DCIT., CIRCLE-2(1), HYDERABAD vs. KANTAR GDC INDIA PRIVATE LIMITED, HYDERABAD

Whether on the facts and circumstances of the ease and in law, the CIT(A) is justified in rejecting the benchmarking analysis carried out by the TPO?

Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in directing the IPO 10 exclude "EClerx Services Lid' from the final list of comparables stating that this company is into the nature of KPO when this company is functionally similar to the operational profile of the assessee?

Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in directing the TPO to exclude Infosys B PO Ltd from the final list of comparables due to huge turnover when this company is functionally similar to the operational profile of the assessee?

Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in directing the TPO to exclude Infosys B PO Lid from the final list of comparables due to huge turnover without appreciating the fact that in service sector, especially in software industry there is no linkage between the tum over and profit margin?

Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in excluding 'EClerx Services Ltd and Infosys B PO Ltd' from the final list of comparables on the grounds of functional difference when broad functional similarity is sufficient under TNMM and functions need not be identical?

Whether on the facts and circumstances of the case and in law, the Ld. CTT(A) is right in excluding 'EClerx Services Ltd' and 'Infosys BPO Ltd' as comparables without looking into the basic tenet of transfer pricing that in TNMM under Rule 10B(1)(e), the comparable need not be identical but suffice to be similar?

Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in directing to adopt arm's length interest rate of LIBOR+200 bps towards overdue receivables from Associated DCIT vs. Kantar GDC India Private Limited enterprises, ignoring the fact that the assessee would have derived interest @SBI Short Term Deposit rates, in an uncontrolled situation?

Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in directing to adopt arm's length interest rate of LIBOR+200 bps towards overdue receivables from Associated enterprises by rejecting SBI short term deposit rates as Comparable Uncontrolled Price for benchmarking the interest on delayed receivables?

Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in directing to adopt arm's length interest rate of LIBOR+200 bps towards overdue receivables from Associated enterprises without making a comparability analysis which is in violation of Indian Transfer Pricing Policy regulations which prescribe that the data to be used for the purpose of comparability analysis should be related to the year in which International Transaction has taken place?

Whether on the facts and circumstances of the case and in late, the Ld. CITIA) is justified in allowing credit period of 120 days by relying on the decisions of Tribunal in some other cases without appreciating to the fact that the allowability of credit period is case specific depending upon the terms and conditions of agreements with AEs and non Alis, and cannot be applied uniformly for all cases?

Any other ground that may be urged at the time of hearing.”

Succinctly stated, the assessee company which is engaged in the business of Market Research and Data Processing had e-filed its return of income for the AY 2014-15 on 24/11/2014, declaring an income of Rs.45,75,17,450/-. Subsequently, the case of the assessee company was selected for scrutiny assessment and notice under section 143(2) of the Act was issued.

The AO vide his order passed under section 143(3) r.w.s 92CA(4) r.w.s 144C of the Act, dated 29/01/2018 assessed the income of the assessee company at Rs.76,32,86,548/- made two additions based on the calculation of the Arm’s Length Price (ALP) of the international transactions of the assessee company with its Associated Enterprises (TPO) vide his order, dated 31/10/2017 passed under section 92CA(3) of the Act: Rs.22,66,45,137/-.

Aggrieved, the assessee company carried the matter in appeal before the CIT(A) who partly allowed the same with a direction to the TPO to recompute the ALP based on his observations, viz., (i) to exclude EClerx Services Limited, i.e., the comparable selected by the TPO in the course of the TP proceedings; (ii) to exclude Infosys BPO Limited, i.e., the comparable selected by the TPO in the course of the TP proceedings, on the ground that the said comparables as consistently observed by the Tribunal in the assessee’s own case for preceding years were functionally dissimilar; (iii) to compute the notional interest on the outstanding trade receivables from its Associated Enterprises by applying LIBOR+200 basis points as appropriate rate of interest in place of 7.5% rate adopted by the TPO/AO; (iv) to recompute the interest on outstanding receivables on an invoice by invoice basis after allowing credit period of 120 days at the interest rate of LIBOR+200 basis points. Accordingly, the CIT(A) partly allowed the appeal.

The Revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.

Dr. Narendra Kumar Naik, Learned Commissioner of Income Tax- Departmental Representative (for short, “Ld. CIT-DR”) at the threshold of hearing of the appeal fairly conceded that both the comparables included by the AO/TPO for determining the ALP in the case of the assessee company had consistently been excluded by the Tribunal in the assessee’s own case for AY 2007-08 to AY 2011-12. However, the Ld. CIT-DR submitted that in order to avoid a distorted picture resulting from cherry picking of comparables, wherein certain comparables included by the AO/TPO have been excluded but some have been retained by the CIT(A), the matter in all fairness and in the interest of justice be set-aside to the file of the TPO for fresh benchmarking.

