75th Founding Day Lecture Meeting on “India@2030” Know More

June 2017

21. Transfer pricing – A. Y. 2006-07 – International transaction – Arm’s length price – Selection of comparables – Company outsourcing major parts of its business cannot be taken as comparable for company not outsourcing major part of its business

By K. B. Bhujle, Advocate
Reading Time 1 mins

Princ. CIT vs. IHG IT Services (India) P. Ltd.; 392 ITR 77
(P&H):

For the A. Y.  2006-07,
the Tribunal excluded the companies N and G from the list of comparables on the
ground that a substantial part of their business was outsourced and outsourcing
exceeded 40%, which was not so in the case of the assessee. In the case of N,
the Tribunal held that it was not a valid comparable also on the ground that
another company had been merged into it.

On appeal by the Revenue, the Punjab and Haryana High Court
upheld the decision of the Tribunal and held as under:

“i)  Both the companies were not appropriate
comparables, since a major part of their business was outsourced, whereas the
major part of the assessee’s business was not outsourced.

ii)  Moreover, the company V had a low employee
cost of Rs. 1.25% of operating revenue. The assessee’s wages to sales was 53%
which was not comparable to V. Thus the exclusion of N and V was justified.”

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