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2023 (1) TMI 560 - AT - Income TaxTP Adjustment - comparable selection - rejection of companies of high turnover of more than 200 crores - HELD THAT - Respectfully following the consistent view taken by this Tribunal in various decisions, we direct the Ld.AO to exclude L T Infotech Ltd., Persistent Systems Ltd., Tata Elxsi Ltd., Infosys Ltd., Nihilent Technologies Ltd., Cybage Software Pvt. Ltd. from the final list of comparables. AR has submitted that Wipro has a turnover of Rs.43063.8 Crores, Sasken Technologies Ltd. has turnover of Rs.421.40 crores, Exilant Technologies Pvt. Ltd. has turnover of Rs.332.10 crores. These comparables are also to be excluded based on the same principles as observed by Coordinate Bench of this Tribunal in the above referred cases. Respectfully following the view taken hereinabove, we direct these comparables to be excluded from the final list for failing the turnover filter. Incorrect computation of certain comparables - We direct the Ld.AO to correct the margins and consider the claim of assessee in accordance with law. Accordingly, these grounds raised by assessee stands allowed for statistical purposes.
Issues Involved:
1. Validity of the assessment order and the orders of the lower authorities. 2. Errors in adopting filters and selecting comparables for Transfer Pricing (TP) adjustment in the software development segment. 3. Incorrect computation of operating profit margins of certain comparables. 4. Modification of segmental results and allocation of expenses. 5. Non-provision of working capital adjustment while computing the Arm's Length Price (ALP). 6. Levying of interest under section 234D of the Income Tax Act. Issue-wise Detailed Analysis: 1. Validity of the Assessment Order and Orders of Lower Authorities: The assessee challenged the assessment order dated 29/06/2022, passed by the Assistant Commissioner of Income Tax (ACIT), Circle-1(1)(1), Bangalore, for the Assessment Year (A.Y.) 2018-19, asserting that the orders by the ACIT, Transfer Pricing Officer (TPO), and Dispute Resolution Panel (DRP) are "bad in law and liable to be quashed." 2. Errors in Adopting Filters and Selecting Comparables for TP Adjustment: The assessee contended that the lower authorities erred in adopting inappropriate filters such as the one-sided turnover filter and 25% Related Party Transactions (RPT) filter while selecting comparables. Additionally, the authorities failed to adopt appropriate filters like the onsite revenue filter. Specifically, the assessee sought the exclusion of companies with turnovers exceeding Rs. 200 crores, arguing that a captive service provider cannot be compared with large software companies. The Tribunal, referencing previous decisions, directed the exclusion of companies like Exilant Technologies Pvt Ltd, Larsen & Toubro Infotech Ltd, Mindtree Ltd, Persistent Systems Ltd, Sasken Technologies Ltd, Wipro Ltd, Tata Elxsi Ltd, Nihilent Ltd, Infosys Ltd, and Cybage Software Pvt Ltd from the final list of comparables due to their high turnovers. 3. Incorrect Computation of Operating Profit Margins of Certain Comparables: The assessee highlighted errors in the computation of operating profit margins for certain comparables. The Tribunal directed the correction of these margins as follows: - Harbinger Systems Pvt Ltd: Corrected from 9.68% to 7.82% - Great Software Laboratory Pvt Ltd: Corrected from 19.87% to 17.87% - Black Pepper Technologies Pvt Ltd: Corrected from 20.62% to 14.42% - Sagarsoft (India) Ltd: Corrected from 21.92% to 20.50% 4. Modification of Segmental Results and Allocation of Expenses: The assessee argued that the TPO erred in modifying the segmental results and allocating all expenses on a revenue basis without considering the facts and circumstances of the case. The Tribunal did not specifically address this issue in the detailed analysis provided. 5. Non-provision of Working Capital Adjustment: The assessee claimed that the lower authorities failed to provide a working capital adjustment while computing the ALP. This issue was not specifically addressed in the Tribunal's detailed analysis provided. 6. Levying of Interest under Section 234D: The assessee contested the levy of interest amounting to Rs. 6,70,577/- under section 234D of the Income Tax Act, asserting that it was not leviable based on the facts and circumstances of the case. This issue was not specifically addressed in the Tribunal's detailed analysis provided. Conclusion: The appeal was partly allowed. The Tribunal directed the exclusion of certain comparables with high turnovers and correction of the operating profit margins of specific comparables. Other grounds raised by the assessee were not argued and thus were not adjudicated. The Tribunal left these grounds open to be argued in appropriate circumstances.
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