EIT Services India Pvt. Ltd. Vs JCIT (ITAT Bangalore)
ITAT Bangalore Excludes Infosys & Persistent as Comparables, Allows Working Capital Adjustment in TP Case
The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) partly allowed the appeal filed by EIT Services India Pvt. Ltd. for Assessment Year 2014-15 against the final assessment order passed pursuant to Transfer Pricing (TP) proceedings. The dispute primarily related to a TP adjustment of ₹165.84 crore made in respect of the assessee’s software development services rendered to its Associated Enterprises (AEs).
The assessee, a captive software development service provider compensated on a cost-plus basis, had benchmarked its international transactions using the Transactional Net Margin Method (TNMM). The TPO rejected the assessee’s TP study, selected a fresh set of comparables, and proposed a TP adjustment. The Dispute Resolution Panel (DRP) largely upheld the TPO’s approach while directing grant of working capital adjustment, resulting in a final TP adjustment of ₹165.84 crore.
Before the Tribunal, the assessee confined its arguments to:
- Exclusion of four comparables;
- Inclusion of one comparable;
- Grant of appropriate working capital adjustment; and
- Treatment of foreign exchange fluctuation as operating income for computing such adjustment. All other grounds were not pressed.
The Tribunal first examined the functional profile of the assessee and noted that it was a captive software development service provider, performing application development, maintenance support and network management services exclusively for its AEs. It did not own significant intangibles and assumed only limited risks, primarily foreign exchange risk.
