Sprinklr India Pvt. Ltd. Vs DCIT (ITAT Bangalore)
The Bangalore Bench of the ITAT partly allowed the appeal filed by Sprinklr India Pvt. Ltd. against the final assessment order dated 23 June 2022 for AY 2018-19. The assessee, a wholly owned subsidiary of Sprinklr US, provided software development services including coding, documentation, quality assurance and testing to its Associated Enterprise. It reported total income of Rs.29.80 crore. The TPO determined a transfer pricing adjustment in the software development segment after recomputing the assessee’s margin at 0.65% by treating foreign exchange fluctuation as operating in nature and selecting comparables with a median margin of 20.19%. The TPO also treated ESOP cost as operating cost. Following DRP directions, the AO made an addition of Rs.70,01,89,706/-.
The assessee challenged, among other matters, the validity of the assessment and TPO proceedings, the transfer pricing adjustment of Rs.14.43 crore, treatment of ESOP cost, selection and rejection of comparables, turnover filter, working capital and risk adjustments, and consequential interest under Section 234B. The Tribunal dismissed the jurisdictional and related procedural grounds after considering the report filed by the Department regarding changes in jurisdiction and diversion or abolition of posts. General grounds were also not adjudicated.
On ESOP cost, the assessee contended that the parent company had issued ESOPs/RSUs to its employees, had not recovered the cost from the assessee, and that the assessee had not incurred or recorded the alleged ESOP cost of Rs.2,62,65,504/-. The Tribunal observed that the AO/TPO had not examined the ESOP agreement between the employees and the AE. It held that unless the expenditure was incurred by the assessee, it could not form part of the margin computation. The issue was therefore remanded to the AO for verification of the ESOP agreement and scheme with reference to the assessee’s financials, in accordance with the Tribunal’s decision in Radysis India vs. DCIT. The ground was allowed for statistical purposes.
