, as the primary focus remained on the comparability of companies.6. Computation of Interest under Sections 234B and 234C:The assessee contended that the AO made an erroneous computation of interest under sections 234B and 234C of the Act. The Tribunal did not specifically address this issue in its detailed analysis, suggesting it was not a central point of contention.Conclusion:The Tribunal partially allowed the revenue's appeal by directing the inclusion of RS Software Pvt. Ltd. as a comparable. It dismissed the revenue's other grounds, upholding the DRP's exclusion of Acropetal Technologies Ltd., L&T Infotech Ltd., and E-Infochips Ltd. The Tribunal also dismissed the cross-objection filed by the assessee, granting liberty to challenge the inclusion of certain comparables in an appropriate year. The final order was pronounced in the open court on 07-08-2019.
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