Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2019 (7) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (7) TMI 1883 - AT - Income TaxTP adjustment - comparable selection - determination of Arm's length price (ALP) in respect of a transaction of rendering software development service by the Assessee to its Associated enterprise (AE) - excluding M/s. Flextronics Software Services Ltd., iGate Global Solution, M/s. Infosys Technologies Ltd., Satyam Computers Services Ltd., and L&T Infotech Ltd., on the ground that the turnover of these companies was above ₹ 200 crores and therefore the Assessee whose turnover is only ₹ 6.36 Crores cannot be compared with those companies - HELD THAT:- The admitted factual position is that these companies have turnover of over ₹ 200 crores in the relevant asst. year whereas the assessee's turnover is only 6.36 crores. It has been held by the Bangalore Bench of ITAT that turnover filter is a valid filter in the matter of exclusion of comparables that companies with turnover below 200 crores cannot be compared with the companies above 200 crores. In this regard, Bangalore Bench of the Tribunal in the case of Auto Desk India Pvt. Ltd. [2018 (12) TMI 1742 - ITAT BANGALORE] has taken the aforesaid view after considering several decisions on the issue. In view of the above, we find no grounds to interfere with the exclusion of the aforesaid 5 companies by the CIT(A). Exclusion of M/s. Exensys Software Solutions Ltd., and Thirdware Solutions Ltd., as not comparable companies by the CIT(A) on the ground that these companies showed abnormal profits - On the issue of exclusion of companies on account of abnormal profits, the law is well settled that abnormal profits by itself is not a ground to exclude a company which is otherwise comparable, but if the abnormal profits are owing to some unusual circumstances, then those companies can be excluded. As far as exclusion of M/s. Exensys Software Solutions Ltd., is concerned, the same is due to amalgamation that happened between this company and some other company during the relevant previous year and therefore the CIT(A) was justified in excluding this company. Thirdware Solutions Ltd company was a product company and not a SWD service provider such as the Assessee and this company was excluded. We are of the view that in view of the aforesaid order of the Tribunal, we sustain the order of CIT(A) on the basis that this company needs to be excluded as functionally not comparable M/s. Quintegra Solutions Ltd., had a different accounting year than that of the Assessee and therefore this company ought to have been excluded by the CIT(A) and the learned counsel for the Assessee did not object to its exclusion from the list of comparable companies . Therefore ground No.5 raised by the revenue is allowed. Exclusion of the following companies Bodhtree Consulting Ltd., Geometric Software Solutions Co. Ltd., and Tata Elxsi Ltd., from the list of comparable companies - The assessee is pure software SWD service provider, whereas these companies were software product companies. The exclusion of these companies in the case of pure software development service provider such as the assessee was considered by this Tribunal in the case of Kodiak Network India Pvt. Ltd[2015 (8) TMI 225 - ITAT BANGALORE] AND M/S. SHARP SOFTWARE DEVELOPMENT (INDIA) PVT. LTD. AND VICE-VERSA. [2017 (1) TMI 1734 - ITAT BANGALORE] - Both these cases relate to asst. year 2005-06 and in these cases it was held in that case that the aforesaid companies were software product companies and not software development service provider such as the Assessee and the segmental details of SWD services and SW Products were not available and therefore the profit margin in the SWD services segment of these companies were not available for comparison. In the light of the aforesaid decision of the Tribunal, we are of the view that the exclusion of the aforesaid companies by the CIT(A) was justified. Inclusion of M/s. VJIL Consulting Ltd., as not comparable. It was agreed by the parties that this company can be treated as a comparable company and hence ground No.7 raised by the revenue is allowed. Directing working capital adjustment to be allowed - Even the TPO in his order has allowed working capital adjustment. In transfer pricing analysis allowing working capital adjustment is necessary and it is settled law that such adjustment should be made for proper comparison of profit margin of Assessee and the comparable companies. We find no merit in this ground of appeal raised by the revenue. Computation of deduction u/s 10A - HELD THAT:- Taking into consideration the decision rendered by the Hon'ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT], we are of the view that communication charges should be excluded both from export turnover and total turnover. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us.
|