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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
Date of Hearing – 11.02.2021 Date of Order – 24.02.2021
O R D E R PER SAKTIJIT DEY. J.M.
The captioned appeal has been filed by the assessee challenging the final assessment order dated 28th September 2017, passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 (for short “the Act”) for the assessment year 2013–14, in pursuance to the directions of the Dispute Resolution Panel–2 (for short “the DRP”), Mumbai.
2 Skillnet Solutions India Pvt. Ltd.
At the outset, the learned Counsel for the assessee, referring to ground no.4, submitted that if one of the comparables i.e., Infobeans Technologies Ltd. is removed, assessee’s margin would be within arm's length margin of the rest of the comparables requiring no further adjustment. Therefore, in that event, the other grounds raised would become academic. Considering the aforesaid submission, we proceed to deal with ground no.4, at the very outset.
Brief facts relating to this ground are, the assessee, a resident company, is a subsidiary of Skillnet Solutions Inc., USA. It is stated that the assessee is engaged in providing routine software development services to customers through Skillnet Solutions Inc., USA. During the year under consideration, the assessee earned revenue of ` 22,79,88,050, from providing software development services through its Associated Enterprises (AE). The assessee benchmarked the aforesaid transaction by applying comparable uncontrolled price (CUP) method. The Transfer Pricing Officer, however, did not accept the benchmarking of the assessee. Noticing that in assessment year 2010–11, CUP method followed by the assessee was rejected and the arm's length price was determined by applying transactional net margin method (TNMM), the Transfer Pricing Officer followed the same and proceeded to determine the arm's length price under TNMM. While doing so, he selected seven
3 Skillnet Solutions India Pvt. Ltd. comparables with arithmetic mean of 23.54%. By applying the said arithmetic mean to the operating cost, he determined the arm's length price of sales to the AE at ` 25,58,81,505. Thus, the short fall of ` 2,78,93,455, was proposed as upward adjustment to the price charged to the AE. The adjustment proposed by the Transfer Pricing Officer was added back to the income of the assessee in the draft assessment order. The assessee raised objections before learned DRP against the aforesaid adjustment. However, learned DRP did not find merit in assessee’s objections.
The learned Counsel for the assessee submitted, Infobeans Technologies Ltd. being engaged in diversified activities and the segmental results not being available in public domain, cannot be compared to a routine software development service provider like the assessee. In support of such contention, learned Counsel for the assessee relied upon the following decisions:–
i) M/s. Pubmatic India Pvt. Ltd. v/s ACIT, ITA no.655/Pun./2017 dated 09.03.2018; ii) M/s. Emerson Electric Co. India Pvt. Ltd. v/s ACIT, & 531/Mum./2018, dated 14.06.2019; iii) M/s. Abhay India Pvt. Ltd. v/s ACIT, ITA no.7290/Del./2018 dated 24.09.2019. 5. The learned Departmental Representative strongly relied upon the observations of the Transfer Pricing Officer and learned DRP.
4 Skillnet Solutions India Pvt. Ltd.
We have considered rival submissions in the light of the decisions relied upon and perused materials on record. As could be seen from the facts on record, the assessee operates in a single segment of providing routine software development services to its AE. Whereas, Infobeans Technologies Ltd. is providing a range of services, such as, automation engineering, service now, UX and UI, customized software, storage and virtualization, data mining, data modeling, statistical analysis, machine learning technique, etc. Considering the fact that Infobeans Technologies Ltd. is engaged in diversified activities and segmental details are not available, the Tribunal, Pune Bench, in Pubmatic India Pvt. Ltd. (supra) has held that this company cannot be treated as comparable. In case of M/s. Emersion Electric Co. India Pvt. Ltd. (supra) which is for the very same assessment year, the Co– ordinate Bench following the decision rendered in case of Pubmatic India Pvt. Ltd. (supra) has held that Infobeans Technologies Ltd. cannot be considered as comparable to a routine software development service provider. The same view was again expressed by the Tribunal, Delhi Bench, in M/s. Abhay India Pvt. Ltd. (supra). Keeping in view the consistency in the decisions of the Tribunal with regard to the comparability of Infobeans Technologies Ltd. with a routine software development service provider, we hold that this company cannot be a comparable to the assessee. Accordingly, we
5 Skillnet Solutions India Pvt. Ltd. direct the Assessing Officer to remove this company from the list of comparables and determine the arm's length price. 7. Considering the submissions of the learned Counsel for the assessee that with the removal of Infobeans Technologies Ltd. assessee’s margin would be within arm's length even accepting the rest of the comparables, we do not intend to dwel upon the other grounds raised by the assessee, as, they have become academic insofar as the present appeal is concerned.
In the result, appeal is partly allowed. Order pronounced in the open Court on 24.02.2021