High Court Upholds ITAT Decision on Comparables Exclusion

The High Court upheld the ITAT's decision to exclude M/s Eclerx Services Pvt. Ltd, TCS E-Serve Ltd, BNR Udyog Ltd, and Excel Infoways Ltd as comparables for determining the arm's length price in the case. The court found that the ITAT provided valid reasons based on functional dissimilarities and other factors, supported by previous findings and principles established by the jurisdictional High Court. Consequently, the High Court dismissed the appeal, ruling that there was no substantial question of law for consideration.

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Issues:
Challenge to ITAT order excluding certain companies as comparables for determining arm's length price.

Analysis:
The appellant filed an Income Tax Appeal against the Order dated 01st November, 2019 passed by the Income Tax Appellate Tribunal (ITAT) in ITA No. 1814/Del./2017 for the Assessment Year 2012-13. The appellant contended that the ITAT erred in excluding M/s Eclerx Services Pvt. Ltd, TCS E-Serve Ltd, BNR Udyog Ltd, and Excel Infoways Ltd as comparables for determining the arm's length price in the case of the respondent. The settled law states that the exclusion or inclusion of comparables does not constitute a question of law unless there are important functional dissimilarities or vital material facts affecting profitability. The ITAT provided cogent reasons for excluding the four companies as comparables. The ITAT's decision was based on functional and other reasons highlighting dissimilarities between the entities and the respondent/assessee.

The ITAT excluded Eclerx Services Ltd as a comparable based on previous findings affirmed by the Delhi High Court. TCS E-Serve Ltd was also excluded following the principle established by the jurisdictional High Court. BNR Udyog Ltd was excluded due to its involvement in medical billing and coding services in addition to medical transcription activities. The functional profile of BNR Udyog Ltd was found to be similar to Accentia Technologies Ltd. The ITAT also excluded Excel Infoways Ltd as a comparable because apart from its ITeS-BPO segment, it was involved in infrastructure development activities which constituted a significant portion of its revenue. The lack of segmental details for these activities led to the exclusion of Excel Infoways Ltd as a comparable.

The High Court, after reviewing the reasoning provided by the ITAT, found that the factual background supported the exclusion of the four companies as comparables. The High Court concluded that there was no substantial question of law for consideration in the appeal and subsequently dismissed the appeal challenging the ITAT's order.

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