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2021 (1) TMI 537 - HC - Income TaxTP Adjustment - comparable selection - HELD THAT - Infosys Technology Limited and Persistent Systems Limited - ITAT observed that while the profit of the aforesaid three comparables is derived from both software development services as well as software products, however there is no precise information about the contribution made from the income derived from the sale of software to the total income of the companies. Thus, in the absence of segmental information provided by the companies in respect of the software services, the aforesaid companies have been excluded from the list of the comparables. We do not find any perversity in the approach adopted by the learned ITAT which would call for our inference. Wipro Technology Services Limited has been held to be disqualified under Rule 10B(1)(e)(ii), to become a comparable for uncontrolled transaction for the purposes of inclusion in the final list of comparables. The rationale for exclusion has been upheld by this court in Principal Commissioner of Income Tax-7 v. Open Solutions Software Services Pvt. Ltd . 2020 (5) TMI 440 - DELHI HIGH COURT As non-availability of segmental data, is a finding of fact, which is not disputed by the Revenue. Therefore, in our opinion, no question of law, much less a substantial question of law, arises in Revenue s appeal.
Issues Involved:
1. Exclusion of comparables by ITAT. 2. Classification of software development services. 3. Taxability of composite rental income. 4. Treatment of foreign exchange fluctuations, Section 10A deductions, and adjustment in opening written down value of computers. Issue-wise Detailed Analysis: 1. Exclusion of Comparables by ITAT: The Revenue challenged the exclusion of three comparables—Infosys Technologies Ltd., Persistent Systems Ltd., and Wipro Technology Services Ltd.—by the ITAT. The ITAT excluded these comparables due to the lack of segmental information and the presence of related party transactions. Infosys Technologies Ltd. was excluded because it earned revenue from both software development services and software products, without separate profit data for each. Persistent Systems Ltd. was excluded despite being initially included by the Assessee, due to its involvement in product sales without segmental information. Wipro Technology Services Ltd. was excluded under Rule 10B(1)(e)(ii) due to its related party transactions stemming from a master agreement with Citi Group Inc. The Court upheld the ITAT’s decision, noting no perversity in its approach and referencing similar exclusions upheld in previous cases. 2. Classification of Software Development Services: The Assessee contested the ITAT’s classification of its software development services as "high end." However, this issue was not pressed by the Assessee during the hearing. The ITAT’s classification was based on the nature of services provided and the lack of segmental data for comparables. The Court did not find any substantial question of law arising from this classification. 3. Taxability of Composite Rental Income: The Assessee argued that the ITAT erred in remanding the issue of taxability of composite rental income to the AO, instead of following the High Court’s decision in Jay Metal Industries (P) Ltd. v. CIT-V. The Court agreed with the Assessee, stating that the ITAT, being the last fact-finding authority, should have decided the issue based on available materials and the jurisdictional High Court’s decision. The Court directed the ITAT to decide the corporate tax grounds urged by the Assessee. 4. Treatment of Foreign Exchange Fluctuations, Section 10A Deductions, and Adjustment in Opening Written Down Value of Computers: The ITAT had directed the AO to decide these issues afresh, as they were not raised before the AO or the DRP, and additional evidence was submitted by the Assessee. The Court found the ITAT’s direction appropriate and declined to interfere, noting that the Assessee had the opportunity to present its case before the AO. Separate Judgments for Different Assessment Years: For AY 2011-12, the Court dismissed the Revenue’s appeal and partly allowed the Assessee’s appeal, remanding the corporate tax issues to the ITAT. For AY 2012-13, the Court followed the same reasoning, dismissing the Revenue’s appeal and remanding the corporate tax issues to the ITAT for a fresh decision. Conclusion: The appeals were disposed of with directions for the ITAT to decide specific issues based on the available materials and jurisdictional High Court decisions, ensuring a thorough and fair resolution of the disputes.
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