2023 (7) TMI 866 - HC - Income Tax

TP Adjustment - comparable selection - HELD THAT - Tribunal was right in excluding ATPL, I-Gate and Infosys on the ground that an extraordinary financial event had occurred, rendering them unfit comparables to determine the ALP. Likewise, quite clearly, the services offered by TCS International not TCS E-Serve Ltd. could not be used as a comparable, since the respondent/assessee was, admittedly, in the business of ITES/BPO/FSS. For each of these services that the respondent/assessee offered, it purchased, it appears, proprietary software and did not develop, maintain and update its own software for the use of its customers. The issue at hand, in our view, turned on findings of fact. Revenue's submission that no reasons were provided by the Tribunal is not, in our view, an accurate reading of the impugned order. We find upon perusal of the appeal, the appellant/revenue has raised no ground, that would have us conclude that the findings returned by the Tribunal, as discussed above, are perverse.

Summary

Issues Involved:
1. Exclusion of four comparables selected by the Transfer Pricing Officer (TPO).
2. Determination of Arm's Length Price (ALP) for international transactions.
3. Functional dissimilarity of comparables.
4. Extraordinary financial events affecting comparability.

Summary:

Issue 1: Exclusion of Comparables

The appellant/revenue's principal grievance is the exclusion of four out of five comparables selected by the TPO for benchmarking international transactions related to offshore outsourcing services provided by the respondent/assessee to its Associated Enterprises (AEs).

Issue 2: Determination of ALP

The respondent/assessee filed its Return of Income (ROI) and submitted a Transfer Pricing Study Report (TP Study Report) using the Transactional Net Margin Method (TNMM method) to determine the ALP for international transactions. The TPO rejected the eight comparables referred to in the TP Study Report and selected seven other comparables, ultimately determining an upward transfer pricing adjustment of Rs. 4,80,19,591/-. The Tribunal excluded four comparables (ATPL, I-Gate, Infosys, and TCS International) from the TPO's list, leading to the appeal by the revenue.

Issue 3: Functional Dissimilarity

The appellant/revenue argued that the Tribunal wrongly excluded the comparables based on an incorrect assumption of functional similarity with another entity, Rampgreen Solutions Pvt. Ltd. The Tribunal had relied on the judgment in Rampgreen Solutions Pvt. Ltd., which the revenue contended was not applicable as the functional profile of the respondent/assessee differed significantly.

Issue 4: Extraordinary Financial Events

The Tribunal excluded ATPL, I-Gate, and Infosys due to extraordinary financial events (amalgamations and acquisitions) that rendered them unfit for comparison. TCS International was excluded because it provided software development services, unlike the respondent/assessee, which provided non-development software services.

Conclusion:

The High Court found that the Tribunal was correct in excluding the four comparables due to extraordinary financial events and functional dissimilarity. The Tribunal's findings were based on facts, and no substantial question of law arose for consideration. Therefore, the appeal was dismissed, and each party was to bear its own costs.