DCIT, CIRCLE 1(3)(1), MUMBAI vs. FOUNDEVER CRM INDIA PRIVATE LIMITED, MUMBAI

PDF · subscribers
ITA 5241/MUM/2026Status: DisposedITAT Mumbai07 October 2026AY 2007-0812 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the Ld. CIT(A)'s decision to exclude the comparable companies. Regarding BNR Udyog Ltd., Firstsource Solutions Ltd., HCL Technologies Ltd., and Fortune Infotech Ltd., the Tribunal found that the Ld. CIT(A) had correctly calculated high RPT percentages (55.56%, 66.68%, and 99.87% for the latter three) which were substantially above the 25% threshold, and the Revenue failed to demonstrate any error in these computations. For Maple Esolutions Ltd., Triton Corp Ltd., Spanco Telesystems and Solutions Ltd., and Wipro Ltd., the Tribunal agreed with the Ld. CIT(A) that there were material functional differences, unreliable financials, or peculiar circumstances affecting comparability. Specifically, Spanco's low employee cost and unallocated corporate expenses indicated a different outsourcing model, and Wipro's diversified operations, product sales, and substantial brand value were material differences from the assessee's contact centre services. The Tribunal reiterated that while TNMM allows for some tolerance, it does not permit ignoring material differences in business models or intangibles. For Iservices India Pvt. Ltd., the Tribunal found that the Ld. CIT(A) had properly considered its diversified service profile, which included higher-end activities beyond the assessee's core business, and that the mere presence of some comparable activities did not make it a valid comparable without reliable segmental data. The Tribunal concluded that the Ld. CIT(A) had undertaken the exercise as directed, examined the data, and recorded valid reasons for exclusion, and the Revenue had not presented material to demonstrate perversity.

What were the facts?

The Revenue has appealed against the order of the Ld. CIT(A) for Assessment Year 2007-08. The Ld. CIT(A) had directed the exclusion of several comparable companies from the list used for benchmarking the assessee's international transactions. The assessee, Foundever CRM India Private Limited, provides call centre and IT-enabled services, primarily contact centre services to its Associated Enterprises. The Ld. TPO had proposed an adjustment of Rs. 14,01,94,740/- based on a higher margin of comparables. The Tribunal had previously remanded the issue of comparability of certain companies to the Ld. CIT(A) for fresh adjudication. The Ld. CIT(A) subsequently excluded BNR Udyog Ltd., Firstsource Solutions Ltd., HCL Technologies Ltd., Fortune Infotech Ltd., Maple Esolutions Ltd., Triton Corp Ltd., Spanco Telesystems and Solutions Ltd., Wipro Ltd., and Iservices India Pvt. Ltd. The Revenue is aggrieved by these exclusions.

What were the issues?

1. Whether the Ld. CIT(A) erred in excluding BNR Udyog Ltd. by incorrectly considering related party transactions, when such transactions did not pertain to sales/income from services, thus satisfying the RPT filter applied by the TPO? The Revenue argued that the RPT percentage was incorrectly computed by considering non-service related transactions. The Assessee contended that the RPT percentage was verified from annual reports and related party schedules, showing a high percentage of related party transactions against sales/income from services. 2. Whether the Ld. CIT(A) erred in rejecting comparable companies on grounds of functional differences and other factors without properly appreciating the TPO's analysis? The Revenue argued that minor functional differences are acceptable under TNMM and the TPO's analysis was detailed. The Assessee argued that the Ld. CIT(A) considered detailed functional analysis and other peculiar circumstances. 3. Whether the Ld. CIT(A) erred in allowing the assessee to seek exclusion of companies originally selected by the assessee as comparables in its Transfer Pricing Study Report and during TP proceedings? The Revenue argued that the assessee cannot resile from its own selection without demonstrating material change in facts. The Assessee relied on the Ld. CIT(A)'s detailed examination and judicial precedents. 4. Whether the Ld. CIT(A) erred in excluding Iservices India Pvt. Ltd. on the ground of high-end diversified services, when its Annual Report indicated comparable remote data entry and BPO services? The Revenue argued that its exclusion was not justified as it also provided BPO-type services. The Assessee argued that the Ld. CIT(A) considered the overall service profile and the mere presence of some comparable activities did not make it a valid comparable due to diversified and higher-end activities.

