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2019 (6) TMI 1180 - AT - Income TaxTP Adjustment - comparable selection - functional similarity - HELD THAT - The assessee is engaged in research and development relating to software solutions. The assessee-company is a captive service provider to its US parent company. The assessee is having three units in India registered under Software Technology Park Scheme thus companies functionally dissimilar with that of assessee need to be deselected from final list. Selecting comparables turnover is an important filter. The company with exceptionally higher turnover cannot be compared with a company operating at smaller range.
Issues Involved:
1. Inclusion of Thinksoft Global Services Ltd. in the list of comparables. 2. Exclusion of FCS Software Solutions Ltd. from the list of comparables. 3. Exclusion of Infosys Technologies Ltd. from the list of comparables. Detailed Analysis: 1. Inclusion of Thinksoft Global Services Ltd. in the list of comparables: The Revenue contested the inclusion of Thinksoft Global Services Ltd., arguing that it was excluded in the assessment year 2009-10 and the assessee did not contest this exclusion. The Tribunal noted that the company was excluded in 2009-10 due to its involvement in onsite and offshore business. However, in the assessment year 2008-09, the Tribunal had held Thinksoft Global Services Ltd. as functionally comparable. The assessee explained that the exclusion in 2009-10 was not contested further because the inclusion of other comparables had already placed the assessee within the Arm's Length range. The Tribunal found merit in the assessee's contentions and upheld the DRP's decision to include Thinksoft Global Services Ltd. in the final list of comparables. Consequently, the Revenue's ground for exclusion of Thinksoft Global Services Ltd. was dismissed. 2. Exclusion of FCS Software Solutions Ltd. from the list of comparables: The Revenue opposed the exclusion of FCS Software Solutions Ltd. The Tribunal observed that the DRP had excluded FCS Software Solutions Ltd. in the assessment year 2008-09 due to functional disparity, and this exclusion was not contested by the Revenue. Furthermore, the TPO had excluded this company in the assessment year 2009-10, following the DRP's directions for 2008-09. The Tribunal found no reason to interfere with the DRP's directions for the impugned assessment year, noting that the Revenue had failed to substantiate reasons for including FCS Software Solutions Ltd. in the final list of comparables. Thus, the exclusion of FCS Software Solutions Ltd. was upheld, and the Revenue's ground was dismissed. 3. Exclusion of Infosys Technologies Ltd. from the list of comparables: The Revenue sought the inclusion of Infosys Technologies Ltd. The DRP had excluded this company by applying a turnover filter, noting the significant disparity in turnover between the assessee (?104.05 Crore) and Infosys Technologies Ltd. (?21,140 Crore). The Tribunal emphasized that turnover is a crucial filter for selecting comparables and that companies with exceptionally higher turnover cannot be compared with those operating at a smaller scale. Therefore, the Tribunal found no infirmity in the DRP's decision to exclude Infosys Technologies Ltd. from the list of comparables. The Revenue's ground for inclusion of Infosys Technologies Ltd. was dismissed. Conclusion: The Tribunal upheld the DRP's findings and dismissed the Revenue's appeal. The inclusion of Thinksoft Global Services Ltd. and the exclusion of FCS Software Solutions Ltd. and Infosys Technologies Ltd. from the list of comparables were maintained. The grounds raised by the Revenue were found to be devoid of merit, and the impugned order was upheld. The appeal of the Revenue was dismissed.
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