The Transfer Pricing Officer has put Infosys into my comparables. I am a small captive software unit working only for my parent - can I get it thrown out?
Yes. The Delhi High Court upheld the Tribunal's exclusion of Infosys Technologies Ltd from the comparable set of a captive software developer. Infosys was a giant with Rs.9,028 crore of revenue against the assessee's Rs.16.09 crore, it bore full entrepreneurial risk, owned branded products, spent heavily on advertising and research, and delivered half its work onsite. The assessee was a risk-free captive doing only offshore contract development for its parent. With Infosys and Satyam out, the one surviving comparable gave 11.11%, below the assessee's own 17% margin. No substantial question of law arose and the Revenue's appeal was dismissed.
Decided by the High Court (High Court of Delhi at New Delhi - Sanjiv Khanna and Sanjeev Sachdeva, JJ. (oral judgment per Sanjiv Khanna, J.)) on 2013-07-10, reported as ITA 1204/2011 (Delhi High Court). It bears on section 92C, section 92CA, section 144C of the Income Tax Act 1961, in Assessment & Scrutiny and Appeals matters.
This is the case practitioners cite to knock a giant out of a comparable set, and it is cited constantly. Its value is the table the High Court reproduced: risk profile, nature of services, revenue scale, ownership of branded or proprietary products, onsite versus offshore delivery, and spend on advertising and research and development. Those are the headings on which a captive can be shown to be different in kind, not merely in degree, from a full-fledged entrepreneur. Equally useful is the procedural point: the Revenue lost partly because it never controverted the assessee's tabulated comparison in its grounds of appeal. The judgment shows that a comparability challenge is won on documented functional differences, not on argument.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee, for assessment year 2006-07, was a wholly owned subsidiary of Bay Packets Inc, USA, developing telecommunications software for its parent. It returned income of Rs.8,31,720. Because it had international transactions with an associated enterprise, the matter went to the Transfer Pricing Officer, who proposed an adjustment of Rs.3,73,74,985. The assessee was asked to rework its comparables, which came down to 20, and the Transfer Pricing Officer then directed that Infosys Technologies Ltd be included. He finally used three comparables - Satyam Computer Services Ltd at 30.07%, L&T Infotech Ltd at 11.11% and Infosys Technologies Ltd at 40.08% - giving an arithmetic mean of 27.08%. The Dispute Resolution Panel dropped Satyam and directed the arm's length value to be recomputed at an operating profit to total cost ratio of 25.6%, leaving an addition of Rs.1,24,01,451. The Tribunal excluded Infosys as well. The Revenue appealed to the High Court.
The Revenue's appeal was dismissed; no substantial question of law arose. The High Court held the Tribunal had given valid and good reasons for treating Infosys Technologies Ltd as not comparable to the assessee. It noted that Satyam Computer Services Ltd was, by common consent, to be left out. Once both were removed, the only comparable remaining from the Transfer Pricing Officer's own set was L&T Infotech Ltd at 11.11%, which was below the 17% margin the assessee had itself declared. The Court also recorded the Tribunal's finding that the assessee had put forward workings for 23 companies whose mean came to 10%, again against its declared 17%. The addition therefore could not stand.
The Court began from the Tribunal's finding that Infosys was a large and bigger company in software development whose profits could not be benchmarked against the assessee's. The Revenue argued the Tribunal had merely set out a table of differences without recording findings on them. The Court accepted that only in part. The Tribunal had said in terms that Infosys was to be excluded because it was a giant in software development which assumed all risks and so earned higher profits, whereas the assessee was a captive unit of its parent bearing only limited risk. More importantly, the tabulated differences were themselves decisive and the Revenue had not controverted or denied them in its grounds of appeal. The table showed Infosys operating as a full-fledged risk-taking entrepreneur across diversified lines - consulting, application design, development, re-engineering, maintenance, systems integration and business process management - with revenue of Rs.9,028 crore, proprietary products including Finacle, about half its work delivered onsite at customers' premises, Rs.61 crore on advertising and brand building and Rs.102 crore on research and development. The assessee provided only offshore contract software development to its associated enterprises at minimal risk, on revenue of Rs.16.09 crore, owned no products, and spent nothing on advertising or research. The Court also noted the Transfer Pricing Officer's own wage to sales filter of 30% to 60%, by which he had excluded several companies, yet had retained Infosys. On these uncontested facts the exclusion was a finding of fact, not a question of law.
