IN HIGH COURT OF DELHI AT NEW DELHI Reserved on: 11th July, 2019 Decided on: 24th July, 2019 ITA 532/2019 M/S AVAYA INDIA PVT. LTD. Appellant Through: Dr. Shashwat Bajpai and Mr Sharad Aggarwal Advocates. versus ACIT Respondent Through: Ms Vibhooti Malhotra, Senior Standing Counsel for Revenue. CORAM: JUSTICE S.MURALIDHAR JUSTICE TALWANT SINGH JUDGMENT Dr. S. Muralidhar, J.: 1. Assessee is in appeal against order dated 3 rd December, 2018 passed by Income Tax Appellate Tribunal (ITAT) in ITA No. 1904/Del/2015 for Assessment Year (AY) 2010-11. 2. This appeal was admitted on 11th July, 2019 and following question of law was framed for consideration: Whether ITAT was justified in upholding order of TPO and DRP in not excluding M/s TCS E- Serve Limited; M/s TCS E-Serve International Limited from list of comparables for purposes of determining arms-length price of international ITA 532/2019 Page 1 of 21 transactions involving Assessee? 3. Arguments were heard on that date and orders reserved. Background facts 4. Assessee is subsidiary of Avaya International LLC, USA. It is engaged in providing programming and application support for switching integration and PBX systems. It specifically deals with IVR, call centres, AIC, CMS technologies. Assessee also provides marketing support services to its Associated Enterprises (AEs), which includes assistance in advertising and promotion of product sold by 'Avaya' group. Assessee also provides back-office services to its AEs, which includes provision of services relating to indirect billing, fixed assets, accounts payable, accounts receivable etc 5. During year under consideration, Assessee provided software development services ( CSD ), information technology enabled services ( ITES ) and marketing support services ( MSS ) to its AEs on cost-plus basis. It purchased fixed assets and availed legal, finance, human resource, IT support and other support services from its AEs. 6. On 15th October 2010, Assessee filed its return of income for AY in question declaring total income of Rs.29,83,98,593/-. return was picked up for scrutiny. Assessing Officer ( AO ) noticed international transactions carried out by Assessee with its AEs and referred matter to Transfer Pricing Officer ( TPO ) for determination of Arm's Length Price ( ALP ) of those international transactions. ITA 532/2019 Page 2 of 21 7. Assessee had in its transfer pricing (TP) study disclosed, inter alia, six types of international transactions, which included provision of CSD, ITES, MSS etc. For benchmarking its international transactions, Assessee selected Transactional Net Margin Method ( TNMM ) as most appropriate method ( MAM ) applying operating profit ( OP )/total cost ( TC') as appropriate profit level indicator ( PLI ). For ITES segment, Assessee selected ten comparables having average OP/TC percent of 14.5%, whereas Appellant s OP/TC percent was 18%. As regards provision of MSS, Assessee picked up seven comparables with average OP/TC by 9.95% whereas Appellant s OP/TC was 6.48%. This Court is not referring to comparables pertaining to CSD segments since that is not matter on which parties have joined issue. Order of TPO 8. TPO passed detailed order on 22nd January, 2014. TPO carried out fresh search of comparables and applying various filters, proposed adjustment to ALPs of international transactions in all three segments. For ITES segment, he picked up nineteen comparables having average OP/TC of 26.61%. He recommended TP adjustment of Rs. 19,40,74.658/-. In MSS segment, he picked up eight comparables with OP/TC of 21.41% and recommended TP adjustment of Rs.2,53,25,670. As far as MSS segment was concerned, TPO picked up comparable uncontrolled price ( CUP ) method as against TNMM method adopted by Assessee for benchmarking and determined ALP at NIL, thus making TP adjustment of Rs.2,12,31,617/-. ITA 532/2019 Page 3 of 21 9. Pursuant to order passed by TPO, AO issued draft order on 27th February, 2014 under Section 144-C of Act. Aggrieved by said draft assessment order, Assessee filed objections before Disputes Resolution Panel ( DRP ). While upholding order of TPO concerning adjustments recommended for ITES segment, DRP directed inclusion/ exclusion of comparables in CSD and MSS segments. Assessee then appealed to ITAT. Impugned order of ITAT 10. challenge in MSS segment by Assessee to inclusion of TSR Darashaw Limited and HCCA Business Services Private Limited was accepted by ITAT and it ordered their exclusion. As regards comparables picked up by TPO for ITES segment, and approved by DRP, ITAT accepted plea of Assessee in respect of following comparables and excluded them: (i) Accentia Technologies Ltd. (ii) Eclerx Limited. (iii) Infosis BPO Ltd. (iv) Fortune Infotech