MORGAN STANLEY SOLUTIONS INDIA P. LTD,MUMBAI vs. DCIT CIR 9(2), MUMBAI

ORDER PER S. RIFAUR RAHMAN (AM)

(A.Y. 2009-10) Morgan Stanley Advantage Services Pvt. Ltd., 2. Assessee has raised following grounds in its appeal: -

1. On the facts and circumstances of the case, the learned AO, based on the directions of the DRP, erred in making an upward adjustment of Rs 3,34,57,335 in determining the arm’s length price (ALP) of the international transaction of Information Technology Enabled Services (hereinafter referred to as ITES) rendered by the Appellant.

2. On the facts and circumstances of the case, the learned AO, based on the directions of the DRP, erred on the following grounds: 2.1. In rejecting the transfer pricing (TP) analysis undertaken by the Appellant for computing the ALP in relation to the ITES provided by the Appellant and applying the knowledge process outsourcing (hereinafter referred to as KPO) search to arrive at the ALP; 2.2. In not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 (hereinafter referred to as the Rules) and holding that the Appellant's international transaction is not at arm’s length; 2.3. Further, in conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction without providing the selection criteria adopted by him; 2.4. In determining the ALP by using only single year data for Financial Year (FY) 2008-2009 which was not available to the Appellant at the time of complying with the TP documentation requirements Le. using non-contemporaneous data for calculating the ALP of the international transaction; 2.5. In rejecting the comparable companies selected by the Appellant in the TP report, without providing any appropriate reason for rejecting these companies, 2.6. By identifying comparable companies in determining the ALP of the impugned international transaction, without specifying (A.Y. 2009-10) Morgan Stanley Advantage Services Pvt. Ltd., the selection matrix on the basis of which the companies were identified by him, 3. Without prejudice to the above Grounds, the learned AO erred in not granting working capital adjustment to the average Profit Level Indicator of the selected comparable companies; 4. Without prejudice to the above Grounds, by not allowing the adjustment for difference in the level of risks assumed by the Appellant vis-a-vis the risk of the selected comparable companies; and 5. Without prejudice to the above Grounds, in not adopting the ALP after considering an amount varying by 5 percent of the arithmetic mean of the margins of the selected comparable companies.

6. The learned AO erred in relying on material obtained by him without furnishing copies of the same to the Appellant, and thus violating the principle of natural justice.

7. The learned AO erred in not granting the credit of advance tax claimed by the Appellant in its return of income to the extent of Rs 7,200,000.

8. On the facts and circumstances of the case, the learned AO erred in law and in facts in levying interest of Rs 1,620,315 under section 234D of the Act.”

(A.Y. 2009-10) Morgan Stanley Advantage Services Pvt. Ltd., 4. At the outset, Ld. AR of the assessee submitted that assessee has raised additional ground seeking exclusion of Cosmic Global Limited from the list of comparables. After considering both the counsels, we admit the additional ground as the said additional ground is involving factual ground, wherein, the facts are on record and do not require fresh investigation, following the decision of Hon’ble Supreme Court in the case of National Thermal Power Co., Limited v. CIT [229 ITR 383 (SC)].

(A.Y. 2009-10) Morgan Stanley Advantage Services Pvt. Ltd., identical business model as the assessee and with whom the assessee company has merged). The Tribunal in its aforesaid order has relied upon the order of the co-ordinate bench in BNY Melon International Operations (India) (P.) Ltd Vs DyCIT [2015] 55 taxmann.com 386 (Pune - Trib.) which has been upheld by Jurisdictional High Court in Pr. CIT v. BNY Mellon International Operations (India) (P.) Ltd [2018] 93 taxmann.com 363 (Bombay). Further, it is observed that in the Assessee’s own case for the immediately preceding year i.e. A.Y.2008-09, Cosmic Global Limited has not been selected as a comparable by the TPO. Also in the case of Morgan Stanley Advantage Services Private Limited (having identical business model as the Assessee and with whom the assessee has merged) the inclusion of the said comparable i.e. Cosmic Global Ltd was not pressed before Hon’ble Tribunal for AY 2008-09 consequent to which the said comparable was excluded/rejected from the final set of comparables as evident from the order of the ITAT for AY 2008-09 reported in [2020] 118 taxmann.com 112 (Mumbai - Trib.).

