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Income Tax Appellate Tribunal, BENGALURU BENCH A, BENGALURU
Before: SHRI. VIJAY PAL RAO
PER S. JAYARAMAN, ACCOUNTANT MEMBER :
This is an appeal filed by the assessee against the order passed u/s. 143(3) rw 144C dt.25.08.2016 by the AO, in pursuance of the directions of the DRP, for the assessment year 2012-13.
M/s. Aptean Software India P. Ltd, the assessee , is a wholly owned subsidiary of Pivotal Corporation Canada, previously known as CDC IT(TP)A.1826/Bang/2016 Page - 2 Software India P. Ltd, is primarily engaged in software development services in various sectors for clients of the holding company. It provides programming, customisation, modification and support services to the holding company’s information technology software and systems also. It has entered into a service agreement with the holding company to render these services which are charged to the holding company on a fully loaded cost basis at a predetermined mark-up on such costs. For the impugned assessment year, it filed its return on 29.11.2012 declaring a total income of Rs.6,44,51,680/-. The TPO passed an order u/s.92CA determining the average net operating margin at 22.63% and provided working capital adjustment at 1.27% .Thus, he made an adjustment of Rs.3,88,36,358/- towards software development services. Aggrieved , the assessee filed its objections before the DRP. The DRP rejected almost all the assessee’s objections but directed the TPO to exclude six comparables i.e., ICRA Techno Analytics, Spry Resources India P. Ltd, M/s.
Genesys International Corporation Ltd, Infosys Ltd, R. S. Software (India)
Ltd, Sasken Communication Technologies Ltd, from the list of comparables.
Consequently, the A O gave effect to the directions of the DRP and passed the impugned order . Aggrieved against the order, the assessee is in appeal before this Tribunal with following grounds :
IT(TP)A.1826/Bang/2016 Page - 3 IT(TP)A.1826/Bang/2016 Page - 4 IT(TP)A.1826/Bang/2016 Page - 5
The A R primarily argued that the DRP erred in including the following companies which are giants when compared with the assessee and hence erred in retaining them in the list of comparables :
L & T Infotech Ltd, 2. Persistent Systems Ltd, 3. Mindtree Ltd. IT(TP)A.1826/Bang/2016 Page - 6
In this regard, he relied on this Tribunal decision in its own case for a y 2008-09 reported in 60 Taxmann.com 49, ITO v. Maxim India Integrated Circuit Design P. Ltd in IT(TP)A.28/Bang/2002, dt.31.03.2016.
On turnover filter, the AR relied on ACIT v. Mcafee India P. Ltd 68 Taxmann.com 298 (Bang-Trib). Further, the AR sought exclusion on functional dissimilarity also based on this Tribunal decision in Cisco Systems (India) P. Ltd v. DCIT -50 Taxmann.com 280 , ay . 2009-10 and Saxo India P. Ltd v. ACIT -176 TTJ 540 (Del), DCIT v. Electronics for Imaging India P. Ltd 70 taxmann.com 299 (Bang-Trib), a y . 2010-11. Thus, the AR sought rejection of the comparables both on functional dissimilarity as well as on turnover filter.
Earlier, the ITAT had accepted the turnover range of Rs. 1 to 200 crores. The ITAT observed that this range cannot be fixed, as facts may vary from case to case. But this method of adopting 200 crores without proper basis or logic resulted in unreasonable judgements.
Hence, the ITAT in the McAfee ruling, supra, held that a range of upper limit at ten times and lower limit of ten times i.e., one tenth can be adopted. The ITAT in the above case also held that there could margin of variations but these broad parameters could be adopted on uniform basis.
In the assessee’s case, its turnover is 38.07 crores. Therefore, following McAfee ruling, the turnover range that could be taken in the comparables should be 3.8 crores to 380 crores. Therefore, any company not falling IT(TP)A.1826/Bang/2016 Page - 7 within the said range should be excluded on turnover filter. Hence, the turnover of the following comparables are outside the scope :-
Comparables Turnover Rs. L & T Infotech Ltd 29,595,545,449 Persistent Systems Ltd 8,103,640,000 Mindtree Ltd 12,558,000,000 The AR also submitted that if the turnover plea is considered in its favour, all other grounds become academic.
We heard the rival submissions and find merit in the assesssee’s submissions. Following this Tribunal ruling in ACIT v. Mcafee India P. Ltd 68 Taxmann.com 298 (Bang-Trib), the above 3 comparables are directed to be excluded from the list of comparables.
In the result, the assessee’s appeal is allowed.
Order pronounced in the open court on 21st day of April, 2017.