Coming to the issue of computing of interest on outstanding receivables of the Associated Enterprises, the Ld. CIT-DR though supported the orders of the AO/TPO, but at the same time failed to controvert the fact that the Tribunal in the assessee’s own case for AY 2013-14 in ITA No. 2261/Hyd/2017, dated 03/06/2024 had directed the AO/TPO to adopt LIBOR+200 basis points as appropriate rate of DCIT vs. Kantar GDC India Private Limited interest for the purpose of benchmarking the interest receivable on outstanding receivables from its Associated Enterprises.

Apropos the credit period to be allowed for computing the interest on the outstanding receivables from the Associated Enterprises, the Ld. CIT-DR submitted that the TPO has rightly allowed 60 days credit period for computing the same. The Ld. CIT-DR to buttress his contention had relied upon the order of the Tribunal in the case of DGS Technical Services Private Limited vs. DCIT, Circle-8(1), Hyderabad in ITA No.1095/Hyd/2024, dated 31/10/2025, wherein it was observed that the TPO had rightly allowed 60 days credit period for computing the interest on the outstanding receivables.

Per contra, Ms. Ananya Kapoor, Advocate, Learned Authorized Representative (for short, “Ld. AR”) for the assessee company, at the threshold of hearing of the appeal, submitted that the grounds of appeal No.2 to 6 are squarely covered by the order passed by the Tribunal in the assessee’s own case for the preceding years. Elaborating on her contention, the Ld. AR submitted that the Tribunal had consistently in the assessee’s own case for the AY 2008-09 to AY 2011-12 directed the exclusion of both the subject companies which had been included by the TPO in the course of the benchmarking analysis from the final list of comparables, viz., (i) EClerx Services Limited; and (ii) Infosys BPO Limited. The Ld.AR submitted that the CIT(A) in the course of the DCIT vs. Kantar GDC India Private Limited appellate proceedings had called for a “remand report” from the AO/TPO in the context of the aforesaid issue, i.e., the inclusion of the above mentioned comparables by the TPO, which finds a mention at Pages 39-41 of the appellate order. The Ld. AR to buttress her contention that the Tribunal in the assessee’s own case, which was earlier known as “M/s. TNS India Pvt Ltd”, had directed the exclusion of the aforementioned companies from the final list of comparables had taken us through the orders passed by the Tribunal for the preceding years, i.e., (i) ITA No.1927/Hyd/2011, AY 2007-08, Pages 1-26 of APB; (ii) ITA No.1875/Hyd/2012, AY 2008-09, Pages 27-50 of APB; (iii) ITA No.604/Hyd/2014, AY 2009-10, Pages 51-81 of APB; (iv) ITA No.407/Hyd/2015, AY 2010-11, Pages 82 to 98 of APB; and (v) ITA No.636/Hyd/2016, AY 2011-12, Pages 99-110. The Ld. AR submitted that the CIT(A) in his order had after drawing support from the order passed by the Tribunal in the assessee’s own case, i.e., in ITA No.407/Hyd/2015, for AY 2010-11 and ITA No.604/Hyd/2014, for AY 2009-10 had directed the AO/TPO to exclude both the aforementioned companies from the final list of comparables, i.e., (i) EClerx Services Ltd; and (ii) Infosys BPO Limited. Elaborating further on her contention, the Ld. AR submitted that as there has been no shift in the functional profile of the assessee company during the subject year, therefore, the CIT(A) had rightly relied upon the orders passed by the Tribunal in the preceding years and directed the exclusion of the aforesaid companies

Apropos the charging of interest on outstanding receivables, the Ld. AR submitted that the Tribunal in the assessee’s own case for AY 2013-14 in ITA No. 2261/Hyd/2017, dated 03/06/2024 had directed the AO to recompute the notional interest on the outstanding receivables from the Associated Enterprises by adopting LIBOR+200 basis points as the appropriate rate of interest in place of 14.45% adopted by the AO, Pages 165-180 of APB. The Ld. AR submitted that a similar direction may be given to the AO for determining the intertest on the outstanding trade receivables from its Associated Enterprises by adopting LIBOR+200 basis points as against the notional interest adopted by the AO/TPO using SBI Term Deposit rate of 7.5% on the closing balance of outstanding receivables. Apart from that, the Ld. AR submitted that the CIT(A) by relying upon the orders passed by the Tribunal in the case of M/s. OSI Systems Pvt Ltd vs. DCIT-16(2), Hyderabad in ITA No.2228/HYd/2017, wherein similar facts were involved had rightly allowed 120 days of credit period for computing the interest on the outstanding receivables from the Associated Enterprises.