Infosys Technologies Ltd. should be excluded from the list of comparables for the reason latter was a giant company in the area of development of software and it assumed all risks leading to higher profits.
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Handle my notice → Ask a CA on WhatsAppYes. The Delhi High Court upheld the Tribunal's exclusion of Infosys Technologies Ltd from the comparable set of a captive software developer. Infosys was a giant with Rs.9,028 crore of revenue against the assessee's Rs.16.09 crore, it bore full entrepreneurial risk, owned branded products, spent heavily on advertising and research, and delivered half its work onsite. The assessee was a risk-free captive doing only offshore contract development for its parent. With Infosys and Satyam out, the one surviving comparable gave 11.11%, below the assessee's own 17% margin. No substantial question of law arose and the Revenue's appeal was dismissed. This was decided by the High Court (High Court of Delhi at New Delhi - Sanjiv Khanna and Sanjeev Sachdeva, JJ. (oral judgment per Sanjiv Khanna, J.)) and bears on section 92C, section 92CA, section 144C of the Income Tax Act 1961. It is reported as ITA 1204/2011 (Delhi High Court). This is the case practitioners cite to knock a giant out of a comparable set, and it is cited constantly. Its value is the table the High Court reproduced: risk profile, nature of services, revenue scale, ownership of branded or proprietary products, onsite versus offshore delivery, and spend on advertising and research and development. Those are the headings on which a captive can be shown to be different in kind, not merely in degree, from a full-fledged entrepreneur. Equally useful is the procedural point: the Revenue lost partly because it never controverted the assessee's tabulated comparison in its grounds of appeal. The judgment shows that a comparability challenge is won on documented functional differences, not on argument. If it applies to you, the first step is this: Build the exclusion case as a table - risk borne, functions, turnover, intangibles owned, onsite versus offshore mix, advertising and R&D spend - and file it before the Transfer Pricing Officer, not for the first time in appeal.
The assessee, for assessment year 2006-07, was a wholly owned subsidiary of Bay Packets Inc, USA, developing telecommunications software for its parent. It returned income of Rs.8,31,720. Because it had international transactions with an associated enterprise, the matter went to the Transfer Pricing Officer, who proposed an adjustment of Rs.3,73,74,985. The assessee was asked to rework its comparables, which came down to 20, and the Transfer Pricing Officer then directed that Infosys Technologies Ltd be included. He finally used three comparables - Satyam Computer Services Ltd at 30.07%, L&T Infotech Ltd at 11.11% and Infosys Technologies Ltd at 40.08% - giving an arithmetic mean of 27.08%. The Dispute Resolution Panel dropped Satyam and directed the arm's length value to be recomputed at an operating profit to total cost ratio of 25.6%, leaving an addition of Rs.1,24,01,451. The Tribunal excluded Infosys as well. The Revenue appealed to the High Court. The matter was decided on 2013-07-10 by the High Court (High Court of Delhi at New Delhi - Sanjiv Khanna and Sanjeev Sachdeva, JJ. (oral judgment per Sanjiv Khanna, J.)). On those facts the High Court held as follows. The Revenue's appeal was dismissed; no substantial question of law arose. The High Court held the Tribunal had given valid and good reasons for treating Infosys Technologies Ltd as not comparable to the assessee. It noted that Satyam Computer Services Ltd was, by common consent, to be left out. Once both were removed, the only comparable remaining from the Transfer Pricing Officer's own set was L&T Infotech Ltd at 11.11%, which was below the 17% margin the assessee had itself declared. The Court also recorded the Tribunal's finding that the assessee had put forward workings for 23 companies whose mean came to 10%, again against its declared 17%. The addition therefore could not stand.
