ITAT Excludes Infosys From The List Of Comparables Under Software Development Services Segment

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has upheld the exclusion of Infosys from the list of comparables under the software development services segment.

The bench of Saktijit Dey (Vice President) and Dr. Brr Kumar (Accountant Member) has observed that departmental authorities themselves have excluded Infosys for AYs 2014–15, 2015–16, and 2016–17.

The respondent/assessee is a resident corporate entity that is primarily in the business of software programming and application development, providing support services to other group entities. In other words, the assessee provides software development support, programming, and application support for switching integration and PBX systems and specifically deals with IVR, call centre, AIC, and CMS technologies. The assessee provides software development services and information technology-enabled services (ITES).

The assessee entered into various international transactions with its overseas associates and enterprise and earned revenue. The assessee benchmarked the transactions by following the transactional net margin method (TNMM). Since the average margin of the comparables selected was found to be within the tolerance range, the price charged for the transactions with AE was claimed to be at arm’s length. However, the TPO did not accept the benchmarking of the assessee and proceeded to conduct his own analysis. In this process, he rejected some of the comparables selected by the assessee by introducing fresh comparables, one of them being Infosys Ltd. In accordance with the order of the Transfer Pricing Officer (TPO), the Assessing Officer passed an assessment order adding back the transfer pricing adjustment suggested by the TPO. The assessee contested the addition before the first appellate authority.

The first appellate authority called upon the assessing officer to examine the assessee’s submissions and furnish a report. Having considered all the facts and materials available on record, the Commissioner (Appeals) finally held that Infosys Ltd. cannot be treated as a comparable, as in the assessee’s own case in the assessment year 2007–08, the Tribunal has excluded the company from the list of comparables.

The tribunal noted that the assessee has sought the exclusion of Infosys Ltd. as comparable on account of its high turnover, having business segments in software development and sale of products, diversified business operations, substantial intangible assets, brand value, intangible and R&D expenses, etc.

“Keeping in view the decision taken by the coordinate Benches in the assessee’s own cases in assessment years 2007–08 and 2008–09 and the further fact that the departmental authorities themselves have excluded Infosys Ltd. as comparable in assessment years 2014–15, 2015–16, and 2016–17 in the assessee’s own case, we decline to interfere with the decision of the first appellate authority on the comparability of Infosys Ltd,” the tribunal said.

Counsel For Appellant: Nishank Vashistha

Counsel For Respondent: Rajesh Kumar

Case Title: Addl. CIT Versus Avaya India Pvt. Ltd.

Case No.: ITA No. 7882/Del/2018

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