GALLAGHER SERVICE CENTER LLP (FORMERLY KNOWN AS GALLAGHER OPERATIONS SUPPORT SERVICES P LTD),PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, NFAC,, DELHI
आयकर अपीलीय अिधकरण ”सी” Ɋायपीठ पुणेमŐ।
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCHES “C” :: PUNE
BEFORE DR.DIPAK P. RIPOTE, ACCOUNTANT MEMBER
AND SHRI VINAY BHAMORE, JUDICIAL MEMBER
आयकर अपील सं. / ITA No.679/PUN/2022
िनधाᭅरण वषᭅ / Assessment Year : 2018-19
Gallagher Services Center
LLP,
401, Delta 2, Gigaspace IT Park, Vimannagar,
Pune – 411014. PAN: AAQFG7417F
V s
Additional/Joint
Commissioner of Income
Tax.
Appellant/ Assessee
Respondent /Revenue
Assessee by Shri M.P.Lohia – AR
Revenue by Shri Prakash L Pathade – CIT(DR)
Date of hearing
23/01/2025
Date of pronouncement 24/03/2025
आदेश/ ORDER
PER DR.DIPAK P.RIPOTE, AM :
This is an appeal filed by the assessee against the Assessment
Order of passed under section 143(3) r.w.s 144C(3) read with section 144B of the Income Tax Act, 1961; dated 15.07.2022 for A.Y.2018-19. The Assessee has raised the following grounds of appeal :
“Based on the facts and circumstances of the case, the Appellant respectfully craves leave to prefer an appeal under section 253(1)(d)
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of the Income-tax Act, 1961 (hereinafter referred to as Act) against the order dated 15 July 2022 (received by the Appellant on 15 July
2022) passed by the Additional/Joint/Deputy/Assistant Commissioner of Income Tax/ Income-tax Officer, National Faceless Assessment
Centre (hereinafter referred to as 'NFAC) under section 143(3) rws
144C(13) read with section 1448 of the Act in pursuance of the directions dated 27 June 2022 issued by the Hon'ble Dispute
Resolution Panel (hereinafter referred to as Hon'ble DRP), on the following grounds, which are independent of and without prejudice to each other,
On the facts and in the circumstances of the case and in law, NFAC based on the directions of Hon'ble DRP, has Ground challenging the non-applicability of APA to international transactions of the Appellant with its AE in UK.
erred on the facts, in circumstances of the case and in law by not applying the arm's length rate as agreed in the APA with Arthur J. Gallagher & Co. USA to similar international transactions not covered in the APA and proposing an upward adjustment amounting to INR 2,06,94,009 to the value of international transaction pertaining to provision of business support services to Arthur J. Gallagher Services (UK) Limited, United Kingdom
Without prejudice to the above;
General ground challenging the transfer pricing adjustment of Rs.2,06,94,009
erred in proposing an upward adjustment amounting to INR 2,06,94,009 to the value of international transaction pertaining to provision of business support services to its associated enterprise
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(AE') by rejecting the analysis undertaken by the Appellant in its transfer pricing study
Non-consideration of comparability analysis as documented in TP
Study of the Appellant and incorrectly carrying out fresh search to identity companies as comparable to the international transaction of the Appellant
erred on the facts and in law by not accepting comparability analysis documented in transfer pricing study of the Appellant and carrying out fresh search to identify companies as comparable to the international transactions of the Appellant
Inappropriate modification of certain quantitative filters and qualitative filters applied by Appellant in its transfer pricing study
erred in selecting/modifying the following inappropriate qualitative and quantitative, filters for provision of business support services
Rejection of companies having turnover of 10 times lower or 10 times more than the turnover of the Appellant
Rejection of companies having different financial year ending
Rejection of companies having export earnings less than 75% of total earnings
Rejection of companies with employee cost less than 25% of the operating cost
Rejection of companies with gross intangibles greater than 25% of operating revenue
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Rejection of companies with forex spending greater than 75% of operating cost
Rejection of companies whose revenue is decreasing in last 3 years
Rejection of companies not having 12 months in a financial year
Rejection of companies having receivables of more than 4 months of operating revenue
Inappropriate rejection of certain companies identified as comparable by the Appellant to its business support services for AY 2018-19
erred by concluding that the following companies are not comparable to the business support services provided by the Appellant and hence, should not be considered while computing the operating margins of comparable companies for arriving at the arm's length price.
