Agilent Technologies (International) Private Ltd Vs DCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT) considered the assessee’s appeal against the final assessment order dated 20.06.2019 passed under Sections 143(3)/144C of the Income-tax Act, 1961 for Assessment Year 2015-16 pursuant to the directions of the Dispute Resolution Panel (DRP). At the outset, the assessee did not press grounds 1 and 2, which were dismissed accordingly.
The principal dispute related to a transfer pricing adjustment of ₹75,50,956 concerning the international transaction of providing software development services to associated enterprises (AEs). The assessee, a captive software development service provider, benchmarked the transaction under the Transactional Net Margin Method (TNMM) using Operating Profit/Operating Cost as the Profit Level Indicator. The Transfer Pricing Officer (TPO) modified the set of comparables selected by the assessee, resulting in a transfer pricing adjustment, which was reduced by the DRP to ₹75,50,956.
Before the Tribunal, the assessee challenged the inclusion of three comparables:
- Larsen & Toubro Infotech Ltd.
- Infobeans Technologies Ltd.
- Cybercom Datamatics Information Solutions Ltd.
Regarding Larsen & Toubro Infotech Ltd., the assessee submitted that the company was engaged in diversified activities including cloud computing, infrastructure management, analytics, proprietary software products, and enjoyed significant brand value and marketing intangibles as part of the Larsen & Toubro group. It was also contended that business restructuring during the relevant year affected its profitability. The Revenue argued that both entities were engaged in software development services and that the company reported a single Information Technology Services segment.
The Tribunal observed that Larsen & Toubro Infotech Ltd. carried on diversified activities, owned proprietary products, possessed marketing intangibles and substantial brand value, and had been excluded as a comparable in earlier judicial decisions. It therefore directed that the company be excluded from the list of comparables.
With respect to Infobeans Technologies Ltd., the assessee argued that it was engaged in diversified activities, product development and research and development, without segmental information. The Revenue submitted that the annual report reflected only one software development services segment. After examining the annual report, the Tribunal found that the company was primarily engaged in software development services, the auditor’s report described it as a software service provider, and there was no material demonstrating that it carried on any other business. Although some Tribunal decisions had excluded the company, others had accepted it as a comparable. Following the latter line of decisions, the Tribunal held that Infobeans Technologies Ltd. was functionally similar to the assessee and retained it as a comparable.
Regarding Cybercom Datamatics Information Solutions Ltd., the assessee contended that the company was engaged not only in software services but also consultancy, advisory, technical and information survey services, without segmental financial information. The Revenue maintained that the company was also engaged in software development services. The Tribunal found that the company was engaged in diversified activities and that segmental information was unavailable. Following decisions of various benches, including the Delhi Bench, and maintaining judicial consistency, it directed exclusion of Cybercom Datamatics Information Solutions Ltd. as a comparable. The ground was partly allowed.
The assessee also challenged a transfer pricing adjustment of ₹11,45,642 on account of interest on outstanding receivables from AEs. The TPO had treated receivables remaining outstanding beyond 60 days as a separate international transaction and computed interest at 4.329%, which was upheld by the DRP. The Tribunal noted that identical adjustments in the assessee’s own cases for Assessment Years 2010-11, 2011-12, 2012-13 and 2014-15 had already been deleted. Following those decisions and maintaining judicial consistency, the Tribunal deleted the adjustment relating to interest on outstanding receivables.
Ground No. 5 was held to be premature, while Ground No. 6, being consequential, did not require adjudication. Accordingly, the Tribunal partly allowed the assessee’s appeal.
Cases Discussed
