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2017 (1) TMI 1215 - ITAT DELHITransfer pricing adjustment - ALP determination - grant of working capital adjustment - Held that:- Respectfully following the finding in the case of Mercer Consulting (India) Private Limited (2014 (7) TMI 715 - ITAT DELHI), we set aside the finding of the DRP on the issue in dispute and remit the matter to the file of the TPO/AO for examining the assessee’s claim for grant of working capital adjustment on merits and, thereafter, allow the same, if it is available. The assessee shall be afforded adequate opportunity of hearing. Selection of comparables for software development segment - characterization of the software development segment - Held that:- On the issue characterization of the software development segment we find that rendering software development services as a captive service provider and development and sale of software product are altogether different activities and cannot be treated as interchangeable. In the process of development of software product, the entity carry out research and development activity, which results into generation of intellectual property rights, which is absent in case of a captive service provider. Accordingly, the segment in consideration is characterized at software development services. The services rendered by the assessee are in respect of the support services for sale of software by the AE and the post sales support services are also in respect of the sale of software by the AE. The bug fixing is also part of the post sales support services, which may be treated partly as a function of technical nature but same cannot be compared with consultancy provided in the field of engineering or infrastructure field. Thus, the segmental function of the assessee is characterized as sale and post sales support services. We find that the assessee has compared the ‘turnkey contract and service’ segment of the company with the sales and post sales support segment of the assessee company. However, we do not agree with the contention of the assessee that the company segment of turnkey contract & service was functionally similar to the segment of the assessee under comparison. The segment of the company compared is turnkey contract and services. No information is available in respect of the turnkey contract executed by the company and, therefore, the result of turnkey contract and service segment are not comparable with the sales and post sale support services in respect of software products. In view of our direction to exclude the comparables chosen the TPO and one comparable chosen by the assessee as well as exclusion of the remaining two comparables by the TPO not challenged by the assessee before us, has left with no comparable in the sales and post sale support segment for determination of arm’s length price. In view of the above facts and circumstances, we restore the matter to the TPO for carrying out a fresh search and selection of comparables having functions similarity to the segment of sales and post sales support and compute the adjustment accordingly as per law. Needless to mention that the assessee shall be provided sufficient opportunity of hearing.
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