9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (2) TMI 1296 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT - The fact that the TPO rejected the TP study of the Assessee cannot be the basis not to consider the claim of the Assessee for inclusion of comparable companies. CPC excluded the companies only on the ground that information related to these companies was not available in the public domain and this fact was shown to be an incorrect assumption by the Assessee in the submissions before the DRP. In such circumstances it was incumbent 011 the part of the DRP to have adjudicated the question of inclusion of the companies as comparable companies. The fact that these companies do not figure in the search matrix of the TPO is not and cannot be a ground not to consider inclusion of these companies as comparable companies. Since the DRP has failed to do so we are of the view that the issue regarding inclusion of the aforesaid companies as comparable companies should be set aside to for fresh consideration in the light of the information available in public domain. Thus ground as treated as allowed for statistical purposes.
Issues Involved:
1. Determination of Arm's Length Price (ALP) for Software Development Services. 2. Choice of comparable companies for Transfer Pricing. 3. Application of turnover filter for selecting comparable companies. 4. Inclusion of specific companies as comparable companies. Detailed Analysis: 1. Determination of Arm's Length Price (ALP) for Software Development Services: The core issue in the appeal was the determination of the ALP for the international transaction of rendering Software Development Services (SWD) by the Assessee to its Associated Enterprise (AE). The Assessee had adopted the Transaction Net Margin Method (TNMM) as the Most Appropriate Method (MAM) for determining the ALP and selected Operating Profit/Operating Cost (OP/OC) as the Profit Level Indicator (PLI). The Assessee's OP/OC was computed at 12.69%. The Transfer Pricing Officer (TPO) accepted the TNMM and PLI but reworked the PLI to 24.83% based on a set of 13 comparable companies, resulting in an adjustment of Rs. 2,03,45,142 to the Assessee's total income. 2. Choice of Comparable Companies for Transfer Pricing: The Assessee contested the inclusion of certain companies by the TPO on grounds of functional dissimilarity, super profit, and high turnover. The Assessee sought the exclusion of 10 companies but later pressed for the exclusion of only 7 companies. The Tribunal noted that the TPO excluded companies with low turnover but did not apply the same yardstick for companies with high turnover. The Tribunal referenced several decisions, including the Hon'ble Delhi High Court in Chryscapital Investment Advisors India Pvt. Ltd. vs. DCIT and the ITAT Bangalore Bench in Dell International Services India (P) Ltd. vs. DCIT, which supported the exclusion of companies with significantly higher turnover. 3. Application of Turnover Filter for Selecting Comparable Companies: The Tribunal upheld the application of the turnover filter, stating that companies with a turnover of Rs. 1 crore to Rs. 200 crores should be considered comparable. The Tribunal referenced decisions such as Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT and Autodesk India Pvt. Ltd. vs. DCIT, which supported the exclusion of companies with high turnover. Consequently, the Tribunal directed the exclusion of 7 companies from the list of comparables due to their turnover exceeding Rs. 200 crores. 4. Inclusion of Specific Companies as Comparable Companies: The Assessee also sought the inclusion of 6 specific companies as comparables, arguing that data for these companies was available in the public domain. The DRP had rejected this plea, stating that the TPO had not included these companies in his search matrix. The Tribunal found this reasoning flawed, noting that the availability of data in the public domain should have been considered. The Tribunal set aside the issue for fresh consideration by the TPO/AO, directing them to reassess the inclusion of these companies as comparables. Conclusion: The Tribunal partially allowed the appeal, directing the TPO/AO to recompute the ALP for the international transaction of rendering SWD services by the Assessee to its AE, considering the exclusion of certain high-turnover companies and reassessing the inclusion of specific companies as comparables. The Tribunal emphasized the importance of applying a consistent turnover filter and considering publicly available data for comparability analysis.
|
