Etisalat Software Solutions Pvt. Ltd. Vs DCIT (ITAT Bangalore)
The Bangalore Bench of the ITAT considered an appeal by Etisalat Software Solutions Pvt. Ltd. against the final assessment order passed under Section 143(3) read with Section 144C(13) of the Income-tax Act for AY 2017-18. The assessee, a subsidiary of Emirates UAE engaged in software development services for its Associated Enterprise (AE), had reported total income of Rs.22,43,89,580. Its international transactions included software development services of Rs.2,848,331,417 and reimbursement of expenses of Rs.153,481,812. The assessee applied TNMM with OP/OC as the PLI and reported a margin of 10.92%.
The TPO rejected 12 of the 17 comparables selected by the assessee and introduced 15 fresh comparables. The revised median margin was 26.18%, resulting in a transfer pricing adjustment of Rs.38,26,58,668. The DRP upheld the comparables selected by the TPO and confirmed the adjustment.
The Tribunal first considered the turnover filter. The assessee’s turnover was approximately Rs.284 crore, while several comparables selected by the TPO had turnover below Rs.200 crore or substantially above Rs.2,000 crore. Relying on the coordinate Bench decision in Autodesk India Pvt. Ltd. v. DCIT and the principle adopted therein regarding turnover as a relevant comparability criterion, the Tribunal directed exclusion of companies whose turnover was outside the Rs.200 crore to Rs.2,000 crore range.
