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Income Tax Appellate Tribunal, DELHI BENCH: ‘I-1’ NEW DELHI
Before: SHRI N. K. BILLAIYA & MS SUCHITRA KAMBLE
per hour and was comparable/lower to the rate of USD 19 charged by the assessee from the AE and was at arm’s length applying CUP method. The Ld. AR further submitted that the assessee furnished the details with reference to Article on MphasiS BPO, Article on VKALP BPO Services, Article on IT Trends by Stephanie Moore and Dataquest’s article on trends in BPO industry in India to the Assessing Officer at the time of assessment proceedings. But the same was ignored by the Assessing Officer. The Ld. AR submitted that the Hon’ble Gujrat High Court in case of CIT vs. Adani Wilmar Ltd. (ITA No. 240/2014) upheld the use of quotations as a valid CUP. Similarly, the Delhi Tribunal in case of Noble Resources and Trading India Pvt. Ltd. vs. DCIT (ITA No. 3132/Del/2013) upheld the use of quotations as a valid CUP. During the relevant previous year the assessee had generated billed man-month of 208 while the idle time of the people was 223 man-month. Accordingly, out of total billable 431 man months, only 208 man months were billed by the assessee. Therefore there was idle capacity to the extent of 51%. After making adjustment on account of idle employee cost the adjusted operating margins of the assessee is work out at 45.87% which is more than the arithmetic mean margin of the comparables companies at 15.49% (corrected margin 9.66%). Thus, this does not warrant any transfer pricing adjustment in respect of international transactions undertaken by the assessee. The Ld. AR further submitted that in terms of Rule 27, the assessee is entitled to defend the order of the CIT(A) before the Tribunal on all grounds including the grounds which have either not been decided by the CIT(A) or have been decided against the assessee. For which, the Ld. AR relied upon the decisions of Sanjay Sawhney vs. Pr. CIT 273 Taxmann 332 (Del.) and B. R. Bamasi vs. CIT 83 ITR 233 (Bom). Thus, the Ld. AR submitted that the adjustment made by the TPO is not sustainable even applying the CUP method.
We have heard both the parties and perused the material available on record. It is pertinent to note that the comparability adjustment on account of abnormal cost was claimed by the assessee before the TPO and the adjusted margin after making the adjustments was worked out at 4.08%. The said claim of the assessee was rejected by the TPO. The assessee in appeal before the CIT(A) filed revised calculation of adjusted margin and adjusted margin was calculated at 12.71%. Thus, the claim of comparability adjustment was not made for the first time before the CIT(A) and only the calculation of the amount of adjustment was revised. This contentions of the assessee are tenable and emerges from the submissions made before the CIT(A). The CIT(A) held as under:- 9.5 Since the appellant was in the start-up phase and the abnormal expenses, as aforementioned, were incurred by the appellant, comparing the operating profit margin of the appellant without any appropriate adjustment, with the operating profit margin of the comparable companies identified by the TPO, in my considered view, would go against the true intention of the transfer pricing regulations. Such adjustments to the operating margin of the appellant are, thus, required so as to eliminate the difference between the appellant and the comparables. 9.6 Considering the operating profit margin of the appellant computed after excluding the abnormal cost / loss, at 12.71% as against the operating profit margin of the comparable companies identified by the TPO (after correctly computing the operating profit margin) at 9.66%, the adjustment made by the TPO, on account of the difference in the arm’s length principle of the international transactions does not survive. In my considered view, even if the operating profit margin computed by the TPO at 15.49% is considered the operating profit margin of the appellant computed after excluding the abnormal cost / loss, at 12.71% falls within the range of +/(-)5% provided as per proviso to section 92C(2) of the Act and hence no adjustment calls for being made. 9.7 In my considered view the adjustment of Rs. 7.32,39,369 made by the TPO, therefore, is liable to be deleted. The issue on this ground, accordingly, is decided in favor of the appellant. 9.8 Since the aforesaid issue has been decided in favor of the assessee,
adjudication on the other grounds becomes wholly academic and hence requires no separate adjudication.” Thus, the CIT(A) has given a detailed finding on the TP Adjustment and there is no other ground in respect of corporate issues by the Revenue. In the transfer pricing documentation, the assessee determined arm’s length price of the international transaction of rendering BPO services applying CUP method. Since the prices charged by the assessee at USD 19.20 per hour from the AE exceed the prices charged from the unrelated party, i.e., ALP @ USD 14.00 per hour, the ‘international transactions’ of BPO services were considered being at arm’s length, in the Transfer Pricing Documentation. There is no dispute on part of the revenue that in the BPO industry the prevalent rate for services was in the range of USD 8 to USD 15 per hour and was comparable/lower to the rate of USD 19 charged by the assessee from the AE and was at arm’s length applying CUP method. Thus, the adjustment made by the TPO is not sustainable even applying the CUP method. Hence, there is no need to interfere with the findings of the CIT(A). Hence, the appeal of the Revenue is dismissed.
In result, the appeal of the Revenue is dismissed. Order pronounced in the Open Court on this 23rd Day of April, 2021