M/s. Genpact Services LLC (India Branch), New Delhi V. ADIT, New Delhi

ITA 2024/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8324 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 11-04-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 04-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Assessee Lawyers: DIVESH KHANNA
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM ITA NO.2024/DEL/2014 ASSESSMENT YEAR : 2009-10 GENPACT SERVICES LLC (INDIA BRANCH), DELHI INFORMATION TECHNOLOGY PARK, SHASTRI PARK, NEW DELHI. PAN: AACCG3353P VS. ADIT, CIRCLE 1(2), INTERNATIONAL TAXATION, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : MS DEEPA NANDA, CA, SHRI MANMEET VIJ, CA & SHRI DIVESH KHANNA, CA DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR DATE OF HEARING : 11.04.2016 DATE OF PRONOUNCEMENT : 12.04.2016 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) READ WI TH SECTION 144C OF ITA NO.2024/DEL/2014 2 THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED ` THE ACT) ON 30.01.2014 IN RELATION TO THE ASSESSMENT YEAR 2009- 10. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE MAKING OF ADDITION AMOUNTING TO RS.1,31,19,435/- ON ACCOUNT O F TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSING OFFICER (AO). 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS AN INDIAN BRANCH OF GENPACT SERVICES LLC, A US CORPORATION. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS INVOLVED IN P ROVIDING COLLECTIONS/CALL CENTRE SERVICES AND RELATED BACK O FFICE SUPPORT SERVICES, MAINLY FOR THE CUSTOMERS OF ITS ASSOCIATED ENTERPRI SE (AE). THE ASSESSEE IS RESPONSIBLE FOR EXECUTING THE COLLECTIONS/CALL C ENTRE SERVICES FROM SUCH CONTACTS FROM THE FACILITY IN INDIA. THE ASSESSEE REPORTED THREE INTERNATIONAL TRANSACTIONS IN FORM NO.3CEB INCLUDIN G `PROVISION OF SERVICES WITH TRANSACTED VALUE OF RS.9,47,14,980. ON A REFERENCE MADE BY THE AO TO THE TRANSFER PRICING OFFICER (TPO), TH E LATTER TOOK UP DETERMINATION OF THE ARMS LENGTH PRICE (ALP) OF TH ESE INTERNATIONAL TRANSACTIONS. THE TPO DISPUTED CORRECTNESS OF THE ALP OF THE ITA NO.2024/DEL/2014 3 INTERNATIONAL TRANSACTION OF `PROVISION OF SERVICES ONLY. HE OBSERVED THAT THE ASSESSEE HAD SELECTED ITSELF AS A TESTED P ARTY FOR CHARACTERIZING IT AS A ROUTINE BPO SERVICE PROVIDER ASSUMING LIMITED RISKS ASSOCIATED WITH CARRYING OUT SUCH BUSINESS. TRANSACTIONAL NET MARGI N METHOD (TNMM) WAS SELECTED AS THE MOST APPROPRIATE METHOD WITH TH E PROFIT LEVEL INDICATOR OF OPERATING PROFIT/TOTAL COST (OP/TC). C ERTAIN COMPARABLES WERE CHOSEN WHOSE PROFIT MARGIN WAS DEMONSTRATED WI THIN THE PERMISSIBLE RANGE OF THE ASSESSEES PROFIT MARGIN A T 8%. THE TPO MADE CERTAIN ALTERATIONS IN THE COMPANIES CHOSEN BY THE ASSESSEE AS COMPARABLE INASMUCH AS CERTAIN COMPANIES WERE EXCLU DED AND CERTAIN NEW COMPANIES, INCLUDING E-CLERX SERVICES LTD., WER E INCLUDED. WITH THE FINAL SET OF COMPARABLES OF FOUR COMPANIES, THE TPO DETERMINED THEIR MEAN PROFIT MARGIN AT 27.98%. THE SAME WAS A PPLIED TO THE OPERATING COSTS INCURRED BY THE ASSESSEE