ITAT Bangalore Reaffirms Two Hundred Crore Turnover Filter for Software Comparables

The Income Tax Appellate Tribunal (ITAT) in Bangalore has reaffirmed its position regarding the application of the two hundred crore rupee turnover filter for determining comparable companies in software transfer pricing assessments. The tribunal emphasized that scale remains a crucial economic filter, preventing tax authorities from utilizing massive multi-national corporations as comparables for medium-sized software service providers. This consistency in judicial reasoning provides much-needed relief to software exporters facing aggressive transfer pricing adjustments.

In transfer pricing audits, finding exact comparable entities is challenging, and revenue authorities historically relied on broad databases that included enterprises with vastly superior turnovers. Because turnover directly influences profitability, risk absorption, and market penetration, comparing a modest software firm with a multi-crore giant leads to distorted arm's length price calculations. Applying a turnover filter eliminates these structural disparities, ensuring that only entities of comparable economic weight are matched during benchmarking studies.

Tax professionals and chartered accountants handling transfer pricing cases for software units should ensure their TP studies incorporate the two hundred crore rupee turnover threshold to defend against adverse adjustments. Finance leads must audit their comparable sets to align with this judicial standard before submitting responses to transfer pricing officers. Bottom line: the consistent application of the turnover filter safeguards software firms from inflated transfer pricing adjustments.