INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALPExclusion of comparables furnished by assessee--The assessee-company was an Indian company and almost the entire share capital of the assessee-company is owned by A International LLC, a Delaware Corporation. During the year, the assessee in order to benchmark the international transactions in software development and in market support service, identified transactional net margin method as the most appropriate method with net profit based on cost (OP/OC) as a profit level indicator (PLI). The margin of the assessee is 18.43 per cent, in software development segment and 5.24 per cent, in market support service segment. The TPO and the AO both have accepted transactional net margin method with OP/OC as a profit level indicator as the most appropriate method for benchmarking the international transactions. However, instead of relying on the current years financial data of the comparables, the assessee had used weighted average margins of three years to benchmark the international transactions and in place of that the TPO only relied on the current year's data of the comparables for determining the arm's length price. The assessee had submitted 50 comparables while arriving at the arm's length price in transfer pricing study. However, the TPO has applied the following three filters : Rejecting companies having related party transactions as a percentage of sales more than 15 per cent. Rejecting companies whose financial data is not available. Accepting companies whose wages to sales ratio is in the range of 30 to 60 per cent. In this manner, the TPO has short-listed only four 5 parties on the basis of which he has worked out mean of margin at 30.98 per cent. By taking the said margin, TPO has worked out the difference of software development segment at Rs. 4,44,46,736. Out of the seven parties, the TPO has rejected the three comparables mentioned at Sl. Nos. 1, 2 and 3 and has worked out as mean margin at Rs. 13.58 per cent. He has worked out the addition of Rs. 12,39,564 on this account. Held: If the wages/sales ratio of the aforementioned parties, as mentioned in paragraph 11 of this order, falls within the range of 30 per cent., to 60 per cent., then those parties should be included in the list of comparables to compute the mean margin. It is the case of the assessee that if those four parties are taken into consideration, then, the mean ratio will come to 20.94 per cent. So far as it relates to the contention of the authorised representative for exclusion of four parties, namely, Infosys Technologies Ltd., K Information System Ltd., V Tech Ltd. and W Ltd., particularly, Infosys Technologies Ltd. and W Ltd., they cannot be excluded as the assessee itself has taken those parties as comparables and now, the assessee cannot plead their exclusion simply for the reason that their results are going against the assessee. Therefore, such contention of the assessee is rejected.