Appeal partially allowed, AO & TPO to re-examine TP issues in Software Development, Marketing Support, Distribution

The Tribunal partly allowed the appeal, directing the Assessing Officer (AO) and Transfer Pricing Officer (TPO) to re-examine and adjust the Transfer Pricing (TP) issues in the Software Development, Marketing Support, and Software Distribution segments according to the Dispute Resolution Panel's (DRP) directions and relevant judicial precedents. Specific directions were given regarding the exclusion of certain comparables and rectification of margins. The order was pronounced on May 13, 2022.

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Issues Involved:
1. Transfer Pricing Adjustment in Software Development Segment
2. Transfer Pricing Adjustment in Marketing Support Segment
3. Transfer Pricing Adjustment in Software Distribution Segment

Detailed Analysis:

1. Transfer Pricing Adjustment in Software Development Segment:

Ground 5:
The assessee challenged the transfer pricing (TP) adjustment of Rs.6,92,14,199 made by the Assessing Officer (AO) without considering the revised TP adjustment of Rs.6,15,49,522 as per the TPO's order following the Dispute Resolution Panel (DRP) directions. The Tribunal directed the AO to examine the issue and reduce the TP adjustment accordingly. Ground 5 was allowed for statistical purposes.

Ground 6(iii):
The assessee sought exclusion of seven comparables with turnovers exceeding Rs.200 crore, arguing that their turnover was only Rs.45.35 crore. The Tribunal, referencing judicial precedents, directed the exclusion of Larsen & Toubro Infotech Limited, Mindtree Limited, Persistent Systems Limited, Tata Elxsi Limited, Nihilent Limited, Infosys Limited, and Cybage Software Private Limited from the list of comparables. Ground 6(iii) was partly allowed.

Ground 7:
The assessee requested the exclusion of M/s.R Systems International Limited due to a different financial year ending December 2016, as directed by the DRP. The Tribunal restored the issue to the AO/TPO to comply with the DRP's directions. Ground 7 was allowed for statistical purposes.

Ground 8:
The assessee sought rectification of the margin of M/s.Harbinger Systems Private Limited from 11.16% to 8.12%, citing incorrect treatment of certain items by the TPO. The Tribunal confirmed the DRP's directions and restored the matter to the AO/TPO for fresh examination. Ground 8 was allowed for statistical purposes.

2. Transfer Pricing Adjustment in Marketing Support Segment:

Ground 11:
The assessee contended that the TPO had deleted the TP adjustment of Rs.2,53,32,409 in the marketing support segment as per the DRP's directions, but the AO retained it in the final assessment order. The Tribunal restored the issue to the AO/TPO for examination and decision in accordance with the law. Ground 11 was allowed for statistical purposes.

3. Transfer Pricing Adjustment in Software Distribution Segment:

Ground 12:
The assessee argued that the TPO had deleted the TP adjustment of Rs.4,56,73,477 for the software distribution segment as per the DRP's directions, but the AO retained it in the final assessment order. The Tribunal directed the AO to review the issue and decide in accordance with the law. Ground 12 was allowed for statistical purposes.

Conclusion:
The appeal filed by the assessee was partly allowed, with specific directions given to the AO/TPO to re-examine and adjust the TP issues in accordance with the DRP's directions and relevant judicial precedents. Order pronounced on May 13, 2022.

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