We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.

Apropos the selection of the aforementioned two comparables by the TPO for benchmarking the international transactions of the assessee company, we find substance in the Ld. AR’s contention that as the CIT(A) had followed the view taken by the Tribunal in the assessee’s own case ITA No. 407/Hyd/2015, for AY 2010-11 and ITA No.604/Hyd/2014, for AY 2009-10, therefore, considering the fact that there has been no functional shift of either the assessee company or the above mentioned comparables during the subject year, there could be no justification to retain the said companies in the final list of comparables. For the sake of clarity, we deem it apposite to cull out the observations of the CIT(A) who in the course of the proceedings after calling for a “remand report” from the AO, and considering the rejoinder of the assessee company had directed the AO/TPO to exclude both the aforementioned companies from the final list of comparables, viz., (i) EClerx Services Limited; as it was in the nature of KPO; and (ii) Infosys BPO Limited; due to huge turnover and position of intangibles, as under:-

Coming to the Ld. CIT-DR’s contention that as the aforementioned two companies selected by the TPO have been excluded by the CIT(A) while for some other comparables, viz., MPS Limited has been retained, therefore, in order to avoid a distorted picture resulting from cherry picking of the comparables appearing in the final list of comparables, the matter may be set-aside to the file of the TPO for fresh benchmarking, we are unable to fathom the said contention. We say so, for the reason that it is not the case before us that certain comparables of the assessee company have been included in the final list of comparables without being subjected to the filters of the initial determining of ALP, i.e., selection of the comparables, but is a case where certain companies for specific reasons, as consistently adopted by the Tribunal in the assessee’s own case for the preceding years had been excluded from the final list of comparables. We thus, finding no substance in the aforesaid contention of the Ld. CIT-DR are unable to persuade ourselves to subscribe to the same.

Apropos the computing of the interest on the outstanding receivables of the AE, we find that the said issue is squarely covered in the assessee’s own case for AY 2013-14, ITA No.2261/Hyd/2017, dated 03/06/2024, wherein the Tribunal after relying on certain judicial pronouncements, had observed that for the purpose of benchmarking LIBOR+200 basis points is the appropriate rate of interest to be considered by the AO. We thus, finding no reason to take a contrary view, respectfully follow the aforesaid order of the Tribunal and concur with the CIT(A), who had rightly directed the AO to adopt LIBOR+200 basis points as the appropriate rate of interest in place of notional interest imputed by the TPO using SBI Term Deposits rate of 7.5% on the closing balance of outstanding receivables as on 31/03/2014. 15. Coming to the issue of allowing of the credit period of 120 days for computing the interest on the outstanding receivables of the AE, we are unable to persuade ourselves to concur with the CIT(A) who had summarily accepted the claim of the assessee company and directed the AO/TPO to allow 120 days credit and charge the interest over and above the period of 120 days. Although, the CIT(A) had while concluding as herein above relied upon the order of the Tribunal in M/s. OSI Systems Pvt Ltd vs. DCIT-16(2), Hyderabad in ITA No.2228/Hyd/2017, which in turn had relied upon the order passed by the coordinate Bench in the case of M/s. Value Labs Technologies vs. ITO, ITA No. 1919/Hyd/2017, for the AY 2013-14, dated 05/04/2019, but in our view the aforesaid issue cannot be summarily decided by referring to the other case laws. We say so, for the reason that in our considered view, allowing of the credit period is subjective depending DCIT vs. Kantar GDC India Private Limited upon the facts of each case. In our view, as the assessee company has carried its cases for the preceding years, i.e., AY 2007-08 to AY 2011- 12 and AY 2013-14 before the Tribunal, wherein it had though assailed the rate of interest imputed by the TPO on the outstanding receivables of the AEs, but had not assailed the allowing of the credit period, we are of the view that the said conduct of the assessee company reveals that it had accepted the credit period that was adopted by the TPO for computing the interest on the outstanding receivables of its AEs. Although, the Ld. ARs for the assessee company (present in the Court) were directed to place on record the orders of the TPO for the preceding years, which we were informed would be done, but the same till date had not been filed. Considering the aforesaid facts, we are of the view that the best yardstick for adopting the period of credit for computing the interest on the outstanding receivables of the AEs can be taken by referring to the period so allowed by the TPO in the case of the assessee company for AY 2013-14, which appeal in the case of the assessee company as observed by us herein above is the latest one that had come up before the Tribunal and was disposed of vide order passed in ITA No.2261/Hyd/2017, dated 03/06/2024. We say so, for the reason that it can safely be inferred that the assessee company had though assailed the rate of interest adopted by the TPO for computing the interest on receivables for the said year, i.e., AY 2013-14, however, had not challenged the period of credit as taken by the TPO in the DCIT vs. Kantar GDC India Private Limited course of determining the ALP of the said transactions, thus, it can safely be inferred that the said period of credit had been accepted by the assessee company. Accordingly, the AO/TPO is directed to take the credit period as was adopted by the TPO in the case of the assessee company for AY 2013-14. 16. Before parting, we may herein observe that the Ld. AR had come up with an alternative contention regarding the credit period to be adopted in the case of the assessee company by drawing support from section 92CE r.w. Rule 10CB of the IT Rules, 1962. The Ld. AR submitted that section 92CE(2) of the Act contemplates that, where as a result of a primary adjustment of the transfer price, there is an increase in the total income or reduction in the loss, as the case may be of the assessee, then the excess money which is available with AE, shall be deemed to be an advance made by the assessee to such AE and the interest on such advance, shall be computed in such manner as may be prescribed. The Ld. AR submitted that Rule 10CB(1) further contemplates that for the purposes of sub-section (2) of section 92CE of the Act, the time period for repatriation of the excess money shall be on or before 90 days. Elaborating further on her contention, the Ld.AR submitted that based on a conjoint reading of section 92CE(2) of the Act and Rule 10CB of the IT Rules, 1962 an analogy can safely be drawn that the Legislature in all its wi om had allowed a threshold period of DCIT vs. Kantar GDC India Private Limited credit of 90 days. The Ld. AR submitted that based on the aforesaid analogy, in case the view taken by the CIT(A), wherein he had allowed 120 days of credit period is not to be accepted, then a credit period of 90 days be allowed to the assessee company for computing the interest on the outstanding receivables from its AEs.

