2021 (10) TMI 1382 - AT - Income Tax

Tribunal Upholds Transfer Pricing Exclusions

Dy. Commissioner of Income Tax, Circle 2 (2), Hyderabad Versus M/s. TNS India Pvt. Ltd. And Vice-Versa

Dy. Commissioner of Income Tax, Circle 2 (2), Hyderabad Versus M/s. TNS India Pvt. Ltd. And Vice-Versa - TMI Issues:1. Exclusion of entities from comparables for transfer pricing analysis2. Inclusion of entities in comparables for transfer pricing analysis3. Disallowance of overhead and trademark license fees4. Disallowance of capital expenditure on software license fees5. Deduction under section 10A of the Act on disallowed expenditureAnalysis:1. The judgment dealt with the exclusion of entities from comparables for transfer pricing analysis. The Revenue appealed against the exclusion of M/s. Infosys BPO Ltd. as a comparable entity, arguing that high turnover should not automatically render it ineligible for inclusion. The tribunal upheld the exclusion based on brand value and functional dissimilarities. The Revenue's arguments regarding other excluded entities like Jeevan Scientific Technology Limited and TCS E-Serve Limited were also rejected based on factual findings and functional dissimilarities.2. The judgment also addressed the inclusion of entities in comparables for transfer pricing analysis. The Revenue's appeal to include TCS E-Serve Limited was declined due to functional dissimilarities with the assessee's segment. The tribunal upheld the exclusion of Mastiff Technology Pvt. Ltd. and E4e Healthcare Business Services Pvt. Ltd. based on extraordinary situations affecting their margins and business risks in the IT Enabled Services segment.3. Regarding the disallowance of overhead and trademark license fees, the assessee's challenge was partially allowed. The tribunal ordered a fresh factual verification by the Assessing Officer based on submitted invoices and agreements. The issue was restored for further examination.4. The judgment also addressed the disallowance of capital expenditure on software license fees. The assessee's challenge to this disallowance was allowed in principle, with the tribunal leaving it open for the Assessing Officer to frame consequential computation as per law.5. Lastly, the judgment considered the deduction under section 10A of the Act on disallowed expenditure towards software license fees. The assessee's additional ground was admitted as an alternate plea and restored back to the Assessing Officer for further examination in light of relevant facts and legal provisions. The cross appeal was partly allowed for statistical purposes.In conclusion, the Revenue's appeal was dismissed, the assessee's Cross Objection was dismissed as infructuous, and the assessee's cross appeal was partly allowed for statistical purposes. The judgment provided detailed reasoning for each issue and upheld the decisions based on factual findings and legal interpretations.