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2018 (12) TMI 1742 - AT - Income TaxTP Adjustment - determination of ALP in Software Development Service Segment - comparable selection - application of onsite revenue filter - HELD THAT:- In the TP cases, the onsite revenue filter is generally applied for the purpose of choosing comparable companies. It is, however, to be noticed that the onsite revenue filter has to be applied by having a threshold limit of, say, less than 25% or so of the total revenues of the comparable companies. Without such threshold limit being fixed, companies cannot be excluded. To this extent, there is merit in ground Nos.3 & 4 of the revenue. However, the issue raised in ground Nos.3 & 4 by the revenue will become academic for the reason that Acropetal Technologies Ltd. was excluded by the DRP on the ground that segmental details of its employee cost was not available. This company was also excluded for the reason that there was absence of segmental information to examine whether it passes export sales filter and for the reason that software revenue was not more than 75% of its total revenue. In the case of Applied Materials (I) P. Ltd. v. ACIT, IT(TP) [2016 (9) TMI 1458 - ITAT BANGALORE] , this Tribunal excluded Acropetal Technologies Ltd. from the list of comparable companies vide para 16.1 to 16.4 of the said order. We are, therefore, of the view that there is no merit in ground No.5 raised by the revenue in this regard. L & T Infotech Ltd. was also excluded by the DRP for the reason that 48.84% of its total expenses are incurred in foreign currency which includes substantial expenses on sub-contracting indicating that the company has high onsite revenue. Besides the above, the revenues from all the 3 segments in which this company was engaged, was considered by the TPO. This part of the directions of the DRP has not been challenged by the revenue in its appeal and therefore no useful purpose will be served by testing the comparability of this company by applying the onsite revenue filter. R S Software (I) P. Ltd - This company was not sought to be excluded by the assessee in its appeal before the DRP and accepted the action of the TPO in accepting this company as comparable company. The DRP suo motu applied onsite revenue filter to exclude this company from the list of comparable companies. We are therefore of the view that R S Software (I) P. Ltd should be included in the list of comparable companies As functional profile of the assessee in the present case and the assessee in the case of Applied Materials (I) P. Ltd. [2016 (9) TMI 1458 - ITAT BANGALORE] are identical and both are software development services provider. We, therefore, following the decision of the Tribunal in the case of Applied Materials (I) P. Ltd. (supra) restore this issue for fresh consideration with similar directions as was given by the Tribunal in the case of Applied Materials (I) P.Ltd.(supra). Thus, ground No. 3(l) raised by the assessee is treated as partly allowed. Excluding E-Infochip Ltd. from the list of comparable companies for the reason that no segmental information regarding its diverse functions was available and it fails the software services income filter. Besides the above, there were major fluctuation in its profit which were influenced by extraordinary and peculiar circumstances and therefore this company was regarded as not comparable. Selection of companies only functionally comparable with assessee rendering software development services.
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