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Facts
The Revenue appealed against the CIT(A)'s order concerning the assessment year 2012-13. The Assessee, a subsidiary of British Petroleum, provides back office and business support services to its parent company. The case involves transfer pricing adjustments related to international transactions.
Held
The Tribunal upheld the exclusion of Excel Infoways Ltd. as a comparable, citing its different business model and low employee cost ratio. It also directed the inclusion of Jindal Intellicom Ltd. as a comparable, noting its prior acceptance in the Assessee's own case for a previous assessment year. Working capital adjustment was allowed.
Key Issues
The key issues were the selection of comparable companies for transfer pricing analysis and the allowance of working capital adjustments.
Sections Cited
92CA, 10B(4), 271(1)(c), 234D, 10B(2), 10B(3), 10C
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Income Tax Appellate Tribunal, MUMBAI BENCHES “K”, MUMBAI
Before: SHRI PAWAN SINGH & SHRI GIRISH AGRAWAL
Per : Pawan Singh, Judicial Member:
This appeal by Revenue and Cross-Objection (CO) by Assessee are directed against the order of Ld. CIT (A) 55 Mumbai dated 13.05.2025 for AY 2012- 2013. The Revenue has raised following grounds:-
“1. "Whether on the fact and circumstances of the case and in law, the Ld. CIT(A) is erred in not appreciating the selection of functionally similar comparables Le. Excel Infoways Limited as that of the assessee and making the adjustment by the Ld.TPO based on the TNMM Method."
& C.O. No. 277/M/2025 BP India Pvt. Ltd. 2. "Whether on the fact and circumstances of the case and in law, the Ld. CIT(A) is erred in not appreciating the exclusion of functionally dis-similar comparables ie. Jindal Intelicom Ltd as that of the assessee and making the adjustment by the Ld. TPO based on the TNMM Method." 3. "Whether on the fact and circumstances of the case and in law, the Ld. CIT(A) is erred by relying on the stand of the Hon'ble ITAT in assessee's own case in AY 2008- 09, 2009-10 and 2010-11, without appreciating the fact that each year's transfer pricing proceeding is distinct and based on the facts and circumstances on that year only."
On service of appeal by Assessee has filed its cross-objection by raising following grounds of appeal:- “On the facts and in the circumstances of the case and in law, the Learned Transfer Pricing Officer (Ld. TPO)/ Assessing Officer ('AO') made a TP adjustment to the arm's length price ('ALP') of the Assessee's international transaction. While making the TP adjustment, the Ld. TPO/AO erred in: 1.1. rejecting the economic analysis undertaken by the Assessee in the transfer pricing study report (TPSR) and disregarding the submissions made by the Assessee. 1.2. disregarding certain quantitative filters applied by the Assessee while selecting the comparables and applying certain additional filters. 1.3. including certain functionally dissimilar companies in the final set of comparables for computing the arm's length price. 1.4. excluding certain functionally similar companies in the final set of comparables for computing the arm's length price. 1.5. disregarding the provisions of Rules 10B(2) and (3) read with Rule 10C of the Income-tax Rules, 1962 (the Rules") 1.6. not allowing the working capital adjustment to eliminate the differences on account of varying working capital position between the Assessee and the comparable companies, and 1.7. not allowing the risk adjustment to account for the differences in the risk profile between the Assessee and the comparable companies 1.8. not allowing the use of multiple year data of comparable companies, as prescribed under Rule 10B(4) of the Rules and determining the arm's length price on the basis of financial information for the FY 2011-12, which was unavailable in the public domain at the time of determination of the arm's-length price.
The Assessee prays that the relief granted by the Ld. CIT(A) be granted and the adjustment made by the Ld. TPO/AO be deleted.
& C.O. No. 277/M/2025 BP India Pvt. Ltd.
2. On the facts and in the circumstances of the case and in law, the Ld. TPO/AO erred in disregarding the concept of base erosion and raising the income of the Assessee by adjustment with regards to services rendered to BP Exploration (Alpha) Limited - CBM India ('BPXA').
The Assessee prays that charging a higher mark-up with regards to service rendered to BPXA will erode the tax base of India and accordingly, the adjustment if any, should be restricted to the service rendered to the AEs other than BPXA.
3. On the facts and in the circumstances of the case an in law, the Ld. AO erred in levying interest u/s 234D of the Income Tax Act, 1961 ('the Act').
The Assessee prays that the Ld. AO be directed to delete/appropriately reduce the interest u/s 234D of the Act.
4. On the facts and in the circumstances of the case and in law, the Ld. AO erred in proposing to initiate penalty proceedings under section 271(1)(c) of the Act.
