The court upheld the use of the Profit Split Method in transfer pricing, highlighting consistency and substantial contributions of both parties to revenue generation as key factors.

ORDER

PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:

This appeal has been filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Appeals)-11, (in short “Ld. CIT(A)”), Ahmedabad-13 vide order dated 20.07.2024 passed for A.Y. 2014-15.

2. The Department has taken the following grounds of appeal:-

“1.1(a) Wh.ether on the facts and in the circumstances of the case and in law, the Ld. CIT(A)deleting the adjustment made on account of benchmarking of transactions made for Services rendered to AE amounting to Rs.2,87,24,017/- ignoring the findings of the TPO by violating provisions of section 92C(1)and 92C(2) of the Act, !967?

2.1(b) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding the PSM Method is the Most Appropriate Method (MAM) without appreciating the finding of the TPO that the assessee had failed to submit documents required as per the guidelines laid down u/s.92D r.w.r. 10D of the Income Tax rules, 1961?

3.1(c) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding the Profit Split Method is the Most Appropriate method by ignoring the guidelines as laid down u/r. 10B of the Income Tax Rules, 1961?

4.1(d) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in rejecting company M/s. Cignity Technology Ltd. as comparable without appreciating that the same company is functionally similar to the assessee as hence the rejection as comparable is not in accordance with the provisions of Rule 10B and 10CA of the Income Tax Rules, 1962?

5.1(e) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting TPO to adopt consolidated margin of the comparable company M/s. C.G.Vak Software & Export Ltd. without any specific finding on the functional similarity of the consolidated functions of the comparable and without appreciating that the TPO had considered the standalone business of the company as comparable and therefore the direction is in contravention to the provisions of Rule 10B and 10CA of the Income Tax Rules, 1961?

6.2(a) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in treating credit period of payment at 180 days as against 90 days proposed by the TPO without appreciating that assessee had failed to provide supportive agreement/document for the same?

7.2(b.) Whether on facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in rejecting the ALP of the transaction interest on receivables determined by the TPO ignoring the guidelines laid down under the I.T Act and Rules and thereby violating the ratio laid down by the Hon’ble Supreme Court in the case of Sap Labs India Pvt. Ltd. vs. ITO?

8. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.”

3. The brief facts of the case are that the assessee company has been engaged in the business of software development and related services. For the year under consideration, the assessee filed its return declaring an income of Rs. 35,64,658/-, and the case was selected for scrutiny. During the assessment proceedings, the Transfer Pricing Officer examined the international transactions entered into by the assessee with its Associated Enterprise (AE) and found that the assessee had adopted the Profit Split Method (PSM) as the Most Appropriate Method (MAM). The assessee contended that both the entities contributed to the developme