Informed Technologies India Limited
Adhaan Solutions Private Limited
Sundaram Business Services Limited
MCI Management (India) Private Limited
Suprawin Technologies Limited
Allsec Technologies Limited
R Systems International Limited (Segmental)
India Tourism Development Corporation Limited (Segmental)
Kestone Integrated Marketing Services Private Limited (Segmental)
Concept Public Relations India Limited
Overseas Manpower Corporation Limited
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Aristotle Consultancy Private Limited
PR Pundit Public Relations Private Limited
Inappropriate acceptance of certain additional companies as comparable to the business support services of the Appellant for AY
2018-19
erred by concluding that the following companies are comparable to the business support services provided by the Appellant and hence, should be considered while computing the operating margins of comparable companies for arriving at arm's length price
Tech Mahindra Business Services Limited
Manipal Digital Systems Private Limited
CES Limited
MPS Limited
Integra Software Services Private Limited
Access Healthcare Services Private Limited
Erroneous comparison of full-fledged risk bearing entities with the Appellant's captive operations without making any risk adjustment
erred in comparing full-fledged risk bearing entities with the Appellant's captive operations without making any risk adjustment on account of differences between the functional and risk profile of comparable companies vis-à-vis the risk profile of the Appellant.
Erroneous levy of penalty under section 270A of the Act
erred in proposing to levy penalty under section 270A of the Act, without considering the fact that adjustment to returned income is ITA No.679/PUN/2022 [A]
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just on account of difference of opinion and consequently resulted in an adjustment to income.
The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Honourable Income-tax
Appellate Tribunal to decide this appeal according to law.”
Brief facts of the case :
As per assessment order, Assessee is a captive service provider engaged in providing back-office support in insurance domain exclusively to its group companies. During the impugned year, the assessee has Export Oriented Units (EOU) in Pune, Bengaluru, Shimoga and Kolhapur which are registered with the Software Technology Parks in India(STPI). The Return of Income filed by the assessee for the A.Y.2018-19 was processed by the CPC under section 143(1) of the I.T.Act, 1961 vide order dated 02.10.2019. The assessee’s case was selected for scrutiny on account of large value of international transactions.Accordingly, the Assessing Officer made a reference to the Transfer Pricing Officer(TPO) under section 92CA of the Act, to determine the Arms’ Length Price of International Transaction. The Transfer Pricing Officer passed an order under section 92CA(3) on 28.07.2021. The Transfer Pricing Officer in the order has ITA No.679/PUN/2022 [A]
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mentioned that “GOSSPL was incorporated as a private limited company under the Companies Act, 1956 on 16 May, 2006 in Pune, India. GOSSPL has converted its legal entity from a private limited company to LLP i.e., Gallagher Service Center LLP with effect from 8 February 2017. Arthur J. Gallagher (Illinois), LLC has 99.99% capital contribution in Gallagher Services Center LLP.
The key functions performed by GSC LLP under business support service include data entry, document generation, basic checking of the documents and policies, preparation of reconciliation and accounting assistance. GSC LLP is engaged in providing business support services to AJG US & UK for which it is remunerated at cost plus 13 percent mark-up.
1 The Assessee has selected TNMM as the most appropriate method for deciding the Arm’s Length Price of the International Transaction. The Profit Level Indicator selected was operating profit upon operating cost. The TPO in the order has mentioned that the profit level indicator of the Assessee [OP/OC] was 13.3%. The Transfer Pricing Officer rejected the Transfer Pricing Study Report of the Assessee for the reasons discussed in the order. The ITA No.679/PUN/2022 [A]
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Transfer Pricing Officer, then arrived at following set of comparables :
S.No ITES Comparables
Turnover Cr
Weighted WCA
(OP/OC for Comp Cos)
1
Datamatics
Business
Solutions Ltd.
71.47
5.65%
2
Integra Software Services
Pvt. Ltd.
103.24
13.94%
3
Tech Mahindra Business
Services ltd.
703.6
18.04%
4
Manipal Digital Systems
Pvt. Ltd. [Merged]
25.01
23.19%
5
C E S Ltd.
