SWISS RE GLOBAL BUSINESS SOLUTIONS INDIA PRIVATE LIMITED,VARTHUR HOBLI, BENGALURU vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 6(1)(1) BANGALORE, BMTC BUILDING KORMANGALA BANGALORE
What did the Tribunal hold?
The Tribunal held that Crossdomain Solution Ltd. should be excluded as it provides value-based quality services in fields like HF, Finance, Administration, and tax processes, falling within the ambit of KPO services, which are dissimilar to ITES. The Tribunal relied on previous ITAT decisions that excluded this company on grounds of functional incompatibility and KPO services. Similarly, MPS Limited was held to be engaged in KPO services, specifically typesetting, data digitization, content, and product development, which are not comparable to ITES. The Tribunal cited ITAT decisions that excluded MPS Limited on similar grounds, distinguishing between BPO and KPO services as defined under Rule 10TA of the Act. Regarding Hartron Communications Limited, the Tribunal noted that the DRP had directed its inclusion. The Tribunal found that the AO/TPO had exceeded their jurisdiction by not following the DRP's direction and therefore directed the AO/TPO to include Hartron Communications Limited while working out the ALP. The ground regarding the transfer pricing adjustment on trade receivables was dismissed as not pressed due to the minuscule amount. The Tribunal directed the Revenue to work out the tax liability after considering tax already paid and deductions under Chapter VI-A. The consequential issues were dismissed.
What were the facts?
This appeal by Swiss Re Global Business Solutions (the assessee) against the order of the Assessing Officer (AO) dated 22/11/2023 for assessment year 2014-15 is the second round of litigation. The Income Tax Appellate Tribunal (ITAT) had previously set aside the issue to the AO/Transfer Pricing Officer (TPO) with directions. The TPO subsequently issued notices for submissions regarding the inclusion and exclusion of comparables. The assessee requested the exclusion of Crossdomain Solution Ltd. and MPS Limited, and the inclusion of Hartron Communications Limited. The Dispute Resolution Panel (DRP) confirmed the exclusion of Crossdomain Solution Ltd. and MPS Limited but directed the inclusion of Hartron Communications Limited. However, the AO/TPO did not fully comply with the DRP's direction regarding Hartron Communications Limited. The assessee also raised an issue regarding transfer pricing adjustment on trade receivables and computation of tax payable. The amount in dispute for the trade receivables adjustment was stated to be Rs. 4,35,335/-.
What were the issues?
1. Whether the AO/TPO erred in excluding Crossdomain Solution Ltd. and MPS Limited from the list of comparable companies for determining the Arm's Length Price (ALP) of international transactions, as per Section 92C of the Income Tax Act, 1961? 2. Whether the AO/TPO erred in not including Hartron Communications Limited in the list of comparable companies, as directed by the DRP, for determining the ALP of international transactions, as per Section 92C of the Income Tax Act, 1961? 3. Whether the AO/TPO erred in making a transfer pricing adjustment on account of interest amounting to Rs. 4,35,335/- relating to trade receivables? 4. Whether the AO/TPO erred in computing tax payable without considering the tax already paid by the assessee and deduction available under Chapter VI-A of the Act? Assessee's Contentions: - Crossdomain Solution Ltd. and MPS Limited are not engaged in ITES Services and should be excluded. Reliance was placed on ITAT decisions in the case of Nuance Prescription Services India Pvt. Ltd. and Symantec Software India Private Limited. - Hartron Communications Limited should be included as directed by the DRP, and the AO/TPO failed to comply with this direction. - The transfer pricing adjustment on trade receivables is minuscule and should not be pressed. - The tax computation should consider tax already paid and deductions under Chapter VI-A. Revenue's Contentions: - The learned DR vehemently supported the order of the authorities below.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K & SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the AO dated 22/11/2023 in DIN No. ITBA/AST/S/143(3)/2023- 24/1058332894(1) for the assessment year 2014-15.
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The first issue raised by the assessee is that the AO/TPO erred in including and excluding certain comparables in contravention to various decisions of the Hon’ble High Courts and the Tribunals.
