2019 (5) TMI 434 - HC - Income Tax

TP adjustment - excluding Infosys Technologies Ltd. from the list of comparables for determining ALP - HELD THAT - The Tribunal while accepting the plea of the assessee had recorded that the assessee is providing services of commissioning of software embedded in the equipment supplied by M/s ZTE Telecom to its customers in India. The services provided by the assessee also includes localization and customization and is engaged in providing low end software services. The requirements of and specifications provided by the AE(s) that ZTE India Pvt. Ltd. provides software support services. Thus, neither it is engaged in end to end development of a product nor does it own any products. The assessee diagnosis and correct the software and further updates for the bugs in those software. It also performed routine maintenance for the software whereas the Infosys Technologies Ltd. operates at full fledged risk and perform the services of application design, software engineering and the technology lapse. The assessee was not even the developer of the software but merely providing software support services. As concluded that the Infosys Technologies Ltd. could not be treated to be a comparable in the present case for assessing ALP and, thus, it directed the TPO to exclude Infosys Technologies Ltd. from the comparability analysis of software support systems segment of the assessee while determining Arm's length price of international transactions Further, Delhi High Court in CIT v. Agnity India Technologies Pvt. Ltd. 2013 (7) TMI 696 - DELHI HIGH COURT had held that in similar line of business as that of the assessee the Infosys Technologies Ltd. could not be treated to be a comparable while determining Arm's Length Price of International Transactions. No substantial question of law

Summary

Issues:
Whether Infosys Technologies Ltd. has been rightly excluded from the list of comparables for determining ALP?

Analysis:
The appeal was filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order passed by the Income Tax Appellate Tribunal. The Tribunal directed the Transfer Pricing Officer to exclude Infosys Technologies Ltd. from the comparability analysis of software support systems segment of the assessee while determining Arm's Length Price of international transactions. The revenue challenged this decision, questioning the exclusion of Infosys Technologies Ltd. as a comparable. The only issue in this appeal was whether Infosys Technologies Ltd. was rightly excluded from the list of comparables for determining ALP.

The assessee initially selected Infosys Technologies Ltd. as a comparable in its transfer pricing study report and accepted it before the TPO without any objection. However, the assessee later challenged Infosys Technologies Ltd. as a comparable before the CIT(A), claiming that it was not a valid comparable due to significant differences between the two companies. The Tribunal accepted the assessee's plea, emphasizing that the assessee provided low-end software services, while Infosys Technologies Ltd. engaged in full-fledged software development services. The Tribunal concluded that Infosys Technologies Ltd. could not be treated as a comparable in this case, based on the differences in the nature of services provided by the two companies.

The Tribunal's decision was supported by the Delhi High Court judgment in a similar case, where it was held that Infosys Technologies Ltd. could not be considered a comparable in the same line of business as that of the assessee. The court also referred to a previous judgment regarding Infosys Technologies Ltd., emphasizing the differences in the business operations of the two companies. Despite the revenue's reliance on a judgment of the Apex Court, the court found no merit in the appeal and dismissed it, stating that no error was found in the Tribunal's findings. The court concluded that no substantial question of law arose in the appeal, and there was no justification for interference in the Tribunal's decision to exclude Infosys Technologies Ltd. from the comparability analysis for determining ALP.