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2015 (10) TMI 2020 - AT - Income TaxTransfer pricing adjustment - selection of comparables - Held that - M/S.Accel Transmatic Limited (seg.), Avani Cincom Technologies Ltd., Celestial labs Limited and KALS Infosystems Ltd., are concerned, this Tribunal in the case of First Advantage Offshore Services Pvt. Ltd. Vs. DCIT 2012 (9) TMI 924 - ITAT BANGALORE held that the aforesaid companies are not comparable companies in the case of software development services provider. As far as comparable companies listed at Sl.No.11 & 14 of the final list of comparable companies chosen by the TPO viz., M/S.Ishir Infotech Ltd. And Lucid Software Ltd. and companies listed at Sl.No.16 of the final list of comparable companies chosen by the TPO viz., M/S.Megasoft Limited is concerned, this Tribunal in the case of First Advantage Offshore Services Pvt. Ltd. Vs. DCIT IT (TP) 2012 (9) TMI 924 - ITAT BANGALORE held that the aforesaid companies are not comparable companies in the case of software development services provider. The nature of services rendered by the Assessee in this appeal and the Assessee in the case of First Advantage Offshore Services Pvt.Ltd.(supra) are one and the same. This fact would be clear from the fact that the very same 26 companies were chosen as comparable in the case of the Assessee as well as in the case of First Advantage Offshore Services Pvt.Ltd.(supra). As far as comparable companies listed at Sl.No.10, 24 & 26 of the final list of comparable companies chosen by the TPO viz., M/S.Infosys Technologies Limited, Tata Elxsi Ltd. (Seg.) & Wipro Limited are concerned, this Tribunal in the case of M/S. Curam Software International Pvt.Ltd. Vs. ITO 2014 (2) TMI 229 - ITAT BANGALORE has held that the aforesaid companies are not comparable companies in the case of software development services provider As far as comparable companies at Sl.No.5, 18, 19 and 25 of the final list of comparable companies chosen by the TPO are concerned, viz., M/S. E-Zest Solutions Ltd., Persistent Systems Ltd., Quintegra Solutions Limited and Third ware Solutions Ltd., this Tribunal in the case of 3DPLM Software Solutions Ltd. I.T (2014 (12) TMI 612 - ITAT BANGALORE) order was pleased to hold that the aforesaid companies are not comparable with a company engaged in Software Development Services such as the Assessee. As far as comparable chosen by the TPO at Sl.No.8 of the final list of comparable viz., M/S.Helios & Matheson Information Technology Ltd., we find that the said company has been held to be not comparable with a software service provider like the Assessee by the ITAT Pune Bench in the case of PTC Software (India)Pvt.Ltd. 2013 (4) TMI 741 - ITAT PUNE Flextronics Software Systems Ltd., iGate Global Solutions Ltd.,Mindtree Ltd., Persistent Systems Ltd,Persistent Systems Ltd,Tata Elxsi Ltd., Wipro Ltd. and Infosys Technologies Ltd. should be excluded from the list of comparable companies as relying on Trilogy E-Business Software India Pvt.Ltd. 2013 (1) TMI 672 - ITAT BANGALORE . The AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable. The AO/TPO is directed to compute the arithmetic mean of the profit margins of the remaining comparable companies after excluding the companies from the final list of 26 comparable companies chosen by the TPO and compare the same with the profit margin of the Assessee in accordance with the provisions of Sec.92C of the Act. Computation of deduction u/s 10A - Held that - Taking into consideration the decision rendered by the Hon ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd 2011 (8) TMI 782 - KARNATAKA HIGH COURT we are of the view that it would be just and appropriate to direct the Assessing Officer to exclude telecommunication charges, consultancy charges, repairs and maintenance and certain other expenses incurred by the Assessee (including expenses incurred in foreign currency), both from export turnover and total turnover, as has been prayed for by the assessee in ground - Decided in favour of assessee.
Issues Involved:
1. Determination of Arm's Length Price (ALP) for international transactions. 2. Selection and exclusion of comparable companies. 3. Application of turnover filter. 4. Computation of deduction under section 10A of the Income Tax Act. 5. Charging of interest under section 234B. 6. Initiation of penalty under section 271(1)(c). Detailed Analysis: 1. Determination of Arm's Length Price (ALP) for international transactions: The Assessee, AMD India Private Limited, engaged in software development services to its Associated Enterprise (AE), conducted a Transfer Pricing (TP) study and claimed its international transactions were at arm's length. The Transfer Pricing Officer (TPO) determined the mean margin of comparables at 25.14%, resulting in a proposed transfer pricing adjustment of Rs. 5,49,45,016. The Dispute Resolution Panel (DRP) upheld the TPO's order, leading to the Assessee's appeal. 2. Selection and exclusion of comparable companies: The TPO selected 26 comparable companies, but the Assessee contested the inclusion of several on grounds of functional dissimilarity, high turnover, and other factors. The Tribunal referred to previous decisions and excluded several companies as follows: - Accel Transmatic Ltd., Avani Cimcon Technologies Ltd., Celestial Labs Ltd., KALS Information Systems Ltd.: Excluded due to functional differences, as established in the case of First Advantage Offshore Services Pvt. Ltd. and Trilogy E-Business Software India Pvt. Ltd. - Ishir Infotech Ltd., Lucid Software Ltd.: Excluded based on the Tribunal's decision in Mercedes Benz Research & Development India Pvt. Ltd. - Megasoft Ltd.: Re-computation of margins directed, following the decision in First Advantage Offshore Services Pvt. Ltd. - Infosys Technologies Ltd., Tata Elxsi Ltd., Wipro Ltd.: Excluded due to functional dissimilarity and high turnover, as held in Curam Software International Pvt. Ltd. - E-Zest Solutions Ltd., Persistent Systems Ltd., Quintegra Solutions Ltd., Thirdware Solutions Ltd.: Excluded due to functional differences and other factors, as decided in 3DPLM Software Solutions Ltd. - Helios & Matheson Information Technology Ltd.: Excluded based on the decision in PTC Software (India) Pvt. Ltd. 3. Application of turnover filter: The Tribunal upheld the application of the turnover filter, excluding companies with turnover exceeding Rs. 200 crores, following the decision in Trilogy E-Business Software India Pvt. Ltd. This led to the exclusion of several companies from the final list of comparables. 4. Computation of deduction under section 10A of the Income Tax Act: The Assessee contested the exclusion of telecommunication expenses and expenditure incurred in foreign currency from export turnover. The Tribunal, referencing the Karnataka High Court's decision in CIT v. Tata Elxsi Ltd, directed the AO to exclude these expenses from both export turnover and total turnover. 5. Charging of interest under section 234B: The Tribunal noted that this issue was consequential and directed the AO to provide appropriate relief based on the final computation. 6. Initiation of penalty under section 271(1)(c): The Tribunal dismissed this ground as it is not appealable. Conclusion: The Tribunal partly allowed the Assessee's appeal, directing the AO/TPO to re-compute the ALP by excluding certain comparables and applying the turnover filter. The AO was also directed to adjust the computation of deduction under section 10A as per the Tribunal's instructions. Other grounds were either dismissed or deemed non-appealable.
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