Which sections of the Income-tax Act were involved?

Section 250,Section 254,Section 143(3),Section 92CA(3),Section 92CA,Section 10B(2),Section 10B(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: SHRI ANIKESH BANERJEE, HON’BLE & MS. RATNA DASGUPTA, HON’BLE

For Respondent: Shri Siddesh Chaugule, DR

आदेश / ORDER PER: SHRI ANIKESH BANERJEE, JUDICIAL MEMBER: The aforesaid appeal has been filed by the Revenue against the order dated 27/02/2026 passed by the Ld. Commissioner of Income Tax (Appeals)-56, Mumbai [“Ld. CIT(A)”] u/s. 250 r.w.s. 254 of the Income-tax Act, 1961 (“the Act”) for the Assessment Year 2007-08. The impugned order emanated from the order of the Ld. Additional Commissioner of Income Tax, TP, 11(4), Mumbai [“Ld. AO”], order passed u/s 143(3) of the Act, date of order 05/01/2011.

2.

The Revenue has raised the following grounds of appeal:-

ITA 5241/MUM/2026 FOUNDEVER CRM INDIA PRIVATE LIMITED “1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in directing the exclusion of BNR Udyog Ltd., from the list of comparables by incorrectly considering the extent of related party transactions, ignoring the fact that the company did not have related party transactions with respect to sales/income from services and therefore satisfied the RPT filter applied by the TPO.

2.

On the facts and in the circumstances of the case, the Ld. CIT(A) erred in rejecting several comparable companies on the ground of functional differences and other factors without properly appreciating the detailed functional analysis and findings recorded by the TPO in the order passed under section 92CA(3).

3.

On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing the assessee to seek exclusion of companies which were originally selected and accepted by the assessee itself as comparables in its Transfer Pricing Study Report and during the course of transfer pricing proceedings.

4.

On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate that once the assessee had accepted certain companies as comparables in its transfer pricing documentation and during TP proceedings, it could not subsequently seek their exclusion without demonstrating any material change in facts or circumstances.

5.

On the facts and in the circumstances of the case, the Ld. CIT(A) erred in directing the exclusion of Iservices India Pvt. Ltd. as a comparable by holding that it was engaged in high-end diversified services, without properly appreciating the functional profile of the company as per its Annual Report which indicates that it was engaged in remote data entry and BPO type services comparable to the services rendered by the assessee.

6.

On the facts and in the circumstances of the case, the Ld. CIT(A) erred in disregarding the applicability of the Transactional Net Margin Method (TNMM) principles and the tolerance for minor functional differences inherent in TNMM while evaluating the comparability of companies selected by the TPO.”

3.

Brief facts qua the controversy involved in the present appeal are that the assessee was engaged in the business of providing call centre and IT enabled services. During the year under consideration, it provided Contact Centre Services to its Associated Enterprises (“AEs”). As recorded in the orders of the authorities below, the assessee was not engaged in R&D, designing or high-end technical activities and largely rendered customer contact centre services to customers sourced through its AEs.

ITA 5241/MUM/2026 FOUNDEVER CRM INDIA PRIVATE LIMITED 3.1 For benchmarking its international transactions pertaining, inter alia, to provision of customer contact services, payment of service charges and lease charges, the assessee adopted Transactional Net Margin Method (“TNMM”) as the Most Appropriate Method. The assessee had initially selected 22 comparables and claimed that, after making certain capacity utilisation adjustments, its margin was at arm’s length.

3.2 The Ld. TPO, however, undertook a fresh comparability exercise and ultimately arrived at an arithmetic mean margin of 20.62% as against the assessee’s operating margin of 8.8%. Consequently, an adjustment of Rs.14,01,94,740/- was proposed u/s. 92CA(3) of the Act, which was incorporated by the Ld. AO in the assessment order.

