Tribunal excludes companies in Transfer pricing case, emphasizes turnover differences for fair assessment.

The Tribunal directed the assessing officer to exclude Larsen & Toubro Infotech Limited and Persistent Systems Ltd from the list of comparable companies in a Transfer pricing adjustment case concerning Software development services. The decision emphasized the significance of turnover differences as a criterion for exclusion, aligning with previous rulings by other coordinate benches. The appeal was partly allowed in favor of the assessee, underscoring the importance of applying turnover filters in Transfer pricing analysis.

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Issues:
Transfer pricing adjustment in Software development services - Exclusion of comparable companies Larsen & Toubro Infotech Limited and Persistent Systems Ltd based on turnover filter.

Analysis:
1. Transfer Pricing Adjustment: The appeal concerned an assessment order passed by the assessing officer for the assessment year 2013-14 regarding Transfer pricing adjustment in Software development services. The assessee contested the Transfer pricing adjustment made and focused on the exclusion of two comparable companies, Larsen & Toubro Infotech Limited and Persistent Systems Ltd.

2. Exclusion of Comparable Companies: The assessee, engaged in providing Software development services to overseas affiliates, contested the inclusion of Larsen & Toubro Infotech Limited and Persistent Systems Ltd as comparable companies. The assessee argued that these companies should be excluded based on functional dissimilarity and turnover differences. The argument was supported by a decision from a coordinate bench in a similar case.

3. Judicial Precedents: The Tribunal referred to conflicting decisions by different coordinate benches regarding the comparability of Larsen & Toubro Infotech Limited and Persistent Systems Ltd. One bench excluded these companies based on functional dissimilarity, while another upheld their inclusion. The turnover disparity between the assessee and these companies was a crucial point of contention.

4. Turnover Filter Criteria: The debate centered on the application of a turnover filter as a criterion for excluding comparable companies. The assessee argued that turnover differences were significant and should lead to exclusion, citing a decision by another coordinate bench. The Tribunal acknowledged that turnover filter was a relevant criterion in determining comparability, as consistently held by other coordinate benches in similar cases.

5. Decision and Ruling: After considering the arguments and precedents, the Tribunal directed the assessing officer to exclude Larsen & Toubro Infotech Limited and Persistent Systems Ltd from the list of comparable companies based on turnover criteria. The appeal was partly allowed in favor of the assessee, emphasizing the importance of turnover filter in Transfer pricing analysis.

This detailed analysis of the judgment highlights the key issues, arguments presented, conflicting judicial precedents, and the ultimate decision of the Tribunal regarding the exclusion of comparable companies based on turnover filter in Transfer pricing assessment.

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