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of <h1>Tribunal decision emphasizes accurate transfer pricing analysis and adjustments</h1> <h3>M/s. Zynga Game Network India Pvt. Ltd. Versus Dy. Commissioner of Income Tax, Circle 7 (1) (2), Bangalore.</h3> The Tribunal partly allowed the appeal, directing the exclusion of certain comparables, restoring others for fresh adjudication, and ensuring proper ... TP Adjustment - comparable selection - HELD THAT:- Assessee is into carrying out software development activities and has a blend of software engineers, game designers and game managers and mainly in the business of software and Software Development Services, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Issues Involved:1. Transfer Pricing Adjustments2. Rejection of TP Documentation3. Comparability Analysis4. Financial Data Consideration5. Inclusion and Exclusion of Comparable Companies6. Computation of Operating Margins7. Working Capital and Risk Adjustments8. Transfer Pricing Adjustment Computation9. Interest under Section 234B and 234C of the Income Tax ActIssue-wise Detailed Analysis:1. Transfer Pricing Adjustments:The assessee contested the adjustment of INR 7,45,90,444/- made by the Assessing Officer (AO), Transfer Pricing Officer (TPO), and Dispute Resolution Panel (DRP) under Section 92CA of the Income Tax Act, 1961. The Tribunal reviewed the comparability analysis and the selection of comparable companies by the TPO.2. Rejection of TP Documentation:The AO/TPO/DRP rejected the TP documentation maintained by the assessee under sub-section (3) of 92C of the Act. The Tribunal examined whether the rejection was justified based on the documentation and comparability analysis provided by the assessee.3. Comparability Analysis:The AO/TPO/DRP conducted a fresh comparability analysis by introducing various filters and rejected the comparability analysis carried out by the assessee. The Tribunal scrutinized the selection and rejection of comparable companies, focusing on the functional dissimilarities and the application of filters.4. Financial Data Consideration:The assessee argued that the AO/TPO/DRP erred in not considering the previous two years' financial data of the comparable companies while determining the Arm's Length Price (ALP). The Tribunal assessed whether the financial data used was appropriate and relevant.5. Inclusion and Exclusion of Comparable Companies:The Tribunal addressed the inclusion and exclusion of specific comparable companies. It excluded Persistent Systems Ltd., R S Software (India) Ltd., and Thirdware Solutions Ltd. due to functional differences, presence of intangibles, extraordinary events, and failure to meet the turnover filter. Cigniti Technologies Ltd. was restored to the TPO for fresh consideration. The Tribunal also restored Evoke Technologies Ltd. and CAT Technologies Ltd. to the TPO for detailed examination.6. Computation of Operating Margins:The Tribunal reviewed the computation of operating margins for certain companies, including CG-VAK Software Exports Ltd., R S Software Ltd., and Inexgen Games Technologies Pvt. Ltd., and assessed whether the margins were computed correctly.7. Working Capital and Risk Adjustments:The Tribunal evaluated the AO/TPO/DRP's decision to not allow appropriate adjustments for working capital and risk differentials between the assessee and independent comparable companies. It assessed whether these adjustments were necessary for a fair determination of ALP.8. Transfer Pricing Adjustment Computation:The assessee contended that the AO/TPO erred in computing the transfer pricing adjustment after giving effect to the DRP's directions. The Tribunal reviewed the computation to ensure accuracy and adherence to the DRP's directions.9. Interest under Section 234B and 234C of the Income Tax Act:The AO levied interest under Section 234B amounting to Rs. 1,48,22,500 and computed interest under Section 234C amounting to Rs. 5,11,717 on assessed income instead of returned income. The Tribunal directed the AO to calculate the interest as per the provisions of law.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, directing the exclusion of certain comparables, restoring others for fresh adjudication, and ensuring proper computation of interest under Sections 234B and 234C. The Tribunal emphasized the need for accurate and detailed analysis in determining the ALP and transfer pricing adjustments.
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