2016 (5) TMI 1348 - HC - Income Tax

TPA - correctness of the exclusion of comparables in the transfer pricing exercise carried out in the assessee s case - Held that - Persistent Systems Ltd. is concerned, the material on record - as found by the ITAT - shows that this company was involved in software development, software products and marketing. Furthermore and perhaps more importantly published segmental data was not available. In these circumstances, having regard to the specificity of the Transfer Pricing Rules under Rule 10 (b) to 10 (e) of the Income Tax Rules, the data of the said firm, i.e., Persistent Systems Ltd. could not have been included. As Wipro Technology Services goes, it was part of the Citi Group and was during the financial year in question acquired on 21.01.2009 by the Wipro Ltd. as a subsidiary. As a part of the arrangement, the existing contracts pertaining to the work of the Citi Group continued to be with the newly created entity, i.e., Wipro Technology Services. Equally importantly, is that there was no published segmented data as far as software development or its finances were concerned with respect to Wipro Technology Services. In these circumstances, the findings of the ITAT are purely factual and cannot be gone into as no substantial question of law arises for consideration. Refusal to give effect to the Safe Harbour Rules under Section 92 CA(3)- Held that - The records clearly reveal that the Safe Harbour Rules came into force later whereas the facts of this case pertain to the assessment year 2010-11 (Financial year 2009-10). As a consequence, the impugned order cannot be interfered with. No question of law thus arises.

Summary

Issues:
1. Exclusion of comparables in transfer pricing exercise
2. Refusal to apply Safe Harbour Rules for foreign exchange gain exclusion

Analysis:
1. The case involves two main issues raised by the Revenue. Firstly, the exclusion of two comparables in the transfer pricing exercise and the remand in the case of one comparable company. Secondly, the refusal to give effect to the "Safe Harbour Rules" under Section 92 CA(3) to exclude the gain on account of foreign exchange fluctuation claimed by the assessee.

2. The assessee, engaged in software development, filed its return along with transfer pricing reports. The Assessing Officer referred the matter to the Transfer Pricing Officer, who included the data of three comparable companies, which was objected to by the assessee. The Dispute Resolution Panel rejected the assessee's contentions. The Income Tax Appellate Tribunal (ITAT) excluded two companies but remitted the issue regarding one comparable for further assessment. The ITAT also ruled that the Safe Harbour Rules were inapplicable for the assessment year in question.

3. The Revenue contended that the ITAT erred in excluding the companies and in ruling on the foreign exchange fluctuation issue. They argued that the filters proposed by the assessee were incorrect, and the companies should not have been excluded. The Revenue also challenged the ruling on foreign exchange fluctuation.

4. The TPO included the data of three companies despite the assessee not proposing two of them. The ITAT found that the companies were not functionally similar as contended by the Revenue. Regarding Persistent Systems Ltd., the lack of published segmental data led to its exclusion. Wipro Technology Services, being part of the Citi Group, lacked published segmented data related to software development, justifying its exclusion.

5. The ITAT's findings were based on factual considerations, and no substantial question of law arose for consideration. The Safe Harbour Rules were not applicable for the assessment year in question, and thus the impugned order could not be interfered with. Consequently, the appeal was dismissed.