2015 (10) TMI 2419 - AT - Income Tax

Transfer pricing adjustment - selection of comparable - Held that - The issue relating to comparable nature of nine out of above eleven companies (companies in original grounds as well as additional grounds taken together), viz. other than Flextronics Software Systems Ltd. (Seg.) and Helios & Matheson Information Tech. Ltd. has come up for consideration before this Tribunal for assessment year 2007-08 itself and in the case of Sumtotal Systems India P. Ltd., Hyderabad 2014 (8) TMI 870 - ITAT HYDERABAD has accepted the contentions for exclusion of these nine companies under consideration before it. Comparable nature of Flextronics Software Systems Ltd.(Seg) and Helio & Matheson Information Tech Ltd., has been rejected by coordinate bench of the Tribunal in the case of M/s. Axsys Heathcare Ltd. 2014 (6) TMI 371 - ITAT HYDERABAD on the ground of High Turnover- functionally dissimilar. In the case of Sumtotal Systems India P. Ltd., Hyderabad 2014 (8) TMI 870 - ITAT HYDERABAD wherein the Tribunal vide its order has rejected the contentions of Assessee for inclusion of all the six companies under consideration before it Aztec Soft Ltd., Birla Technologies Ltd., Indium software India Ltd., Larsen & Toubro Infotech., PSI Data systems Ltd. (SEG) and VMF Softech Ltd. Computation of deduction under S.10A - reducing the communication charges from the export turnover considering it as attributable to the delivery of computer software outside India, but not reducing the same from the total turnover - Held that - this Tribunal in similar cases, including in assessee s own case for the assessment year 2006-07 have directed the Assessing Officer to exclude the communication charges from export turnover as well as total turnover while computing deduction under S.10A of the Act. In this view of the matter and respectfully following the decision of the Bombay High Court in the case of Gemplus Jewellery (2010 (6) TMI 65 - BOMBAY HIGH COURT) and Sak Soft Limited 2009 (3) TMI 243 - ITAT MADRAS-D we allow this ground of Assessee Penalty under S.271(1)(c) - difference in the value of Arm s Length Price - CIT(A) deleted penalty levy - Held that - The determination of the Arm s Length Price is a result of an estimation on the basis of different variables by both Assessee and the Assessing Officer, and the difference in the value of Arm s Length Price arrived at by the Assessing Officer was due to its re-working by using different filters and consequently different comparables. This difference is merely a difference of opinion, which cannot be termed as concealment of income on the part of Assessee. Further observing that there is no suggestion in the TPO s analysis or the assessment or penalty orders that there was any inaccuracy or incorrect in the information submitted by Assessee, and relying on the decision of the Supreme Court in the case of CIT V/s. Reliance Petro-Products Pvt. Ltd.(2010 (3) TMI 80 - SUPREME COURT), the CIT(A) cancelled the impugned penalty. - Decided in favour of assessee.

Summary

Issues Involved:
1. Transfer Pricing Adjustment
2. Exclusion of Comparable Companies
3. Computation of Deduction under Section 10A
4. Penalty under Section 271(1)(c)

Detailed Analysis:

1. Transfer Pricing Adjustment:
The assessee's appeal was directed against the order of assessment for the year 2007-08, which included a transfer pricing adjustment. The Transfer Pricing Officer (TPO) and the assessee accepted the Transactional Net Margin Method (TNMM) as the most appropriate method. The TPO selected certain comparable companies and determined the Arm's Length Price (ALP), resulting in a transfer pricing adjustment of Rs. 2,28,50,421, which was later recomputed to Rs. 2,07,22,767 by the Assessing Officer (AO) after the Dispute Resolution Panel's (DRP) directions.

2. Exclusion of Comparable Companies:
The assessee contested the inclusion and exclusion of certain comparable companies selected by the TPO. The Tribunal referenced previous decisions and found that the following companies should be excluded due to functional dissimilarities or other reasons:
- Avani Cimcon Technologies Ltd.
- Infosys Technologies Ltd.
- Ishir Infotech Ltd.
- Lucid Software Ltd.
- Megasoft Ltd.
- Tata Elxsi Ltd. (Seg.)
- Wipro Ltd. (Seg.)
- KALS Information Systems Ltd. (Seg.)
- Accel Transmatic Ltd. (Seg.)
- Flextronics Software Systems Ltd. (Seg.)
- Helios & Matheson Information Tech. Ltd.

The Tribunal directed the AO to exclude these companies from the comparability analysis.

3. Computation of Deduction under Section 10A:
The issue was whether communication charges should be excluded from both the export turnover and the total turnover while computing the deduction under Section 10A. The Tribunal followed the decisions of the Bombay High Court in CIT vs. Gemplus Jewellery and the Special Bench of the Tribunal in ITO vs. Saksoft Ltd., directing the AO to exclude the communication charges from both the export turnover and the total turnover.

4. Penalty under Section 271(1)(c):
The Revenue's appeal contested the cancellation of a penalty imposed under Section 271(1)(c). The AO had imposed a penalty, treating the transfer pricing adjustment as concealed income. The CIT(A) cancelled the penalty, observing that the difference in ALP was due to different variables and filters used by the AO and the assessee, which constituted a difference of opinion rather than concealment of income. The Tribunal upheld the CIT(A)'s decision, noting that the Supreme Court's ruling in CIT vs. Reliance Petro-Products Pvt. Ltd. applied, as there was no inaccuracy or incorrect information provided by the assessee.

Conclusion:
The assessee's appeal was partly allowed, with the Tribunal directing the exclusion of certain comparable companies and adjusting the computation of the deduction under Section 10A. The Revenue's appeal was dismissed, upholding the cancellation of the penalty under Section 271(1)(c). The order was pronounced on 24th September 2015.