WNS BUSINESS CONSULTING SERVICES PVT. LTD.,MUMBAI V. DCIT, NEW DELHI

ITA 3353/DEL/2017

AI Insights

The case involves WNS Business Consulting Services Private Limited, which appealed against the order of the Learned Commissioner of Income-Tax (Appeals)-44, New Delhi, concerning the assessment year 2010-11. The primary issues revolved around transfer pricing adjustments made by the Deputy Commissioner of Income Tax, Circle 18(1), New Delhi, which were contested by the assessee on various grounds including the arm's length nature of international transactions and the appropriateness of selected comparable companies for benchmarking. The Tribunal's decision focused on procedural fairness and the need for a comprehensive re-evaluation of certain aspects of the transfer pricing assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 776788 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2025
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 26-05-2017
• Other Referred Cases: Willis Processing Services (I) (P) Ltd. Vs. DCIT-2(3), Mumbai, Actis Advisors (P.) Ltd. Vs. DCIT, DCIT, Circle 1(2), Hyderabad Vs. Vishal Information Technology Ltd.
• Laws Referred To: Income Tax Act, 1961
• Court: TRIBUNAL
• Department Lawyers: BHOPAL SINGH
• Assessee Lawyers: S TARANDEEP SINGH; SANDEEP; REFERRING
• Keywords: Set aside; Opportunity of being heard; Transfer pricing; International transaction; Initiation of penalty proceedings
• Section: 143(3); 271(1)(c); 10B

Judgement Text

" INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “I”: NEW DELHI BEFORE SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No. 3353/Del/2017 Assessment Year: 2010-11 WNS Business Consulting Services Private Limited (Earlier known as WNS Mortgage Services Private Limited) PL No.10, Gate no.4, Godrej & Boyce Complex, Pirojshanagar, LBS Marg, Vikhroli (West), Mumbai. PIN: 400 079 PAN: AABCT8951H Vs. Deputy Commissioner of Income Tax, Circle 18(1), New Delhi (Appellant) (Respondent) O R D E R PER VIMAL KUMAR, JUDICIAL MEMBER: The assessee’s appeal is against Order dated 18.11.2016 of Learned Commissioner of Income-Tax(Appeals)-44, New Delhi (hereinafter referred as the “Ld. CIT(A)”) under Section 250(6) of the Income Tax Act, 1961 (hereinafter referred as “the Act”) arising out of order dated 21.04.2014 of the Learned Assessing Officer/Deputy Commissioner of Income Tax. Circle-18(1), Assessee by: S/Shri Tarandeep Singh & Sandeep Yadav, Advs. Department by: Shri Bhopal Singh, Sr. DR Date of Hearing: 31.07.2025 Date of pronouncement: 17.09.2025 Printed from counselvise.com ITA No.3353/Del/2017 2 New Delhi ((hereinafter referred as the “Ld. AO”) for the assessment year 2010- 11. 2. Brief facts of the case are that on 08.10.2010, assessee company filed its return of income declaring income of Rs.2,45,09,358/- which was processed under Section 143(1) of the Act. The case was selected for scrutiny. Notice under Section 143(2) dated 25.08.2011 was issued. Ms. Amit Vasudeva, CA appeared on behalf of the assessee company attended assessment proceedings, filed submissions and details etc. Draft assessment order under Section 144C(1) of the Act was passed on 14.02.2014. Period of 30 days for filing objections to DRP was up to 16.03.2014. The assessee had not intimated about filing of objection to Ld. DRP. So, Ld. AO vide order dated 21.04.2014 made addition of Rs.67,69,727/-. 3. Against order dated 21.04.2014 of Ld. AO, the appellant/assessee filed appeal before Ld. CIT(A) which was partly allowed vide order dated 18.11.2016. 4. Being aggrieved, the appellant/assessee preferred present appeal with following grounds of appeal: “General Ground 1. The Hon'ble CIT(A)/ Deputy Commissioner of Income-tax-18(1), New Delhi ('learned AO') erred in adjusting the total taxable income of the Appellant for Assessment Year ('AY') 2010-11 instead of accepting the income offered by the Printed from counselvise.com ITA No.3353/Del/2017 3 Appellant in the income tax return for the subject AY under normal provisions of the Act. Your Appellant prays that the entire adjustment upheld by the Hon'ble CIT(A) in his order should be deleted. Transfer Pricing Grounds General ground challenging the transfer pricing adjustment 2. The Hon'ble CIT(A)/ learned TPO erred in law and in facts, in making transfer pricing adjustment under Section 92C(4) of the Act to the total income of the Appellant on the premise that the international transaction of provision of information technology ('IT') enabled services entered by the Appellant with its Associated Enterprises ('AEs') was not at arm's length. Your appellant prays that the entire transfer pricing adjustment be deleted. Reference made to the learned Transfer Pricing Officer 3. The learned AO erred in making a reference of the Appellant's case to the Deputy Director of Income Tax, Transfer Pricing Officer 11(7), New Delhi ('learned TPO'), without undertaking a case specific evaluation for deciding whether a reference should be made to the learned TPO, thereby making the entire process of referring the matter to the learned TPO as invalid. 