Micro Focus Software India Pvt. Ltd. Vs ACIT (ITAT Bangalore)
The assessee, engaged in software development services, sale of software licences, maintenance and technical support services, filed its return of income on 29/11/2013 declaring total income of Rs.11,51,91,960/-. The case was selected for scrutiny and, since the assessee had international transactions with its Associated Enterprises exceeding the prescribed limit, the Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) with prior approval of the Principal CIT.
The assessee had applied the Transactional Net Margin Method (TNMM) for its software development services, with an operating profit/operating cost margin of 8.97%. Its transfer pricing study selected nine comparables for software development services and seven for IT-enabled services.
The TPO rejected the assessee’s transfer pricing study and applied various filters, including current-year data, financial year ending, minimum income, ITeS revenue, related-party transactions, export revenue and employee-cost criteria. The TPO thereafter selected comparables and determined a transfer pricing adjustment of Rs.37,10,559/- in the draft assessment order.
The Dispute Resolution Panel (DRP) excluded TechMahindra from the comparable set. The final assessment order dated 27/10/2017 determined a transfer pricing adjustment of Rs.34,27,343/- and a disallowance under Section 14A read with Rule 8D(2)(iii), assessing total income at Rs.11,86,23,545/-.
