Appeal partly allowed, remand for transfer pricing issues. Assessee's position upheld on setting off losses.

The appeal was partly allowed, with the tribunal remanding several transfer pricing adjustment issues to the Transfer Pricing Officer/Assessing Officer for fresh consideration and adjudication. The tribunal upheld the assessee's position on setting off losses of different units before allowing deductions under Section 10A, following the precedent established by the Supreme Court in a similar case.

---

---

Issues Involved:

1. Transfer Pricing Adjustment for Call Centre Service Segment.
2. Transfer Pricing Adjustment for Shared Services Segment.
3. Transfer Pricing Adjustment for Off-shore Division – Software Development Services.
4. Setting off losses of Hyderabad STPI Unit against profits of Bangalore STPI Unit before allowing deduction under Section 10A.

Detailed Analysis:

1. Transfer Pricing Adjustment for Call Centre Service Segment:

The assessee, a 100% subsidiary of Dell International, USA, provides call centre, back office, and other support services to Dell Group companies. The TPO accepted the CUP method for the call centre service segment but proposed an adjustment based on a 9-month rate comparison. The assessee contended that the entire financial year's revenue should be considered, citing differences in contractual terms and credit periods. The TPO rejected this, stating Rule 10B does not allow adjustments to international transactions. The tribunal noted the incomplete data for the comparable company and concluded that the TNMM method should be adopted instead of CUP for ITES services. The issue was remanded to the TPO/A.O. for fresh adjudication using TNMM as the MAM.

2. Transfer Pricing Adjustment for Shared Services Segment:

The assessee earned revenue of Rs.27.12 Crores from back office services and used TNMM as the MAM. The TPO rejected the assessee's comparables and selected 8 new comparables with a mean margin of 36.4%, proposing an adjustment of Rs.7,82,43,749. The assessee argued that the services provided were low-end and not comparable to the selected companies. The tribunal found that the functional comparability and selection process were not properly examined by the authorities. The issue was remanded to the TPO/A.O. for fresh consideration of comparables and determination of ALP.

3. Transfer Pricing Adjustment for Off-shore Division – Software Development Services:

The assessee earned Rs.84.50 Crores from offshore development services, remunerated on a Cost + 10% basis. The TPO selected 7 comparables and proposed an adjustment of Rs.22.26 Crores, later revised to Rs.13,44,85,218 by the CIT (Appeals). The assessee sought exclusion of 5 companies, arguing functional dissimilarity and lack of segmental data. The tribunal directed the exclusion of these companies and remanded the issue to the TPO/A.O. for a de novo exercise of selecting comparables and determining ALP.

4. Setting off losses of Hyderabad STPI Unit against profits of Bangalore STPI Unit before allowing deduction under Section 10A:

The tribunal noted that the issue is covered by the decision of the Hon'ble Supreme Court in CIT Vs. Yokogawa India Ltd., which held that deductions under Section 10A should be made independently for each eligible undertaking before setting off losses of other units. The tribunal directed the Assessing Officer to allow the deduction under Section 10A before setting off losses of other units.

Conclusion:

The appeal was partly allowed, with the tribunal remanding several issues to the TPO/A.O. for fresh consideration and adjudication. The tribunal upheld the assessee's contention regarding the deduction under Section 10A, directing the Assessing Officer to follow the precedent set by the Hon'ble Supreme Court.

---