Revenue's Appeal Dismissed under CBDT Circular, Transfer Pricing Dispute Resolved for Assessee

The Revenue's appeal was dismissed due to the tax effect on the disputed amount being less than Rs. 50 lakh, in compliance with CBDT Circular No. 17/2019. Regarding the transfer pricing adjustment challenge, the Tribunal excluded TCS-e-Serve Ltd. as a comparable, upholding the assessee's appeal and dismissing the Revenue's appeal. The decision, pronounced on 27th August 2020, resolved the transfer pricing dispute in favor of the assessee.

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Issues involved:
1. Tax effect threshold for appeal.
2. Transfer pricing adjustment challenge.

Analysis:
1. Tax effect threshold for appeal:
The Revenue's appeal, ITA No. 1571/Del/2016, was dismissed as the tax effect on the disputed amount challenged was less than Rs. 50 lakh, complying with CBDT Circular No. 17/2019. The tax effect computation was detailed, resulting in the dismissal of the Department's appeal.

2. Transfer pricing adjustment challenge:
The assessee challenged a transfer pricing adjustment of Rs. 81,33,706 on back office support services. The Tribunal noted that only one comparable, TCS-e-Serve Ltd., was effectively challenged, citing a previous decision for the Assessment Year 2012-13. The assessee's argument focused on TCS-e-Serve Ltd.'s functional dissimilarity, brand value, and scale of operations, which led to a detailed analysis of the comparability issue.

The Tribunal found that TCS-e-Serve Ltd. was not a suitable comparable due to its additional software services, significant risks, brand value, and lack of segmental data. Citing the Delhi High Court's decision in Avaya India Ltd. vs. ACIT, the Tribunal upheld the exclusion of TCS-e-Serve Ltd. based on large scale operations and brand value. The Tribunal also referenced its previous decision for the Assessment Year 2012-13, where TCS-e-Serve Ltd. was excluded after a detailed discussion, reinforcing the incompatibility of the company as a comparable.

Consequently, the Tribunal directed the TPO to exclude TCS-e-Serve Ltd. from the comparability list, allowing the assessee's appeal and dismissing the Revenue's appeal. The judgment was pronounced on 27th August 2020, resolving the transfer pricing dispute in favor of the assessee.

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