2.1 It is the second round of litigation before us. The ITAT on earlier occasion in IT(TP)A No. 3181/Bang/2018 vide order dated 21/5/2020 has set aside the issue to the file of the AO/TPO with necessary directions. In consequence to the directions issued by the ITAT, the TPO vide notice dated 18/11/2021, 28/6/2022 and 7/11/2022 provided an opportunity to the assessee to make necessary submissions with respect to the exclusion and inclusion of certain comparable while determining the ALP of the international transactions as detailed below:
Exclusion of Comparables • Crossdomain Solution Ltd., • MPS Limited 2. Inclusion of Comparables • Hartron Communications Limited
The assessee in response to such show cause notice made various replies vide letters dated 29/11/2021 and 13/07/2022 requesting to exclude and include the comparable as stated above. As per the assessee, the comparables viz., Crossdomain Solution Ltd. and MPS Limited are not engaged in the activity of ITES Services, therefore, the same should be excluded. Likewise, the assessee also submitted the comparable viz. Hartron Communications Limited cannot be rejected merely that it is incurring the losses persistently. According to the
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assessee, this comparable is not incurring losses persistently as observed by the Revenue and, therefore the same should be taken into consideration as comparable for calculating the ALP. However, the TPO did not accept the contention of the assessee and accordingly did not accept the inclusions of the comparables and exclusions of the comparable as desired by the assessee.
Aggrieved, the assessee raised an objection before the DRP. The learned DRP disposed of the objection by giving direction to the AO wherein confirmed the action of the TPO/AO for not excluding the comparable Crossdomain Solution Ltd. and MPS Limited whereas the learned DRP directed the AO/TPO to include the comparable namely Hartron Communications Limited. As such, the Ld. DRP partly accepted the contention of the assessee. However, the AO/TPO in final assessment order did not fully comply with the learned DRP direction as the AO/TPO has not included the comparable namely M/s Hartron Communications Limited.
Being aggrieved by the direction of the ld. DRP and final assessment order under section 144C(13) of the Act, the assessee is in appeal before us.
The ld. AR before us filed a paper book running from pages 111 to 1156, case law compilation running from pages 1 to 239 and the annual reports of the comparables. The ld. AR before us submitted that the ITAT in the case of Nuance Prescription Services India Pvt. Ltd., in IT(TP)A No. 3230/Bang/2018 has held that Crossdomain Solution Ltd., is engaged in the activity of KPO and not in ITES services, therefore, the
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same should be excluded. Likewise, the ld. AR submitted that MPS Limited is also not engaged in ITES Services and, therefore, the same should be excluded. The ld. AR in support of his contention relied on the order of the ITAT in the case of M/s Symantec Software India Private Limited in ITA No.1824/Pune/2011.
The ld. AR also submitted that DRP has given direction to include the comparable viz. Hartron Communications Limited which has not been complied by the AO, therefore, the same should be included in the list of comparable cases.
On the other hand, the ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the Bangalore Tribunal in the case of Nuance Transcription Services India Limited in IT(TP)A No. 3230/Bang/2018 has held that the Crossdomain Solution Limited is not engaged in ITES services, therefore, the same should be excluded. The relevant extract is reproduced as under: “18. We have heard rival submissions and perused the material on record. The Bangalore Bench of the Tribunal in the case of M/s.Vee Technologies Private Limited v. PCIT (supra) for assessment year 2014-2015, had excluded the above company from the comparable list on account of functional incompatibility. The relevant finding of the Tribunal reads as follows:- “ 11. The learned Counsel for the assessee has prayed for exclusion of 3 out of the 5 comparable companies that remain after the order of the DRP viz., Infosys BPO Ltd., Eclerx Services Ltd., and Crossdomain Solutions Pvt. Ltd. As far as the plea for exclusion of the aforesaid companies from the list of comparable companies is concerned, learned Counsel for the assessee has filed before us a copy of the decision of the ITAT, Bengaluru Bench, rendered in the case of EMC Software and Services Pvt. Ltd. Vs. JCIT 115 taxmann.com 293. The aforesaid decision which also relates to Assessment Year 2014-15 and which was rendered in the context of a company
