BP INDIA SERVICE P.LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 3892/MUM/2015

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3408 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 23-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V K AGARWAL
• Assessee Lawyers: ARPIT AGARWAL
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH , JUDICIAL MEMBER ITA NO. 3892/MUM/2015 : A.Y : 2010 - 11 BP INDIA SERVICE PRIVATE LIMITED TECHNOPOLIS KNOWLEDGE PARK, MAHAKALI CAVES ROAD, CHAKALA, ANDHERI (E), MUMBAI 400 093. PAN : AACCB2030Q (APPELLANT) VS. DCIT - 8(1), MUMBAI (RESPONDENT) APPELLANT BY : SHRI DHANESH BAFNA & SHRI ARPIT AGARWAL RESPONDENT BY : SHRI V.K. AGARWAL DATE OF HEARING : 27/08/2019 DATE OF PRONOUNCEMENT : 21 /11/2019 O R D E R PER SHAMIM YAHYA , ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF LEARNED CIT(A) DATED 25.03.2015 AND PERTAINS TO ASSESSMENT YEAR 2010 - 11 . 2. THE GROUNDS OF APPEAL READ AS UNDER : - ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DY. COMMISSIONER OF INCOME TAX 8(1) (AO') ERRED IN CONCLUDING THE ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) READ WITH SECTION 144C(3)(A) OF THE ACT, AS FOLLOWS : - 1. DETERMINING THE ARMS - LENGTH PRICE OF THE APPELLANTS INTERNATIONAL TRANSACTIONS OF PROVISION OF BUSINESS SUPPORT SERVICES AT RS.103,50,58,324 INSTEAD OF RS.89,76,90,729 AS DETERMINED BY THE APPELLANT; 2 ITA NO. 3892/MUM/2015 BP INDIA SERVICE PVT. LTD. 2. DISREGARDING THE APPELLANTS TRANSFER PRICING D OCUMENTATION AND CONDUCTING HIS OWN COMPARABILITY ANALYSIS WHICH IS NOT IN ACCORDANCE WITH THE CONTEMPORANEOUS DOCUMENTATION REQUIREMENT OF THE INDIAN TP REGULATIONS; 3. REQUIRING FINANCIAL DATA OF ONLY THE CURRENT YEAR (FY 2009 - 10) OF THE COMPARABLE COMP ANIES TO BE USED FOR BENCHMARKING THE APPELLANTS INTERNATIONAL TRANSACTIONS; 4. NOT GRANTING THE BENEFIT OF WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENT THOUGH THE WORKING CAPITAL ADJUSTMENT WAS ALLOWED IN APPELLANTS OWN CASE FOR AY 2008 - 2009; 5. DIS REGARDING THE APPELLANTS CLAIM OF EXCLUSION OF THE COST RELATING TO RETIREMENT BENEFITS OF THE APPELLANTS EMPLOYEES WHICH WERE SECONDED TO THE AE'S. 6. DISREGARDING THE CONCEPT OF BASE EROSION AND RAISING THE INCOME OF THE APPELLANT BY ADJUSTMENT WITH R EGARDS TO SERVICES RENDERED TO BP EXPLORATION (ALPHA) LIMITED INDIA PROJECT OFFICE. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO CONSIDER THE INTERNATIONAL TRANSACTION OF THE APPELLANT AS ARMS LENGTH AND ACCORDINGLY THE TRANSFER PRICING ADJUSTMENT OF RS.13,73,67,595 SHOULD BE DELETED. 3. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS. THE ASSESSEE IS ENGAGED IN PROVIDING BACK OFFICE SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES (AES). THE ASSESSEE COMPUTED ITS MARGIN AT 10.31% ON TOTAL OPERATING COST AFTER MAKING SUO MOTO TRANSFER PRICING ADJUSTMENT OF RS.6,16,00,440/ - . THE ASSESSEE CHOSE TRANSACTIONAL NET MARGIN METHOD (TNMM) TO BENCHMARK THE TRANSACTION OF SUPPORT SERVICES AND ADOPTED OPERATING PROFIT/TOTAL OPERATING COST AS PROFIT LEVEL INDI CATOR. THE ASSESSEE CHOSE A SET OF 9 COMPARABLES AND ARRIVED AT A MEAN OF 10.92%. SINCE THE ASSESSEES MARGIN WAS WITHIN + 5% OF THE ARMS LENGTH PRICE, THE INTERNATIONAL TRANSACTION OF PROVISION OF BACK OFFICE SUPPORT SERVICES TO AES WAS HELD AT ARMS LENGTH. THE LEARNED TRANSFER PRICING