Tribunal Upholds Deletion of Rs. 1.36 Cr ALP Adjustment; Excludes Indusind IT Ltd as Comparable for BPO Assessment.

The ITAT dismissed the Revenue's appeal, affirming the deletion of the Rs. 1,36,61,522/- adjustment to the Arm's Length Price (ALP). The Tribunal upheld the exclusion of Indusind Information Technology Ltd as a comparable, concluding it was not functionally similar to the assessee, a BPO service provider. The decision was pronounced on 14.09.2018.

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Issues Involved:
1. Justification of the deletion of Rs. 1,36,61,522/- towards adjustment to Arm’s Length Price (ALP).

Issue-Wise Detailed Analysis:

1. Justification of the deletion of Rs. 1,36,61,522/- towards adjustment to Arm’s Length Price (ALP)

Background and Facts:
- The appeal by the Revenue arises from the order of the Commissioner of Income Tax (Appeals)-22, Kolkata, against the order passed by the Deputy Commissioner of Income Tax, Circle-4, Kolkata, for the Assessment Year 2008-09.
- The assessee is a domestic company and a 98% subsidiary of Acclaris Inc., providing Business Process Outsourcing (BPO) services.
- For the Assessment Year 2008-09, the assessee filed a return of income declaring total income of Rs. 56,828/- after claiming deductions under sections 10A and 10B of the Income Tax Act, 1961.
- The assessee provided BPO services to its parent company, resulting in international transactions amounting to Rs. 14,36,38,836/-.
- The assessee adopted the book value of the international transaction as the ALP in its Transfer Pricing (TP) study report, using the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) with Operating Profit / Total Cost (OP/TC) as the Profit Level Indicator (PLI).

Revenue's Contention:
- The case was referred to the Transfer Pricing Officer (TPO), who observed that the assessee used multiple-year data and included loss-making companies and companies with significant turnover variations as comparables.
- The TPO applied specific filters and included Indusind Information Technology Ltd as a comparable, determining an upward adjustment of Rs. 1,36,61,522/- to the ALP.

Assessee's Argument:
- The assessee argued that the exclusion of Indusind Information Technology Ltd as a comparable was justified as the company was primarily into software development, unlike the assessee engaged in BPO services.
- The assessee contended that if this one comparable was excluded, the price charged would be within the Arm’s Length range.

Tribunal's Findings:
- The Tribunal noted that the TNMM was the MAM adopted by both parties and that there was no dispute regarding the adoption of OP/TC as the PLI.
- The Tribunal focused on whether the exclusion of Indusind Information Technology Ltd as a comparable was justified.
- The Tribunal referenced its decision in the assessee's own case for the Assessment Year 2007-08, where it was held that the business model of Indusind Information Technology Ltd was not comparable to that of the assessee.
- It was observed that the software development company had a completely different functional profile, risk, and asset base compared to a BPO service provider.
- The Tribunal cited similar cases where companies engaged in software development were excluded as comparables for BPO service providers.

Conclusion:
- The Tribunal upheld the exclusion of Indusind Information Technology Ltd as a comparable, agreeing that the company was not functionally comparable to the assessee.
- Consequently, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the Rs. 1,36,61,522/- adjustment to the ALP.

Order Pronouncement:
- The appeal of the Revenue was dismissed, and the order was pronounced in the Court on 14.09.2018.

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