Tribunal allows appeal, excludes companies from comparables for IT services, based on precedents and functional dissimilarities.

M/s. Alcon Laboratories (India) Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Circle – 1 (1) (1), Bangalore.

M/s. Alcon Laboratories (India) Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Circle – 1 (1) (1), Bangalore. - [2022] 99 ITR (Trib) 357 (ITAT ... Issues Involved:
1. Addition of AMP (Advertising, Marketing, and Promotion) expenditure.
2. Adjustment in respect of IT support services.
3. Exclusion of certain comparable companies.
4. General grounds regarding interest and penalty.

Detailed Analysis:

1. Addition of AMP Expenditure:
- The assessee challenged the addition made by the AO/TPO based on the Bright Line Test (BLT), which is not recognized under Indian transfer pricing regulations.
- The assessee argued that the AMP expenditure was incurred for promoting its own business in India and not for the AE's benefit. There was no agreement mandating such expenditure.
- The tribunal noted that the DRP refused to follow the Delhi High Court decisions in Maruti Suzuki and Sony Ericsson, which held that AMP expenditure without an explicit agreement does not constitute an international transaction.
- The tribunal referenced the coordinate bench's decision in Essilor India Pvt. Ltd., which followed the Delhi High Court's view that no TP adjustment can be made for AMP expenditure in the absence of an explicit arrangement.
- The tribunal directed the AO/TPO to delete the addition made towards AMP expenses, following the precedent set by the coordinate bench.

2. Adjustment in Respect of IT Support Services:
- The assessee sought the exclusion of Persistent Systems Ltd. and L&T Infotech Ltd. as comparable companies.
- The tribunal observed that in previous cases, these companies were excluded due to their functional differences and lack of segmental information.
- Persistent Systems Ltd. was excluded because it was engaged in product development and had significant intangibles, making it functionally different from the assessee.
- L&T Infotech Ltd. was excluded because it was involved in software product development and lacked segmental data.
- The tribunal directed the AO/TPO to exclude these companies from the final list of comparables.

3. Exclusion of Certain Comparable Companies:
- The tribunal referenced decisions from previous assessment years and other cases where Persistent Systems Ltd. and L&T Infotech Ltd. were excluded due to their functional dissimilarities.
- The tribunal reiterated that these companies should be excluded from the list of comparables for determining the arm's length margin.

4. General Grounds:
- The assessee raised grounds regarding the incorrect computation of interest under sections 234A and 234B and the initiation of penalty proceedings under sections 271(1)(c), 271AA, and 271G.
- These grounds were not specifically adjudicated in the tribunal's order.

Conclusion:
- The tribunal allowed the appeal filed by the assessee, directing the AO/TPO to delete the addition made towards AMP expenses and to exclude Persistent Systems Ltd. and L&T Infotech Ltd. from the list of comparables for IT support services. The tribunal's decision was based on precedents and the functional dissimilarities of the comparables.