Facts:
For AY 2007-08, the Assessee was engaged in the business of providing customer supporting services in the form of email support, voice support & chatting and financial information support for customers identified by the AEs. The TPO selected M/s.Eclerx Services Ltd as a comparable. The CIT(A) observed that Eclerx has an operating profit of 89.36%, which is abnormal operating profit and rejected the comparable. The Revenue filed appeal to ITAT.
Decision:
The Tribunal upheld the order of the CIT(A). The ITAT observed that the share holding pattern of the company is a decisive factor to determine the goodwill earned by the company, which will directly attribute to the profit of the company. The ITAT observed that when the majority of the shares are held by Renowned Personalities in the field of business it will definitely influence the profitability of the company. The fact that 80% of the shares of M/s.Eclerx Services Ltd., is held by local business magnets of great prominence is not disputed. The ITAT further observed that the turnover of the company will also determine the strength of the company to earn more profits. Further, it is a known fact that when a business entity is totally depended on a single client, the bargaining power of the company will be very limited to secure higher rates for services rendered. The capital infrastructure of the company will also influence the profitability of the company. Higher the capital infrastructure, higher will be the profitability. Eclerx was thus rejected as a comparable.