Tribunal Adjusts Comparables List, Reassesses Interest on Receivables for Arm's Length Credit Period in Tax Appeal.

The Tribunal partially allowed the appeal, directing the exclusion of Infosys BPO Limited, Microland Limited, and Crossdomain Solutions from the comparables list due to turnover and functional incompatibility issues. Jindal Intellicom was included as a comparable. The Tribunal also instructed the AO/TPO to reassess interest on receivables, considering the arm's length credit period and allowing the assessee to justify a 2% markup over LIBOR.

---

---

Issues Involved:
1. Transfer Pricing Adjustment in ITES Segment
2. Interest on Receivables

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment in ITES Segment:

Grounds 3, 5 & 6:
The assessee contended that the AO/DRP/TPO erred in rejecting the transfer pricing study, using arbitrary filters, and selecting inappropriate comparable companies. The Tribunal adjudicated on the exclusion and inclusion of specific companies based on turnover filter and functional compatibility.

Infosys BPO Limited (Exclusion):
The Tribunal noted that the turnover of Infosys BPO Limited was significantly higher (21 times) than the assessee's turnover. Citing the decision in M/s. Fulcrum Fund Services (India) Private Limited v. ITO, the Tribunal held that companies with turnover above Rs. 200 crores are not comparable to those with turnover less than Rs. 200 crores. Consequently, Infosys BPO Limited was excluded from the list of comparables.

Microland Limited (Exclusion):
The Tribunal found that Microland Limited was engaged in infrastructure management services, which are distinct from ITES. Referring to the ruling in M/s. Brady Company India (P) Ltd. v. ITO, the Tribunal excluded Microland Limited due to functional incompatibility and failure to meet the service income filter.

Crossdomain Solutions Private Limited (Exclusion):
The Tribunal noted that Crossdomain Solutions provided Knowledge Processing Outsourcing (KPO) services, which are different from ITES. Based on the decision in M/s. Vee Technologies Pvt. Ltd. v. PCIT, the Tribunal excluded Crossdomain Solutions due to functional differences.

Jindal Intellicom Private Limited (Inclusion):
The Tribunal held that Jindal Intellicom, engaged in call center services, was functionally comparable to the assessee's ITES segment. Referring to the ruling in M/s. Brady Company India (P) Ltd. v. ITO, the Tribunal directed the inclusion of Jindal Intellicom in the list of comparables.

2. Interest on Receivables:

Ground 15:
The assessee argued that the credit period of 90 days as per the agreement should be considered for computing interest on outstanding receivables. The Tribunal, referring to its own decision in the assessee's case for AY 2011-2012, directed the AO/TPO to determine the credit period allowed by comparable companies and compute interest for delayed realization of trade receivables over the arm's length credit period.

Ground 16:
The assessee contended that the notional rate of 4.3836% for imputing interest was excessive and proposed a markup of LIBOR+2%. The Tribunal noted that the assessee had not conducted a benchmarking exercise to justify the 2% markup. The Tribunal directed the TPO to provide a fresh opportunity to the assessee to justify the 2% markup and determine the appropriate rate over LIBOR.

Conclusion:
The appeal was partly allowed, with directions to exclude Infosys BPO Limited, Microland Limited, and Crossdomain Solutions from the list of comparables, include Jindal Intellicom, and reassess the interest on receivables based on the arm's length credit period and appropriate markup over LIBOR.

---