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2015 (3) TMI 267 - AT - Income TaxTransfer Pricing adjustment - Improper Selection of Comparables - Held that - Following the decision of the co-ordinate bench of this Tribunal in the case of Agile Software Enterprises Pvt. Ltd. (2015 (1) TMI 600 - ITAT BANGALORE), we hold that the three companies Megasoft Ltd., Aztech Software Ltd. and Geometric Software Ltd. be excluded from the list of comparables. - Decided against revenue KALS Information Systems Ltd. was developing software products and not purely or mainly software development service provider. We therefore accept the plea of the Assessee that this company is not comparable was not comparable in the case of the assessees engaged in software development services business. Accepting the argument of the ld. counsel for the assessee, we hold that the aforesaid company should be excluded as comparables - Decided against revenue Accel Transmatic Ltd. has also been considered as a software product company, thus directed be excluded from the comparables. - Decided against revenue Tata Elxsi Ltd. has to be excluded from the list of comparable chosen by the TPO as the assessee before us is not developing any niche product. - Decided against revenue R. Systems International Ltd. the learned Authorised Representative of the assessee could not demonstrate that the revenue of ₹ 79.42 Crores is mainly from license fees or product development. In these factual circumstances, we find no reason to contradict the finding of the TPO that this company is mainly into software development services and therefore its inclusion by the TPO in the list of comparables cannot be faulted. This finding of ours is in tune with the decisions in transfer pricing appeals decided by the coordinate benches of this Tribunal, wherein the status of this company as being a software development services entity was not disputed. In this view of the matter, we uphold the inclusion of this company as a comparable company by the TPO - Decided against assessee. Deduction u/s. 10A - Held that - It would be just and appropriate to direct the Assessing Officer that freight, telecommunication charges and insurance charges incurred in foreign currency are to be excluded from both export turnover as well as total turnover while computing the deduction under Section 10A of the Act, as has been prayed by the assessee in its alternate plea at Ground raised . In view of the acceptance of the alternate plea of the assessee, we are of the view that no adjudication is called for on Ground as to whether the aforesaid expenditure are required to be excluded from export turnover. - Decided in favour of assessee.
Issues Involved:
1. Transfer Pricing Adjustments 2. Deduction under Section 10A of the Income Tax Act 3. Charging of Interest under Sections 234B, 234C, and 234D 4. Arithmetical Mistake in Income Computation Detailed Analysis: Transfer Pricing Adjustments: Grounds 1 to 7: The appellant raised issues regarding the Transfer Pricing (T.P.) adjustments made by the Assessing Officer (AO) based on the Transfer Pricing Officer's (TPO) order, which were upheld by the Dispute Resolution Panel (DRP). - General Grounds (Dismissed): The appellant did not press the general grounds on T.P. matters and restricted submissions to the comparability of individual companies selected by the TPO. - Comparability of Companies: The appellant challenged the comparability of certain companies selected by the TPO on the grounds of turnover, functional dissimilarity, and related party transactions (RPT). - Turnover Filter of Rs. 200 Crores: The Tribunal held that companies with turnover exceeding Rs. 200 Crores should be excluded from the list of comparables. Six companies were excluded based on this criterion, following the precedent set in the case of Triology E-business Software India Pvt. Ltd. - Related Party Transactions Exceeding 15%: Three companies were excluded from the list of comparables as their RPT exceeded 15%, in line with the decision in Agile Software Enterprises Pvt. Ltd. - Functionally Different Companies: Four companies were excluded for being functionally different from the appellant, following the decision in Agile Software Enterprises Pvt. Ltd. The companies excluded were KALS Information Systems Ltd., Tata Elxsi Ltd. (Seg.), Accel Transmatics Ltd. (Seg.), and R Systems International Ltd. (Seg.). Deduction under Section 10A of the Income Tax Act: Grounds 8 & 9: The appellant challenged the exclusion of expenses incurred in foreign currency towards freight, telecommunication, and insurance from the export turnover while computing the deduction under Section 10A. - Alternate Plea: The Tribunal directed that such expenses should be excluded from both export turnover and total turnover, following the decision of the Karnataka High Court in CIT V Tata Elxsi Ltd. Charging of Interest under Sections 234B, 234C, and 234D: Ground 10: The appellant challenged the charging of interest under Sections 234B, 234C, and 234D. - Tribunal's Decision: The Tribunal upheld the AO's action, stating that charging of interest under these sections is consequential and mandatory. The AO was directed to re-compute the interest chargeable while giving effect to the order. Arithmetical Mistake in Income Computation: Ground 11: The appellant contended that there was an arithmetical mistake in computing the taxable income. - Tribunal's Decision: The AO was directed to examine the veracity of the appellant's claim and make the computation of income as per law. Conclusion: The appellant's appeal for Assessment Year 2006-07 was partly allowed, with specific directions given for re-computation of the Arm's Length Price (ALP) and interest, and correction of any arithmetical errors in income computation. The Tribunal's decisions were based on precedents and legal principles regarding turnover filters, related party transactions, and functional comparability.
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