ITAT allows partial appeal on transfer pricing adjustments excluding three comparables for functional dissimilarity

The ITAT Hyderabad allowed the assessee's appeal in part regarding transfer pricing adjustments. The tribunal excluded Infosys BPO Limited, Eclerx Services Limited, and Crossdomain Solutions Pvt. Ltd. as comparables due to functional dissimilarity. For MPS Limited's exclusion, despite being raised for the first time before ITAT, the tribunal remitted the matter to AO for fresh consideration. ACE BPO Services Private Limited and Informed Technologies Limited were directed to be reconsidered as comparables after verification. For interest on outstanding receivables from associated enterprises, the tribunal adopted LIBOR+200 basis points following Tecnimont precedent, partially allowing the assessee's ground.

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Issues: Transfer Pricing Adjustments, Inclusion/Exclusion of Comparables, Interest on Outstanding Receivables.

Transfer Pricing Adjustments:
The appeal was filed against the final assessment order for the A.Y. 2014-15, where the Transfer Pricing Officer suggested upward adjustments in relation to information technology enabled services provided to Associated Enterprises. The Assessing Officer finalized the assessment based on the directions of the Dispute Resolution Panel, determining the Arm's Length Price for the transactions. The appellant disputed the inclusion of certain comparables and challenged the computation of interest on outstanding receivables.

Inclusion/Exclusion of Comparables:
The appellant contested the inclusion of four comparables, citing functional dissimilarity, and requested the exclusion of these entities. Additionally, the appellant sought the inclusion of two comparables that were previously excluded by the Revenue authorities. The Tribunal examined the history of exclusion of certain comparables in earlier assessment years and decided to exclude three comparables for the current year. Regarding the inclusion of MPS Limited, the Tribunal allowed the appellant to challenge its comparability, remitting the matter back to the Assessing Officer for further consideration.

Interest on Outstanding Receivables:
The appellant argued that no Transfer Pricing adjustment could be made on outstanding receivables prior to 2013-14. Citing a precedent, the appellant proposed an interest rate at LIBOR+200 points for determining the Arm's Length Price of notional interest on delayed recovery. The Tribunal agreed with the appellant's position and directed the Assessing Officer to adopt the suggested interest rate. Consequently, the Tribunal partly allowed this ground of appeal.

The Tribunal's decision addressed the issues of Transfer Pricing adjustments, inclusion/exclusion of comparables based on functional dissimilarity, and the computation of interest on outstanding receivables. The Tribunal relied on past decisions and legal precedents to support its findings and directed the Assessing Officer to reconsider certain aspects of the assessment, providing the appellant with an opportunity to present their case. Ultimately, the Tribunal partially allowed the appeal, emphasizing the importance of ensuring a fair and accurate determination of the Arm's Length Price in international transactions.

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