Tribunal excludes companies from transfer pricing comparables, upholding CIT(A) decision.

The Tribunal upheld the CIT(A)'s decision to exclude Infosys BPO Ltd. and Wipro Ltd. from the list of comparables for determining the Arm's Length Price (ALP). It also affirmed the exclusion of Moldtek Technologies and Eclerx Services Limited, dismissing the Revenue's appeal. The Tribunal emphasized the unique nature and financial results of the excluded companies, finding them non-comparable with the assessee. The decision was based on detailed analysis and consistent legal principles, ultimately supporting the CIT(A)'s orders on the matter.

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Issues:
1. Determination of ALP with respect to exclusion of certain companies from the list of comparables.

Analysis:
The judgment pertains to an appeal by the Revenue against the order of the Commissioner of Income-tax(Appeals) III, Hyderabad for the assessment year 2007-08. The grievance of the Revenue primarily revolves around the determination of Arm's Length Price (ALP) concerning the exclusion of specific companies from the list of comparables, namely Infosys BPO Ltd., Wipro Ltd., Moldtek Technologies, and Eclerx Services Limited.

Regarding Infosys BPO Ltd. and Wipro Limited, the Learned Departmental Representative argued that their exclusion based on turnover differences was unjustified. It was contended that in the ITES sector, the size of the company does not impact margins significantly, and turnover should not be a decisive factor, especially for entities operating on a cost-plus pricing model. The Revenue emphasized the importance of quality manpower over turnover size, citing relevant tribunal decisions. However, the assessee's counsel highlighted the giants' turnover exceeding Rs. 200 Crores and relied on precedents supporting their exclusion, emphasizing the relevance of turnover in determining comparability.

The Tribunal, after considering the arguments and precedents, upheld the CIT(A)'s decision to exclude Infosys and Wipro from the list of comparables. The Tribunal found consistency in Hyderabad bench decisions and agreed with the rationale provided by the CIT(A), thereby rejecting the Revenue's grounds on this issue.

Regarding the exclusion of Moldtek Technologies and Eclerx Services Technologies, the Revenue supported the Assessing Officer's stance, while the assessee's counsel justified their exclusion due to exceptional circumstances. The Tribunal analyzed the functional profiles of these companies, particularly Eclerx Services, as KPO entities providing specialized services, which led to their non-comparability with the assessee. Referring to the Maersk Global Services Centres case and other precedents, the Tribunal concluded that these companies could not be considered comparable due to their unique nature and financial results. Consequently, the Tribunal upheld the CIT(A)'s decision to exclude Moldtek Technologies and Eclerx Services Technologies from the comparables list, dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s orders on the exclusion of specific companies from the list of comparables, based on detailed analysis and consistent legal principles.

Order pronounced in the court on 25.04.2014.

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