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2015 (7) TMI 1275 - AT - Income TaxTPA - comparable selection criteria - Held that - The assessee a domestic private limited company is engaged in the provision of software development services to its Associated Enterprises ( AEs ) thus companies functionally dissimilar with that of assessee need to be deselected from final list. Computation of Deduction under Section 10A - Held that - Taking into consideration the decision rendered by the Hon ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT we are of the view that it would be just and appropriate to direct the Assessing Officer that travel interest charges - MPLS etc incurred in foreign currency are to be excluded from both export turnover as well as total turnover while computing the deduction under Section 10A of the Act as has been prayed by the assessee in its alternate plea at Ground raised at No.2. Computation of deduction under Section 10A - Held that - We find that the DRP had confirmed the Assessing Officer s finding on the ground that the assessee failed to adduce any evidence to support its claim. Considering the submissions made that the assessee was not afforded any opportunity of being heard in the matter and that the DRP dismissed its claim for lack of evidence being adduced we deem it fit to remand the matter to the file of the Assessing Officer for de novo consideration of this issue and to decide thereon after affording the assessee adequate opportunity of being heard and to file details/evidence to support its claim in the matter. Interest under Section 234B - Held that - The assessee denied itself liable to be charged interest under Section 234B of the Act. The charging of interest is consequential and mandatory and the Assessing Officer has no discretion in the matter. This proposition has been upheld by the Hon ble Apex Court in the case of CIT v. Anjum M.H. Ghaswala 2001 (10) TMI 4 - SUPREME Court and we therefore uphold the action of the Assessing Officer in charging the said interest. The Assessing Officer is however directed to recompute the interest chargeable u/s. 234B and 234C of the Act if any while giving effect to this order.
Issues Involved:
1. Transfer Pricing Adjustments 2. Computation of Deduction under Section 10A of the Income Tax Act 3. Double Taxation of VAT Refund 4. Interest under Section 234B of the Income Tax Act Detailed Analysis: 1. Transfer Pricing Adjustments: The primary issue revolves around the determination of the Arm's Length Price (ALP) for international transactions related to software development services provided by the assessee to its Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) proposed an adjustment of Rs. 2,35,10,275 to the ALP. The assessee objected to the inclusion of certain companies as comparables, arguing functional dissimilarities and other factors. The Tribunal extensively reviewed the comparability of each company in question: - Avani Cincom Technologies Ltd.: Excluded due to functional dissimilarity and lack of segmental data. - Celestial Biolabs Ltd.: Excluded as it is engaged in bio-informatics and software products, making it functionally different. - e-Zest Solutions Ltd.: Excluded as it provides high-end ITES/KPO services, not comparable to software development services. - Infosys Technologies Ltd.: Excluded due to its significant brand value, ownership of IPRs, and functional dissimilarity. - KALS Information Systems Ltd.: Excluded as it is involved in software products, not purely software services. - Persistent Systems Ltd.: Excluded due to its engagement in product development and lack of segmental data. - Quintegra Solutions Ltd.: Excluded for being engaged in proprietary software products and R&D activities. - Tata Elxsi Ltd. (Seg.): Excluded as it provides product design services, not comparable to software development services. - Thirdware Solutions Ltd.: Excluded due to its involvement in product development and lack of segmental data. - Wipro Limited (Seg.): Excluded for its significant intangibles and lack of segmental data. - Softsol India Ltd.: Excluded due to Related Party Transactions (RPT) exceeding 15%. The Tribunal directed the exclusion of these companies from the list of comparables, aligning with previous decisions in similar cases. 2. Computation of Deduction under Section 10A of the Income Tax Act: The assessee contested the reduction of expenses incurred in foreign currency from export turnover alone without corresponding reduction from total turnover. The Tribunal, referencing the Karnataka High Court decision in Tata Elxsi Ltd., directed that such expenses should be excluded from both export turnover and total turnover while computing the deduction under Section 10A. 3. Double Taxation of VAT Refund: The assessee claimed that VAT refund was included twice in the computation of income, resulting in double taxation. The Tribunal directed the Assessing Officer to examine this issue and rectify any errors after providing the assessee an opportunity to present evidence. 4. Interest under Section 234B of the Income Tax Act: The assessee disputed the levy of interest under Section 234B. The Tribunal upheld the Assessing Officer's action, citing the Supreme Court's decision in CIT v. Anjum M.H. Ghaswala, which mandates the charging of interest under Section 234B as consequential and mandatory. The Assessing Officer was directed to recompute the interest while giving effect to the Tribunal's order. Conclusion: The Tribunal's decision resulted in the partial allowance of the assessee's appeal, directing significant adjustments in the list of comparables for Transfer Pricing, and providing relief in the computation of deduction under Section 10A and the issue of double taxation of VAT refund. The interest under Section 234B was upheld as mandatory.
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