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2021 (3) TMI 419 - AT - Income TaxTP Adjustment - determination of ALP for provision of SWD services by the Assessee to its AE - comparable selection - application of turnover filter in choosing comparable companies - HELD THAT - As far as excluding the companies on the basis of turnover is concerned, the issue has been settled in several decisions of the Tribunal and has been elaborately discussed by this Tribunal in the case of Autodesk India Pvt. Ltd. 2018 (7) TMI 1862 - ITAT BANGALORE turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee.
Issues:
1. Delay in filing the appeal. 2. Determination of Arms' Length Price (ALP) for Software Development Services (SWD services). 3. Exclusion of comparable companies based on turnover filter in the Transfer Pricing Study. Issue 1: Delay in filing the appeal The appeal by the assessee was directed against the order passed by the Assessing Officer under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961. The delay of 2 days in filing the appeal was explained by the assessee due to the Managing Director's unavailability in Bangalore. The delay was considered nominal and was condoned. Issue 2: Determination of Arms' Length Price (ALP) for Software Development Services (SWD services) The dispute in this appeal revolved around the determination of ALP for two international transactions: providing SWD services and Management Support Services (MSS) to the Associated Enterprises (AEs). The assessee filed a Transfer Pricing Study (TP Study) using the Transaction Net Margin Method (TNMM) to justify the price paid in the international transaction as at ALP. The Transfer Pricing Officer (TPO) accepted TNMM as the Most Appropriate Method (MAM) and identified comparable companies to determine the ALP. The TPO's adjustment to ALP resulted in a significant addition to the total income of the assessee. Issue 3: Exclusion of comparable companies based on turnover filter The assessee objected to the exclusion of 5 comparable companies by the TPO based on the turnover filter criterion. The turnover of these companies was significantly higher compared to the assessee. The Tribunal referred to previous decisions and upheld the exclusion of these companies, emphasizing that turnover is a relevant criterion for choosing comparable companies in determining ALP in transfer pricing cases. The Tribunal directed the AO/TPO to compute the ALP in accordance with the directions given in the order after excluding the mentioned companies. In conclusion, the Tribunal partly allowed the appeal of the assessee, directing the computation of ALP in line with the exclusion of the comparable companies based on the turnover filter. The judgment provides detailed insights into the application of transfer pricing methods and criteria for selecting comparable companies in determining ALP for international transactions.
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