Ltd. 11. However, plea of Assessee for exclusion of M/s TCS E-Serve Limited and M/s TCS E-Serve International Limited was rejected by ITAT and that is how Assessee is in appeal in this Court against said decision of ITAT. question of law framed by this Court is therefore confined to exclusion of said two comparables. It requires to be noted that Revenue is not in appeal before this Court against decision of ITA 532/2019 Page 4 of 21 ITAT so far as it accepted plea of Assessee and directed exclusion of other comparables picked up by TPO both in ITES and MSS segment transactions. Submissions on behalf of Assessee 12. Dr. Shashwat Bajpai, learned counsel appearing for Assessee made following submissions: (i) Both comparables i.e. M/s TCS E-Serve Limited and M/s TCS E- Serve International Limited had high brand value and operated on huge economic upscale and were therefore able to command and generate better profits. (ii) On both parameters, viz., high-economic upscale and high brand value both comparables were rendered functionally dissimilar to Assessee and, therefore, ought to have been excluded for purpose of determination of ALP. In fact, this was very reason that ITAT had excluded Infosys BPO Ltd. as comparable. (iii) In doing so, ITAT followed this Court s judgment in PCIT v. E- Valueserve SEZ P. Ltd. (decision dated 29th August, 2018 in ITA 948/2018) which decision also upheld exclusion of M/s TCS E-Serve International Limited as comparable on same parameters. This Court in Evalueserve Sez (Gurgaon) Private Limited (supra) referred to earlier decision dated 28th November, 2017 in ITA No. 1064/2017 (PCIT v BC Management Services P. Ltd.) where again exclusion by ITAT of M/s TCS E- Serve Limited as comparable was upheld by this Court. It was noted that there was close connection between M/s TCS E-Serve Limited and TATA Consultancy Services Ltd. ( TCS Limited ) and that for brand value, ITA 532/2019 Page 5 of 21 association with TCS Limited reflected and impacted profitability of TCS E-Serve Limited in very positive manner . Although both these decisions were cited before ITAT, in support of plea for exclusion of both above comparables, while discussing said two comparables, ITAT failed even to mention these two decisions. (iv) Out of nine comparables ultimately chosen, they had mean margin of 14%. It was only by picking up M/s TCS E-Serve Limited and M/s TCS E-Serve International Limited that margin got pushed to 64 and 69 percent respectively. Therefore, these two comparables were outliers . In changed regime that has since been adopted, at present comparables are picked up that have 35 to 65 percent range of comparison with compared entity instead of simple average and mean of comparables. bottom and top high upscale comparables are automatically excluded even before comparability analysis begins. (v) turnover as far as M/s TCS E-Serve Limited was Rs.1359 crores whereas that of Assessee was Rs.24 crores. Assessee s case was closer to that of Evalueserve Sez (Gurgaon) Private Limited (supra) and PCIT v BC Management Services P. Ltd. (supra) and in those cases also M/s TCS E-Serve Limited was excluded as comparable. turnover of Infosys BPO Ltd. was Rs.1126 crores, which was similar in scale to M/s TCS E-Serve Limited and this was also reason why Infosys BPO Ltd. was excluded from comparables. (vi) M/s TCS E-Serve Limited and M/s TCS E-Serve International ITA 532/2019 Page 6 of 21 Limited, were associated with Tata brand and made brand equity contribution of Rs.37 crores. ITAT only picked up this figure in percentage terms and not in actual money terms. Assessee on other hand made no brand contribution to its parent. This was another reason that made two comparables unequal to Assessee. (vii) reference was made to Director s report of M/s TCS E-Serve Limited in first year of acquisition by TCS of company by Citi Group. total income had increased from Rs.1299 crores to Rs.1441 crores @ 11%, profit before tax was higher over previous year figure of 226%, it was noted that M/s TCS E-Serve Limited along with its subsidiary M/s TCS E-Serve International Limited and M/s TCS E-Serve America, Inc. maintained its leadership position in providing ITES and business process outsourcing ( BPO ) in banking and financial services industry domain ( BFSI ) with City Group entities being its largest customers since 1998. (viii) report also referred to the company finding scope of its operations by commencing services of Non-Citi Accounts in BFSI Sector and this was done by leveraging client base of M/s TCS using its brand. It is further pointed that prior to 31st December 2008, TCS E-Serve was part of Citi group. With effect from 1st January 2009, Tata Consultancy Services Ltd. acquired entire