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2024 (7) TMI 1548 - HC - Income TaxTP Adjustment - comparable selection - exclusion of Acropetal Technologies Ltd., Eclerx Services Ltd., Infosys BPO Ltd. and TCS E-Serve Ltd. from the list of comparables - HELD THAT - Insofar as Infosys BPO Ltd. and TCS E-Serve Ltd. is concerned, it could not be disputed before us that they were mega entities and could not have been included in the list of comparables bearing in mind the judgment rendered in CIT v. Agnity India Technologies Pvt. Ltd 2013 (7) TMI 696 - DELHI HIGH COURT Acropetal Technologies Ltd. - We find that DRP has excluded the same from the list since it was also engaged in software development. Tribunal had upheld the exclusion of that comparable. We however note that it had taken a slightly divergent view insofar as Accentia Technologies Ltd. is concerned and which too was found to be engaged in software development. Eclerx Services Ltd. - Respondents would contend that it was essentially engaged in providing Knowledge Process Outsourcing KPO services and could not have been included as a comparable insofar as the assessee was concerned and which stood confined to providing BPO services. According to Mr. Rai, however, the aforesaid segmentation has not been examined or accorded consideration. We consequently admit the instant appeal on the following questions of law - A. Whether on the facts and circumstances of this case, the Tribunal was correct in rejecting the company M/s Acropetal Technologies Ltd. as comparable company, ignoring the fact that the Transfer Pricing Officer TPO had ruled engineering and design services are under Information Technologies Enabled Services ITES services which is comparable to the functions of the assessee? List on 30.09.2024.
Issues:
1. Exclusion of Acropetal Technologies Ltd., Eclerx Services Ltd., Infosys BPO Ltd., and TCS E-Serve Ltd. from the list of comparables. Analysis: The Revenue appealed against the Income Tax Appellate Tribunal's decision and raised several questions of law regarding the comparability analysis. The first issue questioned the Tribunal's stringent standards in identifying exact replicas for comparability analysis, arguing that flexibility is essential for determining the Arm's Length Price (ALP). The second issue focused on the rejection of M/s Acropetal Technologies Ltd. as a comparable company, emphasizing the nature of services provided by the company. The third issue challenged the rejection of M/s Eclex Services Ltd. as a comparable company, highlighting the concept of KPO vs. BPO in comparability analysis. The fourth issue questioned the rejection of Infosys BPO Limited & TCS E Serve Limited based on turnover, arguing that turnover does not significantly impact margins in the service industry. The fifth issue raised concerns about the exclusion of comparables without satisfying the pre-conditions specified in the Income Tax Rules. Regarding the exclusion of Infosys BPO Ltd. and TCS E-Serve Ltd., it was acknowledged that they were mega entities and should not have been included as comparables. The case of Acropetal Technologies Ltd. was discussed, noting that the Dispute Resolution Panel and Tribunal excluded it due to its engagement in software development, although a slightly different view was taken for Accentia Technologies Ltd. engaged in similar activities. Eclerx Services Ltd. was considered primarily involved in Knowledge Process Outsourcing (KPO) services, contrasting with the Business Process Outsourcing (BPO) services provided by the assessee. The Tribunal's findings in Transcend MT Services Pvt. Ltd. v. Income Tax Officer were cited to support the need for a fresh consideration of comparables for a fair assessment. The Court admitted the appeal specifically on the issue of rejecting M/s Acropetal Technologies Ltd. as a comparable company, considering the Transfer Pricing Officer's ruling on the nature of services provided. The judgment in Transcend MT Services was highlighted, indicating that the views expressed therein were not challenged. The case was scheduled for further proceedings on 30.09.2024.
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