DCIT, Bangalore Vs M/s Aztec Soft Limited, Bangalore

This case involves cross-appeals by the revenue and the assessee (formerly Aztec Soft, now Mindtree) for the assessment year 2005-06. The core issues revolve around the deduction of satellite link charges from total turnover when calculating deductions under Section 10A of the Income Tax Act, and adjustments made in relation to transfer pricing. The Transfer Pricing Officer rejected the assessee's transfer pricing study, deeming the Transactional Net Margin Method (TNMM) the most appropriate, and selected comparable companies for analysis.

IN THE INCOME TAX APPELLATE TRIBUNAL
“B’’ BENCH: BANGALORE

BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER
AND
SMT. BEENA PILLAI, JUDICIAL MEMBER

IT(TP)A No.349/Bang/2014
Assessment Year: 2005-06

M/s. Mindtree Limited (Previously known as M/s. Aztecsoft Limited now merged with M/s. Mindtree Limited) Global Village, RVCE Post Mysore Road Bangalore-560 059 PAN NO : AABCA2122R
APPELLANT 

Vs.

Deputy Commissioner of Income-tax Circle-11(1) Bangalore
RESPONDENT

IT(TP)A No.878/Bang/2014
Assessment Year: 2005-06

Deputy Commissioner of Income-tax LTU Bangalore
APPELLANT 

Vs.

M/s. Mindtree Limited (Previously known as M/s.Aztecsoft Limited now merged with M/s. Mindtree Limited) Global Village, RVCE Post Mysore Road Bangalore-560 059
RESPONDENT

Appellant by : Shri Jaya Krishna, A.R.
Respondent by : Shri Priyadarshi Mishra, D.R.

Date of Hearing : 21.10.2020
Date of Pronouncement : 22.10.2020

O R D E R

PER B.R. BASKARAN, ACCOUNTANT MEMBER:

These cross appeals are directed against the order dated 24-04-2014 passed by Ld CIT(A)-IV, Bangalore and they relate to the assessment year 2005-06.

2. Both the parties have filed revised grounds of appeal. The revenue is contesting following issues:-

(a) Whether the Ld CIT(A) was justified in directing deduction of Satellite link charges from Total turnover also while computing deduction u/s 10A of the Act.

(b) Relief granted in respect of Transfer pricing adjustment.

3. The assessee is in appeal in respect of following issues:-

(a) Whether the tax authorities are justified in deducting Satellite link charges from Export turnover while computing deduction u/s 10A of the Act.

(b) Transfer pricing adjustment sustained by Ld CIT(A).

4. Facts relating to the case are discussed in brief. The original name of the company was M/s Aztec Software & Technology Services Ltd. It has merged with M/s Mindtree Limited. The assessee is engaged in developing software solutions for its customers in USA.The Transfer Pricing Officer (TPO) noticed that there were contradictions between Transfer pricing report and Audit report given in Form 3CEB with regard to the nature and amount of international transactions pertaining to this year. Ultimately, the TPO rejected the transfer pricing study of the assessee.

5. The TPO noticed that the turnover of the assessee was Rs.82.34 crores. The TPO adopted Transactional Net Margin Method (TNMM)as most appropriate method. He adopted Operating Profit /Operating Revenue (OP/OR) as the Profit level indicator. The TPO,by making his own search, selected following 17 comparable companies.

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