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Income Tax Appellate Tribunal, PUNE “C” BENCH, PUNE
Before: SHRI SATBEER SINGH GODARA & SHRI G. D. PADMAHSHALI
ORDER PER G. D. PADMAHSHALI, AM; This appeal is directed against the order of the National Faceless Assessment Centre, Delhi, [‘AO’ hereinafter] dt. 29/10/2021 passed u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income-tax Act, 1961 [‘the Act’ hereinafter] for the AY 2017-18.
ITAT-Pune Page 1 of 16
The assessee raised following grounds through appeal memo instituted u/s 253(1) of the Act; “The Appellant appeals against the impugned Order dated 29.10.2021 passed by the Assessing Officer, National Faceless Assessment Centre (the AO) under section 143 read with section 144C(13) & 144B of the Income-tax Act, 1961 (the Act), in accordance with section 253(1)(d) of the said Act, on the following amongst other grounds each of which is in the alternative and without prejudice to any others;
1. That the AO erred in passing the impugned Order making an addition by way of transfer pricing adjustment of Rs.80,51,30,298 and consequently, raising a demand of Rs.50,16,49,540.
2. That the TPO/DRP erred in rejecting the benchmarking analysis carried on by the Appellant and instead independently determined the arm's length price in respect of provision of BPO services without fulfilling the jurisdictional pre-conditions in section 92C(3) of the Act.
3. That the TPO erred in adding and/ or modifying the filters and the DRP erred in upholding the same thereby rejecting the comparable companies identified by the Appellant in its transfer pricing study.
4. That the TPO/DRP erred in identifying the comparable companies without applying a proper search criteria and determined the final set of such comparables on a completely adhoc basis.
5. That the TPO/DRP ought to have excluded Parexel International (India) Pvt. Ltd., 24/7 Customer Pvt. Ltd., Exlservice.com (India) Pvt. Ltd. and MPS Limited from the list of comparables as they were functionally different, placed in a different market position and on account of various other factors.
6. That the TPO/DRP erred in excluding R Systems International Limited as a comparable as, though the financial year followed by the said entity was different ITAT-Pune Page 2 of 16 from that of the Appellant, information about its financial performance for the period for 01.04.2016 to 31.03.2017 could be derived from the information available in public domain and forming part of the record.
7. That the TPO/DRP erred in excluding Allsec Technologies Ltd., Cosmic Global Ltd., Sundaram Business Services Ltd. and Crystal Voxx Ltd. as a valid comparable.
8. That the AO/TPO erred in not taking the correct operating profit margins of 24/7 Customer Pvt. Ltd. and Exlservice.com (India) Pvt. Ltd. despite specific directions given in this regard by the DRP.
9. That the TPO/DRP ought to have allowed risk adjustment for determination of the arm's length price for provision of BPO services as the risk profile of the Appellant was different from that of the comparables.
10. That the TPO/DRP ought to have held, based on second proviso below section 92C(2) of the Act, that variation between the service fees charged by the Appellant to its associated enterprises and its arm's length price was less than 3% and, hence, no adjustment was required.
11. That though the Advance Pricing Agreement between the Appellant and the CBDT was not applicable to the year under consideration, no transfer pricing adjustment could be made in the present case as variation between the service fees charged by the Appellant to its associated enterprises and arm's length price as determined under the said agreement was within the range of + / - 3%.
12. That the liability for education cess on income tax ought to be allowed as tax deductible expense while computing the taxable income.
That the AO erred in initiating penalty proceedings ITAT-Pune Page 3 of 16 BNY Mellon International Operations (India) Pvt. Ltd. 274 read with section 271 (1)(c) of the Act, without considering the fact that adjustment to transfer price is on account of difference of opinion on the computation of arm's length price as determined by TPO vis-à-vis arm's length price determined by the Appellant.
That the Appellant craves leave to add, to alter and/or amend the grounds of appeal
as may be advised from time to time.”
3. At the outset of physical hearing, Ld. Counsel for the assessee Mr Nitesh Joshi [‘AR’ hereinafter] submitted that, inspite there being 14 grounds raised through appeal memo, if ground No.5 is adjudicated in favour of assessee, then of the remaining ground No.1 to 11 would render academic, whereas ground No.12 is not pressed for adjudication, while ground No.13 is premature at this stage, and general ground No 14 is cold-out for adjudication. Keeping in mind aforesaid submission and statement made at BAR by the Ld. AR, we now take up ground No. 5 first for adjudication, which seeks solitary exclusion of MPS Ltd. from the gamut of comparables adopted by the Ld. Transfer Pricing Officer [‘TPO’ hereinafter] in arriving at the arm’s length price [‘ALP’ hereinafter].
