TaxTMI 
TaxTMI 
2019 (1) TMI 739
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....ransactions entered into with its AE, at Rs. (Rs. 104,34,80,489 - Rs. 95,39,59,994) towards adjustment u/s 92CA at Rs. 8,95,20,945/-. For analysing the arm's length margin the TPO adopted TNMM method and had identified the following 17 companies as comparables: Sl. No. Name of the Company WC adjusted 1 iGate Global Solutions Ld. 1.59% 2 Flexitronics (Seg.) 29.61% 3 Geometric Software Solutions Co. Ltd. 17.67% 4 Lanco Global Systems Ld. 9.32% 5 Larsen & Toubro Infotech Ltd. 8.38% 6 RS Software (India) Ltd. 6.55% 7 Sasken Communication Tech Ltd. (Seg.) 13.10% 8 Sasken Network Systems Ltd. 13.89% 9 Tata Elxsi Ltd. (Seg.) 22.78% 10 Visualsoft Technologies Ltd. (Seg.) 20.06% 11 Exensys Software Solutions Ltd. 63.42% 12 Sankhya Infotech Ltd. 21.11% 13 Four Soft Ltd. 21.33% 14 Thirdware Solution Ltd. 64.56% 15 Bodhtree Consulting Ltd. 22.34% 16 Infosys Technologies Ltd. 41.22% 17 Satyam Computer Services Ltd. 27.00% 3. Against the said adjustment by the TPO, the assessee preferred an appeal before the CIT(A) and submittedth....
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....erformed, assets employed and risks undertaken. It is also submitted that in service industry in general and IT sector in particular, there is no linkage between the profits and the turnover as can be observed from the weak correlation. It is also not established that a company with better brand or turnover would command higher profits. The profit margin is based on the nature of work/functions performed by the concerned company and the costs incurred by it. Once, the functions of two companies are broadly similar, then a comparable cannot be excluded on considerations of turnover or profits. There is no evidence in the form of economic rationale or statistical analysis for such exclusion. Also in the business model employed by software sector in India, the operational size has no impact on the profit margins when TNMM is adopted as the Most Appropriate Method (MAM). 2. It is also submitted that the issue of abnormal profits, large turnover, branding and intangibles, the issue has been subject matter of decision in various cases including those before High Courts. There are several decisions holding that companies cannot be rejected on account of extraordinary margins, hig....
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.... for AY 2007-08 in ITA No. 1962/Hyd/2011. 8. Considered the rival submissions and perused the material on record. In assessee's own case for AY 2007-08 (supra), the coordinate bench of this tribunal with regard to Infosys Technologies Ltd., held as under: "2. Infosys Technologies Ltd. 2.1 The learned AR objecting to the aforesaid company being treated as comparable, submitted that not only the turnover of the company at Rs. 13,149/- crore is huge as compared to the assessee but it is a giant company in the field assuming all risks and is also functionally different. It was submitted that the brand Infosys commands a premium in the pricing of its products and services due to its goodwill, reputation and brand value and also engaged in diversified activities including products, consultancy and solutions. It was submitted that due to scale of operations, Infosys enjoys economies of scale, which results in lower cost of infrastructural facilities and overheads. Therefore, the comparability of assessee, which is only captive services provider to such a company cannot be made. It was submitted that various benches of the Tribunal have declared Infosys as not comparab....
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....10th July, 2007 in case of CIT Vs. Agnity India Technologies Pvt. Ltd., ITA No. 1204/2011, affirmed the order of ITAT, Delhi Bench holding that big companies like Infosys Technologies Ltd. cannot be treated as comparable. Following the ratio laid down as above, we direct the exclusion of the aforesaid company from the list of comparables for determining ALP." 8.1 The coordinate bench also opined the same views in the following decisions: i) In the case of United Online Software Development (India) Pvt. Ltd., in ITA No. 1480/Hyd/2010 for AY 2005-06, vide its order dated 24/01/2014, the coordinate bench has held as under: "14. We have heard submissions of the parties and perused the materials on record. So far as Infosys Technologies Ltd. is concerned the issue of comparability of the aforesaid company has been considered by different Benches of the Tribunal including the Hyderabad Benches. It is to be noted that the consistent view of different Benches of the Tribunal is to the effect that Infosys Technologies Ltd. being a big company in all respects including the range of turnover is not a comparable to small companies which are captive service providers having....