TaxTMI 
TaxTMI 
2026 (7) TMI 935
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....2021 and 15.03.2022 for the Assessment Year 2017-18 and 2018-19 respectively. ITA No.- 511/Del/2022(A.Y. 2017-18) 2. The Assessee e-filed its return of income ('ROI') for AY 2017-18 on November 30, 2017 declaring a total income at INR Nil after set off of current year's loss of INR 86,67,652. 2.1 The assessee is a company, engaged in providing integrated facility management ('FM') and catering services in India. In addition, it also provides low end IS&T to its Associated Enterprises ('AE'). Further, during the year, the Company had received certain allocation of expenses pertaining to third party software licenses ("hereinafter referred as allocation of software expenses/ charges") from its AEs to assist the Assessee in regular conduct of its business operations. 2.2 The TPO noted that in Form 3CEB, the Assessee had shown following intra group services (i.e. IT software license and support services or 'IT software license') from its foreign AEs. Particulars Amount in INR Receipt of services (IT Software license) 59,30,009/- Total 59,30,009/- 2.3 On the basis of the information furnished during the TP audit procee....
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....ying CUP method." 2.4 In response, the assessee submitted its reply vide letter dated 13.01.2021, wherein it submitted that during AY 2017-18, the assessee had received allocation of expenses, incurred by its associated enterprise ('AE'), namely Compass Group Holding Plc on behalf of its affiliates and such expenses were incurred towards information technology ('IT') software licenses and support services (referred to as 'IT software licenses') which had been rendered by third party service providers to Compass Group affiliates, under an arrangement between the AE and such third party. The assessee also submitted the details of 'allocation for IT software licenses', 'benefits of receiving the IT software licenses', 'better IT platforms' and about 'cost benefit'. Further, the assessee also submitted legal arguments submitting that benefit test is not a method prescribed under the realm of the Act and placed various judicial pronouncement in this regard. The assessee also submitted that the tax authorities cannot question the commercial expediency of the transaction and benefits are not something that can be quantified and me....
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....rdingly, the arm's length price of these intra group services was held to be Rs. Nil on application of CUP method as the TPO observed that no uncontrolled enterprise would have paid any such amount for services and the arm's length price of the international transaction related to provision of software related services was computed by the TPO as below: Particulars Amount in INR Operating costs 7,77,51,318 ALP at 18.34% 9,20,10,910 Price Received 8,69,67,185 Adjustment u/s. 92CA 50,43,725 2.11 In pursuance of the above direction the AO proposed an adjustment of Rs. 50,43,725/- in the draft order u/s. 144C of the Act, dated 25.04.2021. 3. Aggrieved with the said order, the assessee filed its objection before the DRP. 4. The Ld. DRP dealt the matter in para no. 4.4. to 4.4.2 of its order and sustained the order of the AO / TPO. Further, the Ld. DRP in respect of ground no. 4.4. directed the AO to verify about the erroneous adjustment of Rs. 50,43,725/- instead of the correct amount of Rs. 59,30,009/ -. The relevant extract of the directions of the Ld. DRP are reproduced as under: " 4.4. Ground 4: That on the facts and circumstanc....
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.... its AE and the benefits derived by the assessee from the same. In the DRP proceedings the assessee has submitted detailed justification in support of its contention that the intra group services were indeed received by the assessee. The assessee also relied on a number of case laws in support of its contention. The DRP has examined the detailed justification for adjustments made by TPO on account of intra group services as well as the submission of the assessee. At the outset there are two issues in the analysis of transfer pricing for intra-group services. One whether intra-group services have in fact been provided and second whether such services were charged for at ALP The TPO's conclusion is that the taxpayer has not been able to prove that any tangible benefit was derived from the services and taxpayer has also not been able to demonstrate that the payment was at ALP. The TPO has marshalled considerable factual material after following due process. The taxpayer has been allowed adequate opportunity to place on record tangible evidence to prove that benefit was received from services rendered, and that these were necessary, not in the nature of shareholders services and no....
