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Facts
The assessee's appeal for AY 2011-12 was initially disposed of in a common order. A subsequent miscellaneous application led the Tribunal to recall its order for the limited purpose of adjudicating two issues: the inclusion or exclusion of Infosys BPO Ltd. as a comparable and the granting of working capital adjustment.
Held
The Tribunal directed the AO/TPO to exclude Infosys BPO Ltd. from the final set of comparables, citing functional dissimilarity, high brand value, and extraordinary events based on prior decisions. For working capital adjustment, the AO/TPO was directed to consider the assessee's submissions and grant appropriate relief after providing an opportunity of being heard.
Key Issues
1. Whether Infosys BPO Limited should be included or excluded from the final set of comparables. 2. Whether working capital adjustment should be granted to the assessee.
Sections Cited
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Income Tax Appellate Tribunal, DELHI BENCH “I” NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI NAVEEN CHANDRA
सुनवाईक�तारीख/ Date of hearing: 07.03.2025 21.03.2025 उ�ोषणाक�तारीख/Pronouncement on आदेश /O R D E R PER C.N. PRASAD, J.M.
In this case the appeal of the Assessee was disposed of by the Tribunal in AY 2011-12 in a common order dated 30/10/2017 along with appeal in for the AY 2010-11. However, the assessee filed a miscellaneous application in MA No.279/Del/2018 in for the assessment year under consideration i.e. AY 2011-12 pointing out 1 certain defects in the order passed by the Tribunal dated 30/10/2017. The Tribunal after considering the miscellaneous application filed by the assessee vie order dated 03/12/2021 30/10/2017 for the limited purpose of adjudicating one of the comparables (Infosys BPO Ltd.) which was inadvertently overlooked while passing the order. The Tribunal also recalled its order to adjudicate on working capital adjustment which was omitted to consider while disposing of the appeal. Therefore, in this appeal only the following two issues have to be decided as per the order of the Tribunal in MA No.279/Del/2018 dated 03/12/2021: i) Infosys BPO Limited whether to be included or excluded from the final set of comparables; ii) for granting working capital adjustment.
In so far as the Infosys BPO Limited is concerned the Ld. Counsel submits that, Infosys BPO Limited is functionally dissimilar, it has significantly high turnover and high brand value. Referring to the annual report of Infosys BPO Limited the Ld. Counsel submits that the company is engaged in providing wide array of services.
Referring to page 41 Ld. Counsel submits that significantly reporting of the company shows the Industry segment in which the company operates and page 67 of the annual report shows that the company is engaged in Software and others. Ld. Counsel submits that income statement on page 68 also does not provide any further details.
Referring to page 70 Ld. Counsel submits that there is no clarity, as it shows the same Revenue under Software Development and ITES.
It is submitted that Infosys BPO Ltd. incurs expenses in nature of technical services costs, which is linked to consultancy charges thereby indicating that the company is engaged in outsource activities as opposed to the assessee which is engaged in providing routine support services in nature of data collection and analysis to its AE which is in nature of low end services as shown by the assessee at page 301 of appeal set. Ld. Counsel further referring to financials of the assessee at page 141 to 164 and at page 149 of profit and loss account and page 159 the relevant schedule, submitted that there is no outsourcing involved by the assessee.
Therefore, Ld. Counsel submits that this difference in business models itself has been found a sufficient reason for non- comparability of companies, in the case of Ramp Green by Delhi High Court.
Reliance was also placed on the decision of the Hon’ble Delhi High Court in PCIT Vs. Cadensce Design Systems (India) Pvt. Ltd. in Paper Book, wherein Infosys BPO Ltd. has been excluded from the final set of comparables. Ld. Counsel finally submitted that in assessee’s own case for the AY 2012-13 the Tribunal in excluded Infosys BPO Ltd. from the final set of comparables.
With respect to working capital adjustment, Ld. Counsel for the assessee submitted that working capital adjustment should be allowed after verification for which necessary details were already placed on record before the DRP at page no.35 & 36 of the Paper Book as well as before the Tribunal at pages 202 & 203 of the Paper Book. Therefore, Ld. Counsel prays that a direction may be given to AO/TPO for allowing working capital adjustment.
