Tech Mahindra Pvt. Ltd. Vs. DCIT (ITAT Mumbai)
Summary: The Mumbai Bench “J” of the Income Tax Appellate Tribunal adjudicated cross appeals for Assessment Year 2008-09 arising from the order dated 14.02.2014 passed under Section 250 of the Income-tax Act, 1961 by the CIT(A)-IV, Bangalore. The appeals concerned Tech Mahindra Pvt. Ltd., formerly known as Tech Mahindra R&D Services Ltd., and the Revenue. The assessee challenged, among other matters, a transfer pricing adjustment of Rs. 9,95,09,950, disallowance of custom duty of Rs. 11,78,884, disallowance under Section 14A of Rs. 8,78,823 and disallowance of foreign exchange loss of Rs. 47,97,489. The Revenue challenged the CIT(A)’s treatment concerning high-turnover comparables.
On transfer pricing, the assessee had made payment of Rs. 25,80,52,805 to its wholly owned subsidiary in the USA, its associated enterprise, for on-site software and offshore support services. The assessee used the Transactional Net Margin Method and selected the associated enterprise as the tested party, considering it less complex than the assessee. It selected 11 US-based comparables with a three-year weighted average margin of 7.13%; the associated enterprise’s own PLI was 6.16%, and the transaction was claimed to be at arm’s length.
The TPO rejected that benchmarking analysis, treated the assessee as the tested party and selected 20 Indian comparables with an average margin of 23.65%. After a working-capital adjustment, the arm’s length mean margin was determined at 17.97%, resulting in the Rs. 9,95,09,950 adjustment. The CIT(A) upheld the approach, principally observing that the database used by the assessee was unavailable to the TPO in India.
