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2020 (12) TMI 589 - AT - Income TaxTP Adjustment - comparable selection - functional, asset and risk ('FAR') profile of the assessee - stand of revenue the assessee is not a captive BPO service provider - HELD THAT - The assessee provides BPO services to its holding company as a captive service provider in relation to some of the clients. The BPO services includes various types of services including e-recruitment services, financial accounting services and routine back office services which could be like indexing and enrollment for clients. The assessee reconciles claims to confirm that all payments required to be made to client's employees have been processed by the holding company. All client relations are maintained by the holding company and only a part of the data entry functions is outsourced to the assessee. The holding company, on the other hand, undertakes the entire marketing and business development activity to generate business, negotiates and enters into contracts with customers, bears the costs of the entire project transition phase, renders the requisite training to its employees or the employees of the respondent and oversees the running of the entire project. The assessee functions all along under the guidance and supervision of the holding company. The assessee's resources log into the application to retrieve the said data. Based on the claims submitted by the clients, the assessee performs the necessary data entry functions. In case any clarification or guidance is required by the assessee, these are provided by the holding company's subject matter experts. Respectfully following the judgment of the Coordinate Bench in assessee's case 2015 (6) TMI 677 - ITAT KOLKATA we hold that assessee is engaged in providing captive BPO services to its holding company and hence we dismiss grounds Nos. 1, 2 and 3 raised by the Revenue. Comparable o selection - HELD THAT - We note that the comparables chosen by the Ld. TPO are primarily engaged in KPO services, unlike the assessee which is engaged in providing BPO services. We note that the assessee is engaged in performing captive BPO services to its holding company and such view has been accepted by the Ld. CIT(A). When a tested party is a BPO service provider (akin to the assessee), KPOs cannot be considered as comparables from a transfer pricing perspective. Accentia Technologies Ltd should be rejected as a comparable as company is engaged in development of software products and rendering KPO services in the healthcare sector. TCS E-Serve International Ltd - Since the services are being provided as a part of an acquisition deal, pricing and the terms on which TCS E-serve International provided services would not have been at market defined rates. TCS E serve international is a subsidiary of Tata consultancy services Ltd. Behind the above comparable company, there is a Tata brand. For this reason that it belongs to Tata group and has also contributed to Tata brand which is one of the largest brand in the information technology segment, there is a definite impact on the pricing capacity of the comparable which the assessee lacks. Hence, we find that TCS E serve international Ltd. deserves to be excluded. e4e Healthcare Business Services Pvt. Ltd Company was engaged in business of providing healthcare outsourcing services and software development for the healthcare industries, the same cannot be compared with the assessee which was engaged in providing BPO services. Crossdomain Solutions Pvt. Ltd. should be rejected as a comparable as the said concern operates as a Knowledge Process Outsourcing services provider (KPO) and not a simple business process outsourcing services provider and cannot therefore be compared with the assessee. Cosmic Global Ltd is not comparable to the assessee as it has different functions which cannot be compared to those of the assessee. Timex Group India Ltd-Segment is engaged in providing IT and finance related back office support services which are similar to that provided by the assessee. AOK In-House BPO Services Ltd . should be accepted as a comparable as company is engaged in providing BPO services. As per their annual report, the company is a BPO service provider. Aditya Birla Minacs Worldwide Ltd company provides a variety of business process outsourcing services which are non-voice based. The services provided by Aditya Birla Minacs Worldwide Ltd, being non-voice based BPO services, are similar to those provided by the assessee. Omega Healthcare Management Services Pvt. Ltd. - services provided are similar to those provided by the assessee. Thus it should be accepted as a comparable. We agree with the view taken by the ld CIT(A). In House Productions Ltd-Segment - As per its annual report, the year under review has seen the company having income from Medical BPO activities - Therefore, based on the facts narrated above, the In House Productions Ltd-Segment should be accepted as a comparable.e Fortune Infotech Ltd. should be accepted as a comparable as this company is engaged in providing IT Enabled Services such as claims and document processing. Since the margin earned by the assessee is higher than the margin of the comparables, therefore the transaction of services rendered is at arm's length. We do not find any infirmity in the order of ld CIT(A) except that we have rejected Cosmic Global Ltd, and this does not give any impact so far the arm's length price adjustment is deleted by the ld CIT(A).That being so, we decline to interfere with the order of Id. C.I.T.(A) in deleting the aforesaid ALP adjustment.
Issues Involved:
1. Determination of the functional, asset, and risk (FAR) profile of the assessee. 2. Selection and rejection of comparable companies for transfer pricing analysis. 3. Deletion of the Arm's Length Price (ALP) adjustment of ?2,97,51,782/-. Detailed Analysis: Issue 1: Determination of the FAR Profile of the Assessee The Revenue contended that the assessee was not merely a captive BPO service provider but was also engaged in software development and customer research, leaning towards a Knowledge Process Outsourcing (KPO) entity. The assessee, however, maintained that it provided back-office processing services (BPO) to its holding company and did not own any significant intangibles or undertake significant R&D. The Commissioner of Income Tax (Appeals) [CIT(A)] agreed with the assessee, confirming that the assessee's operations were less complex and bore minimal risks, functioning under the guidance of its holding company. The Tribunal upheld this view, noting that the assessee's functions were limited to data entry, claims processing, and incidental software support under the guidance of its holding company. Issue 2: Selection and Rejection of Comparable Companies The CIT(A) had accepted seven comparable companies and rejected four others selected by the Transfer Pricing Officer (TPO). The Tribunal reviewed each comparable company's functional profile: 1. Rejected Comparables by CIT(A): - Accentia Technologies Ltd: Engaged in KPO services and software development, making it functionally different from the assessee. - TCS E-Serve International Ltd: Provided services primarily to Citigroup under a long-term agreement influenced by the acquisition deal, making it incomparable. - e4e Healthcare Business Services Pvt. Ltd.: Engaged in healthcare outsourcing and software development, with no segmental information available. - Crossdomain Solutions Pvt. Ltd.: Provided KPO services, including niche services and brand development, unlike the assessee's routine BPO services. 2. Accepted Comparables by CIT(A): - Cosmic Global Ltd: Initially accepted but later rejected by the Tribunal as it provided KPO services, including medical transcription and translation. - Timex Group India Ltd (Segment): Engaged in IT and finance-related back-office support services, similar to the assessee's services. - AOK In-House BPO Services Ltd: Provided BPO services, including insurance policy issuance and claims processing. - Aditya Birla Minacs Worldwide Ltd: Provided non-voice-based BPO services. - Omega Healthcare Management Services Pvt. Ltd.: Engaged in medical billing, coding, and other healthcare BPO services. - In House Productions Ltd (Segment): Provided medical BPO activities. - Fortune Infotech Ltd: Engaged in IT-enabled services, including claims and document processing. The Tribunal concluded that the CIT(A) had correctly identified the comparables, except for Cosmic Global Ltd., which was rejected. Issue 3: Deletion of ALP Adjustment The CIT(A) had deleted the ALP adjustment of ?2,97,51,782/- made by the TPO. The Tribunal upheld this deletion, noting that the average margin of the accepted comparables (10.91%) was lower than the assessee's margin (12.37%), indicating that the international transaction of "services rendered" was at arm's length. Therefore, the grounds of appeal by the Revenue were dismissed. Conclusion: The Tribunal upheld the CIT(A)'s findings, confirming that the assessee was a captive BPO service provider and that the comparables selected by the CIT(A) were appropriate, except for Cosmic Global Ltd. The deletion of the ALP adjustment was also upheld, resulting in the dismissal of the Revenue's appeal.
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