2019 (12) TMI 607 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - Assessee is engaged in providing software development services to its Associated Enterprises (AE) i.e. Sybase Inc. and also engaged in carrying out the distribution of Sybase Inc. products in India thus companies functionally dissimilar with that of assessee need to be deselected from final list.

Summary

Issues involved:
Transfer Pricing Adjustments for AY 2010-11 and 2011-12, Exclusion of Comparable Entities, Grant of TDS Credit

Transfer Pricing Adjustments for AY 2010-11:

The appeal contested Transfer Pricing (TP) adjustments made in the final assessment order for AY 2010-11. The appellant argued that the AO erred in making adjustments related to the international transaction of provision of software research and development to Associated Enterprises. The AO did not adhere to the directions of the Dispute Resolution Panel to exclude one comparable entity, Infosys Technologies Limited, resulting in a higher adjustment. The appellant also challenged the inclusion of various companies in the comparables set that were not functionally comparable and had substantially higher turnover. The appellant sought the adjustment to be deleted and full credit for tax deducted at source to be granted. The income of the assessee was determined with a TP adjustment of ?279.79 Lacs. The TPO recomputed the mean margin and proposed the adjustment, which was objected to before the DRP.

Exclusion of Comparable Entities for AY 2010-11:

The AR argued for the exclusion of three remaining entities introduced by the TPO: KALS Information Systems Ltd., Persistent Systems Ltd., and Wipro Ltd. (segment). The AR provided detailed arguments for each entity's exclusion based on functional non-comparability and lack of segmental results for comparison. The Tribunal directed the exclusion of KALS Information Systems Ltd., Persistent Systems Ltd., and Wipro Ltd. (segment) based on the arguments presented and relevant legal precedents. The appeal was partly allowed based on the exclusion of these entities.

Grant of TDS Credit for AY 2010-11:

The appellant was aggrieved by the short grant of credit for Tax Deducted at Source (TDS). The Tribunal directed the AO to verify the claim of the appellant for TDS credit and grant it as per law after due verification. The appeal was partly allowed for statistical purposes based on this direction.

Transfer Pricing Adjustments for AY 2011-12:

Similar to AY 2010-11, the appeal contested TP adjustments for AY 2011-12. The AR sought the exclusion of two entities, Infosys Technologies Ltd. and Wipro Ltd., based on previous Tribunal decisions. The Tribunal directed the exclusion of these entities following the arguments presented and decisions made for AY 2010-11. The TP ground was partly allowed in this regard.

Grant of TDS Credit for AY 2011-12:

The appellant raised concerns about the short grant of TDS credit for AY 2011-12. The Tribunal directed the AO to verify the claim for TDS credit and grant it as per law after due verification. The appeal was partly allowed for statistical purposes based on this direction.

Conclusion:

Both appeals were partly allowed based on the exclusion of comparable entities and the directions regarding TDS credit. The orders were pronounced in open court on 11th November 2019.