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CASE LAW

2017-TII-93-HC-DEL-TP

PR CIT Vs NETWORK PROGRAMS INDIA LTD: DELHI HIGH COURT (Dated: November 7, 2017 )

Income Tax - Section 92CA.

Keywords: Allocation key - Benchmarking and ALP determination - Man hours invested - Man power employed & Software development.

The Assessee-company was a software development firm which was engaged in international transactions. The return was filed for the AY in question. Since the Assessee was involved in international transactions, the AO makes reference to TPO for benchmarking and ALP determination u/s 92CA of the Act. The TPO, for the relevant AY, took into account the comparables of 24 companies and without rejecting the Assessee's accounts, was of the opinion that the allocation key, required adjustment. On appeal, the CIT(A) held that the comparables used, were not in order because many of them were for a previous year. He allowed the appeal filed by the Assessee contending that those allocation keys were not arbitrary and therefore could not be rejected and the alternative allocation key, namely, man hours invested, need not be considered at that stage because that involves recasting of the segments once again. On further appeal by Revenue, the Tribunal also upheld the decision of the CIT(A).

On appeal, the High Court held that,

Whether 'man power employed', is most acceptable way of allocating expenses for benchmarking and ALP determination of a software development company u/s 92CA - YES: HC

Whether therefore, changing the allocation key from 'man power employed' to 'man hours invested' is not justified - YES: HC

++ the findings of the CIT(A) were upheld by the ITAT. The exercise in the opinion of the Court is merely factual. No substantial question of law arises. The appeal is therefore dismissed.

Revenue's appeal dismissed