2022 (12) TMI 423 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - All the Revenue s arguments failed to evoke our concurrence. This is for the reason that not only the learned coordinate bench s findings stand upheld in decision PCIT v. Barclays Technology Centre India Pvt. Ltd. 2018 (8) TMI 574 - BOMBAY HIGH COURT but also the corresponding financials referred at it s behest hardly prove M/s. Bodhtree Consulting Ltd. and M/s. Kals Information Systems Ltd. as engaged in the very segment of provision for software development services. Faced with this situation, we adopt judicial consistency to confirm the CIT (A) s findings under challenge regarding exclusion of these twin entities from the array of comparables. As assessee s computation that it s PLI of 11.86% (supra) falls within 5% tolerance mark of the arithmetic mean coming to 13.57% u/s 92C(2) of the Act 2nd proviso in light of our adjudication on the foregoing issue. This clinching plea has gone unrebutted from the Revenue side. We thus conclude that Revenue s twin substantive grounds involving M/s. Quintegra Solutions Pvt. Ltd. and M/s. CG-VAK Software Exports Ltd. as well taxpayer s cross objection seeking inclusion of M/s. Thirdware Solutions Ltd. (supra) stand rendered academic.

Summary

Issues Involved:
- Appeal against CIT(A) order regarding exclusion and inclusion of comparable entities for Transfer Pricing analysis.

Analysis:
1. The appeal and cross-objection arise against the CIT(A) order for AY 2010-11 under Section 143(3) r.w.s. 92CA(3) of the Income Tax Act, 1961. The Revenue challenges the exclusion of M/s. Bodhtree Consulting Ltd. and Kals Information Systems Ltd., while the assessee contests the exclusion of M/s. Thirdware Solutions Pvt. Ltd. from the comparables list.

2. The main issue revolves around the acceptance or rejection of specific comparable entities for Transfer Pricing analysis in the taxpayer's software development services segment. The Revenue's grounds challenge the exclusion of certain companies and the inclusion of others, while the assessee's cross objection argues against the exclusion of M/s. Thirdware Solutions Pvt. Ltd.

3. The Tribunal considered the arguments of both parties and focused on the core issue of the proper acceptance or rejection of the comparable entities. The factual matrix primarily involved the evaluation of the comparability of the entities in the provision for software development services segment.

4. The CIT(A) excluded M/s. Bodhtree Consulting Ltd. and M/s. Kals Information Systems Ltd. based on detailed discussions and previous tribunal decisions. The Tribunal upheld the exclusion, emphasizing the lack of segmental data and functional comparability with the taxpayer's activities in software development services.

5. The Revenue argued for the inclusion of the excluded entities based on operating margins, but the Tribunal rejected these arguments. Referring to judicial precedents and financial evidence, the Tribunal affirmed the CIT(A)'s decision to exclude M/s. Bodhtree Consulting Ltd. and M/s. Kals Information Systems Ltd. from the comparables list.

6. The assessee's plea regarding the Profit Level Indicator (PLI) falling within the tolerance mark was accepted by the Tribunal, rendering the Revenue's substantive grounds and the assessee's cross objection as academic. Consequently, the Revenue's appeal and the assessee's cross objection were dismissed.

7. The judgment was delivered by the Tribunal, dismissing the Revenue's appeal and the assessee's cross objection. The order was pronounced in the open court on 29th August 2022.