2018 (3) TMI 1962 - AT - Income Tax

TP Adjustment - Comparable selection - adopting M/s. Infosys BPO as comparable while arriving at the NCP margin in the case of the assessee - HELD THAT - M/s. Infosys BPO Ltd. cannot be treated as a comparable company while arriving at the average NCP margins in the case of the assessee. We also draw strength from the decisions pointed out before us by the Ld.AR in the case H S Software Development and Knowledge Management Centre Pvt Ltd. 2018 (1) TMI 1548 - DELHI HIGH COURT wherein it was held that M/s. Infosys BPO has a significant brand presence and cannot be compared to the assessee s transactions whose turnover is comparatively minimal. The Bangalore bench of the Tribunal in the case M/s. Flextronics Technologies India Pvt. Ltd. 2015 (10) TMI 2653 - ITAT BANGALORE has also held that M/s. Infosys BPO cannot be treated as the comparable company because it enjoys substantial brand value and market leadership. Similar view was taken in the case Maersk Global Service Centers (India) P Limited 2016 (7) TMI 1437 - ITAT MUMBAI Therefore following the above ratios laid down by the Tribunal and Hon ble Delhi High Court referred by the Ld.AR we hereby direct the Ld.AO to exclude M/s. Infosys BPO as comparable company while arriving at the NCP margin in the case of the assessee - Appeal of the assessee is allowed.

Summary

Issues:
1. Selection of comparable company for determining NCP margin.

Analysis:

Issue 1: Selection of comparable company for determining NCP margin
The appeal was against the order passed by the Ld. Members of the DRP regarding the assessment year 2013-14. The main contention raised by the assessee was the adoption of M/s. Infosys BPO as a comparable company, which had a turnover significantly higher than that of the assessee. The Ld.AR argued that the turnover difference was substantial, making M/s. Infosys BPO incomparable. The Ld.DR, however, contended that functionally, M/s. Infosys BPO was comparable to the assessee. After hearing both sides, the Tribunal agreed with the Ld.AR's submission. They observed that M/s. Infosys BPO was much larger than the assessee and other comparable companies. Referring to previous decisions, including H & S Software Development and Knowledge Management Centre Pvt Ltd, Visual Graphics Computing Services India Pvt. Ltd vs. ACIT, and Maersk Global Service Centers (India) P Limited, the Tribunal concluded that M/s. Infosys BPO's turnover being more than 10 times that of the assessee's made it incomparable. Therefore, the Tribunal directed the Ld.AO to exclude M/s. Infosys BPO as a comparable company for determining the NCP margin. The appeal was allowed based on this decision.

This judgment highlights the importance of selecting comparable companies for determining the NCP margin and the significance of turnover differences in making such comparisons. The Tribunal's reliance on previous decisions and established principles in reaching its conclusion adds weight to the decision.