AO directed to exclude three comparables and recompute ALP for transfer pricing adjustment requiring year-wise analysis

ITAT Mumbai directed AO to exclude three comparables (Cosmic Global Ltd., Informed Technologies India Ltd., and Infosys BPO Ltd.) and recompute ALP for transfer pricing adjustment, ruling that year-wise comparable analysis is required. The tribunal allowed deletion of unexplained cash deposits under Section 69, finding DRP's directions were violated when AO failed to obtain bank clarification despite assessee providing bank statements. The segmental data issue was not adjudicated as assessee accepted TPO's comparability study. TDS credit and self-assessment tax issues were remitted back to AO for verification and proper hearing.

---

---

Issues Involved:

1. Transfer Pricing Adjustments
2. Rejection of Comparables
3. Cash Deposits Addition u/s 69
4. Short Credit of TDS
5. Short Credit of Self-Assessment Tax
6. Interest u/s 234B and 234C
7. Penalty Proceedings u/s 271(1)(c)

Summary:

Transfer Pricing Adjustments:
The appeal concerns the order of the Dispute Resolution Panel-II, Mumbai, dated 29.10.2014 for the A.Y. 2010-11 direction passed u/s 144C(5) of the Income-tax Act, 1961. The assessee selected 15 comparables with a mean operating profit to total cost (OP/OC) of 14.27%. The TPO rejected these and adopted the entity level PLI for determining the arm's length price, resulting in an adjustment of Rs. 1,73,52,363. The DRP excluded eight comparables, and the assessee appealed against the retention of three comparables: Cosmic Global Ltd., Informed Technologies India Ltd., and Infosys BPO Ltd.

Rejection of Comparables:
The Tribunal considered the functional disparity and high translation charges of Cosmic Global Ltd., low employee cost ratio of Informed Technologies India Ltd., and the high turnover and brand value of Infosys BPO Ltd., and directed the exclusion of these comparables. The Tribunal relied on precedents such as Aptara Technologies Pvt Ltd. v. ACIT, Eaton Technologies Private Limited v. ACIT, and Swiss Re Services India Private Ltd v. DCIT.

Cash Deposits Addition u/s 69:
The Assessing Officer added Rs. 65,85,700 based on AIR information, despite the assessee's claim of no cash deposits and maintaining a current account. The Tribunal directed the deletion of this addition, noting the DRP's direction to verify the bank's clarification, which the Assessing Officer failed to obtain.

Short Credit of TDS:
The assessee claimed short credit of TDS of Rs. 2,60,503. The Tribunal remitted this issue back to the Assessing Officer for verification and appropriate action as per law.

Short Credit of Self-Assessment Tax:
The assessee claimed short credit of self-assessment tax of Rs. 35,36,000. The Tribunal remitted this issue back to the Assessing Officer for verification and appropriate action as per law.

Interest u/s 234B and 234C:
The issue of interest u/s 234B and 234C was deemed consequential and dismissed.

Penalty Proceedings u/s 271(1)(c):
The issue of penalty proceedings u/s 271(1)(c) was deemed premature and dismissed.

Conclusion:
The appeal filed by the assessee was partly allowed, with directions to exclude certain comparables and to verify and grant appropriate credits for TDS and self-assessment tax. The addition u/s 69 was directed to be deleted.

---