2018 (2) TMI 2012 - HC - Income Tax

High Court affirms ITAT's decision on comparables for ALP under Income Tax Act

The High Court upheld the ITAT's decision to include TCS E-serve Ltd., Infosys BPO Ltd., and Excel Infoways Ltd. as comparables for Arms Length Price ... TP Adjustment - Comparable selection - order of ITAT with the inclusion of three comparables i.e TCS E-serve Ltd., Infosys BPO Ltd. and Excel Infoways Ltd. for the purpose of carrying out the Arms Length Price (ALP determination) mandated by Section 92CA of the Income Tax Act - assessee is engaged in information technology enabling services - HELD THAT:- So far as the exclusion of Infosys and inclusion of R Systems is concerned, this Court is of the opinion that no question of law arises. With respect to Infosys BPO, the rationale for exclusion by the ITAT is that the profitability of the concern is attributed to its brand value. Relevance of brand value was recognised by this Court in several orders. The Court is of the opinion that no question of law arises on this aspect; the ITAT also returned its finding that functionality of the assessee is similar to Infosys BPO. Likewise with respect to inclusion of R Systems the Court finds no infirmity in the approach and finding of the ITAT. The ground urged by the Revenue is that the data relating to the concern was not in respect of the relevant financial year as it followed the calendar year for reporting its profits and all other finances. This Court had in a like situation (Commissioner of Income Tax-II vs. Mckinsey Knowledge Centre Pvt. Ltd. [2015 (3) TMI 1226 - DELHI HIGH COURT] held that if from the available data on record, the results for financial year can reasonably be extrapolated then the comparable cannot be excluded. Following that logic, it is held that the reasonableness of inclusion of R Systems cannot be questioned. This Court is of the opinion that the following two questions of law arise: (i) Did the Income Tax Appellate Tribunal (ITAT) fall into error in its findings with respect to inclusion of M/s. Surya Pharmaceutical Ltd., given the assessee’s contention with respect to unavailability of segmented data for the purpose of transfer pricing analysis, in the circumstances of the case? (ii) Did the ITAT fell into error in directing the exclusion of M/s. Excel Infosys, having regard to the judgment of this Court in Chryscapital Investment Advisors (India) Pvt.Ltd vs. Deputy Commissioner of Income Tax, [2015 (4) TMI 949 - DELHI HIGH COURT] Issues:1. Inclusion of comparables TCS E-serve Ltd., Infosys BPO Ltd., and Excel Infoways Ltd. for Arms Length Price determination.2. Exclusion of R Systems International Ltd. and inclusion of Infosys BPO.3. Inclusion of M/s. Surya Pharmaceutical Ltd. and exclusion of M/s. Excel Infosys.Analysis:1. The High Court addressed the Revenue's appeal challenging the ITAT's order regarding the inclusion of three comparables for Arms Length Price determination under Section 92CA of the Income Tax Act. The ITAT had directed the inclusion of TCS E-serve Ltd., Infosys BPO Ltd., and Excel Infoways Ltd. The Court found no issue with the exclusion of one comparable, R Systems International Ltd., and upheld the ITAT's decision based on the available data for the relevant financial year. The Court emphasized the importance of brand value in profitability, citing previous judgments, and agreed with the ITAT's findings on comparability with Infosys BPO. The inclusion of R Systems was deemed reasonable, following the precedent that data extrapolation for the financial year is acceptable.2. The Court identified two questions of law arising from the case. Firstly, it questioned whether the ITAT erred in including M/s. Surya Pharmaceutical Ltd. without segmented data availability for transfer pricing analysis. Secondly, it examined the ITAT's decision to exclude M/s. Excel Infosys, considering a previous judgment. The Court issued notice on these questions and scheduled further proceedings, indicating a detailed review of the ITAT's findings and the legal implications of the decisions made.3. Overall, the judgment delves into the intricacies of transfer pricing analysis, comparability of companies, and the relevance of brand value in determining profitability. It highlights the significance of following established legal principles and precedent judgments in resolving disputes related to Arms Length Price determination. The Court's meticulous examination of each comparable and the reasoning behind the ITAT's decisions showcases a thorough legal analysis aimed at ensuring fair and just outcomes in tax matters.