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2018 (1) TMI 1548 - HC - Income TaxTPA - comparable selection - HELD THAT - This Court is of the opinion that the exclusion of five comparables in the present case by the ITAT is on sound basis. ITAT quite correctly found that the exclusion of Eclerx Services Ltd and Vishal Information Technologies Ltd both of which transact entirely different business i.e. Knowledge Processing Outsourcing (KPO) was justified. The assessee concerns itself with the broader range of Information Technology (IT) enabled Back Office Support Services. In the other two cases of M/s Infosys BPO and Wipro BPO Ltd. the ITAT again in the opinion of this Court quite correctly held that the corporate entities had a significant brand presence for profits and large corporate size which could not be compared to the assessee s transactions. As far as HCL Commet Systems Services Ltd. was concerned the Revenue s contention that it was an act comparable was rejected on the ground that it did not pass the appropriate filter and related party transactions were used for the pricing exercise. In these circumstances out of the seven comparables the five are to be ruled out and no question of law arises in this case. The Court has considered the submissions with respect to the Accentia Technology Pvt. Ltd. and Bodhtree Consulting Ltd. The Court admits the following questions of law - (1) Did the ITAT err in its consideration as to whether the amalgamation undertaken by Accentia Technology Pvt. Ltd. for A.Y. 2007-08 had any effect on its finance or profitability in the circumstances of the case. (2) Did the ITAT err in excluding the reliance placed by the TPO upon information collected by him under Section 133(6) of the Act having regard to Section 92CA(7) read with Section 92D(3) of the Act.
Issues: Appeal under Section 260-A of the Income Tax Act, 1961 challenging ITAT's decision on Arms Length Price (ALP) adjustment and exclusion of comparables for A.Y. 2007-08.
Analysis: 1. The Revenue appealed against the ITAT's decision that interfered with the Appellate Commissioner's decision on ALP adjustment. The Appellate Commissioner's decision resulted in a downward revision of the profit margin for the assessee's international transactions. The ITAT further accepted the assessee's appeal and ruled out certain comparables used for ALP determination. The Revenue's appeal focused on the exclusion of seven comparables, which it considered erroneous. 2. The High Court found that the ITAT's exclusion of five comparables was justified. The exclusion of companies like Eclerx Services Ltd and Vishal Information Technologies Ltd, engaged in Knowledge Processing Outsourcing (KPO), was reasonable as they were not comparable to the assessee's IT-enabled Back Office Support Services. Similarly, the exclusion of Infosys BPO and Wipro BPO Ltd. was upheld due to their significant brand presence and large corporate size, making them incomparable to the assessee's transactions. The contention regarding HCL Commet Systems & Services Ltd. as a comparable was rejected due to inappropriate filtering and the use of related party transactions for pricing. 3. Regarding Accentia Technology Pvt. Ltd. and Bodhtree Consulting Ltd., the Court admitted questions of law related to the amalgamation's impact on finance and profitability and the exclusion of reliance on information collected under Section 133(6) of the Act by the TPO. The Court issued notice on the appeal to the respondent/assessee for further proceedings on 3rd April, 2018. Overall, the High Court upheld the ITAT's exclusion of certain comparables for ALP determination, finding the decisions to be on a sound basis. The Court also acknowledged the questions of law raised regarding specific companies and scheduled further proceedings to address these issues.
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