Tavant Technologies India Pvt. Ltd. Vs DCIT (ITAT Bangalore)
Tavant Technologies India Pvt. Ltd., engaged in providing Software Development Services (SWD) to its wholly owned holding company, challenged the transfer pricing adjustment made for AY 2013-14. The assessee and its holding company were Associated Enterprises, and the international transactions involved provision of SWD services and management support services (MSS).
For SWD services, the assessee adopted TNMM as the Most Appropriate Method and OP/OC as the Profit Level Indicator. The assessee’s operating margin was 25.14%. The TPO accepted TNMM and OP/OC but selected additional comparables and determined an adjusted mean mark-up of 31.43%, resulting in a transfer pricing adjustment of Rs. 5,03,38,916.
Before the ITAT, the assessee pressed grounds concerning working capital adjustment and exclusion of certain comparables.
The Tribunal first considered CG-VAK Software Exports Ltd. The assessee contended that the company was functionally different because it was involved in software product development and that segmental data was unavailable. Relying on the decision in NXP India P. Ltd. v. DCIT, the Tribunal noted that CG-VAK was engaged not only in software development but also product manufacturing, owned significant intangible assets and was involved in outsourced product development. It therefore directed the TPO to exclude CG-VAK Software Exports Ltd. from the final list of comparables.