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..... Since the assessee just explained in generic nature about the benefits vis-a-vis the intra-group services payment to its AEs, therefore, we uphold the orders of id. DRP and Id. TPO." Perusal of the above will show that the Tribunal has affirmed that the benefit test is well recognized and the expected benefits from intra-group services must be sufficiently direct and substantial, so that an independent entity in similar circumstances, would be prepared to pay for it. If no benefits have been provided then the services cannot be charged for, and mere explanations in generic terms about the benefits are inadequate for allowability. 4.4.1.1 The query raised by the TPO as mentioned in para 13.2.2 to 13.2.5 of his order, regarding the need, the nature, the extent and the mode of availing benefits from the services by the assessee from its AE remains unsubstantiated even during the DRP proceedings. The primary onus to substantiate that the services were actually availed by the assessee from its AE and the payments made by the assessee was actually for this purpose, and was at ALP, lies on the assessee. In the instant case, the assessee has failed to substantiate the s....
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....erred upon the Appellant from the impugned international transactions pertaining to allocation of software expenses and thereafter re-determining the ALP of the said transaction as "NIL": 1.4. disregarding Other Method and applying Comparable Uncontrolled Price ('CUP") method to benchmark the impugned international transaction under consideration, without undertaking any economic analysis and in contravention of provisions provided in Rule 108 of the Rules and Section 92C of the Act, and 2 That on the facts and circumstances of the case, and in law the Ld. AO has grossly erred in proposing to initiate penalty proceedings under section 270A of the Act All the above grounds are without prejudice to each other The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal." 7. The Ld. AR reiterated its submission before the AO/ Ld. DRP and filed a short synopsis and the relevant extract of the same is reproduced as under: " In the case of: Compass India Support Services Private Limited ITA No. 511/Del/2022 ('AY') 2017-18 ....
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....porting submitted by Appellant: I. Back-to-back invoices (Refer page 130 to 140 of paperbook) II. Product catalog of the third-party vendor (Refer page 56 to 77 of Paperbook for product catalog). III. Agreed rates charged by the third party (Refer page 78 to 124 of the Paperbook for agreement) IV. Submission on Cost Allocation and Cost Benefit Analysis (Refer page 125 to 159 of Paperbook) c) Stating that the taxpayer has not been able to prove that it has received services of IT software license without appreciating the fact that the Appellant had duly provided the aforementioned documents before the Ld. TPO. d) Analyzed the nature and remuneration paid in respect of each service availed by the Appellant from its AE separately to determine the ALP and opined that such services are quite general, vague and duplicative in nature, thereby failing the benefits test. The Ld. TPO further noted that any benefit from these services is incidental and does not warrant payment, without appreciating the fact that the payment was for software licenses used by the Appellant in the ordinary course of business during the relevant AY and the sam....
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....the parties and perused the material available on record. On perusal of the submission of the assessee as reproduced above, we notice that the assessee had submitted the complete details about the arrangements of the intra- company services (i.e. receipt license), the basis and the agreement for providing the said services by, sample third party invoice and break-up of the above has detailed in para 5(b) and para 6 of the written submission as reproduced above. The cost allocated to the assessee during the year amounts in USD 74,280 which in Indian currency amounts to Rs. 59,30,009/ -. The 'Breakup of computer maintenance cost' for which the said amount has been paid by the assessee is mentioned at page no. 125 -126 of the paper book filed by the assessee. The relevant extract of the same is reproduced as under: Annexure D Compass India Support Services Private Limited Assessment proceedings - AY 2017-18 Breakup of computer maintenance cost S. No. Particular Amount in USD Reference to backup 1. Microsoft Enterprise Agreement - licences and associated Office 365 support costs 74,280 Item 1 2. Microsoft CRM....
