For the purpose of ALP (Arms Length Price) the TPO and the Assessee are at liberty to consider as many as possible companies as comparable for the purpose of determining the ALP, subject to the parameters on the basis of which the earlier companies selected by the TPO are rejected.
1. Assessee is a company established as 100% EOU registered under Software Technological Parks of India (SWTPI) at Bangalore
2. Assessee is a company primarily engaged in designing and development of software for its parent company.
3. Assessee selected 18 comparables in its TP study report to bench mark its international transactions and arrived at 10.28% of mean margin
4. Out of 18 comparables 14 were rejected by the TPO and selected 20 companies as comparables including 4 companies from the list of assessee
5. TPO calculated mean margin of 23.65% against assessee’s margin of 10.28%
6. Assessee challenged the action of the TPO in rejecting the comparables selected by the assessee and adding 16 more comparables in the list of comparables for determination of ALP before the DRP.
7. The DRP did not accept objections raised by the assessee and confirmed the proposed adjustment on account of ALP in respect of international transactions of the assessee.
8. AO rejected assessee’s claim of deduction u/s 10A and CIT(A) confirmed it.
9. Assessee appealed to the Tribunal who suggested various parameters to be followed in determining comparables in deciding ALP. Tribunal allowed assessee’s claim u/s 10A relying upon assessee’s own case for the assessment year 2004-05 in ITA No.616/Bang/2009 by order dated 10/08/2010
For Transfer Pricing - Since most of the comparables selected by the TPO has been rejected by us in the foregoing findings therefore, the assessee as well as the TPO are at liberty to consider as many as possible companies as comparable for the purpose of determining the ALP, subject to the parameters on the basis of which the earlier companies selected by the TPO are rejected. Thus, the AO/TPO are directed to re
compute the ALP by doing a fresh exercise of selecting the suitable comparables apar from he comparables which are accepted by both the parties in the present of comparables.
For Section 10A - We find that the issue is squarely covered by the decisions relied upon by the learned counsel for assessee. The distinctions sought to be brought about by the learned Department Representative, in our opinion, are not relevant to the facts of the case before us. In view of the same, the appeal of the revenue is dismissed”.
Following the order of the coordinate bench of this Tribunal in assessee’s own case (Supra), we decide this issue in favour of the assessee and direct the AO to allow the claim of deduction u/s 10A of the IT Act, 1961.
Cases Referred to
Kumaran Systems (P) Ltd., Vs ACIT 106TTJ494
AP LABS India Pvt. Ltd. Vs. ACIT ITA. No. 398/Bang/2008
E-gain Communication Pvt. Ltd. ITA No. 1685/Pune
Sony India Pvt. Ltd ITA No. 1189/Delhi