TaxTMI 
TaxTMI 
TaxTMI 
2023 (7) TMI 1597
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....he year under consideration, the assessee entered into international transaction with its associated enterprise under software development segment amounting to Rs.4,89,11,827/- with its associated enterprises. The case was referred to the transfer pricing officer to determine the arms length price in relation to the international transaction undertaken by assessee. On receipt of the reference, the Ld.AO observed that the assessee had computed its margin at 12.27%. It had benchmarked its transaction by applying TNMM as the most appropriate method and had applied OP/OC as the PLI. The Ld.TPO noted that assessee had selected following 7 comparables with average margin of 15.69%. SI.No Name of the Company Weighted Average (%) 1 FCS Software Solutions Ltd -5.45 2 TVS Infotech Ltd 6.55 3 Intellect Commerce Ltd 15.69 4 Pure Software Pvt. Ltd. 30.11 5 Harbinger Systems Pvt Ltd 35.83 6 Sagarsoft (India) Ltd. 48.31 7 Persistent Systems Ltd 59.44 2.3 It thus treated its transaction with the AE to be at arms length. Dissatisfied with the criterias applied by the assessee while selecting comparables, the Ld.AO shortliste....
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....vt. Ltd. for its inclusion / exclusion respectively. 2.5.1 On receipt of the DRP directions, the Ld.AO passed the impugned order by making addition in the hands of assessee in respect of the transfer pricing adjustment proposed at Rs.4,89,11,827/-. 2.6 Aggrieved by the order of the Ld.AO, assessee is in appeal before this Tribunal. 2.7 At the outset, the Ld.AR vide email dated 13.06.2023 made submissions which is scanned and reproduced as under: Email Bangalore Benches ITAT, Bangalore Benches RE: IG Infotech (India) Private Limited - AY 2018-19 - IT(TP)A No. 751/Bang/2022 From : Akshay Uppal1< [email protected]> Tue, Jun 13, 2023 01:39 PM Subject : RE: IG Infotech (India) Private Limited - AY 2018-19 - IT(TP)A No. 751/Bang/2022 To : Bangalore Benches ITAT, Bangalore Benches Cc : Nageswar Rao,Deepika Agarwal2 , Viyushti Rawat , Amit Bahuguna The Hon'ble Members Bench 'C' Income Tax Appellate Tribunal No. 51, Behind Jal Bhawan, 1st Cross, 4th T Block, Tilak Nagar, Jayanagar Bengaluru - 560041 Re M/s IG Infotech (India) Private Limited ("Appellant") - IT(TP)A No. 751/Bang/2022 for Assessment Year (....
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....for AY 2017-18 in IT(TP)A No.204/Bang/2022 vide order dated 01.11.2022 (Item No. 1 of CL PPB - Refer Para 4 to 4.3, Page 5112 to 5126) however, as only 7 companies are covered we rely on decisions in MWYN and Motorola relating to same assessment year, as referred herein above. 6 Not pressed, with request to keep the issue open 7 It is respectfully submitted that certain errors have crept in computing operating margins of comparable companies by Ld. TPO. Ld. DRP had directed the TPO to verify Appellant's contention and recompute the margins after correcting prima facie mistakes (refer para 2.10 of DRP Directions @ Page 70 of Appeal Set). Ld. TPO, however, has not complied with such directions. It is requested that Ld. TPO may kindly be directed to rectify the margins of comparable companies. Correct operating margins of comparables is placed at pages 153 to 158 and 695-709 of Factual PB. Similar direction was given by the Hon'ble Tribunal in Appellant's own case for AY 2017-18 in IT(TP)A No.204/Bang/2022 vide order dated 01.11.2022 (Item No. 1 of CL PPB - Refer Para 5.1, Page 5126) B It is respectfully submitted that working capital adjustment was incor....
