Tribunal decisions on comparables: Revenue appeal dismissed, exclusion of companies affirmed

The Tribunal partly allowed the assessee's appeal, remanding the issue of e-Infochips Bangalore Ltd.'s comparability to the A.O./TPO. The Revenue's appeal against the exclusion of certain companies was dismissed, upholding the DRP's decision. The Tribunal affirmed the exclusion of Infosys Technologies Ltd., L & T Infotech Ltd., and Tata Elxsi Ltd. from the list of comparables, citing functional dissimilarity and lack of segmental data.

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Issues Involved:
1. Determination of Arm's Length Price (ALP) for international transactions.
2. Inclusion and exclusion of certain companies as comparables.
3. Functional dissimilarity and availability of segmental data.

Detailed Analysis:

1. Determination of Arm's Length Price (ALP) for International Transactions:
The assessee, a wholly-owned subsidiary of Virtusa Corporation, USA, engaged in software development services, filed its return for the assessment year 2010-2011. The Assessing Officer (A.O.) referred the determination of the ALP of international transactions to the Transfer Pricing Officer (TPO) under section 92CA of the I.T. Act. The TPO conducted his own search and identified 19 companies as comparables, computing an average margin of 22.69% and an adjusted arm's length margin of 21.74%, resulting in a shortfall of Rs. 13,05,57,916 under section 92CA of the Act. The A.O. passed the draft assessment order based on the TPO's findings, which was contested by the assessee before the Dispute Resolution Panel (DRP).

2. Inclusion and Exclusion of Certain Companies as Comparables:
The DRP directed the exclusion of Infosys Technologies Ltd., L & T Infotech Ltd., and Tata Elxsi Ltd. from the list of comparables due to functional dissimilarity. The Revenue appealed against this exclusion, while the assessee contested the inclusion of certain other companies. At the hearing, the assessee primarily challenged the inclusion of e-Infochips Bangalore Ltd., arguing that it was functionally different, engaged in both IT and ITES services, and lacked segmental data. Additionally, the company had an amalgamation status during the relevant financial year, and there were errors in its margin computation.

3. Functional Dissimilarity and Availability of Segmental Data:
The Tribunal examined the objections raised by the assessee regarding e-Infochips Bangalore Ltd. and found variations in the financial details considered by the TPO and those submitted by the assessee. The Tribunal noted that the company was engaged in both software development and IT-enabled services without segmental data, and it had an amalgamation status during the relevant financial year. The Tribunal remanded the issue to the A.O./TPO to ascertain the correct facts and determine the comparability of e-Infochips Bangalore Ltd. with the assessee, considering judicial precedents that exclude companies without segmental data or those undergoing extraordinary events like mergers/amalgamations.

Revenue's Appeal Against DRP's Directions:
The Revenue's appeal against the exclusion of Infosys Technologies Ltd., L & T Infotech Ltd., and Tata Elxsi Ltd. was dismissed. The Tribunal upheld the DRP's decision, noting that these companies were excluded in the assessee's own case for the A.Y. 2007-08 due to functional dissimilarity, lack of segmental data, and significant intangibles and brand value owned by Infosys Technologies Ltd. The Tribunal found no evidence that the facts differed in the current year from those in A.Y. 2007-08.

Conclusion:
The assessee's appeal was partly allowed for statistical purposes, with the issue of e-Infochips Bangalore Ltd.'s comparability remanded to the A.O./TPO. The Revenue's appeal was dismissed, affirming the exclusion of Infosys Technologies Ltd., L & T Infotech Ltd., and Tata Elxsi Ltd. from the list of comparables. The order was pronounced in the open court on 23.12.2015.

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