HIGH COURT OF JUDICATURE AT HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH PRESENT THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR
I.T.T.A.No.440 OF 2014
DATED: 16.07.2014 Between:
The Commissioner of Income Tax-I … Appellant And M/s.B.A.Continuum India Pvt Ltd … Respondent THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR I.T.T.A.No.440 of 2014 JUDGMENT: (per the Hon’ble The Chief Justice Sri Kalyan Jyoti Sengupta) This appeal is sought to be preferred and admitted by the Revenue against the judgment and order dated 24.10.2013 passed by the learned Tribunal in I.T.A.No.1154/Hyderabad/2011 in relation to the assessment year 2005-06, on the following suggested questions of law:
1. Whether, on the facts and the circumstances of the case, the Tribunal is justified in rejecting the comparables on the ground that those comparables have super normal profit ignoring that Indian Transfer Pricing regulations prescribe arithmetic mean and therefore, as a general rule companies with abnormal profits, per se, need not be excluded?
2. Whether, on the facts and circumstances of the case and in law, the Tribunal was justified in excluding M/s.Vishal Information Technology Ltd., as comparable on the ground that the employee cost is lower than industry average, despite the fact that the Tribunal in ITA.Nos.1082 & 1084/H/2010 has taken a different stand by rejecting the claim to exclude the said company as comparable?
3. Whether, on the facts and in the circumstances of the case, the Hon’ble Tribunal is justified in directing to consider profit before depreciation and interest (PBDIT) as profit level indicator?
We have heard Mr. J.V.Prasad, learned Standing Counsel for the Revenue and gone through the impugned judgment and order. He says that the learned Tribunal is wrong in concluding that M/s.Vishal Information Technology Limited cannot be considered as a comparable case on the ground mentioned therein ignoring the fact that Indian Transfer Pricing Regulations prescribe arithmetic mean and therefore, as a general rule, companies with abnormal profits per se should not have been excluded. This argument has been advanced in relation to ground Nos.1 and 2 as above. While considering this argument, we look at the findings of the learned Tribunal recorded at paragraph 26 of the impugned judgment and order and are as follows:
“M/s.Vishal Information Technologies cannot be considered as a comparable case as this company was rejected by coordinate Bench while deciding similar issue in the case of M/s.Brigade Global Services Pvt. Ltd reported in 143 ITD 59.”
The Tribunal also recorded the relevant findings of the Coordinate Bench of the Tribunal in the case of M/s.Brigade
[1]
Global Services Pvt. Ltd
as under:
“Regarding Vishal Information Technologies Ltd., the employee’s cost to total cost ratio is worked out at 2% as compared to the industry average of 30 to 40%. The assessee’s employee’s cost to total cost ratio is worked out at 47%. Since the employee’s cost form major cost base in ITES service industries, the low ratio of comparables implies that it would not be providing services by employing its own sources. Being so, the assessee is not alike to M/s.Vishal Information Technologies Ltd. Accordingly, M/s.Vishal Information Technologies Ltd., cannot be considered as comparables and it is to be excluded from comparables.”
He is unable to show that the above decision of the Tribunal in the case of M/s.Brigade Global Services Pvt. Ltd has been challenged or upset by any forum. We are of the view that the Tribunal is not wrong in deciding the issue maintaining the rule of consistency. As far as ground No.3 is concerned, the learned Tribunal on fact found that the depreciation has an impact on the profit margin.
Based on the aforesaid findings, we feel that the impugned judgment and order of the learned Tribunal does not appear to be unjust and inappropriate.
The appeal is accordingly dismissed. No order as to costs.
16th JULY, 2014.
K.J. SENGUPTA, CJ
kvni
[1] 143 ITD 59
SANJAY KUMAR, J