OFFICER 3 ITA NO. 3892/MUM/2015 BP INDIA SERVICE PVT. LTD. (TPO) REJECTED ALL THE 9 COMPARABLES SELECTED BY THE ASSESSEE AND CARRIED OUT F RESH SEARCH STRATEGY AND CHOSE THE FOLLOWING 4 COMPARABLES : - SR. NO. PARTICULARS MARGIN % 1 E4E HEALTHCARE LTD. 19.46% 2 COSMIC GLOBAL LTD. 14.97% 3 ACCENTIA TECHNOLOGIES LTD. 43.06% 4 INFOSYS BPO LTD. 31.20% AVERAGE 27.17% ACCORDINGLY, THE TPO MADE AN UPWARD ADJUSTMENT OF RS.13,73,67,595/ - . THE LEARNED CIT(A) CONFIRMED THE TRANSFER PRICING ADJUSTMENT MADE BY THE TPO. AGAINST THIS, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS REGARDS THE ISSUE OF TRANSFER PRICING ADJUSTMENT, HE SHALL BE CONFINING HIS ARGUMENT TO THE EXCLUSION OF FOLLOWING COMPARABLES : - I) INFOSYS BPO LTD. II) ACCENTIA TECHNOLOGIES LTD. THE L EARNED COUNSEL SU BMITTED THAT HE SHALL BE PLEADING FOR INCLUSION OF OMEGA HEALTHCARE MANAGEMENT SERVICES LTD. AS A COMPARABLE. FOR EXCLUSION OF INFOSYS BPO LTD AS A COMPARABLE , T HE LEARNED COUNSEL CONTENDED THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 200 9 - 10 HAS HELD THAT THIS COMPANY IS NOT COMPARABLE TO THE ASSESSEE. THE RELEVANT PARA READS AS UNDER: - 8(III) THIS COMPANY TOO HAS BEEN DIRECTED TO BE EXCLUDED BY THE TRIBUNAL ON THE GROUND THAT, IT HAS A HUGE BRAND VALUE AND IS AN ESTABLISHED PLAYER AND IS ALSO A MARKET LEADER HAVING HUGE DIFFERENCE IN ECONOMICS OF SCALE AND 4 ITA NO. 3892/MUM/2015 BP INDIA SERVICE PVT. LTD. DIVERSITY OF GEOGRAPHICAL DISPERSION O F CUSTOMERS. FROM THE MAIN DIFFERENCE AS POINTED OUT IN THE CHART REPRODUCED ABOVE, IT IS SEEN THAT, ITS EXPENDITURE ON ADVERTISEMENT AND BRAND BUILDING IS RS.63.64 CRORE AS AGAINST THE NIL OF THE ASSESSEE, BECAUSE THE ASSESSEE IS RISK MITIGATING COMPAN Y PROVIDING 100% SERVICES TO ITS AE. THUS, THIS COMPARABLE IS ALSO DIRECTED TO BE EXCLUDED FOLLOWING EARLIER YEARS PRECEDENCE AND THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES IN THIS YEAR. ACCORDINGLY, THIS COMPANY IS DIRECTED TO BE EXCLUDED. 5 . THE LEARNED COUNSEL FURTHER SUBMITTED THAT IN SEVERAL CASE LAWS, THIS COMPANY WAS HELD TO BE NOT COMPARABLE ON ACCOUNT OF INTANGIBLES, BRAND VALUE AND MARKETING INTANGIBLES. 6. AS REGARDS EXCLUSION OF ACCENTIA TECHNOLOGIES LTD., THE LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT THIS COMPANY HAS BEEN AMALGAMATED WITH THE ASSESSEE W.E.F. 1 ST APRIL, 2008. HE FURTHER STATED THAT THE FINANCIALS OF THE ASSESSEE ARE INCLUSIVE OF FIGURES OF THE AMALGAMATING COMPANY AND HENCE MARGIN OF THIS ARE AFFECTED ON A CCOUNT OF THIS EXTRAORDINARY ACTIVITY. THEREFORE, HE SUBMITTED , IT CANNOT BE ACCEPTED AS A COMPARABLE. HE ALSO PLEADED THAT THIS COMPANY IS PROVIDING LICENSE TO CUSTOMERS WITH RESPECT TO SOFTWARE . T HAT THIS COMPANY IS ALSO USING THIRD PARTY AS WELL AS P ROPRIETARY SOFTWARE AND THAT THE COMPANY HAS DEVELOPED VARIOUS SOFTWARE PRODUCTS. THE LEARNED COUNSEL FURTHER SUBMITTED THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 - 10, THE TRIBUNAL HAS HELD THIS COMPANY TO BE NOT COMPARABLE TO THE ASSESSEE. THE RELEVANT PARA OF THE SAID ORDER READS AS UNDER : - 8(IV) REGARDING THIS COMPANY, IT HAS BEEN SUBMITTED BEFORE US THAT IT IS ENGAGED IN PROVIDING HIGH END HEALTH CARE MANAGEMENT SERVICES SUCH AS MEDICAL TRANSCRIPTION, MEDICAL CODING, BILLING AND RECEIVABLE MANAGEMENT, THAT APART, THIS COMPANY IS ALSO DEALING IN SOFTWARE PRODUCTS FOR BPO