In a relief to Red Hat India Private Limited, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench ruled that adjustment relating to International Transactions pertaining to the provision of software support services is not sustainable and is liable to be deleted as DRP’s directions were not followed by the Assessing Officer.
The assessee, Red Hat India Private Limited assailed that order of the AO confirming the TPO’s action of rejecting Akshay Software Technologies Limited as a comparable company despite this comparable being reinstated by the DRP and thereby, violating the provisions of Section 144C(10)of the Act.
The assessee has further submitted that TPO and DRP confirming the TPO’s action erred on facts and in law in determining the arm’s length price for provision of software support services and thereby making an adjustment of INR 12,558,704 to the taxable income of the Appellant. In doing so, have grossly erred in modifying the economic analysis carried out by the Appellant in the Transfer Pricing documentation without providing any cogent reasons; rejecting various comparable companies selected by the Appellant in the Transfer Pricing Documentation and considering various comparable companies as compared to the Appellant without appreciating that such comparable companies are functionally dissimilar to the Appellant; and disallowing relevant adjustments as per the provisions of Rule 10B(1) and Rule 10B(3).
The assessee contended that the assessee has submitted that when the AO does not follow the direction of theDRP, the entire assessment order is liable to set aside. the assessee has requested the entire assessment order to be quashed as such.
The coram of Judicial Member Pawan Kumar Gadale and Accountant Member Shamim Yahya held that when a direction of the DRP is not followed on one of the issues the entire assessment order dealing with the several issues is liable to be quashed. It is settled law that there cannot be disproportionate retribution. In this view of the matter, the AO has not followed the direction of DRP, the adjustment on account for the provision of software support services is not sustainable and the same is liable to be deleted. Accordingly, we direct the adjustment in this regard to be deleted.
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