Sapient Corporation Pvt Ltd vs. DCIT (ITAT Delhi)

DATE: (Date of pronouncement)
DATE: May 6, 2011 (Date of publication)

Click here to download the judgement (sapient_corp_super_profit_co_TNMM.pdf)

Transfer Pricing: Loss-making & super-profit companies are not comparable

The assessee claimed that its international transactions of software development was at arms length under TNMM on the basis that its average operating profit ratio (OP/TC) was higher than that of 10 comparable companies. The TPO & DRP rejected a few comparables on the ground that they were loss-making and recomputed the OP/OC of the other comparables at a higher rate. Before the Tribunal, the assessee claimed that if loss making companies were excluded, a super profit earning company should also be removed from the comparables. HELD upholding the plea:

When loss making companies have been taken out from the list of comparables by the TPO, Zenith Infotech Ltd. which showed super profits should also be excluded. The fact that assessee has himself included in the list of comparables, initially cannot act of estoppel particularly in light of the fact that the AO had only chosen the companies which are showing profits and had rejected the other companies which showed loss (Quark System vs. DCIT 38 SOT 307 (SB) followed).

See Also: DHL Express (India) (ITAT Mumbai) (Low T/O companies are not comparable) & Adobe Systems India (ITAT Delhi) (super-normal profit companies to be excluded)

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