FOR WHICH NO SEGMENT DETAILS ARE AVAILABLE. AS POINTED OUT, THE BPO SERVICES WHICH CAN BE SAID TO BE COMPARABLE WITH THE ASSESSEE, HAS NOT BEEN STARTED 5 ITA NO. 3892/MUM/2015 BP INDIA SERVICE PVT. LTD. IN THIS YEAR AND THI S COMPANY HAS UNDERTAKEN CERTAIN ACQUISITION, THEREFORE, DUE TO SUCH EXTRA ORDINARY ACTIVITIES AND NON - SUPPORTING OF BPO SERVICES, THIS COMPANY CANNOT BE HELD TO BE COMPARABLE ATLEAST IN THE ASSESSMENT YEAR. THE LD. COUNSEL HAS ALSO RELIED UPON CERTAIN DE CISIONS AS CORROBORATED ABOVE, WHEREIN, FOR THE SAME ASSESSMENT YEAR, IT HAS BEEN HELD TO BE NOT COMPARABLE WITH THE COMPANIES PROVIDING BPO/ITES SERVICES AND FURTHER, THE BPO SERVICES OF ITS COMPANY HAD NOT BEEN STARTED IN AY 2009 - 10. THE RELEVANT OBSERV ATIONS OF THE TRIBUNAL IN THE AFORESAID DECISIONS HAVE ALREADY BEEN REPRODUCED ABOVE. THUS, THIS COMPANY TOO IS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABILITY ANALYSIS. 7 . IT WAS FURTHER SUBMITTED THAT IN SEVERAL CASE LAWS FOR THE SAID ASSESSMENT YEAR, THIS COMPANY WAS EXCLUDED ON ACCOUNT OF EXTRAORDINARY ACTIVITIES AND FUNCTIONAL DIFFERENCES AS ENGAGED IN SOFTWARE PRODUCTS. 8 . AS REGARDS THE REASONS FOR INCLUSION OF OMEGA HEALTHCARE MANAGEMENT SERVICES PVT. LTD., IT WAS SUBMITTED THAT THE TPO REJECTED THIS COMPANY ON THE BASIS THAT THE FINANCIALS ARE NOT AVAILABLE IN THE PUBLIC DOMAIN. IT IS SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND HAS BEEN SO ACCEPTED BY THE TPO FOR ASSESSMENT YEAR 2009 - 10. 9 . AS REG ARDS THE WORKING CAPITAL ADJUSTMENT, IT HAS BEEN SUBMITTED THAT ASSESSEE RELIES UPON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 - 10, WHEREIN THE TRIBUNAL HAS DIRECTED TO GRANT WORKING CAPITAL ADJUSTMENT TO THE ASSESSING OFF ICER/TPO OBSERVING AS UNDER : - 10. NOW COMING TO ASSESSEES PLEA FOR WORKING CAPITAL ADJUSTMENT, WE DIRECT THE TPO TO EXAMINE THE SAME AS IN THE EARLIER YEARS THE TPO HIMSELF HAS GRANTED SUCH AN ADJUSTMENT. IN THE PAPER BOOK THE ASSESSEE HAS FILED WORKI NG CAPITAL ADJUSTMENT WHICH ARE APPEARING AT PAGES 107, 108 & 109 - A. THE TPO SHALL EXAMINE THE SAME AND DECIDE THIS ISSUE ACCORDINGLY. 6 ITA NO. 3892/MUM/2015 BP INDIA SERVICE PVT. LTD. 10 . UPON CAREFUL CONSIDERATION WE DIRECT AS UNDER : - I) INFOSYS BPO LTD. AND ACCENTIA TECHNOLOGIES LTD. BE EXCLUDED F ROM THE LIST OF COMPARABLES AS ALREADY FOUND INCOMPARABLE IN ASSESSEES OWN CASE BY ITAT AS ABOVE; II) OMEGA HEALTHCARE MANAGEMENT SERVICES BE INCLUDED AS COMPARABLE AS THE FINANCIALS ARE NOW AVAILABLE AND IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 - 1 0, REVENUE HAS ACCEPTED THE SAME AS COMPARABLE; III) AS REGARDS ASSESSEES PLEA OF WORKING CAPITAL ADJUSTMENT, WE FOLLOW THE DIRECTION OF THE TRIBUNAL IN ASSESSEES OWN CASE AS ABOVE. THE TPO IS DIRECTED TO FOLLOW THE SAME. 1 1 . AS REGARDS GROUND NOS. 5 AND 6, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE SHALL NOT BE PRESSING THE SAME. HENCE, THESE GROUNDS ARE DISMISSED AS NOT PRESSED. 1 2 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OP EN COURT ON 2 1 S T NOVEMBER, 2019. SD/ - SD/ - (AMARJIT SINGH) JUDICIAL MEMBER (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI, DATE : 2 1 S T NOVEMBER, 2019 *SSL* 7 ITA NO. 3892/MUM/2015 BP INDIA SERVICE PVT. LTD. COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, K BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI