2017 (5) TMI 849 - HC - Income Tax

TPA - TCS as not an appropriate comparable - Held that - The Court finds merit in the contention of Mr. Kamal Sawhney, learned counsel for the Respondent, that as far as profile of the Assessee was concerned, it was not involved in software development at all but only in BPO activities. This apart the size and scale of TCS s operations makes it an inapposite comparable vis-a-vis the Petitioner. The Court is not convinced that the ITAT has committed any error in holding that TCS is not an appropriate comparable as far as determining of the arms length price of international transactions involving the Assessee is concerned. No substantial question of law

Summary

Issues:
1. Appeal by Revenue under Section 260A of the Income Tax Act against ITAT order.
2. Exclusion of comparables in determining arms length price.
3. Exclusion of TCS as a comparable.
4. Availability of turnover data for TCS.
5. Profile of the Assessee and suitability of TCS as a comparable.

Analysis:
1. The judgment pertains to an appeal by the Revenue under Section 260A of the Income Tax Act against an order passed by the Income Tax Appellate Tribunal (ITAT) for the Assessment Year 2011-12. The appeal specifically concerns the exclusion of certain comparables in determining the arms length price of international transactions involving the Respondent/Assessee.

2. While the Revenue challenged the exclusion of three comparables by the ITAT, the focus of the challenge was narrowed down to the exclusion of TCS E-Serve Ltd. The counsel for the Revenue, Ms. Lakshmi Gurung, emphasized that the exclusion of Infosys BPO Ltd. and E-Clerx Services Pvt. Ltd. had been previously upheld by the Court, and hence, the challenge was limited to TCS.

3. The ITAT had excluded TCS as a comparable based on the unavailability of segmental turnover data, which was considered crucial for determining the arms length price. However, Ms. Gurung argued that the turnover data was indeed available in the impugned order, with a specific breakdown of income attributed to 'transfer processing' and 'technical service'.

4. The Court, in its analysis, acknowledged the argument put forth by the Respondent's counsel regarding the nature of the Assessee's activities, highlighting that the Assessee was primarily engaged in BPO activities and not software development. Additionally, the Court considered the scale and operations of TCS, deeming it unsuitable as a comparable vis-a-vis the Assessee.

5. Ultimately, the Court found no error in the ITAT's decision to exclude TCS as a comparable for determining the arms length price of international transactions involving the Assessee. It was concluded that no substantial question of law arose on this issue, leading to the dismissal of the appeal by the Revenue.