74.42
23.29%
6
Access
Healthcare
Services Pvt. Ltd.
436.58
23.88%
7
M P S Ltd.
18.01
58.48%
Place
3
35th Percentile
04% 4 Median
19% 5 65th Percentile
29%
Assessee’s PLI
30%
2 Thus, the Transfer Pricing Officer held that the transaction of providing business support services was not at Arms’ Length Price as the profit level indicator OP/OC of the Assessee was 13.3%, whereas as per the TPO it should have been 23.19%based on the comparables selected by TPO. Accordingly, the Transfer Pricing Officer proposed an adjustment of Rs.20,24,85,411/-.
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2.3 Based on the Transfer Pricing Officer’s order, the Assessing
Officer passed a draft order under section 144C of the Act, dated
14.09.2021. Assessee filed appeal before Dispute Resolution
Panel. The Dispute Resolution Panel(DRP) passed an order on 27.06.2022. Before the DRP, assessee submitted that assessee has entered into Bilateral Advanced Pricing Agreement with its AE in USA, wherein in markup agreed for the impugned international transaction between Assessee & its AE in USA, wherein markup agreed for the impugned international transaction between
Assessee &its AE in US is 14.15%. Accordingly, the DRP restricted the adjustment made in the Value of International
Transactions only to the transactions entered with UK.
Accordingly, DRP restricted it to Rs.2,06,94,009/-. Thus, DRP allowed Ground No.1 of the Assessee. However, DRP rejected the Assessee’s contention regarding certain comparables and sustained the adjustment made by TPO to the extent of transactions with UK
AE.
4 After the DRP’s order, the Assessing Officer passed assessment order under section 143(3) r.w.s. 144C(13) r.w.s 144B
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of the Act, on 15.07.2022 making an addition of Rs.2,06,94,009/-.
Aggrieved by the same, Assessee filed appeal before this Tribunal.
Submission of ld.AR :
At the outset of hearing, ld.Authorised Representative(ld.AR) for the Assessee submitted that Assessee intends to press only Ground No.6. Ld.AR submitted that assessee is not pressing any other ground.
1 Ld.AR pleaded only with reference to four comparable companies i.e. Manipal Digital Systems Private Limited, CES Limited, MPS Limited and Access Healthcare Services Private Limited. Ld.AR took us through the Annual Reports of these comparables and submitted that functionally these are not comparables to the assessee. Ld.AR took us through the FAR of the Assessee and these comparables. Ld.AR vehemently submitted that these four companies are comparable to the assessee and hence needs to be deleted.
2 Assessee has relied on the following case laws with reference to the specific comparables : “Manipal Digital Systems Private Limited
ITA No.679/PUN/2022 [A]
Rage Frameworks India Private Limited vis ACIT (Circle 5), Pune
[ITA No.674/PUN/2022] (AY 2018-19)
Vodafone Global Services Private Limited vis ACTT Circle 1(1), Pune
[TS-221-ITAT-2023(PUN)-TP) (AY 2017-18)
Schlumberger India Technology Centre Pvt Ltd v/s DCIT, Pune [ITA
No 640/PUN/2021] (AY 2016-17)
Credence Resource Management Private Limited v/s ACIT Circle 1
(1), [ITA No. 133/PUN/2021] (AY 2016-17)
Veritas Software Technologies India Private Limited vis DCIT TP-2,
Pune [ITA No 207/PUN/2021] (AY 2016-17)
CES Limited
FIS Solutions Software (India) Private Limited [TS-623-ITAT-
2023(PUN)-TP] (AY 2018-19)
Vodafone Global Services Private Limited vis ACIT Circle 1(1), Pune
[TS-221-ITAT-2023(PUN)-TP] (AY 2017-18)
Transperfect Solutions India Pvt Ltd v/s ACIT (Circle 7), [ΓΓΑ Νο
331/PUN/2021] (AY 2016-17)
Schlumberger India Technology Centre Pvt Ltd vis DCIT, Pune [ITA
No 640/PLJN/2021] (AY 2016-17)
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Credence Resource Management Private Limited v/s ACIT Circle 1
(1), [ITA No. 133/PUN/2021] (AY 2016-17)
Veritas Software Technologies India Private Limited v/s DCIT TP-2,
Pune [ITA No 207/PUN/2021] (AY 2016-17)
MPS Limited
Rage Frameworks India Private Limited v/s ACIT (Circle 5), Pune
