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2022 (12) TMI 526 - AT - Income TaxTP adjustment - International Transaction of provision of contract research and development (R&D) services - Functional profile of assessee company - whether the assessee is providing contract research and development activities or merely providing contract software development services of bug fixing? - HELD THAT:- As the TPO and the DRP without verifying, the actual functions performed by the assessee were guided only by the title of the agreement, characterizes assessee as research and development service provider. Lower authorities also without looking into the functional profile claimed by the assessee in form no. 3CEB have changed the characterization of assessee. As the functions performed by assessee is not verified and merely based on agreement, lower authorities have upheld the benchmarking of International Transactions. Decision of coordinate benches in assessee's own case for earlier years on this issue has also set aside benchmarking back to the AO/ TPO. We set aside the whole of issue back to the file of the Transfer Pricing Officer with a direction to the assessee to substantiate that it is not a research and development service provider but a contract software development service provider. The assessee is at liberty to produce such documents as well as cost incurred in provision of the services, work force employed, certificate of work, and various other material such as contract papers, engagement letters etc to substantiate the same. Assessee is also directed to show benchmarking analysis of these transactions. AO/ TPO are directed to examine nature of services provided by the assessee and then, determine its arm‟s length price in accordance with the law.
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