BT E-SERV (INDIA) PVT. LTD.,NEW DELHI V. ACIT, CIRCLE- 5(1), NEW DELHI

ITA 7725/DEL/2017

AI Insights

The case involves BT E Serv India Pvt. Ltd., which appealed against the assessment order passed by the Assistant Commissioner of Income Tax, Circle-5(1), New Delhi, for the assessment year 2013-14. The appeal was primarily concerned with the inclusion and exclusion of certain comparable companies in the Transfer Pricing Officer's (TPO) analysis for determining the arm's length price of international transactions with associated enterprises. The Tribunal examined the functional, asset, and risk profiles of the comparable companies and previous judicial decisions to arrive at its decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 30497 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Other Referred Cases: PCIT v. B.C. Management Services (P) Ltd., Ramp Green Solutions P. Ltd. v. CIT, PCIT v. e-Value Serve HPZ, Gurgaon Ltd., Capgemini India (P) Ltd. v. ACIT, PCIT v. WSP Consultants India Pvt. Ltd., BMW India Pvt. Ltd. v. DCIT, CIT v. M/s Pentair Water India Pvt. Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: INR
• Keywords: Transfer pricing; International transaction; Related party transaction
• Section: 143(3); 271(1)(c); 92CA; 234B; 92D

Judgement Text

"1 ITA no. 7725/Del/2017 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘I’ NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI AVDHESH KUMAR MISHRA, ACCOUNTANT MEMBER ITA No. 7725/Del/2017 Assessment Year: 2013-14 BT E Serv India Pvt. Ltd., 11th Floor, Eros Corporate Tower, Nehru Place, New Delhi-110019. PAN: AADCB 2533 M Vs ACIT, Circle-5(1), New Delhi. APPELLANT RESPONDENT Assessee represented by Sh. Vishal Kalra, Adv.; Sh. Ankit Sahani, Adv.; & Sh. Yishu Goel, AR Department represented by Shri Dharamvir Singh, CIT(DR) Date of hearing 07.11.2024 Date of pronouncement 29.01.2025 O R D E R PER SATBEER SINGH GODARA, J.M: This assessee’s appeal for assessment year 2013-14 arises against the learned Assistant Commissioner of Income Tax, Circle5(1), New Delhi’s assessment framed on 26.10.2017, in compliance to the learned Dispute Resolution Panel-I, New Delhi’s directions dated 22.09.2017, in proceedings u/s 143(3) read 2 ITA no. 7725/Del/2017 with section 144C(1) of the Income-tax Act, 1961, hereinafter referred to as the ‘Act’. Heard both the parties at length. Case file perused. 2. The assessee pleads the following substantive grounds in the instant appeal: “1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer (\"AO\") is bad in law and void ab- initio. 2. That on facts and circumstances of the case and in law, the Ld. AO/ Ld. Transfer Pricing Officer (\"TPO\")/ Hon'ble Dispute Resolution Panel (\"DRP\") erred on facts and circumstances of the case in determining the arm's length adjustment to the Appellant's alleged international transaction with Associated Enterprises (\"AES\"), thereby resulting in the enhancement of returned income of the Appellant by INR 37,313,120. 3. That the Ld. AO/ Ld. TPO/ Hon'ble DRP erred on facts and in law in the assessment of the arm's length price of the Appellant's international transactions from associated enterprises in the following manner. 3.1 The Ld. AO/ Ld. TPO/ Hon'ble DRP erred on facts and in law to modify, based on his subjective grounds and presumptions, the comparability analysis conducted by the Appellant for determining the arm's length price in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'). 3.2 The Ld. AO/ Ld. TPO/ Hon'ble DRP erred in rejecting the comparable companies adopted by the Appellant on the basis of additional/ modified quantitative filters selected by the Ld. TPO and arbitrary statements that lacked valid and sufficient reasoning. 3.3 The Ld. AO/ Ld. TPO/ Hon'ble DRP has erred by selecting certain companies which were not comparable by way of functions and assets in order to determine the arm's length margin applicable to the Appellant and also erred by rejecting certain companies which 3 ITA no. 7725/Del/2017 were comparable by way of functions and assets in order to determine the arm's length margin applicable to the Appellant. 4. The Ld. AO/ Ld. TPO/ Hon'ble DRP erred in arbitrarily rejecting the risk adjustment contended by the Appellant in its transfer pricing submissions without taking cognizance of the fact that the Appellant does not bear significant business and operational risks while rendering services to its overseas affiliates. 5. The Ld. AO/ Ld. TPO/ Hon'ble DRP erred in disregarding the multiple year data selected by the Appellant in the TP Documentation and in selecting the current year (i.e. financial year 2012-13) data for comparability despite the fact that at the time of comparison done by the Appellant, the complete data for financial year 2012-13 was not available within the public domain. 6. That the Ld. AO/ Hon'ble DRP erred in facts and in law in charging interest under section 234B and 234C of the Act 7. