TPO selected certain companies as comparables for determining the ALP. The ITAT directed exclusion of Mindtree Ltd., Persistent Systems Ltd. and Larsen & Toubro Infotech Ltd. on the ground of functional dissimilarity. The Revenue challenged the ITAT’s decision before the Karnataka High Court.
Assessee’s Contentions | Revenue’s Contentions | Tribunal’s Judgment |
The assessee contended that Mindtree Ltd., Persistent Systems Ltd. and Larsen & Toubro Infotech Ltd. were functionally different from its capital services and therefore could not be considered as valid comparables. | The Revenue contended that the TPO had selected the comparables after applying the tests prescribed under Rule 10B and considering the material available for determination of ALP. | The Karnataka HC upheld exclusion of the comparables, noting that Mindtree was functionally different due to its R&D activities and significant intangibles, while Persistent Systems was not comparable as the assessee neither earned royalty income nor developed products. |
It submitted that Mindtree had significant R&D activities and huge intangibles, Persistent Systems earned royalty income and developed products, while L&T Infotech was a full-fledged software development service provider. | It The Revenue argued that the ITAT had wrongly directed exclusion of the comparables on the ground of functional dissimilarity without properly considering the TPO’s findings and material on record. | The HC held that L&T Infotech was a full-fledged software development service provider and functionally different from the assessee. As no material was brought to show that the ITAT’s findings were perverse, the Revenue’s appeal was dismissed. |
Ruling Summary:
Karnataka HC upheld the ITAT’s exclusion of Mindtree, Persistent Systems and L&T Infotech as comparables due to functional dissimilarity.
HC held that the ITAT’s findings were not perverse or contrary to the Act/Rules and therefore dismissed the Revenue’s appeal.
