SYNCHRONY INTERNATIONAL SERVICES PRIVATE LIMITED,HYDERABAD vs. DCIT, CIRCLE 3(1), HYDERABAD

Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A). During the appellate proceedings, the assessee submitted that it had entered into a Bilateral Advance Pricing Agreement (“BAPA”) with the Central Board of Direct Taxes and that the Assessment Year 2016–17 was also covered under the said BAPA. It was submitted that approximately 95.75% of the revenue of the assessee was from US-based AEs which were covered under the BAPA, and only about 4.25% of the revenue was from non-US based AEs which were not covered under the BAPA. The assessee further submitted that the transactions with non-US based AEs constituted a very small portion of the total turnover and that the Ld. TPO had also not applied separate benchmarking for 5 such transactions. Accordingly, the assessee relied upon the decisions of the coordinate benches of the Tribunal and requested that the margin agreed under the BAPA be applied to the transactions with non-US based AEs as well. However, the Ld. CIT(A) did not accept the contention of the assessee on the ground that the decisions relied upon by the assessee were rendered in the context of MAP resolutions and not in the context of BAPA. Accordingly, the claim of the assessee was rejected.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the solitary issue involved in the present appeal is the rejection by the Ld. CIT(A) of the assessee’s request for application of BAPA margin to the transactions with non-US based AEs. The Ld. AR submitted that the Ld. CIT(A) rejected the claim only on the ground that the case laws relied upon by the assessee were in the context of MAP resolutions, which is not correct. The Ld. AR invited our attention to para nos. 26 to 30 of the decision of the coordinate bench of the Tribunal in the case of Texas Instruments (India) Pvt. Ltd. v. ACIT (2022) 141 Taxmann.com 159 (Bangalore – Trib.) and para nos. 25 and 26 of the decision of Delhi Benches of the Tribunal in the case of JCB India Ltd. v. ACIT (2025) 172 Taxmann.com 196 (Delhi-Trib.) and submitted that in both the cases, under identical facts, the Tribunal has allowed application of BAPA margin to transactions not covered under the agreement. Accordingly, the Ld. AR requested that necessary directions be issued to the Ld. AO to apply the BAPA margin to the transactions with non-US based AEs as well.

Per contra, the Learned Departmental Representative (“Ld. DR”) submitted that as per the statutory mandate, BAPA is applicable only to the transactions with AEs specifically covered in the agreement. Therefore, the margin agreed under BAPA cannot be 6 extended to transactions with other AEs not covered under the agreement. Accordingly, the Ld. DR strongly objected to the contention of the assessee.

We have considered the rival submissions and perused the material available on record. There is no dispute about the fact that the assessee has entered into a BAPA with the Central Board of Direct Taxes and that the Assessment Year under consideration is covered under the said BAPA. There is also no dispute about the fact that the transactions not covered under the BAPA constitute only about 4.25% of the total revenue of the assessee. In this regard, we have also gone through the para nos. 26 to 30 of the order of the coordinate bench of the Tribunal in the case of Texas Instruments (India) Pvt. Ltd. v. ACIT (Supra), which is to the following effect:

We have also gone through para nos. 25 and 26 of the decision of the Coordinate Bench of the Tribunal in the case of JCB India Ltd. v. ACIT (Supra), which is to the following effect:

As a consequence of aforesaid discussion, we are inclined to allow ground nos. 4 to 6 and the additional ground, as raised. The learned TPO is directed to accept the parameters of determination of compensation as accepted in APA and accordingly benefit the assessee in determination of ALP of disputed transaction with non- UK AE, too. Consequently, the appeal is allowed with consequences to follow the directions above.”

On going through the above 2 decisions of the Coordinate Bench of the Tribunal, we find that under similar facts, the Benches of the Tribunal have allowed application of BAPA margin to transactions with AEs not covered under the agreement, where the FAR profile was found to be identical and no separate benchmarking was carried out. In the present case also, it is an undisputed fact that the Ld. TPO has not carried out any separate benchmarking for the transactions with non-US based AEs and has applied a uniform approach for all the international transactions. Further, no material has been brought on record by the Revenue to demonstrate that the FAR profile of the transactions with non-US- based AEs is different from that of the transactions covered under the BAPA. In such circumstances, though the BAPA is not strictly binding in respect of transactions with AEs not covered under the agreement, the margin agreed under the BAPA, being the outcome of a detailed and accepted transfer pricing analysis between the assessee and the tax authorities, constitutes a reliable and persuasive benchmark for determination of arm’s length price. Accordingly, considering the principle of consistency and in the absence of any distinguishing feature, we find merit in the contention of the assessee. We, therefore, direct the Ld. AO / Ld. TPO to adopt the margin as agreed under the BAPA for the purpose of determining the arm’s length price of the transactions of the assessee with non-US based AEs as well.