4.

In the first round of appellate proceedings, the assessee challenged the transfer pricing adjustment before the Ld. CIT(A). The matter thereafter travelled to the Tribunal in ITA Nos. 1777 & 1426/Mum/2012. During the proceedings before the Tribunal, the assessee raised additional grounds seeking exclusion of the following comparables:-

On account of significant Related Party Transactions: (i) BNR Udyog Ltd.; (ii) Firstsource Solutions Ltd.; (iii) HCL Technologies Ltd.; and (iv) Fortune Infotech Ltd.

On account of functional differences/FAR or extraordinary circumstances: (i) Maple Esolutions Ltd.; (ii) Triton Corp Ltd.; (iii) Spanco Telesystems and Solutions Ltd.; and (iv) Wipro Ltd.

The assessee further sought exclusion of Iservices India Pvt. Ltd. on the ground of functional non-comparability.

ITA 5241/MUM/2026 FOUNDEVER CRM INDIA PRIVATE LIMITED 4.1 he Tribunal, vide order dated 15/07/2022, observed that the aforesaid comparables forming part of Additional Ground No.1 had not earlier been adjudicated by the Ld. CIT(A), and accordingly remanded the issue of their selection to the file of the Ld. CIT(A) for adjudication. With regard to Iservices India Pvt. Ltd., the Tribunal noted that the functional profile of the said company had not been properly analysed vis-à-vis that of the assessee and restored the issue to the Ld. CIT(A) for de novo adjudication after considering all the submissions of the assessee.

5.

Pursuant to the aforesaid directions of the Tribunal, the Ld. CIT(A) examined the material filed by the assessee including the annual reports, related party transaction schedules, segmental details and judicial precedents relied upon. After such examination, the Ld. CIT(A) directed exclusion of BNR Udyog Ltd., Firstsource Solutions Ltd., HCL Technologies Ltd. and Fortune Infotech Ltd. on account of their significant related party transactions. He further directed exclusion of Maple Esolutions Ltd., Triton Corp Ltd., Spanco Telesystems and Solutions Ltd. and Wipro Ltd. on account of functional dissimilarity, unreliable financials and/or other peculiar circumstances affecting their comparability. Iservices India Pvt. Ltd. was also directed to be excluded on the ground of functional dissimilarity. Against these findings, Revenue is in appeal before us.

6.

The Ld. DR submitted that the Ld. CIT(A) was not justified in excluding the aforesaid comparables. In relation to BNR Udyog Ltd., it was submitted that the Ld. CIT(A) had erroneously taken into consideration transactions which were not related to sales/income from services and, therefore, the computation of the RPT percentage was incorrect. It was further submitted that the TPO had carried out a detailed functional analysis and minor functional differences could not constitute a ground for exclusion under TNMM.

ITA 5241/MUM/2026 FOUNDEVER CRM INDIA PRIVATE LIMITED 6.1 The Ld. DR further submitted that several of the comparables sought to be excluded had originally been selected by the assessee itself in its transfer pricing study and, therefore, in absence of any material change in facts or circumstances, the assessee should not be permitted to resile from its own selection.

6.2 In respect of Iservices India Pvt. Ltd., it was submitted that its Annual Report also indicated activities in the nature of remote data entry and BPO services and, therefore, its exclusion merely on the basis that it was providing certain diversified services was not justified.

7.

Per contra, the Ld. AR strongly relied upon the impugned order and the detailed synopsis filed before us. It was submitted that the RPT percentages recorded by the Ld. CIT(A) had been verified from the annual reports and related party schedules. Specifically, in the case of BNR Udyog Ltd., total related party transactions were stated to be Rs.6,87,56,114/- against sales/income from services of Rs.1,91,33,241/-, resulting in RPT of 359.35%.

