ITAT Bangalore Excludes Four Software Development Comparables in Transfer Pricing Appeal

EIT Services India Pvt.Ltd. Vs ACIT (ITAT Bangalore)

The Bangalore ITAT partly allowed the assessee’s appeal against the final assessment order passed under Sections 143(3) read with 144C(13) of the Income-tax Act for AY 2015-16. The appeal involved transfer pricing adjustments relating to software development services and IT-enabled services rendered to Associated Enterprises (AEs). During the hearing, the assessee submitted that, with respect to the IT-enabled services segment, a revised order under Section 92CA had accepted the international transactions as being at arm’s length. Accordingly, the dispute before the Tribunal was confined to the software development segment, where the assessee sought exclusion of four comparables, inclusion of three comparables, grant of working capital adjustment, and raised an additional ground that transfer pricing adjustment should be restricted to the value of international transactions.

The Tribunal considered the assessee’s reliance on earlier coordinate bench decisions. Following the decision in Yahoo Software Development India Pvt. Ltd., it directed the exclusion of Persistent Systems Ltd., Larsen & Toubro Infotech Ltd., and Infosys Ltd. from the final set of comparables. In respect of Persistent Systems Ltd., the Tribunal noted that the earlier decision had excluded the company because its related party transactions exceeded the 25% filter. The earlier decision had also referred to issues relating to onsite revenue and other functional differences.