9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (10) TMI 1339 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT - Infosys Ltd. - As the assessee had sought for exclusion of only Infosys Limited based on the turnover filter. We find that the turnover of Infosys Limited is Rs.43,300 crore, which is thousand times more than the turnover of the assessee-company. Therefore Infosys Limited cannot be compared to the assessee, in view of the judicial pronouncements cited supra. Hence, we direct the AO / TPO to exclude Infosys Limited from the list of comparables. For eight other comparables, we find that the assessee before the Income Tax Authorities has not sought for exclusion of the same on turnover filter. Therefore, the eight companies sought to be excluded on turnover filter are restored to the files of the AO / TPO. The AO / TPO is directed to verify the turnover of these eight companies and exclude the same from the list of comparables if the turnover of each company had exceeded Rs.200 crore for the relevant assessment year. Infobeans Technologies Limited - In the instant case, the assessee is a captive service provider to its AEs and the concerned assessment year is 2015-2016. The Tribunal in the case of Zynga Game Network India Private Limited ( 2021 (4) TMI 208 - ITAT BANGALORE was considering a case of an assessee, who is also a capital service provider to its AEs and was concerned with identical assessment year, namely, A.Y. 2015-2016. Therefore, following the order of the Tribunal in the case of Zynga Game Network India Private Limited (supra), we direct the AO / TPO to exclude Infobeans Technologies Limited from the list of comparables. It is ordered accordingly. Inteq Software Private Limited - On perusal of the abridged balance sheet of Inteq Software Private Limited, it is clear Inteq Software Private Limited is involved in multifarious services such as application services, software testing, data warehousing, EDI, BPO, staffing etc. However, we noticed from the AO / TPO and the DRP s order, it is stated that Inteq Software Private Limited is only involved in software development services and the entire turnover is from such service. It is not clear how DRP had arrived at such a conclusion. The profit and loss account of Inteq Software Private Limited is not on record. Therefore, we are not in a position to verify the veracity of the findings of the AO / TPO and the DRP, which is contrary to the narration in the balance sheet of Inteq Software Private Limited. Therefore, we deem it appropriate to restore this issue to the files of AO / TPO. The AO / TPO is directed to afford a reasonable opportunity of hearing to the assessee and decide whether Inteq Software Private Limited is to be included in the comparable list of companies. Aspire Systems (India) Private Limited - On perusal of the balance sheet of Aspire Systems (India) Private Limited, it is seen that the said company is an outsourced technology service company. It is also stated in the balance sheet that there is income from power generation. Since the profit and loss account of the assessee company is not enclosed, we are not in a position to examine the DRP s statement that Aspire Systems (India) Private Limited is a pure software development service provider. Therefore, in the facts of the instant case, we deem it appropriate to restore the issue to the files of the AO / TPO. The AO / TPO is directed to afford a reasonable opportunity of hearing to the assessee and take a decision whether Aspire Systems (India) Private Limited can be a comparable. Kals Information Systems Limited, E-Zest Solutions Limited, and CGVAK Software Exports Limited - As it is clear that the above three companies were accepted as comparable, however, in the final list of comparables, the same was omitted to be included. Hence, we direct the AO / TPO to include the same in the final list of comparables for determination of arm s length price of the international transaction.
Issues Involved:
1. Transfer Pricing Adjustment 2. Selection of Comparable Companies 3. Application of Turnover Filter 4. Functional Comparability 5. Inclusion/Exclusion of Specific Companies Detailed Analysis: 1. Transfer Pricing Adjustment: The appeal concerns the assessee's challenge against the final assessment order dated 01.10.2019, which involves a transfer pricing adjustment for the assessment year 2015-2016. The assessee, a private limited company engaged in software development services to its Associate Enterprises (AEs), filed its return of income on 27th November 2015, declaring a total income of Rs.8,02,38,163. The case was referred to the Transfer Pricing Officer (TPO) to determine the Arm’s Length Price (ALP) of the international transactions. The TPO rejected the assessee's transfer pricing study and made an adjustment of Rs.4,18,31,197 in the software development segment. 2. Selection of Comparable Companies: The assessee initially selected fourteen companies as comparable in its transfer pricing study using the Transactional Net Margin Method (TNMM). The TPO, however, rejected this study, conducted a fresh search, and selected thirteen comparables with a median operating margin of 31.69%, leading to the said adjustment. The assessee contested the inclusion of twelve companies and sought the inclusion of three others. 3. Application of Turnover Filter: The assessee argued for the exclusion of nine companies based on the turnover filter, citing that companies with very high turnover cannot be compared to the assessee, whose turnover was only Rs.42.56 crore. The Tribunal referenced the judgment of the Hon’ble Bombay High Court in CIT v. Pentair Water Private Limited, which supports excluding companies with a turnover exceeding Rs.200 crore. 4. Functional Comparability: The assessee sought the exclusion of Aspire Systems (India) Private Limited and Inteq Software Private Limited on the grounds of functional dissimilarity. Aspire Systems was involved in multifarious activities, including power generation, while Inteq Software provided a range of services beyond software development. The Tribunal restored these issues to the AO/TPO for verification. 5. Inclusion/Exclusion of Specific Companies: The Tribunal directed the exclusion of Infosys Limited due to its significantly higher turnover. For the other eight companies, the Tribunal ordered the AO/TPO to verify their turnover and exclude them if it exceeded Rs.200 crore. The Tribunal also directed the exclusion of Infobeans Technologies Limited, following a precedent set in a similar case, Zynga Game Network India Private Limited, due to its diversified services. Inclusion of Three Companies: The Tribunal noted that the TPO had accepted Kals Information Systems Limited, E-Zest Solutions Limited, and CG-VAK Software & Exports Limited as comparables but omitted them in the final list. The Tribunal directed their inclusion in the final list of comparables. Conclusion: The appeal was partly allowed, with specific directions to exclude certain companies based on turnover and functional dissimilarity and to include others that were initially accepted but omitted in the final list. The Tribunal emphasized the importance of adhering to judicial precedents and ensuring accurate comparability in transfer pricing assessments.
|
