2019 (2) TMI 2085 - AT - Income Tax

TP Adjustment - comparable selection - Assessee as Providing ITES services - HELD THAT - Accentia Technologies Ltd., and Acropetal Technologies Ltd., should be excluded from the list of comparable companies as functionally dissimilar. ICRA Online Ltd. is concerned, the RPT in the case ICRA Online Ltd., needs to be verified by the TPO and if the RPT is more than 15% of the total revenue of this company then the same should be excluded. Jeevan Scientific Technology is concerned, the TPO is directed to examine the comparability of this company as was directed by the Tribunal in the case of Swiss Re Shared Services India Pvt. Ltd 2016 (7) TMI 1359 - ITAT BANGALORE . TPO is directed to compute the ALP as per the directions given above after affording opportunity of being heard to the assessee.

Summary

Issues:
1. Determination of arms length price for software development services.
2. Determination of arms length price for IT enabled services.
3. Exclusion of comparable companies in software development segment.
4. Exclusion of comparable companies in IT enabled services segment.

Software Development Services Segment:
The appeal concerns the correctness of determining the arms length price (ALP) for international transactions of rendering software development services and IT enabled services. The Transfer Pricing Officer (TPO) chose the Transactional Net Margin Method (TNMM) with Operating profit to Operating Cost (OP/OC) as the profit level indicator. The TPO initially selected 13 comparable companies for the software development segment, resulting in an addition to the total income. Upon objection, the Dispute Resolution Panel (DRP) excluded 6 companies, leaving 7 for comparison. The appellant sought to exclude 3 more companies, citing previous judicial decisions. The Tribunal agreed to exclude the 3 companies due to lack of comparability based on revenue and services provided.

ITES Segment:
In the IT enabled services segment, the TPO selected 10 comparable companies for determining the ALP. The appellant objected to 4 companies, seeking their exclusion. The Tribunal examined previous decisions and excluded Accentia Technologies Ltd. and Acropetal Technologies Ltd. due to specific reasons related to mergers and services provided. For ICRA Online Ltd., verification of related party transactions (RPT) was deemed necessary. Regarding Jeevan Scientific Technology Ltd., the TPO was directed to reassess comparability based on segmental revenue. The TPO was instructed to compute the ALP based on the exclusions and verifications, affording the appellant an opportunity to be heard.

Conclusion:
The Tribunal partially allowed the appeal, directing the TPO to exclude specific companies, verify RPT for ICRA Online Ltd., and reassess Jeevan Scientific Technology Ltd. for comparability. The decision was pronounced on 15th February 2019, with other grounds of appeal not pursued for adjudication.