4. The learned AO failed to grant an opportunity of being heard to the Appellant at the time when the reference was made to the learned TPO. Your Appellant prays that the reference of the Appellant's case to the Learned TPO should be considered bad in law and void and accordingly the entire adjustment to the total income made by the learned TPO/ Hon'ble CIT(A) should be deleted Economic analysis undertaken by the Appellant 5. The Hon'ble CIT(A)/ learned TPO erred in law and in facts, in rejecting the benchmarking analysis undertaken by the Appellant in its transfer pricing documentation, maintained under Rule 10D(4) of the Income-tax Rules, 1962 Printed from counselvise.com ITA No.3353/Del/2017 4 ('Rules') for its international transaction of providing IT enabled services without satisfying the conditions set out in Section 92C(3) of the Act. 6. The Hon'ble CIT(A)/ learned TPO erred in law and in facts, in not accepting the Appellant's contention that the benchmarking analysis should be undertaken by using three year weighted average data of comparables and instead determining the arm's length margin using data of comparables for only FY 2009-10, which was not available to the Appellant at the time of complying with the transfer pricing documentation requirements. Your Appellant prays that the economic analysis undertaken by the Appellant using 3-year weighted average data of comparables, in accordance with the provisions of the Act read with the Rules, should be upheld. Appellant's comparable companies rejected by the Hon'ble CIT(A)/ learned TPO 7. The Hon'ble CIT(A)/ learned TPO erred in rejecting Aditya Birla Minacs Worldwide Limited, Datamaties Financial Services Limited and Axis IT & T Limited as comparable companies on the premise that only companies having an export turnover exceeding 75% should be considered comparable to the Appellant for its international transaction of provision of IT enabled services. 8. The Hon'ble CIT(A)/ learned TPO erred in rejecting the company Caliber Point Business Solutions Limited on the premise that companies having a different accounting years cannot be considered comparable. 9. The Hon'ble CIT(A) erred in rejecting the company Microland Limited by alleging that the company having turnover of less than one crore should not be considered. Your Appellant prays that the above companies are comparable to the Appellant and should be included in the final set of comparable companies. Comparables introduced by the learned TPO and upheld by the Hon'ble CIT(A) 10. The Hon'ble CIT(A)/ learned TPO erred in considering TCS e-Serve International Limited and TCS e-Serve Limited as comparable to the Appellant for benchmarking the international transaction of provision of IT enabled services. Your Appellant prays that the aforesaid mentioned companies should be rejected as comparable companies. Printed from counselvise.com ITA No.3353/Del/2017 5 Erroneous margin computation of comparable companies 11. Without prejudice to the above, the learned TPO/ Hon'ble CIT(A) have erred in computing the operating margins of certain companies considered to be comparable to the Appellant. Your Appellant prays that the correct operating margins should be used for calculating the arm's length margin. Operating Margin of the Appellant 12. The Hon'ble CIT(A)/ learned TPO erred in determining the Appellant's operating margin to be 9.47% on operating costs instead of the operating margin of 19.72% on operating costs as determined by the Appellant on account of 'Gratuity provision written back', 'Excess provision written back' and 'Miscellaneous income' being considered to be non-operating in nature. Your Appellant prays that operating margin as computed by the Appellant during the course of transfer pricing assessment proceedings should be upheld. Risk Adjustment 13. The Hon'ble CIT(A)/ learned TPO erred in not granting the Appellant the benefit of risk adjustments which is required to be undertaken to account for the differences in level of risks assumed between the comparable companies and the Appellant in terms of Rule 10C(2)(e) of the Rules. Your Appellant prays that adjustment to the arm's length price, if any, should be after granting the benefit of risk adjustments. Other Grounds 14. The learned AO has erred in short granting credit for taxes as claimed by the Appellant in its return of income for AY 2010-11. Your Appellant prays that the credit for taxes as claimed by the Appellant in its return of income for AY 2010-11 be granted. Printed from counselvise.com ITA No.3353/Del/2017 6 Initiation of penalty proceedings under Section 271(1)(c) of the Act 15. The learned AO on the basis of above arbitrary additions made during the assessment proceedings under Section 143(3) of the Act initiated penalty proceedings under Section 271(1)(c) of the Act. 16. The Appellant is sanguine that the above additions are contrary to the factual positions and bad in law and will not be tenable on legal grounds and thus penalty provisions under Section 271(1)(c) of the Act cannot be invoked. Therefore, the learned AO is unjustified in initiating penalty proceedings as above. Your Appellant prays to please direct the learned AO to drop the penalty proceedings initiated under Section 271(1)(c) of the Act for the subject AY”. 