Altera Digital Health (India) LLP Vs DCIT (ITAT Ahmedabad)
Functionally Different Comparables Removed – ITAT Deletes Entire TP Adjustment for Captive Software Service Provider
Assessee, a captive software development service provider, earned a margin of 15.25% and benchmarked its international transactions using TNMM, selecting comparable margins between 5.98% and 7.32%. However, the TPO replaced comparables, introduced new companies, applied turnover filters and computed a median margin of 16.29%, leading to a TP adjustment of ₹3.94 crore, which the DRP upheld.
Before the ITAT, the assessee contested three major comparables selected by TPO/DRP:
Kellton Tech Solutions Ltd. – Owns proprietary software (“Optima”), earns 40% revenue from hardware/maintenance, owns intangibles, underwent acquisition (extraordinary event).
➡ Functional & risk profile totally different.
Magnasoft Consulting India Pvt. Ltd. – Engaged in wholesale trading of packaged software, carries inventory, no segmental data.
➡ Product/trading company, not service provider.
Interglobe Technology Quotient Ltd. – Primarily distributor of Travelport travel technology, earns 99% revenue from distribution, employee cost only 6% (assessee 65%).
➡ Business model incomparable to software development.
ITAT referred to Delhi HC (Microsoft India, Alcatel Lucent), SC dismissal of SLP, & multiple Tribunal rulings holding that product companies, companies with intangibles, or those impacted by extraordinary events cannot be compared with captive service providers.
Held: All three companies are functionally not comparable and must be excluded.
Once excluded, Assessee’s 15.25% margin falls within ALP range, so entire TP adjustment of ₹3.94 crore is deleted.
Other Issues:
Deduction u/s 10AA – AO computed higher income and ignored deduction without discussion.
➡ ITAT directed AO to verify and allow corrective action.
Interest u/s 234A – Restored to AO for verification.
Other grounds (TDS credit, MAT computation, interest) – consequential.
Result:
TP addition deleted in full
10AA claim & interest issues remanded for verification
Appeal partly allowed for statistical purposes
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
