Appeal partly allowed with specific directions for verification and re-examination. Order pronounced on 24th September 2019.

The appeal was allowed partly for statistical purposes, with specific directions for verification and re-examination of certain issues. The order was pronounced on 24th September 2019.

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Issues Involved:
1. Validity of the assessment order.
2. Jurisdictional error in reference under Section 92CA(1).
3. Transfer pricing (TP) adjustment in relation to software services.
4. TP adjustment in relation to notional interest on outstanding receivables.
5. Corporate tax adjustment in relation to TDS reconciliation.
6. Non-grant of additional TDS credit.
7. Levy of interest under Section 234A and 234B.
8. Initiation of penalty proceedings under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order:
The appellant contended that the final assessment order was vitiated due to violation of principles of natural justice and was arbitrary. The tribunal did not specifically adjudicate on this ground as it was considered general in nature.

2. Jurisdictional Error in Reference under Section 92CA(1):
The appellant argued that the reference to the Transfer Pricing Officer (TPO) under Section 92CA(1) was made without recording any reasons or material basis. This ground was not pressed by the appellant during the hearing, and hence, it was dismissed as infructuous.

3. TP Adjustment in Relation to Software Services:
The appellant contested the TP adjustment of INR 20,55,61,108 made by the TPO/DRP. The tribunal examined the inclusion/exclusion of certain comparables:

Exclusion of Comparables:
- Thirdware Solutions Ltd.: Excluded due to lack of segment data.
- Larsen and Toubro Infotech Ltd.: Issue restored to AO/TPO for re-examination with complete annual reports.
- Infobeans Technologies Ltd.: Excluded due to insufficient segmental data.
- Persistent Systems Ltd.: Excluded due to the absence of segmental data for software products and services.
- Mindtree Limited: Excluded due to functional dissimilarity and ownership of intellectual property rights.
- Tata Elexi Ltd.: Excluded due to lack of segmental results for trading and services rendered.
- Cigniti Technologies Ltd.: Excluded due to extraordinary event of acquisition during the year.
- R. S. Software (India) Ltd.: Excluded due to functional dissimilarity and different business model.

Inclusion of Comparables:
- CAT Technologies Ltd.: Rejected due to functional dissimilarity and lack of segmental data.
- Mavrick Systems Ltd.: Rejected due to lack of complete annual report and functional similarity evidence.

Foreign Exchange Gain/Loss:
The tribunal upheld the DRP's finding that foreign exchange gain/loss should be treated as non-operating items while determining the ALP.

Risk Adjustment:
The appellant admitted that no comparative data was provided for risk adjustment, and hence, the ground was dismissed.

4. TP Adjustment in Relation to Notional Interest on Outstanding Receivables:
The tribunal found that the appellant was a debt-free entity and, following the Delhi High Court's decision in Bechtel India, held that no adjustment on account of interest on outstanding receivables was warranted. The relevant grounds were allowed.

5. Corporate Tax Adjustment in Relation to TDS Reconciliation:
The tribunal directed the AO to verify the appellant's claim that the receipt of INR 34,72,945 was not taxable income for the year under consideration. The ground was allowed for statistical purposes.

6. Non-Grant of Additional TDS Credit:
The tribunal directed the AO to verify the appellant's claim for additional TDS credit of INR 94,054 and decide the issue in accordance with the law. The ground was allowed for statistical purposes.

7. Levy of Interest under Section 234A and 234B:
The ground was dismissed as infructuous since it was consequential in nature.

8. Initiation of Penalty Proceedings under Section 271(1)(c):
The ground was dismissed as infructuous since it was premature at this stage.

Conclusion:
The appeal was allowed partly for statistical purposes, with specific directions for verification and re-examination of certain issues. The order was pronounced on 24th September 2019.

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