Tribunal remands comparability issues, directs interest charge at LIBOR +200 bps for 120-day credit period.

The Tribunal partly allowed the Revenue's appeal, remanding the comparability issues for fresh consideration. The assessee's Cross Objection was partly allowed, directing the TPO/Assessing Officer to charge interest at LIBOR + 200 basis points with a 120-day credit period, aligning with previous decisions.

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Issues Involved:
1. Exclusion of M/s. Infosys BPO Ltd and M/s. Eclerx Services Ltd as comparables.
2. Inclusion of M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited, and M/s. Ace BPO Services Pvt. Ltd. as comparables.
3. Rejection of the assessee's Transfer Pricing study.
4. Interest on trade receivables.

Detailed Analysis:

1. Exclusion of M/s. Infosys BPO Ltd and M/s. Eclerx Services Ltd as comparables:

- Infosys BPO Ltd:
The Revenue contended that M/s. Infosys BPO Ltd should be included as a comparable, arguing that its turnover does not affect profitability and that its selling and marketing expenses are related to core activities. The assessee argued that Infosys BPO Ltd is not comparable due to its diversified functions, global brand, and significantly higher turnover. The Tribunal, agreeing with the assessee and relying on previous ITAT decisions, directed the exclusion of Infosys BPO Ltd from the list of comparables.

- Eclerx Services Ltd:
The Revenue argued that M/s. Eclerx Services Ltd should be included as it is a KPO and BPO company employing skilled manpower. The assessee countered that Eclerx is functionally different as it is a KPO. The Tribunal, referencing previous decisions and noting no change in functions over the years, upheld the exclusion of Eclerx Services Ltd from the comparables.

2. Inclusion of M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited, and M/s. Ace BPO Services Pvt. Ltd. as comparables:

- Jindal Intellicom Pvt. Ltd:
The Revenue argued that this company is functionally different, citing its annual report indicating a shift towards niche businesses like customer support and software development. The Tribunal noted the CIT(A)'s reliance on a previous decision and remanded the issue back to the TPO/Assessing Officer for fresh consideration.

- Informed Technologies Limited:
The Revenue contended that this company was rejected due to insufficient financial information. The Tribunal, referencing the CIT(A)'s reliance on a previous decision, remanded the issue back for fresh consideration.

- Ace BPO Services Pvt. Ltd:
The Revenue argued that financial information for this company was not publicly available. The Tribunal, noting the CIT(A)'s reliance on a previous decision and the annual report, remanded the issue back for fresh consideration.

3. Rejection of the assessee's Transfer Pricing study:

- The assessee raised multiple grounds, including the rejection of their Transfer Pricing study, non-inclusion of certain comparables, and non-exclusion of others. The Tribunal focused on the interest rate charged on trade receivables, directing the TPO/Assessing Officer to charge interest at LIBOR + 200 basis points and allowing a 120-day credit period, aligning with previous decisions.

4. Interest on trade receivables:

- The Tribunal addressed the issue of interest on trade receivables, referencing previous decisions and the amendment to section 92B. The Tribunal upheld the CIT(A)'s decision to charge interest at LIBOR + 200 basis points but extended the credit period to 120 days, finding the CIT(A)'s reduction to 60 days arbitrary.

Conclusion:

- The Revenue's appeal was partly allowed for statistical purposes, remanding the comparability issues back for fresh consideration.
- The assessee's Cross Objection was partly allowed, directing the TPO/Assessing Officer to charge interest at LIBOR + 200 basis points with a 120-day credit period.

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