[ITA No.674/PUN./2022] (AY 2018-19)
BNY Mellon International Operations (India) Pvt Ltd [TS-497-ITAT-
2023(PUN)-TP) (AY 2016-17)
Vodafone Global Services Private Limited v/s ACIT Circle 1(1), Pune
[TS-221-ITAT-2023(PUN)-TP) (AY 2016-17)
Schlumberger India Technology Centre Pvt Ltd v/s DCIT, Pune [ITA
No 640/PUN/2021] (AY 2016-17)
Credence Resource Management Private Limited v/s ACIT Circle 1
(1), [ITA No. 133/PUN/2021] (AY 2016-17)
Veritas Software Technologies India Private Limited v/s DCIT TP-2,
Pune [ITA No 207/PUN/2021] (AY 2016-17)
Access Healthcare Services Private Limited
Rage Frameworks India Private Limited v/s ACIT (Circle 5), Pune
[ITA No.674/PUN./2022] (AY 2018-19)
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Syngenta Services Private Limited v/s ACIT Circle 3(2)(1), Mumbai
[ITA NO. 1905/MUM/2022] (AY 2018-19)”
Submission of ld.DR :
On the other hand, ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Transfer Pricing Officer and Dispute Resolution Panel. Ld.DR has not made any specific submission to rebut the arguments of the ld.AR, other than that mentioned in the order of the TPO and DRP.
Findings & Analysis :
We have heard both the parties and perused the material placed before us. Assessee is providing Business Support Services to its AE situated in UK and USA. The value of International Transaction of business support service to its AE is Rs.2,31,96,03,040/-. Assessee had benchmarked the transaction using Transactional Net Margin Method(TNMM). The operating profit on operating cost of the assessee was 13.3%. Assessee’s service is in the category of ITES. Ld.AR had submitted during the hearing that Assessee’s employees are under graduates and graduates only.
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5.1 We have already mentioned that Assessee has not pressed for any other ground, except Ground No.6, specific comparables.
Ld.AR has pleaded that following comparables are not comparable to the Assessee :
Manipal Digital Systems Private Limited,
CES Limited,
MPS Limited and Access Healthcare Services Private Limited.
2 Accordingly, we will restrict ourselves to adjudicate only with reference to the four comparables mentioned above. We will discuss each comparable separately.
Manipal Digital Systems Private Limited :
The TPO has considered Manipal Digital Systems Private Limited as comparable. Ld.AR submitted that the Revenue of Manipal Digital Systems Private Limited consist of ITES, Sale of e-Books, Distribution of Books and no segmental is available. We have perused the Page No.984 of the paper book which is the annual report of Manipal Digital Systems Private Limited. It is observed that as per the Note-22.01 of the Annual Report, Manipal Digital Systems Private Limited’s sale consist of ITES, Pre-media
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Work and e-Book/Other Books Distribution. We have studied the Annual Report and we could not get separate figures for ITES, Pre- media work and e-book/other books distribution. Thus, the sales appearing in the Annual Report of Manipal Digital Systems Private
Limited consist of ITES and Distribution Activities. Assessee is exclusively in ITES. Therefore, the functions performed by Manipal Digital Systems Private Limited are not comparable to assessee. Hence, we are of the opinion that Manipal Digital
Systems Private Limited is not comparable to the assessee, accordingly, we direct AO/TPO to delete it.
1 We find support from the order of the ITAT Pune in RAGE No.674/PUN/2022. CES Limited :
2 Ld.AR relied on the order of ITAT Pune in the case of Vodafone Global Services Private Limited Vs. ACIT, ACIT Circle-1(1), Pune [ITA No.198/PUN/2023], Transperfect Solutions India Pvt. Ltd., Vs. ACIT [ITA No.331/PUN/2021], Schlumberger [ITA
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No.640/PUN/2021] and RAGE Frame Works India Private
Limited vs. ACIT in ITA No.674/PUN/2022. Ld.AR also submitted that CES Limited is having two segments. Ld.AR submitted that it is a KPO and hence not comparable.
