2017 (11) TMI 565 - AT - Income Tax

TPA - selection of comparable - Held that - Assessee has provided software development services i.e. IT services and also IT enable services i.e. ITES services to its associate enterprises, thus companies functionally dissimilar with that of assessee need to be deselected fro final list.

Summary

Issues Involved:
1. Allowing benefit of ±5% in the computation of arm’s length price under section 92C(2A) of the Income Tax Act.
2. Exclusion of certain companies from the set of comparables for benchmarking IT and ITES segments.
3. Condonation of delay in filing the cross-objection by the assessee.
4. Computation of deduction under section 10A of the Income Tax Act by reducing certain expenses from total turnover.

Detailed Analysis:

1. Allowing Benefit of ±5% in Computation of Arm’s Length Price:
The Revenue contested the CIT(A)'s decision to allow the benefit of ±5% in the computation of arm’s length price under section 92C(2A) of the Income Tax Act. The CIT(A) had allowed this benefit, which was disputed by the Revenue on the grounds of a retrospective amendment made by subsection 2A of section 92C of the IT Act. The Tribunal upheld the CIT(A)’s decision, confirming the benefit of ±5% in the computation of arm’s length price.

2. Exclusion of Certain Companies from Set of Comparables:
The Tribunal addressed the exclusion of various companies from the set of comparables for benchmarking IT and ITES segments.

- Exensys Software Solutions Ltd.: The Tribunal upheld the CIT(A)'s decision to exclude Exensys Software Solutions Ltd. due to extraordinary events like amalgamation affecting its financial results.

- Infosys Technologies Ltd.: The Tribunal directed the exclusion of Infosys Technologies Ltd. due to its hybrid business model and significant differences in scale and operations compared to the assessee.

- Thirdware Solutions Ltd.: The Tribunal excluded Thirdware Solutions Ltd. as it had a hybrid business model and lacked segmental data between product and service segments.

- Vishal Information Technologies Ltd.: The Tribunal excluded this company due to its significant outsourcing model, which differed from the in-house operations of the assessee.

- Wipro BPO Solutions Ltd.: The Tribunal excluded Wipro BPO Solutions Ltd. due to its large scale of operations and brand value, which were not comparable to the assessee.

- Mapple E-Solutions Ltd.: The Tribunal excluded Mapple E-Solutions Ltd. due to unreliable financial results stemming from fraudulent activities by its directors.

3. Condonation of Delay in Filing Cross-Objection:
The assessee's cross-objection was filed 557 days late. The Tribunal noted the reasons provided by the assessee, including reliance on a favorable CIT(A) ruling and subsequent advice to file the cross-objection following a Special Bench decision. However, the Tribunal found no satisfactory cause for the delay and did not condone it. Instead, the Tribunal allowed the assessee to raise issues decided against it by invoking Rule 27 of the Tribunal Rules, enabling the assessee to defend the CIT(A)'s order without filing an appeal.

4. Computation of Deduction under Section 10A:
The Revenue challenged the CIT(A)'s direction to recompute the deduction under section 10A by reducing certain expenses from the total turnover. The CIT(A) had ruled that expenses such as telecommunication and insurance should be excluded from both export turnover and total turnover. The Tribunal confirmed the CIT(A)'s decision, referencing the Bombay High Court's ruling in the assessee's favor for previous assessment years, which supported the exclusion of such expenses from both export and total turnover.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's plea under Rule 27 of the Tribunal Rules, confirming the exclusion of certain comparables and upholding the CIT(A)'s computation of deduction under section 10A. The Tribunal's decision was pronounced in the open court on 18-10-2017.