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providing ITeS such as the assessee and in whose case also the very same comparable companies that were chosen in the case of the assessee in this appeal was chosen as a comparable company, the Tribunal directed to be excluded Infosys BPO Ltd., Eclerx Services Ltd., and Crossdomain Solutions Pvt. Ltd., as comparable companies for the following reasons: On exclusion of Infosys BPO Ltd., ………………. Cross Domain Solutions Pvt.Ltd., was excluded for the following reasons: (iii) Cross Domain Solutions Pvt. Ltd., the company margin is 21.07% and has to be excluded as the company is providing value based quality services in the fields of HF, Finance, Administration, tax process etc and falls within the ambit of KPO services and dissimilar to ITES. The KPO service provider cannot be compared to the ITES provider and has to be excluded. The company was excluded in the co-ordinate Bench decision in the case of Symphony Marketing Solutions India (P.) Ltd. v. ITO [2013] 38 taxmann.com 55 (Bang - Trib) at paras 18 & 19 held as under :
'18. This company was considered as a comparable and listed at Sl.No.8 of the comparables chosen by the TPO. It is the stand of the assessee that this company is not functionally comparable. As observed in the case of Coral Hubs Ltd., the TPO rejected the plea of the assessee on the basis of a non-existent TP order passed for the A.Y. 2007-08. It is seen that the business profile of this company is re-engineered payroll service. This company is also engaged in the development of information systems. These activities are totally different from the activities of the assessee which perform very limited/low end functions back office services. The review and business functions of Cross Domain is as follows: "With a decade of experience in Payroll Outsourcing, Crossdomain has created a re-engineered payroll service EFFIPAY - that processes and delivers accurate payroll to clients with headcount up to 1000 employees in just 4 hours. With Effipay Lite and Effipay Lite Plus, our bouquet of services cover end to end payroll, retrials, reimbursement, tax proof verifications upto issue of Form 16 for employees of our clients across different industry verticals. Our processes are highly scalable and provide end to end payroll solutions to clients with headcount ranging from 5 to 65,000." "Crossdomain's IT knowledge and domain competence has provided the edge to develop information systems to implement process innovation and continuously increase efficiency and turnaround-time for business critical processes." As can be seen from the above, the business of Cross Domain ranges from high end KPO services, development of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service provider. 19. We are of the view that in the absence of any reasons given to the contrary either by the TPO or the DRP for regarding this company as a comparable, this company should be excluded from the list of comparables, accepting the plea of the Assessee. We hold accordingly." Also in the case of PCIT v. BNY Mellon International Operations (India) (P.) Ltd. [2018] 93 taxmann.com 363/255 Taxman 397 (Bom) the Hon'ble Bombay High Court has held the comparable Cross Domain Solutions (P.) Ltd. is in the nature of KPO and observed at paras 3 to 8 as under : "3. The impugned order of the Tribunal held that the following entities mentioned at nos.(i) to (iv) above are not Comparables to the Respondent. This by following the decision of its Co-ordinate Bench in PTC Software (India) (P.) Ltd. v. Dy. CIT [2014] 52 taxmann.com 35l/[2015] 67 SOT 138 (URO) (Punj. - Trib).
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Mr. Suresh Kumar teamed counsel appearing for the Revenue very fairly pointed out that being aggrieved by the decision of the Tribunal in PTC Software (I) (P.) Ltd. (supra), the Revenue had preferred an appeal to this Court being IT Appeal No. 598 of 2016 - Pr. CST v. PTC Software (I) (P.) Ltd. This Court dismissed the Revenue's above appeal on 16 April 2018 upholding the view of the Tribunal. The Revenue does not dispute that the above decision in PTC Software (I) (P.) Ltd. (supra)of this Court rendered on 16 April 2018 would apply to this case. 5. Therefore for the reasons indicated in our order dated 16 April 2018 in case of PTC Software (I) (P.) Ltd. (supra)the entities listed at serial nos.(i) to (iv) cannot be held to be comparable to the Respondent-Assessee. 6. So far as the entity listed at serial no.(v) above, namely Crossdomain Solutions Limited, is concerned the impugned order of the Tribunal has excluded it from the list of comparables. This by following its decision in Dy. CIT v. Wills Processing Services (India) (P.) Ltd. vide ITA No.2152/Mum/2014, dated 10-10-2014, Mr. Suresh Kumar learned counsel appearing for the Revenue states that inspite of his best efforts, the Revenue is unable to instruct him whether or not an appeal has been preferred against the order of the Tribunal dated 10 October 2014. in the case of Wills Processing Services under (P.) Ltd. (supra). 7. In the above view we proceed on the basis that no appeal from the order passed in Wills Processing Services under (P.) Ltd. (supra)has been filed by the Revenue. We further note that the impugned order records that the services provided by Crossdomain Solutions is in the nature of KPO ^Knowledge Process Outsourcing). 8. It is an agreed position between the parties that the entity at Sl. no.(v) above was a subject matter of consideration by this Court in the Revenue's appeal being Pr. CIT v. Aptara Technology (P.) Ltd. [2018] 92 taxmann.com 240. In the aforesaid case, this Court recorded the fact that M/s Crossdomain Solutions Ltd. was engaged in distinct activities such as payroll activity. 