ITAT-Pune Page 4 of 16
We note that a similar issue came before the Co- ordinate bench in appellant’s own case wherein the Tribunal in dt. 05/04/2023 vide para 2-8 adjudicated the present issue in favour of the assessee by directing the Ld. AO/TPO to exclude MPS Ltd. from range of comparable selected in arriving at ALP for the appellant assessee in AY 2016-17; “2. At the very outset, the ld. Counsel for the assessee submitted that in ground No. 5 raised in the grounds of appeal
, the assessee is contending exclusion of certain comparables. In this ground, the assessee is not pressing (1) Tech Mahindra Business Services Ltd. for exclusion. The assessee wants exclusion of only two comparables from the final set of comparables (1) Infosys BPM Ltd. and (2) MPS Ltd. The ld. Counsel submitted that if these two comparables are excluded then they would be within the permissible +/- 5% rate and the other grounds raised in appeal would be academic in nature. The ld. Counsel further submitted that ground No. 11 pertaining to Education Cess, they are not pressing. Ground No. 12 is premature and ground No. 13 is general.
3. In effect . . .
4. Having heard . . .
5. Before emerging on the issue of exclusion of two comparables contended by the assessee, let us dwell into the functional analysis of the assessee before us. The assessee company is a subsidiary of MBC Investments Corporation, USA which is the holding company, which in turn is a subsidiary of Bank of New York Mellon Corporation, USA, which is the ultimate holding company. The assessee company ITAT-Pune Page 5 of 16 BNY Mellon India is into the business of providing business process outsourcing (BPO) services to Bank of New York Mellon, USA and the Bank of New York Mellon SA/NV Brussels (i.e. to its AEs). The ld. Counsel further elaborating on the functions of the assessee submitted that the assessee is providing back office services for its two AEs viz. New York entity and another Brussels entity. The assessee has shown international transactions in form No. 3CEB and therein the following transaction is only the disputed transactions, viz. “provision of business process outsourcing services being transaction processing of amount 69,55,125,884/-. In this regard the assessee has selected five companies as comparables given at para 4.1 of the TPO’s order. Similarly, T.P.O has made the final set of comparables given at para 9 of her order and in that list assessee is contending exclusion of Infosys BPM and MPS Ltd.
The ld. Counsel for the assessee brought to our notice functional analysis in the T.P study report of the assessee-company which is at para 2.1 and specifically it is mentioned as BPO activity and precisely the functions of the assessee BMY Mellon India is to execute the actual work based on the specifications provided by the AEs. It is also mentioned that the assessee raises invoices on its AEs for providing BPO services. The functional analyses of the assessee has been put to rest with the decision of Hon’ble Bombay High Court in the case of Pr. CIT Vs. BNY Mellon International operations (India) Pvt. Ltd. in order dated 23-04-2018 wherein at para 8 of the order it has been categorically held by the Hon’ble High Court that the assessee before us provides BPO services which are not KPO services. Therefore, the finding of the A.O/T.P.O that the assessee is providing BPO as well as KPO services is not correct as held by the Hon’ble High court that the services provided by the assessee is only BPO service.
ITAT-Pune Page 6 of 16
7. Having settled the functional analyses of the assessee as BPO service provider let us examine the exclusion of comparables as contended by the assessee.
M.P.S Ltd. 8.1 We have perused the annual report of this company provided at page 523 onwards of paper book (vol. 1) wherein it is evident that MPS is e-publishing company and is one of the most trusted vendor partners to the global publishing industries. This company provides complete end to end publishing solutions and has successfully powered its service business with smart technology. It is also mentioned that MPS Ltd. made three US based acquisitions that were completed through MPS North America LLC, a wholly owned subsidiary incorporated in My 2013. We further find that Pune Tribunal in order dated 18-06-2021 pertaining to same A.Y. 2016-17 has excluded MPS Ltd. from final set of comparable companies by holding that the said company is functionally different since MPS LLC is engaged in business or providing, publishing solutions for overseas publishers and supports international publishers through every stage of author to reader publishing process and provides a digital first strategy for publishers across content production, enhancement and transformation, delivery and customer support. Further, it was observed that there were several acquisitions leading to extraordinary events. In the said order, the Tribunal relied on another decision of Pune Bench in the case of Symantec Software India Pvt. Ltd. Vs. DCIT, ITA No. 1824/PUN/2018 for A.Y. 2014-15 dated 17-02-2020 wherein it was held as follows: In view of the above, respectfully following the decisions of the Tribunal as mentioned hereinabove, ITAT-Pune Page 7 of 16 we are of the considered view, high end activities of the MPS Limited is akin to IT services and not ITes. The activities of the MPS Limited i.e. typesetting, data digitization, content development and product development are in the nature of “Knowledge Processing Outsourcing Services (KPOs) and not BPO. Accordingly, MPS Limited cannot be treated as comparable company and the AO/TPO is directed to exclude MPS Limited from final list of comparable companies with regard to its technical support service segment.