On the other hand, Ld. DR strongly supported the orders of the authorities below.
Heard rival submissions, perused the orders of the authorities below. In so far as the Infosys BPO Ltd. as comparable company is concerned, we find that in assessee’s own case for the AY 2012-13 has excluded this company from the final set of comparables observing as under: -
“5.1 Infosys BPO Limited It is assessee’s contention that this company was functionally dissimilar to the assessee company as this company was engaged in providing high-end integrated services. It has been submitted and demonstrated from the annual report of BPO Infosys Ltd. that this company is rendering a wide array of BPO services in the nature of business platforms, customer service outsourcing, finance and accounting, human resources outsourcing, legal process outsourcing, sales and fulfillment sourcing and procurement outsourcing etc. On the other hand, it is seen that the assessee provides only back office support services in the nature of IT enabled services and it is essentially a captive service provider. Although, the assessee has pleaded for exclusion of BPO Infosys Ltd. on other grounds also, it is our considered opinion that the wide functional dissimilarity between the two companies is sufficient to accept the assessee’s plea for exclusion of this company from the final set of comparables. We also find that BPO Infosys Ltd. was directed to be excluded by ITAT Delhi Bench in the case of Baxter India Pvt. Ltd. vs. ACIT in ITA 6158/Del/2016 which also provided captive IT Enabled Services to its AE. The year under consideration before the ITAT in the case of Baxter India (P) Ltd. was also AY 2012-13. The relevant observations are contained in para 23 of the said order and the same are being reproduced for a ready reference: “23. In so far as exclusion of Infosys BPO Ltd. is concerned, we find from the submissions made by the assessee before the Assessing Officer/TPO/DRP is that Infosys BPO Ltd. is predominantly into areas like Insurance, Banking, Financial Services, Manufacturing and Telecom which are in the niche areas, unlike the assessee. Further it was also submitted that the Infosys BPO Ltd. comprises brand value which will tend to influence its business operation and the pricing 5 policy thereby directly impacting the margins earned by the Infosys BPO Ltd. We find the submissions of the Ld. Counsel for the assessee before TPO/DRP that in order to maintain the brand image of Infosys BPO Ltd. in the market, the company incurs substantial selling and marketing expenditure whereas the assessee being a contract service provider does not incur such expenses to maintain its brand has not been controverted by them. Further, Infosys BPO Ltd. being a subsidiary of Infosys has an element of brand value associated with it. This can be further confirmed by the presence of brand related expenses incurred by Infosys BPO Ltd. Further, Infosys BPO Ltd. has acquired Australian based company M/s Portland Group Pvt. Ltd. during financial year 2011-12. They provide sourcing and category management services in Sydney, Australia. Therefore, his company also failed the TPO’s own filter of rejecting companies with peculiar circumstances. In view of the above i.e. functionally not comparable, presence of brand and extraordinary event that has taken place during the year on account of acquisition of Australian based company, we are of the considered opinion that Infosys BPO Ltd. should not be included in the list of comparables. We accordingly direct the Assessing Officer/TPO to exclude Infosys BPO Ltd. from the list of comparables for the purpose of computing the average margin.” 5.1.1 Respectfully following the order of the coordinate bench, on identical facts, we direct the AO/TPO to exclude BPO Infosys Ltd. from the final set of comparables.”
Facts being similar, respectfully following the decision of the coordinate bench, we direct the AO/TPO to exclude Infosys BPO Ltd. from final set of comparables for this assessment year also.
In so far as working capital adjustment is concerned, the AO/TPO is directed to look into the workings furnished by the assessee and appropriate relief may be granted in accordance with law after providing adequate opportunity of being heard to the assessee. With these observations, the recalled grounds in 30/10/2017 are disposed of accordingly.
In the result, appeal of the assessee is partly allowed as indicated above.
Order pronounced in the open court on 21.03.2025