TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 746
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....nt and pursuant to the direction of the ld. Dispute Resolution Panel-II, Bangalore [ld. DRP] dated 28.8.2024, the above adjustment was retained. Thus, assessee is aggrieved with the above addition and is in appeal before us. 2. The assessee was incorporated on 4.11.2015 being a subsidiary of Netradyne Inc. USA engaged as a development centre based in Bangalore providing software development services to its US parent. It filed its return of income on 10.2.2022 declaring total income of Rs. 5,75,320/-. 3. Assessee has two different segments of international transactions namely, [i] Software development services and [2] software license distribution segment. As it has entered into international transactions of provision of software development services having income of Rs. 37,63,49,883/- and software distribution segment of software license of Rs. 1900747/-, reference was made to the ld. TPO to determine the ALP. 4. For benchmarking software development services, In Transfer pricing Study Report [ TPSR], The assessee, selecting itself as a tested party, has adopted Transactional Net Margin Method [TNMM] as the Most Appropriate method, selecting Proft level indicator of NCP co....
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.... 180.17%. Assessee selected 4 comparable companies in its distribution of software licence segment which was excluded by the TPO by rejecting some of the filters. The TPO carried out fresh search on Prowess Database selecting 9 comparables having 35th percentile of 9.66%, 65th percentile margin of 23.98% and median margin of 9.76%. Assessee objected the exclusion of certain companies which were rejected by the TPO and taxpayer objected regarding inclusion of certain companies. On the issue of comparability, huge turnover, brand value, lack of segmental information, etc., all these objections were rejected. Thereafter the ld. TPO reached at 9 comparable companies and determined the ALP at Rs. 1,14,34,892 whereas the price paid by the assessee company was Rs. 3,55,02,533 determining the shortfall of Rs. 2,40,67,642. However the adjustment was restricted to quantum of purchases at Rs. 19,00,747. 8. Based on this, the draft assessment order u/s. 144C was passed on 10.11.2023 determining total income of assessee at Rs. 3,70,06,417. The assessee filed objections before the ld. DRP who passed directions on 28.8.2024 and after that the final assessment order was passed on 26.9.2024 at t....
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....introducing /retaining certain companies in the final comparable set which were functionally/qualitatively dissimilar to the Appellant. S No Name of the Company 1 Mindtree Limited 2 Net4Nuts Limited 3 Larsen and Turbo Infotech Limited (76;0 4 Nihilent Limited 5 Wipro Limited 6 Great Software Laboratory Private Limited 7 Aptus Software Labs Private Limited 8 Infosys Limited 9 Cybage Software Private Limited 10 Tata Elxsi Limited 11 Tata Consultancy Service Limited 12 Consilient Technologies Private Limited 8. The authorities below have erred on facts and in law by rejecting certain companies in the final comparable set which were functionally/qualitatively similar to the Appellant and hence ought to have been included in the final list of comparables; S.No. Name of the company 1 Infomile Technologies Limited 2 Harbinger Systems Private Limited 3 Rheal Systems Private Limited 4 Toxyl Technologies Private Limited 5 Agnicient Technologies Private Limited 6 Isummation Technologies Private Limited 9. That the authorities have erred in computation of op....
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....d a consulting company. The relevant extract of annual accounts was also shown; however, same was not excluded. 13. The assessee also as per ground No.8 submitted that certain companies were in assessee's TPSR and comparability analysis which should have been included by the TPO, but the same were not included as the same were not part of search matrix of the TPO. 14. The ld. CIT (DR) submitted that regarding high turnover companies, the ld. TPO and the ld. DRP have given detailed reasons that in the services segment, higher turnover does not impact the margins of the companies. Their empirical data and studies given by the TPO & DRP showing year wise turnover of various companies and their margins which clearly show that higher turnover does not impact the margin of the companies. Therefore, there is no reason that the companies with higher turnover should be excluded. 15. With respect to exclusion of Net4Nuts Ltd. & Consilient Technologies Pvt. Ltd., it was submitted that the DRP & TPO have given detailed reasoning for not including the above companies. 16. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. 17. W....
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....un Bradstreet also supports it. Though such studies have compartmentalised turnover filter of Rs. 1-200 hundred crores. Naturally in transfer pricing analysis lower turnover filter and upper turnover filter cannot be fixed and how to adopt the same depends upon the facts of each case looking at the turnover of the tested entity. In fact, the purpose of applying a filter is to have a manageable level of independent business concern having broadly similar level of turnover, intangibles, employees, and other assets. Guidance note issued by ICAI also advocates the same reasoning for adopting turnover filter. 21. In fact, the simplest way of explaining what an arm's-length price is how independent parties price a particular transaction therefore that is how related parties should also price it. To arrive at such an arm's length price, economies of scale should also be similar/ comparable. Therefore, the upper turnover filter is necessarily required to be employed for better determination of arm's-length price. Honourable Bombay High Court in case of Pentair Water India (P.) Ltd. vs. Additional Commissioner of Income-tax, Goa [2014] 47 taxmann.com 132 (Panaji)/[2014] 164 T....
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..... Therefore it is functionally comparable. The abnormal fluctuations in the margin is not the reason, unless it is specifically pointed out that there are extra-ordinary events occurring in the comparable company impacting the margins, thus it could not be reason for exclusion. Therefore, we do not find any infirmity in the order of the ld. DRP in not excluding the above company from the comparability analysis. The assessee has relied upon the decision of the coordinate Bench in PCIT v. Barclays Technology Centre Pvt. Ltd. in ITA No.1384/Bang/2015 wherein the above company is excluded. We have carefully considered the decisions relied upon before us. We find that the same is pertaining to AY 2008-09 and therefore same cannot be applied for AY 2021-22 as functional profile was not shown to be the same for these two years of this comparable. Accordingly reliance on the decision is not correct. Ld TPO/ DRP has rightly included this comparable. This Ground is dismissed. 25. The next comparable company objected to by the assessee is Consilient Technologies Ltd. Assessee has objected to the same stating that it is functionally dissimilar as it is engaged in diversified business, has a....
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....ing all these steps, assessee says that some comparable companies should also be included as those are providing similar functions as of the assessee. As the TPSR of the assessee stands rejected and not opposed, now the search process and filters applied by the assessee are no more relevant. Those companies which are argued to be included are also part of the same rejected TPSR. Thus, the arguments are though TPSR is rejected but resultant companies should be included in comparability analysis, is bizarre and deserves to be rejected. 28. Another reason for rejection of this argument is that it is not shown to us by assessee that this companies does appear in the accept reject matrix of the ld. TPO, but those have been wrongly excluded by ld TPO. Against this, the Ld TPO and LD DRP has categorically held that those companies did not find place in search matrix of the assessee. This reason of the ld DRP and Ld TPO remains unassailed. 29. One more reason for rejecting the arguments of the ld AR is that, if one company stated to be included which favours the assessee, then there may be several other companies which are also having similar far and not in the comparable set of the ....