Tribunal directs exclusion of companies in computing Arms Length Price for international transactions

The Tribunal directed the Transfer Pricing Officer to compute the Arms Length Price (ALP) by excluding Infosys BPO, BNR Udyog Ltd., and Excel Info Ltd. from the list of comparable companies, partially allowing the appeal regarding the determination of ALP for international transactions under section 92 of the Income-tax Act, 1961.

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Issues:
Determination of Arms Length Price (ALP) in respect of international transaction u/s 92 of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Determination of ALP
The appeal concerned the determination of Arms Length Price (ALP) in relation to the international transaction under section 92 of the Income-tax Act, 1961. The Assessee provided information technology enabled services (ITES) to its Associated Enterprise (AE), which was the subject of ALP determination. The Transfer Pricing Officer (TPO) initially selected 10 comparable companies, leading to objections by the Assessee. The Dispute Resolution Panel (DRP) excluded one company, following which the Assessee sought exclusion of 7 out of the remaining 9 companies. The Tribunal, in a subsequent order, focused on the comparability of three specific companies: Infosys BPO, BNR Udyog Ltd., and Excel Info Ltd.

Issue 2: Infosys BPO as a Comparable Company
Initially, Infosys BPO was retained as a comparable company. However, the Assessee argued for its exclusion due to reasons such as functional differences, related party transactions, and substantial turnover. The Tribunal reconsidered this and, based on the Delhi ITAT's decision and the Delhi High Court's affirmation, directed the exclusion of Infosys BPO from the list of comparable companies.

Issue 3: BNR Udyog Ltd. as a Comparable Company
The Assessee also sought to exclude BNR Udyog Ltd. from the list of comparable companies chosen by the TPO. The Tribunal, upon review, acknowledged the Assessee's contentions regarding functional comparability and related party transactions. Following the Delhi ITAT's decision in a similar case, the Tribunal directed the exclusion of BNR Udyog Ltd. from the list of comparable companies.

Issue 4: Excel Info Ltd. as a Comparable Company
Excel Info Ltd. was initially retained as a comparable company. The Assessee contested its inclusion based on functional differences and employee cost thresholds. The Tribunal, after considering the Assessee's objections, recalled its order to reevaluate the application of the employee cost filter and the impact of extraordinary events on the exclusion of Excel Info Ltd. Following the Delhi ITAT's decision on abnormal revenue volatility, the Tribunal directed the exclusion of Excel Info Ltd. from the list of comparable companies.

In conclusion, the Tribunal directed the TPO to compute the ALP in accordance with the revised exclusion of Infosys BPO, BNR Udyog Ltd., and Excel Info Ltd., thereby partially allowing the appeal.

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