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2017 (11) TMI 1591 - AT - Income TaxTPA - comparable selection criteria - Held that - UT Starcom Inc s India Branch assessee is the Indian Branch of UTS US and is into providing software development services to UTS US and IT enabled customer support services to the group customers in the Asia-Pacific region, thus companies functionally dissimilar with that of assessee need to be deselection from final list.
Issues Involved:
1. Denial of claim under Section 10A of the Act. 2. Transfer Pricing (TP) adjustment. 3. Interest under section 234D and section 244A of the Act. 4. Penalty proceedings under section 271(1)(c) of the Act. Issue-wise Detailed Analysis: 1. Denial of Claim under Section 10A of the Act: The taxpayer argued that the AO, under the directions of the DRP, erred in denying the claim of deduction under Section 10A amounting to ?58,57,059. The taxpayer contended that there was an export of software by the Indian branch to the head office, and that the branch should be considered a separate taxable entity capable of earning profits. The taxpayer also argued that the approach adopted by the AO and DRP was inconsistent with judicial precedents and principles of consistency. However, the Tribunal did not provide a detailed adjudication on this ground, as it was not pressed by the taxpayer, and thus, it was dismissed as not pressed. 2. Transfer Pricing (TP) Adjustment: The taxpayer challenged the TP adjustment of ?49,10,761 made by the TPO, upheld by the DRP, regarding IT enabled services (ITES) rendered to its Associated Enterprise (AE). The taxpayer had chosen 20 comparables, out of which the TPO selected 10, and finally 5 comparables were retained after the DRP's intervention. The taxpayer sought the exclusion of four comparables: Accentia Technologies Ltd., Cosmic Global Limited, Crossdomain Limited, and Infosys BPO Limited, on grounds of functional dissimilarity and extraordinary events affecting their profitability. - Accentia Technologies Ltd.: The Tribunal noted that Accentia had undergone significant acquisitions and restructuring, making it functionally dissimilar and affecting its profitability. The Tribunal referred to previous decisions excluding Accentia from comparables due to extraordinary events and functional differences, and directed its exclusion. - Cosmic Global Limited: The Tribunal observed that Cosmic had a different business model, with significant outsourcing and volatile profits, making it incomparable. Previous decisions had excluded Cosmic on similar grounds, and the Tribunal followed suit. - Crossdomain Limited: The Tribunal found that Crossdomain was engaged in high-end KPO services and development of information systems, unlike the taxpayer's low-end ITES services. The Tribunal referred to previous decisions and functional profiles, directing the exclusion of Crossdomain. - Infosys BPO Limited: The Tribunal noted that Infosys BPO was a giant company with significant brand value and had undergone mergers and acquisitions, impacting its profitability. The Tribunal referred to previous decisions excluding Infosys BPO due to functional dissimilarity and scale, and directed its exclusion. 3. Interest under Section 234D and Section 244A of the Act: The taxpayer argued that the AO erred in withdrawing interest under section 244A and levying interest under section 234D consequent to the disallowances. The Tribunal noted that this ground was consequential in nature and did not require separate adjudication. 4. Penalty Proceedings under Section 271(1)(c) of the Act: The taxpayer contended that the AO erred in initiating penalty proceedings under section 271(1)(c) consequent to the disallowances. The Tribunal observed that this ground was premature and did not require adjudication at this stage. Conclusion: The appeal was partly allowed. The Tribunal directed the exclusion of Accentia Technologies Ltd., Cosmic Global Limited, Crossdomain Limited, and Infosys BPO Limited from the final set of comparables for benchmarking the international transactions. The grounds related to the denial of claim under Section 10A, interest under sections 234D and 244A, and penalty proceedings under section 271(1)(c) were either dismissed as not pressed, noted as consequential, or deemed premature for adjudication.
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