| The Tax Publishers2020 TaxPub(DT) 3917 (Del-Trib) INCOME TAX ACT, 1961
Section 92C
Where TCS-e-Serve in addition to ITeS/BPO services also render technical services like software testing and validation of software which falls under software development services activity and assessee was a low risk captive unit involved in provision of back office support service to its group companies for which it was remunerated at cost plus basis, therefore, TCS was not comparable on account of intangible held by this company and has large scale of operation and huge brand value, hence TPO was directed to exclude the same.
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Transfer pricing - Computation of arm's length price - Selection of comparables -
Assessee was subsidiary of a foreign company and was an India based trader of Agri-based products. It had undertaken international transaction of back office support services. Assessee had rendered back office support services for various agribased commodities to its AEs which include provision of logistic support execution along with man power services. These services primarily include related services, logistic support, trade support, travel support, international aid services and inspection services. In TP Study Report, assessee claimed that it is providing IT enabled services to its AE and adopted TNNM as a most appropriate method and PLI was taken as OP/OC. Assessee had chosen 12 comparables and mean margin of the comparables after adjustment was arrived at 12.6%. TPO selected 8 comparables and the average margin determined was at 29.53% which included the comparable company of TCS-e-Serve Ltd. which had a margin of 69.3%. However, after DRP's direction in the final assessment order, margin was arrived at 29.4%. Held: One of the key reasons why TCS-e-serve Ltd. cannot be held to be comparable with assessee company which was providing back office support services, i.e., ITeS/BPO services, because TCS-e-Serve in addition to ITeS/BPO services also render technical services like software testing and validation of software which falls under software development services activity. Admittedly, assessee was a low risk captive unit involved in provision of back office support service to its group companies for which it was remunerated at cost plus basis and was not exposed to any kind of risk. TCS-e-serve Ltd. was not comparable on account of intangible held by this company and has large scale of operation and huge brand value. Accordingly, TPO was directed to exclude the TCS-e-Serve Ltd. from the comparability list and determine the ALP.
Distinguished:Rampgreen Solutions (P) Ltd. v. CIT (2015) 377 ITR 533 (Del) : 2015 TaxPub(DT) 3403 (Del-HC), Chryscapital Investment Advisors (India) (P) Ltd. v. Dy. CIT (2015) 376 ITR 183 (Del.) : 2015 TaxPub(DT) 2181 (Del-HC)Followed:M/s. Avaya India (P) Ltd. v. ACIT [ITA 532/2019 Order, dated 24-7-2019] : 2019 TaxPub(DT) 5190 (Del-HC), Pr. CIT-01 v. ACTIS Global Services (P) Ltd. ITA 417/2016 : 2018 TaxPub(DT) 7432 (Del-HC), Louis Dreyfus Company India (P) Ltd. v. ACIT [ITA No. 6575/Del./2016, dt. 30-10-2019]
REFERRED :
FAVOUR : In assessee's favour
A.Y. : 2011-12
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