2019 (5) TMI 1063 - HC - Income Tax

TP Adjustment - ITAT deleting Genesys International Corporation Ltd. (GICL) from the final list of comparables for the transfer pricing exercise on the ground that it was not functionally similar to the Assessee - HELD THAT - Although GICL had been included by the Assessee itself earlier in the list of comparables submitted by it, later it was noticed that GICL was engaged in diversified operations providing high-end and complex services such as GIS Consulting, 3D Mapping, Navigation Maps, Remote sensoring, etc. On the other hand the Assessee was engaged only in providing back office IT enabled services. GICL operated as a full-fledged risk taking entrepreneur whereas the Assessee was not. Therefore, apart from the functionality aspect, the comparison failed even on the basis of the scale of risk. From the Annual Report of GICL, it was noticed that it had significant intangibles in the form of computer software and GIS data base whereas the Assessee did not own any significant intangibles. It depended entirely on the intellectual property rights owned by the holding company. The reasons given by the DRP, concurred with ITAT, for excluding GICL as a comparable appears to be justified. No substantial question of law arises that calls for interference by this Court. No substantial question of law

Summary

Issues:
1. Condonation of delay in re-filing appeal
2. Exclusion of a company from the list of comparables for transfer pricing exercise

Condonation of delay in re-filing appeal:
The High Court condoned the delay in re-filing the appeal due to reasons stated in the application, disposing of the matter promptly.

Exclusion of a company from the list of comparables for transfer pricing exercise:
The appeal by the Revenue was against the ITAT's order deleting a company (GICL) from the list of comparables for transfer pricing. The Revenue questioned whether ITAT erred in excluding GICL, arguing it was not functionally similar to the Assessee. The Assessee, a subsidiary of EXL Service Holdings, provided IT-enabled services. The TPO proposed a substantial adjustment to the Assessee's income, which was later deleted by the AO based on DRP's direction to exclude GICL as a comparable. The ITAT upheld the AO's decision, highlighting the differences in operations and risk-taking between GICL and the Assessee. GICL's significant intangibles and complex services distinguished it from the Assessee, which relied on intellectual property rights from its holding company. The High Court agreed with the reasoning to exclude GICL as a comparable, finding no substantial legal question for intervention.

In conclusion, the High Court dismissed the appeal, affirming the exclusion of GICL from the comparables list for the transfer pricing exercise, based on the functional dissimilarities and risk-taking variations between GICL and the Assessee.