High Court affirms exclusion of Infosys in transfer pricing case, upholds L&T Infotech as suitable comparable

The High Court upheld the tribunal's decision to exclude Infosys Technologies Ltd. as a comparable in a transfer pricing adjustment case. The court affirmed L&T Infotech Ltd. as the appropriate comparable, noting significant differences between Infosys Technologies Ltd. and the respondent company. The tribunal's exclusion of Infosys Technologies Ltd. was supported by various factors such as differences in risk profile, nature of services, revenue, and ownership of products. The court found no substantial question of law and dismissed the appeal, maintaining L&T Infotech Ltd. as the suitable comparable with a lower margin than declared by the respondent.

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Issues:
Transfer pricing adjustment for international transactions with associated enterprise.

Analysis:
The case involved an appeal by the Revenue regarding the assessment year 2006-07 for a company engaged in software development for its parent company. The Transfer Pricing Officer (TPO) suggested an adjustment of Rs. 3,73,74,985 to align with arm's length value. The Dispute Resolution Panel directed re-computation resulting in an additional Rs. 1,24,01,451. The TPO included Infosys Technologies Ltd. in the list of comparables, which was disputed. The tribunal excluded Infosys Technologies Ltd. due to its size and nature of operations, stating it was not comparable to the respondent. The tribunal highlighted differences in risk profile, nature of services, revenue, ownership of products, onsite/offshore services, and expenditures between the companies.

The Revenue contended that the tribunal did not provide a finding on the differences between the companies listed as comparables. The TPO had initially considered a third company based on wage and sale ratio, but ultimately included Satyam Computer Service Ltd., L&T Infotech Ltd., and Infosys Technologies as comparables. However, the tribunal excluded Satyam Computer Service Ltd. and deemed Infosys Technologies Ltd. incomparable. This left L&T Infotech Ltd. with a margin of 11.11%, lower than the respondent's declared 17% margin. The tribunal noted that the mean of comparables was 10%, further supporting its decision to dismiss the appeal as no substantial question of law arose.

In conclusion, the High Court dismissed the appeal, upholding the tribunal's decision to exclude Infosys Technologies Ltd. as a comparable due to significant differences with the respondent, and affirming L&T Infotech Ltd. as the appropriate comparable with a lower margin than declared by the respondent.

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