7.1 The Ld. AR further submitted that the very same comparable had been excluded for A.Y. 2007-08 by the Kolkata Bench of the Tribunal in the case of Oracle (OFSS) BPO Services on account of RPT exceeding the permissible threshold. The other entities, namely Firstsource Solutions Ltd., HCL Technologies Ltd. and Fortune Infotech Ltd., also had RPT far in excess of 25%.

7.2 In respect of Maple Esolutions Ltd., Triton Corp Ltd., Spanco Telesystems and Solutions Ltd. and Wipro Ltd., the Ld. AR referred to the peculiar features recorded by the Ld. CIT(A) and submitted that the differences were not minor functional variations but went to the very root of comparability.

7.3 As regards Iservices India Pvt. Ltd., it was submitted that it was engaged in diversified and higher-end services including web hosting, email services,

ITA 5241/MUM/2026 FOUNDEVER CRM INDIA PRIVATE LIMITED spam filtering, domain name and DNS hosting, web designing and domain management, whereas the assessee was essentially a contact centre service provider. The Ld. AR accordingly submitted that no interference was called for in the findings of the Ld. CIT(A).

8.

We have heard the rival submissions and perused the material placed on record. We have also gone through the findings of the Ld. TPO, the directions contained in the earlier order of the Tribunal dated 15/07/2022 and the detailed findings recorded by the Ld. CIT(A) in the second round of proceedings.

9.

Ground No.1 – BNR Udyog Ltd.

The first dispute is with regard to exclusion of BNR Udyog Ltd. The Ld. CIT(A), after verifying the related party transaction schedule with reference to the financial statements, has recorded the following position:-

Name of company Related Party Transactions Sales/Income from Services RPT %

BNR Udyog Ltd. Rs.6,87,56,114/- Rs.1,91,33,241/- 359.35%

9.1 The principal contention of Revenue is that the related party dealings considered by the Ld. CIT(A) were not confined to transactions relating to sales/income from services. We are unable to accept this contention. The object of an RPT filter is to eliminate an uncontrolled comparable whose profitability may itself be materially influenced by controlled transactions. Thus, where operating costs or other operating transactions with related parties have a direct bearing on the operating margin, there is no justification for completely disregarding them merely because they do not constitute revenue-side transactions.

ITA 5241/MUM/2026 FOUNDEVER CRM INDIA PRIVATE LIMITED 9.2 More importantly, the figures taken into consideration by the Ld. CIT(A) have been verified by him from the profit and loss account and the related party transaction schedule. No material has been brought before us by the Revenue to demonstrate any factual error in the amounts so verified.

9.3 We further find that the very same company, namely BNR Udyog Ltd., for the same assessment year, was considered in Oracle (OFSS) BPO Services, wherein RPT of 359.35% was noticed and the company was directed to be excluded. The Ld. CIT(A) has also referred to the decision in Actis Advisers Pvt. Ltd., ITA No.5277/Del/2011 for A.Y. 2007-08 and ITA No.958/Del/2012 for A.Y. 2006-07, order dated 12/10/2012, wherein comparables having RPT exceeding 25% of total revenue were held liable to be excluded. The said principle and the 25% threshold formed part of the material considered by the Ld. CIT(A).

9.4 Accordingly, we do not find any infirmity in the direction of the Ld. CIT(A) to exclude BNR Udyog Ltd. Ground No.1 raised by the Revenue is dismissed.

10.

Grounds No.2, 3, 4 and 6 – Other comparables and objection regarding assessee's own selection

Before examining the individual comparables, we may first deal with the objection of the Revenue raised in Ground Nos.3 and 4 that the assessee could not seek exclusion of companies which had earlier been selected or accepted by it.

10.1 In our opinion, this objection overlooks the peculiar procedural history of the case. In the first round, the assessee had specifically raised additional grounds before the Tribunal seeking exclusion of these very companies. The Tribunal entertained those additional grounds and specifically restored the matter to the Ld. CIT(A) for adjudication. Thus, in the second round, the Ld. CIT(A) was acting in pursuance of the express mandate of the Tribunal.

