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2018 (8) TMI 1852 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT - As decided in M/S COMMSCOPE NETWORKS (INDIA) PRIVATE LTD. EARLIER KNOWN AS AIRVANA NETWORKS (INDIA) PRIVATE LTD., VERSUS THE ITO, WARD 1 (1) (1) , BANGALORE 2017 (2) TMI 1383 - ITAT BANGALORE one comparable ICRA Techno Analytics Ltd. is having RPT in excess of 15% and therefore, for this reason alone, this comparable has to be excluded although DRP has excluded it for a different reason that it is having various activities and segmental data are not available. We uphold its exclusion on account of RPT filter. Exclusion of Acropetal Technologies Ltd. (Seg) is covered in favour of the assessee by the same tribunal order rendered in the case of Applied materials India Pvt. Ltd. vs. ACIT 2016 (9) TMI 1458 - ITAT BANGALORE . Respectfully following the same, we uphold its exclusion. Exclusion of 1) e Zest Solutions Ltd., 2) Infosys Ltd., 3) Larsen Toubro Infotech Ltd., 4) Persistent Systems Solutions Ltd., 5) Persistent Systems Ltd., 6) Sasken Communication Technologies Ltd. and 7) Tata Elxsi Ltd. are also covered in favour of the assessee by the same tribunal order rendered in the case of Applied materials India Pvt. Ltd. vs. ACIT (Supra). Respectfully following the same, we uphold the exclusion of these Seven comparables also. Exclusion of E Infochips Ltd. is covered in favour of the assessee by the tribunal order rendered in the case of Saxo India Pvt. Ltd. vs. ACIT 2016 (2) TMI 604 - ITAT DELHI . Respectfully following the same, we uphold its exclusion. Respectfully following this tribunal order, we exclude these 10 comparables i.e. 1) Accropetal Technologies Ltd. (Seg.), 2) E Zest Solutions Ltd., 3) E Infochips Ltd., 4) ICRA Techno Analytics Ltd., 5) Infosys Ltd., 6) Larsen Toubro Infotech Ltd., 7) Persistent System Solutions Ltd., 8) Persistent Systems Ltd., 9) Sasken Communication Technologies Ltd. and 10) Tata Elxsi Ltd. Regarding MYM Technologies Ltd., we find that this comparable was excluded on this basis that data for current financial year are not available. Before us, it was submitted that page 2244 of (ARC) is relevant. We find that on this page, Directors Report is available containing brief Financial result for 12 months ending on 30.06.2010 and 9 months ending on 31.03.2011 but in this ARC, the corresponding audited Balance Sheet and P L Account are not available. Hence, we find no merit in the assessee s request for inclusion of this comparable. Regarding FCS Software Solutions Ltd., it is seen that it is noted by DRP that revenue of ₹ 115.99 Crores has been shown from Software Development and other services and there is no segmental information available in respect of Software Development. It is also noted by DRP that it is not possible to ascertain as to whether this company passes employees cost filter or not. It is also noted that this company is predominantly engaged in onsite development of software. In the present case, TPO and DRP s objections include these aspects also in addition to high working capital adjustment. On these other aspects, this tribunal order does not render any help to the assessee. There is no other argument raised in respect of these other aspects. Hence, we decline to interfere in the direction of DRP in respect of this comparable. The request of the assessee for inclusion of all three comparables is rejected. Deduction u/s 10A - Reduction of some expenses from total turnover also while computing deduction u/s 10A by following the judgment of Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT . This judgment is now approved by Hon ble apex court also. Hence, we find no infirmity in the directions of DRP on this issue.
