2016 (8) TMI 1307 - AT - Income Tax

TPA - set of comparable companies selection criteria - Held that - The assessee was rendering software development services and also handling marketing support service sector thus companies functionally dissimilar with that of assessee need to be deselected from final list of comparable.

Summary

Issues Involved:
1. Exclusion of certain companies as comparables by the Assessing Officer (AO)/Transfer Pricing Officer (TPO)/Dispute Resolution Panel (DRP).
2. Inclusion of certain functionally dissimilar companies in the final set of comparable companies.
3. Adjustment for differences in the working capital employed by the appellant vis-à-vis the comparable companies.
4. Admission of additional grounds by the Revenue regarding the exclusion of Bodhtree Consulting Limited as a comparable company.
5. Exclusion of Quintegra Solutions Ltd. and Zylog Systems Limited from the list of comparables.

Detailed Analysis:

Issue 1: Exclusion of Certain Companies as Comparables
The appellant argued against the inclusion of APTICO Ltd. and TSR Darashaw in the Marketing Support Services Segment, claiming they were functionally different. The DRP had previously excluded APTICO Ltd. in the 2011-12 assessment year, noting its engagement in activities like skill development and tourism research, which were not comparable to the appellant's marketing support services. Similarly, TSR Darashaw was excluded in the 2008-09 and 2010-11 assessment years for its involvement in registrar and transfer agent activities, records management, and payroll services, which were deemed non-comparable.

Judgment: The Tribunal directed the exclusion of APTICO Ltd. and TSR Darashaw from the list of comparables, affirming the appellant's claims based on past precedents and the distinct nature of services provided by these companies.

Issue 2: Inclusion of Functionally Dissimilar Companies
The appellant also contested the inclusion of Bodhtree Consulting Ltd., Infosys Technologies Ltd., Tata Consultancy Services Ltd., WIPRO Ltd., and Zenith Infotech Ltd. in the Software Development Service Segment. The appellant argued that these companies were functionally dissimilar and should not be included as comparables.

Judgment: The Tribunal acknowledged that the inclusion of these companies did not impact the arm's length price for the year under consideration. However, it reserved the appellant's right to contest the inclusion of these comparables in future years.

Issue 3: Adjustment for Differences in Working Capital
The appellant sought adjustments for differences in working capital employed, citing past precedents where such adjustments were allowed. The Tribunal had previously directed working capital adjustments in the appellant's case for the 2008-09 and 2006-07 assessment years.

Judgment: The Tribunal restored the issue to the TPO for a decision on merit, following past precedents and allowing the appellant an opportunity to demonstrate differences in working capital levels vis-à-vis the comparables.

Issue 4: Admission of Additional Grounds by the Revenue
The Revenue filed additional grounds for the inclusion of Bodhtree Consulting Ltd. as a comparable, arguing that it was included in earlier assessment years and there was no functional change in the company's profile.

Judgment: The Tribunal allowed the inclusion of Bodhtree Consulting Ltd. as a comparable for the year under consideration, noting that the issue was academic and based on the appellant's concession. However, this decision would not serve as a precedent for subsequent years.

Issue 5: Exclusion of Quintegra Solutions Ltd. and Zylog Systems Limited
The Revenue opposed the exclusion of Quintegra Solutions Ltd. and Zylog Systems Limited, which were retained by the DRP based on their functional comparability to the appellant.

Judgment: The Tribunal allowed the Revenue's grounds, noting that the issue was academic for the appellant and would not impact the arm's length price for the year under consideration. However, this decision was made without prejudice to the appellant's right to contest the issue in future years.

Conclusion:
The Tribunal partly allowed the appeals of both the appellant and the Revenue for statistical purposes. The decisions were based on the functional comparability of the companies involved, past precedents, and the specific facts of the case. The order emphasized that certain decisions were academic and would not serve as precedents for subsequent years.