2.1 We have perused the Annual Report of the CES Limited which is at page no.1294 to 1407 in the paper book. At page no.1341 of the paper book, principal business activity of the company has been mentioned as under : II. PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY All the business activities contribution 10% or more of the total turnover of the Company shall be stated :- Sl.No. Name and Description of main products/services NIC Code of the Product/service % to total turnover of the Company 1 IT Enabled Services- BPO/KPO 63999 100%
2.2 Thus, in the Annual Report of the CES Limited, it has mentioned its business as BPO/KPO. There is no segmental available for IT Enabled Services providing revenue for BPO/KPO separately.
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6.2.3
It is important to mention here that the Transfer Pricing
Officer in para 9.5 of his order, while rejecting Sundaram Business
Services Limited has observed that Sundaram Business Services
Limited is into ITES and KPO which makes it functionally non- comparable to assessee. Following the same principle, the CES
Limited also becomes functionally non-comparable to assessee. It is also observed that ITAT Pune in the case of Vodafone Global
Services Private Limited vs. ACIT in ITA No.198/PUN/2022 has held that CES Limited is not comparable to Vodafone Global
Services Private Limited as CES Limited have mixed functions, as BPO/KPO. In these facts and circumstances of the case, we direct the Transfer Pricing Officer to exclude CES Limited as CES
Limited is not comparable to assessee.
MPS Limited :
3 We have perused the Annual Report of the MPS Ltd. It is observed that the Board of Directors of the Company has approved Amalgamation of ADI BPO Services Ltd with the MPS Ltd.,(Page 24 of the Annual Report).It is observed that its wholly owned subsidiary Mag+AB was dissolved with effect from 21.12.2017
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and its Software and Intellectual Properties were transferred to MPS Ltd.
3.1 The scan copy of relevant part of page 24 of MPS Limited Annual Report is as under :
3.2 These are extraordinary events.Forthese two reasons, the FAR of the MPS Ltd, is not comparable with FAR of the assessee. The TPO has erred in not considering the two important events. The Ld.DR has not made any submission regarding these two important events. We find support from the order of ITAT Mumbai in the case of Syngenta Services P. Ltd,Vs.ACIT in ITA No.1905/Mum/2022 order dated 07/12/2023 for A.Y.2018- 19.Hence, we are of the opinion that MPS Limited is not comparable to the assessee, hence we direct the AO/TPO to exclude it. Access Healthcare Services Private Limited :
4 The Ld.TPO has observed that it is in the business of ITES services, hence comparable to the assessee. Ld.TPO has also noted
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that as per the Annual report there is only one segment-ITES.
Ld.AR submitted that Access Health Care Services P Ltd is in the business of specialized services i.e. Revenue Cycle Management, hence it is a KPO and not comparable to the Assessee.
4.1 We have perused the Annual Report of the Access Health Care Services P. Ltd, which has been filed by the assessee in paper book at page 1711 onwards. It is noted that Access Health Care Services P Ltd has specifically mentioned in the Annual Report that it is doing Medical Billing and Revenue Cycle Management. Ld.AR based on Google search, filed a note on activities performed under Revenue Cycle management and pleaded that Revenue Cycle management needs specialized knowledge hence it is a KPO. However, it is observed that said note was not filed before the TPO/DRP. Therefore, the DRP/TPO had no opportunity to analyze the submission of the assessee on the issue of Revenue Cycle management. In these facts and circumstances of the case we deem it appropriate to set aside the issue of Comparability of Access Health Care Services P Ltd to the TPO for de-novo adjudication. The Assessee shall file all the details before the TPO. The TPO shall provide opportunity to the assessee. TPO shall try to find the exact function of Access Health Care Services P Ltd. Accordingly, this issue is set aside to TPO.
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In the result, the Ground Number 6 is Partly Allowed for Statistical purpose.
No other grounds were pleaded before us, hence, they are dismissed as unadjudicated.
In the result, appeal of the assessee is Partly Allowed for Statistical Purpose. Order pronounced in the open Court on 24th March, 2025. (VINAY BHAMORE) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 24th Mar, 2025/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “सी” बᱶच, पुणे / DR, ITAT, “C” Bench, Pune.
गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER,
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Senior Private Secretary
आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.