8.2 Considering the above, the Tribunal held as follows: Having gone through the annual report of the company, findings of the Sub-ordinate Authorities and the submissions of the assessee placed on record along with judicial pronouncements, it is evident that MPS Limited is functionally different from that of the assessee company in more-so that high end activities of MPS Ltd is akin to IT services and not ITes. Respectfully following the decision of the Co-ordinate Bench of the Tribunal (supra.) we direct the AO/TPO to exclude MPS Limited from final list of comparable companies.”
8.3 The ld. D.R could not refute the facts emerging from the annual report of MPS Ltd. that it is providing publishing solutions to its clients and there have been several acquisitions also. This extraordinary event itself by way of several acquisitions renders, this company as non- comparable with that of the assessee. In view of the factual and legal analysis we direct the A.O/T.P.O to exclude MPS Ltd. from the final set of comparables while bench marking international transactions of the assessee company. We order accordingly.” (Emphasis supplied)
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The Ld. representative for Revenue Mr Rakesh Jha [‘DR’ hereinafter] solidifying present factual position could hardly challenge aforestated judicial precedents and its applicability, faced with the situation, in the absence of any deprecative facts vis-à-vis material brought to our notice, we are inclined to adopt the same rational as laid in foregoing para 8 of (supra) and see no reasons to deviate therefrom. Thus maintaining the judicial precedents we accede to exclude MPS Ltd. from the range of comparables adopted by the Ld. TPO in arriving at ALP, and direct the Ld. TPO/AO to deal with the same in aforestated terms. Thus ground No. 5 stands adjudicate in favour of the assessee and all other grounds raised in the appeal memo rendered themselves academic.
6. Next comes to Ld. Mr Nitesh Joshi’s prayer for admission of additional ground i.e. ground No.15 raised challenging disallowance made by Ld. CPC u/s 36(1)(va) of the Act for delayed remittance of ESI/PF ITAT-Pune Page 9 of 16 BNY Mellon International Operations (India) Pvt. Ltd. contribution. In this context Ld. AR submits that, obligation to remit contribution to ESI/PF fund by prescribed due date of 15/08/2016 was delayed by a day due to public holiday, on which the office of ESI/PF fund was closed and not attributable to assessee’s failure. Pressing into service clause 10 of General clauses Act, 1897 [‘GCA’ hereinafter] the Ld. AR contended that, remittance of contribution immediately on next working day i.e. on 16/08/2016 is a sufficient compliance as same is well within prescribed due date as envisaged by section 36(1)(va) r.w. GCA (supra), for the reason disallowance is unwarranted. To drive home aforestated contention Ld. AR placed strong reliance on Co-ordinate Benches decision rendered in ‘Integrity Verification Services Pvt. Ltd. Vs ITO’ (ITA No.1843/Mum/2021) and ‘Whirlpool of India Ltd. Vs JCIT’ [2008] 114 TTJ 211 (Del.).
Au contraire, Ld. DR, Mr. Rakesh Jha pressing into service judgement of Hon’ble Apex Court rendered in ‘National Thermal Power Company Ltd. Vs CIT’ reported ITAT-Pune Page 10 of 16 BNY Mellon International Operations (India) Pvt. Ltd. 229 ITR 383 [equivalent citation ‘(99) ELT 200 SC’ & ‘7 SCC 489’] has strongly objected the admission intoning that, this additional ground not being a pure legal ground however requiring an enquiry into facts relating to remission of contribution electronically within the prescribed due date, which ispo-facto negates admission at this second appellate stage. Insofar as allowability of deduction u/s 36(1)(va) of the Act is concerned, the Ld. DR calling into play landmark judgement of Hon’ble Supreme Court in ‘Checkmate Services Pvt Ltd. Vs CIT‘ reported in 448 ITR 518 [equivalent citation 290 TAXMAN 0019, 218 DTR 0401, 329 CTR 0001 & 115 CCH 0112 ISCC] averted that, the claim of the appellant for allowance is built on sand against prevailing law, therefore in limine deserves to be shut-out for any reconsideration.
