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2023 (7) TMI 125 - AT - Income TaxTP adjustment - comparable selection - HELD THAT - Exclude Mind Tree Ltd. from the list of comparables to determine the ALP of international transactions as functionally dissimilar, diversified operation, significant R D spend, ownership of intangibles. L T Infotech Ltd be excluded as it is software product company and segmental information on SWD services was not available. Infobeans Technologies Ltd be excluded as it categorises the diversify services provided by this company under software development segment. We also note that this company is basically into application development for web and mobile and provides customised services to its offshore clients comprising. Entire revenue received by this comparable ease under one single segment of sale of software. This company also owns software licenses. This comparable cannot be considered to be functioning in 100% risk mitigated environment and is a full-fledged enterprise. Such a comparable cannot be compared with a captive service provider like assessee. Persistent Systems Ltd. and Infosys Ltd.to be excluded as cannot be considered to be functioning in 100% risk mitigated environment and is a full-fledged enterprise. Such a comparable cannot be compared with a captive service provider like assessee. Include I2T2 India Ltd. and Infomile Technologies Ltd. in the list of comparables for determining the ALP of international transactions.
Issues Involved:
1. Validity of the order passed by the Joint Commissioner of Income Tax (JCIT) Special Range-6, Bengaluru. 2. Errors in the Dispute Resolution Panel (DRP) not appreciating the order of the Assistant Commissioner of Income-tax (Transfer Pricing) (TPO). 3. Upward adjustment to the transfer price of the Appellant's international transactions related to software development services. 4. Specific errors in the adjustment to the transfer price of software development services. 5. Levying of interest under section 234B of the Income-tax Act. Summary: Issue 1: Validity of the JCIT's Order The appellant contended that the order of the JCIT Special Range-6, Bengaluru was prejudicial, bad in law, and liable to be quashed. Issue 2: Errors in DRP's Appreciation of TPO's Order The appellant argued that the DRP erred in not appreciating that the TPO's order was contrary to law and should be quashed. Issue 3: Upward Adjustment to Transfer Price The appellant challenged the upward adjustment of INR 1,774,850,318 to the transfer price of its international transactions in respect of software development services. Issue 4: Specific Errors in Transfer Price Adjustment 4.1-4.6: The appellant claimed that the DRP/AO/TPO erred in rejecting the Transfer Pricing documentation, comparability analysis, and using non-contemporaneous data. They also argued against the use of secret comparables and disregarded certain filters applied by the appellant. 4.8: The Tribunal directed the exclusion of Mind Tree Ltd., L&T Infotech Ltd., Infobeans Technologies Ltd., Persistent Systems Ltd., and Infosys Ltd. from the list of comparables, based on functional dissimilarities, significant R&D activities, presence of intangibles, and other factors. 4.9: The Tribunal directed the inclusion of I2T2 India Ltd. and Infomile Technologies Ltd. as comparables, following the precedent set in similar cases. 4.11: The Tribunal remanded the issue of working capital adjustment back to the AO/TPO for reconsideration and directed them to grant suitable working capital adjustment on an actual basis. Issue 5: Levying of Interest under Section 234B The appellant challenged the levy of interest under section 234B of the Income-tax Act amounting to INR 321,000,259. Conclusion: The Tribunal partly allowed the appeal for statistical purposes, directing specific inclusions and exclusions of comparables and remanding the issue of working capital adjustment back to the AO/TPO for reconsideration. The appeal was adjudicated on the grounds pressed by the appellant, while other issues were dismissed as not pressed.
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