ITA 5241/MUM/2026 FOUNDEVER CRM INDIA PRIVATE LIMITED 10.2 Once the Tribunal had permitted the assessee to raise the challenge and had directed the Ld. CIT(A) to examine the comparability of those companies, it was incumbent upon the Ld. CIT(A) to decide the issue on merits. The Revenue cannot, in the present round, seek to nullify the very exercise which the Ld. CIT(A) was specifically directed by the Tribunal to undertake.

10.3 Even otherwise, the exercise under Chapter X is ultimately to arrive at a reliable arm’s length price. The mere fact that a company was initially selected by one of the parties cannot compel its retention if, upon examination of the relevant data, it is shown that it does not satisfy the comparability parameters prescribed under Rule 10B. There can be no estoppel against determination of the correct arm’s length price.

10.4 Consequently, Ground Nos.3 and 4 raised by the Revenue have no merit and are dismissed.

11.

We shall now examine the functional comparables challenged by the Revenue.

Maple Esolutions Ltd. and Triton Corp Ltd.

11.1 In the case of Maple Esolutions Ltd. and Triton Corp Ltd., the Ld. CIT(A) has noted serious issues regarding reliability of the financial results of the entities and has further recorded that Maple Esolutions Ltd. had been acquired by Triton Corp Ltd. The sales of Triton Corp Ltd. had increased by approximately 68%, from Rs.31,75,29,518/- to Rs.53,36,71,726/- during the relevant period, which was considered as an extraordinary circumstance having bearing upon its financial results.

11.2 The Ld. CIT(A) has thus not excluded these companies merely on account of a superficial functional difference. His decision is based upon circumstances

ITA 5241/MUM/2026 FOUNDEVER CRM INDIA PRIVATE LIMITED affecting the reliability and normality of the financial results of the entities. Nothing has been brought before us by the Revenue to rebut these factual findings. Accordingly, we see no reason to interfere with the exclusion of Maple Esolutions Ltd. and Triton Corp Ltd.

Spanco Telesystems and Solutions Ltd.

12.

In respect of Spanco Telesystems and Solutions Ltd., the Ld. CIT(A) has recorded that its employee/personnel cost of Rs.30,69,49,853/- constituted only about 7.20% of sales of Rs.426,59,12,296/-. The low employee cost was found to indicate a materially different outsourcing model. It was further noticed that there were unallocated corporate expenses of Rs.7,90,34,061/-, which affected reliability of the segmental profitability.

12.1 These are not merely minor functional differences capable of being absorbed under TNMM. The very operating model and reliability of segmental results have a direct bearing upon the margin sought to be compared. Therefore, in absence of reliable adjustments which could neutralise such differences, we find no infirmity in the exclusion directed by the Ld. CIT(A).

Wipro Ltd.

13.

Insofar as Wipro Ltd. is concerned, the Ld. CIT(A) has recorded that the revenue from BPO services constituted only 6.26% of its overall revenue, i.e., Rs.9,391 million out of total revenue of Rs.150,008 million. Wipro was also engaged in sale of IT services as well as IT products and possessed substantial brand value of Rs.1,454 million.

13.1 On the other hand, the assessee before us was essentially rendering contact centre/BPO services. The scale, diversified operations, product component and valuable intangibles/brand associated with Wipro constitute

ITA 5241/MUM/2026 FOUNDEVER CRM INDIA PRIVATE LIMITED material differences which cannot be characterised as minor variations under TNMM.

13.2 TNMM no doubt permits a comparatively broader functional tolerance than certain other methods; however, the adoption of TNMM does not dispense with the basic comparability requirements contemplated under Rule 10B(2) and Rule 10B(3). Material differences affecting profitability must either be capable of reliable adjustment or the concerned company cannot be regarded as an uncontrolled comparable.

13.3 Accordingly, the finding of the Ld. CIT(A) directing exclusion of Wipro Ltd. is upheld.

14.