8. We note that, the additional ground raised
claiming entitlement for deduction in terms of section 36(1)(va) of the Act is a pure legal ground triggering no fresh enquiry and investigation into the facts, as the date of ITAT-Pune Page 11 of 16. BNY Mellon International Operations (India) Pvt. Ltd. 20(b) of Form No. 3CD of tax audit report (placed at page 193 of p/b) and same was there before both the tax authorities below, therefore placing reliance on Hon’ble Apex Court decisions rendered in ‘Sanghvi Reconditioners Pvt. Ltd. reported in AIR 2010 SC 1089’, ‘Greater Mohali Area Development Authority reported in AIR 2010 SC 3817’, ‘The National Textile Corporation Ltd. reported in 12. SCC 695’ and ‘NTPC Vs CIT’ (supra).
Having admitted the additional ground, next remains a question as to whether claim for deduction u/s 36(1)(va) of Act r.w. ‘Checkmate Services Pvt Ltd.’ (Supra) is still available to the assessee when contribution is not remitted to ESI/PF fund within the due date prescribed by the respective Acts.
We note that, appellant has set-up a ground for allowance on two counts (i) contribution is remitted within a grace period of five days allowed (ii) due-date ITAT-Pune Page 12 of 16 BNY Mellon International Operations (India) Pvt. Ltd. 15th August was a public holiday therefore remittance on very next working day is shielded by clause 10 of GCA.
Albeit the subject matter is no-more res-integra in the light of Hon’ble Supreme Court judgement in ‘Checkmate Services Pvt. Ltd.’ (supra) r.w. explanation 1 to clause (va) of section 36(1) of the Act, however we are mindful to vouch the contention of the appellant in given facts and circumstance of the case and in doing so we note that; 11.1 Statutorily the assessee was required to remit the contributions and administrative charges within fifteen days of close of every month as per the provisions of EPF & PF Act 1952 under three Schemes Viz’ Employees’ Provident Funds Scheme [EPFS], 1952, Employees’ Pension Scheme [EPS], 1995 and Employees’ Deposit Linked Insurance Scheme [EDLIS], 1976 [‘respective funds’ hereinafter]. 11.2 A grace period of 5 days was allowed in addition to aforestated statutory time limit and any ITAT-Pune Page 13 of 16 BNY Mellon International Operations (India) Pvt. Ltd. remittance within this grace period was taken as sufficient compliance of law. This grace period of 5 days was allowed in view of then practice of manual processing of calculation of wages and dues of the employees at the end of Employers.
11.3 We note that, Employees Provident Fund Organisation of India, Ministry of Labour & Employment, Government of India vide its circular No. 608/2016 dt. 08/01/2016 withdrawn aforestated grace period of five days w.e.f. February, 2016, resultantly contribution due w.e.f. January, 2016 were subjected to remittance to respective funds without any grace period i.e. within fifteen days of close of every month (supra).
11.4 In the present case, admittedly the contribution is pertaining to period posterior to December, 2015 (remittance was due by 15th August, 2016) i.e. period/obligation falling after the withdrawal of grace period; therefore claim of the assessee of having ITAT-Pune Page 14 of 16 BNY Mellon International Operations (India) Pvt. Ltd. complied within the due date because it was remitted within grace period fails to make a room for allowance, thus stands rejected.
11.5 Now coming to clause 10 of GCA and the decision of Co-ordinate Bench (supra) relied by the appellant. We first note that; the decision in ‘Integrity Verification Services Pvt. Ltd. v. ITO’ was rendered much earlier to ‘Checkmate Service Pvt Ltd.’ (supra) hence the decision relied falls outside the context, thereof no help to the assessee. Insofar as ‘Whirlpool of India Ltd. v. JCIT’ is concerned, we note that the said decision was rendered by the Co-ordinate bench in context of use of manual/physical mode of remittance by cheque/draft etc. where remittee PF/ESI office was closed owing to public holiday. We note that aforestated decision and clause 10 of GCA are based upon principle of ‘lex non cogit ad impossibilia’ and without any iota of doubt they still hold good even today in a similar circumstances, but not in the present facts & circumstances. ITAT-Pune Page 15 of 16 BNY Mellon International Operations (India) Pvt. Ltd. 11.6 In the present case, the recipient remittee EPF office & respective fund for a limited purpose was represented by designated internet/online bank account, to which the appellant was obligated to remit contribution electronically by 15th August, 2016. This online/internet banking facility of remittee / respective fund was enabled for 24x7 and 365/366 days a year to receive all electronic remittances. Therefore remittee EPF office/ respective fund cannot said to be closed within the meaning of clause 10 of GCA, and hence renders powerless to expunge present failure of the appellant. Ergo additional ground stands dismissed.
In result, the appeal of the assessee is PARTLY ALLOWED. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Tuesday 08th day of August, 2023.