2013 (7) TMI 696 - HC - Income Tax

Determination of arm s length price - TPO used 3 major companies as comparable - Tribunal held that assessee was not comparable with Infosys Technologies Ltd., as Infosys Technologies Ltd. was a large and bigger company in the area of development of software - Held that - It is a common case that Satyam Computer Services Ltd. should not be taken into consideration. The tribunal for valid and good reasons has pointed out that Infosys Technologies Ltd. cannot be taken as a comparable in the present case. This leaves L&T Infotech Ltd. which gives us the figure of 11.11 %, which is less than the figure of 17% margin as declared by the respondent-assessee - assessee had furnished details of workables in respect of 23 companies and the mean of the comparables worked out to 10%, as against the margin of 17% shown by the assessee - No substantial question of law arises - Decided against Revenue.

Summary

Issues:
Transfer pricing adjustment for international transactions with associated enterprise.

Analysis:
The case involved an appeal by the Revenue regarding the assessment year 2006-07 for a company engaged in software development for its parent company. The Transfer Pricing Officer (TPO) suggested an adjustment of Rs. 3,73,74,985 to align with arm's length value. The Dispute Resolution Panel directed re-computation resulting in an additional Rs. 1,24,01,451. The TPO included Infosys Technologies Ltd. in the list of comparables, which was disputed. The tribunal excluded Infosys Technologies Ltd. due to its size and nature of operations, stating it was not comparable to the respondent. The tribunal highlighted differences in risk profile, nature of services, revenue, ownership of products, onsite/offshore services, and expenditures between the companies.

The Revenue contended that the tribunal did not provide a finding on the differences between the companies listed as comparables. The TPO had initially considered a third company based on wage and sale ratio, but ultimately included Satyam Computer Service Ltd., L&T Infotech Ltd., and Infosys Technologies as comparables. However, the tribunal excluded Satyam Computer Service Ltd. and deemed Infosys Technologies Ltd. incomparable. This left L&T Infotech Ltd. with a margin of 11.11%, lower than the respondent's declared 17% margin. The tribunal noted that the mean of comparables was 10%, further supporting its decision to dismiss the appeal as no substantial question of law arose.

In conclusion, the High Court dismissed the appeal, upholding the tribunal's decision to exclude Infosys Technologies Ltd. as a comparable due to significant differences with the respondent, and affirming L&T Infotech Ltd. as the appropriate comparable with a lower margin than declared by the respondent.