Appellate Tribunal excludes companies for transfer pricing benchmarking, emphasizes functional comparability.

The Appellate Tribunal upheld the CIT(A)'s decisions to exclude FCS Software Ltd., Infosys Technologies Ltd., and L & T Infotech Ltd. as comparable companies for benchmarking international transactions. The judgment highlighted the significance of functional comparability and turnover analysis in selecting comparables for transfer pricing. The Revenue's appeal was dismissed, affirming the decisions of the lower authorities.

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Issues:
1. Exclusion of FCS Software Ltd. as comparable company.
2. Exclusion of Infosys Technologies Ltd. and L & T Infotech Ltd. as comparable companies based on turnover and functional analysis.

Issue 1: Exclusion of FCS Software Ltd. as Comparable

The Revenue challenged the CIT(A)'s decision to exclude FCS Software Ltd. as a comparable company for benchmarking international transactions. The CIT(A) found that FCS Software Ltd. did not provide segmental revenue breakdown in its annual report, making it incomparable with the assessee. Despite FCS Software Ltd.'s involvement in software development, the absence of segmental accounts led to its exclusion. The Revenue argued that the Delhi Tribunal had recognized FCS Software Ltd.'s software development activities, but the lack of segmental data and failure to meet TPO's filters justified its exclusion. Consequently, the Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeal on this ground.

Issue 2: Exclusion of Infosys Technologies Ltd. and L & T Infotech Ltd. as Comparables

The Revenue contested the exclusion of Infosys Technologies Ltd. and L & T Infotech Ltd. as comparables due to turnover and functional differences. Referring to a previous case, the Tribunal noted that Infosys Ltd. was a product company, making it functionally incomparable to the software services segment. Additionally, the turnover disparity between the assessee and these companies justified their exclusion. The Tribunal upheld the CIT(A)'s decision to exclude Infosys Technologies Ltd. and L & T Infotech Ltd. from the final list of comparables, as they were not functionally comparable and had significantly higher turnovers compared to the assessee. Consequently, the Revenue's appeal on this ground was dismissed.

In conclusion, the Appellate Tribunal upheld the CIT(A)'s decisions to exclude FCS Software Ltd., Infosys Technologies Ltd., and L & T Infotech Ltd. as comparable companies for benchmarking international transactions. The judgment emphasized the importance of functional comparability and turnover analysis in selecting comparables for transfer pricing purposes. The Revenue's appeal was dismissed, affirming the decisions made by the lower authorities.

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