holding of this entity. As prearrangement/share purchase agreement, Tata Consultancy Services Ltd. made agreement with Citi Group Inc. for acquisition of Citi group interest in TCS. ITA 532/2019 Page 7 of 21 (ix) Thus, this type of arrangement was covered under Section 92B (2) of Act which contemplated that if transaction was entered into by enterprise with unrelated party, then for purpose of said Section 92B it should be deemed to be transaction entered into between related parties i.e. two AEs. In other words, even if transaction is between unrelated party and enterprise, then, it would be deemed to be international transaction if there was any prior agreement between related parties on basis of which present transaction is being undertaken. (x) Dr Bajpai referred to large number of decisions, including decisions of various Benches of ITAT dealing with AY 2010-11, where these very two comparables were excluded. In tabular form, he also presented decisions of ITAT excluding these two comparables on both parameters i.e. high-economic upscale and high brand value. Submissions on behalf of Revenue 13. Ms. Vibhooti Malhotra, learned counsel appearing for Revenue on other hand submitted that ITAT is fully justified in rejecting plea of Assessee for exclusion of above two comparables. Assessee was providing ITES to its group entities, and two comparables were service providers to Citi group which was major customer. Therefore, there is complete functional similarity with that of Assessee. She submitted that impugned comparables offer very fine illustration of identical transaction being conducted in uncontrolled manner and hence are most opportune for computation of ALP. ITA 532/2019 Page 8 of 21 14. Ms. Malhotra submitted that as rightly pointed out by ITAT expenditure corresponding to contribution of TATA brand TCS E- serve Ltd. was only 0.43% of total operational expenses. That said comparables were owned by Tata group lent credence to TPO s conclusion that margins earned by them from CITI group, were on arm s length. She submitted that there is no case made out for excluding said two comparables. Analysis and reasons 15. above submissions have been considered. In large number of decisions this Court has emphasized, that for there to be reliable benchmark studies for determining ALP not only comparables have to be functionally similar but should have similar business environment and risks as tested party. detailed exposition of legal position with specific reference to Rule 10 B (2) of Income Tax Rules, 1962 is found in this Court s decision in Chryscapital Investment Advisors (India) Pvt. Ltd. v. DCIT 376 ITR 183 (Del) as under: 30. reasoning adopted in various judgments noticed above, shows that functional analysis seeks to identify and compare economically significant activities and responsibilities undertaken, assets used and risks assumed by parties to transaction. Quantitative and qualitative filters/criteria have been used in different cases to include or exclude comparables. intuitive logic for excluding big companies from list of comparables while undertaking FAR analysis of smaller company is attractive, given that such big companies provide services to diverse clientele, perform multifarious functions, often assume risks and employ intangible assets which are specially designed, unlike in case of smaller companies. bigger companies have ITA 532/2019 Page 9 of 21 established reputation in segment, are well known and employ economies of scale to telling end. On other hand, these obvious - and apparent features should not blind TPO from obligation to carry out transfer pricing exercise within strict mandate of Section 92 C and Rules 10-A to 10-E. 31. Arm's length price determination, in respect of international transaction has necessarily to confirm to mandate of Rule 10B. In this case, method followed for determining arm's length price of international transaction adopted by assessee and revenue is TNMM. comparability of international transaction with uncontrolled transaction has, in such cases, to be seen with reference to functions performed, taking into account assets employed or to be employed and risks assumed by respective parties to transaction as per rule 10B(2)(b). specific characteristics of property transferred or services provided (contemplated by Rule 10B(2)(a)) in either transactions may be secondary, for judging comparability of international transaction in TNMM, because price charged or paid for property transferred or services provided and direct and indirect cost of production incurred by enterprise in respect of property transferred or services provided go into reckoning comparability analysis in transaction methods, i.e. comparable uncontrolled