AT RS.8.76 CRORE AND ODD TO RECOMMEND TRANSFER PRICING ADJUSTMENT OF RS.1.75 CR ORE. THE ASSESSEE CHALLENGED THE DRAFT ORDER, INCORPORATING ADDITION TOWARDS THE TRANSFER PRICING ADJUSTMENT, BEFORE THE DISPUTE RESOLUTION P ANEL (DRP) WHO GAVE CERTAIN DIRECTIONS. COMPLYING WITH THE SAME, A FINAL ADDITION OF ITA NO.2024/DEL/2014 4 RS.1,31,19,435/- CAME TO BE MADE BY THE AO IN HIS F INAL ORDER, WHICH IS SUBJECT MATTER OF THE EXTANT APPEAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ABOUT THE A PPLICATION OF THE TNMM AS THE MOST APPROPRIATE METHOD WITH THE PLI OF OP/TC. THE ASSESSEE HAS CHALLENGED NO ISSUE OTHER THAN CERTAIN COMPARABLES CHOSEN BY THE TPO. IN FACT, THE LD. AR RESTRICTED HERSELF TO CHALLENGING THE INCLUSION OF E-CLERX SERVICES LTD. ONLY, IN THE LIS T OF COMPARABLES BY THE TPO. 5. BEFORE EMBARKING UPON THE COMPARABILITY OR OTHER WISE OF E-CLERX SERVICES LTD., IT IS SIGNIFICANT TO NOTE THE FUNCTI ONAL PROFILE OF THE ASSESSEE. WE HAVE NOTICED ABOVE THAT THE ASSESSEE IS INVOLVED IN PROVIDING COLLECTIONS/CALL CENTRE SERVICES AND RELA TED BPO SERVICES FOR CUSTOMERS OF ITS AES. WE HAVE ALSO GONE THROUGH TH E ASSESSEES TRANSFER PRICING STUDY REPORT WHICH IS AVAILABLE IN THE PAPER BOOK. PAGE 4 OF THE TP STUDY REPORT INDICATES THAT THE GROUP W ITH ITS HEADQUARTER LOCATED IN BERMUDA, HAS OPERATIONS IN CERTAIN OTHER COUNTRIES. THE GROUP ITA NO.2024/DEL/2014 5 PROVIDES A WIDE RANGE OF BUSINESS PROCESS, TECHNOLO GY AND KNOWLEDGE SERVICES INCLUDING FINANCE AND ACCOUNTING, COLLECTI ONS AND CUSTOMER RELATIONS, INSURANCE, PROCUREMENT AND SUPPLY CHAIN, ANALYTICS, SOFTWARE, IT INFRASTRUCTURE, CONTENT SOLUTIONS AND RE-ENGINEERING. BY OFFERING THESE SERVICES, GENPACT DRAWS ON THREE COR E CAPABILITIES PROCESS EXPERTISE, ANALYTICAL CAPABILITIES AND TECH NOLOGY EXPERTISE AS WELL AS THE OPERATIONAL INSIGHT GAINED FROM THE EXP ERIENCE OF MANAGING NUMEROUS PROCESSES IN DIVERSE INDUSTRIES. THE SERVI CES OF THE ASSESSEE GIVEN TO ITS AES HAVE BEEN ENUMERATED IN PARAS 1.2. 3 AND 1.2.4 OF ITS TP STUDY REPORT, WHICH DISCERN THAT THE ASSESSEE IS A SERVICE PROVIDER, UNDERTAKING OFFSHORE BUSINESS PROCESS OUTSOURCING ( BPO) SERVICES INCLUDING COLLECTIONS/CALL CENTRE SERVICES AND OTHE R BACK OFFICE SUPPORT SERVICES FOR THE CUSTOMERS OF HUNGARY BRANCH. THE ASSESSEE IS RESPONSIBLE FOR EXECUTING THE DESIGNATED BPO/COLLEC TIONS SERVICES FOR SUCH CONTRACTS FROM FACILITY IN INDIA. IT DELIVERS SUCH SERVICES IN ACCORDANCE WITH THE REQUIREMENTS AND STUDY SCHEDULE S PROVIDED BY THE HUNGARY BRANCH. THE ASSESSEE PRIMARILY FOCUSES ON COLLECTIONS ACTIVITY CONCENTRATING ON THE COLLECTIONS ON THE END CUSTOME RS BUSINESSES. IN THE ITA NO.2024/DEL/2014 6 COLLECTIONS AREA, THE ASSESSEE FOLLOWS PROCESSES TH AT ENHANCE ITS CUSTOMERS PERFORMANCE IN RELATION TO RECOVERY OF T HEIR DEBTS. ABOVE NARRATION FROM THE ASSESSEES TP STUDY REPORT ALONG WITH THE TPOS ORDER MAKES IT MANIFEST THAT THE ASSESSEE IS ENGAGED IN R ENDERING BPO SERVICES WHICH ARE IN THE NATURE OF COLLECTIONS/CALL CENTRES MAINLY FOR THE CUSTOMERS OF ITS AE, WHICH POSITION