Tribunal affirms CIT(A)'s decisions on comparables inclusion & exclusion. No infirmity found in appeals dismissal.

The Tribunal upheld the CIT(A)'s decisions on the inclusion of "Maveric Systems Ltd." in the final list of comparables, the exclusion of certain comparables based on turnover and FAR analysis, and the exclusion of "E-infochips Ltd." The Tribunal found no infirmity in the CIT(A)'s orders, dismissing both the Revenue's and the assessee's appeals. The Tribunal's decision was pronounced on 17th July 2019.

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Issues Involved:
1. Inclusion of "Maveric Systems Ltd." in the final list of comparables.
2. Exclusion of certain comparables based on higher turnover and without analyzing the FAR (Functions, Assets, and Risks) of the comparables.
3. Exclusion of "E-infochips Ltd." from the list of comparable companies.

Issue-wise Detailed Analysis:

1. Inclusion of "Maveric Systems Ltd." in the final list of comparables:
The first ground of the Revenue’s appeal concerns the inclusion of "Maveric Systems Ltd." in the final list of comparables. The Transfer Pricing Officer (TPO) had rejected "Maveric Systems Ltd." on the grounds of it being a loss-making company for the financial year 2010-11 and incurring extraordinary costs. However, the assessee argued that "Maveric Systems Ltd." had been consistently making profits in the past years, as evidenced by the operating margins for financial years 2008-09, 2009-10, and 2010-11. The Ld. CIT(Appeals) held that a company should not be rejected as a comparable merely because it incurred a loss in a given year, especially when it does not charge on a "Cost + Plus" basis but on an hourly basis. The CIT(A) directed the TPO to include "Maveric Systems Ltd." in the final list of comparables, and this decision was upheld by the Tribunal, finding no infirmity in the CIT(A)’s order.

2. Exclusion of certain comparables based on higher turnover and without analyzing the FAR of the comparables:
The second ground of the Revenue’s appeal pertains to the exclusion of five comparables by the Ld. CIT(A) based on higher turnover and other factors. The comparables in question were Infosys Technologies Limited, IGate Global Solutions Limited, Larsen and Toubro Infotech Limited, Persistent Systems Limited, and Zylog Systems Limited. The Ld. CIT(A) excluded these companies on the grounds that they had significantly higher turnovers compared to the assessee, possessed significant intangible assets, incurred substantial R&D and marketing expenses, and in some cases, lacked segmental data. The Tribunal upheld the CIT(A)’s decision, noting that the CIT(A) had considered various factors such as the size of the company, its capacity for risk-taking, and compliance with OECD Guidelines and Rule 10TD of the Income Tax Rules. The Tribunal found no infirmity in the CIT(A)’s findings and dismissed the Revenue’s appeal on this ground.

3. Exclusion of "E-infochips Ltd." from the list of comparable companies:
The additional grounds raised by the Revenue challenged the exclusion of "E-infochips Ltd." from the list of comparables. The TPO had included "E-infochips Ltd." in the final set of comparables, but the assessee argued that the company was engaged in diversified activities, had abnormal profit margins, and lacked segmental information. The Ld. CIT(A) observed that "E-infochips Ltd." was involved in software development, IT-enabled services, and product sales, without segmental information available for these activities. The CIT(A) held that in the absence of segmental information, including "E-infochips Ltd." in the final set of comparables was unjustified. The Tribunal upheld the CIT(A)’s decision, finding no infirmity in the exclusion of "E-infochips Ltd." from the comparables list.

Conclusion:
The Tribunal dismissed both the Revenue’s appeal and the assessee’s appeal. The Tribunal upheld the CIT(A)’s decisions regarding the inclusion and exclusion of various comparables, finding no infirmity in the CIT(A)’s orders. The Tribunal’s order was pronounced on 17th July 2019.

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