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2024 (6) TMI 1284 - AT - Income TaxIssues Involved: 1. Transfer Pricing Adjustment 2. Non-grant of Working Capital Adjustment 3. Exclusion and Inclusion of Comparables 4. Corporate Tax Issues Detailed Analysis: 1. Transfer Pricing Adjustment: The case revolves around the transfer pricing adjustment for the assessment year 2017-18. The assessee, a subsidiary of Intuit Inc., engaged in software development services, used the Transactional Net Margin Method (TNMM) with Operating Profit/Operating Cost (OP/OC) as the Profit Level Indicator (PLI) to compute its margin at 15.25%. The assessee selected 12 comparables with a median of 7.37%. However, the Transfer Pricing Officer (TPO) was dissatisfied and shortlisted 20 comparables with a median of 26.18%, leading to a proposed transfer pricing adjustment of Rs. 81,27,50,580/-. The Dispute Resolution Panel (DRP) made some adjustments, resulting in a final transfer pricing adjustment of Rs. 70,88,21,288/-. 2. Non-grant of Working Capital Adjustment: The assessee challenged the TPO's determination of a negative working capital adjustment, which was upheld by the DRP. The Tribunal referred to Rule 10B(3) of the Income-tax Rules, 1962, which mandates adjustments for differences in economic factors. The Tribunal cited previous decisions, including Lam Research (India) Pvt. Ltd. v. DCIT and DCIT v. Software AG Bangalore Technologies Pvt. Ltd., which established that negative working capital adjustment should not be made for a captive service provider. Consequently, the Tribunal directed that no negative working capital adjustment shall be carried out. 3. Exclusion and Inclusion of Comparables: The assessee sought the exclusion of several comparables and the inclusion of others. The Tribunal analyzed each comparable based on functional similarity, segmental details, and the presence of intangibles. - Exclusion of Comparables: - Larsen & Toubro Infotech Ltd. and Infosys Ltd.: Excluded due to functional dissimilarity, ownership of intangibles, and lack of segmental details. - Persistent Systems Ltd.: Excluded for being predominantly engaged in product development and lacking segmental details. - Infobeans Technologies Ltd.: Excluded for functional dissimilarity and lack of segmental details. - Tata Elxsi Ltd.: Excluded for being engaged in high-end services and R&D activities, with no segmental details. - Mindtree Ltd. and Nihilent Ltd.: Excluded for failing the turnover filter and being functionally dissimilar. - Great Software Laboratory Pvt. Ltd.: Excluded for being engaged in diverse activities and owning significant intangibles. - Cygnet Infotech Pvt. Ltd.: Excluded for being an independent entrepreneur owning intangibles. - Cybage Software Pvt. Ltd.: Excluded for diversified activities and lack of segmental details. - Inclusion of Comparables: - Batchmaster Software Pvt. Ltd.: Remanded back to the TPO for comparability analysis based on the FAR of the assessee. - Indianic Infotech Ltd.: Remanded back to the TPO for necessary verification based on annual reports and filters. 4. Corporate Tax Issues: The assessee raised issues regarding computational errors, incorrect consideration of returned income, and erroneous levy of interest under sections 234A, 234B, and 234C of the Income-tax Act. The Tribunal directed the Assessing Officer (AO) to verify the claims and consider the assessee's submissions in accordance with the law. Conclusion: The appeal was partly allowed, with specific directions for the exclusion and inclusion of comparables, non-grant of negative working capital adjustment, and verification of corporate tax issues. The Tribunal emphasized the need for detailed functional analysis and adherence to established legal principles in transfer pricing cases.
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