The Income Tax Appellate Tribunal (ITAT) held that exclusion of comparables based on turnover is valid.
The facts relating to the transfer pricing issue are that the assessee-company is engaged in the activities in India, which includes design and sales agent support services NXP’s design competence center in Bangalore offers user solutions for vibrant media technologies and focuses on automotive, identification and software businesses.
The assessee, M/s. NXP India Pvt. Ltd. has only pressed exclusion of Persistent Systems Limited, Larsen & Toubro Infotech Limited, Infosys Limited, Genesys International Corporation Limited, Sasken Communication Technologies Limited comparables from the list of comparables considered by the Transfer Pricing Officer (TPO).
In the Persistent Systems Limited, the assessee objected for the exclusion of this company by the lower authorities in the tally of comparables by arguing that it is engaged in OPD and there is a difference in OPD and IT services and that the assessee is having revenue from other sources and no segmental data is available.
The Larsen & Toubro Infotech Limited is functionally different from the assessee. It owns intangible and undertakes research and development and also submitted that it has high brand value and turnover.
Genesys International Corporation Limited is functionally different from assessee’s case and no segmental information is available and it has high research and development expenditure and intangibles.
Sasken Communication Technologies Limited is engaged in the development of software products as it has inventories. It has research and development expenditure, high brand value, and intangibles. Therefore, this company is functionally not comparable to the case of the assessee.
The tribunal headed by Vice President N.V.Vasudevan directed the TPO to exclude Persistent Systems Limited, Larsen & Toubro Infotech Limited, Infosys Limited, Genesys International Corporation Limited, Sasken Communication Technologies Limited from the list of comparables.
“In our opinion, software testing is a part of the software development life cycle, and being so, this company should be considered as comparable. Accordingly, we direct the TPO to include Cigniti Technologies Limited as a comparable to the assessee-company, while selecting the comparables,” the tribunal held.
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