2018 (1) TMI 1351 - AT - Income Tax

Transfer pricing adjustments - two segments i.e. Software Research & Development Service and Information Technology (IT) back-office support services - exclusion and inclusion of certain comparables - Held that - the grounds of the appeal related to transfer pricing adjustment are allowed partly for statistical purpose. Exemption u/s 10A - allocation of directors remuneration between STP unit and non-STP unit - Held that - matter remanded back to the file of the AO for fresh examination.

Summary

Issues Involved:

1. Validity of the final assessment order.
2. Upward adjustment in total income due to transfer pricing and corporate tax matters.
3. Transfer Pricing Grounds (exclusion/inclusion of comparables, economic analysis, application of filters, etc.).
4. Corporate Tax Grounds (allocation of director’s salary, penalty under section 271(1)(c), and interest under section 234B).

Detailed Analysis:

1. Validity of the Final Assessment Order:
The appellant challenged the validity of the final assessment order dated 15 December 2014, asserting it was "bad in law and void-ab-initio." This issue was covered under the broader adjudication of other grounds and did not require specific adjudication.

2. Upward Adjustment in Total Income:
The appellant contended that the AO erred in computing the total income at INR 33,20,95,411 against the returned income of INR 28,10,94,267, making an upward adjustment of INR 4,89,94,226 and INR 20,06,918 concerning transfer pricing and corporate tax matters respectively.

3. Transfer Pricing Grounds:
- Exclusion/Inclusion of Comparables:
- TCS E-serve International Ltd. and TCS E-serve Ltd.: The Tribunal upheld the DRP's decision to retain these companies as comparables, rejecting arguments about functional dissimilarity, non-availability of segment information, deemed related party transactions, and impact of the 'Tata' brand.
- Accentia Technologies Ltd.: The Tribunal directed the exclusion of this company due to lack of segment information and extraordinary events, following the precedent set in the appellant's own case for assessment year 2009-10.
- Infosys BPO Ltd.: The Tribunal upheld the inclusion of this company, rejecting arguments related to functional dissimilarity, high brand value expenses, large scale operations, and acquisition impact.
- CG VAK Software and Exports Ltd.: The Tribunal directed the inclusion of this company, rejecting the turnover filter criteria, following the precedent set in the appellant's own case for assessment year 2009-10.
- R Systems International Ltd.: The Tribunal directed the inclusion of this company, despite having a different financial year, following the precedent set in the appellant's own case for assessment year 2009-10.

- Economic Analysis and Application of Filters:
The appellant’s grounds regarding rejection of economic analysis, application of arbitrary filters, and non-consideration of multiple-year data were not pressed before the Tribunal and were dismissed as infructuous.

4. Corporate Tax Grounds:
- Allocation of Director’s Salary:
The Tribunal remanded the issue back to the AO for fresh examination, following the precedent set in the appellant's own case for assessment years 2008-09 and 2009-10.

- Penalty under Section 271(1)(c) and Interest under Section 234B:
These grounds were consequential to the additions made in the assessment order and were not specifically adjudicated upon.

Conclusion:
The appeal was partly allowed for statistical purposes. The Tribunal directed the AO/TPO to exclude Accentia Technologies Ltd. and include CG VAK Software and Exports Ltd. and R Systems International Ltd. as comparables. The issue of allocation of director’s salary was remanded back to the AO for fresh examination.