5. Learned Authorised Representative for the appellant/assessee regarding ground of appeal no.9, submitted that Ld. CIT(A) erred in rejecting/excluding Microland Limited by alleging that the company was having turnover of less than Rs.1 Crore should not be considered. Copy of audited financial statement of Microland Limited for financial year ending 31.03.2010 page nos. 621 to 662 of the paper books mentions that the turnover of the company at Rs.134,15,67,000/- [at page nos. 624 to 659] of the paper books. Ld. TPO had rightly accepted Microland Limited based on functionally comparability of the company engaged in IT enables Company which are similar to the services provided by assessee for which segmental information is also available. 5.1 Learned Authorized Representative for the appellant/assessee by referring to ground of appeal no. 10, submitted that Ld. CIT(A)/Ld. TPO erred in Printed from counselvise.com ITA No.3353/Del/2017 7 considering TCS e-Serve International Limited and TCS e-Serve Limited as comparable to the appellant for benchmarking the international transaction of provision of IT enabled services. Considering the working capital of assessee, the exclusion of comparable introduced by Ld. TPO viz. TCS e-Serve International Limited and TCS e-Serve Limited, Ld. CIT(A) has directed the Ld. TPO to use margins of comparable of working capital adjustment margin. 6. Learned Authorized Representative for the Revenue relied on order of Ld. AO. 6.1 Learned Authorized Representative for the Revenue referred to the decision of Hon’ble ITAT, Mumbai in ITA Nos.4429 & 4547(MUM) of 2012 in the case of Willis Processing Services (I) (P) Ltd. Vs. DCIT-2(3), Mumbai. “45.2 Further, the Delhi Benches of the Tribunal in the case of Actis Advisors (P.) Ltd. (supra) has considered and decided an identical issue in para 26 as under: \"26. We have heard the rival contentions and gone through the record carefully. On pages 24 to 26, learned TPO has considered this aspect. According to the learned TPO, the filters applied by the assessee in the TP Study report for eliminating the companies who had incurred expenses of more than 3% of the sales on advertisement and marketing is not an appropriate filter. According to the learned TPO independent enterprises has to incur marketing expenditure. In a service industries like I.T. enabled services, the assessee did not provide the basis on which such expenses resulted in any intangible unlike in manufacturing industries where substantial marketing expenditure create an intangible. Learned TPO invited the explanation of the assessee as to why this filter be not ignored. The assessee has filed a reply to the query of the TPO which has duly been noted by the learned TPO on pages 24 & 25 Printed from counselvise.com ITA No.3353/Del/2017 8 of the impugned order. On due consideration of assessee's objections, learned TPO has observed that the operative force of the assessee's contention is that marketing and advertisement activities carried out by the comparable companies result in creation of marketing intangible, which would give return on such investment. In other words, the expenses incurred on advertisement and marketing creates a marketing intangible. Learned TPO rejected this contentions on the ground that such an argument is not based on any substantial analysis. The assessee made reference to WIPRO & Flex Tronic Software System and submitted that these companies have created marketing intangible, therefore, they are earning more profit then any other captive entity. Learned TPO rejected the contention of the assessee on the ground that 95% of the revenue of Infosys is from repeat business. The marketing intangible did not help Infosys to get any better business according to the learned TPO. On an analysis of the learned TPO's order coupled with the contentions of the assessee, we are of the view that learned TPO has rightly observed that in the case of manufacturing or distribution companies marketing expenses over a period of time may create marketing intangible which will helpful to them for getting better business but it may not be applicable with equal force on service industries like I.T. Enabled Services. The instances of Infosys referred by the assessee has been specifically dealt with by the learned TPO, he has reproduced relevant portion of the annual report of Infosys on page 25. For buttressing this plea, learned counsel for the assessee mainly gave two explanation. In his first reasoning he pointed out that profit ratio of the companies who have incurred expenses less than 3% of the sales is 22.26%. The companies who have incurred expense more than 3% but less than 5% of the sales on AMP, their profit is 45.52%. Similarly, the companies who have incurred expense on AMP at 5% to 7% of sales, the profit is between 67.46%. These figure have been put from the result of comparable. We have extracted such comparable in para 24 on page 32 of this order. Contrary to this, Learned DR also pointed out that HCL Comnet System Services incurred 0.65% of sales on AMP but shown profit at 45.91%. Similarly, Maple E-solution incurred 0.16% and shown profit at 32.06%. Visual Infra-tech did not incur any expenditure but shown profit at 44,15%. Thus, the details referred by the learned