Netradyne Technology India Pvt. Ltd. Vs. ITO (ITAT Bangalore)
Cherry Picking of Comparables Not Permissible – ITAT Clarifies TP Approach Assessee, a captive software development service provider for its US parent, reported international transactions of ₹39.35 crores in software development & ₹19.00 lakhs in software licence distribution. TPO rejected its TP study & adopted new comparables, selecting large companies like Infosys, Wipro, TCS, Mindtree, L&T Infotech, Tata Elxsi etc., despite Assessee’s small turnover. DRP confirmed.
Before Tribunal, Assessee pressed grounds on exclusion of such large comparables, functional differences of certain entities, rejection of some suitable comparables, & non-grant of working capital adjustment.
Tribunal held:
Turnover filter: Assessee’s turnover of ₹39 crores cannot be compared with IT giants having thousands of crores turnover. Following Pentair Water India (Bom HC) & OECD/ICAI guidance, large companies were excluded.
Net4Nuts Ltd. & Consilient Technologies: Functionally comparable; their inclusion upheld.
Assessee’s suggested comparables: Cannot be added after rejection of its TP study; cherry-picking not permissible.
Working capital adjustment: TPO wrongly placed onus on Assessee. Since comparables were chosen by TPO, he must demonstrate no adjustment is needed. Tribunal remitted issue back to TPO for proper working capital adjustment.
Accordingly, Tribunal partly allowed Assessee’s appeal, excluding high-turnover comparables & restoring working capital adjustment issue to TPO
