Company engaged in business of software products, design and development of software cannot be considered as comparable to software development service provider and Forex gain on receipt of consideration against services rendered to AE is part of operating revenue
Analog Devices India (P.) Ltd. v. DCIT [Bangalore ITAT]
IT (T.P) Appeal No. 1288 of 2014
Date of decision: August 07, 2015
Facts of the case
The assessee company was engaged in the business of providing software development services to its Associated Enterprises. It selected 13 comparable companies with an average profit margin of 14.13 per cent on total cost and submitted that its international transactions were at arm’s length price. The Transfer Pricing Officer (TPO) conducted his own search process adopting various criteria/filters and finally selected the eleven companies as the final set of comparable companies and proposed an adjustment to the income of the assessee.
The aggrieved assessee filed an appeal before the Appellate Tribunal.
Decision of the Tribunal
The Tribunal held that a company engaged in the business of software products, open end to end web solutions, software consultancy and design and development of software using latest technology cannot be considered as comparable to a software development service provider. The Tribunal further held that the foreign exchange gain on realization of the consideration for rendering software development services is incurred in the normal course of business and should be regarded as a part of operating revenue.