Case Law Details

Case Name : Xchanging Technology Services India Private Limited. Vs DCIT (ITAT Delhi)
Appeal Number : Income tax (Appeal) no.1222 of 2015
Date of Judgement/Order : 08/09/2015
Related Assessment Year :
Courts : All ITAT (4430) ITAT Delhi (983)

Brief of the Case

ITAT Delhi held In the case of Xchanging Technology Services India Private Limited. vs, DCIT that the Hon’ble High Court affirmed the conclusion that a captive unit of a comparable company which assumed only a limited risk cannot be compared with a giant company in the area of development of software who assumes all types of risks leading to higher profits. The facts of the appellant are akin and the comparative chart of assessee vis –a-vis M/s Infosys clearly depicts the same and therefore, do not warrant any different conclusion. The appellant is also captive service provider to its AE and as such, M/s. Infosys Ltd. is not a valid comparable with the appellant and we direct it’s exclusion from the comparables.

Facts of the Case

Xchanging Technology Services India Private Limited ( Xchanging India) is a subsidiary of Xchanging Resourcing Services Limited, UK and engaged in the business of rendering contract software development as well as Information Technology Enabled Services (ITES) to Xchanging Group companies. The assessee is registered as a 100% export oriented unit under the Software Technology Parks of India (STPI) scheme. The assessee operates in two segments i.e. software development segment and ITES segment.

The assessee’s case was referred to the TPO for determination of the Arm’s Length Price (ALP) for the international transactions entered into by the assessee during the financial year 2009-10. Subsequently, the TPO passed an order dated 16.01.2014 making certain adjustment to the ALP of the international transactions of the assessee.

Held by ITAT

 Before us, as regards software development segment, Ld. AR objected only to the factum of M/s. Infosys & M/s. Wipro being included in the final set of comparables adopted by the TPO. He also objected to exclusion of M/s. Calibra & M/s. R Systems.

  M/S. INFOSYS

 In the case of Agnity Technologies, ITA No.3856/Del/2010, a coordinate Bench has held that the assessee is not comparable with Infosys Technologies Ltd., the reason being that the latter is giant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited Currency risk. This order was upheld by the Hon’ble Delhi High Court.

The Hon’ble High Court affirmed the conclusion that a captive unit of a comparable company which assumed only a limited risk cannot be compared with a giant company in the area of development of software who assumes all types of risks leading to higher profits. The facts of the appellant are akin and the comparative chart of assessee vis –a-vis M/s Infosys clearly depicts the same and therefore, do not warrant any different conclusion. The appellant is also captive service provider to its AE and as such, M/s. Infosys Ltd. is not a valid comparable with the appellant and we direct it’s exclusion from the comparables.

M/S. WIPRO TECHNOLOGY SERVICES LTD.

 The arguments of the ld. AR that only on account of super normal profit this comparable should be excluded is not tenable in the light of the Hon’ble jurisdictional High Court decision in the case of ChrysCapital dated 27.04.2015. We concur with the finding of DRP while repelling the objection regarding extra-ordinary event taking place for this comparable, but for a different reason, i.e. the relevant extra ordinary event took place in the preceding Financial Year i.e. FY 2008-09. However, we concur with the submissions advanced by Ld AR that the Director’s Report and Notes to Account for this comparable are not available in public domain. Ld. DR has not been able to controvert this fact. Since sufficient information for this comparable is not available, we direct exclusion of this company as a comparable.

CALIBER POINT BUSINESS SOLUTIONS LTD. & R SYSTEMS INTERNATIONAL LTD.

 We find that the lower authorities have merely rejected these comparables on the ground that these companies have different financial year ending 31st December 2009. We find that this issue is no longer res integra. In the case of M/s. Mercer Consulting (India) Pvt. Ltd. in ITA No.966/Del/2014, ITAT by order dated 06.06.2014, in which it was held that the TPO solely for the reason that its financial year is different, exclude the company in comparables is without considering that the data for the financial year adopted by the assessee can be easily compiled from the audited statements of such company. Accordingly, company need to be considered as comparables.

Respectfully following the same, we direct the TPO to re-examine these comparables by reworking their margins as on 31st March 2010 as aforestated in the order.

Accordingly appeal of the assessee partly allowed.

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