ITAT excludes CTIL as comparable company in transfer pricing dispute.

The ITAT allowed the appeal of the assessee, directing the exclusion of CTIL as a comparable company in the transfer pricing adjustment dispute.

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Issues:
1. Condonation of delay in filing the appeal.
2. Transfer pricing adjustment dispute regarding CTIL's inclusion as a comparable company.

Condonation of Delay:
The appeal was filed by the assessee against the order of the Assistant Commissioner of Income Tax for the assessment year 2008-09. The assessee cited a delay of 33 days in filing the appeal due to the non-resident director being unavailable to authorize the filing. The delay was condoned by the ITAT considering the reasons provided by the assessee and in the interests of justice.

Transfer Pricing Adjustment Dispute - CTIL Inclusion:
The dispute revolved around the inclusion of CTIL as a comparable company in the transfer pricing adjustment. The assessee argued that CTIL was not functionally comparable to its segments, citing reasons such as CTIL's diverse revenue sources, abnormal profits in the previous year, and significant management changes. The DRP rejected the assessee's contentions, stating that CTIL's core business was software development, and the extraordinary events did not impact comparability.

The ITAT analyzed the arguments and case laws presented by both parties. Relying on precedents, the ITAT concluded that a company outsourcing most of its work to third-party vendors cannot be functionally compared to a company with in-house operations. Considering this principle, the ITAT held that CTIL should be excluded from the list of comparables due to its significant outsourcing of software development work.

In conclusion, the ITAT allowed the appeal of the assessee, directing the exclusion of CTIL as a comparable company in the transfer pricing adjustment. The order was pronounced on 21-11-2022.

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