Tribunal partially allows appeal, orders transfer pricing re-computation, excludes comparables.

The appeal was partly allowed by the Tribunal, directing the re-computation of transfer pricing adjustments, exclusion of certain comparable companies, and consideration of the appellant's arguments on various grounds. The Tribunal's order was pronounced on 06th December 2022.

---

---

Issues Involved:
1. Transfer Pricing Adjustments
2. Selection of Comparable Companies
3. Computation of Margin of Comparable Companies
4. Rejection of Comparable Companies
5. Adjustment Restricted to International Transactions
6. Negative/Working Capital Adjustment
7. Use of Filters
8. Rejection of Multiple Year Data
9. Adjustment for Risk Differences
10. Arm's Length Range of 5%
11. Notional Interest on Receivables from AE
12. Corporate Tax Adjustments

Detailed Analysis:

1. Transfer Pricing Adjustments:
The appeal concerns the final assessment order dated 23-12-2016, confirming certain Transfer Pricing (TP) adjustments. The appellant contested the transfer pricing adjustment of Rs. 3,95,28,604, which includes Rs. 2,94,23,050 for margin adjustment on Information Technology enabled Services (ITeS) and Rs. 1,01,05,554 for notional interest on outstanding receivables from its Associated Enterprises (AEs).

2. Selection of Comparable Companies:
The appellant argued against the inclusion of certain companies as comparables. The Tribunal directed the exclusion of:
- Accentia Technologies Ltd.: Excluded due to functional differences, peculiar economic conditions, and lack of segmental information, consistent with earlier years' decisions.
- Eclerx Services Ltd.: Excluded for functional differences, super normal profits, and lack of segmental data, following previous Tribunal decisions.
- Infosys BPO Ltd.: Excluded due to brand value, high turnover, and asset base, consistent with earlier decisions.
- TCS eServe Ltd.: Excluded for functional differences, brand presence, and high turnover, following Tribunal's past rulings.
- Crossdomain Solutions Pvt. Ltd.: Excluded due to functional differences and consistent Tribunal decisions in prior years.

3. Computation of Margin of Comparable Companies:
The Tribunal addressed the error in treating the provision for bad and doubtful debts as non-operating expenses for margin computation. The Tribunal directed the Ld. AO/TPO to re-compute the transfer pricing adjustments after revising the comparability matrix.

4. Rejection of Comparable Companies:
The Tribunal upheld the rejection of Crystal Voxx Limited due to it failing the service income filter and being a persistent loss-making company.

5. Adjustment Restricted to International Transactions:
The appellant argued that the TP adjustment should be restricted to the value of international transactions with the AE. The Tribunal directed the Ld. TPO/AO to re-compute the adjustments accordingly.

6. Negative/Working Capital Adjustment:
The appellant contested the negative working capital adjustment. The Tribunal directed the Ld. TPO/AO to consider the jurisdictional judicial precedents on the issue.

7. Use of Filters:
The appellant argued against the use of different financial year-end filters for rejecting comparable companies. The Tribunal directed the Ld. TPO/AO to re-evaluate the use of filters.

8. Rejection of Multiple Year Data:
The Tribunal upheld the rejection of multiple year data, directing the use of data for FY 2011-12 only.

9. Adjustment for Risk Differences:
The appellant argued for risk adjustment, which was disregarded by the AO/DRP. The Tribunal directed the Ld. TPO/AO to consider the risk profile differences as per Rule 10B(1)(e) of the Rules.

10. Arm's Length Range of 5%:
The Tribunal directed the Ld. TPO/AO to allow the benefit of the +/- 5% range as per the proviso to Section 92C(2) of the Act.

11. Notional Interest on Receivables from AE:
The Tribunal addressed the adjustment of Rs. 1,01,05,554 for notional interest on receivables, directing the Ld. TPO to consider the ALP rate of LIBOR+3% for delayed remittance beyond the allowable credit period.

12. Corporate Tax Adjustments:
The Tribunal directed the Ld. AO to grant MAT credit in accordance with the law and to give consequential effect to the interest liability under Section 234B of the Act. The initiation of penalty proceedings under Section 271(1)(c) was also noted.

Conclusion:
The appeal was partly allowed, with directions to re-compute the transfer pricing adjustments, exclude certain comparable companies, and consider the appellant's arguments on various grounds. The Tribunal's order was pronounced on 06th December 2022.

---