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.... We, therefore, hold that adjustments of Rs. 59,30,009/- made by the Assessing Officer is not justified in this case, and the same is deleted. Ground nos. 1 to 1.4 of the appeal is allowed. 10. Ground no. 2 of the appeal is against the initiation of penalty proceedings u/s. 270A of the Act. This ground of appeal is premature at this stage and hence dismissed. 11. In the result, this appeal in ITA No. 511/Del/2022 is partly allowed. ITA No.- 1383/Del/2022 (A.Y.- 2018-19) 12. The AO noted the summary of International Transactions for the year as under: S. No. Nature of transaction Amount (in INR) 1 Provision of Information system and technology services 111120776 2 Allocation of expenses 10708641 3 Reimbursement of expenses paid 4465958 4 Payment of fee against letter of comfort NIL 5 Issue of equity shares 250000000 13. The TPO noted that in the TP study TNMM with PLI as OP/OC has been used as MAM for ascertaining ALP for the provision of IT enabled back office support services and the margin earned was shown as 15%. The TPO further noted that the company itself mentioned that it was taken as the "tested party" for....
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....pted. Rejected the comparability analysis conducted by the Assessee and conducted a fresh search based on the recent cut-off date. The Assessee had conducted the comparability analysis on the basis of contemporaneous data and same should be accepted Rejected the filters applied by the Assessee based on inappropriate assumptions for doing so and applied additional filters in its search process. The Assessee is not in agreement with the approach adopted by your goodself. Rejected certain comparable companies selected by the Assessee in the TP study by application of additional filters and on ground of functional dissimilarity. The Assessee is not in agreement with the rejection of these companies. Selected certain additional companies as comparable to the Assessee based on a fresh search. The Assessee is not in agreement with the comparability analysis of these companies. Disregard of segmental information provided by the assessee Working Capital Adjustment Risk Adjustment" 13.3 Further, the TPO also noted that in the TP study TNMM with PLI as OP/OC has been used as MAM for ascertaining ALP for the provision of IT enab....
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....) Pvt. Ltd. 22.22 9 Wipro Ltd. 22.75 10 Suma Soft Pvt. Ltd. 30.09 11 CES Ltd. 31.12 12 Ultramarine & Pigments Ltd. 39.36 13 Eclerx Services Ltd. 45.94 OP/ OC 35^th Percentile 5^th 14.62% 65^th Percentile 9^th 22.75% Median 21.53% "13.2 Accordingly, the arm's length price of the international transaction related to provision of ITES is computed as below: Amount (in Rs.) Operating costs 99,277,595 Arms Length Margin 21.53% Arms Length Profit 2,13,74,466 Arms Length Price 12,06,52,061 Price Received 11,11,20,776 Adjustment amount 95.31.285 13.3. Accordingly, an adjustment of Rs. 95,31,285/- is proposed w.r.t. to IS&T services." 14. In pursuance of the above direction the AO proposed an adjustment of Rs. 95,31,285/- in the draft order u/s. 144C of the Act, dated 15.09.2021 w.r.t. to IS&T services. Further, the AO considered the total income as per the order u/s. 143(1) of the Act, dated 14.11.2019 at Rs. 26,68,330/-, which included disallowances of Rs. 21,08,699/- and Rs. 5,60,128/- on acco....
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....ervices Ltd. 45.94 35^th Percentile 14.62% 65^th Percentile 22.22% Mediang 20.02% Assessee's Margin 11.93% 5. In pursuance of the above final set of comparables, the computation of Arm's length price and adjustment made in Provision of the IS & T services :- Particulars Amount (INR) Operating Cost 9,92,77,595 Arms Length Margin 20.02% Arms Length Profit 1,98,75,374 Arms Length Price 11,91,52,969 Price received 11,11,20,776 Adjustment Amount 80,32,194 6. Therefore, as per the directions of the Hon'ble DRP, the earlier adjustment of Rs. 95,31,285/- made to the income of the taxpayer u/s. 92CA is revised to Rs. 80,32,194/ -. The assessing Officer shall adjust the income of the assessee accordingly." 18. Upon receipt of the said direction, the AO passed the Final Assessment Order u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act on 30.04.2022 making an adjustment of Rs. 80,32,194/- on account of provision of IS & T Services. 19. Aggrieved with the said order, the assessee is in appeal before us on the following grounds of appeal: ....
