Tribunal rules on Transfer Pricing adjustments, excludes certain comparables, grants tolerance range benefit, and excludes adjustment from book profits.

The Tribunal partly allowed the appeal, directing the exclusion of certain comparables for Transfer Pricing adjustment, granting the benefit of the tolerance range, and excluding the Transfer Pricing adjustment from the book profits under section 115JB.

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Issues Involved:
1. Transfer Pricing Adjustment on ITeS services rendered to the AE.
2. Plus/Minus 5% Tolerance Limit.
3. Adding Transfer Pricing Adjustment to the Book Profit u/s 115JB.

Detailed Analysis:

1. Transfer Pricing Adjustment on ITeS Services Rendered to the AE:
The assessee, engaged in providing IT enabled services (ITeS) to Griffin Group entities, contested the final assessment order for AY 2012-13. The dispute centered around the computation of Arm's Length Price (ALP) under the Transactional Net Margin Method (TNMM). The assessee's methodology, which used three years' data and no export filter, was deemed unreliable by the Transfer Pricing Officer (TPO). The TPO conducted a fresh search, rejecting five out of seven comparables selected by the assessee and identifying six new ones. The final list of comparables included Accentia Technologies Ltd., Universal Print Systems Ltd., BNR Udyog Ltd., and Excel Infoways Ltd. The Dispute Resolution Panel (DRP) upheld the TPO's selection, except for including Acropetal Technologies Ltd., reducing the mean PLI to 21.33% and the TP adjustment to Rs. 1.12 Crores.

The assessee argued for the exclusion of Accentia Technologies Ltd., Universal Print Systems Ltd., BNR Udyog Ltd., and Excel Infoways Ltd. based on functional dissimilarity. The Tribunal agreed, noting that the services provided by these entities were specialized and not comparable to the low-end support services provided by the assessee. Consequently, the Tribunal directed the exclusion of these entities from the comparables list.

2. Plus/Minus 5% Tolerance Limit:
The assessee sought the benefit of the tolerance range of +5%. The Tribunal directed the TPO/AO to grant applicable benefits/concessions as per law, allowing this ground for statistical purposes.

3. Adding Transfer Pricing Adjustment to the Book Profit u/s 115JB:
The assessee contested the addition of the TP adjustment to the book profit u/s 115JB, arguing that such adjustments are not permissible under the law, as affirmed by various judicial decisions. The Tribunal concurred, citing the Supreme Court's decisions in Apollo Tyres, Malayalam Manorama, and HCL Comnet Systems and Services Ltd., which clarified that only adjustments specified in Explanation 1 Section 115JB(2) are permissible. The Tribunal directed the exclusion of the TP adjustment from the book profits, allowing this ground in favor of the assessee.

Conclusion:
The appeal was partly allowed, with the Tribunal directing the exclusion of certain comparables for TP adjustment, granting the benefit of the tolerance range, and excluding the TP adjustment from the book profits u/s 115JB. The order was pronounced in the open court on 03rd July 2019.

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