ITAT upholds CIT(A) decision on software development cost addition under Income Tax Act (A)

The ITAT dismissed the revenue's appeal against the CIT(A) order, which deleted the addition to software development cost made by the AO under section 92 of the Income Tax Act, 1961. The ITAT upheld the CIT(A) decision, emphasizing the absence of tax avoidance evidence and the failure to refer the case to the Transfer Pricing Officer. The ITAT noted that the CBDT circular favored the assessee and deemed the addition unjustified, ultimately confirming the CIT(A) order.

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Issues involved: Appeal by revenue against CIT(A) order for A.Y. 01-02 regarding addition to software development cost u/s. 92 of the I.T. Act, 1961.

Summary:
The revenue appealed against the CIT(A) order deleting the addition of Rs. 18,58,960 made by the AO by enhancing the marking up on software development cost from 5% to 10% u/s. 92 of the I.T. Act, 1961. The appellant argued that the AO's decision was supported by the circular of the CBDT no. 12/2001, allowing adjustments within 5% range. However, the respondent contended that the provisions of sec. 92 were not applicable in this case, as evidenced by the CIT(A) order and the absence of a reference to the Transfer Pricing Officer u/s. 92. The respondent also highlighted a successful case in the succeeding A.Y. 02-03 where the TPO accepted a 6.45% margin on software development services. The ITAT noted that the CBDT circular favored the assessee, and since the AO did not refer the case to the TPO, the addition was deemed unjustified. The ITAT upheld the CIT(A) decision, stating there was no evidence of tax avoidance and dismissed the revenue's appeal.

In conclusion, the ITAT dismissed the revenue's appeal, confirming the CIT(A) order.

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