ACIT, CIRCLE-4(1)(1), BENGALURU vs. MOTOROLA SOLUTIONS KODIAK NETWORKS INDIA PRIVATE LIMITED, BENGALURU

ITTPA 2433/BANG/2024Status: DisposedITAT Bangalore19 August 2025AY 2013-1416 pages
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What were the facts?

The appeal for Assessment Year 2013-14 was filed by the Assistant Commissioner of Income Tax (ACIT) against an order of the Commissioner of Income Tax (Appeals)-12 (CIT(A)). The assessee, M/s. Motorola Solutions Kodiak Networks India Pvt. Ltd., had filed a cross-objection. The CIT(A) had partly allowed the assessee's appeal against an assessment order dated 15.02.2017. The assessee, engaged in software development and customer support services, reported taxable income of Rs.6,02,01,270/-. International transactions amounting to Rs.38.55 Crores (software development) and Rs.2.99 Crores (customer service) were subject to transfer pricing (TP) scrutiny. The Transfer Pricing Officer (TPO) computed margins at 12.58% and 22.80% respectively, rejecting the assessee's TP study and proposing an adjustment of Rs.3,68,00,537/-. The final assessment order determined total income at Rs.11,92,97,192/-, including TP adjustments, depreciation disallowance, and a Section 40(a) disallowance.

What did the Tribunal hold?

The Tribunal addressed the grounds raised by the Revenue and the Cross Objection by the assessee. Regarding the exclusion of comparables, the Tribunal found that ICRA Techno Analytics Limited was correctly excluded due to its foreign exchange transactions not meeting the TPO's filter. The assessee's contention regarding the provision for bad and doubtful debts being part of operating cost was upheld, affirming the CIT(A)'s direction to treat it as such. On the issue of negative working capital adjustment, the Tribunal noted that since six comparable companies were directed to be excluded, this ground of appeal became infructuous and was dismissed. In the Cross Objection, the Tribunal found that the disallowance of Rs.2,18,56,257/- (provision for income tax and MAT credit reversal) under Section 40(a) resulted in a double addition, as these amounts were already excluded in the tax computation. The Assessing Officer was directed to start the computation from profit before tax, thereby eliminating the double disallowance. The Tribunal held that the provision for bad and doubtful debts is part of operating cost as it relates to sales already booked. The issue of negative working capital adjustment was dismissed as infructuous due to the exclusion of comparables. The double disallowance of Rs.2,18,56,257/- was directed to be deleted.

What were the issues?

1. Whether the CIT(A) erred in law and facts by seeking exact comparability under TNMM and whether the objection to comparable selection is legally sustainable? (Section 92C, Rule 10B) 2. Whether the CIT(A) erred in law and facts by ignoring the exhaustive parameters of analysis prescribed under Rule 10B? 3. Whether the CIT(A) erred in law and facts by holding that M/s ICRA Techno Analytics Limited, M/s Larsen Toubro Infotech Limited, M/s Persistent Systems Limited, & M/s Tech Mahindra Limited cannot be taken as comparable? 4. Whether the CIT(A) was right in fact and law in removing M/s. Mindtree Ltd. as a comparable by imposing a turnover filter? 5. Whether the CIT(A) was right in not following ITAT decisions in M/s Societe Generale Global Solution Centre Pvt Ltd. and M/s. Vmoksha Technologies Pvt. Ltd. holding that turnover is not a relevant criterion for comparability? 6. Whether the CIT(A) was right in holding that a co-relation exists between turnover and operating margin? 7. Whether the CIT(A) was right in fact and law in directing to treat the provision of bad and doubtful debts as part of operating cost? 8. Whether the CIT(A) was right in fact and law in directing not to make Negative Working Capital Adjustment? Assessee's contentions: - Companies selected by the assessee (Akshay Software Technologies Ltd., Cignit Technologies Ltd., Evoke Technologies Pvt Ltd.) and proposed additional companies (Celstream Technologies Pvt Ltd., CTIL Ltd., E-zest Solutions Ltd., Harbinger Systems Pvt Ltd., Sankhya Infotech Ltd.) were rejected unjustifiably. - Assessee is insulated from risks compared to comparables, warranting a risk premium. - Disallowance of Rs.2,18,56,257/- (provision for income tax and MAT credit reversal) under Section 40(a) is bad in law as it was already disallowed in the tax computation, leading to double addition. Revenue's contentions: - The CIT(A) erred in excluding certain comparables and applying filters like turnover. - The CIT(A) erred in directing to treat provision for bad and doubtful debts as operating cost. - The CIT(A) erred in directing not to make negative working capital adjustment.

Which sections of the Income-tax Act were involved?

Section 40(a),Section 92C,Section 143(2),Section 40(a)(ii),Section 92CA(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH: BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY

For Appellant: Shri. Narendra Jain, AR
For Respondent: Dr. Divya K. J, CIT(DR)(ITAT), Bangalore
Hearing: 17.07.2025Pronounced: 19.08.2025

Per Prashant Maharishi, Vice President:

1.

Appeal for Assessment Year 2013 – 14 in IT(TP)A No. 2433/Bangalore/2024 is filed by The ACIT, Circle – 4(1)(1), Bangalore (the learned Assessing Officer) and cross objection by The Motorola solutions Kodiak network Limited [ the Assessee] against appellate Order passed by the CIT(A)

The order continues below.

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