2021 (12) TMI 1423 - AT - Income Tax

TP Adjustment - exclude M/s. Karvy Consultants Limited from the final list of comparables - HELD THAT - When the Tribunal had given a specific direction in the first round of litigation to exclude all comparables having annual turnover of less than Rs.5 crores in ITeS segment, in our view, the TPO has exceeded his brief in including M/s. Karvy Consultants Ltd. as comparable in spite of the fact that its turnover from ITeS segment is below the threshold limit of Rs.5 crores. Pertinently, while deciding assesse s appeal in assessment year 2002-03, the Tribunal 2012 (3) TMI 208 - ITAT DELHI had excluded M/s. Karvy Consultants Ltd. as a comparable since its turnover from ITeS segment was less than Rs. 5 crores. Thus, in view of the aforesaid, we do not find any infirmity in the decision of the Commissioner (Appeals) in excluding M/s. Karvy Consultants Ltd. as a comparable. Ground raised is dismissed.

Summary

Issues:
1. Dispute over comparability of M/s. Karvy Consultants Ltd. in transfer pricing analysis for assessment year 2003-04.

Analysis:
1. The dispute in the appeal is centered around the comparability of M/s. Karvy Consultants Ltd. in the transfer pricing analysis conducted by the Transfer Pricing Officer (TPO). The TPO included M/s. Karvy Consultants Ltd. as a comparable, resulting in an upward adjustment to the arm's length price (ALP). The assessee contested this inclusion, leading to an appeal before the Commissioner of Income Tax (Appeals) and subsequently before the Tribunal.

2. The Tribunal, in previous cases, had upheld the decision to exclude comparables with annual turnover of less than Rs. 5 crores in the Information Technology Enabled Services (ITeS) segment. Despite this, the TPO re-included M/s. Karvy Consultants Ltd. as a comparable in the subsequent proceedings. The Revenue challenged the exclusion of M/s. Karvy Consultants Ltd., arguing that turnover does not significantly impact comparability in the service sector, as required by the Transactional Net Margin Method (TNMM).

3. The Tribunal analyzed the facts and previous decisions, noting that the turnover of M/s. Karvy Consultants Ltd. from the ITeS segment was below Rs. 5 crores. The Tribunal found that the TPO had exceeded his jurisdiction by including M/s. Karvy Consultants Ltd. as a comparable, despite specific directions to exclude comparables with turnover below Rs. 5 crores in the ITeS segment. The Tribunal upheld the decision of the Commissioner (Appeals) to exclude M/s. Karvy Consultants Ltd. as a comparable, citing consistency with past judgments and the threshold turnover criteria.

4. The Tribunal dismissed the appeal, affirming the decision to exclude M/s. Karvy Consultants Ltd. as a comparable in the transfer pricing analysis for the assessment year 2003-04. The judgment emphasized adherence to previous rulings, jurisdictional limits of the TPO, and the importance of turnover thresholds in determining comparability for transfer pricing purposes.

This analysis provides a detailed overview of the legal judgment, focusing on the specific issue of the comparability of M/s. Karvy Consultants Ltd. in the transfer pricing analysis for the relevant assessment year.