TaxTMI 
TaxTMI 
2020 (4) TMI 619
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....ssesseee is a company engaged in the business of rendering Software Development Services (SWD Services). During the financial year 2008-09 relevant to the assessment year 2009-10, the assessees provided contract software development services to its Associated Enterprises. As per the provisions of Sec.92 of the Income Tax Act, 1961 (Act), income from an international transaction has to determined having regard to the Arm's Length Price (ALP). 3. It is not in dispute between the Assessee and the revenue that the Transaction Net Margin Method (TNMM) was the Most Appropriate Method (MAM) of determination of ALP and that the Profit Level Indicator (PLI) to be adopted for the purpose of comparison of the profit margin of the Assessee with that o....
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....2 3 Bodhtree Consulting Ltd. 62.27 60.76 4 RS Software (I) Ltd. 9.97 10.99 5 Tata Elxsi Ltd. (seg) 20.28 19.47 6 Sasken Communication Technologies Ltd 27.91 27.73 7 Persistent Systems Ltd. 41.40 40.05 8 Zylog Systems Ltd. 7.81 5.15 9 Mindtree Ltd. (seg) 5.52 3.87 10 L&T Infotech Ltd. 24.72 24.77 11 Infosys Technologies Ltd. 45.61 42.77 Arithmetical Mean 24.32 23.33 6. Computation of the arm's length price by the TPO and the adjustment made: Arm's Length Mean Margin 24.32% Less: Working Capital Adjustment (Annex. C) (AnexC) 0.70% Adjusted mean margin of the comparables 23.62% Operating Cost Rs. 22,76,95,741 Arm's Length Price (ALP)@ 123.62% of Operating Cost Rs. 28,14,77,475 Pric....
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....s having turnover more than Rs. 200 Crores in the absence of turnover criterion prescribed in Rule 10B of Income Tax Rules and also there being no correlation between turnover and profit margin". 9. The Assessee in its appeal has raised several grounds challenging the order of CIT(A) in so far as it relates to determination of ALP in the SWD services segment. However at the time of hearing the learned counsel for the Assessee prayed for exclusion of only one comparable retained by the CIT(A) as a comparable company viz., M/S.Bodhtree Consulting Ltd. 10. As far as exclusion of 7 companies listed above which are part of the final comparable companies chosen by the TPO are concerned, we find that the turnover of these companies is 10 times g....
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....ee's profit margin fluctuates significantly on a year-on-year basis, with the result that it cannot be considered as comparable to the Assessee. Apart from the above, it the plea of the Assessee that Bodhtree is also engaged in the provision of software solutions developed in-house, like MIDAS, ShareTree, TeleTree, SecureTree, AppsScale. It is the plea of the Assessee that the Assessee is only a captive software development service provider that does not design/develop/sell software products and does not own IPs. Based on the above submissions, the learned counsel submits that Bodhtree is functionally dissimilar to the Assessee. The learned counsel for the Assessee has also placed reliance on the decisions of this Hon'ble Tribunal i....
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....ct and it lays down that the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Export turnover has been defined under Explanation 2 (iv) to Sec.10A as:- "export turnover" means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance at....