TaxTMI 
TaxTMI 
2026 (1) TMI 804
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.... and circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ("DRP")/Ld. AO/Ld. Transfer Pricing Officer ("TPO") erred in determining the Arm's Length Price ("ALP") of transition support services as NIL, by rejecting the Transactional Net Margin Method ("TNMM") applied by the Appellant, applying the Comparable Uncontrolled Price ("CUP") method and consequentially making an upward adjustment of Rs. 7,34,54,905/- Thus, erred in 2.1 inappropriately characterizing transition support services to be in the nature of stewardship activities without appreciating the evidence and documents filed by the Appellant demonstrating the nature of services availed from its Associated Enterprise ("AE"); 2.2 exceeding its jurisdiction by applying the cost benefit analysis in determining ALP of transition support services and erred in not following precedent laid down by the jurisdictional High Court in CIT v. EKL Appliances [2012] 345 ITR 241 (Delhi); 2.3 not following the principle of consistency by failing to appreciate that transfer pricing adjustment qua transition support services is covered in favour of the Appellant by the decision of this H....
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....'ble Tribunal in Appellant's own case for previous AYs (AY 2015-16 and 2016-17). Other Grounds 9. That, on the facts and circumstances of the case and in law, the Ld. AO erred in levying interest under Section 234A and 234B of the Act. 10. That, on the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under Section 271(1)(c) of the Act Each of the above grounds are independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant prays for leave to add, alter, vary, omit, substitute, or amend the above grounds of appeal, at any time before, or at, the time of hearing of the appeal." 2.1 Ground No. 1, being general, stands dismissed and Ground Nos. 9 and 10, being consequential, do not require specific adjudication. So these grounds also stand dismissed. 3. The relevant facts giving rise to this appeal are that the assessee, a wholly owned subsidiary of GBT III BV, Netherlands, engaged in the business of arranging travel for domestic customers (within India and outside) by facilitating services entailing booking of air tickets, accommod....
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.... income of INR 285,039,520/- wherein the above-mentioned additions/disallowances were made. Aggrieved, the appellant assessee filed this appeal. 4. At the outset, the Ld. Counsel submitted that following two transfer pricing issues and two corporate issues were in this appeal: a) Transfer pricing adjustment of INR 73,454,905 (Ground No. 2 as per revised grounds filed on 01.02.2023); b) Transfer pricing adjustment of INR 32,536,272 (Ground No. 3, 4 & 5 as per revised grounds); c) Disallowance of depreciation of INR 46,152,224 on Goodwill capitalized in the books of accounts since FY 2014-15 (Ground No. 6 and 8 as per revised grounds) and d) Disallowance of bad debts written off INR 15,912,680 (Ground No. 7 and 8 as per revised grounds). Transfer pricing adjustment of INR 73,454,905: 5. The Ld. Counsel submitted that AmEx transferred certain expertise supporting the travel business to GBT BV and kept certain expertise supporting the travel business with it. Due to selective transfer of business from AmEx to GBT BV; they entered into a master Transition Services Agreement ('Master TSA') in March, 2014 [Page 810-942 of the Paper Book (PB)], ....
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....e Delhi High Court in the case of: i. EKL Appliance Ltd.: [2012] 345 ITR 241 (please refer para nos. 22-24 of this decision) ii. Cushman and Wakefield (India) (P.) Ltd.: [2014] 367 ITR 730 (please refer para nos. 34-36 of this decision) 10. The Ld. Counsel argued that the TSA charge was part of the cost base under the India Business Segment, which was recovered along with the mark- up from its AEs. Hence, the disallowance of such costs would have a corresponding negative impact on its taxable income/profits (please refer page nos. 400-402 of the PB). It was contended that such approach was specifically prohibited under section 92(3) of the Act as evident from the decision of the Hon'ble Delhi High Court in the case of Mercer Consulting [2024] 465 ITR 381. The Ld. Counsel submitted that the appellant assessee had already provided detailed explanations of the necessity of said services (refer page nos. 345-347 of the PB) and proof of actual receipt of services in form of e-mails (refer page nos. 985-1009 of the PB). 11. The Ld. CIT(A) argued this issue vehemently. The Ld. CIT-DR submitted that the Ld. TPO's finding was based on three factors, i.e. (i) benefit ....
