The
assessee was engaged in the export of network security and administrative
software solutions which were developed
exclusively for its parent company (BDC).For purpose of determining the Arm's Length Price, the assessee selected 11
comparables and determined the Average Arithmetic Mean at 10.30%.Since the mean operating
profit/Total cost of comparable companies was less than the OP/TC of 12.90% of the assessee, it was
claimed that its international transaction relating to software development
services was at Arm's Length Price.
The
TPO did not accept the comparables given by the assessee and selected 14 new
companies. Accordingly, the TPO
determined the mean of margins earned by the final set of comparables at 26.07% as against the margins of 12.40% and
computed ALP. Thus, he made T.P. adjustment to the total income of the assessee. DRP directed the TPO to consider 11 companies
as comparables which included 4 companies
originally selected by the assessee. On appeal Tribunal held that ;
Assessee company having turnover of Rs.
24.48 crores from software development services, could not be compared with
company whose turnover exceeded Rs. 50 crores and research and development
expenses also crossed R&D/sales threshold
of 3 per cent. Where relevant data of entire year of a company is not
available, it cannot be selected as
comparable. Where a company which had incurred super losses due to
extraordinary events like winding up of
relationship with clients, filing of bankruptcy by some clients, etc., it is to be excluded from comparables list;
simultaneously company earning super profit should also have to be excluded
from list of comparables. Where a company had discontinued its product division
and
was
into IT services, it cannot be said to be functionally dissimilar to company
engaged in software services. When a
company was selected as comparable in earlier year, there being no change in
its usiness activities, same should not
be excluded from comparable list. Partly in favour of assesse.( ITA no 1501
(PN) of 2011 dt 26-05-2014)(AY. 2005-06)
Bindview
India (P.) Ltd. .v. Dy. CIT (2014)48 taxmann.com 126 / (2015) 152 ITD 120 (Pune)(Trib.)
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