The Court began from the Tribunal's finding that Infosys was a large and bigger company in software development whose profits could not be benchmarked against the assessee's. The Revenue argued the Tribunal had merely set out a table of differences without recording findings on them. The Court accepted that only in part. The Tribunal had said in terms that Infosys was to be excluded because it was a giant in software development which assumed all risks and so earned higher profits, whereas the assessee was a captive unit of its parent bearing only limited risk. More importantly, the tabulated differences were themselves decisive and the Revenue had not controverted or denied them in its grounds of appeal. The table showed Infosys operating as a full-fledged risk-taking entrepreneur across diversified lines - consulting, application design, development, re-engineering, maintenance, systems integration and business process management - with revenue of Rs.9,028 crore, proprietary products including Finacle, about half its work delivered onsite at customers' premises, Rs.61 crore on advertising and brand building and Rs.102 crore on research and development. The assessee provided only offshore contract software development to its associated enterprises at minimal risk, on revenue of Rs.16.09 crore, owned no products, and spent nothing on advertising or research. The Court also noted the Transfer Pricing Officer's own wage to sales filter of 30% to 60%, by which he had excluded several companies, yet had retained Infosys. On these uncontested facts the exclusion was a finding of fact, not a question of law. In the words reproduced by the source cited on this page: "Infosys Technologies Ltd. should be excluded from the list of comparables for the reason latter was a giant company in the area of development of software and it assumed all risks leading to higher profits."
It was decided by the High Court on 2013-07-10 and is reported as ITA 1204/2011 (Delhi High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 92C, section 92CA, section 144C, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeal was dismissed; no substantial question of law arose. The High Court held the Tribunal had given valid and good reasons for treating Infosys Technologies Ltd as not comparable to the assessee. It noted that Satyam Computer Services Ltd was, by common consent, to be left out. Once both were removed, the only comparable remaining from the Transfer Pricing Officer's own set was L&T Infotech Ltd at 11.11%, which was below the 17% margin the assessee had itself declared. The Court also recorded the Tribunal's finding that the assessee had put forward workings for 23 companies whose mean came to 10%, again against its declared 17%. The addition therefore could not stand. It arises in Assessment & Scrutiny and Appeals matters, on section 92C, section 92CA, section 144C of the Income Tax Act 1961, and was decided by High Court of Delhi at New Delhi - Sanjiv Khanna and Sanjeev Sachdeva, JJ. (oral judgment per Sanjiv Khanna, J.). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show that you are a captive bearing limited risk and that the proposed comparable is a full-risk entrepreneur owning branded products. Put the comparable's own annual report figures on record; unrebutted data decides these appeals. Work out the margin after the giant is excluded and show it supports your declared result.
Still good law. The full text of this short oral judgment was read, ending in the operative dismissal. It is very widely followed on comparable exclusion. I have not searched for any special leave petition against it, so that is not stated either way. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment does not cite section or rule numbers expressly - it speaks of the Transfer Pricing Officer, the Dispute Resolution Panel and arm's length value. The sections listed are the provisions those references answer to, not text quoted from the judgment. The batch line cites Rule 10B and Rule 10B(2); the Court does not mention either. No reporter citations were supplied, so the appeal number is used. The Tribunal's own order was not read, only the High Court's account of it. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was dismissed; no substantial question of law arose. The High Court held the Tribunal had given valid and good reasons for treating Infosys Technologies Ltd as not comparable to the assessee. It noted that Satyam Computer Services Ltd was, by common consent, to be left out. Once both were removed, the only comparable remaining from the Transfer Pricing Officer's own set was L&T Infotech Ltd at 11.11%, which was below the 17% margin the assessee had itself declared. The Court also recorded the Tribunal's finding that the assessee had put forward workings for 23 companies whose mean came to 10%, again against its declared 17%. The addition therefore could not stand.
TaxSphere, “CIT v Agnity India Technologies P Ltd”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-agnity-india-technologies-p-ltd/ (validity last checked 2026-08-29)
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