Assessee is Inlogic Technologies Pvt. Ltd
Engaged in the business of providing software development services
For AY 2021-22, the issue is whether the AE relationship between Inlogic Technologies and Medtech Global Ltd (MGL) lasted 12 months or just two months in FY 2020-21, impacting a ₹1.99 crore TP adjustment. It also focuses if the AE cessation is due to a common director’s share sale and resignation, thus it counts as "business restructuring" needing Form 3CEB reporting.
Assessee’s Contentions | Revenue's Contentions |
|---|---|
Contented AE relationship with MGL ended after two months due to director’s resignation and share sale and only ₹1.86 crore should be benchmarked, not ₹10.95 crore. | Contended that the entire amount of INR 11,20,16,432/- for software services to MGL was reported as an AE transaction in the original Form 3CEB. |
Audited financials showed related party transactions of INR 1.86 crore and filed an addendum to update Form 3CEB and sought permission to revise it. | Revenue noted no “business restructuring” disclosure was made in Form 3CEB and emphasized the statutory importance of Form 3CEB. |
Argued no “business restructuring” disclosure needed and showed two month AE transactions at arm’s length with 22% margin. | Rejected assessee’s addendum to Form 3CEB and shareholding change evidence due to procedural non-compliance. |
Proposed CUP method with AUD 20/hour rate and cited Supreme Court rulings to argue procedural lapses shouldn’t deny substantive justice. | Rejected the assessee's contention that the AE relationship existed for only two months and proceeded to benchmark the transactions for the entire 12-month period. |
ITAT’s Judgement:
The ITAT acknowledged procedural lapses but held that substantial justice should not be denied. It rejected the TPO/DRP’s claim that AE cessation was “business restructuring” requiring Form 3CEB disclosure. It accepted that TP provisions apply only for the actual two-month AE period, subject to verification. Noting inconsistent evidence rejection by the DRP, the ITAT remanded the case to the TPO for fresh review, allowing the assessee to file a revised Form 3CEB and submit all evidence.
The Chennai ITAT remitted the TP adjustment, ruling AE cessation due to a director’s share sale is not “business restructuring,” and TP applies only for the actual two-month AE period.