price, resale price and cost plus whereas profit based method such as transactional net margin method takes into account, net margin realised. In TNMM, comparability of international transaction with uncontrolled transaction is to be seen with reference to functions performed as provided in sub-rule (2)(b) of rule 10B read with sub-rule (1)(e) of that rule after taking into account assets employed or to be employed and risks assumed by respective parties to transaction. As noticed earlier, Rule 10B(3) mandates that given or select uncontrolled transaction selected in terms of Rule 10B(2) "shall be comparable to international transaction" if none of differences, if any, between compared transactions, or ITA 532/2019 Page 10 of 21 between enterprises entering into such transactions are likely to materially affect price or cost charged or paid or profit arising from such transaction in open market or reasonably accurate adjustment can be made to eliminate effects of such difference. 32. Now, sequitur of Rule 10B (2) and (3) is that if comparable entity or entity s transactions broadly conform to assessee s functioning, it has to enter into matrix and be appropriately considered. crucial expression giving insight into what was intended by provision can be seen by use of expression: none of differences, if any, between transactions being compared, or between enterprises entering into such transactions are likely to materially affect price or cost charged or paid in, .. such transactions in open market. other exercise which TPO has to necessarily perform is that if there are some differences, attempt to "adjust" them to "eliminate material effects" should be made: (ii) reasonably accurate adjustments can be made to eliminate material effects of such differences. 33. Such being case, it is clear that exclusion of some companies whose functions are broadly similar and whose profile - in respect of activity in question can be viewed independently from other activities- cannot be subject to per se standard of loss making company or "abnormal" profit making concern or huge or "mega" turnover company. As explained earlier, Rule 10B (2) guides six methods outlined in clauses (a) to (f) of Rule 10B(1), while judging comparability. Rule 10B (3) on other hand, indicates approach to be adopted where differences and dissimilarities are apparent. Therefore, mere circumstance of company - otherwise conforming to stipulations in Rule 10B (2) in all details, presenting peculiar feature - such as huge profit or huge turnover, ipso facto does not lead to its exclusion. TPO, first, has to be satisfied that such differences do not materially affect price...or cost ; secondly, attempt to ITA 532/2019 Page 11 of 21 make reasonable adjustment to eliminate material effect of such differences has to be made. 34. Court is also aware of factors mentioned in Rule 10B (2), i.e. characteristics of service provided, functions performed taking into account assets employed or to be employed and risks assumed, by respective parties to transactions; contractual terms of transactions indicating how responsibilities, risks and benefits are to be divided between respective parties to transactions; conditions prevailing in markets in which respective parties to transactions operate, including geographical location and size of markets, laws and Government orders in force; costs of labour and capital in markets, overall economic development and level of competition and whether markets are wholesale or retail. These elements comprehend similarities and dissimilarities; clause (f) of Rule 10C(2) specifically provides that extent to which reliable and accurate adjustments can be made to account for differences, if any, between international transaction or specified domestic transaction and comparable uncontrolled transaction or between enterprises entering into such transactions and nature, extent and reliability of assumptions required to be made in application of method have to be taken into consideration by TPO. 36. This Court holds that in facts of present case, assessee was incorrect, both in its reliance placed upon previous years data as well as manner of such reliance. First, assessee s justification for relying on such data is volatility in comparables profit margins and consequent inability to transact at consistent ALP. However, this is not warranted herein. Whilst there may be wide fluctuation in profit margins of comparables from year-to- year, this by itself does not justify need to take into account previous years profit margins. transfer pricing mechanism provided in Act and Rules prescribes that while ITA 532/2019 Page 12 of 21 determining ALP, arithmetic mean of all comparables is to be adopted. This is