The Assessee prays that the Ld. AO be directed to drop the penalty proceedings under section 271(1)(c) of the Act.”
Brief facts of the case are that the Assessee Company is a subsidiary of British Petroleum providing back office support services and business support services to its parent company. The Assessee filed its return of income for AY 2012-13 on 28.11.2012 declaring total income of Rs.9.65 crores. The Assessee along with return of income filed its Transfer Pricing Study Report (TPSR) to substantiate the international transaction with its associate enterprise (AE). The AO made reference under Section 92CA (1) for computation of arm’s length price (ALP). The Transfer Processing Officer (TPO) entered into reference for computation of ALP. During proceedings before him the TPO noted that in order to bench mark the transaction of business support service, the Assessee adopted Transactional and Margin & C.O. No. 277/M/2025 BP India Pvt. Ltd. Method (TNMM), however, the transaction of recovery was bench marked by adopting Comparable Uncontrollable Price (CUP) method. Following were the comparable entities adopted by the Assessee.
Name of the Comparable Average adjusted NPI (OP/OC) Agricultural finance Corporation Ltd 3.33% Apitco Limited 27.17% Ma Foi management Consultants Limited 0.67% EQMS India Privated Limited 22.04% Arithmetic Mean 13.30%
The Assessee selected four comparable company and on the basis of their average arithmetic mean of OP/OC (Operational Marked Profit/Operational Cost) shown at 13.30. The TPO rejected the comparable selected by Assessee and introduced his own five comparable and on the basis of filing set of five comparable worked out arithmetic main margin at 26.51% in the following manner:
S. Name of the company Operating NO. Margin (OP/TC)% 1 Informed Technologies Limited 8.39% 2 Excel Infoways Limited (Seg) 49.38% 3 Infosys BPO Ltd. 33.92% 4 Accentia Limited 11.09% 5 Acropetal Limited (Segment) 29.78% 26.51%
On the basis of final set of comparable, the TPO proposed adjustment of Rs. 5.16 crore, on account of provision of business support services. On receipt of & C.O. No. 277/M/2025 BP India Pvt. Ltd. report of TPO, the AO passed draft assessment order on 15.02.2016. Copy of draft assessment order was served upon the Assessee. On service of draft assessment order, the Assessee vide letter dated 09.03.2015 informed the AO to file appeal before the Ld. CIT (A) instead of filing objection before the Dispute Resolution Panel (DRP).
Before the Ld. CIT (A), the Assessee filed detailed written submission. The submissions of Assessee are recorded in para 4 of the impugned order of Ld. CIT (A). Before the Ld. CIT (A), the Assessee challenged the action of TPO in not allowing the use of multiple year data as prescribed under Rule 10B(4).
The Assessee also challenged the rejection of economic analysis undertaken by Assessee and for inclusion of comparable by TPO; the Assessee challenged the inclusion of Excel Infoways Limited and not including Jindal Intellicom Ltd. in final set of comparable as well as not allowing working capital adjustment and risk adjustment by TPO.
The Ld. CIT (A) after considering the order of TPO, submission of Assessee and the material placed before it excluded the Excel Infoways Ltd. and directed to include Jindal Intellicom Ltd. However, not allowed working capital adjustment. Thereby allowed part relief to the Assessee. While directing for exclusion of Excel Infoways Ltd. The Ld. CIT (A) relied upon the decision of Tribunal in Assessee’s own case for AY 2012-13 and decision of Wills Processing Services India Pvt. Ltd. and GST E-Services Pvt. Ltd. in ITA No. 1231/M/2017. While directing for retaining of Jindal and Intellicom Ltd., the Ld. CIT (A) held that TPO in Assessee’s own case for AY 2011-12 have retain the Jindal Intellicom Ltd. Aggrieved by the order of CIT (A), the Revenue has & C.O. No. 277/M/2025 BP India Pvt. Ltd. filed the present appeal for action of CIT (A) in retaining the Jindal Intellicom
We have heard the submission of the Ld. Senior Departmental Representative (Ld. Sr. D.R.) for the Revenue and the Ld. Authorized Representative (Ld. Sr.
