Huawei Technologies India Pvt. Ltd. Vs ACIT (ITAT Bangalore)
Summary: The Bangalore Bench of the Income Tax Appellate Tribunal considered appeals concerning transfer pricing adjustments arising from the provision of Software Development Services (SWD) and Information Technology enabled Services (ITeS) by Huawei Technologies India Pvt. Ltd. to its Associated Enterprise for AY 2010-11, along with the assessee’s SWD-services appeal for AY 2013-14.
For AY 2010-11, the assessee had adopted the Transaction Net Margin Method (TNMM), using Operating Profit/Operating Cost (OP/OC) as the Profit Level Indicator. The Transfer Pricing Officer (TPO) accepted the method but selected additional comparables and determined an average margin of 22.99%. After a working capital adjustment of 1.28%, the adjusted margin was 21.71%, resulting in an Arm’s Length Price of Rs.307,24,91,572 against operating revenue of Rs.282,25,47,733 and a transfer pricing adjustment of Rs.24,99,43,839.
The assessee pressed grounds concerning the inclusion of Infosys Ltd. and Persistent Systems Ltd. as comparables and denial of working capital adjustment. Regarding Infosys Ltd., the Tribunal relied upon its earlier decision in the assessee’s case and the principles considered in CGI Information Systems & Management Consultants (P.) Ltd. Vs. ACIT, where Infosys had been excluded in the case of a software development service provider. The Tribunal also considered the turnover-filter principles discussed in Autodesk India Pvt. Ltd. Vs. DCIT. It held that the CIT(A) ought to have excluded Infosys Ltd. by applying the turnover filter and directed its exclusion as a comparable.
