Tribunal Excludes Companies from Comparables List, Remands Case for Fresh Determination

The Tribunal directed the exclusion of Infosys BPO Ltd. and Wipro Ltd. (Seg.) from the list of comparables due to significant differences with the assessee. Despite objections, HCL Comnet Systems & Services Ltd. (Seg.) was retained based on turnover not being a sole exclusion criterion. Eclerx Service Ltd. was excluded for dissimilar business activities. Maple Esolutions Ltd. and Triton Corp. Ltd. were also excluded due to merger and financial irregularities. The Tribunal remanded the case for a fresh determination of the Arm's Length Price, partially allowing the appeal for statistical purposes.

---

---

Issues: Transfer pricing adjustment based on choice of comparables

Analysis:
The appeal pertains to the order passed by the CIT(A) regarding the international transaction of export of I.T enabled services for the assessment year 2007-08. The Transfer Pricing Officer (TPO) had proposed a transfer pricing adjustment of Rs. 23,85,223 based on the choice of comparables made by the assessee. The CIT(A) directed the exclusion of two companies from the list of comparables, retaining twenty-three companies chosen by the TPO. The assessee contested the inclusion of six companies in the final list of comparables.

Inclusion of Infosys BPO Ltd.:
The Tribunal found that Infosys BPO Ltd. was incomparable with the assessee due to vast differences in size, functional profile, assets, risks, and activities. Citing a judgment of the Delhi High Court, the Tribunal directed the exclusion of Infosys BPO Ltd. from the list of comparables.

Inclusion of Wipro Ltd. (Seg.):
The Tribunal held that Wipro Ltd. (Seg.) was incomparable with the assessee based on differences in risk profile, nature of services, ownership of IP rights, and R & D expenditure. Drawing from a previous judgment, the Tribunal directed the exclusion of Wipro Ltd. (Seg.) from the list of comparables.

Inclusion of HCL Comnet Systems & Services Ltd. (Seg.):
Despite objections raised by the assessee regarding the high turnover of HCL Comnet Systems & Services Ltd. (Seg.), the Tribunal upheld its inclusion in the list of comparables. Citing relevant provisions of the Income-tax Act and judicial precedents, the Tribunal concluded that turnover alone should not be a basis for exclusion.

Inclusion of Eclerx Service Ltd.:
The Tribunal excluded Eclerx Service Ltd. from the list of comparables based on its business activities in data analytics and processing solutions, which were not comparable to the assessee's services in processing insurance claims and data entry.

Inclusion of Maple Esolutions Ltd. and Triton Corp. Ltd.:
The Tribunal noted the merger/acquisition of Maple Esolutions Ltd. by Triton Corp. Ltd. during the relevant year, rendering them incomparable. Additionally, citing financial irregularities and a previous Tribunal order, the Tribunal directed the exclusion of both companies from the list of comparables.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the AO/TPO for a fresh determination of the Arm's Length Price (ALP) of the international transaction in accordance with the directions provided. The appeal was partly allowed for statistical purposes.

---