A.R.) of Assessee and have gone through the orders of lower authorities. At the outset of hearing, the Ld. A.R. of the Assessee submits that if any one of the comparable i.e. Excel Infoways Pvt. Ltd. or Jindal Intellicom Pvt. Ltd. is decided in favour of Assessee, the tolerance range of the Assessee would be within ALP. For exclusion of Excel Infoways Ltd., the Ld. A.R. of the Assessee submits that the comparable company is having a different business model being leading customer care center provider voice based service. It has a very low employee’s cost ratio as compared to Assessee. However, there is a substantial difference in the asset employed of this comparable as compared to Assessee company. However, this comparable was excluded by Tribunal in case of Willis Processing Services (India) Pvt. Ltd. in in AY 2011-12. On the basis of low cost employee as well as in case of GTS e- Services (P) Ltd. in for inclusion of Jindal Intellicom Pvt. Ltd., the A.R. of the Assessee submits that this comparable was included by TPO in AY 2011-12 in Assessee’s own case. There is no change in the financial and functions of this comparable in the year under consideration as well. The functional analysis of Jindal Intellicom Ltd. is filed at page No.221 of paper book. Segmental information of this comparable is available at page no. 238-240 of the paper book.
& C.O. No. 277/M/2025 BP India Pvt. Ltd. 9. The Ld. AR for the Assessee further submits that in her cross objection, the Assessee has also raised a ground for working capital adjustment. On allowing working capital adjustment and exclusion or inclusion of any one of comparable is decided in favour of Assessee, the Assessee will not pressed ground no.2 and 3 of cross objection.
On the other hand, the Ld. Sr. DR for the Revenue supported the order of TPO. Against the exclusion of Excel Infoways Pvt. Ltd, the Sr. D.R. submits that fixed asset to operating income ratio is not a valid filter and it does not form part of search strategy as proposed by TPO. So far as objection against the low employees cost ratio does not affect the margin of comparable company. Against the inclusion of Jindal Intellicom Ltd., the Ld. Sr. DR for the revenue submits that the Assessee itself proposed for inclusion of Jindal Intellicom Ltd. as well as Informed Technologies India Ltd. On the working capital adjustment. The Ld. Sr DR for the Revenue submits that similar prayer of the Assessee in earlier order was rejected by TPO which was confirmed by DRP in detailed discussions.
In short rejoinder the Ld. AR of the Assessee submits that working capital adjustment is invariably allowed by Tribunal on similar set of facts.
12. We have considered the rival submission of both the parties and have gone through the orders of lower authorities. We find that before us, the Ld. A.R. of the Assessee while supporting the order of CIT (A) made a limited submission that in case exclusion of Excel Info Pvt. Ltd., is confirmed or inclusion of Jindal Intellicom Pvt. Ltd. is upheld, the margin of Assessee would be within arm’s length price (ALP). Therefore, we proceeded to & C.O. No. 277/M/2025 BP India Pvt. Ltd. consider the plea of Assessee for exclusion of Excel Infoways Ltd. We find that Coordinate Bench of Mumbai Tribunal in GTS e-Services (P.) Ltd. Vs ITO reported in [2019] 108 taxmann.com 604 (Mumbai), (Excel Infoways Ltd. was excluded by Tribunal on the ground that employee cost of this comparable is low. Further, in M Modal Global Services (P.) Ltd. [2019] 112 taxmann.com 67 (Mumbai), this comparable company was also excluded on the ground that it has fluctuating margin. Thus, considering the submission of Ld. AR of the Assessee and the decision of Coordinate Bench of the Tribunal, exclusion of Excel Infoways Ltd. is upheld.
So far as inclusion of Jindal Intellicom Ltd. is concerned, we find that similar comparable company was accepted as a comparable in Assessee’s own case or AY 2011-2. The TPO rejected inclusion of this comparable without assigning any reason. We find that there is no change in the functional profile of Jindal Intellicom Ltd. during the financial year i.e. AY 2012-13. Thus, there is no logic for not including this comparable when it was included in AY 2011-
Thus, AO/TPO is directed to include Jindal Intellicom Ltd. in final set of comparable. In the result, the grounds of appeal raised by Revenue are dismissed.
In the result, the appeal of the revenue is dismissed.
So far as grounds and Cross Objection by Assessee is concerned, the Ld. A.R. of the Assessee made a limited prayer for allowing working capital adjustment. We find that Rule 10 (B) (1) (e) (iii) of the Income Tax Rules provides that adjustment should be made to the profit margin of & C.O. No. 277/M/2025 BP India Pvt. Ltd. independent comparable companies to take into account the difference in functions and risk. The Hon’ble Madras High Court in the case of Visual Graphics Computing Services (India) Pvt Ltd [TS-709-HC-2020 (Mad)-TP (High Court), (2020) also directed to allow working capital adjustment while computing adjustment. Thus, the AO/TPO is directed to allow working capital adjustment while computing price adjustment at the time of order giving effect of this order. No other grounds raised in cross objection is pressed therefore, remaining other grounds raised in cross objection are treated as not pressed.
In the result the cross objections raised by the Assessee is partly allowed.
Order pronounced in the open court on 31.12.2026.