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....e kept open to be considered in an appropriate circumstances. Accordingly ground no. 5.1 need not be adjudicated and liberty is granted to assessee to raise these comparables for inclusion in appropriate circumstances. Ground no. 5.2 r.w. ground no. 4.4 6. He submitted that in ground no. 5.2, assessee is seeking exclusion of the following comparables being a) Cybage Software Pvt. Ltd. b) Exilant Technologies Pvt. Ltd. c) Infosys Ltd. d) Larsen & Toubro Infotech Ltd. e) Mindtree Ltd. f) Nihilent Ltd. g) Persistent Systems Ltd. h) Tata Elxsi i) Wipro Ltd. 7. He submitted that the turnover of the assessee for the year under consideration for software development service segment is Rs.48.48 crores and the above comparables has turnover more than 200 crores. He thus prayed for application of turnover filter of 1 to 200 crores for exclusion of the above comparables. In support of this contention, he placed reliance on the decision of the Coordinate Bench of this Tribunal in assessee's own case in ITA No. 204/Bang/2022 for A.Y. 2017-18 by order dated 01.11.2022, wherein L&T Infotech Ltd., Persiste....
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....se. We draw support from the decision of this Tribunal in case of Autodesk India (P) Ltd. V. DCIT [Reported in (2018) 96 taxmann.com 263 (Bang Trib)]. On application of the turnover filter on 1-200 crores, the above 11 companies are to be excluded. Further reliance is placed on the decision of this Hon'ble Tribunal in ACI Worldwide Solutions Pvt. Ltd. v. ACIT (order dated 13.05.2022 passed in IT(TP)A No. 106/Bang/2022). 7.6 Considering the facts and respectfully following the decision of the Coordinate Bench of the Tribunal in the case of Autodesk India Pvt Ltd., (supra), we hold that the above listed companies whose turnover in the current year is more than Rs.200 crores should be excluded from the list of comparable companies. Accordingly, ground nos. 4.4 and 5.2 stands partly allowed. 8. It is stated in the email that Ground no. 6 is not pressed with a request to keep the issue open. Accordingly the same is not decided and liberty is granted to the assessee to argue this issue in an appropriate circumstances. 9. Ground no. 7 - The Ld.AR submitted that, certain errors have crept in computing operating margins of comparable companies by Ld.TPO. The DRP had directed ....
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....ional transaction if - (i) None of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged to paid in, or the profit arising from, such transactions in the open market; or (ii) Reasonably accurate adjustments can be made to eliminate the material effects of such differences." 18. In such a scenario there would remain no comparable uncontrolled transactions for the purpose of comparison. The transfer pricing exercise would therefore fail. Therefore, in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore the working capital adjustment as claimed by the assessee should be allowed. We hold and direct accordingly. 19. In the result, the appeal of the assessee is allowed." 6.3 In view of the above order of the Tribunal, we inclined to remit the issue to the file of AO/TPO to determine the correct working capital adjustment." Accordingly, this ground raised by assessee stands allowed for statistical purposes. 11. Ground no. 9 is ....
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....rrectly modifying "persistent operating losses" filter as applied by the appellant to reject companies reporting loss for any two years out of last three years 4.3. Erred by incorrectly modifying the related party greater than 25 percent of revenue applied by the appellant as a comparability criterion for benchmarking the subject transaction. 4.4 Erred by incorrectly considering turnover filter of less than INR 1 crore as a comparability criterion. 4.5 Erred incorrectly considering "export earnings less than 75 percent of sales" as a comparability criterion. 4.6. Erred in including companies with different functional profile, without segmental details and based on baseless presumptions 4.7. Erred in rejecting valid comparable companies on presumptions and incorrect criteria 4.8 Erred in including companies owning IPR 5. Ld AO/TPO/DRP have erred in wrongly rejecting certain companies from and adding certain companies to the final set of comparables for the impugned transaction on an ad-hoc basis, thereby resorting to cherry picking of comparable companies for benchmarking the subject transaction. 5.1. Ld. AO/TPO/DRP have erred in excluding certain companies f....