TP: CLINICAL RESEARCH COMPANY ISN’T COMPARABLE WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER
COMPANY ENGAGED IN CLINICAL RESEARCH ISN’T COMPARABLE WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER
Mindtek v. ITO [Bangalore ITAT] IT (TP) Appeal No. 1082 of 2011, dated May 14, 2015.
Facts of the case
The assessee company is engaged in the business of rendering software development research and development services. The Assessee provides such services to its group companies apart from independent customers. The assessee adopted Comparable Uncontrolled Price Method (CUP) as the most appropriate method for determining the ALP.
The TPO, however, proceeded to adopt Transaction Net Margin (TNMM) as the most appropriate method for determining ALP.Thereupon the TPO selected comparables and made certain addition to the assessee’s ALP.
Decision of the Tribunal
The Appellate Tribunal held that the company engaged in clinical research isn’t comparable with a software development service provider. Moreover, companies developing their own software products could not be accepted as comparables to the assessee while determining ALP. It was further held that the provisions of law as well as the decision referred to by the assessee clearly lay down the principle that the turnover filter is an important criteria in choosing the comparables. Thus, companies having turnover of more than 200 crores have to be eliminated from the list of comparables and the companies having related party transactions in excess of 15 per cent of revenue, could not be accepted as comparables.
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