Comparable chosen for ITES and IT segment are within tolerance limit provided in proviso to Section 92CA Income Tax Act: ITAT dismiss revenue Appeal

The Mumbai bench of Income Tax Appellate Tribunal ( ITAT ) while dismissing the revenue appeal held that the comparable chosen for ITES and IT segment are within the tolerance limit provided in proviso to section 92CA of the Income Tax Act, 1961

The Assessee, Excult Client Services P Ltd.is engaged in the business of providing a range of back office support services. It is a captive service provider for its group entities. During the year, assessee had entered  international transactions with its AEs.

According to the TP study report the assessee has benchmarked the transaction for ITES and IT services by adopting TNMM as Most Appropriate Method. The PLI was net cost plus and computed the operating margin under the BPO/ITES segment at 11.78% and Software/IT segment at 14.87%.

Further the assessee in so far as ITes is concerned has chosen 10 comparables with arithmetic mean of 9.74% and in so far as software services segment, assessee has taken 29 comparables with arithmetic mean of 15.74%.

Subsequently TPO in so far as ITES segment is concerned has rejected all the comparables and selected his own 11 comparables with arithmetic mean of 29.30%. In so far as IT segment is concerned, out of 29 comparables chosen by the assessee, ld. TPO rejected 24 comparables and accepted only 5 comparables.

Aggrieved by the adjustment assessee file appeal before the CIT(A), who allowed the appeal. Therefore the revenue filed another appeal before the tribunal.

It was observed by the tribunal during the proceedings that “in ITES segment margin shown by the assessee and margin which has been determined falls within the tolerance limit of +/- 5% as provided in proviso to Section 92CA which was applicable prior to 01/10/2009, then assessee’s price of Rs. 30,29,93,009/-, which is well within the tolerance range, because -5 comes to Rs. 29,28,59,642/- and +5% comes to 32,36,86,978/. Similarly, in software services, the assessee’s price is Rs.7,39,80,534/- whereas +/-5% range comes between Rs.7,18,98,974/- to Rs.7,94,67,787/-”.

After reviewing the submissions of both parties the two-member bench of S Rifaur Rahman, (Accountant Member) and Amit Shukla, (Judicial Member) observed that comparable chosen for ITES and IT segment are within the tolerance limit provided in proviso to section 92CA of the Income Tax Act.

No one appeared for assessee during the proceedings and Shilpa N.C appeared for revenue.

To Read the full text of the Order CLICK HERE

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