Tribunal adjusts comparables in Income Tax appeal, Infobeans removed. The Tribunal partially allowed the appeal challenging the final assessment order under the Income Tax Act for the assessment year 2013-14. It held that ...
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Tribunal adjusts comparables in Income Tax appeal, Infobeans removed.
The Tribunal partially allowed the appeal challenging the final assessment order under the Income Tax Act for the assessment year 2013-14. It held that Infobeans Technologies Ltd. was not comparable to the assessee due to its diversified activities, directing the removal of Infobeans from the list of comparables. With this adjustment, the assessee's margin was deemed to be within the arm's length range even with the remaining comparables, rendering other grounds raised by the assessee academic in the appeal context.
Issues involved: Challenging final assessment order under Income Tax Act for assessment year 2013-14 based on Transfer Pricing Officer's determination of arm's length price using TNMM method and inclusion of Infobeans Technologies Ltd. as comparable.
Detailed analysis: 1. Challenge to final assessment order: The appeal was filed challenging the final assessment order dated 28th September 2017 under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 for the assessment year 2013-14. The order was passed in compliance with the directions of the Dispute Resolution Panel-2 (DRP), Mumbai.
2. Benchmarking of transaction: The assessee, a resident company providing software development services to its Associated Enterprises (AE), benchmarked the transaction using the Comparable Uncontrolled Price (CUP) method. However, the Transfer Pricing Officer rejected this method and determined the arm's length price under the Transactional Net Margin Method (TNMM) by selecting seven comparables with an arithmetic mean of 23.54%.
3. Inclusion of Infobeans Technologies Ltd. as comparable: The Transfer Pricing Officer proposed an upward adjustment to the price charged to the AE based on the TNMM method, which was added back to the assessee's income in the draft assessment order. The assessee objected to this adjustment before the DRP, but the objections were not accepted.
4. Argument against comparability of Infobeans Technologies Ltd.: The assessee contended that Infobeans Technologies Ltd., engaged in diversified activities without segmental results available in the public domain, could not be compared to a routine software development service provider like the assessee. The assessee cited relevant decisions to support this argument.
5. Tribunal's decision: After considering the submissions and relevant decisions, the Tribunal held that Infobeans Technologies Ltd. could not be considered comparable to the assessee as it was engaged in diversified activities without segmental details available. The Tribunal directed the Assessing Officer to remove Infobeans Technologies Ltd. from the list of comparables and determine the arm's length price accordingly.
6. Outcome of the appeal: The Tribunal partially allowed the appeal, stating that with the removal of Infobeans Technologies Ltd., the assessee's margin would be within arm's length even with the rest of the comparables. Therefore, the other grounds raised by the assessee were considered academic in the context of the appeal.
In conclusion, the Tribunal's decision focused on the comparability of Infobeans Technologies Ltd. with the assessee and the method used to determine the arm's length price, ultimately resulting in the partial allowance of the appeal.
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