Transfer Pricing: Companies with extreme turnover like Infosys are not comparable

CIT vs. Agnity India Technologies (Delhi High Court)

The assessee, a wholly owned subsidiary of Bay Packets Inc., USA, was engaged in the business of development of software for the parent company in the field of telecommunications. To determine the arms' length price, the TPO & DRP took Infosys Technologies as a comparable. On appeal by the assessee, the Tribunal (included in file) held that the assessee was not comparable with Infosys as Infosys was a large and bigger company in the area of development of software and the profits earned by it cannot be benchmarked or equated with the assessee's results. One of the aspects pointed out by the Tribunal was that Infosys' turnover was Rs. 9,028 crores while that of the assessee was only Rs. 16.09 crores. On appeal by the department to the High Court, HELD dismissing the appeal:

 The Tribunal's findings that Infosys should be excluded from the list of comparables for the reason that (i) Infosys was a giant company and it assumed all risks leading to higher profits, whereas the assessee was a captive unit of the parent company and assumed only a limited risk and (ii) that the financial data (turnover) was not comparable has not been controverted by the Revenue. The Tribunal has given valid and good reasons for excluding Infosys as a comparable.