Brocade Communications Systems Private Limited Vs DCIT (ITAT Bangalore)
The assessee appealed against the final assessment order dated 30.10.2018 passed under Section 143(3) read with Section 144C of the Income-tax Act, 1961. The principal issue concerned a transfer pricing adjustment relating to software development (SWD) services provided to Associated Enterprises (AEs). The TPO initially proposed an adjustment of Rs.17,69,47,938, which was reduced to Rs.15,48,94,050 after giving effect to the directions of the Dispute Resolution Panel (DRP).
The assessee had provided contract SWD services to its AEs for Rs.161,91,46,172 and used the Transactional Net Margin Method (TNMM), with Operating Profit to Operating Cost (OP/OC) as the Profit Level Indicator. Its operating/net mark-up was 16.72%, compared with an average margin of 11.98% before working capital adjustment and 6.77% after working capital adjustment for the 17 comparables initially selected.
The DRP excluded Cigniti Technologies Ltd. and SQS India Ltd. and directed inclusion of CG-Vak Software and Exports Ltd. The assessee challenged the inclusion of Infosys Ltd., Persistent Systems Ltd., Larsen & Toubro Infotech Ltd. and Thirdware Solutions Ltd.
The Tribunal noted that these four companies had been excluded in comparable cases before the Tribunal. It therefore directed their exclusion from the final list of comparables.
