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2016 (4) TMI 1360 - AT - Income TaxTP Adjustment - adjustment to the arm's length price of business support service segment - HELD THAT - Business support service provided by the assessee to A.E. is nothing but in the nature of I.T. enabled (BPO) services. The distinctions attempted to be made out by the assessee to differentiate from ITES is too thin a line to hold water. ITES in common parlance is understood to mean a service wherein service provider utilizes telecommunication technologies and internet to provide a wide range of services to companies in the areas of manufacturing, healthcare, banking, insurance, telecommunication, finance, etc. The services provided broadly are call centre service, payroll, insurance claim, credit card processing, including customer care, human resources, administration, back office data processing and accounting. The nature of services rendered by the assessee, as could be seen from the facts on record, are akin to services provided by ITES companies. Therefore, effort should be made to find out comparables which are functionally similar within ITES segment. It is also a fact that in the preceding assessment year, assessee itself has classified the service rendered as that of an ITES provider. There being no change in the nature of service provided in the impugned assessment year, the claim of the assessee that it should be classified as a business support services provider is not acceptable. In view of the aforesaid, we decline to interfere with the orders of the Departmental Authorities on this issue. Comparable selection - HELD THAT - Vishal Technologies Ltd., having outsourced substantial part of its business to third party vendors cannot be held as a comparable to a company which does the work itself. Cosmic Global Ltd. being engaged in providing translation services and medical transcription business is not a comparable to ITES providers - Cosmic Global Ltd. to be functionally different from the assessee excluded it from the list of comparable. Infosys BPO Ltd cannot be rejected as a comparable on the basis of high turnover alone. However, as far as other contention of the learned Authorised Representative relating to brand value, goodwill, economies of scale, etc., are factors which cannot be ignored while selecting Infosys BPO Ltd. as comparable as they have a crucial bearing on profitability. As these aspects have not been considered either by the TPO on DRP, we are inclined to restore the issue relating to selection of Infosys BPO Ltd., as a comparable to the file of the Assessing Officer / Transfer Pricing Officer for deciding afresh after considering the submissions of the assessee and all other relevant facts. Adjustment in respect of provisions of U.K. visa processing services - HELD THAT - The price charged by the assessee from its A.E. at Nepal cannot be considered as comparable in respect of international transaction with its A.E. at Mauritius. Departmental Representative also fairly submitted before us, the price charged to Nepal A.E. is not a valid CUP for various reasons like courier charges, bank charges, etc. In the aforesaid view of the matter, the issue has to be restored back to the file of the Assessing Officer / Transfer Pricing Officer for deciding afresh after considering the submissions of the assessee in the light of relevant facts on record - assessee has provided two internal CUP by way of provisions of services to U.K. / U.S.A. visa authorities directly by the assessee at ₹ 400 and ₹ 350 per application which according to the assessee are valid CUP. The assessee has also submitted that the inclusion of biometric services will not make a material difference in the price charged to the A.E. compared to price charged to U.K. / U.S.A. visa authorities by the assessee directly. While deciding the issue, the Transfer Pricing Officer must take into consideration the aforesaid submissions of the assessee and also the claim of the assessee that the services rendered to its overseas A.E. at Mauritius are more or less similar to services rendered by the assessee to U.K. / U.S.A. visa authorities except biometric services. Both the assessee and the Transfer Pricing Officer must also deliberate whether any adjustment at all is required to be made to the price on account of biometric recording services and if so, what should be the quantum - Assessee appeal stands partly allowed for statistical purposes.
Issues Involved:
1. Adjustment to the arm's length price of the business support service segment. 2. Adjustment in respect of provisions of U.K. visa processing services. Issue-wise Detailed Analysis: Issue 1: Adjustment to the Arm's Length Price of Business Support Service Segment The assessee, an Indian company, engaged in providing various services related to visa processing and documentation, entered into international transactions with its Associate Enterprises (A.Es) in Mauritius and Nepal. The Transfer Pricing Officer (TPO) reclassified the services rendered by the assessee as ITES (BPO services) instead of business support services. The TPO rejected the assessee's transfer pricing study, which used the Transaction Net Margin Method (TNMM) and selected comparables not from the ITES segment. The TPO selected comparables from the ITES segment and determined an arm's length price, resulting in a transfer pricing adjustment. The Dispute Resolution Panel (DRP) upheld the TPO's classification of the assessee as an ITES provider but granted partial relief by excluding one comparable, reducing the adjustment to ?4,06,06,491. The Tribunal, after considering the submissions, held that the business support services provided by the assessee to its A.E. are indeed in the nature of ITES (BPO services). The Tribunal noted that the nature of services rendered by the assessee, such as back-office support, is akin to ITES. Therefore, the Tribunal upheld the classification of the assessee as an ITES provider. Regarding the comparables, the Tribunal directed the Assessing Officer (AO)/TPO to exclude Coral Hubs Ltd., if it is found that substantial parts of its activities are outsourced. Similarly, Cosmic Global Ltd. was to be excluded as it is functionally different, being engaged in translation and medical transcription services. For Infosys BPO Ltd., the Tribunal directed the AO/TPO to reconsider its selection as a comparable, taking into account factors like brand value, goodwill, and economies of scale, which affect profitability. Issue 2: Adjustment in Respect of Provisions of U.K. Visa Processing Services The TPO found that the assessee provided services related to U.K. visa applications to its overseas A.E. in Mauritius and applied the Comparable Uncontrolled Price (CUP) method. The TPO rejected the assessee's internal CUP based on old agreements with U.K. and U.S.A. visa authorities and instead applied the rate charged by the assessee to its A.E. in Nepal, resulting in a transfer pricing adjustment of ?6,99,81,347. The DRP upheld the TPO's adjustment. The Tribunal, however, noted that the approach of using the price charged to the A.E. in Nepal as a CUP was not accepted in the assessee's own case for the previous assessment year. The Tribunal restored the issue to the AO/TPO to reconsider the assessee's internal CUP based on agreements with U.K. and U.S.A. visa authorities, taking into account the inclusion of biometric services. The AO/TPO was directed to afford a reasonable opportunity of being heard to the assessee and pass a reasoned order. Conclusion: The appeal was partly allowed for statistical purposes, with directions for fresh consideration of certain comparables and internal CUPs. The Tribunal emphasized the need for a detailed and reasoned order by the AO/TPO after considering all relevant submissions and facts.
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