The Delhi High Court while considering the revenue’s petition challenging the exclusion of comparables, had upheld the Order of Income Tax Appellate Tribunal (ITAT) excluding Comparables in Transfer of Pricing (TOP).
Ms Ananya Kapoor, who appeared on behalf of the respondent/assessee, Qualcomm India Pvt Ltd stated that she would have no objection if the prayer made in the application is allowed.
The appeal is confined to the exclusion of three comparables. The three comparables which are in issue and have been excluded are the following (i) Infobeans Technologies Ltd. (“Infobeans”)(ii) Cybercom Datamatics Information Solutions Ltd. (“Cybercom”) and (iii) Infosys BPO Ltd. (“Infosys”).
The respondent/assessee is operating in Software Development Services, Information Technology Enabled Services (ITES), Business Support Services and Technical Support Services.
As regards the three comparables adverted, the Tribunal has returned findings of fact as to why they are not comparable. As regards Infobeans, the Tribunal noted that it is into diversified activities which include the sale of products. The Tribunal has adverted to the profit and loss account of Infobeans which shows that it has received revenue from operations amounting to Rs.32,96,59,883/.
The Tribunal recorded that the notes to account indicate that it is in the business of the sale of software, which is sold both abroad and domestically. The other finding, which has been recorded by the Tribunal is that Infobeans also pay sales tax and MODVAT. Thus, based on the functional dissimilarity between the assessee and Infobeans, the said comparison was rejected.
As regards Cybercom, the findings of fact recorded by the Tribunal are that it is into diversified activities which includes the provision of software services. It is indicated that segmental details concerning various segments are not available in the public domain. The Tribunal highlighted that, unlike the respondent/assessee, Cybercom is in the business of providing technical services. Based on this finding, the Tribunal has excluded Cybercom as a comparable.
In the case of Insofar as Infosys is concerned, it is noticed that it is in the BPO business. Furthermore, it has a brand value and has incurred significant expenses for sales and marketing expenditures. The turnover of Infosys vis-à-vis the BPO sector, according to the Tribunal, is Rs.2,323/- crores. As against this, it is noticed that the turnover of the respondent/assessee from the BPO sector is Rs.96 crores.
The Tribunal concluded that Infosys BPO is a risk-bearing entity having diversified activities. The respondent/assessee, on the other hand, has a turnover of only Rs.96 crores in the BPO sector and hence cannot be compared.
It was found that the Dispute Resolution Panel (DRP) has allowed working capital adjustment, contrary to the directions issued by the TPO. It has been argued on behalf of the respondent/assessee that once working capital adjustment is allowed, then no adjustment on account of interest on receivables is required to be made.
The Tribunal has noted the assertions made on behalf of the respondent/assessee that it permitted a ninety (90) days credit period. On behalf of the appellant/assessee, it had been emphasized that once the credit period exceeded ninety (90) days, interest had to be charged. It is on this account that an adjustment was ordered about the receivables.
It was observed that “once working capital adjustment is made, no further adjustment is required to be made on account of interest received on receivables, Ms Kapoor has relied upon the judgment of a coordinate bench of the court dated 25.04.2017 in ITA 765/2016, titled Pr. Commissioner of Income Tax-V vs. Kusum Health Care Pvt. Ltd.”
Mr Sunil Agarwal, senior standing counsel, who appeared on behalf of the appellant/revenue, qua this aspect submitted has since a specific amendment was brought about in Section 92B of the Income Tax Act, 1961 [“Act”] with the insertion of the Explanation, therefore, adjustment ought to have been made.
A division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia view that no interference with the impugned order is called for. Also, we find that no substantial question of law arises for our consideration.
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