VERTEX CUSTOMER MANAGEMENT INDIA PVT. LTD.,NEW DELHI V. ADDL. CIT, NEW DELHI

ITA 66/DEL/2017

AI Insights

The case involves Vertex Customer Management India Pvt. Ltd., which appealed against the final assessment order passed by the Addl. CIT, Special Range-9, New Delhi, for the assessment year 2012-13. The primary contention in the appeal was related to the determination of the arm's length price (ALP) for international transactions involving IT-enabled and related services provided to associated enterprises (AEs). The TPO had rejected the assessee's transfer pricing documentation and analysis, leading to significant additions to the assessee's income. The Tribunal dismissed the appeal, agreeing with the tax authorities' findings and methodology in determining the ALP.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474527 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S.K. JHADAV
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts; Related party transaction
• Section: 143(3); 142(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: H : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.66/Del/2017 Assessment Year: 2012-13 Vertex Customer Management India Pvt. Ltd., 122, First Floor, Jaina Tower-1, Janakpuri District Centre, Janakpuri, New Delhi. PAN: AADCV7256M Vs Addl. CIT, Special Range-9, New Delhi. (Appellant) (Respondent) Assessee by : None Revenue by : Shri S.K. Jhadav, CIT-DR Date of Hearing : 01.04.2025 Date of Pronouncement : 02.04.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the Assessee against the final assessment order dated 31.10.2016 passed by the Addl. CIT, Special Range-9, New Delhi (hereinafter referred to as the Ld. AO) u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) for the assessment year 2012- 13. ITA No.66/Del/2017 2 2. None has appeared for the assessee at the time of hearing and, after going through the proceedings recorded so far in the order sheet, it appears the assessee is not inclined to contest the appeal. As for completeness, the proceedings recorded on 14.08.2024 are reproduced below:- “Assessee represented by: Shri Neeraj Jain Soni, AR Department represented by: Shri Rajesh Kumar, CIT (DR) An adjournment application dated 14/08/2024 was received in the matter. As per case records, the matter is very old and languishing for nearly 7 years in defiance of the spirit of section 254 (2A) of the Act. Multiple opportunities were given to Assessee in the past. Having regard to totality of circumstances, a last opportunity is provided to Assessee, to present its case on the next date of hearing, subject to payment of costs of Rs. 5,000/- to the Prime Minister National Relief Fund' and production of proof of payment. Adjourned to 04-Dec-2024 (Wednesday). Both parties are informed in the Court.” 3. The ld. DR was heard who has supported the findings of the ld. tax authorities below. 4. After going through the impugned orders of the ld. tax authorities below, we find that the assessee provides IT-enabled and related services to the third party customers and Vertex group companies under sub-contracts with Vertex group companies. The assessee claims the same to be routine BPO and IT- enabled services and IT related services to associated enterprises being less complex entity as it performs functions and assumes risks that are less extensive as compared to the AEs. The case of the assessee is that AEs, on the other hand, bear substantial risks and owns the intangibles associated with the Vertex ITA No.66/Del/2017 3 group’s business operations. The AO had made reference to Transfer Pricing Officer (TPO) for determination of the ALP of international transactions of the assessee and had further examined the return of the assesee and made the following additions:- Particulars Amount (INR) Returned income as per tax return filed by the Assessee in response to notice u/s 142(1) of the Act A (27,072,768) Additions/Disallowances: 1. TP addition as proposed by the learned TPO in order passed u/s 92CA(3) of the Act 179,909,412 2. Late payment of Employees Contribution 1,689,740 3. Loans/Advances written off 743,473 4. Travelling and conveyance expenses 4,697,320 Sub-total of additions/disallowances B 187,039,945 Income assessed as per draft assessment order C=A+B 159,967,177 5. In the TP order dated 29 January 2016, the learned TPO did not agree with the analysis undertaken by the Assessee for the international transactions pertaining to provision of IT enabled services and provision of IT and related services to AEs (“also referred to as impugned transactions\") and rejected the TP documentation