Transfer pricing comparables and export deduction rules: outsourcing-based business model and lack of statutory approval led to remand and denial.
A company with a materially different outsourcing-based business model may be unsuitable as a transfer pricing comparable for IT enabled services, so the matter was sent back for fresh examination. Deduction under section 10B was denied because approval as a hundred per cent export-oriented undertaking by the statutory board was required, and STPI approval alone was insufficient. The alternate claim for deduction under section 10A was not rejected on merits; it was remanded for verification of the statutory conditions and supporting material. The appeal thus resulted in partial relief, with the transfer pricing and section 10A issues reopened and the section 10B claim disallowed.
Issues: (i) whether Coral Hubs Ltd. could be retained as a comparable for transfer pricing analysis, (ii) whether deduction under section 10B was allowable, and (iii) whether the alternate claim for deduction under section 10A could be examined.
Issue (i): whether Coral Hubs Ltd. could be retained as a comparable for transfer pricing analysis.
Analysis: The entity was found to have a materially different business model because its work was substantially outsourced, whereas the assessee rendered services through in-house employees. Functional dissimilarity and the different cost structure arising from outsourcing made the comparable questionable for benchmarking IT enabled services.
Conclusion: The issue was remanded to the Assessing Officer for fresh consideration, and the assessee obtained relief for statistical purposes.
Issue (ii): whether deduction under section 10B was allowable.
Analysis: Deduction under section 10B required approval as a hundred per cent export-oriented undertaking by the Board appointed by the Central Government. Approval by STPI alone was held insufficient to satisfy the statutory requirement, and the language of the provision was treated as unambiguous.
Conclusion: Deduction under section 10B was disallowed.
Issue (iii): whether the alternate claim for deduction under section 10A could be examined.
Analysis: The rejection of the alternate claim in a summary manner was found unsustainable because the assessee's eligibility under section 10A had not been examined on merits. The matter required verification of the statutory conditions and consideration of the supporting material.
Conclusion: The issue was remanded to the Assessing Officer for fresh examination, and the assessee obtained relief for statistical purposes.
Final Conclusion: The appeal succeeded only in part, with the transfer pricing and section 10A issues sent back for fresh adjudication and the section 10B claim rejected.
Ratio Decidendi: A comparable with a materially different outsourcing-based business model lacks functional comparability, and deduction under section 10B cannot be allowed without the specific statutory approval required by the provision.
TaxTMI 
AI Drafter ✕
TaxTMI 