(A.Y. 2009-10) Morgan Stanley Advantage Services Pvt. Ltd., Pvt. Ltd in of 2016 has held that a party is not barred in law from withdrawing from its list of comparables, a company, if the same is found to have been included on account of mistake as on facts, it is not comparable.

(A.Y. 2009-10) Morgan Stanley Advantage Services Pvt. Ltd., 10. Coming to the issue of comparable to be included, Ld. AR of the assessee brought to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this Tribunal in assessee’s own case for the A.Y. 2008-09 in dated 12.08.2021 and in the case of Morgan Stanley Advantage Services Pvt. Ltd., in ITA.No. 625/Mum/2014 for the A.Y. 2009-10 dated 10.05.2021 and it was directed to include the comparable R System International Limited and Allsec Technologies. Ld. DR has fairly accepted the submissions of the Ld.AR.

(A.Y. 2009-10) Morgan Stanley Advantage Services Pvt. Ltd., 12. Even in this assessment year, the Transfer Pricing Officer has rejected the above companies holding that they are not fit to be considered in the category of KPO and treated it as ITES. Since the aforesaid issues are squarely covered by the decision of the Tribunal rendered in assessee’s own case for the assessment year 2007–08 and 2008–08, as indicated above, consistent with the view taken therein, ground no.2 and additional ground are disposed off protanto and consequently, the other grounds of appeal became academic in nature, hence, left un–adjudicated. Therefore, ground no.2, and additional ground raised by the assessee are accordingly allowed.”

(A.Y. 2009-10) Morgan Stanley Advantage Services Pvt. Ltd., “5. Considered rival submissions and perused the material on record. In view of the detailed submissions made by the leaned Counsel for the assessee on the issue of admitting the additional ground raised by the assessee, we hereby admit the same for adjudication on merit ……..

9. Considered the rival submissions and perused the material on record. Insofar as the issue arose from ground no.2 is concerned, as it transpires from the record available before us, we notice that during the relevant assessment year 2009–10, the Transfer Pricing Officer has re–characterized the assessee as KPO as was done by him in the assessment year 2008–09 and consequently, the Transfer Pricing Officer rejected / excluded the comparables selected by the assessee (being non KPO) and further wrongly selected / included KPO companies as comparable to the assessee. Exclusion of four comparables namely E–clerx Services Ltd., Coral Hubs Ltd. (earlier known as Vishal Information Technologies Ltd.), Crossdomain Solution Ltd. and Cosmic Global Ltd. has been decided by the Tribunal in assessee’s own case in DCIT v/s Morgan Stanley Advantage Services P. Ltd. reported in [2019] 109 taxmann.com 101 (Mum.) (Trib.), for the assessment year 2007–08 the relevant portion of the finding of the Tribunal is reproduced below for ready reference:– E–clerx Services Ltd.

32. As noted earlier the ld AR for the assessee submitted that the assessee submits that Eclerx Services Ltd. has not considered as a comparable in earlier years. Eclerx Services Ltd. is a Knowledge Process Outsourcing (KPO) Service provider which is not comparable to assessee; assessee is engaged in providing back office support services. In support of his submission, the ld. AR of the assessee relied upon the decision of Delhi High Court in Rampgreen Solution (P.) Ltd. (supra). The TPO included this comparable by taking his view that this company is in date process and analytical services. The ld CIT(A) confirmed the action of the TPO by taking his view that this comparable company is into the health care receivable management and therefore renders ITeS

