2018 (3) TMI 1588 - HC - Income Tax

High Court affirms Tribunal's decisions on tax assessment case for AY 2007-08. Excludes companies, rejects ITES comparability, supports fraud exclusion.

The High Court upheld the Tribunal's decisions in a tax assessment case for Assessment Year 2007-08. It dismissed the appeal challenging the exclusion of ... TPA - comparable selection - excluding Informed Technologies India Ltd. from the set of comparable companies on account of its high profit margin accepted Treating companies engaged in various different activities classified broadly as ITES can be treated as functionally comparable - Held that:- For the purposes of arriving at the Arms Length Price (ALP) of the services rendered by it, the Revenue placed reliance upon M/s. Maple E-Solutions Ltd. as a comparable. However, M/s. Maple Solutions Ltd. is a BPO providing call service centre. The Tribunal on examination of the activities carried out by the respondent and the activities carried out by M/s. Maple E-Solutions Ltd., found that they are functionally different and, therefore, could not be used as a comparable in arriving at ALP. The impugned order held that merely because the call centre business is also understood broadly as an IT enabled services, would not by itself lead the respondent assessee and M/s. Mapple E-Solutions Ltd. to become a comparable, looking at the functional difference between the two. The view taken by the Tribunal on the facts is a reasonable and possible view. Excluding Maple E Solutions from the comparable set on the ground that there had been complaints of fraud etc. against the directors of the company - Because of the unreliability of the data of M/s. Maple E-Solutions Ltd., it could not be used as a comparable to determine the ALP of the respondent assessee's services. The above view of the Tribunal has not been shown to be perverse in any manner. Issues Involved:1. Exclusion of Informed Technologies India Ltd. as a comparable company due to high profit margin.2. Treatment of companies engaged in various activities classified broadly as ITES as functionally comparable.3. Exclusion of Maple E Solutions from the comparable set due to complaints of fraud against its directors.Analysis:Issue 1: Exclusion of Informed Technologies India Ltd.The High Court dismissed the appeal challenging the Tribunal's decision to exclude Informed Technologies India Ltd. as a comparable company for Assessment Year 2007-08. The Court referred to a previous order related to Assessment Year 2008-09 where a similar question was dismissed. The Revenue's argument was rejected as it did not raise any substantial question of law, and the exclusion was upheld based on the Tribunal's decision.Issue 2: Treatment of ITES Companies as Functionally ComparableThe respondent company, engaged in manufacturing and selling turbochargers, earned income from royalty and IT-enabled services. The Revenue relied on Maple E-Solutions Ltd. as a comparable, which was a BPO providing call center services. However, the Tribunal found functional differences between the activities of the respondent and Maple E-Solutions Ltd., leading to the exclusion of the latter as a comparable. The Court upheld the Tribunal's decision, stating that the view taken was reasonable and did not give rise to any substantial question of law.Issue 3: Exclusion of Maple E SolutionsThe Tribunal excluded Maple E Solutions from the comparable set based on complaints of fraud against its directors, citing unreliable financial results. The Court supported the Tribunal's reliance on previous decisions and concluded that the exclusion of Maple E Solutions was reasonable and not shown to be perverse. Therefore, the Court upheld the Tribunal's decision, stating that it did not raise any substantial question of law.In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decisions on all three issues without awarding costs to either party.