Facts of the Case

  • The Assessee, Microsoft India (R&D) Pvt. Ltd., is engaged in software development and IT-enabled services.
  • For AY 2011-12, it declared income of over ₹201 crore.
  • The case was referred to the TPO for determining ALP of international transactions.
  • The TPO proposed a transfer pricing adjustment exceeding ₹240 crore.
  • Final assessment was completed under Sections 143(3)/144C.
  • Both Assessee and Revenue filed cross appeals before ITAT, which partly allowed relief.
  • Aggrieved, both parties filed appeals before the Delhi High Court under Section 260A.

 

Issues Involved

  1. Whether ITAT was justified in excluding certain comparables (Infosys, Persistent Systems, Wipro Technology Services).
  2. Whether an assessee can challenge comparables initially selected by itself.
  3. Whether absence of segmental data justifies exclusion of comparables.
  4. Whether transactions under Section 92B(2) cease to be “uncontrolled transactions”.
  5. Whether ITAT was justified in remanding corporate tax issues instead of deciding them finally.

 

Petitioner’s Arguments (Assessee)

  • Comparables selected were functionally dissimilar and involved software products along with services.
  • Lack of segmental data makes such companies unsuitable for benchmarking.
  • ITAT wrongly remanded issues like rental income classification despite settled law.
  • Remand leads to prolonged litigation despite availability of complete facts and binding precedents.

 

Respondent’s Arguments (Revenue)

  • ITAT erred in excluding comparables that passed the filters applied by TPO.
  • Assessee cannot challenge comparables that it had itself included in TP documentation.
  • Filters applied were more stringent and satisfied by excluded companies.
  • ITAT exceeded jurisdiction by re-evaluating comparables already accepted.

 

Court’s Findings / Order

On Comparables

  • Exclusion of Infosys Ltd., Persistent Systems Ltd. justified due to:
    • Mixed revenue from software products and services
    • Absence of segmental data
  • Exclusion of Wipro Technology Services Ltd. justified because:
    • Transactions were deemed international transactions under Section 92B(2)
    • Hence not “uncontrolled transactions” under Rule 10B

On Assessee Challenging Its Own Comparables

  • Court held:
    • There is no estoppel against law
    • Assessee can challenge wrongly included comparables

On Revenue’s Appeal

  • No substantial question of law arises
  • Revenue’s appeal dismissed

On Assessee’s Appeal

  • ITAT erred in routinely remanding issues
  • Tribunal must decide issues where sufficient material exists
  • Matter remanded back to ITAT for limited adjudication on corporate tax issues
  • Other issues (like Section 10A claim remand) upheld

 Important Clarifications by Court


  • Functional similarity is key in transfer pricing comparability, not merely filters
  • Segmental data absence is a valid ground for exclusion
  • Deemed international transactions under Section 92B(2) cannot be treated as uncontrolled
  • Remand should be used sparingly, not routinely
  • Acceptance of comparables earlier does not bar later challenge

Sections Involved

  • Section 92B – International Transactions
  • Section 92B(2) – Deemed International Transactions
  • Section 10B / Rule 10B(1)(e) – Comparable Uncontrolled Transactions
  • Section 143(3) – Assessment
  • Section 144C – DRP Proceedings
  • Section 260A – Appeal to High Court
  • Section 10A – Deduction

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:11-DB/SVN04012021ITA2472019_153320.pdf

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