(A.Y. 2009-10) Morgan Stanley Advantage Services Pvt. Ltd., services. The Hon'ble Delhi Court in Rampgreen Solution (P) Ltd (supra) held entities rendering voice call center services for customer support and a KPO service provider employ IT-based delivery systems, but characteristics of services, functional aspects, business environment, risks and quality of human resource employed are materially different; and therefore, benchmarking international transactions on basis of comparison of PLI of high-end KPO service providers with PLI of Voice Call Centers, would be unreliable. Further, Mumbai Tribunal in Willis Processing Services (India) Ltd (supra) on considering similar contentions excluded this comparable holding as under: "(5) We have heard the Ld. Representatives of both the parties, perused the orders of the lower authorities and the records made available before us. We have given a thoughtful consideration to the facts of the case and are of the considered view that though we find ourselves to be in agreement with the contention of the Ld. D.R and have not found favor with the contention of the assessee that as the aforesaid comparable had carried out an acquisition of a U.K based company, therefore simpliciter on the said count, without establishing that such acquisition had rendered the aforesaid comparable functionally different, could not be accepted as a factor for exclusion of the said comparable, but then we are of the considered view that the fact as averred by the Ld. A.R before us that the aforesaid comparable, viz. Eclerx Services Limited was providing high end data analytics and customized process solution and was a leading Indian provider of KPO services, which substantially varies from a low end ITES service provider, while for the assessee was engaged in providing BPO services, viz-processing of insurance claims and insurance premiums and data processing service for which it employed ordinary graduates, therefore the aforesaid comparable, viz. Eclerx Services Limited was functionally different from the assessee company, and as such could not be selected as a comparable. We find that the DRP had vide its order dated 27.11.2015 passed in the case of assessee for AY 2011-12 had accepted the contention of the assessee and (A.Y. 2009-10) Morgan Stanley Advantage Services Pvt. Ltd., rejected the aforesaid comparable company, viz. Eclerx Services Limited on the basis that it was engaged in KPO service, and the department by accepting the said order of the 'DRP' for A.Y. 2011-12 by not carrying the matter in further appeal before the Tribunal, had thus allowed it to attain finality. We further find that in the assessee's own case for the immediately succeeding year, i.e A.Y 2009-10, the DRP as well as the Tribunal had held that companies engaged in KPO services cannot be compared to the routine BPO services provided by the assessee. That still further the Tribunal while disposing of the appeal of the assesses for AY 2010-11 had held that as the assessee was a routine BPO service provider, therefore it cannot be compared to high end KPO service providers such as Eclerx Service Limited. We further find that the 'Special bench' of the Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. (supra), had specifically rejected the aforesaid comparable, viz. Eclerx Services Limited, on the basis that companies predominantly engaged in KPO services cannot be considered as a comparable to a company predominantly engaged in BPO activities. We are thus of the considered view that in the backdrop of the view taken by the Tribunal while disposing of the appeals of the assessee for A.Y(s): 2009-10 & 2010-11, therein concluding that the aforesaid comparable, viz. Eclerx Services Limited which was a KPO could not be taken as a comparable as against the assessee company which is providing BPO services, coupled with the fact that in the assesses own case for A.Y 2011-12 the exclusion by the DRP of the aforesaid comparable, viz. Eclerx Services Limited from the list of comparables had been accepted by the department, and last but not the least the 'Special bench' of the Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. (supra) had therein held that the aforesaid comparable, viz. Eclerx Services Limited which is a KPO cannot be compared as against the assessee which is providing BPO services, we thus finding no reason to take a different view and being of the considered view that the aforesaid comparable, viz. Eclerx Services Limited was functionally different from the (A.Y. 2009-10) Morgan Stanley Advantage Services Pvt. Ltd., assessee company, therefore hold that it cannot be accepted as a comparable and hence is directed to be excluded from the list of comparables. "

Order pronounced on 01.03.2022 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.