Please find 'TransPrice Weekly' summarizing a judgement in case of 'Birla Soft P.Ltd' on aggregation of business units. The judgement highlights the importance of Functional analysis and contractual agreements in resolution of Transfer Pricing dispute.

1. Weekly
5th
– 10th
May, 2014
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Birla Soft India Ltd– ITAT - Delhi
Decision Outcome: In favor of the taxpayer
Category: Aggregation of business units
Summary of decision:
 The taxpayer is engaged in the business of software development and relate services
 During FY 2004-05, taxpayer provided customized software to its Associated Enterprise (AE)
 Taxpayer had related as well as unrelated comparable transactions
 Taxpayer benchmarked the controlled transactions by using Internal TNMM
 TPO observed that service was provided to AE from 3 STP units and benchmarked each STP
unit separately and proposed an adjustment of Rs. 7.25 crore
 The Tax Court held that for the previous years under consideration, it had accepted the
taxpayer’s claim of benchmarking all STP units together
 Taxpayer rendered similar services from all the STP units and the services were rendered to
the same AEs
 Further, it was observed that there was a single agreement between the taxpayer and the
AE, which governed the terms and conditions of rendering such services
 Therefore, relying on the Tax Court’s order for the earlier years, it held that combined
transaction approach is appropriate for benchmarking the transactions
 Also, the Tax Court ruled that internal comparables are preferred over external comparables