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2018 (8) TMI 1885 - HC - Income TaxTP Adjustment - comparable selection - Mapel e-Solutions Ltd - HELD THAT - Tribunal after analyzing the relevant factors with respect to the aforesaid comparable in question has rightly arrived at a finding that the objections of the Assessee as regards the alleged fraud against the Directors of the company would not disqualify the said comparable to be considered. The alleged fraud was relating to a different segment namely Bicycles Business and the allegation was with respect to some of the Directors in the old period 1980-1990 which has no relevancy for the present A.Y.2006-07 and for Software business. In view of the said findings rendered by the learned Tribunal for including the said comparable- Mapel e-Solutions Ltd. to determine the ALP in the light of the decision we have rendered in the Softbrands case (2018 (6) TMI 1327 - KARNATAKA HIGH COURT ) we are satisfied that no substantial question of law arises for our consideration in this regard qua the said comparable case. Genesys International Corporation - RPT as found by the TPO in this case is 26.33%. Therefore it is clear that this company does not satisfy the filter of 15% of Related Party or even 25% as applied by the TPO. The learned Authorised Representative has submitted that the RPT of this company is only 10.13% if a non-trading/revenue receipts are excluded. We find that when the receipt from the Related Party are falling under the definition of international transactions then the same will be treated as part of the RPT as reported by the said company. Accordingly in view of the fact that this company has more than 26% RPT cannot be considered as good comparable
Issues Involved:
1. Inclusion of Maple eSolutions Limited as a comparable company. 2. Exclusion of Genesys International Corporation Limited as a comparable company. 3. Exclusion of Mercury Outsourcing Management Limited as a comparable company. Detailed Analysis: Issue 1: Inclusion of Maple eSolutions Limited as a Comparable Company The Appellant-Assessee contended that the Tribunal wrongly included Maple eSolutions Limited as a comparable for Arm’s Length Price (ALP) analysis, despite allegations of fraud against its Directors. The Tribunal found that the allegations of fraud were related to a different business segment (bicycle parts) and occurred during the period of 1980-1990, which had no connection with the current business activities of Maple eSolutions Limited in the software sector for the assessment year 2006-07. The Tribunal concluded that the allegations did not affect the business or financial results of Maple eSolutions Limited and therefore, it remained a valid comparable. The High Court upheld this finding, stating that the Tribunal’s analysis was thorough and no substantial question of law arose regarding the inclusion of Maple eSolutions Limited. Issue 2: Exclusion of Genesys International Corporation Limited as a Comparable Company The Appellant-Assessee argued that the Tribunal wrongly excluded Genesys International Corporation Limited based on the Related Party Transactions (RPT) filter. The Tribunal noted that the RPT percentage for Genesys was 26.33%, exceeding the acceptable threshold of 25%. The Tribunal also rejected the contention that non-trading/revenue receipts should be excluded from the RPT calculation, affirming that all receipts from related parties fall under the definition of international transactions. Consequently, the Tribunal found that Genesys did not meet the comparability criteria due to its high RPT percentage. The High Court agreed with the Tribunal’s findings, stating that there was no perversity in excluding Genesys International Corporation Limited as a comparable. Issue 3: Exclusion of Mercury Outsourcing Management Limited as a Comparable Company The Appellant-Assessee challenged the exclusion of Mercury Outsourcing Management Limited based on turnover criteria. The Tribunal observed that Mercury Outsourcing Management Limited had a turnover of only ?45.33 lakhs, which was significantly lower than the Appellant’s turnover of over ?27 Crores. The Tribunal applied a tolerance range of 10 times the turnover on both sides, concluding that Mercury’s turnover fell outside this range and thus could not be considered a good comparable. The High Court upheld the Tribunal’s decision, finding the reasoning for exclusion based on turnover to be reasonable and well-analyzed. Conclusion: The High Court affirmed the Tribunal’s decisions on all three issues, emphasizing that the Tribunal’s findings were based on a detailed analysis of the relevant facts and circumstances. The Court reiterated that the appeals did not raise any substantial questions of law and dismissed the appeal filed by the Appellant-Assessee. The Court also referenced its previous judgment in the Softbrands case, underscoring that dissatisfaction with the Tribunal’s factual findings does not warrant invoking Section 260A of the Income Tax Act. The appeal was dismissed with no order as to costs.
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