We have given thoughtful consideration and are unable to persuade ourselves to subscribe to the aforesaid contention of the Ld.AR. We say so, for the reason that a conjoint reading of section 92CE r.w. Rule 10CB, reveals that the same contemplates that, where a primary adjustment is made to the transfer price under specified circumstance, viz., (i) adjustment on a suo motto basis by the assessee in its return of income; (ii) the assessee accepts the adjustment made by the AO; (iii) the adjustment is determined by an advance pricing agreement entered into by the assessee under section 92CE; (iv) is made as per the Safe Harbour Rules framed under section 92CB of the Act; or is arising as a result of resolution of an assessment by way of a mutual agreement procedure under an agreement entered under section 90 or 90A for avoidance of Double Taxation, it is under such specific circumstance the assessee shall make a secondary adjustment.

Be that as it may, we herein direct the AO/TPO to take the credit period that is adopted by the TPO in the assessee’s own case for the AY 2013-14. 19. Resultantly, the appeal filed by the Revenue is partly allowed in terms of our aforesaid observations. AY: 2015-16

We shall now take up the appeal filed by the Revenue in ITA No.1369/Hyd/2025, for AY 2015-16. The Learned Authorized Representatives of both parties at the threshold of hearing of the aforesaid appeal, submitted that the issues involved in the present appeal remain the same as were involved in the revenue’s appeal for DCIT vs. Kantar GDC India Private Limited AY 2014-15 in ITA No.1368/Hyd/2025, except for the fact that the Revenue in the present appeal is only aggrieved with the CIT(A) order to the extent he has directed the TPO to exclude Infosys BPO Limited (supra) from the final list of comparables.

We thus, taking cognizance of the fact that the issues involved in the present appeal remain same as were there before us in ITA No.1368/Hyd/2025 for AY 2014-15, therefore, the order therein passed shall apply mutatis mutandis for the purpose of disposing of the present appeal.

Accordingly, the appeal filed by the Revenue is partly allowed in terms of our aforesaid terms.

In the result, both the appeals filed by the Revenue are partly allowed in terms of our aforesaid observations.

The Principal Commissioner of Income Tax, Hyderabad.

"वभागीय""त"न"ध, आयकरअपील"यअ"धकरण /DR,ITAT, Hyderabad.

The Commissioner of Income Tax 6. गाड"फ़ाईल / Guard file