Tribunal partially allows appeal, remits transfer pricing issues for fresh determination. Orders upheld, faceless assessment scheme compliance confirmed.

The tribunal partly allowed the appeal, remitting various transfer pricing adjustment issues, net margin computations, and notional interest adjustments back to the Transfer Pricing Officer/Assessing Officer for fresh determination in line with specific directions provided by the tribunal. The orders passed by the lower income tax authorities were upheld, dismissing the general grounds raised by the assessee. The conformity with the faceless assessment scheme under section 144B was found to be in order, and certain specific issues raised by the assessee were not pressed during the hearing.

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Issues Involved:
1. Legality of the orders passed by lower income tax authorities.
2. Conformity with faceless assessment scheme under section 144B.
3. Incorrect addition to total income.
4. Reference to Transfer Pricing Officer (TPO) for determining arm's length price.
5. Transfer pricing adjustments.
6. Gathering of information under section 133(6).
7. Computation of net margin.
8. Rejection of segmental profitability.
9. Rejection of transfer pricing study.
10. Inclusion of companies exceeding turnover filter.
11. Inclusion of financials from previous years.
12. Acceptance of certain companies as comparable.
13. Rejection of I2T2 India Limited.
14. Rejection of filters for companies owning significant intellectual property.
15. Exclusion of functionally comparable companies.
16. Inappropriate computation of net margins.
17. Inconsistent application of filters.
18. Inclusion/rejection of comparable companies.
19. Notional interest adjustment for delayed receivables.
20. Re-characterization of net outstanding receivables.
21. Adoption of CUP method for interest on delayed receivables.
22. Adjustment for interest on delayed receivables.

Detailed Analysis:

1. Legality of the Orders Passed by Lower Income Tax Authorities:
The assessee argued that the orders passed by the Deputy Commissioner of Income-tax Transfer Pricing - 2(1)(1) and the Dispute Resolution Panel (DRP) were prejudicial and should be quashed. However, the tribunal did not find merit in this general ground and dismissed it as not pressed.

2. Conformity with Faceless Assessment Scheme under Section 144B:
The assessee contended that the assessment order did not conform to the faceless assessment scheme under section 144B. This ground was also dismissed as not pressed.

3. Incorrect Addition to Total Income:
The assessee argued that the addition of Rs. 5,18,74,725 to the total income was incorrect as the TPO had reduced the transfer pricing adjustment to Rs. 4,94,73,850 after DRP's directions. This ground was not pressed during the hearing.

4. Reference to TPO for Determining Arm's Length Price:
The assessee contended that the reference to TPO was made without demonstrating its necessity. This ground was not pressed during the hearing.

5. Transfer Pricing Adjustments:
The tribunal examined various grounds related to transfer pricing adjustments, including the inclusion/exclusion of certain companies as comparables, the methodology for computing margins, and the rejection of the assessee's transfer pricing study. Specific issues were addressed as follows:

- Computing the Entity Level Margin Ignoring Segmental Margin (Ground 7):
The tribunal remitted the issue back to the TPO/AO for reconsideration, directing them to keep in mind the ratio laid down by the coordinate Bench in the case of Cisco Systems India Pvt. Ltd.

- Exclusion of Companies Based on Turnover Filter (Ground 10):
The tribunal directed the TPO to exclude companies with turnover exceeding Rs. 200 crores, following the decision in BORQS Software Solutions Pvt. Ltd.

- Exclusion of Margins of R S Software Ltd for Previous Years (Ground 11):
The tribunal held that margins for assessment years where the upper turnover filter fails should be ignored.

- Exclusion of CG-VAK Software and Export Limited (Ground 12(c)):
The tribunal remitted the issue back to the TPO/AO for fresh consideration.

- Exclusion of I2T2 India Limited (Ground 13):
The tribunal upheld the exclusion of I2T2 based on the lower turnover filter.

- Exclusion of Rheal Software Private Limited (Ground 14(b)):
The tribunal remitted the issue back to the TPO for verification of related party transactions.

6. Gathering of Information under Section 133(6):
The assessee argued that the information gathered under section 133(6) was not available at the time of preparing its transfer pricing documentation and was not in the public domain. This ground was not pressed during the hearing.

7. Computation of Net Margin:
The tribunal remitted the issue back to the TPO/AO, directing them to reconsider the computation of net margin based on segmental financials.

8. Rejection of Segmental Profitability:
The tribunal remitted the issue back to the TPO/AO, directing them to reconsider the rejection of segmental profitability.

9. Rejection of Transfer Pricing Study:
The tribunal remitted the issue back to the TPO/AO for fresh consideration, directing them to provide cogent reasons for rejecting the transfer pricing study.

10. Inclusion of Companies Exceeding Turnover Filter:
The tribunal directed the TPO to exclude companies with turnover exceeding Rs. 200 crores.

11. Inclusion of Financials from Previous Years:
The tribunal held that margins for previous years where the upper turnover filter fails should be ignored.

12. Acceptance of Certain Companies as Comparable:
The tribunal remitted the issue back to the TPO/AO for fresh consideration regarding the acceptance of certain companies as comparable.

13. Rejection of I2T2 India Limited:
The tribunal upheld the exclusion of I2T2 based on the lower turnover filter.

14. Rejection of Filters for Companies Owning Significant Intellectual Property:
The tribunal did not specifically address this issue as it was not pressed during the hearing.

15. Exclusion of Functionally Comparable Companies:
The tribunal remitted the issue back to the TPO/AO for fresh consideration regarding the exclusion of functionally comparable companies.

16. Inappropriate Computation of Net Margins:
The tribunal remitted the issue back to the TPO/AO for reconsideration of the computation of net margins.

17. Inconsistent Application of Filters:
The tribunal did not specifically address this issue as it was not pressed during the hearing.

18. Inclusion/Rejection of Comparable Companies:
The tribunal provided specific directions for the inclusion/exclusion of certain comparable companies.

19. Notional Interest Adjustment for Delayed Receivables:
The tribunal remitted the issue back to the TPO/AO for fresh determination of the arm's length price for the notional interest on delayed receivables.

20. Re-characterization of Net Outstanding Receivables:
The tribunal remitted the issue back to the TPO/AO for fresh determination of the arm's length price for the re-characterized net outstanding receivables.

21. Adoption of CUP Method for Interest on Delayed Receivables:
The tribunal remitted the issue back to the TPO/AO for fresh determination of the arm's length price using the appropriate method.

22. Adjustment for Interest on Delayed Receivables:
The tribunal remitted the issue back to the TPO/AO for fresh determination of the arm's length price for the interest on delayed receivables.

Conclusion:
The tribunal provided specific directions for the reconsideration of various issues related to transfer pricing adjustments, computation of net margins, and notional interest adjustments. The appeal was partly allowed, and the issues were remitted back to the TPO/AO for fresh determination in accordance with the tribunal's observations and directions.

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