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2020 (12) TMI 460 - AT - Income TaxTP Adjustment - international transaction of Rendering of software development and support services' - Comparable selection - HELD THAT:- Cybermate Infotek Limited - this company has its own intangible assets worth ₹ 4.95 crore at the end of the year. Segmental reporting of this company given at page 41 of the Report records that " the entire operations of the company relate only to one segment i.e. Computer Segment". This deciphers that albeit the company is engaged in rendering software development services as well but it has a mixed bag of financial statements comprising results not only of software development services but also software products dealt with by it. There is no information available on record to demonstrate the revenue from software development services and corresponding operating costs, which part of its activity is analogous to the operations carried out by the assessee-company. In the absence of such a vital information, Cybermate Infotek Limited cannot be considered, on an entity level, as comparable to the assessee company. We, therefore, direct to exclude Cybermate Infotek Limited from the list of comparables. Acropetal Technologies Limited (Segmental) - There is no choice with the AO to follow or not to follow the direction rendered by the DRP u/s 144C(5). Such a direction is binding in nature upon the AO, who is supposed to follow the same in letter and spirit. Since in the instant case, the DRP categorically directed to include the amount of operating profit of Acropetal Technologies Limited at ₹ 11.83 crore, in our considered opinion, the AO/TPO went on a wrong premise in tinkering with such a figure and substituting it with a different figure. In view of the fact that the AO was bound by the directions of the DRP, we vacate the impugned order to this extent in substituting the amount of operating profit of Acropetal Technologies Limited at ₹ 22.26 crores, which is hereby ordered to be adopted as ₹ 11.83 crore as was directed by the DRP. Comp-u-Learn Tech India Limited (CTIL) - We find that the DRP was conscious of the purview of its power u/s 144C(8). That is why it directed 'satisfaction of other filters applied by him'. Such direction refers to past tense qua the application of filters and did not empower the AO/TPO to resort to new filters, a course of action which would not have satisfied the command of sub-section (8). We, ergo, hold that the direction of the DRP is clear that CTIL Ltd. was functionally comparable but its inclusion was left to be decided on the basis of the filters already applied by the TPO. Since the filter of Employee cost to sales was not applied by the TPO at the time of passing his order u/s 92CA(3) of the Act, we hold that the AO/TPO were not justified in applying it and ex consequenti jeopardising the direction of the DRP that found CTIL Ltd. to be functionally comparable. This company is ergo directed to be included in the list of comparables. We therefore, set aside the order and remit the matter to the file of the AO for a fresh determination of arm's length price of the international transaction of Rendering of software development and support services' in the light of our observations on the three companies discussed above.
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