Patni Telecom Solutions Pvt. Ltd. v.CIT(Hyd) (Trib.)

S.92C:Avoidance of tax- Transfer pricing: Turnover filter must be applied to exclude giant

companies from comparison.

The assessee, a provider of software development services, claimed that in determining the ALP under

TNMM, Infosys Technologies & Wipro were not comparable entities given their extreme large turnover

in comparison to that of the assessee. To oppose this, the Department relied on Capgemini India (ITAT

Mum) where it was held that the concept of economy of scale was not applicable to service oriented

companies and that the turnover filter could not be applied to exclude companies with an extremely

large turnover. HELD by the Tribunal:

Though in Capgemini it was held that the concept of economy of scale is relevant only for

manufacturing concerns, which have high fixed assets, and not for service concerns and that the

turnover filter cannot be applied to exclude companies with an extremely large turnover from

comparison, a contrary view has been taken in Dy. CIT v. Deloitte Consulting India (P) Ltd. (2012) 145

TTJ 589 (Hyd) that “giant” companies like Wipro are not at all comparable with smaller “pygmy”

companies. Consequently, giant companies line Wipro and Infosys cannot be taken as comparables as

their turnover is multiple numbers of times higher compared to that of the assessee and the TPO erred

in considering their PLI to arrive at the arithmetic mean. (A. Y. 2008-2009)