The Delhi bench of the Income Tax Appellate Tribunal (ITAT) comprising of Shri R K Panda, AM and Shri Yogesh Kumar U S, JM has held that international transactions of Information Technology Enabled Services can be calculated under Arm’s length.
The appellant assessee company GE India Business Services Pvt. Ltd.(‘GEIBSPL’) a Service provider which provides offshore outsourcing services primarily to GE entities/businesses worldwide where the primary activity specializes was to render IT Enabled Services and financial support services to various overseas GE Group Companies. The assessee company has filed its return declaring a total income of Rs. 13,64,66,410/-. The order under section 92CA (3) of the Act was passed on adjustment of Rs 7,16,92,181/- was made on account of international transactions to the income of the assessee. Draft order u/s. 144C of the Act was passed on 31/03/2021. The assessee filed an objection in Form 35A before Dispute Resolution Panel, after receiving order u/s 144 C and the DRP called for the inclusion/exclusion of certain filters after verification and directed the adjustment of u/s 92CA on account of international transactions related to software development services. The final assessment order came to be passed on 11/01/2022 by making an addition of Rs. 6,71,83,164 and assessed the income of the assessee at Rs. 20,36,49,574/- as against the returned income of Rs. 13,64,66,410/-.
The appellant contended that Infosys BPM Ltd need to be excluded from comparable companies which in turn made the margin within 5%, and stated to calculate international transaction at Arm’s Length and the additions will not sustain. Further contended that the Infosys BPO cannot be considered comparable to the assessee due to differences in the functional profiles.
The appellant submitted that allowing working capital adjustment demonstrates that the differential impact of working capital of the assessee vis-à-vis its comparable has already been factored in the price/profitability of the assessee which is in line with Arm’s Length principle when compared to comparable companies.
The Tribunal held that since the margin would be within plus or minus 5%, the Assessee’s international transaction is at Arm’s Length and the addition made will not sustain. In relation to the impact of working capital, the Tribunal held that any adjustment to the income of the assessee will not sustain. The appeal filed by the assessee was allowed. Sh. Ravi Sharma & Ms Shubhangi Arora on behalf of the assessee and Sh. Surender Pal appeared on behalf of the revenue.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