to offset consequence of any extreme margins that comparables may have and arrive at balanced price. Similarly, wide fluctuations in profit margins of same entity on year-to-year basis would be offset by taking arithmetic mean of all comparables for assessment year in question. In any case, in event that volatility is on account of materially different aspect incapable of being accounted for, analysis under would Rule 10B (3) would exclude such entity from being considered as comparable. Secondly, as regards manner of using previous years data, assessee has taken arithmetic mean of comparables profit margins for assessment year in question and two previous years. This Court disagrees. proviso to Rule 10B(4), read with sub-rule, itself indicates that purpose for which previous years data may be considered is - analysing comparability of uncontrolled transaction with international transaction. It does not prescribe that once uncontrolled transaction has been held to be comparable , in order to obviate apparent volatility in data, arithmetic mean of three years (the assessment year in question and two previous years) may be taken. That would amount to assigning equal weight to data for each of three years, which is against mandate of Rule 10B(4). use of word shall in Rule 10B(4) and, noticeably, may in proviso, implies that relevant assessment year s data is of primary consideration, as opposed to previous years data. 39. This Court proceeds on basis that there is sufficient guidance and clarity in Rule 10B on principles applicable for determination of ALP. These include various factors to be taken into consideration, approach to be adopted (functions performed, taking into account risks borne and assets employed, size of market, nature of competition, terms of labour, employment and cost of capital, geographical location etc). extent of accurate adjustments possible, too, is factor to be considered. Rule 10B (3) then underlines what ALP determining exercise entails, if there are dissimilarities ITA 532/2019 Page 13 of 21 which materially affect price charged etc: first attempt has to be to eliminate components which so materially affect price or cost. In other words, given data available, if distorting factor can be severed and other data used, that course has to be necessarily adopted. (all emphasis in original) 16. In Rampgreen Solutions Pvt. Ltd. v. CIT (2015) 377 ITR 533 this Court further discussed Rule 10-B (2) of IT Rules. This Court pointed out how although both Knowledge Process Outsourcing (KPO) services and Business Process Outsourcing (BPO) services fall within broad definition of ITES, companies engaged in KPO services cannot be used as comparables for TP study of company engaged in providing BPO services. In that process, it was observed by this Court as under: 20. In order for benchmarking studies to be reliable for purposes of determining ALP, it would be essential that entities selected as comparables are functionally similar and are subject to similar business environment and risks as tested party. In order to impute ALP to controlled transaction, it would be essential to ensure that instances of uncontrolled entities/transactions selected as comparables are similar in all material aspects that have any bearing on value or profitability, as case may be of transaction. Any factor, which has influence on PLI, would be material and it would be necessary to ensure that comparables are also equally subjected to influence of such factors as tested party. This would, obviously, include business environment; nature and functions performed by tested party and comparable entities; value addition in respect of products and services provided by parties; business model; and assets and resources employed. It cannot be disputed that functions performed by entity would have material bearing on value and profitability of entity. It is, therefore, obvious that comparables selected ITA 532/2019 Page 14 of 21 and tested party must be functionally similar for ascertaining reliable ALP by TNMM. Rule 10B (2) of Income Tax Rules, 1962 also clearly indicates that comparability of controlled transactions would be judged with reference to factors as indicated therein. Clause (a) and (b) of Rule 10B (2) expressly indicate that specific characteristics of services provided and functions performed would be factors for considering comparability of uncontrolled transactions with controlled transactions. 