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....ort Services Segment and the Services Hub Segment which were started in 2015 and 2016 respectively while the transition support services agreement was entered into in the year 2014 itself for the India Business Segment (Global Business Travel) which was acquired from AEIPL by way of slump sale. 14. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. Counsel that this issue is squarely covered by the decision of the Tribunal in the appellant assessee's own case in ITA No 8965/Del/2019. We therefore, respectfully following the said decision in ITA No 8965/Del/2019, delete the Transfer pricing adjustment of INR 73,454,905. We therefore, direct the Ld. AO/TPO to allow the consequential relief to the appellant assessee. Transfer pricing adjustment of INR 32,536,272 for provision of operational & business support services: 15. The Ld. Counsel submitted that the appellant assessee had benchmarked its international transaction of provision of operational & business support services on TNMM basis and determined a range of 2.94% to 13.34....
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....t be the reason for exclusion of this comparable as the assessee had failed to demonstrate that how the brand name, high R & D expenditure had impacted the margins of Infosys. The Ld. CIT-DR, emphasizing the Rule 10(B)(3) of Income Tax Rules, argued that an uncontrolled transaction should be comparable if differences between comparables did not have any material impact on the profit margins. To buttress his submission, the Ld. CIT-DR placed reliance on the decision of the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P) Ltd. [2015] 56 taxmann.com 417 wherein it had been observed that huge profit or huge turnover, ipso facto did not lead to exclusion of a comparable. Further, he also placed reliance on the decisions of the Tribunal in cases of Willis Processing Services (I) (P.) Ltd. [2013] 30 taxmann.com 350 (Mum.), Deloitte Consulting India (P.) Ltd. [2011] 12 taxmann.com 500 (Hyd.) and Capgemini India (P.) Ltd. [2013] 33 taxmann.com (Mum.) to submit that the order of the Ld. AO/TPO was justified in this regard. 19. The Ld. Counsel, in rebuttal, submitted that the Ld. CIT-DR had misconstrued the Rule 10(B)(3) of the Income Tax Rules as th....
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....a), is held not suitable comparable in the present case. We therefore, following the reasoning in the above cited cases, hold that the Ld. AO/TPO is not justified in including Infosys in the final set of comparables. We therefore, direct the Ld. AO/TPO to exclude this comparable; Infosys BPM Ltd. from the final set of comparables. Interactive Manpower Solutions Ltd.: 22. At the outset, the Ld. Counsel submitted that Interactive Manpower Solutions Ltd. should be excluded from the list of final comparables because it was functionally different being engaged in providing Knowledge Process Outsourcing (KPO) services; such as staffing services, which fell in Human Resource services distinctly categorized as "knowledge process outsourcing services" as per Rule 10TA(g) of Income Tax Rules, 1962. Further, it was submitted that a KPO service provider was functionally different from BPO service providers (like the appellant assessee) and this distinction was well recognized by the Hon'ble High Court of Delhi in the case of Rampgreen Solutions (P.) Ltd. 377 ITR 533, wherein it had been specifically held that KPO service providers could not be compared to BPO service providers even under TN....
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....d business activities such as transaction processing, system integration which included sale of products and data management services. (Pages 8 and 109 of Annual Report for FY 2017-18/ 83 and 184 of the ARC). Karvy Data Management Services Ltd. was also engaged in purchase and sale of products and derived 38.81% of the total revenue from the import. Further, our attention was drawn to the fact that Karvy Data Management Services Ltd. did not disclose a separate segmental result for the trading business. (Pages 10, 11 and 113 of Annual Report for FY 2017-18/85, 86 and 188 of the ARC). Further, it was also submitted that Karvy Data Management Services Ltd. had intangibles worth INR 255,281,962 out of total fixed assets of INR 1,877,501,429; i.e. 13.60% (Pages 49, 69,87,89,90 of Annual Report FY 2017-18/ 124,144,162,164,165 of the ARC) whereas it was not so in the case of the appellant assessee. Further, our attention was drawn to the fact that Karvy Data Management Services Ltd. had no income from export as against 100% of export income of the appellant assessee. Thus, it was contended that Karvy Data Management Services Ltd. operated in completely dissimilar markets and thus unsuita....
