ITO, NEW DELHI vs. M/S SOPRA INDIA PVT. LTD., NEW DELHI

The sole ground raised by the Revenue reads as under:

The ld. CIT(A) has erred in excluding Infosys Technologies Ltd, Mindtree Ltd and Larsen and Tubro Infotech Ltd from the list of comparable companies eventhough they are functionally similar to the assessee and the assessee itself TP analysis

We have heard the arguments of both the sides and carefully perused the relevant material placed on record before us. The ld. DR vehemently contended that the ld. CIT(A) has erred in excluding Infosys Technologies Ltd, Mindtree Ltd and Larsen and Toubro Infotech Ltd from the list of comparable companies eventhough they are functionally similar to the assessee and the itself had chosen these companies as its comparables after a detailed TP analysis. The ld. DR further pointed out that the AO in the above assessment order dated 31.12.2010 passed u/s 144C of the Income-tax Act, 1961 ['the Act' for short] selected the said three comparables but the assessee has not filed any objections against the assessment order as per provisions of the Act. Therefore, the assessment passed as per the above assessment order dated 31.12.2010 should be sustained.

Replying to the above, the ld. AR supporting the first appellate order, submitted that as per the judgment of the Hon'ble Chandigarh Special Bench in the case of Quark Systems Ltd reported as [2010] 38 SOT 307 [CHD] [SB], the assessee can resile or discard its own comparables if the 2 comparables earlier chosen by the assessee are not really similar to the business of the assessee. The ld. AR further pointed out that as per the order of the AO, the said comparables are similar to the functional profile of the assessee company, but as per the explanation and details submitted by the assessee before the authorities below within the company are dissimilar to the functional profile of the assessee company, therefore, the same should be excluded from the final list of the comparables.

In rejoinder, the ld. DR pointed out that neither the AO nor the ld. CIT(A) considered some vital points which were to be considered for framing final set of comparables for T.P. adjustment. The ld. DR pointed out that as per the decision of the Hon'ble Jurisdictional High Court of Delhi in the case Chryscapital Investment Advisors [India] [P] Ltd Vs. DCIT reported at [2015] 56 Taxmann.com 417 [Delhi], mere fact that entity makes high/extremely high profits/losses does not ipso facto lead to its exclusion from the list of comparables for the purposes of determination of ALP. The ld. DR placing reliance on the recent judgment of the Hon'ble Jurisdictional High Court in the case of ST Microelectronics Pvt. Ltd Vs CIT reported as [2016]-T11-15-HC-DEL-TP submitted that while selecting comparables, more weightage should be given to functional profile than ‘high end’ or ‘low end’ software development service provider and when the risk profile of the assessee vis a vis comparables merits special consideration for determining ALP. The ld. DR further pointed out that the issue of comparability regarding the impugned three companies should be restored to the file of the AO for proper adjudication in the light of relevant provisions of the Act as well as the relevant propositions and ratio of judgments/orders of the Hon'ble Jurisdictional High Court and the Tribunal. The ld. DR submitted that the assessee has no objection if the issue of comparability of the impugned three companies is restored to the file of the TPO/AO for fresh adjudication.

In view of the above rival submissions of both the sides, we are in agreement with the contention of the ld. Counsel for the assessee that as per the ratio of decision of the ITAT, Chandigarh Bench in the case of Quark System [supra], the assessee can resile or dispute the comparables which were earlier selected by it if the comparables are not really similar with the comparable of the assessee company. In the present case, the assessee selected all the three companies in his TP study, but subsequently, alleged that these companies are not factually really comparable with the assessee company and he filed appeal before the ld. CIT(A) which was allowed by the first appellate authority from the operative 4.1.2 of the first appellate order. We note that the ld. CIT(A) held that the comparison of a small company with a giant company may be justified in view of the higher turnover and the ld. CIT(A) provided exclusion of all three companies namely, Infosys Technologies Ltd, Mindtree Ltd. And Larsen and Toubro Infotech Ltd from the final set of comparables. However, as per the ratio laid down by the Hon'ble Jurisdictional High Court in the case of Chrys Capital [supra] higher profits/losses/turnover does not ipso facto lead to the exclusion of comparables for the purpose of determination of ALP. Therefore, the basis adopted by the first appellate authority is not sustainable and thus the conclusion of the ld. CIT(A) is rejected. Furthermore, in the case of Rampgreen Solutions Pvt. Ltd VS. CIT [2015] 279 CTR 441 [Del] it was held that Ites compasses wide spectrum of Information Technology [IT] basis delivery adn such services include rendering highly technical services by qualified technical personnel, involving advanced skills and knowledge, such as, engineering, design and support. It was also held that end of spectrum ITes would also include voice based call centres that rendered routine customer support for their client and thus in this situation, characteristics of services rendered would be dissimilar and treating those two entities to be comparables only for the reason that they used information technology for delivery of their services, would be erroneous.

On the basis of foregoing discussion, we reach to a conclusion that the issue of comparables of all the three companies was neither properly decided by the AO, nor by the ld. CIT(A). Therefore, the issue of inclusion of these comparables of these three companies is restored to the file of the TPO/AO for fresh adjudication after providing due opportunity to the assessee. Needless to say that the TPO/AO shall adjudicate the issue of comparables of all the three companies without being prejudiced by the earlier orders as well as the impugned order of the ld. CIT(A). Consequently, the sole ground of the Revenue is deemed to be allowed for statistical purposes.

In the result, the appeal of the Revenue is allowed for statistical purposes.