'Knowledge Process Outsourcing'(KPO) service, development of products and routine IT services. Thus, it was found not comparable with an entity which was rendering E-learning services, In the present case also the Respondent provides BPO services which is not with KPO services. " Further the learned Authorised Representative substantiated his argument with Annual Report of comparable and we consider it proper to direct the TPO to exclude the comparable from the list of comparables for determination of ALP” 12. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid 3 companies from the list of comparable companies.” IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 14 19. Respectfully following the above order of the ITAT, we direct the TPO to exclude Crossdomain Solutions Pvt. Ltd. from the comparable list. Accordingly, the appeal of the assessee is allowed on this ground. “
Regarding the comparable viz. MPS Limited, we note that the Pune Tribunal in the case of Symantec Software India Private Limited in ITA No. 1824/PUN/2018 vide order dated 17.02.2020 for the assessment year 2014-15 has held that such assessee is not engaged in the activity of ITES Services and, therefore, we hold that the same should be excluded from the list of comparables adopted by the Revenue
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authorities. The relevant extract of the Pune Tribunal order is reproduced as under:
We have perused the case records and heard the rival contentions. We find from the annual report of MPS Limited is engaged in high end activity i.e. type-setting, data digitization, content and product development for learners which is in the nature of „knowledge processing outsourcing services. From the various functions performed by MPS Limited, we find that the said comparable is predominantly in the business of digital publishing which cannot be treated at par with ITes which is in the name of the assessee in ITes segment. In this regard, we find in the case of Emerson Electric Company (India) Private Limited Vs. ACIT (supra.) wherein the Co-ordinate Bench of the Tribunal, Mumbai held the MPS Limited as functionally not comparable by observing as follows: “9.3. From the perusal of the annual report for the year ended 31/03/2014 of the said comparable, we find from page 707 of the paper book that the said comparable had incurred outsourcing cost ofRs.1078.76 Crores which is included under the head "miscellaneous expenses" which goes to prove that it has got a different business model. From the various functions performed by MPS Ltd., we find that the said comparable is predominantly in the business of digital publishing which cannot be treated at par with ITeS which is the case of the assessee in ITeS segment. In this regard, we find that the reliance placed by the ld.AR on the Co-ordinate Bench decision of Bangalore Tribunal in the case of M/s. Google (India) Pvt. Ltd., vs. DCIT in A.Y.2006-07 dated 19/10/2012 is well founded wherein it was held asunder:- 16. As far as (4) Apex Knowledge Solutions Pvt. Ltd., is concerned, we find that the assessee had taken objections before the TPO that it is functionally different, as it is provides services such as Epublishing knowledge based services etc. But TPO has rejected the objection on the ground the assessee has not considered the verticals or functional lines during the search process conducted by it and, therefore, it is not proper to make any objection on this basis now. We are not able to agree with the finding of the TPO as confirmed by the DRP on this issue. Merely because, the assessee itself has not considered the said filter while making its TP study; it cannot be said that it cannot raise such an objection before the TPO. It is the TPO who has adopted this company as comparable. On such adoption, the assessee has every right to raise the objections as regards the functional differences between the assessee and comparable. It is the bounden duty of the TPO to consider the said objections in accordance with law. As brought out by the assessee, the assessee is in the TT enabled services, whereas the said company Apex Knowledge Salutation Pvt. Ltd., is in the business of E-publishing which cannot be said to be in the same line of business. The functional differences are likely to affect the profit marking capacity of both the companies. In view of the same, we are of the opinion that this company is also to be excluded from the list of comparables. 9.3. In view of the above, we hold that the comparable chosen by the ld. TPO, M/s. MPS Ltd., is functionally not comparable with that of the assessee and accordingly, we direct the ld. TPO to exclude the same from the list of comparables.” 21. We further observe in the case of United Health Group Information Services Pvt. Ltd. Vs. ACIT (supra.) wherein with regard to Vishal Informatics which is engaged in e-publishing business like the company in the instant case i.e. MPS Limited, on same issue, the Co-ordinate Bench of the Tribunal, Delhi has held as follows: “Vishal Informatics 12.1. The TPO included this company in the list of comparables by noticing that it was engaged in providing BPO services. The assessee failed to convince him and the DRP that it was incomparable. 12.2. Having heard the
