Continuserve Softech India Private Limited, Bangalore V. Deputy Commissioner Of Income Tax, Circle-2(1)(1), Bangalore

ITA 242/BANG/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4020 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Bangalore
• Assessment Year: 2016-2017
• Appeal Filed On: 13-06-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER IT(TP)A No.242/Bang/2021 Assessment Year : 2016-17 M/s. ContinuServe Softech India Pvt. Ltd., Prathik Tech Park, 2 nd and 3 rd Floor, Sy. No.93/1, Veerasandra Village, Attibele Hobli, Hosur Road, Electronic City Phase 1, Bengaluru – 560 100. PAN : AAACC 8342 A Vs. DCIT, Circle – 2(1)(1), Bengaluru. ASSESSEERESPONDENT Assessee by :Shri. Darpan Kirpalani, Advocate Revenue by:Shri. Sumer Singh Meena, CIT(DR)(ITAT), Bengaluru Date of hearing:22.09.2022 Date of Pronouncement:23.09.2022 O R D E R Per N V Vasudevan, Vice President This appeal by the Assessee is directed against the final order of assessment dated 30.03.2021 of National e-Assessment Centre (NFAC), Delhi (hereinafter referred to as the Assessing Officer, “AO” in short) passed u/s.143(3) read with Section 144C(13) of the Income Tax Act, 1961 (Act) in relation to AY 2016-2017. 2. The Assessee in engaged in the business of provision of Software Development Services (SWD services), to its wholly owned holding company. In terms of the provisions of Sec.92-A of the Act, the Assessee and its wholly owned holding company were Associated Enterprises IT(TP)A No.242/Bang/2021 Page 2 of 29 ("AEs"). In terms of Sec.92B(1) of the Act, the transaction of providing SWD Services was an “international transaction” i.e., a transaction between two or more associated enterprises, either or both of whom are non- residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec.92(1) of the Act, the any income arising from an international transaction shall be computed having regard to the arm’s length price. In this appeal by the Assessee, the dispute is with regard to determination of Arms’ Length Price (ALP) in respect of the international transaction of rendering SWD services to the AE. 3. As far as the provision of Software Development services are concerned, the Assessee filed a Transfer Pricing Study (TP Study) to justify the price paid in the international Transaction as at ALP by adopting the Transaction Net Margin Method (TNMM) as the Most Appropriate Method (MAM) of determining ALP. The Assessee selected Operating Profit/Operating Cost (OP/OC) as the Profit Level Indicator (PLI) for the purpose of comparison of the Assessee’s profit margin with that of the comparable companies. The OP/OC of the Assessee was arrived at 9.62% by the Assessee in its TP study. The operating income was Rs.27,33,52,756/- and the Operating Cost was Rs.24,93,63,899/-. The Operating profit (Operating income – Operating cost was Rs.2,39,88.857/-.