Issues Involved:
1. Exclusion of certain companies from the list of comparables by the Dispute Resolution Panel (DRP). 2. Transfer pricing adjustment. 3. Re-characterization of the appellant’s business activities. 4. Rejection of the transfer pricing study. 5. Application of filters in the transfer pricing analysis. 6. Inclusion and exclusion of specific comparables. 7. Computation of operating cost and revenue. 8. Adjustment for risk profile differences. 9. Set-off of brought forward unabsorbed depreciation. 10. Computation of interest under section 244A. 11. Initiation of proceedings under section 271(1)(c). 12. Reduction of expenses from total turnover while computing deduction under section 10A. Detailed Analysis: 1. Exclusion of Certain Companies from the List of Comparables by the DRP: The DRP directed the exclusion of several companies from the list of comparables, holding them to be functionally dissimilar or lacking clear segmental information. The revenue challenged the exclusion of ten comparables, but the assessee agreed to include three of these: Evoke Technologies Pvt. Ltd., Mindtree Limited (Seg.), and R S Software (India) Ltd. The Tribunal upheld the exclusion of the remaining seven comparables, citing previous tribunal orders and the fact that these companies did not meet the necessary comparability criteria. 2. Transfer Pricing Adjustment: The assessee contested the transfer pricing adjustment of ?6,13,68,769 made by the Assessing Officer (AO) based on the directions of the Transfer Pricing Officer (TPO) and the DRP. The Tribunal considered the rival submissions and upheld the exclusion of certain comparables, thereby impacting the transfer pricing adjustment. 3. Re-characterization of the Appellant’s Business Activities: The DRP upheld the AO/TPO’s decision to re-characterize the appellant as a software development service provider instead of a software support service provider. The Tribunal did not find merit in the appellant's contention against this re-characterization. 4. Rejection of the Transfer Pricing Study: The appellant argued that the transfer pricing study maintained in good faith was incorrectly rejected. The Tribunal reviewed the filters and comparables applied by the TPO and DRP and upheld the exclusion of certain comparables while including others, thus partially accepting the appellant's contention. 5. Application of Filters in the Transfer Pricing Analysis: The appellant contended that the AO/TPO incorrectly applied filters in the transfer pricing analysis. The Tribunal upheld the exclusion of certain comparables based on the filters applied, such as the employee cost filter and the onsite revenue filter. 6. Inclusion and Exclusion of Specific Comparables: The appellant requested the inclusion of three comparables: Intertec Communications Technologies Ltd., MYM Technologies Ltd., and FCS Software Solutions Ltd. The Tribunal rejected the inclusion of these comparables due to the lack of segmental information, financial data, and other relevant criteria. 7. Computation of Operating Cost and Revenue: The appellant argued against the exclusion of 'provision for doubtful debts' and 'provision no longer required written back' from the computation of operating cost and revenue. The Tribunal upheld the DRP’s decision on these exclusions. 8. Adjustment for Risk Profile Differences: The appellant contended that no adjustment was made for the difference in risk profiles between the appellant and the comparables. The Tribunal did not find merit in this argument and upheld the DRP’s decision. 9. Set-off of Brought Forward Unabsorbed Depreciation: The appellant argued that the AO erred in not allowing the set-off of brought forward unabsorbed depreciation of ?9,84,026. The Tribunal did not specifically address this issue in the judgment. 10. Computation of Interest under Section 244A: The appellant contended that the AO erred in computing interest under section 244A. The Tribunal did not specifically address this issue in the judgment. 11. Initiation of Proceedings under Section 271(1)(c): The appellant argued against the initiation of proceedings under section 271(1)(c). The Tribunal did not specifically address this issue in the judgment. 12. Reduction of Expenses from Total Turnover While Computing Deduction under Section 10A: The DRP directed the AO to exclude communication expenses from the total turnover while computing the deduction under section 10A, following the judgment of the Karnataka High Court in the case of Tata Elxsi Ltd. The Tribunal upheld this direction, noting that the judgment has been approved by the Supreme Court. Conclusion: The Tribunal partly allowed both the appeals of the assessee and the revenue, upholding the exclusion of certain comparables and the inclusion of others, and confirming the DRP’s direction on the reduction of expenses from total turnover for section 10A computation.
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