×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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10-07-2019, BNP Paribas India, Section 40(a)(i), 10A, Tribunal Mumbai
This appeal in IT(TP)A No.2046/Mum/2016 for A.Y.2011-12 arises out of the order by the ld. Disputes Resolution Panel-1, Mumbai in Objection No.307 dated 28/12/2015 (ld. DRP in short).
2. The ground No.1 raised by the assessee is general in nature and does not require any specific adjudication.
2.1. The ground No.2 raised by the assessee is with regard to adjustment made to arm’s length price in the sum of Rs.2,66,90,354/- relating to international transaction of back office support services rendered by the assessee. Though the assessee has raised several grounds, the only effective issue is on the aspect of inclusion / exclusion of comparables.
3. We have heard rival submissions and perused the materials available on record including the judicial pronouncements that were relied upon before us by the Counsels of both the sides. At the outset, we find that the ld. AR submitted that from the final set of comparables taken by the ld. TPO pursuant to the directions of the ld. DRP, if one of the comparables i.e. TCS E-serve ltd is excluded which is having high margin of 69.31%, then the assessee would be through as the arithmetic mean margin of the rest of the comparables would be well within +/-5% tolerance limit / Safe Harbour limit. Hence, with the consent of both the parties, we proceeded to adjudicate the issue of exclusion of comparable, TCS E-serve ltd
3.1. It would be pertinent to understand the basic services rendered by the assessee herein. We find that the ld. TPO has observed in his order that assessee had during the year provided the routine back office support services such as account payable services, nostro reconciliation, trade finance back office, data processing, accounting controls, financial reporting, performance management, capital market and client management operations, reconciliation of IT applications, reconciliation and access right management. The ld TPO observed that the back office support services rendered by the assessee are standardised commoditized process roles which do not require any professional / skilled labour with domain expertise. The assessee had objected before the ld. TPO as well as the ld. DRP for exclusion of TCS E-serve ltd on the ground that it is functionally not comparable, among others. In this regard, we find that TCS E-serve ltd is engaged in the business of providing business process management services in the banking and financial services vertical.
3.2. On the contrary, the assessee is a mere service provider involved in providing back office services like data entry, data processing and reconciliation. It was further submitted that TCS E-serve ltd operations particularly comprises of transaction processing and technical services primarily to Citi Group entities globally. From the annual report of TCS Eserve ltd, we find that the said company is engaged in the business of providing ITes / business process outsourcing services primarily to Citi Group entities globally. Its operations particularly comprises of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving the processing, calculations, customer care and payments in relation to the services offered by the Citi
group to its corporate and retail clients. Technical services involved software testing, verification and validation of software items of implementation and data centre management activities. We find from the order of the ld. TPO that the ld. TPO accepts the fact that assessee is into routine back office support services such as account payable services, Nostro reconciliation, trade finance back office, data processing, accounting controls, financial reporting, performance management etc., From the functional profile of the aforesaid comparable as detailed hereinabove, we hold that the said company is functionally not comparable with that of the assessee herein. Hence, we hold that this comparable deserves to be excluded from the financial list of comparables on functional dissimilarities.
3.3. We also find that assessee had indeed made specific objections before the ld. TPO and the ld. DRP in support of exclusion of the comparable, TCS E-serve ltd by mentioning the various differences. The ld. DRP and the ld. TPO had only stated that the said comparable is functionally comparable with that of the assessee and had not given any finding with regard to the assets employed and risks assumed by the said comparable. Obviously due to their presence of huge intangibles in the form of ‘Tata Brand’, among others for TCS E-serve ltd, the assets employed therein shall be significantly less compared to that of the assessee. It is not in dispute that assessee herein does not possess any intangible. Moreover because of ‘Tata Brand’, the risk that could be assumed by TCS E-serve ltd would be significantly less compared to that of the assessee. These are crucial factors which have been ignored by the ld. DRP and the ld. TPO despite raising specific objections before them. The significant differences pointed out by the assessee with regard to exclusion of these comparables are as under:-
(a) Presence of intangible with TCS E-serve ltd – i.e. the said comparable belongs to Tata Group of companies and has significant ‘Tata Brand’ which would enable it to secure big business together with lesser risks. It also goes to prove that the said company possesses significant intangibles in the form of ‘Brand’ which assessee herein does not process, thereby making it incomparable.
(b) The turnover of the said comparable is 48 times more than the total value of the nominal transactions of the assessee. The turnover of TCS Eserve ltd for the A.Y.2011-12 was 1442 Crores, whereas the turnover of the assessee herein was Rs.29.56 Crores.