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2015 (3) TMI 448 - AT - Income TaxTransfer pricing adjustment - determination of Arm’s Length Price - selection of comparable - improper application of the RPT filter by the CIT(A) - Held that:- It is not in dispute before us that this Tribunal, in the cases of 24/7 Customer Pvt. Ltd. (2013 (1) TMI 45 - ITAT BANGALORE ), and Sony India Private Ltd.(2008 (9) TMI 420 - ITAT DELHI-H) and various other cases has taken a view that comparables having RPT of upto 15% of total revenues can be considered. In view thereof, the Revenue’s on this ground has to be allowed. It is held that the CIT(A) ought to have adopted a threshold limit of 15% of the total revenue attributable to related party transaction as ground for rejecting comparable companies. Consequently it is held that comparable companies having RPT upto 15% of the total revenues alone can be included. The Revenue’s contention that comparables with RPT upto 25% can be considered is without any basis. As regards the standard deduction of 5% of the arm’s length price afforded to the Appellant by the CIT(A), it is not in dispute before us that in view of the substitution of the Second proviso to Section 92C(2) of the Income-tax Act by the Finance (No.2) Act, 2009, the second ground of appeal filed by the Revenue may have to be allowed. Consequently it is held that if the difference between the arithmetic mean of the profit margins comparable companies ultimately retained and the profit margin of the Assessee is more than 5% than no deduction under the proviso to Sec.92C(2) of the Act could be allowed to an Assessee. In the light of the decision of Trilogy EBusiness Software India Pvt. Ltd. [2013 (1) TMI 672 - ITAT BANGALORE] we hold that igate Global solutions Ltd., Flextronics Software Systems Ltd. And L & T Infotech Ltd would have to be excluded as comparable companies as these companies have turnover above ₹ 200 Crores. So also Tata Elxsi Ltd., would have to be excluded as not comparable in the light of the decision in the case of Logica Pvt. Ltd. (2015 (3) TMI 401 - ITAT BANGALORE). Sankhya Infotech Limited (‘Sankhya’) cannot be regarded as a comparable Sankhya is engaged in the business of development of software products & services and training. The company focuses on the development of niche products for the transport and aviation industry. However, segmental information in relation to the above mentioned activities is not available in public domain. Therefore, as Sankhya engages itself in products and services as well as software training, it cannot be considered as a comparable of the Appellant. Melstar Information Technologies Ltd. (Melstar) is functionally comparable to the assessee and clears all the filters applied by the TPO, the same should be considered as comparable with Net Cost Plus margin of 3.26%.The extraordinary item of expenditure, if removed, would render this company as a company revenues of which are not diminishing. Melstar therefore deserves to be included as a comparable company. Adjustment for depreciation - Held that:- It would be just and appropriate to remand the issue to the AO for fresh consideration in the light of the decision of Honeywell Technology Solutions Lab P. Ltd. [2013 (9) TMI 189 - ITAT BANGALORE]. We are also of the view that the Assessee should be directed to give the quantification of adjustment to be allowed, if found eligible, applying the ratio laid down in the case of 24/7 customercare.com [2013 (1) TMI 45 - ITAT BANGALORE]. We hold and direct accordingly. Arithmetic mean of the comparables retained would be within the range of +/- 5% of the Assessee’s Net Margin accepted.
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