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2019 (6) TMI 1397 - AT - Income TaxTP Adjustmen t - comparable selection - determination of Arms Length Price (ALP) in respect of international transaction u/s 92 - HELD THAT - Infosys BPO Ltd - brand image of Infosys BPQ Ltd. in the market the company incurs substantial selling and marketing expenditure whereas the assessee being a contract service provider does not incur such expenses to maintain its brand has not been controverted by them. Further Infosys BPO Ltd. being a subsidiary of Infosys has an element of brand value associated with it. This can be further confirmed by the presence of brand related expenses incurred by Infosys BPO Ltd. Further Infosys BPO Ltd. has acquired Australian based company M/s Portland Group Pty Ltd. during financial year 2011-12. They provide sourcing and category management services in Sydney Australia. Therefore this company also failed the TPO s own filter of rejecting companies with peculiar circumstances BNR Udyog Ltd. - this company was carrying out medical transcription medical billing and coding whereas the Assessee was a captive service provider. The Tribunal followed its own ruling in the same Assessee s case in AY 2011- 12 in BT e-Serve (India) Pvt.Ltd. Vs. ITO 2017 (11) TMI 64 - ITAT DELHI giving identical reasons for excluding BNR Udyog Limited from the list of comparable companies in the field of companies rendering ITES such as the Assessee. Excel Info Ltd. - As decided in BT e-Serve (India) Ltd. 2018 (6) TMI 1639 - ITAT DELHI there was abnormal volatility of revenue of this company from 2009-10 to 2014-15 and therefore this company should not be regarded as comparable company. Respectfully following the aforesaid decision we direct exclusion of the aforesaid company from the list of comparable companies chosen by the TPO.
Issues:
Determination of Arms Length Price (ALP) in respect of international transaction u/s 92 of the Income-tax Act, 1961. Detailed Analysis: Issue 1: Determination of ALP The appeal concerned the determination of Arms Length Price (ALP) in relation to the international transaction under section 92 of the Income-tax Act, 1961. The Assessee provided information technology enabled services (ITES) to its Associated Enterprise (AE), which was the subject of ALP determination. The Transfer Pricing Officer (TPO) initially selected 10 comparable companies, leading to objections by the Assessee. The Dispute Resolution Panel (DRP) excluded one company, following which the Assessee sought exclusion of 7 out of the remaining 9 companies. The Tribunal, in a subsequent order, focused on the comparability of three specific companies: Infosys BPO, BNR Udyog Ltd., and Excel Info Ltd. Issue 2: Infosys BPO as a Comparable Company Initially, Infosys BPO was retained as a comparable company. However, the Assessee argued for its exclusion due to reasons such as functional differences, related party transactions, and substantial turnover. The Tribunal reconsidered this and, based on the Delhi ITAT's decision and the Delhi High Court's affirmation, directed the exclusion of Infosys BPO from the list of comparable companies. Issue 3: BNR Udyog Ltd. as a Comparable Company The Assessee also sought to exclude BNR Udyog Ltd. from the list of comparable companies chosen by the TPO. The Tribunal, upon review, acknowledged the Assessee's contentions regarding functional comparability and related party transactions. Following the Delhi ITAT's decision in a similar case, the Tribunal directed the exclusion of BNR Udyog Ltd. from the list of comparable companies. Issue 4: Excel Info Ltd. as a Comparable Company Excel Info Ltd. was initially retained as a comparable company. The Assessee contested its inclusion based on functional differences and employee cost thresholds. The Tribunal, after considering the Assessee's objections, recalled its order to reevaluate the application of the employee cost filter and the impact of extraordinary events on the exclusion of Excel Info Ltd. Following the Delhi ITAT's decision on abnormal revenue volatility, the Tribunal directed the exclusion of Excel Info Ltd. from the list of comparable companies. In conclusion, the Tribunal directed the TPO to compute the ALP in accordance with the revised exclusion of Infosys BPO, BNR Udyog Ltd., and Excel Info Ltd., thereby partially allowing the appeal.
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