counsel for the assessee do not advance the case of the assessee. What is the actual impact on the earning of income could not be demonstrated on the basis of these comparative details, graph etc. The next reasoning is that such companies are Printed from counselvise.com ITA No.3353/Del/2017 9 functionally different. Creation of marketing intangible is brand by incurring such expenses may be helpful in future. But how their FAR is substantially so different could not be explained. Learned TPO has looked into this aspect, He observed that material showing impact on Information & Technology Industry by such expenses had not been produced by the assessee. After taking into consideration the discussion made by the learned TPO as well as the DRP on this issue, we do not find any merit in the contentions of learned counsel for the assessee for exclusion of eight companies, extracted supra from the list of comparables.\" 6.2 Learned Authorized Representative for the Revenue relied on decision of Hon’ble ITAT, Hyderabad in ITA Nos.1082 & 1084(HYD.) of 2010 in the case of DCIT, Circle 1(2), Hyderabad held as under: “36. Now, we deal with the issue relating to inclusion of Vishal Information Technology Ltd. ('VITL' in short) in the final list of comparable companies by the TPO. It is contention of the assessee company that VITL has employee-cost at 1.38% of its revenue when compared to that of the assessee company which is at 52.12%. Thus, the VITL cannot be considered as comparable company and to be excluded from the list of comparable companies. It is also an alternate contention of the assessee that VITL owns valuable intangible when compared to the assessee company. Hence, the said company has to be excluded. The assessee company itself agreed before the TPO that VITL is a comparable company offering IT enabled services and this company is an extension of one Indian company Amex IT Ltd., having agreed so it is not correct on the part of the assessee company to raise a new plea that the VITL has got low wages compared to the assessee company. It appears that the VITL has outsourced the manpower and the cost of outsourcing appears to have been included in the other heads of the expenditure instead of wages-employee cost. Moreover, the intangibles will not materially affect the price or profit earning. By outsourcing the manpower, the VITL would have incurred more cost compared to the assessee company, thus resulting in lesser operating profit. But, having considering the findings of the TPO, we find that the intangibles or outsourcing the manpower will not materially affect the price or profit margin. In our considered opinion, no two comparable companies can be replicas of each other. The application of rule 10B should be carried out and judged not with technical rigor, but on a broader prospective. In this view of the matter, Printed from counselvise.com ITA No.3353/Del/2017 10 we find no infirmity in the order of the CIT(A) in confirming the action of the TPO by selecting the VITL as comparable company. The case-law relied on by the learned counsel for the assessee is distinguishable on facts. Hence, the ground raised by the assessee on this issue is rejected”. 7. From examination of record in light of above submissions, it is crystal clear that Ld. CIT(A) rejected appellant’s comparable company Microland Limited by alleging that the company was having turnover less than 1 Cr (however, financials are in 000s) and the turnover is Rs.1,341,567,000. WNS BCS has taken a ground on this as well. Learned TPO has rightly accepted Microland Limited based on functional comparability as Company is engaged in IT enabled services which are similar to the services provided by assessee for which segmental information is also available. In above scenario, Microland Limited is to be included in the final set of comparable companies. 8. The appellant had also filed order giving effect application on 25.05.2017 to give effect to the Ld. CIT(A) Order. 9. Ld. CIT(A) in considering TCS e-Serve International Limited and TCS e-Serve Limited as comparable to the Appellant for benchmarking the international transaction of provision of IT enabled services, the Ld. TPO by giving benefit of working capital adjustment to the assessee. Pursuant to the order of Ld. CIT(A), the assessee has filed copy of letter dated 19.05.2017 before Ld. AO seeking appeal effect order dated 18.11.2016. Copy of letter Printed from counselvise.com ITA No.3353/Del/2017 11 dated 19.05.2017 is on page no.618 to 620 of the paper books. The same is required to be decided by Ld. AO. In view of above facts, impugned orders are set aside and the matter is restored to the file of Ld. AO for fresh decision in accordance with law after affording fair opportunity of hearing to the assessee. Accordingly, grounds of appeal nos.10 & 11 are allowed for statistical purposes. 10. Ground of appeal nos. 1 to 8 and 11 to 16 being not pressed, are left open. 11. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 17th September, 2025. Sd/- Sd/- (S RIFAUR RAHMAN) (VIMAL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 17 /09/2025 Mohan Lal Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi Printed from counselvise.com "