2016 (8) TMI 1197 - HC - Income Tax

TPA - selection of comparable - Held that - As far as the exclusion of Infosys BPO is concerned it is an admitted position that the Assessee is a Knowledge Processing Outsourcing ( KPO ) entity and therefore on the face of it the exclusion of Infosys BPO from the list of comparables does not call for interference. As far as the exclusion of ESL ITAT itself has noted in its impugned order that the function profile of the two companies were different. While the Assessee is catering to the capital and financial services markets ESL works in the area of sales marketing and supporting financial services. The financial profile of the two KPOs could not be said to be similar from the point of view of the type of businesses they were catering to. No substantial question of law arises

Summary

Issues:
1. Exclusion of Infosys BPO from the list of comparables.
2. Exclusion of M/s Eclerx Services Ltd. (ESL) from the list of comparables.

Analysis:
1. The first issue revolves around the exclusion of Infosys BPO from the list of comparables. The court noted that the Assessee is a Knowledge Processing Outsourcing (KPO) entity, making the exclusion of Infosys BPO reasonable as the two entities are functionally different. The court found no grounds for interference in this exclusion.

2. Regarding the exclusion of ESL, the ITAT relied on a previous court decision highlighting the dissimilarities in the services provided by different entities falling under the Information Technology enabled Services (ITeS) spectrum. The court emphasized that comparing entities solely based on the use of Information Technology for service delivery could lead to erroneous conclusions. The function profiles of ESL and the Assessee were found to be different, with ESL focusing on sales, marketing, and supporting financial services, while the Assessee catered to capital and financial services markets. The court concluded that the two KPOs could not be considered comparable due to the distinct nature of their businesses.

3. The court further addressed the argument presented by the Revenue's counsel, emphasizing that both ESL and the Assessee were KPOs catering to high-end clients. However, the court reiterated that the function profiles of the two companies were dissimilar, leading to differences in the type of businesses they served. The court upheld the ITAT's decision, stating that the view taken was plausible and did not give rise to any substantial question of law.

4. In the final analysis, the court dismissed the appeal, affirming the ITAT's decision to exclude Infosys BPO and ESL from the list of comparables based on the functional differences and distinct business environments of the entities involved. The court found no grounds to interfere with the ITAT's reasoning, concluding that no substantial question of law arose for consideration.