In a recent ruling, the Delhi High Court directed exclusion of Infosys BPO, Acropetal, and e-Clerx as Comparables after Transfer Pricing Officer (TPO) compared dissimilar companies for determining Arm Length Pricing (ALP) for Future First Info Services Pvt. Ltd., (the petitioner).
Future First Info Services Pvt. Ltd., (the petitioner) a subsidiary of GHF Holdings Ltd. (Mauritius), provides IT-enabled services (ITeS) to its associated enterprises (AEs) through online software, live information services, and research on international databases like Bloomberg and Reuters.
Become PF & ESIC Pro: Basic to Advance Course – Enroll Today
For Financial year 2009-10, the company filed its income tax return declaring income of Rs. 8.34 crores. The assessment was scrutinized and the Assessing Officer issued a notice under Section 143(2) of the Income Tax Act.
The Transfer Pricing Officer (TPO) adopted the Transactional Net Margin Method (TNMM) for benchmarking the company’s international transactions with its AEs. The TPO identified nine comparables and proposed an ALP adjustment of Rs. 3.42 crores.
The Assessing Officer finalized the assessment, increasing the petitioner’s total taxable income to Rs. 13.57 crores.
Become PF & ESIC Pro: Basic to Advance Course – Enroll Today
The Petitioner challenged the assessment before the Commissioner of Income Tax (Appeals) [CIT(A)] who partially allowed the appeal. Both the petitioner and the revenue filed appeals before the Income Tax Appellate Tribunal (ITAT) which ruled in favor of the petitioner, excluding three comparables from the ALP analysis of Infosys BPO Ltd., Acropetal Technologies Ltd., and e-Clerx Services Ltd.
Dissatisfied with the ITAT’s decision, the Revenue filed an appeal in the Delhi High Court, raising several legal questions under Section 260A of the Income Tax Act. The petitioner relied on the ITAT’s decision citing functional and scale differences between it and the excluded comparables.
The bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia observed that Infosys BPO had a turnover of Rs. 1081.53 crores compared to the petitioner’s Rs. 12.71 crores and was functionally dissimilar.
Become PF & ESIC Pro: Basic to Advance Course – Enroll Today
The court further observed that Acropetal Technologies lacked segmental clarity and incurred high on-site development costs, making it non-comparable. E-clerx’s high-end KPO services were qualitatively different from Future First’s low-end BPO services.
The court found no substantial question of law requiring intervention stating that the exclusion of comparables was justified based on functional dissimilarity and precedents like Rampgreen Solutions Pvt. Ltd. vs. CIT. So, the court upheld the ITAT’s decision and dismissed the revenue’s appeal.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
