2019 (8) TMI 935 - HC - Income Tax

TP Adjustment - excluding M/s Infosys BPO Ltd from the list of comparables - functional dissimilarity - HELD THAT - Assessee has placed before the Court a detailed chart which shows dissimilarities between the Infosys BPO and the Assessee on several counts. Infosys provides business process management services to organisations over a wide range of industries whereas the Assessee is a routine captive service provider. The valuation of goodwill of Infosys BPO for AY 2009-10 and 2010-11 was INR 19.03 crores with no comparable value for the Assessee. The brand promotion expense for Infosys BPO for AY 2009-10 was INR 70.26 lacs and for 2010-11 INR 69.16 lacs. The corresponding figures for the Assessee are Nil. BPO Infosys incurred significant selling and marketing expenses for the two AYs in question whereas there is no such expense for the Assessee. Mainly the Assessee provides IT services only to its US based AEs whereas Infosys is among top 10 third party BPO companies in India. Even the risk profile is different while Infosys BPO is a full-fledged risk taking enterprise, the Assessee undertakes minimal risks of 100% services provided to its AEs. This Court has in several decisions held in similar circumstances as the present one that Infosys BPO Ltd. cannot be a suitable comparable. - Decided in favour of the Assessee

Summary

Issues:
- Appeal against impugned orders by ITAT
- Exclusion of M/s Infosys BPO Ltd from comparables
- Transfer pricing study and profit margin analysis
- Assessing Officer's draft order and objections by Assessee
- DRP's confirmation and rejection of comparables
- ITAT's decision to exclude comparables
- Arguments by Senior Standing Counsel for Revenue
- Detailed analysis of dissimilarities between Infosys BPO and Assessee
- Comparison with previous court decisions
- Conclusion on the question of law framed

Analysis:
The High Court heard two appeals by the Revenue against orders by the ITAT, both raising the same issue of excluding M/s Infosys BPO Ltd from comparables. The Assessee, now merged with Genpact India, provided marketing data management services to Symphony Marketing Solutions, USA, as a wholly-owned subsidiary. The Assessee's transfer pricing study included comparables with a profit margin of 14.34%, justifying its 15.95% margin. The Assessing Officer's draft order proposed additions, leading to objections before the DRP, which confirmed new comparables. Specific to Infosys BPO, the DRP noted consistent margins despite increased turnover and rejected the Assessee's brand profit argument. The ITAT allowed the Assessee's appeal, excluding comparables deemed functionally dissimilar.

Senior Standing Counsel for the Revenue argued for Infosys BPO's inclusion based on turnover and profit margin stability. However, the Court disagreed, highlighting significant dissimilarities between Infosys BPO and the Assessee. Notably, Infosys offered diverse services across industries, in contrast to the Assessee's routine captive services. The Court referenced previous decisions where Infosys BPO was deemed unsuitable as a comparable due to its distinct operations and risk profile. Comparisons with other court rulings further supported the exclusion of Infosys BPO in the present case.

Referring to additional court decisions, the High Court affirmed the exclusion of Infosys BPO as favorable to the Assessee and against the Revenue. Ultimately, the question of law framed was answered in favor of the Assessee, leading to the dismissal of the appeals. The detailed analysis of dissimilarities and consistent legal precedents supported the Court's decision to uphold the exclusion of Infosys BPO from the list of comparables.