Tribunal Partially Allows Appeal, Excludes Cybercom, Upholds Thirdware and Infobeans

The appeal was partly allowed. The Tribunal directed the exclusion of Cybercom Datamatics Information Solutions Ltd. from the list of comparables but upheld the inclusion of Thirdware Solutions Ltd. and Infobeans Systems India Ltd. The additional grounds of appeal regarding foreign exchange gain/loss and the inclusion of additional comparables were dismissed.

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Issues Involved:

1. Inclusion/Exclusion of Comparable Companies for Transfer Pricing Adjustments.
2. Acceptance of Additional Grounds of Appeal.

Detailed Analysis:

1. Inclusion/Exclusion of Comparable Companies for Transfer Pricing Adjustments:

Cybercom Datamatics Information Solutions Ltd.:
The appellant challenged the inclusion of Cybercom Datamatics Information Solutions Ltd. as a comparable, arguing it is functionally different and engaged in diverse activities, including consulting and manufacturing software products for the telecom industry. The absence of segmental information further complicated comparability. The Tribunal noted that the company reported an abnormally high profit margin of 83.99%, which necessitated an inquiry into whether this reflected normal business conditions. The Tribunal directed the exclusion of Cybercom from the list of comparables, citing its functional differences and lack of segmental information.

Thirdware Solutions Ltd.:
The appellant contended that Thirdware Solutions Ltd. is a product development company and earns revenue from product sales and licenses, making it incomparable. The Tribunal examined the company's financials and noted the minimal revenue from product sales compared to total revenue, and the absence of intangible assets or closing stock. The Tribunal upheld the inclusion of Thirdware Solutions Ltd. as a comparable, finding no merit in the appellant's contentions.

Infobeans Systems India Ltd.:
The appellant argued for the exclusion of Infobeans Systems India Ltd. due to its supernormal profits. The Tribunal reviewed the financial statements and found that the company was engaged in software development services, with no evidence of product development activities. The Tribunal upheld the inclusion of Infobeans Systems India Ltd., stating that supernormal profits alone do not warrant exclusion without examining the underlying business conditions.

2. Acceptance of Additional Grounds of Appeal:

Foreign Exchange Gain/Loss as Operating Revenue:
The appellant sought to include foreign exchange gain or loss as part of operating revenue for determining the Profit Level Indicator (PLI). The Tribunal noted that this issue was not raised before the lower authorities and requires examination of financial statements. The Tribunal found that the appellant did not provide sufficient material to support this claim and dismissed the additional ground, stating it was not a pure question of law.

Inclusion of Cat Technologies Ltd. and Maverick Systems Ltd. as Comparables:
The appellant requested the inclusion of Cat Technologies Ltd. and Maverick Systems Ltd. as comparables. However, this additional ground was not pressed during the hearing, and the Tribunal dismissed it as not pressed.

Conclusion:
The appeal was partly allowed. The Tribunal directed the exclusion of Cybercom Datamatics Information Solutions Ltd. from the list of comparables but upheld the inclusion of Thirdware Solutions Ltd. and Infobeans Systems India Ltd. The additional grounds of appeal regarding foreign exchange gain/loss and the inclusion of additional comparables were dismissed.

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