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....s comparable was selected by the Ld. TPO in preceding years. 31. We have heard both parties and have perused the material available on record. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. Counsel that Cosmic Global Ltd. is not a consistent loss making company and it is functionally similar that is why the Ld. TPO has included it in preceding years as suitable comparable. We therefore, in view of the above mentioned distinguishable facts hold that the Ld. AO/TPO is not justified in excluding Cosmic Global Ltd. from the final set of comparables. We therefore, direct the Ld. AO/TPO to include this comparable; Cosmic Global Ltd. in the final set of comparables. Silgate Solutions Ltd.: 32. The Ld. Counsel submitted that Silgate Solutions Ltd. should be included in the list of final comparables because it was functionally similar. It was submitted that the Ld. TPO rejected this comparable on the ground that the company was engaged in the business of providing software development and IT services which were different from the services rendered by the appellant assessee (Page 101 of the appeal set). On the ot....
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....s in the appellant assessee's case of AY 2015-16 and AY 2016-17. Now the Ld. TPO holding that this comparable failed the employee cost filter at entity level, excluded this comparable. It was submitted that employee cost filter was inapplicable to the BPO segment of this comparable as the employee cost for this segment of BNR Udyog was not available in the financials (Segmental results are at page 57 of the annual report for FY 2017-18/ page 556 of the ARC). The Ld. Counsel further submitted that BNR Udyog was engaged in the providing business support services and had derived more than 90% of its revenue from provision of business support services. (Refer to page 30 of the annual report for FY 2017-18/ 529 of the ARC). 36. On the other hand, the Ld. CIT-DR argued against inclusion of BNR Udyog as comparable by submitting that this comparable failed employee cost filter and thus, the Ld. TPO was justified in excluding it from final set of comparables. 37. In rebuttal, the Ld. Counsel submitted that for benchmarking, only the business service support segment of BNR Udyog as per its financials [pg. no. 556 of the Annual Reports Compilation] was considered. There was no identifia....
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....but goodwill. 41. The Ld. CIT-DR submitted that the appellant assessee and the seller 'AEIPL' were related parties and hence, slump sale was chosen as a method of business transfer instead of demerger to overcome the tax burden. Hence, the business transfer between related parties, no goodwill could come into the picture as both parties had the same brand name which continued even after the transfer. Thus, the Ld. CIT-DR contended that the decision of ITAT Bangalore in the case of United Breweries Ltd. [2016] 76 taxmann.com 103 (Bang. - Trib.) was applicable here as the valuation of goodwill and slump sale was not amongst independent parties and thus, was questionable because it could not be ruled out that this arrangement was not with the intent to avoid tax. The Ld. CIT-DR drew our attention to the valuation report based on which the consideration was arrived using DCF method solely based on the projections given by the management, an interested party as there was no mention of goodwill in the valuation report. Further, the Ld. CIT-DR mentioned that in another valuation report prepared before the acquisition, the value of the business was determined in negative. 42. The Ld.....
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.... of Case Law Compilation on Legal issues]; and ii. I & B Seeds (P.) Ltd. [para 13.10 - 13.13 at pg. nos. 127 of Case Law Compilation on Legal issues]. 46. The Ld. Counsel contended that the valuation report as per the DCF method was never questioned by the Ld. AO. This was not even the case of the AO. The Ld. CIT-DR could not make a new case/issue. The issue of depreciation had already been allowed by the Tribunal in the preceding three years. The argument of the Ld. CIT-DR that the valuation report did not mention goodwill had been dealt by the Tribunal in AY 2015-16. The valuation done by KPMG was for only of the GBT business division as on the date of acquisition and the goodwill was created and recognized in the books of accounts for the first time post transfer of business. Further, the entire arguments of the Ld. CIT-DR had been dealt by the tribunal while allowing depreciation on goodwill in AY 2015-16. 47. We find merit in submissions/contentions/arguments of the Ld. Counsel that this issue is squarely covered by the decision of the coordinate bench in the appellant assessee's own case in AY 2015-16 in ITA No.8965/Del/2019. Hence, following the decision of th....