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2016 (8) TMI 1165 - AT - Income TaxTPA - selection of comparable - Held that - In this case there is no dispute that RSIL is functional comparability to the assessee s case. However the accounting year adopted by the RSIL is different from the assessee s accounting year. RSIL is adopted 1st January to 31st December as accounting year as against the accounting year adopted by the assessee as 1st April and 31st March. However data for the financial year could be compiled from the audited accounts of RSIL. Hence the assessee is directed to furnish data for the financial year 2009-10 (1st April and 31st March) to the TPO who after due verification shall consider the same as comparable to the assessee s case so as to determine the ALP Microgenetcis Systems Ltd - It is brought to our notice that that financials for the year ended March 2010 relating to this company was uploaded in the MCA portal on 15th December 2011 and the assessee is in a position to place necessary financials of this company before the TPO. Accordingly this issue is remitted to the file of the TPO for consideration and decide thereupon if it is functionally comparable to the asessee s case and turnover of that company is commensurated with the assessee company. Turnover of CG-VAK Software Exports Ltd. is around Rs. One crore as against the turnover of the assessee company is 317 crores. Accordingly in our opinion turnover of very small company cannot be compared with the assessee company s turnover. This ground is rejected. Datamatics Financial Services Limited is functionally comparable and if its turnover is commensurating with the assessee company s turnover it is to be considered as comparable to determine the ALP. Accordingly this issue is remitted to the TPO for fresh consideration. Fortune Infotech Limited requires to be excluded from the list of comparables as it has developed and owns its unique web based software by which it provides niche services to its customers The Healthcare Business Services Ltd company was not functionally comparable to the assesse s case and this company is in health care outsourcing services and in addition it also renders software development services and it is the fact that segmental information was not available. The company was also a 100% EOU under STPI guidelines. Hence we are inclined to accept the contention of the ld. AR that this company should be excluded from the comparables Allowability of deduction is to be considered u/s.10A instead of sec.10B - Held that - If the assessee is not entitled for deduction u/s.10B of the Act then the alternate claim of the assessee is to be considered. Accordingly we remit the issue to the TPO to verify whether the assessee is entitled deduction u/s.10A of the Act.
Issues Involved:
1. Adjustment to the Arm's Length Price (ALP) of international transactions. 2. Application and modification of quantitative and qualitative filters. 3. Provision of detailed search process and rejection matrix. 4. Selection and rejection of comparable companies. 5. Consideration of expenses as operating in nature. 6. Adjustments for differences in functional and risk profiles. 7. Allowability of deduction under section 10A instead of section 10B. Detailed Analysis: 1. Adjustment to the Arm's Length Price (ALP) of International Transactions: The assessee contested the adjustment of INR 20,60,21,598/- made to the ALP of its international transactions with related parties. The Transfer Pricing Officer (TPO) had made an upward adjustment of ? 44.87 crores in respect to ITES, which was incorporated by the Assessing Officer (AO) in the draft assessment order. The Dispute Resolution Panel (DRP) upheld the adjustment, leading to the appeal. 2. Application and Modification of Quantitative and Qualitative Filters: The assessee argued that the AO/TPO and the DRP erred by modifying certain filters applied by the assessee without providing cogent reasons and by applying arbitrary additional filters. The tribunal noted that the selection of filters must be justified and should not be arbitrary. 3. Provision of Detailed Search Process and Rejection Matrix: The assessee claimed that the AO/TPO and the DRP did not provide the detailed search process, including the accept/reject matrix and reasons for rejections, leading to cherry-picking of comparables. The tribunal emphasized the need for transparency in the selection process of comparables. 4. Selection and Rejection of Comparable Companies: - R Systems International Ltd. (RSIL): The TPO excluded RSIL due to its different accounting year. The tribunal directed the assessee to provide data for the financial year 2009-10 to the TPO, who should then consider RSIL as a comparable after verification. - Microgenetics Systems Ltd.: Initially rejected for insufficient financial information, the tribunal remitted the issue to the TPO to consider the updated financial data now available in the public domain. - CG-VAK Software & Exports Ltd.: Rejected due to a turnover of less than ? 1 crore, which the tribunal upheld, stating that a very small company's turnover cannot be compared with the assessee's turnover of ? 317 crores. - Datamatics Financial Services Limited: The tribunal remitted the issue to the TPO to verify if it is functionally comparable and if its turnover matches the assessee’s. - Fortune Infotech Limited: Excluded as it is not functionally comparable to the assessee, following precedents from other tribunal decisions. - e4e Healthcare Business Services Ltd.: Excluded due to its involvement in healthcare outsourcing and software development services, with no segmental information available. 5. Consideration of Expenses as Operating in Nature: The assessee contested the treatment of certain expenses as operating in nature for transfer pricing analysis. However, this issue was not argued further by the assessee, and the tribunal dismissed it as infructuous. 6. Adjustments for Differences in Functional and Risk Profiles: The assessee argued for suitable adjustments to account for differences in functional and risk profiles vis-a-vis comparables. This issue was also not argued further and was dismissed as infructuous. 7. Allowability of Deduction under Section 10A Instead of Section 10B: The tribunal noted that if the assessee is not entitled to deduction under section 10B, the alternate claim under section 10A should be considered. The tribunal remitted the issue to the TPO/AO to verify the allowability of deduction under section 10A, following precedents from other tribunal decisions. Conclusion: The appeal of the assessee was allowed for statistical purposes, with directions for the TPO to reconsider certain comparables and the allowability of deduction under section 10A. The tribunal emphasized the need for transparency and justification in the selection of comparables and filters used in transfer pricing analysis.
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