Similarly, insofar as Firstsource Solutions Ltd., HCL Technologies Ltd. and Fortune Infotech Ltd. are concerned, the Ld. CIT(A) has recorded RPT percentages of 55.56%, 66.68% and 99.87%, respectively, after verification of the relevant financial data. These percentages are substantially above the 25% RPT threshold applied in the judicial precedent relied upon in the impugned order. No specific error in these computations has been demonstrated by the Revenue before us. Their exclusion, therefore, also calls for no interference.

14.1 Thus, Ground Nos.2 and 6 raised by the Revenue are dismissed.

15.

Ground No.5 – Iservices India Pvt. Ltd.

Ground No.5 relates specifically to exclusion of Iservices India Pvt. Ltd. In the earlier round, the Tribunal had noticed that a proper FAR analysis of this comparable vis-à-vis the assessee had not been undertaken and, therefore, specifically directed the Ld. CIT(A) to carry out a de novo adjudication.

ITA 5241/MUM/2026 FOUNDEVER CRM INDIA PRIVATE LIMITED 15.1 Pursuant thereto, the Ld. CIT(A) examined the functional profile and recorded that Iservices India Pvt. Ltd. was engaged in diversified services such as web hosting, email services, spam filtering, domain name and DNS hosting, web designing, domain management and email management services. In contrast, the assessee was essentially a contact centre service provider.

15.2 Thus, the exclusion is not founded merely upon a nomenclature or isolated description in the annual report. The Ld. CIT(A) has taken into consideration the overall service profile of the company. The mere presence of certain remote data entry or BPO-type activities would not by itself render the entire entity comparable where the entity level margins include diversified and higher-end activities and no reliable segmental data has been shown to isolate the allegedly comparable activity.

15.3 We further notice that the Ld. CIT(A) has referred to the decision of the Delhi Bench of the Tribunal in Everest Business Advisory India, ITA Nos.41 & 1191/Del/2013 for A.Y. 2007-08, wherein Iservices India Pvt. Ltd. was rejected on account of its diversified service profile.

15.4 In these circumstances, we do not find any error in the conclusion reached by the Ld. CIT(A). Ground No.5 raised by the Revenue is accordingly dismissed.

16.

Before parting, we may also observe that the contention in Ground No.6 that TNMM itself permits functional differences cannot be understood to mean that every company falling broadly within the IT/ITES sector automatically becomes comparable. Rule 10B requires evaluation of the functions performed, assets employed and risks assumed as well as other factors materially affecting profitability. TNMM may tolerate differences which do not materially affect the net margin or which can be reliably adjusted; it does not permit material

ITA 5241/MUM/2026 FOUNDEVER CRM INDIA PRIVATE LIMITED differences in business model, segmental reliability, extraordinary events, controlled transactions or valuable intangibles to be ignored altogether.

17.

Be that as it may, in the present case, the Ld. CIT(A) has undertaken the exercise specifically directed by the Tribunal, examined the financial and functional data of the individual comparables and recorded reasons for their exclusion. The Revenue has not placed before us any material which would demonstrate that the factual findings so recorded are perverse or contrary to the material available on record. We, therefore, find no reason to interfere with the impugned order.

18.

In the result, the appeal filed by the Revenue bearing ITA No. 5241/Mum/2026 is dismissed.

Order pronounced in the open court on 07th day of October 2026.

Sd/- Sd/-

(RATNA DASGUPTA) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, िदनांक/Dated: 07/10/2026 Saumya, Sr.PS

Copy of the Order forwarded to: अपीलाथ�/The Appellant , 1. �ितवादी/ The Respondent. 2. आयकरआयु� CIT 3. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, 4. Mumbai गाड�फाइल/Guard file. 5.

BY ORDER, Digitally signed by ABHINAV ANANT ABHINAV ANANT GAVANDE //True Copy// GAVANDE Date: 2026.10.15 14:47:16 +05'30' (Asstt. Registrar), ITAT, MUMBAI

More judgments on Section 92CA(3)

All 702 judgments and leading authorities on Section 92CA(3) →

Recent GST High Court judgments

Search GST case law →