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rival submissions and perused the relevant material on record, we find from the Annual report of this company that it is mainly engaged in e-publishing business. It has more than 10,000 classic books to its credit which are also converted into large font titles for visually challenged. Apart from e-publishing, this company is also engaged in Documents scanning & Indexing. It can be seen from the financial results of this company that both the segments viz., epublishing and Documents scanning etc. have been combined and there are no separate financial results in respect of Documents scanning work, which may be comparable with the assessee to some extent. As the assessee is not engaged in any e-publishing business and the financials given by this company are on consolidated basis, we direct to exclude this company from the list of comparables. The assessee succeeds.” 22. We further observe that the Ld. DRP held MPS Limited as BPO Company and is engaged in ITes only. In this regard, the Pune Bench of the Tribunal in the case of Macom Technology Solutions (India) Private Limited Vs. DCIT in ITA No.2393/PUN/2017 for A.Y.2013-14 vide its order dated 08.08.2019 discussed the definitions as provided under Rule 10TA of Part-II DB wherein the definition of Information Technology Enabled Services are provided the business process outsourcing is defined under clause (e) which provides mainly with assistance or use of Information Technology which as back office operations, call centre, data processing or insurance claim processing. Further, the definition of KPO is provided under clause (g) of Rule 10TA to mean certain business process outsourcing services (BPO) services provided mainly with the assistance or use of information technology requiring application of knowledge and advanced analytical and technical skills such as geographic information system, human resource services, business analytical services, financial services or engineering and design services, therefore, the Tribunal held being a KPO, it cannot be compared with that of company which is into business of BPO. The revenue recognition note states that the company is deriving revenue from website design and development and website hosing which is not similar to ITes. Further, MPS Limited underwent type- setting, data digitization, content and product development for learner which as per Safe Harbour Rules issued by Central Board of Direct Taxes qualifies to be in the nature of KPO. In view of the above, respectfully following the decisions of the Tribunal as mentioned hereinabove, 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.”
Regarding the inclusion of comparable viz., Hartron Communications Limited, we note that the DRP in its order has directed the AO/TPO to include such comparables. The relevant extract of the DRP direction is reproduced as under:
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However, we note that the AO/TPO have exceeded their jurisdiction by not following the direction of the DRP as discussed above. Accordingly, we direct the AO/TPO to include the comparable viz., Hartron Communications Limited while working out the ALP in the given facts and circumstances. Hence the ground of appeal of the assessee is allowed.
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The next issue raised by the assessee in ground No. 3 is that the ld. AO/TPO erred in making the transfer pricing adjustment on account of interest amounting to Rs. 4,35,335/- relating to trade receivables. 14. At the outset the ld. AR before us submitted that the amount involved in dispute is minuscule, therefore, it has been instructed by the assessee not to press this ground of appeal. Considering the smallness of the amount in the dispute, the ground of appeal of the assessee is dismissed as not pressed.
The next issue raised by the assessee is that the ld. AO/TPO erred in computing tax payable without considering the tax already paid by the assessee and deduction available to it under Chapter VIA of the Act.
It is directed to the Revenue to work out the tax liability payable by the assessee after giving the benefit of tax already paid by the assessee as well as after allowing the deduction available to the assessee under Chapter VIA of the Act as per the provisions of law. Hence, the ground of appeal of the assessee is allowed for statistical purposes.
The issues raised by the assessee in ground Nos. 5-6 are consequential and do not require any separate adjudication. Therefore, we dismiss the same.
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In the result, the appeal filed by the assessee is partly allowed for statistical purpose.
Order pronounced in court on 22nd day of July, 2024
Sd/- Sd/- (GEORGE GEORGE K) (WASEEM AHMED) Vice President Accountant Member Bangalore, Dated, 22nd July, 2024 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore
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