2013 (6) TMI 113 - AT - Income Tax

Transfer pricing adjustment - selection of comparable - Revenue determined ALP of the appellant’s international transaction of provision of software development services to its AE at R 26,93,99,396/- as against Rs 24,48,47,439/- declared by the assessee - benefit of +/-5% denied - Held that:- The amended Proviso denying the benefit has been brought on the statute by the Finance (No. 2) Act, 2009 with effect from 1.10.2009 which would be applicable prospectively and would not apply in respect of the stated assessment year, which is prior to the insertion of the amended Proviso with effect from 1.10.2009 & the proviso inserted by the Finance (No 2) Act, 2009 would not apply to an assessment year prior to its insertion.Thus no justification to deny the benefit of +/-5% to the assessee in terms of the erstwhile Proviso for the purposes of computing the ALP.

TPO in computing the transfer pricing adjustment using the financial information of the comparable companies available at the time of assessment - Held that:- No credible or cogent reasoning has been brought out to justify the use of multiple data of prior two years and the manner in which it would influence the determination of transfer pricing in relation to the impugned international transaction. Therefore, unable to accept such objection of the assessee against the action of TPO having used the data of the financial year 2005-06 of the comparable companies in order to benchmark the impugned international transaction. Thus, on this aspect, the assessee has to fail.

Selection of Comparable - Compucon Software Ltd - Held that:- As company has a high percentage of Related Party Transactions (RPT) exceeding 25% therefore,even on the basis of the threshold adopted by TPO the said company merits exclusion from the list of comparable companies. Secondly, even adopting the threshold of RPT at 25%, the said company is liable to be excluded. In favour of assessee.

Inclusion of ICSA (India) Ltd. as comparable - Held that:- No reasons have been advanced by the TPO to do away with the filter adopted by the assessee wherein assessee has excluded comparables wherein the sales are less than Rs One crore and also where the sale are in excess of Rs 50 crores on the basis of the turnover of the comparables TPO is not justified, on a selective basis, to ignore such filter and adopt a comparable company such as ICSA (India) Ltd. for the purposes of comparing international transaction in question which falls outside the search matrix. Even with regard to the filter applied by the assessee on the basis of the level of R & D expenses the situation remains the same. Therefore, once the TPO has accepted such filters in principle, clearly its application is unjustly ignored by him while including ICSA (India) Ltd. as a comparable company. Therefore, direct the TPO to exclude ICSA (India) Ltd. from the final set of comparables. In favour of assessee.

Inclusion of Kals Information System Ltd. as comparable - Held that:- The said company is engaged in development of software products and services and is not comparable to software development services provided by the assessee. All these aspects have not been factually rebutted thus the said concern is liable to be excluded from the final set of comparables. In favour of assessee.