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act, for disallowances made under section 92CA(3) without recording any adequate reason for such initiation.” 3. Mr. Vishal Kalra submits at the outset that the assessee’s ground nos. 1, 4,5,6 & 7 are general, not pressed and consequential in nature respectively. Rejected accordingly. 4. It is next noticed that the assessee’s remaining third substantive ground herein is directed against the learned lower authorities’ action, inter alia, including four entities i.e. Eclerx Services Ltd.; TCS E-serve Ltd.; Infosys BPO Ltd.; and Tech. Mahindra Ltd.; having operative profits/ operating cost rate of 58.78%, 4 ITA no. 7725/Del/2017 63.4%, 29.46%; and 21.33% respectively and excluding M/s ACE BPO Services Pvt. Ltd. from the array of comparables. 5. It is in this limited backdrop that we advert to the basic relevant facts. This assessee M/s BT E Serv India Pvt. Ltd., is a company, subsidiary of its eponymous BT Global Communications (Mauritius) Ltd., which stood incorporated on 12.10.2007. It is engaged in providing IT-enabled services and back office support services to the said group entities. The assessee has admittedly filed its return on 29.11.2013 declaring income of Rs. 12,550/- . Learned Assessing Officer took up scrutiny. He noticed that the assessee’s form 3CEB had disclosed international transactions with the overseas enterprises AEs, in the nature of provision of IT-enabled services amounting to Rs. 1,11,23,74,622/- in the relevant previous year. He accordingly made section 92CA reference to the Transfer Pricing Officer (‘TPO’) to determine the arm’s length price (‘ALP’) thereof. 6. It was next the learned TPO’s turn to deal with the assessee’s aforesaid international transactions. He, inter alia, noticed it’s OP/OC @ 15.01% declared thereupon. As we are dealing with the limited issue of the alleged wrongful inclusion and exclusion (supra) of the above stated five comparable entities, it is deemed appropriate not to deal it further with the relevant factual matrix at length for the sake of brevity. 5 ITA no. 7725/Del/2017 7. Learned counsel first of all takes us to M/s Eclerx Services Ltd.’s alleged wrongful inclusion in the array of comparables. He invites our attention to the Tribunal’s order dated 19.06.2018 in assessee’s appeal itself ITA no. 6690/Del/2016 (A.Y. 2012-13) at pages 20-22, holding the said entity as a ‘KPO’ i.e. engaged in knowledge processing outsourcing segment than in IT-enabled services, thereby not satisfying the clinching of ‘FAR’ i.e. “functional asset and risk” test. The very issue further appears to have arisen between the parties in A.Y. 2011-12 as well wherein the earlier learned coordinate bench accepted its corresponding substantive grounds in ITA no. 99/Del/2016, decided on 30.10.2017 (pages 61-62). We are further informed that earlier learned coordinate bench had quoted case law (2018) 89 taxmann.com 68 (Delhi) PCIT v. B.C. Management Services (P) Ltd.; (2015) 60 taxmann.com 355 (Delhi) Ramp Green Solutions P. Ltd. v. CIT; and PCIT v. e-Value Serve HPZ, Gurgaon Ltd. in IT appeal 241/2018 (Delhi) having already decided the very issue against the department. 8. Next comes the second comparable entity herein taken by the learned TPO, namely, M/s TCS E-serve Ltd. A perusal of the case herein indicates that the earlier learned coordinate bench’s very order and various judicial precedents have already directed exclusion thereof in assessee’s favour and against the department i.e. pages 20-22 in A.Y. 2012-13 and pages 61-62 ( A.Y. 2011-12), thereby concluding that it was providing ‘high end’ services including transaction 6 ITA no. 7725/Del/2017 processing, technical service which involved software testing, verification and validation of software etc. as against the simple back support services in question. And that the learned DRP’s direction in A.Y. 2011-12 had directed exclusion of M/s TCS E-serve Ltd. as not functionally similar entity. 9. Learned counsel further submits that the third entity herein i.e. Infosys BPO Ltd. has also failed ‘FAR’ test in assessee’s case itself in A.Y. 2012-13 (pages 15- 17), inter alia, on the ground that it was involved in ‘niche’ segments of insurance, banking, financial services, manufacturing and telecom etc. along with eponymous brand name as against the IT-enabled segment herein (supra). And also that there arose an extraordinary event of acquisition of Australian based entity herein namely M/s Portland Group Pty Ltd. during F.Y. 2011-12 as well. It is further stated that this third entity also does not satisfy the related party turnover filter up to 25% as the corresponding percentage in it’s case is 60.02%. 10. Coming to M/s. Tech. Mahindra Ltd., Mr. Kalra’s case before us is that not only its turnover is Rs. 6001.9 crores as against the assessee’s figures of Rs. 111.23 crores herein but also it had amalgamated with M/s Mahindra Satyam on 24.06.2012 (page 372 in paper book). It is further highlighted that as against the TPO’s turnover filter with related party transaction of 25&, its corresponding transaction with related parties is 42.88%. 