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....s submissions made before the AO / Ld. DRP and also filed a written submission, the relevant extract of which are reproduced as under: " In reference to the matter heard by the Hon'ble Bench on November 11, 2025, the Appellant respectfully submits a brief synopsis as directed - 1. The Appellant, being a part of the Compass Group, is primarily engaged in providing integrated Facility Management ('FM') and catering services in India. In addition, it also provides low end Information System and Technology services ('IS&T") to its Associated Enterprises ('AE'). 2. The Appellant filed an appeal before the Hon'ble Bench contesting the aforementioned issues - a) the transfer pricing adjustment proposed w.r.t. provision of low-end IS&T services of INR 80,32,194 (refer Ground No. 4) and; .......... Ground No. 4 - Transfer pricing adjustment on provision of low-end IS&T services 3. During the course of hearing, it was submitted that the Appellant is maintaining segmental accounts for each of its business segments, namely - Facility Management, Catering Services and Information System and Technology Ser....
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....rvices. 6. It is pertinent to note that Appellant does not perform any value-added functions for the services provided by third party vendors and merely acts as an administrative facilitator. Hence, such third-party vendor cost is in a nature of pass-through cost for the Appellant and did not provide any service to the AE that warrants a mark-up. 7. However, the Ld. TPO has erroneously characterized the above as services similar to the aforementioned low end IS&T services provided by the Appellant without appreciating that under the arrangement, the Appellant has no right to charge markup on such third party costs. Hence, the same could not be aggregated with low end IS&T services provided by the Appellant. Hence, the action of the Id. TPO resulted in reduction of margin of the Appellant from 15% to 11.93% (refer Page 19 and 169 of the Appeal Set) 8. At the outset, it is humbly submitted before the Hon'ble Bench that identical issue was raised by the Ld. TPO in the immediately preceding AY (i.e., (i.e. AY 2017-18). The Appellant filed objections before the Ld. DRP and the Ld. DRP directed the Ld. TPO to verify the segmental revenue from its audited ac....
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....re is no change in factual matrix from the AY 2017-18 the AO/TPO is directed to follow the order of the DRP on this issue in the AY 2017-18 mutatis mutandis. (refer Page 37 of the Appeal Set) 11. However, Ld. TPO ignoring the binding directions of the Ld. TPO to follow the order of the Ld. DRP for AY 2017-18, held that that the cost-to-cost reimbursements are similar to the services low end IS&T provided with a markup of 15%. The Ld. TPO disregarded and violated the rules of consistency without any reason and there being no change in the underlying factual matrix. 12. In view of the above directions of the Ld. DRP and the material placed on record, the value of international transaction pertaining to low end IS&T services for AY 2017-18 reconciles with the segment revenue and therefore, should be considered to compute the margin. Hence, the aggregation of the provision of low end IT services and recovery of IT Expenses should be rejected and the margin of the Appellant for the instant AY shall be computed at 15%. 13. Without prejudice to the above, the Appellant is hereby also submitting the alternate contentions in case the first issue is not de....