maintained by the Assessee. As with regard to the Provision of IT enabled services and IT and related services, the learned TPO did not concur with the analysis undertaken by the Assessee with respect to the provision of routine IT enabled services and IT and related services. In the order under section 92CA, the learned TPO was of the view that in determining the arm's ITA No.66/Del/2017 4 length nature of the international transactions of the Assessee, the latest available financial information of comparable companies pertaining to FY 2011-12 should be used instead of multiple year data used by the Assessee in its- TP documentation, as it is contemporaneous and is in accordance with the requirements under Rule 10B(4) of the Rules. The learned TPO identified new comparables at the time of assessment proceedings. The learned TPO was of the view that the comparable companies identified by the Assessee and the approach adopted were not appropriate. The learned TPO rejected the economic analysis undertaken by the Assessee and applied filters as well as modified the filters applied by the Assessee in its TP documentation. The learned TPO did not consider the segmental margin of the Assessee as submitted during the course of assessment proceedings. Accordingly, the learned TPO rejected certain comparable companies identified by the Assessee and picked additional comparables, based on the following criterion: a. Use of current year data (i.e. data pertaining to FY 2011-12 only) as against multiple year data used in the TP documentation; b. Reject companies having a financial year ending other than 31 March or companies not having data of 12 month period i.e. 01 April 2011 to 31 March 2012; c. Reject companies having a turnover of less than INR 1 crore; d. Rejection of companies whose software development services/ IT enabled services is less than 75 percent of its total operating revenues; ITA No.66/Del/2017 5 e. Rejection of companies whose export income is less than 75 percent of the sales; f. Rejection of companies having more than 25 percent related party transactions (RPT) (sales as well as expenditure combined) of the sales. g. Rejection of companies that have employee cost that is less than 25 percent of turnover; h. Reject companies that are affected by peculiar economic circumstances (including persistent losses, declining sales, etc); and i. Reject companies that are functionally different to the Assessee. 6. The learned TPO considered provision for doubtful debts and bank charges, as non-operating item while determining operating profits of tested party as well as comparables. The learned TPO did not provide any adjustment towards differences in the risk profile of the identified comparable companies vis-a-vis the Assessee. Accordingly the learned TPO passed an order dated 29 January 2016 where the ALP of provision of IT enabled services and provision of IT and related services rendered by the Assessee was re-determined and the same has been tabulated below: Particulars Provision of IT Enabled services Provision of IT and related services Working capital adjusted margin of comparable companies as determined by learned TPO 28.07% 22.31% Margin of the Assessee as considered in the TP documentation 15.55% 13.57% Margin considered by the learned 13.39% 13.57% ITA No.66/Del/2017 6 TPO in the TP order ALP as determined by learned TPO (INR) 605,820,846 118,200,282 Actual international transaction value (INR) 434,354,141 109,757,575 Addition proposed by learned TPO (INR) 171,466,705 8,442,707 7. Accordingly, the learned TPO made an addition of Rs.179,909,412/- to the total income of the Assessee in arising from its international transactions. Relying on the TP analysis undertaken by the learned TPO, the learned AO determined the ALP of the international transactions of the Assessee to be greater than the ALP determined by the Assessee, resulting in an addition to the income of the Assessee. 8. After taking into consideration the orders of the ld. tax authorities below, we find no reason to interfere in the aforesaid conclusions as there is nothing on record to support any contrary view. 9. As with regard to the remaining grounds also there is nothing to substantiate the case of the assessee that the disallowances were otherwise not called for. 10. In the light of the aforesaid discussion, the appeal of the assessee is dismissed. Order pronounced in the open court on 02.04.2025. Sd/- Sd/- (MANISH AGARWAL) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER ITA No.66/Del/2017 7 Dated: 02nd April, 2025. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "