Flexibility in comparability analysis is essential for determining Arm's Length Price; rigid standards may undermine the arm's length principle.

JUDGMENT

Manmohan, J. (Oral)

CM APPL. 33042/2022

In view of the averments made in the application, the delay of 85 days in filing the appeal is condoned.

Accordingly, this application is disposed of.

ITA 234/2022

1. Present Income Tax Appeal has been filed challenging the Order dated 22nd November, 2019 passed by the Income Tax Appellate Tribunal (`ITAT') in ITA 1934/Del./2018 for the Assessment Year (hereinafter referred to as `AY') 2012-13.

2. Learned counsel for the Appellant states that the ITAT has erred in laying down stringent standards of comparability and attempting to identify exact replica of taxpayer for comparability analysis, whereas the Indian Law and the international jurisprudence recognize the reality that there cannot be an exact comparable in a given situation without any difference and without appreciating that such stringency will defeat the purpose of flexibility provided in the comparability analysis for determination of Arm's Length Price (ALP).

3. He states that the ITAT erred in excluding Excel Infoways Ltd. by relying on the decision of the coordinate Bench of the Tribunal in Baxter India Pvt. Ltd. for the AY 2012-13. He states that upon an appeal being filed against the judgment of the Tribunal in Baxtor India Pvt. Ltd., this Court had framed questions of law. He, however, states that the said appeal was disposed of on account of low tax effect. He further states that the Tribunal wrongly concluded that the Excel's ratio of employee cost to sales was merely 13.05%. He states that in response to a notice under Section 133(6) of the Income Tax Act, 1961 (hereinafter referred to as the `Act'), Excel Infoways had informed that the segmental employee cost pertaining to ITES/BPO was Rs.2.02 crores as against segmental value of Rs.7.07 crores. Consequently, as according to him, the ratio of employee cost was more than 25%, the filter selected by the Transfer Pricing Officer (TPO) was satisfied in the present proceedings.

4. He also contends that the service revenue filter from export/ITES of 75% is not sacrosanct. He states that as in the present case, since Excel Infoways Ltd. satisfies the functional similarity test, the filter of service revenue from exports/ITES could be diluted.

5. Learned counsel for the appellant fairly states that he is not pressing the present appeal qua exclusion of TCSE-Serve Ltd. and Infosys BPO in view of the fact that the revenue itself has excluded TCSE-Serve Ltd. as a comparable in subsequent assessment years in the case of the assessee and Infosys BPO had acquired Portland Group Pty Ltd., Australia during the year under assessment.

6. Learned counsel for the respondent, who appears on advance notice, points out that the TPO had insisted on service revenue filter from export/ITES of 75% and had rejected the assessee's suggestion to adopt the filter of 50% export. In support of his contention, he relies upon the order passed by the TPO dated 15th February, 2016. The relevant portion of the said order is reproduced hereinbelow:

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