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....oducts / Services NIC Code of the product / service % of total turnover of the company 1) Knowledge Process Group Class 100 Outsourcing 631 6311 iii. Abnormally high turnover of INR 1144 crores whereas the Appellant's turnover under ITeS segment is only INR 11.1 Crores Noes For the year ended March 31, 2018 For the year ended March 31, 2017 Rupees In Millon Rupees in Million Revenue form operation 21 11,440.21 11,620.22 Other Income 22 438.27 284.79 Total Income 22 11,878.48 11,905.01 iv. High advertisement, marketing and promotion cost of INR 211 crores while the Appellant does not undertake any marketing or advertising activity. High AMP expenditure results in creation of market intangibles. v. Involved in R&D activities Eclerx incurs expenses to develop technologies to differentiate themselves from the industry. vi. Non-availability of segmental information vii. Judicial precedents wherein Eclerx is rejected • Rampgreen Solutions Pvt. Ltd. v/s CIT (ITA 102/2015) (Delhi High Court) • MD E....
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....order. However, it is submitted by the Ld. AR that the TPO ignored the binding directions of the Ld. TPO to follow the order of the Ld. DRP for AY 2017-18 and held that that the cost-to-cost reimbursements are similar to the services low end IS&T provided with a markup of 15% and the TPO disregarded and violated the rules of consistency without any reason and there being no change in the underlying factual matrix. We find that the above contentions of the assessee are correct as the TPO as per law is bound by the directions of the DRP. We, therefore, set aside the order of the AO / TPO and direct him to follow the directions of the DRP and pass a fresh order accordingly. Further, as submitted by the assessee that there is a mistake in adopting the OP / OC by the TPO as against the corrected OP/ OC reported by the assessee from the annual report of the said comparables. Further, there is also a merit in the submissions of the assessee to exclude M/s Eclerx Services Ltd. as the business profile and the scale of operations of M/s Eclerx Services Ltd. and the assessee company are entirely different. Therefore, we direct the AO / TPO to exclude M/s Eclerx Services Ltd. as a comparable w....
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....itor (refer Page No. 292-299 of Paperbook). However, owing to the disclosure format of the e-filed TAR (refer Page No. 228 of Paperbook), the same could not be reported in clause 26(i)(A)(a) of the e-filed TAR for AY 2018-19. 18. Further, it is respectfully submitted that an amount of INR 24,99,522 has been disallowed in the computation of income for AY 2017-18 (refer Page No. 553-557 of Paperbook) and duly reported in the tax audit report for AY 2017-18 (refer Page No. 621 to 645 of Paperbook). 19. In view of above, it is may be appreciated that the inadvertent omission for non- disclosure of the amount of INR 21,08,699 on account of deduction claimed for bonus amount written back is on account of disclosure format of the TAR which do not provide for the disclosure of the amounts reversed/ written back during the year, rather it only provides for the disclosure of the payments made during a financial year. 20. Accordingly, in view of above, it is most humbly and respectfully prayed that the deduction/ allowance of the bonus amounting to INR 21,08,699 be allowed to the Appellant by the return of income for AY." 24.2 On the other hand, the Ld. CIT(DR) r....
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....he appeal is against the initiation of penalty proceeding. This ground of appeal is premature at this stage and hence, dismissed. 28. Ground no. 1 of the appeal is reproduced as under: 1. On the facts and circumstances of the case, & in law, the Ld. Assessing Officer (Ld. AO) has erred in passing the subject order by making Transfer Pricing (TP) adjustments to the amount of income computed as per intimation under section 143(1) of the Income-tax Act, 1961 (Act) dated 11 November 2019 without considering the rectification application dated 22 July 2020 filed by the Company against subject intimation 28.1 The AO is directed to look into the above matter and decide the rectification application dated 22.07.2020 before passing the order afresh in this case. Ground no. 1 of the appeal is allowed for statistical purposes. 29. In the result, appeal of the assessee in ITA No. 1383/Del/2022 is partly allowed. 30. To sum up, both the appeals of the assessee in ITA No. 511/Del/2022 and ITA No. 1383/Del/2022 are partly allowed. Order pronounced in the open court on 04^th February, 2026. ============= Document 1 COMPASS GROUP COMPASS GROUP HOLDINGS PLC Invoice....