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2017 (7) TMI 1314 - AT - Income TaxTPA - comparable selection - exclusion of concern FCS Software Ltd. from the list of comparable companies - HELD THAT - Segmental accounts were not available. Secondly, the said concern cannot be selected as comparable because of the filters applied by the TPO himself in selecting the concerns; one of the filters was companies with income from IT services more than 50% of the operating revenue or segmental revenue were to be selected. However, the said company had earned 42% of its total revenue from providing software services and applying the filter selected by the TPO, the said concern is to be excluded from the final list of comparables. Accordingly, we uphold the order of CIT(A) and dismiss the ground of appeal No.1 raised by the Revenue. Exclusion of Infosys Technologies Ltd. and L T Infotech being not comparable for not fulfilling the filter of turnover and also the brand - As relying on TIBCO SOFTWARE INDIA PVT. LTD. VERSUS THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE AND VICE-VERSA 2017 (1) TMI 1574 - ITAT PUNE we uphold the order of CIT(A) in excluding Infosys Technologies Ltd. and L T Infotech Ltd. from the final list of comparables, wherein the said concerns were product companies and functionally not comparable. Further, the said concerns are not comparable because of high turnover, as against the assessee having very low turnover in the field of provision of software services. Accordingly, the ground of appeal No.2 raised by the Revenue is dismissed.
Issues:
1. Exclusion of FCS Software Ltd. as comparable company. 2. Exclusion of Infosys Technologies Ltd. and L & T Infotech Ltd. as comparable companies based on turnover and functional analysis. Issue 1: Exclusion of FCS Software Ltd. as Comparable The Revenue challenged the CIT(A)'s decision to exclude FCS Software Ltd. as a comparable company for benchmarking international transactions. The CIT(A) found that FCS Software Ltd. did not provide segmental revenue breakdown in its annual report, making it incomparable with the assessee. Despite FCS Software Ltd.'s involvement in software development, the absence of segmental accounts led to its exclusion. The Revenue argued that the Delhi Tribunal had recognized FCS Software Ltd.'s software development activities, but the lack of segmental data and failure to meet TPO's filters justified its exclusion. Consequently, the Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeal on this ground. Issue 2: Exclusion of Infosys Technologies Ltd. and L & T Infotech Ltd. as Comparables The Revenue contested the exclusion of Infosys Technologies Ltd. and L & T Infotech Ltd. as comparables due to turnover and functional differences. Referring to a previous case, the Tribunal noted that Infosys Ltd. was a product company, making it functionally incomparable to the software services segment. Additionally, the turnover disparity between the assessee and these companies justified their exclusion. The Tribunal upheld the CIT(A)'s decision to exclude Infosys Technologies Ltd. and L & T Infotech Ltd. from the final list of comparables, as they were not functionally comparable and had significantly higher turnovers compared to the assessee. Consequently, the Revenue's appeal on this ground was dismissed. In conclusion, the Appellate Tribunal upheld the CIT(A)'s decisions to exclude FCS Software Ltd., Infosys Technologies Ltd., and L & T Infotech Ltd. as comparable companies for benchmarking international transactions. The judgment emphasized the importance of functional comparability and turnover analysis in selecting comparables for transfer pricing purposes. The Revenue's appeal was dismissed, affirming the decisions made by the lower authorities.
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