Income Tax Appeal dismissed as Rolta India Ltd and KLG Systels Ltd excluded from comparables.

The Tribunal dismissed the Income Tax Appeal, upholding the exclusion of Rolta India Ltd and KLG Systels Ltd from the comparables in a transfer pricing adjustment case. The Tribunal found these companies functionally dissimilar to the assessee, referencing a prior case for support. The Revenue's challenge was rejected, affirming the Tribunal's decision based on the lack of functional similarity, ultimately resulting in the dismissal of the appeal.

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Issues:
Transfer pricing adjustment in case of the respondent - assessee.

Analysis:
The appeal was filed by the Revenue challenging the judgment of the Income Tax Appellate Tribunal, Mumbai. The main issue presented for consideration was whether the Tribunal erred in law by excluding the comparables Rolta India Ltd and KLG Systels Ltd based on turnover without considering that the turnover of the assessee's own comparable, M/s. Infotech Enterprises, was higher than the two comparables selected by the Transfer Pricing Officer (TPO). The Revenue framed additional questions, but they were merely elaborations of the main issue. The crux of the matter was the transfer pricing adjustment in the case of the respondent - assessee.

The assessee objected to the inclusion of Rolta India Ltd and KLG Systels Ltd in the transfer pricing study, arguing that the functionality of these companies was different as they were engaged in entirely different areas compared to the assessee. The turnover of Rolta India Ltd was significantly higher than the value of international transactions of the assessee. The Tribunal, in its judgment, accepted the assessee's grounds and excluded Rolta India Ltd and KLG Systels Ltd from the comparables. The Tribunal noted that these companies were functionally dissimilar from the concern providing IT enabled design engineering services. It referenced a previous case involving Behr India Ltd where similar exclusions were made based on functional dissimilarities, size, and diversified products. The Tribunal concluded that due to the distinct nature of business, functional dissimilarity, and other factors, Rolta India Ltd and KLG Systels Ltd were not comparable with the assessee.

Ultimately, the Tribunal dismissed the Income Tax Appeal based on its finding that Rolta India Ltd and KLG Systels Ltd could not be included in the comparables with the assessee due to their lack of functional similarity. It was noted that the Revenue did not challenge the Tribunal's earlier decision in the case of Behr India Ltd, which supported the exclusion of these companies. Thus, the judgment upheld the Tribunal's decision to exclude Rolta India Ltd and KLG Systels Ltd from the comparables, leading to the dismissal of the Income Tax Appeal.

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