Tribunal directs exclusion of company, remits R&D expense issue for fresh assessment. Appeal partly allowed. &D

The Tribunal directed the Ld.AO to exclude M/s. Acropetal Technologies Ltd. while determining the Arm's Length Price due to its abnormally high profits and unreliable financial data. The Tribunal remitted the issue of disallowance of Research & Development expenditure back to the Ld.AO for a fresh assessment, acknowledging the appellant's arguments for revenue generation. The appeal was partly allowed for statistical purposes, with the Tribunal's order pronounced on June 20, 2018, in Chennai.

---

---

Issues:
1. Upward adjustment made by Ld.AO / TPO / DRP based on selection of comparable company.
2. Disallowance of Research & Development expenditure as capital expenditure.

Issue 1: Upward adjustment based on selection of comparable company
The appellant challenged the upward adjustment of &8377; 2,00,98,068/- by the Ld.AO, TPO, and DRP, contending that M/s. Acropetal Technologies Ltd., chosen as a comparable company, had abnormally high profits during the relevant assessment year. The appellant argued that there were allegations of window dressing in the company's financial statements and reports in newspapers, making its data unreliable. The appellant proposed excluding M/s. Acropetal Technologies Ltd. or using the average profits of the previous three years if considered. The Tribunal observed that the mean margin of M/s. Acropetal Technologies Ltd. at 57.66 was significantly higher than other comparables, indicating inconsistency. Consequently, the Tribunal directed the Ld.AO to exclude M/s. Acropetal Technologies Ltd. while determining the Arm's Length Price (ALP).

Issue 2: Disallowance of Research & Development expenditure
The Ld.AO disallowed &8377; 1,99,60,831/- of Research & Development expenditure, categorizing it as capital expenditure, a decision upheld by the DRP. The appellant argued that the expenditure was for services rendered to a related party, generating revenue income. The appellant requested a fresh examination by the Ld.AO, which the Ld.DR opposed. The Tribunal, acknowledging the strong arguments of the appellant, remitted the issue back to the Ld.AO for a fresh assessment in the interest of justice. Consequently, the appeal was partly allowed for statistical purposes, with the Tribunal's order pronounced on June 20, 2018, in Chennai.

---