Appeal partly allowed, Transfer Pricing issues remanded for re-examination. Section 35(2AB) disallowance upheld.

The appeal was partly allowed. The Tribunal remanded the Transfer Pricing (TP) issues back to the Assessing Officer/Transfer Pricing Officer (AO/TPO) for re-examination and upheld the disallowance of the weighted deduction under Section 35(2AB). However, it allowed the product development expenses to be treated as revenue expenditure.

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Issues Involved:
1. Delay in filing the appeal.
2. Transfer Pricing (TP) issues.
3. Non-Transfer Pricing (Non-TP) issues.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 11 days. The delay was attributed to the illness of the only female employee handling taxation matters and the CFO's urgent travel to Germany. The Tribunal found the reasons provided to be just and sufficient, condoned the delay, and admitted the appeal for adjudication.

2. Transfer Pricing (TP) Issues:
- Upward Adjustment to Export Prices:
The appellant contested the upward adjustment of Rs. 2,86,90,000/- made by the AO in respect of international transactions for IT-enabled design engineering services. The Tribunal noted that the lower authorities had included eClerx Services Ltd., Pentamedia Graphics Ltd., Tata Elxi Ltd., and Genesys International Corporation Ltd. as comparables based on the Safe Harbour Rules, which were applicable from 18.09.2013. The Tribunal remanded the issue back to the AO/TPO to re-examine the comparability without relying on the Safe Harbour Rules.

- Exclusion of Comparables:
The appellant objected to the exclusion of Onward Technologies Ltd. and Cades Digitech Pvt. Ltd. The Tribunal upheld the exclusion of Onward Technologies Ltd. based on the 75% export to total turnover filter, which is considered appropriate. Similarly, the exclusion of Cades Digitech Pvt. Ltd. was upheld as it was engaged in on-site operations, which are not comparable to the appellant's off-shore operations.

3. Non-Transfer Pricing (Non-TP) Issues:
- Disallowance of Weighted Deduction under Section 35(2AB):
The appellant contested the disallowance of Rs. 3,38,82,341/- claimed under Section 35(2AB) for in-house R&D activities. The Tribunal referred to its decision in the appellant's case for AY 2011-12, where it was held that expenses incurred outside India for R&D facilities not approved by the prescribed authority are not eligible for weighted deduction. The Tribunal upheld the disallowance.

- Disallowance of Product Development Expenses:
The appellant argued that the expenses of Rs. 1,46,47,500/- incurred on product quality testing and validation should be treated as revenue expenditure. The Tribunal referred to its decision in the appellant's case for AY 2011-12, where it was held that such expenses incurred for upgrading existing products should be allowed as revenue expenditure. The Tribunal directed the AO to allow the expenditure as revenue in nature.

- Disallowance of Provision for Software Costs:
The appellant objected to the disallowance of Rs. 14,28,021/- on the grounds that the amount represented an excess provision and had been reversed and offered to tax in the subsequent year. The Tribunal did not provide a specific ruling on this issue in the summary provided.

Conclusion:
The appeal was partly allowed. The Tribunal remanded the TP issues back to the AO/TPO for re-examination and upheld the disallowance of the weighted deduction under Section 35(2AB). However, it allowed the product development expenses to be treated as revenue expenditure.

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