DCIT 1(1)(2), MUMBAI vs. HSBC PROFESSIONAL SERVICES P.LTD, MUMBAI

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ITA 251/MUM/2017Status: DisposedITAT Mumbai29 November 2023AY 2010-115 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to exclude Eclerx Services Ltd. and Vishal Information Technologies Ltd. due to functional differences and outsourcing. It also upheld the inclusion of R. System International Ltd. as it was functionally comparable and accepted in earlier assessment years.

What were the facts?

The revenue appealed against the CIT(A)'s order which excluded two companies (Eclerx Services Ltd. and Vishal Information Technologies Ltd.) and included one company (R. System International Ltd.) from the set of comparables for benchmarking the assessee's international transactions. The assessee provided back office support services.

What were the issues?

Whether companies with significant outsourcing or different service offerings are comparable for transfer pricing. Whether a company accepted as comparable in prior years should be included.

Which sections of the Income-tax Act were involved?

Section 92CA

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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI

Hearing: 14.11.2023Pronounced: 29.11.2023

Dy. Commissioner of Vs. M/s HSBC Professional Income-tax-1(1)(2) Services Pvt. Ltd. 579, Aayakar Bhawan, 6th Floor, Shiv Building M.K. Road, CTS No. 139 & 140B, Mumbai – 400 020 Sahar Road, Vile Parle (E) Mumbai – 57 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AABCH0705R Appellant .. Respondent [ Appellant by : Madanappa Raghuveer Respondent by : Niraj Sheth Date of Hearing 14.11.2023 Date of Pronouncement 29.11.2023 आदेश / O R D E R Per Amarjit Singh (AM): This appeal filed by the revenue is directed against the order passed by the ld. CIT(A)-56, Mumbai, dated 29.09.2016 for A.Y. 2010- 11. The revenue has raised the following grounds before us:

1. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) was justified in directing to exclude two companies viz. M/s. Eclerx Services Ltd. and M/s. Vishal Information Technologies Ltd. from the set of comparables for benchmarking assessee's international transaction of provision of back office support services even though these two companies are functionally comparable to the back office support services provided by the assessee?

2. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) was justified in directing to include M/s. R. System International Ltd. in the set of comparables for benchmarking assessee's P a g e | Dy. CIT-1(1)(2) Vs. M/s HSBC Professional Services Pvt. Ltd. international transaction of provision of back office support services without considering the fact that its financials were prepared for the year ending on Dec. 31, 2009 whereas that of the assessee were prepared for the year ending on March, 31, 2010 ignoring the fact that filter viz. Companies having different accounting year from that of the assesse, for exclusion of companies as comparables, has been used by the TPO and upheld by the Ld. CIT(A).”

2.

Fact in brief is that return of income declaring total income of Rs.1,89,43,161/- was filed on 07.10.2010. The return was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 24.08.2011. The assessing officer has referred the case u/s 92CA(1) of the Act to the Transfer Pricing Officer for the determination of Arm’s length Price in respect of the assesse’s international transaction with its associated enterprises. The TOP vide order u/s 92CA(3) dated 27.01.2014 has suggested an adjustment of Rs.3,11,29,645/- in the arm’s length price of its international transaction in respect of provision of professional services. Thereafter, the assessing officer has passed the order u/s 143(3) r.w.s 144C(3) of the Act on 28,03.2014 and total income was assessed at Rs.5,00,75,398/-. Further facts of the case are discussed while adjudicating the ground of appeal

filed by the revenue. Ground No. 1: Excluding two comparable companies M/s Exclerx Services Ltd. and M/s Vishal Information Technologies Ltd. from the set of comparables for benchmarking assessee’s international transaction of provision of back office support services:

3. The TPO has included Coral Hub limited formerly known as Vishal Information Technologies Ltd. & Eclerx Services Ltd. in the list of comparables applied to benchmarking the office support services provided by the assesse to its associated enterprises. The assesse objected for including Vishal Information Technology Limited as comparable on the ground that the said company was engaged in area of operations which were different from the assessee companies P a g e | Dy. CIT-1(1)(2) Vs. M/s HSBC Professional Services Pvt. Ltd. services. Similarly, assessee has also objected for including Eclerx Services Limited as one of the comparable on the ground that company was engaged in KPO services which were different from the assessee’s company office support services. However, the TPO has not accepted the contention of the assessee and included both the conmpanies as comparable.

4.

The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has excluded both companies from the set of comparables.

5.

Heard both the sides and perused the material on record. The assessee has contented that Vishal Information Technology Ltd. provides vide range of services which were different from the assessee company and that company also outsourced significant portion i.e 88.34% of its business whereas the assessee company carried out its operation entirely itself which demonstrate that there was functional difference between the assessee company and the comparable selected by the TPO. In respect of other comparable Eclerx Services Limited, the assessee company submitted that company was engaged in data analytics knowledge process outsourcing. The assessee further submitted that KPO function performed by that company was different from the services rendered by the assesse company.

6.

During the course of appellate proceedings before us the ld. Counsel has also referred decision of Hon’ble Punjab and Haryana in the case of CIT, Faridabad Vs. Mercer Consulting (India) P. Ltd. (2016) 76 taxman.com 153 (P & H) wherein held that since assessee conducted its business activities itself without outsourcing any part of it then a company which outsourced substantial portion of its work, could not be accepted as comparable. The ITAT, Mumbai in the case of the assessee HSBC Professional Service (I) P. Ltd. Vs. DCIT, Range 8(2) vide 1658 & 1425/Mum/2012 dated 12.05.2023 for AY 2007 – 08 held that

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