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2015 (4) TMI 134 - AT - Income TaxTransfer pricing adjustment - selection of comparable - Infosys Technologies Limited - Held that - The assessee is claiming to be operating at minimal risk as 100% of its services are provided to AEs. The assessee is claiming to be engaged into software development services and administrative support services as against the diversified services rendered by Infosys Technologies Limited. The assessee is claiming not to have its own proprietary products like Finacle owned by Infosys Technologies Limited. The assessee is claiming to have spent only nominal amount of expenditure at ₹ 2.7 lakhs on advertisement/sales promotion & brand building as against ₹ 499 crores incurred by Infosys Technologies Limited. The assessee claims not to have incurred any expenditure on research and development as against Infosys Technologies Limited spending a sum of ₹ 102 crores on it. The above facts clearly indicate that prima facie the case of Infosys Technologies Limited does not appear to be comparable with that of the assessee. The contention of the learned DR that the difference in the revenues earned by the assessee vis-a-vis Infosys Technologies Limited was not of such a magnitude as was in the case of Agnity India Technologies (P.) Ltd. (2013 (7) TMI 696 - DELHI HIGH COURT), does not advance the case of the Revenue. Mphasis BFL Limited learned AR submitted that it is engaged in diversified IT services segment offering business process operations, application development and maintenance etc. as against the assessee being a contract software development services. Certain other points were also highlighted to justify the exclusion of this case. On a pointed query from the Bench, the learned AR agreed that such points of difference have not been considered by the authorities below. Remit the matter to the file of the TPO for computing the ALP of the international transactions afresh in the light of our above discussion - Appeal decided in favour of assessee for statistical purposes.
Issues:
Transfer pricing adjustment based on international transactions reported by the assessee under TNMM method with OP/OC PLI - Inclusion of Infosys Technologies Limited and Mphasis BFL Limited in the list of comparables. Analysis: The appeal pertains to transfer pricing adjustment made by the Assessing Officer under Section 143(3) read with Section 144C of the Income-tax Act, 1961 for the assessment year 2006-07. The assessee, a subsidiary of Lucent Inc., reported international transactions involving Software Development Services and Administrative Support Services totaling Rs. 285,80,89,000. The assessee followed the TNMM method with OP/OC PLI to benchmark its transactions. The TPO rejected multiple year data and selected eight comparables, resulting in a transfer pricing adjustment of Rs. 24,23,12,445. The DRP upheld the TPO's order, leading to the inclusion of Infosys Technologies Limited and Mphasis BFL Limited in the comparables list, against which the assessee appealed. The Tribunal considered the arguments presented by both parties. Regarding Infosys Technologies Limited, the assessee contended that significant differences existed in size, functional profile, assets, and risks compared to the assessee. The Tribunal noted the substantial differences between the companies, such as revenue, services offered, ownership of proprietary products, and expenditure on advertising and R&D. Citing the judgment in a similar case, the Tribunal held that Infosys Technologies Limited should be excluded from comparables. The matter was remitted to the AO/TPO for further evaluation. Concerning Mphasis BFL Limited, the AR argued for its exclusion due to differences in the nature of services offered. The Tribunal acknowledged the points raised and decided to set aside the order, directing the AO/TPO to reevaluate the comparability of Mphasis BFL Limited with the assessee. As the AR focused solely on justifying the exclusion of these two cases, the Tribunal did not address other grounds raised in the appeal. The Tribunal ultimately set aside the order and remitted the matter to the TPO for a fresh computation of the ALP of international transactions in light of the discussion. In conclusion, the appeal was allowed for statistical purposes, and the decision was pronounced on 23rd April, 2014.
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