2016 (10) TMI 1277 - AT - Income Tax

Transfer Pricing adjustment - Comparable selection - HELD THAT - Assessee company is engaged in developing software i.e. it is engaged in rendering designing, development and modification services relating to semi conductors for semi-conductor based products and also providing marketing support and financial and administrative support services to its AEs, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Infosys Ltd, Kals Info Systems,Tata Elxsi Ltd,Thirdware Solutions Ltd, Bodhtree Consulting Ltd, Persistent Systems Ltd ,Thinksoft Global Services Ltd, Comp U-Learn Tech India Ltd to be rejected accordingly. Computation of deduction u/s 10A - HELD THAT - Exclude telecommunication charges both from export turnover as well as the total turnover for computation of deduction u/s 10A of the Act. We find that this issue is covered in favour of the assessee by the decision Tata Elxsi Ltd 2011 (8) TMI 782 - KARNATAKA HIGH COURT .

Summary

Issues Involved:
1. Transfer Pricing Adjustment (Ground Nos. 1 to 9)
2. Corporate Issues (Ground Nos. 10 & 11)
3. Exclusion of Telecommunication Charges from Export Turnover and Total Turnover for Deduction u/s 10A (Revenue's Appeal)

Detailed Analysis:

1. Transfer Pricing Adjustment (Ground Nos. 1 to 9):

Main Contention:
The assessee challenged the comparability of certain companies selected by the Transfer Pricing Officer (TPO) for determining the Arms' Length Price (ALP).

Key Points:
- The assessee provided a chart detailing the companies taken as comparable by the TPO and those challenged by the assessee.
- The TPO aggregated all transactions under the Transactional Net Margin Method (TNMM) and conducted a Functional, Asset, and Risk (FAR) analysis, selecting 17 companies as comparables.
- The assessee accepted six companies but contested others based on functional dissimilarities, supported by decisions from Coordinate Benches.

Tribunal's Decision:
- The Tribunal admitted the additional grounds of appeal and remanded the issue of comparability of the contested companies to the TPO for reconsideration.
- The Tribunal directed the exclusion of certain companies (Infosys Ltd, Kals Info Systems, Tata Elxsi Ltd, Thirdware Solutions Ltd, Bodhtree Consulting Ltd, Persistent Systems Ltd, Thinksoft Global Services Ltd, Comp U-Learn Tech India Ltd) based on precedents and functional dissimilarities.
- For companies like Zylog Systems Ltd and Sasken Communication Technologies Ltd, the Tribunal remanded the issue to the TPO for fresh adjudication due to lack of segmental details and impact of acquisitions.

2. Corporate Issues (Ground Nos. 10 & 11):

Ground No. 10:
- The assessee claimed that the Dispute Resolution Panel (DRP) failed to adjudicate certain objections raised.
- The Tribunal found that the DRP neither reproduced nor adjudicated these grounds and remanded the issues to the DRP for proper adjudication.

Ground No. 11:
- The issue concerned the correct credit of prepaid taxes (advance tax & MAT credit).
- The Tribunal remanded this ground to the DRP for verification and granting relief after verification of the assessee’s claim.

3. Exclusion of Telecommunication Charges from Export Turnover and Total Turnover for Deduction u/s 10A (Revenue's Appeal):

Main Contention:
- The Revenue contested the DRP's direction to exclude telecommunication charges from both export turnover and total turnover for computing deduction u/s 10A.

Tribunal's Decision:
- The Tribunal found the issue covered in favor of the assessee by the Karnataka High Court's decision in Tata Elxsi Ltd (349 ITR 98).
- The Tribunal rejected the Revenue's appeal and upheld the exclusion of telecommunication charges from both export turnover and total turnover.

Conclusion:
- The assessee's appeal was partly allowed, with issues remanded to the TPO and DRP for further consideration.
- The Revenue's appeal was dismissed, affirming the exclusion of telecommunication charges from both export turnover and total turnover for deduction u/s 10A.