30. As indicated above, in order to determine ALP in relation to controlled transaction, analysis must include comparables which are similar in all aspects that have material bearing on their profitability. Paragraph 1.36 of "OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations" published in 2010 (hereafter 'OECD Guidelines') indicates "comparability factors" which are important while considering comparability of uncontrolled transactions/entities with controlled transactions/entities. Sub-rule (2) of rule JOB of Income Tax Rules, 1962 also mandates that comparability of international transactions with uncontrolled transactions would be judged with reference to factors indicated under clauses (a) to (d) of that sub-rule, which are similar to comparability factors as indicated under OECD Guidelines. .. 36. As pointed out earlier, transfer pricing analysis must serve broad object of benchmarking international transaction for determining ALP. methodology necessitates that comparables must be similar in material aspects. comparability must be judged on factors such as product/service characteristics, functions undertaken, assets used, risks assumed. This is essential to ensure efficacy of exercise. There is sufficient flexibility available within statutory framework to ensure fair ALP". 17. above dictum was followed and reiterated in Avenue Asia Advisors ITA 532/2019 Page 15 of 21 Pvt. Ltd. v. Dy CIT (2017) 398 ITR 320 (Del) where this Court, inter alia, observed that though in TNMM method there is sufficient tolerance, mere broad functionality is by itself insufficient. 18. On aspect of exclusion of comparables that have high economic upscale viz., Infosys, TCS and Wipro, particular reference may be made to decision of this Court in PCIT v. BC Management Services Pvt. Ltd. (supra) where particular reference was made to TCS E-serve as under: 13. ...The third comparable that AO/TPO excluded is TCS E-serve. ITAT observed that though there is close functional similarity between that entity and assessee, however, there is close connection between TCS E-serve and TATA Consultancy Service Ltd. which was high brand value: that distinguished it and marked it out for exclusion. ITAT recorded that brand value associated with TCS Consultancy reflected impacted TCS E-serve profitability in very positive manner. This inference too in opinion of Court, cannot be termed as unreasonable. rationale for exclusion is therefore upheld. 19. same decision also noted that one reason for exclusion was unavailability of segmental data for above comparable. 20. In M/s. Oracle (OFSS) BPO Services Pvt. Ltd. (decision dated 5th February 2018 in ITA 124 of 2018) while upholding exclusion of M/s.Wipro Ltd. from list of comparables it was noted that ITAT took into account Related Party Transactions ( RPT ).The filter adopted was to exclude comparables with unrelated party transactions equal to or in excess of 75% of their business. ITAT did that on basis that Wipro ITA 532/2019 Page 16 of 21 Ltd. had significant brand presence in market and could, therefore, not be deemed to be comparable entity. This Court explained RPT filter as under: RPT filter, is relevant and fits in with overall scheme of transfer pricing study which is premised primarily on comparing light entities having similar if not identical functions. Therefore, if particular entity predominantly has transactions with its associate enterprise - in excess of certain threshold percentage, its profit making capacity may resulted in distorted picture, either way. 21. reference may next be made to decision in Principal Commissioner of Income Tax-3 v. Evalueserve Sez (Gurgaon) Pvt. Ltd. (supra) where reference is made to earlier decision to BC Management Services Pvt. Ltd. (supra). This decision dealt with exclusion of three specific comparables, which have also involved in present case namely M/s.TCS E-Serve Ltd., M/s.TCS E-Serve International Ltd. and M/s. Infosys BPO Ltd. This Court upheld exclusion of all three comparables and in particular since entities had high brand value and therefore were able to command greater profits; besides they operated on economic upscale. 22. Revenue s appeal against same Assessee for AY 2011-2012 against another order of ITAT excluding TCS E-Serve International Limited, Infosys BPO Limited from comparables met same fate. In its decision dated 29th August, 2018 Court referred to earlier decision dated 26th February, 2018 which again pertained to AY 2010-2011. Reference was again made to decision in BC Management Services ITA 532/2019 Page 17 of 21 Limited. 23. It appears therefore that this Court has consistently upheld decisions of ITAT excluding both these very comparables. ITAT itself appears to have taken consistent view in large number of cases excluding these two comparables and its decisions have been upheld by this Court. Illustratively reference may be made to decision of Tribunal in Vertex Customer Services India Private Limited v. DCIT (2017) 88 Taxmann.Com 286 (Del- Tri), Stryker Global Technology Centre Private Limited v. DCIT (2017) 87 Taxmann.com 43 (Del-Tri), Samsung Heavy Industries Private Limited v. DCIT (2017) 84 Taxmann.com 154 (Del-Tri) and Equant Solutions India Private Limited v. DCIT (2016) 66 Taxmann.com 192 (Delhi-Tribunal). 