2014 (1) TMI 983 - AT - Income Tax

Selection of comparables for deterrmination of arm s length price - Held that - In respect of inclusion of Infosys Ltd. as one of the comparables - The ld. AR relied on the case of Agnity India Technologies Pvt. Ltd. Vs. ITO 2013 (7) TMI 696 - DELHI HIGH COURT - The tribunal order in Agnity Ltd. has become binding precedent to be respected and followed by the authorities - The issue has been restored to the file of the TPO for deciding this issue afresh as per the mandate of the aforesaid view of the Hon ble High Court. In respect of inclusion of Bodhtree Consulting Ltd. as one of the comparables - The Annual accounts and the other relevant data of this company clearly depicted that it was also engaged in the business of IT Enabled Services as against the assessee dealing in software sector alone - The issue has been restored to the file of the TPO for deciding this issue afresh.

Summary

Issues:
Transfer pricing adjustment based on international transactions with foreign Associated Enterprises (AE) - inclusion of comparable cases Infosys Ltd. and Bodhtree Consulting Ltd.

Analysis:
The appeal before the Appellate Tribunal ITAT Delhi arose from the Assessing Officer's order under section 143(3) r.w.s. 144C (13) of the Income-tax Act, 1961 concerning the Assessment Year 2009-10. The assessee, engaged in software development for semi-conductors, had international transactions with its foreign AE. The Transfer Pricing Officer (TPO) proposed an adjustment of Rs.4,36,01,947/- based on benchmarking the assessee's transactions with comparable cases. The assessee contested the inclusion of Infosys Ltd. and Bodhtree Consulting Ltd. as comparables. The ld. AR highlighted distinguishing features between Infosys Ltd. and the assessee to support exclusion, including turnover, assets, capital, risk profile, customer base, and employee count. The ld. AR relied on Tribunal decisions to emphasize the exclusion of Infosys Ltd. The Tribunal noted the need for a detailed examination of facts to align with the decision in Agnity India Technologies Pvt. Ltd. case, directing a fresh consideration by the TPO.

The exclusion of Infosys Ltd. was supported by the Tribunal's order in Agnity India Technologies Pvt. Ltd. case, upheld by the Hon'ble Jurisdictional High Court. The Tribunal acknowledged the need for a thorough evaluation of relevant factors by the TPO. Consequently, the impugned order was set aside, and the matter remitted to the TPO for a fresh decision in line with the High Court's judgment. The assessee was granted the opportunity to present its case and provide additional evidence or rely on relevant decisions. The Tribunal emphasized the binding nature of the High Court's decision and directed the TPO to adhere to the established precedent in assessing the comparability of cases.

Regarding Bodhtree Consulting Ltd., the TPO's inclusion as a comparable was contested by the assessee. The ld. AR argued that Bodhtree Consulting Ltd. was engaged in IT Enabled Services besides software development, necessitating exclusion. Both parties agreed to refer the case back to the TPO for reevaluation. The Tribunal deemed it fair to set aside the impugned order on this issue and directed the TPO to reconsider the inclusion of Bodhtree Consulting Ltd., taking into account the nature of its business activities and the absence of segmental data specific to the software sector.

In conclusion, the Tribunal allowed the appeal for statistical purposes, highlighting the need for a fresh assessment of the issues related to the inclusion of comparable cases Infosys Ltd. and Bodhtree Consulting Ltd. The Tribunal emphasized the importance of a detailed examination of relevant factors and adherence to established legal precedents in transfer pricing adjustments based on international transactions.