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2023 (3) TMI 1021 - AT - Income TaxTP Adjustment - determination of profit level indicator computation - HELD THAT - For the purpose of profit level indicator, the margin of the assessee should be computed only on international transactions. It was also found that the CIT- A has not given any finding on this aspect despite making a written submission before him. The order of the lower authorities is not sustainable on this count. Accordingly, TPO/AO is directed to compute the profit level indicator of the assessee at 11.35%. Comparable selection - Aurum software systems Ltd - No justification in the order of the learned CIT A4 exclusion of above comparable. Naturally, the learned transfer pricing officer did not apply the accept reject metrics filter which the learned CIT - A applied. The logic given by the learned CIT A is devoid of any merit. Accordingly, as the comparable is functionally comparable, same deserves to be included in comparable analysis. Accordingly, we direct the learned transfer pricing officer/assessing officer to include the above company. Cybermate Infotech Ltd (-13.71%) and Info drive software Ltd (-17.52%) - Cybermate Infotech Ltd has revenue from operation according to schedule 18 and such is only ITeS segment. Further info drive software Ltd is also from ITeS segment. Accordingly, both are functionally comparable. DR could not show that these companies are not functionally comparable with the assessee. He also could not show anything to support the finding of the learned CIT A. Therefore, we do not have any other alternative but to direct the learned AO/TPO to include both these companies in the comparability analysis. The learned CIT A despite having the annual accounts before him did not comment that why he is upholding the action of the learned transfer pricing officer in excluding the above comparable.
Issues:
Transfer Pricing Adjustment - Computation of Profit Level Indicator Exclusion of Comparable Companies Analysis: 1. The appeal was filed by the Assessee against the order of the Commissioner Of Income Tax (Appeals) for the assessment year 2012-13. The Assessee, engaged in IT services and software sales, declared total income of Rs. 1,74,42,014/-. The dispute arose due to international transactions benchmarking for business process outsourcing payments, IT enabled service income, and commission paid on sales. The Transfer Pricing Officer (TPO) made adjustments leading to a total income determination of Rs 4,78,05,409/-, mainly due to transfer pricing adjustments. 2. The Assessee challenged the TPO's computation of Profit Level Indicator (PLI) and the exclusion of certain comparable companies. The TPO included revenue from the sale of software, a non-international transaction, affecting the PLI calculation. The Assessee contended that only international transactions should be considered for PLI comparison. The TPO's exclusion of comparables was also disputed by the Assessee. 3. The Assessee argued that the TPO's inclusion of software sales revenue and cost led to an incorrect PLI calculation. The TPO's decision to exclude certain comparables was challenged based on the completeness of information and functional comparability. The Assessee provided evidence supporting the inclusion of these comparables, highlighting the errors in the TPO's reasoning. 4. The Tribunal found discrepancies in the TPO's approach, particularly regarding the inclusion of non-international transactions in PLI calculation and the exclusion of certain comparables without proper justification. The Tribunal directed the TPO to compute the PLI at 11.35% and include the previously excluded comparable companies in the analysis. The Tribunal concluded that the Assessee's appeal was allowed based on these grounds. 5. In summary, the Tribunal's decision focused on rectifying errors in the TPO's computation of PLI and the exclusion of comparable companies. The Assessee's arguments regarding the correct treatment of non-international transactions and the completeness of information for comparables were upheld, leading to a favorable outcome for the Assessee.
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