24. All of these decisions pertained to AY 2010-2011. What weighed invariably is fact that both companies had huge turnovers when compared to tested entity. Both entities had close connection of Tata Group of Companies and TCS E-Serve International had given huge amount to TCS towards brand equity. Further there was no segmental bifurcation between transaction processing and technical services. assets employed by TCS E-Serve along with huge intangibles in form of brand value were found to have definite considerable effect on its PLI. These factors vitiated its comparability under FAR analysis with tested company, which could be capital service provider without much intangible and risks. 25. In this context it requires to be noted that ITAT also referred to ITA 532/2019 Page 18 of 21 decision of this Court CIT v. Agnity India Technologies Private Limited (2013) 36 Taxmann.com 289. 26. Court may also note that Karnataka High Court has in PCIT v. Softbrands (2018) 406 ITR 513 (Kar) noted as under: 48. Tribunal of course is expected to act fairly, reasonably and rationally and should scrupulously avoid perversity in their Orders. It should reflect due application of mind when they assign reasons for returning particular findings. 49. For instance, while dealing with comparables of filters, if unequals like software giant Infosys or Wipro are compared to newly established small size Company engaged in Software service, it would obviously be wrong and perverse. very word comparable means that Group of Entities should be in homogeneous Group. They should not be wildly dissimilar or unlike or poles apart. Such wild comparisons may result in best judgment assessment going haywire and directionless wild, which may land up findings of Tribunal in realm of perversity attracting interference under section 260-A of Act. 27. There is merit in contention of Assessee that scale of operations of comparables with tested entity is factor that requires to be kept in view. TCS E-Serve has turnover of Rs.1359 crores and has no segmental revenue whereas Assessee s entire segmental revenue is mere 24 crores. As observed by this Court in its decision dated 5th August 2016 in ITA 417/2016(PCIT v. Actis Global Services Private Limited) Size and Scale of TCS s operation makes it inapposite comparable vis-a- vis Petitioner. As already pointed out earlier there is closer ITA 532/2019 Page 19 of 21 comparison of TCS E-Serve Limited with Infosys BPO Limited with each of them employing 13,342 and 17,934 employees respectively and making Rs.37 crores and Rs.19 crores as contribution towards brand equity. When Rule 10(B) (2) is applied i.e. FAR analysis, namely, functions performed, assets owned and risks assumed is deployed then brand and high economic upscale would fall within domain of assets and this also would make both these companies as unsuitable comparables. 28. Director s report of TCS E-Serve Limited bears out contention of Assessee that both entities have been leveraging TCSs scale and large client base to increase their business in significant way. submission that two comparables offer illustration of "an identical transaction being conducted in uncontrolled manner overlooks effect of Tata brand on performance of impugned comparables. question was not merely whether margins earned by Tata group in providing captive service to Citi entities were at arm s length. question was whether they offered reliable basis to re-calibrate PLI of Assessee whose scale of operations was of much lower order than two impugned comparables. mere fact that transactions were identical was not, in terms of law explained in above decisions, either sole or reliable yardstick to determine apposite choice of comparables. 29. For all of aforementioned reasons, Court finds merit in contention of Assessee that both impugned comparables viz., TCS E- Serve Limited and TCS E-Serve International Limited ought to be excluded from list of comparables for purposes of determining ALP of ITA 532/2019 Page 20 of 21 international transactions involving Assessee and its AEs. Conclusion 30. For aforementioned reasons, question framed is answered in negative i.e. in favour of Assessee and against Revenue. impugned order of ITAT as well as corresponding orders of DRP and TPO on issue are hereby set aside. appeal is allowed in above terms but in circumstances no order as to costs. S. MURALIDHAR, J. TALWANT SINGH, J. JULY 24, 2019 rd ITA 532/2019 Page 21 of 21 Avaya India Pvt. Ltd. v. ACIT