2022 (4) TMI 1331 - HC - Income Tax

TP Adjustment - comparable selection - ITAT has erred in excluding M/s Eclerx Services Pvt. Ltd, TCS E-Serve Ltd, BNR Udyog Ltd. and Excel Infoways Ltd as comparables for determining arm s length price in the case of the respondent - HELD THAT - It is settled law that exclusion or inclusion of one or other comparable would by itself not constitute a question of law unless it is shown that there are important functional dissimilarities or vital material facts which go to the root of profitability or where other material circumstances are involved - See WSP CONSULTANTS INDIA PVT. LTD. 2017 (11) TMI 464 - DELHI HIGH COURT and M/S BECTON DICKINSON INDIA PVT. LTD. 2018 (4) TMI 573 - DELHI HIGH COURT Thus reasoning is factual and discloses the functional and other reasons to elucidate, dissimilarities between the four entities and the Respondent/Assessee. Keeping in view the aforesaid factual background, which is neither doubted nor challenged on the ground of perversity, we do not find any substantial question of law for consideration in this appeal.

Summary

Issues:
Challenge to ITAT order excluding certain companies as comparables for determining arm's length price.

Analysis:
The appellant filed an Income Tax Appeal against the Order dated 01st November, 2019 passed by the Income Tax Appellate Tribunal (ITAT) in ITA No. 1814/Del./2017 for the Assessment Year 2012-13. The appellant contended that the ITAT erred in excluding M/s Eclerx Services Pvt. Ltd, TCS E-Serve Ltd, BNR Udyog Ltd, and Excel Infoways Ltd as comparables for determining the arm's length price in the case of the respondent. The settled law states that the exclusion or inclusion of comparables does not constitute a question of law unless there are important functional dissimilarities or vital material facts affecting profitability. The ITAT provided cogent reasons for excluding the four companies as comparables. The ITAT's decision was based on functional and other reasons highlighting dissimilarities between the entities and the respondent/assessee.

The ITAT excluded Eclerx Services Ltd as a comparable based on previous findings affirmed by the Delhi High Court. TCS E-Serve Ltd was also excluded following the principle established by the jurisdictional High Court. BNR Udyog Ltd was excluded due to its involvement in medical billing and coding services in addition to medical transcription activities. The functional profile of BNR Udyog Ltd was found to be similar to Accentia Technologies Ltd. The ITAT also excluded Excel Infoways Ltd as a comparable because apart from its ITeS-BPO segment, it was involved in infrastructure development activities which constituted a significant portion of its revenue. The lack of segmental details for these activities led to the exclusion of Excel Infoways Ltd as a comparable.

The High Court, after reviewing the reasoning provided by the ITAT, found that the factual background supported the exclusion of the four companies as comparables. The High Court concluded that there was no substantial question of law for consideration in the appeal and subsequently dismissed the appeal challenging the ITAT's order.