BORQS Software Solutions Pvt. Ltd. Vs ACIT (ITAT Bangalore)
The appeal by the Assessee was directed against the order dated 30.03.2021 passed by the Deputy Commissioner of Income Tax, Circle 1(1)(2), Bangalore, under Sections 143(3) and 144C(13) of the Income Tax Act, 1961, for AY 2016-17.
The Assessee was engaged in providing Software Development Services (SWD services) to BORQS, Hong Kong, a subsidiary of its wholly owned holding company. The parties were Associated Enterprises under Section 92-A, and the provision of SWD services constituted an international transaction under Section 92B. The Assessee adopted TNMM as the Most Appropriate Method and OP/OC as the Profit Level Indicator.
The Assessee’s transfer pricing study reported an operating margin of 15%. The TPO accepted TNMM but selected 13 comparable companies and determined the median margin at 28.20%. This resulted in a transfer pricing adjustment of Rs.2,78,16,697, which was added to the Assessee’s total income. After directions from the DRP, the Assessee appealed to the Tribunal.
Exclusion of High-Turnover Comparables
The Assessee challenged the inclusion of Larsen & Toubro Infotech Ltd., Nihilent Ltd., Persistent Systems Ltd., Aspire Systems (India) Pvt. Ltd., Infosys Ltd., Thirdware Solution Ltd. and Cybage Software Pvt. Ltd., contending that their turnover exceeded Rs.200 crores whereas the Assessee’s turnover was Rs.24,71,71,242.
