Transfer pricing ITeS margin: apply bilateral APA rate agreed with UK associated enterprise to USA AE transactions, tribunal directs adjustment.

Transfer pricing dispute concerned application of a bilateral advance pricing agreement (BAPA) rate agreed for ITeS transactions with a UK associated enterprise to parallel transactions with a USA associated enterprise. The tribunal accepted the parties' and TPO's entitylevel benchmarking premise that functions, assets and risks were materially similar across UK and USA dealings, noted a BAPAaccepted ITeS margin of 16% versus the AO/TPO's 23%, and directed the AO/TPO to adopt the BAPA rate for the USA AE transactions and compute transfer pricing adjustment accordingly.

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Issues: (i) Whether the Transfer Pricing adjustments made by the TPO/AO/DRP in respect of ITeS services, reimbursements and interest (including comparables selection and benchmarking) are correct and whether rates in a bilateral APA with UK AE can be applied to transactions with USA AEs; (ii) Whether credit of tax reflected in Form 26AS was not granted and must be allowed; (iii) Whether the final assessment order dated 19 July 2024 is time-barred under section 153.

Issue (i): Transfer Pricing adjustments relating to provision of ITeS services, reimbursements of expenses and notional interest; applicability of Bilateral APA (BAPA) rate with UK AE to transactions with USA AEs.

Analysis: The Tribunal examined the BAPA dated 22/01/2025 which fixes the operating profit margin for the ITeS segment at 16% and treats reimbursements/ recoveries linked to ITeS as part of operating expenses. The Tribunal noted precedent permitting adoption of APA/BAPA rates for transactions with other AEs where functions, assets and risks are not materially different and observed that both parties had benchmarked at entity level on that common factual basis. The DRP/TPO's higher margin and notional interest were considered in light of the BAPA and relevant transfer pricing principles and authorities cited by the Tribunal.

Conclusion: The Tribunal directed the AO/TPO to adopt the rates for transactions with the USA AEs as per the Bilateral APA with the UK AE and recompute the transfer pricing adjustments accordingly; grounds relating to transfer pricing (Grounds 2 and 3) are therefore partly allowed.

Issue (ii): Non-grant of credit of tax reflected in Form 26AS.

Analysis: The assessee produced Form 26AS entries showing tax credits not accounted for in the assessment computation; the Revenue did not dispute the claim before the Tribunal.

Conclusion: The Tribunal directed the AO to grant credit of TDS as per Form 26AS; ground relating to non-grant of credit (Ground 4) is allowed.

Issue (iii): Whether the final assessment order is time-barred under section 153.

Analysis: The Tribunal observed that, having decided the transfer pricing issues on merits (by directing adoption of BAPA rates), the limitation challenge became academic and refrained from adjudicating the limitation point.

Conclusion: The limitation issue is left open and held to be academic.

Final Conclusion: The appeal is partly allowed transfer pricing adjustments are to be recomputed in accordance with the Bilateral APA for covered transactions and TDS credit is to be granted; the limitation challenge is left open as academic.

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