7 ITA no. 7725/Del/2017 11. Learned counsel lastly seeks to include M/s ACE BPO Services Pvt. Ltd. in the array of assessee’s comparables that it duly satisfies ‘FAR’ test and the lower authorities herein have erred in law and on facts in directing exclusion thereof. We put a specific question to the learned counsel to pin point the corresponding revenue segment in the IT-enabled services. No clear cut response came from the taxpayer’s side. That being the case, we hereby see no merit in the assessee’s instant last argument seeking to include M/s ACE BPO Services Pvt. Ltd. 12. It was next the Revenue’s turn to defend the learned lower authorities’ action including the foregoing four entities in the array of comparables. Learned CIT(DR) submits in light of (2013) 33 taxmann.com 5 (Bombay-Trib.) Capgemini India (P) Ltd. v. ACIT (Bombay- trib.) that turnover filters are relevant only for the limited purpose to ensure a level playing field to certain extent than altogether exclusion of the comparable entities. He further placed strong reliance on (2017) 87 taxmann.com 266 (Delhi) PCIT v. WSP Consultants India Pvt. Ltd. that any inclusion or inclusion of comparable per se neither forms a substantial question of law nor a binding precedent, as the case may be as each assessment year carries its own set of facts. Mr. Singh further placed strong reliance on BMW India Pvt. Ltd. v. DCIT (2017) 190 TTJ 717 (Delhi) to buttress the point that such a segment of receipt/provision of IT-enabled services involves its own set of facts which is to be independently examined in each and every assessment year. 8 ITA no. 7725/Del/2017 13. We have given our thoughtful consideration to the foregoing rival submissions qua inclusion of the four entities herein i.e. Eclerx Services Ltd.; TCS E-serve Ltd.; Infosys BPO Ltd.; and Tech. Mahindra Ltd. and see no reason to sustain the learned lower authorities action to this effect. We wish to make it clear that although the Revenue’s foregoing vehement contention that each and every assessment year involves its own set of facts could not be simply brushed aside, the fact however remains that it is incumbent for the department only to pin point specific distinction in light of the corresponding change in the specified segment involved in such an instance. We further deem it appropriate to emphasize here that right from A.Y. 2010-11 to A.Y. 2013-14 before us, the assessee’s corresponding segment of IT-enabled services has not witnessed any change at all which could take us to a different conclusion as it is projected at the Revenue’s behest. Suffice to say, it has come on record that assessee has already succeeded on the very issue in these very similar set of facts wherein the learned coordinate benches have directed exclusion of the three foregoing entities herein since not satisfying ‘FAR’ analysis. Learned counsel has also made it a point to refer to the relevant case records to this clinching fact. 14. Coupled with this what we note is that two of the four entities in question herein i.e. Infosys BPO Ltd.; and M/s Tech. Mahindra Ltd. had witnessed extraordinary event of acquisition (supra) in the relevant prescribed time period of 9 ITA no. 7725/Del/2017 two years prior to the relevant financial year as per Rule 10B(4) 1st proviso as well and, therefore, these two entities do not deserve to be included in the array of comparables. The Revenue could further not dispute that these latter two entities i.e. Infosys BPO Ltd.; and Tech. Mahindra Ltd. do not satisfy the corresponding relevant related party transaction filter of less than 25% adopted by the TPO himself as well. 15. Learned CIT(DR) at this stage sought to buttress the point that the assessee’s vehement contentions seeking to exclude the foregoing comparable entity by applying turnover filter do not deserve to be accepted. We find in this factual backdrop that hon’ble Bombay High Court in CIT v. M/s Pentair Water India Pvt. Ltd. (2016) 381 ITR 216 (Bombay) has already rejected the Revenue’s very argument involving M/s Infosys BPO Ltd., thereby upholding the tribunal’s order directing exclusion thereof on turnover filter. The Revenue’s instant last argument fails in very terms therefore. We accordingly accept the assessee’s instant third substantive ground to the limited extent seeking exclusion of these four entities namely Eclerx Services Ltd.; TCS E-serve Ltd.; Infosys BPO Ltd.; and Tech. Mahindra Ltd. and direct the learned TPO to finalize his afresh computation as per law in very terms. Ordered accordingly. No other ground or argument was raised/pressed before us. 10 ITA no. 7725/Del/2017 20. This assessee’s appeal is partly allowed for statistical purpose in above terms. Order pronounced in open court on 29.01.2025. Sd/- Sd/- (AVDHESH KUMAR MISHRA) (SATBEER SINGH GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "