TPO directed to exclude Tech Mahindra and Infosys from comparable selection due to turnover exceeding Rs. 200 crores filter

ITAT Bangalore directed TPO to exclude Tech Mahindra Business Services Ltd. and Infosys BPM Services Pvt. Ltd. from comparable selection due to turnover exceeding Rs. 200 crores filter. Regarding assets received free from associated enterprises, tribunal held capitalization was correct but directed depreciation consideration only under software development segment to avoid double disallowance. Multiple comparables were rejected for functional dissimilarity or lack of segmental information. Matter remanded for fresh comparable selection under software development segment with proper opportunity to assessee. Outstanding receivables issue remanded following Special Bench precedent treating it as international transaction. Seconded employee salary reimbursement and bonding expenses issues also remanded for fresh consideration with proper evidence evaluation.

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Issues Involved:
1. Verification of margin computation.
2. Treatment of free-of-cost assets.
3. Exclusion of comparables based on turnover filter.
4. Grant of Working Capital Adjustment.
5. Application of R&D filter.
6. Exclusion of functionally dissimilar comparables.
7. Interest on delayed receivables.
8. Disallowance of salaries paid and reimbursement of expenses.
9. Bonding and debonding charges.
10. Incorrect computation of total income.

Summary:

1. Verification of Margin Computation:
The Tribunal remanded the issue to the AO to verify the margin of the assessee as per the DRP's directions, emphasizing the need for accurate computation as per the annual report figures.

2. Treatment of Free-of-Cost Assets:
The Tribunal upheld the capitalization of free-of-cost assets received by the assessee, granting depreciation. However, it directed the TPO to consider the entire cost for computing the margin under the software development segment and to delete the disallowance made under Section 28(iv) as it resulted in double addition.

3. Exclusion of Comparables Based on Turnover Filter:
The Tribunal excluded Tech Mahindra Business Services Ltd. and Infosys BPM Services Pvt. Ltd. from the final set of comparables, citing their failure to meet the higher turnover filter of Rs. 200 crores, following precedents set by similar cases.

4. Grant of Working Capital Adjustment:
The Tribunal directed the AO/TPO to compute the Working Capital Adjustment on actuals to determine the arm's length price of the transaction, allowing this ground for statistical purposes.

5. Application of R&D Filter:
The Tribunal remanded the selection of comparables under the SWD segment to the TPO for fresh consideration, noting that the R&D filter was applied without granting the assessee an opportunity to respond.

6. Exclusion of Functionally Dissimilar Comparables:
The Tribunal directed the exclusion of Datamatics Business Solutions Ltd., Manipal Digital Systems Pvt. Ltd., and Inteq BPO Services Pvt. Ltd. from the final list of comparables due to functional dissimilarity. Additionally, it directed the exclusion of Pressman Advertising Ltd., Scarecrow Communications Ltd., and Majestic Research Services & Solutions Ltd. from the marketing support service segment.

7. Interest on Delayed Receivables:
The Tribunal remanded the issue to the AO/TPO to decide in conformity with the judgment, considering whether the Working Capital Adjustment subsumes the outstanding receivables and applying LIBOR + 300 basis points for those not subsumed.

8. Disallowance of Salaries Paid and Reimbursement of Expenses:
The Tribunal remanded the issue to the AO to consider the claim in accordance with the decisions of the Coordinate Bench, granting the assessee an opportunity to substantiate the claim with evidence.

9. Bonding and Debonding Charges:
The Tribunal remanded the issue to the AO to verify the evidence and consider the alternate claim of depreciation, granting the assessee an opportunity to substantiate the claim.

10. Incorrect Computation of Total Income:
The Tribunal directed the AO to verify and correct the computation of total income as claimed by the assessee.

Conclusion:
The Tribunal's order resulted in partial relief for the assessee, with several issues being remanded for further verification and consideration by the AO/TPO. The appeal was partly allowed in terms of the grounds argued by the assessee.

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