Facts
The Revenue appealed under Section 260A of the Income-tax Act, 1961, against the ITAT’s order dated 29 January 2020 for AY 2014–15.
Source reference: p.3–5The Tribunal directed the TPO to exclude Infosys Ltd. and Infosys BPO Ltd. from the comparables and to compute working-capital adjustment on actuals after reconsidering the comparable set.
Source reference: p.3–5The Revenue sought restoration of the DRP and TPO’s orders.
Source reference: p.2Issues
1. Whether the Tribunal erred by requiring exact comparability under the Transactional Net Margin Method and by departing from the analysis prescribed under Rule 10B.
Source reference: p.32. Whether the Tribunal was justified in excluding Infosys Ltd. and Infosys BPO Ltd. as comparables.
Source reference: p.43. Whether the Tribunal was justified in directing a working-capital adjustment on actuals despite the TPO’s contrary findings.
Source reference: p.3–4Law Applied
Section 260A provides for an appeal to the High Court on a substantial question of law. Rule 10B governs the determination of comparability for transfer-pricing purposes, while Chapter X of the Act provides the statutory framework for determining the arm’s-length price.
Source reference: p.5–8Relying on Sap Labs India Private Limited v. Income Tax Officer and connected appeals, the Court stated that comparable selection or exclusion is ordinarily a factual, data-driven exercise that must conform to Rule 10B;
Source reference: p.5–8a working-capital adjustment is likewise fact-dependent, with no fixed formula prescribed by the Act or Rules.
Source reference: p.5–8Such findings warrant interference where they are shown to be contrary to law or perverse.
Source reference: p.5–8Reasoning
The Tribunal had relied on the companies’ annual reports and the assessee’s profile in excluding Infosys Ltd., noting its scale, risk profile, software-product activity and ownership of intangibles;
Source reference: p.4–5it found Infosys BPO Ltd.’s activities not comparable.
Source reference: p.4–5It also directed the TPO to calculate the working-capital adjustment on actuals after reconsidering the comparables.
Source reference: p.5Applying the principles in Sap Labs, the High Court treated these as factual determinations.
Source reference: p.7–8The Revenue did not demonstrate perversity, reliance on irrelevant material, or omission of relevant material.
Source reference: p.7–8Holding
The Court answered the substantial questions of law in favour of the assessee and against the Revenue,
declined to interfere with the Tribunal’s findings, and dismissed the appeal.
Source reference: p.9Acts & Sections Cited
3 provisions across 1 statute referred to in this judgment. Linked provisions open on LawLens.
Income Tax Act, 19613
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THE PR COMMISSIONER OF INCOME TAX (CIT)AvsM/S GOLDMAN SACHS SERVICES PVT LTD
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