Transfer pricing comparables, receivables interest and section 10A set-off issues were discussed with retention of adjustments.

Functional comparability on FAR analysis supported retention of E-Infochips Bangalore Limited, Kals Information Systems Limited, Persistent Systems Limited and Mindtree Limited in the transfer pricing set. Delayed trade receivables were also subjected to a notional interest adjustment, but only at the DRP's restricted benchmark of LIBOR plus 250 basis points, which was not disturbed in the assessee's appeal. The article further notes that the Hyderabad unit loss set-off against Pune STPI unit profit, and the related section 10A relief claim, were not entertained because the issue had not been raised before the DRP and was treated as procedurally and substantively unsustainable at that stage.

---

---

Issues: (i) Whether the selected comparables, namely E-Infochips Bangalore Limited, Kals Information Systems Limited, Persistent Systems Limited and Mindtree Limited, were liable to be excluded from the transfer pricing analysis. (ii) Whether notional interest could be imputed on delayed trade receivables and whether the DRP-directed LIBOR plus 250 basis points benchmark should be sustained. (iii) Whether the loss of the Hyderabad unit could be set off against the profit of the Pune STPI unit and deduction under section 10A could be denied in computing the assessment.

Issue (i): Whether the selected comparables, namely E-Infochips Bangalore Limited, Kals Information Systems Limited, Persistent Systems Limited and Mindtree Limited, were liable to be excluded from the transfer pricing analysis.

Analysis: The exclusion challenge failed because E-Infochips Bangalore Limited was found functionally comparable despite the assessee's objections on margins and business profile. Kals Information Systems Limited was retained since its software development function was broadly comparable and high margins alone did not justify exclusion where FAR comparability remained. Persistent Systems Limited was not accepted as a pure product-development dissimilarity on the record, and the company was treated as comparable to the assessee's software services profile. Mindtree Limited was also retained since the assessee had not objected to its inclusion before the TPO and ownership of intangibles or higher margins, by themselves, did not displace comparability.

Conclusion: The comparables were rightly retained, and the assessee's challenge was rejected.

Issue (ii): Whether notional interest could be imputed on delayed trade receivables and whether the DRP-directed LIBOR plus 250 basis points benchmark should be sustained.

Analysis: The record showed that the DRP had already limited the adjustment by adopting LIBOR plus 250 basis points for delayed receivables. Although there were earlier decisions supporting a different benchmark, the Revenue had not appealed against the DRP's finding. The assessee, therefore, could not be placed in a worse position in its own appeal, and the Tribunal declined to interfere with the DRP's approach.

Conclusion: The adjustment on receivables was upheld as restricted by the DRP, and the assessee's objection was dismissed.

Issue (iii): Whether the loss of the Hyderabad unit could be set off against the profit of the Pune STPI unit and deduction under section 10A could be denied in computing the assessment.

Analysis: The assessee had not raised this ground before the DRP, and the grievance was treated as not emanating from the final assessment order or the DRP's directions in a manner permitting consideration at that stage. The Tribunal therefore declined to entertain the claim for set-off and held that the assessee was not entitled to agitate the issue in the appeal. The ground also failed on merits in view of the statutory bar invoked by the Tribunal.

Conclusion: The claim for set-off and the related 10A relief were rejected.

Final Conclusion: The transfer pricing comparables were sustained, the receivables adjustment was maintained at the DRP level, and the claim relating to set-off of losses and section 10A relief was not accepted.

Ratio Decidendi: A comparable may be retained if functional comparability remains on FAR analysis, and in an assessee's appeal the Tribunal will not worsen the assessee's position where the Revenue has not challenged the relief already granted by the DRP.

---