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2018 (12) TMI 1665 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT:- INFINITE DATA SYSTEMS PRIVATE LTD. (INFINITE) brought on record by the taxpayer that the profitability of Infinite is increased by 1496% as compared to the preceding year despite the fact that for computation of OP/OC, foreign exchange loss has been excluded from OC. We are of the considered view that super-normal profit to the tune of 1496% certainly affects OP/OC but, in this case, even foreign exchange loss has been excluded from the OC by the TPO and as such, it makes the Infinite not a valid comparable vis-à-vis the taxpayer. So, we are of the considered view that because of functional dissimilarity of Infinite vis-à-vis the taxpayer and earning supernormal profit by 1496% as compared to preceding years makes Infinite as invalid comparable. So, we direct the AO/ TPO to exclude Infinite from the final set of comparables. INFOSYS LIMTIED (INFOSYS) - functional dissimilarity between Infosys vis-à-vis the taxpayer and the fact that Infosys is incurring huge expenditure to the tune of 2.1% of its total revenue on its R&D activities leading to the creation of significant intangible property and the fact that Infosys is a brand in itself and the fact that it assumes entrepreneurial risk and it also deals in software product and following the decision rendered in CIT vs. Agnity India Technologies Pvt. Ltd. [2013 (7) TMI 696 - DELHI HIGH COURT] it cannot be taken as a valid comparable. So, we direct the AO/ TPO to exclude Infinite from the final set of comparables. PERSISTENT SYSTEMS LIMTIED (PERSISTENT) - we are of the considered view that Persistent is not a valid comparable vis-à-vis taxpayer. So, we direct the AO/ TPO to exclude Infinite from the final set of comparables. SONATA SOFTWARE LTD. (SONATA) - when we examine Related Party Transactions of Sonata, available at page 726 of the paper book, it goes to prove that its RPT as percentage of sales is 53.83% whereas TPO himself has applied the filters to exclude the companies with more than 25% of RPT from the final set of comparables. So, keeping in view the functional dissimilarity as well as substantial Related Party Transactions, Sonata cannot be a valid comparable vis-à-vis taxpayer, hence ordered to be excluded. TATA ELXSI - As relying on M/S. NEC TECHNOLOGIES INDIA LTD. [2017 (11) TMI 71 - ITAT DELHI] Tata Elxsi is being functionally dissimilar vis-à-vis tax payer is ordered to be excluded from the final list of comparable for benchmarking the international transactions. ZYLOG SYSTEMS LIMITED (ZYLOG) - Zylog has undergone into business restructuring due to acquisition, which is an extraordinary event, the same cannot be a valid comparable hence order to be excluded from the final set of comparable THIRDWARE SOLUTIONS LTD. (THIRDWARE) - following the decision rendered by Co-ordinate bench of Tribunal in Open Solutions Software Services Pvt. Ltd. Vs. DCIT [2017 (4) TMI 960 - ITAT DELHI] . We are of the considered view that Thirdware is also into development and sale of software products whereas the tax payer is purely into providing software development services. Moreover complete segmental financials are also not available. So keeping in view the fact that the Thirdware is having a different business model cannot be a valid comparables vis-à-vis tax payer who is a routine software development services provider, hence ordered to be excluded from the final set of comparables.
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