Tribunal excludes e-Clerx Services Ltd. from comparables list in transfer pricing dispute, remits for fresh ALP determination.

The tribunal allowed the appeal for statistical purposes, directing the exclusion of e-Clerx Services Ltd. from the list of comparables in a transfer pricing dispute. The matter was remitted to the AO/TPO for a fresh determination of the Arm's Length Price (ALP) regarding the international transaction of 'Provision of IT enabled services,' providing the assessee with a reasonable opportunity to present its case.

---

---

Issues:
Confirmation of transfer pricing addition

Analysis:
The appeal was filed against the order passed by the CIT (A) regarding the assessment year 2007-08. The main issue raised in the appeal was the confirmation of transfer pricing addition amounting to Rs. 35,44,190. The assessee, a subsidiary of Ariba Inc., USA, provided various services to its associated enterprises, and the dispute revolved around the international transaction of 'Provision of IT enabled services' with a transacted value of Rs. 5,45,07,381. The TPO determined the ALP at Rs. 5,96,83,251, proposing a transfer pricing adjustment of Rs. 51,75,870. The CIT(A) reduced the addition to Rs. 35,44,190, leading to the appeal before the tribunal.

During the proceedings, the only issue raised was the exclusion of e-Clerx Services Ltd. from the list of comparables drawn by the TPO. The functional profile of the assessee involved providing various services under the 'Provision of IT enabled services' transaction, mainly supporting sales activities and maintaining accounts for associated enterprises. The TPO included e-Clerx Services Ltd. as a comparable despite objections from the assessee, who argued that the company was functionally different.

Upon examination, it was found that e-Clerx Services Ltd. had significant outsourcing expenses, indicating a different business model compared to the assessee, which did not outsource any work. Citing a similar precedent where a company was excluded due to a different business model, the tribunal concluded that e-Clerx Services Ltd. was noncomparable. As a result, the tribunal directed the exclusion of e-Clerx Services Ltd. from the list of comparables and remitted the matter to the AO/TPO for fresh determination of ALP.

In conclusion, the tribunal set aside the order on the transfer pricing adjustment issue, allowing the appeal for statistical purposes and providing the assessee with a reasonable opportunity to be heard in the fresh proceedings.

---