Capco Technologies Private Limited Vs DCIT (ITAT Bangalore)
Capco Technologies Private Limited, a wholly owned subsidiary of Capco Belgium BVBA, Belgium, provided Software Development Services (SWD services) to Capco Group companies. The transactions with its Associated Enterprises were international transactions under Sections 92A and 92B of the Income Tax Act, 1961 and were required to be determined having regard to the Arm’s Length Price (ALP) under Section 92(1).
The assessee adopted the Transaction Net Margin Method (TNMM) as the Most Appropriate Method and Operating Profit/Operating Cost (OP/OC) as the Profit Level Indicator. Its operating income was Rs.93,02,61,671/-, operating cost was Rs.79,98,02,919/- and operating profit was Rs.13,04,58,752/-, resulting in an OP/OC of 16.31%. The assessee selected seven comparable companies having an average margin of 12.52%.
The Transfer Pricing Officer (TPO) accepted TNMM and OP/OC but selected a set of 13 comparable companies. Their median margin was 28.20% and the 35th percentile was 24.83%. The TPO computed the ALP at Rs.1,02,53,47,342/- against the price received of Rs.93,62,61,671/-, resulting in a transfer pricing adjustment of Rs.9,50,85,671/-.
The assessee challenged the adjustment before the Dispute Resolution Panel (DRP) and subsequently before the Tribunal on several issues concerning comparables, working capital adjustment, margin computation and risk adjustment.
