The main legal point established in the judgment is the significance of current year data, turnover, related party transactions, employee cost, and peculiar economic circumstances in determining comparability for benchmarking international transactions under the Income Tax Act.

SANJEEV SACHDEVA, J.

1. The question of law arising for consideration in this appeal by the assessee under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act), impugning the judgment dated 04.11.2016 of the Income Tax Appellate Tribunal (hereinafter referred to as the tribunal) is as under:-

“Did the Tribunal fall into error in including M/s. Thirdware Solutions Limited in the List of Comparables and excluding M/s. CG-VAK Software and Exports Limited and Quintegra Solutions Limited in the arm’s length price determination with regard to the facts and circumstances of the case?”

2. The appellant- Steria India Ltd. is a subsidiary of Steria UK Corporate Ltd., which is an associated enterprise (“AE”) of the appellant under section 92A of the Act. The appellant is engaged in providing software and BPO services to its AE.

3. For the financial year 2009-10 (corresponding to assessment year 2010-11), the appellant reported international transaction of provision of software services. The appellant selected Transactional New Margin Method (TNMM) as the most appropriate method for benchmarking the international transaction under the software development services segment.

4. The Transfer Pricing Officer (TPO) passed an order on 17.01.2014, under Section 92 CA(3) of the Act, inter alia, recommending upward transfer pricing adjustment of Rs.93,53,35,000 to the software development services segment of the appellant. The TPO rejected some comparables selected by the appellant and added fresh comparables, thereby selecting 16 final comparables for benchmarking the international transaction.

5. On 20.10.2015 the Dispute Resolution Panel (DRP) passed an order under Section 144C (5) of the Act, inter-alia, excluding three companies from the final set of comparables drawn by the TPO. Subsequently on 17.12.2015, DRP passed rectification order excluding one comparable. The order was further rectified by an order dated 28.04.2016.

6. Aggrieved by the final order dated 30.11.2015 as well as rectification orders dated 17.12.2015, 26.04.2016 and 28.04.2016, the appellant approached the Tribunal. The Tribunal vide the impugned order, partly allowed the appeal. However, ruled against the appellant upholding the inclusion of M/s Thirdware Solutions Limited and exclusion of M/s CG-VAK Software and Exports Limited and Quintegra Solutions Limited as comparables for benchmarking the international transaction under the software development services segment.

7. The TPO by its order dated 17.01.2014 observed that Inappropriate filters had been used by the Petitioner which would lead to an incorrect choice of comparables. With regard to the filters the TPO held as under:

No.	Description of filter	Remarks of this office
i.	Reject companies that have insufficient financials or descriptive information to perform analysis	This is an appropriate filter. However, the data is to be seen with reference to current financial year i.e. FY 2009-10.
ii.	Reject companies that had been declared sick or had persistent negative net worth	This is an appropriate filter. However, the correct criteria for rejection of companies would be negative net worth and not persistent negative net worth as the company having negative net worth would also be incurring losses in the past so as to erode its positive net worth which is the norm for companies in IT industry as discussed later.
iii.	Reject companies that had ceased Business operations/no sales.	The filter is insufficient. The correct filter would be to exclude companies having sales less than 5 Cr. as it will eliminate start-up companies and also companies where there is little differentiation between profits and remuneration.
iv.	Reject companies Undertaking significantly different functi