JCIT, Bangalore V. M/s PMC Sierra India Pvt. Ltd., Bangalore

ITA 1139/BANG/2016

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 7798 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 29-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMER SINGH MEENA
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 143(3); 72; 13; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A No. 1139/Bang/2016 Assessment Year : 2009-10 The Deputy Commissioner of Income Tax, Circle – 4(1)(1), Bangalore. Vs. M/s. Micro Semi Storage Solutions India Pvt. Ltd., (formerly known as PMC-Sierra India Pvt. Ltd.) 19, Church Street, Bangalore – 560 001. PAN: AADCP6802F APPELLANT RESPONDENT & C.O. No. 84/Bang/2017 (in IT(TP)A No. 1139/Bang/2016) (By Assessee) Assessee by : Smt. Tanmayee Rajkumar, Advocate Revenue by : Shri Sankar Ganesh K, JCIT & Shri Sumer Singh Meena, CIT DR Date of Hearing : 23-12-2021 Date of Pronouncement : 28-02-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present cross appeals are filed by revenue as well as assessee against the assessment order dated 30.04.2013 by the Ld.DCIT, Page 2 of 19 IT(TP)A No. 1139/Bang/2016 & C.O. No. 84/Bang/2017 Circle-12(2), Bangalore u/s. 143(3) r.w.s. 144C(3) of the Act for Assessment Year 2009-10. 2. Brief facts of the case are as under: The Assessee, formerly known as PMC Sierra India Pvt. Ltd., was during the relevant previous year a wholly owned subsidiary of PMC-Sierra Mauritius Limited which was in turn a subsidiary of PMC-Sierra Inc. The Assessee provides SWD services as well as sales support services to its AEs for which it is compensated on a cost plus mark-up basis. During the year under consideration, the international transactions that took place between the Assessee and its AEs was the provision of SWD services by the Assessee at a price of Rs.63,36,37,442/-. As the value of the international transactions was more than Rs. 15 Crores, reference was made to the Ld.TPO. On receipt of the reference, the Ld.TPO called for economic analysis of the international transaction in form 3CEB. The Ld.TPO observed that assessee had following international transactions with its Associated Enterprises: International Transactions Amount (in Rs.) Provision of software development services 63,36,37,442/- Provision of sales support services 89,37,146/- Reimbursement of expenses 2,09,59,098/- Recovery of FBT expenses 62,224/- Allocation of computer service expenses (paid) 1,10,70,097/- Page 3 of 19 IT(TP)A No. 1139/Bang/2016 & C.O. No. 84/Bang/2017 The Ld.TPO observed that assessee used TNMM as the most appropriate method to compute its margin at 15.94% by using OP/OC as PLI. The Ld.TPO observed that assessee selected following 17 comparables with an average margin of 13% and thus held its transaction to be at arm’s length: Company Name Average Margin Akshay Software Technologies Ltd. 7 Bodhtree Consulting Ltd. 27 E2E Infotech Ltd. 11 FCS Software Solutions Ltd. 40 ICRA Techno Analytics Ltd. 8 Indus Networks Ltd. 3 LGS Global Limited 25 Larsen & Toubro Infotech Limited 16 Mindtree Ltd. 20 PSI Data Systems Ltd. 5 SIP Technologies & Exports Ltd. -9 Synetairos Technologies Ltd. 17 eZest Solutions Ltd. 33 Persistent Systems Ltd. 20 Computech International Ltd. 2 H S India Ltd. -27 Techprocess Solutions Ltd. 26 Number of Companies 17 Mean 13 Page 4 of 19 IT(TP)A No. 1139/Bang/2016 & C.O. No. 84/Bang/2017 The Ld.TPO applied following filters and rejected most of the comparables selected by assessee. He thus finalised following 11 comparables with an average margin of 24.32%. Filters applied by the TPO: Step Particulars 1. Data for FY 08-09 not available – excluded 2. Companies whose software development service income is < 75% of total revenue – excluded 3. Companies whose employee cost is <25% of sales - excluded 4. Companies whose export earnings are <75% of sales - excluded 5. Companies having related party transactions >25% - excluded 6. Companies having software development service income is