Court excludes Bodhtree Consulting Ltd. as comparable in Transfer Pricing case; orders examination of Related Party Transactions.

The Court upheld the exclusion of M/s. Bodhtree Consulting Ltd. as a comparable in a Transfer Pricing case, finding no perversity in the Tribunal's decision. It ordered a factual examination of Related Party Transactions (RPT) for M/s. SIP Technologies & Export Ltd., in line with prior cases, due to discrepancies in RPT information. The Court agreed with treating foreign exchange gain as part of operating revenues for software development services, dismissing the appeal by the Appellants-Revenue as no substantial question of law arose.

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Issues:
1. Transfer Pricing - Exclusion of comparables
2. Transfer Pricing - Remand for RPT filter examination
3. Operating Revenue - Treatment of foreign exchange gain

Issue 1 - Transfer Pricing - Exclusion of comparables:
The appeal under section 260A of the Income Tax Act, 1961 was filed by the Appellants-Revenue challenging the order of the ITAT, Bangalore Bench 'A' regarding Transfer Pricing Adjustments for A.Y. 2009-10. The Tribunal excluded M/s. Bodhtree Consulting Ltd. from the list of comparables, stating it is functionally different from the assessee. The Tribunal directed the Assessing Officer/TPO to exclude the company from the final list of comparables based on a similar decision in the case of Cisco Systems (India) Pvt. Ltd. The Court held that unless there is an established perversity in the Tribunal's findings, the appeal under section 260A is not maintainable. The Court found no such perversity in the Tribunal's findings and upheld the exclusion of M/s. Bodhtree Consulting Ltd. as a comparable.

Issue 2 - Transfer Pricing - Remand for RPT filter examination:
The Tribunal remanded the issue of comparability of M/s. SIP Technologies & Export Ltd. back to the TPO for examination of the Related Party Transactions (RPT) filter. The Tribunal found discrepancies in the information used by the TPO to conclude RPT in excess of 25% for the company. The Court ordered a factual examination and verification of the RPT issue by the TPO, in line with the decision in another case where a company was excluded from comparables for having RPT in excess of 15%. The Court upheld the Tribunal's decision for a proper examination of the RPT filter for M/s. SIP Technologies & Export Ltd.

Issue 3 - Operating Revenue - Treatment of foreign exchange gain:
The Tribunal held that foreign exchange gain on realization of consideration for rendering software development services should be regarded as part of operating revenues. Citing a previous decision, the Tribunal directed the Assessing Officer/TPO to verify if the foreign exchange gain is on account of realization of consideration and consider it as operating in nature. The Court concurred with the Tribunal's decision, upholding the treatment of foreign exchange gain as part of operating revenues. The Court dismissed the appeal by the Appellants-Revenue, stating that no substantial question of law arose in the case.

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