Dotgo Private Limited Vs DCIT (ITAT Mumbai)
Dotgo Private Limited, an Indian company and wholly owned subsidiary of Dotgo Systems Inc., USA, provides software development services to its Associated Enterprises (AEs), namely Kirusa Inc. and Dotgo Systems Inc., both based in the United States. For Assessment Year 2021-22, the assessee reported international transactions of Rs.10,23,09,289/- and benchmarked them under the Transactional Net Margin Method (TNMM), adopting Operating Profit to Operating Cost (OP/OC) as the Profit Level Indicator (PLI). The assessee treated the two AEs as separate segments and reported a margin of 15% for each, although the segment report reflected a margin of 7.99%.
The Transfer Pricing Officer (TPO), after the matter was referred under section 92CA(1) of the Income-tax Act, 1961, rejected the AE-wise segmentation on the ground that the assessee operated in a single software-development segment and that segmentation merely on the basis of customers lacked a functional basis. The TPO also considered salaries of Rs.72,85,857/- claimed as sales and marketing expenditure and bank charges of Rs.42,635/- as relevant operating/non-operating costs for computing the PLI. The assessee’s consolidated PLI was consequently computed at -0.20%.
The TPO rejected 11 of the 14 comparables selected by the assessee and introduced 15 additional comparables. The resulting comparable range was 19.35% to 32.14%, with a median of 25.09%, against the assessee’s revised PLI of -0.2%. An upward adjustment of Rs.2,59,22,193/- was accordingly made. The TPO also treated outstanding receivables as a separate international transaction and computed notional interest of Rs.1,15,21,558/- using SBI PLR.
