2020 (9) TMI 1282 - AT - Income Tax

Tribunal excludes E-Infochips Ltd. from comparables based on service revenue filter

The Tribunal recalled its order for the limited purpose of adjudicating a specific ground in the appeal. Regarding the exclusion of E-Infochips Ltd. from ... Comparability analysis - service income filter (75%) - exclusion of comparable - segmental information - determination of arm's length price is an art not an exact science - precedent of coordinate bench - recall of tribunal order for limited purposeService income filter (75%) - exclusion of comparable - segmental information - precedent of coordinate bench - Exclusion of E Infochips Ltd. from the list of comparables in the transfer pricing exercise - HELD THAT: - The DRP excluded E Infochips Ltd. on the basis that its service income was less than 75% of sales and for lack of segmental information; the TPO had recorded software development revenue up to 88%. The Tribunal examined earlier decisions of coordinate benches which had consistently excluded E Infochips Ltd. for the relevant period on grounds including absence of segmental disclosures, failure of the service income filter, significant year to year profit/turnover fluctuations and presence of inventory. The Tribunal noted that the exclusion on multiple valid grounds in earlier decisions had attained finality in those proceedings and found no reason to direct reconsideration by the TPO. Respectfully following the view of the coordinate bench decisions, the Tribunal directed the TPO to exclude E Infochips Ltd. as a comparable for the assessment year in question.Revenue's ground challenging the DRP's exclusion of E Infochips Ltd. is dismissed and the company shall be excluded as a comparable.Final Conclusion: The Tribunal recalled its order for the limited purpose of adjudicating Revenue's Ground No.7 and, following coordinate bench precedent, dismissed the ground; E Infochips Ltd. is to be excluded as a comparable. The assessee's appeal stands allowed as per the earlier order dated 21/09/2016. Issues involved:1. Recalling of Tribunal's order for limited purposes of adjudicating Ground no.7 in IT(TP)A No.39/Bang/2016.2. Exclusion of E-Infochips Ltd. from the list of comparables based on service revenue filter.Detailed Analysis:1. The Tribunal recalled its order dated 21/09/2016 for the limited purpose of adjudicating Ground no.7 in IT(TP)A No.39/Bang/2016, as it was observed that the Tribunal had not adjudicated the said ground. The Tribunal deemed it appropriate to recall the decision specifically for this purpose, as per the order dated 26/12/2017 passed in MP No.269/Bang/2017.2. The issue of excluding E-Infochips Ltd. from the list of comparables based on the service revenue filter was raised in the appeal. The DRP had directed the exclusion of E-Infochips Ltd. due to its service income being less than 75% of sales, which was alleged to be contrary to the observations of the Ld.TPO. The Ld.CIT DR submitted that the revenue earned by E-Infochips Ltd. was actually up to 88% from software development, contradicting the DRP's observation. The Ld.CIT DR argued that the basis for the DRP's decision to exclude E-Infochips Ltd. was not demonstrated and needed reconsideration, relying on the decision of the Ld.TPO.3. The Ld.AR placed reliance on a decision of a coordinate bench of the Tribunal in a similar case, where E-Infochips Ltd. was excluded for failing in the service income filter. After considering the submissions from both sides and reviewing the records, the Tribunal observed that E-Infochips Ltd. did not satisfy the service income filter of 75% in various decisions for the relevant assessment year. Therefore, the Tribunal directed the Ld. TPO to exclude E-Infochips Ltd. from the list of comparables, dismissing the ground raised by the revenue.In conclusion, the Tribunal's judgment involved the recalling of an order for a specific purpose and the exclusion of a company from the list of comparables based on the service revenue filter, following consistent decisions and precedents set by the Tribunal in similar cases.