M/S. IGEFI SOFTWARE INDIA PRIVATE LIMITED,BENGALURU vs. ASSISTANT COMMISSIONER OF INCOME TAX, BENGALURU

The ground no.1 is general in nature and Ground no.10 is consequential. The remaining ground relate to the Transfer Pricing Adjustment made by the TPO and confirmed by Ld CIT(A). Even though the assessee has raised certain legal grounds in the grounds IT(TP)A No.2614/Bang/2017 of appeal, yet the Ld A.R restricted his arguments on exclusion of certain comparables. Accordingly other grounds are treated as Not Pressed.

The assessee is engaged in the business of rendering software development, testing, debugging & software maintenance services. During the year it has provided software services to its AE to the tune of Rs.32.12 crores. The Assessee adopted TNMM method as appropriate method and Operating Profit/Operating Cost (OP/OC) as its PLI, which worked out to 17.98%. The assessee selected ten comparable companies, whose average PIL worked out to 12.96%. Accordingly, the assessee claimed that the transactions with its AE were at arms length.

The TPO, however, selected following comparables, whose average PLI was 20.90%:-

The TPO gave deduction towards working capital adjustment to the tune of 0.42%. However, instead of deducting the above said adjustment from 20.90%, he added the same to it. Accordingly he proposed Transfer pricing adjustment of Rs.114.75 lakhs. The AO completed the assessment by adding the above said amount to the total income of the assessee.

The assessee preferred appeal before Ld CIT(A), but could not succeed. Hence the assessee has filed this appeal before us.

The Ld A.R submitted that the assessee is seeking exclusion of following five companies on various criteria. However, they shall be excluded, if the filter of “large turnover” alone is applied, since these companies do not fall in the bracket of 1 crore to 200 crores as per Dun and Bradstreet’s analysis, wherein it has been opined that the grouping of companies having turnover of Rs.1 crore to Rs.200 crores as comparable with each other was proper. He submitted that the assessee’s turnover for this year was only Rs.32.12 crores. However the turnover of following companies was more than Rs.200 crores:- Name of Comparable company Turnover a) Larsen & Toubro Infotech Limited 3609.32 crores b) Persistent Systems Ltd 996.75 crores c) Mind Tree Ltd 1640.81 crores

The Ld D.R, however, supported the orders passed by Ld CIT(A).

We heard the parties and perused the record. In the case of Genisys Integrating Systems (India) P Ltd vs. DCIT (ITA No.1231/Bang/2010), the co-ordinate bench of Tribunal has relied upon the opinion expressed by Dun and Bradstreet that the grouping of companies having turnover of Rs.1.00 crore to Rs.200 crores as comparable with each other was held to be proper. Since certain decisions were rendered by other co-ordinate benches fixing different criteria, the co-ordinate bench considered the divergent views expressed by various benches in the case of Autodesk India (P) Ltd vs. DCIT (2018)(96 taxmann.com 263) and expressed the view that the Ld CIT(A) was right on the issue of application of turnover filter by following the ratio laid down in the case of Genisys Integrating Systems (India) P Ltd (supra).

In the instant case, the assessee seeks exclusion of above said five companies by applying turnover filter as per the ratio laid down in the case of Genisys Integrating Systems (India) P Ltd (supra).

In the result, the appeal of the assessee is treated as allowed.