HAS NOT EVEN BE EN DISPUTED BY THE TPO AS WELL. 6. IN SO FAR AS E-CLERX SERVICES LTD. IS CONCERN ED, WE HAVE GONE THROUGH ITS ANNUAL REPORT FOR THE YEAR UNDER CONSID ERATION, A COPY OF WHICH HAS BEEN MADE AVAILABLE. IT MAY BE NOTICED FR OM SUCH ANNUAL REPORT THAT THIS COMPANY PROVIDES SALES AND MARKETI NG SUPPORT SERVICES TO LEADING GLOBAL MANUFACTURING, RETAIL, TRAVEL AND LEISURE COMPANIES. SUCH SERVICES ARE AIMED AT SUPPORTING THEIR E-COMME RCE ACTIVITIES. CLIENTS USE ITS PRICING AND PROFITABILITY SERVICES TO BENCHMARK THEIR PORTFOLIO OF PRODUCTS AGAINST PRICING OFFERED BY CO MPETITORS AND TO IDENTIFY OPPORTUNITIES TO ADJUST PRICES TO ACHIEVE OPTIMAL REVENUE AND MARGIN. E-COMMERCE RELATED SERVICES PROVIDED BY TH IS COMPANY INCLUDE ITA NO.2024/DEL/2014 7 CONTENT DEVELOPMENT, WEB ANALYTICS AND CUSTOMER EXP ERIENCE MANAGEMENT. IT IS EVIDENT FROM PAGE 5 OF THE ANNUAL REPORT OF THIS COMPANY THAT IT: MADE AN INHERENTLY NICHE, HIGH-EN D KPO DATA ANALYTICS BUSINESS SCALABLE BY COMBINING PEOPLE, PROCESS, R E-ENGINEERING AND AUTOMATION IN A POTENT MIX TO BUILD PROPRIETARY, PL ATFORM-BASED SERVICES. A GLANCE AT THE FUNCTIONAL PROFILE OF T HIS COMPANY DIVULGES THAT IT IS BASICALLY A KNOWLEDGE PROCESS OUTSOURCIN G (KPO) COMPANY PROVIDING DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO GLOBAL CLIENTS. THIS COMPANY PROVIDES END TO END SUPPORT THROUGH TR ADE LIFE CYCLE INCLUDING TRADE CONFIRMATIONS AND SETTLEMENTS ETC. IT ALSO PROVIDES SALES AND MARKETING SUPPORT SERVICES TO LEADING GLOBAL MA NUFACTURING, RETAIL, TRAVEL AND LEISURE COMPANIES THROUGH ITS PRICING AN D PROFITABILITY SERVICES. FROM THE ABOVE DISCUSSED NATURE OF BUSIN ESS CARRIED ON BY E- CLERX SERVICES LTD., IT IS PATENT THAT THE SAME BEI NG A KPO COMPANY, IS QUITE DIFFERENT FROM THE ASSESSEE, PROVIDING ONLY I T ENABLED SERVICES TO ITS AE, WHICH FALL IN THE REALM OF BPO SERVICES. AP ART FROM THAT, IT IS FURTHER OBSERVED THAT THIS COMPANY HAS SIGNIFICANT INTANGIBLES WHICH IT USES IN RENDERING KPO SERVICES, AGAINST WHICH THE A SSESSEE DOES NOT ITA NO.2024/DEL/2014 8 HAVE ANY INTANGIBLES. AS SUCH, E-CLERX SERVICES LT D. CANNOT BE CONSIDERED AS COMPARABLE. 7. THE HONBLE JURISDICTIONAL HIGH COURT IN RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT (2015) 279 CTR 441 (DEL) , HAS HELD THAT E-CLERX SERVICES LTD., BEING ENGAGED IN KPO, CANNOT BE TREA TED AS COMPARABLE OF AN ASSESSEE ENGAGED IN RENDERING BPO SERVICES. I N VIEW OF THE DIRECT JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT O N THE POINT, WE DIRECT TO ELIMINATE E-CLERX FROM THE LIST OF COMPAR ABLES. 8. THE IMPUGNED ORDER IS, THEREFORE, SET ASIDE AND THE MATTER IS SENT BACK TO THE TPO/AO FOR RE-DETERMINING THE ALP OF TH E INTERNATIONAL TRANSACTION OF THE ASSESSEE BY EXCLUDING E-CLERX SE RVICES LTD. FROM THE LIST OF COMPARABLES. 9. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 12.04.20 16. SD/- SD/- [C.M. GARG] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, APRIL, 2016. ITA NO.2024/DEL/2014 9 DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.