ADIT, CIRLCE- 1(1), INTERNATIONAL TAXATION,, NEW DELHI vs. AMERICAN EXPRESS BANKING CORP. (INDIA BRANCH), NEW DELHI

1 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘I’: NEW DELHI

BEFORE, SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.6253/Del/2017 (ASSESSMENT YEAR 2009-10)

American Express Banking ADIT Corp, (India Branch) Circle-1(1) Metropolitan Saket, 7th Vs. International Taxation, Floor, Office Block, District New Delhi Centre, New Delhi PAN:- AAGCA9055N (Appellant) (Respondent) ITA No.6455/Del/2017 (ASSESSMENT YEAR 2009-10) ADIT American Express Circle-1(1) International Banking Corp, (India Taxation, Vs. Branch) New Delhi MGF, Metropolitan Saket, 7th Floor, Office Block, District Centre, New Delhi PAN:- AAGCA9055N (Appellant) (Respondent)

Assessee by Shri Nageshwar Rao, Adv Department of Shri Rajesh Kumar, CIT(DR) Revenue

Date of Hearing 12/06/2024 Date of Pronouncement 07/08/2024

2 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT ORDER PER YOGESH KUMAR U.S.JM:

The above mentioned Appeals are filed by the assessee and the Revenue for Assessment Year 2009-10 passed by the order of the Ld. Commissioner of Income Tax (Appeals), Delhi-38 (“Ld. CIT (A)” for short), dated 31.07.2017. 2. The Grounds of Appeal by the assessee are as under:-

ITA No.6253/Del/2017 “1. Grounds of Appeal 1. On the facts and in circumstances of the case and in law, the order passed by Commissioner of Income Tax (Appeals) -38, New Delhi ("Learned CIT(A)"), Assistant Director of Income Tax, Circle 1(1), International Taxation, New Delhi ("Learned AO") and Additional Director of Income Tax (Transfer Pricing Officer-1(1), New Delhi ("Learned TPO").

3 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT 4. The Learned CIT (A)/ Learned AO/ Learned TPO have grossly erred by passing an order with a preoccupied mind to make an adjustment that is contrary to the facts and prejudicial to the interest of the Appellant. 5. The Learned CIT (A) has erred in determining the arm's length price ("ALP") of the international transactions to be 50 percent of the amount paid by the Appellant to its associated enterprises ("AEs") for receipt of intra group services from its AEs. 6. The Learned CIT(A)/ Learned AO/ Learned TPO have erred in not conducting the analysis of selecting the Most Appropriate Method (MAM) as prescribed under Rule 10C of the Rules and accordingly not documented the same as prescribed under Rule 10D of the Rules. 7. The Learned CIT(A)/ Learned AO/ Learned TPO have erred in law by upholding the determination of the ALP of the international transaction using Comparable Uncontrolled Price (CUP) method without following the manner of applying the CUP method prescribed under Rule 108(1)(a) of the Rules 8. The Learned CIT(A)/ Learned AO/ Learned TPO have erred by upholding the adoption of CUP method as the most appropriate method for determining the arm's length price in respect of the intra group services without identifying any comparable uncontrolled transaction(s) for the computation of the ALP as prescribed in Section 92F(ii) of the Act 9. The Learned CIT (A)/ Learned AO/ Learned TPO have erred in passing an order that is perverse in law ignoring the relevant submissions, information and documents provided by the Appellant to substantiate the receipt of intra group services. 10. The Learned CIT (A)/ Learned AO/ Learned TPO have erred in questioning the commercial rationale of the legitimate business expenses incurred by the taxpayer and not restricting the scope of assessment under section

4 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT 92CA to determining the arm's length price of the international transaction by adopting one of the prescribed methods only. 11. The Learned CIT (A)/ Learned AO/Learned TPO have erred, on facts and circumstances of the case and in law, in contending that an independent service recipient would be willing to pay for a service only upon receipt of certain tangible benefit. 12. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by determining ALP of the international transactions entered into by the Appellant with its AEs using single year data of financial Year 2008-09 for the purpose of comparability analysis which was not available to the Appellant at the time complying with the Transfer Pricing (TP) documentation requirement under the Act. The Ld. AO/TPO/CIT (A) ought to have used multiple year data which would have captured normal market cycles and reduced the variability/distortions in the financial results arising out of single year data 13. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by rejecting company namely C G-VAK Software and Exports Limited, identified by the Appellant using turnover of less than INR 5 Crores as a comparability criterion to sieve non comparable companies with respect to provision of back office support services. 14. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by rejecting certain companies identified by the Appellant in its TP documentation, having different accounting year than the Appellant (ie. companies having accounting year other than March 31 2009 or data of the company does not fall within 12 month period i.e. 01-04- 2008 and 31-03-2009). 15. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by rejecting certain comparable companies identified by the Appellant on account of export revenues being less than 75% of the operating revenues with respect to provision of back office support services.

5 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT 16. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by erroneously rejecting certain comparables and adding certain companies to the final set of alleged comparables for the impugned transaction on an ad-hoc basis, thereby resorting to cherry picking of comparables for benchmarking the provision of back office support services. 17. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by ignoring the business/ commercial reality that since the Appellant undertakes minimal business risks as against comparable companies which are full risk bearing entrepreneur(s), and in not allowing adjustments like risk adjustment to the Appellant. 18. The Learned CIT (A)/ Learned AO/ Learned TPO has erred by not following the "Rule of Consistency while making an upward adjustment to the income of the Appellant. 19. The Learned AO has erred on facts and in law in proposing to levy interest under section 234A, 2348, 234C and 234D of the Act. 20. The Learned AO has erred, in facts and in law, by initiating penalty proceedings under section 271(1)(c) of Act in relation to transfer pricing adjustment and without recording any adequate reasons for such initiation. The above grounds of appeal are mutually exclusive & without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute, withdraw any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the above grounds of appeal and the facts and circumstances of the case.”

6 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT ITA No.6455/Del/2017

“1.1 That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in allowing relief on the transfer pricing adjustments made. 1.2 That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in directing inclusion of Cepha Imaging Pvt. Ltd. as a comparable if it passes the export earning filter, without considering the TPO's finding of functional dissimilarity. 1.3 That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in directing the inclusion of R Systems International Ltd. as a comparable, without considering Rule 10B(4), and without considering that the amounts of operating profit or operating cost etc. for the year are not directly available without any apportionment or truncation, in terms of the decision of the Hon'ble ITAT in Tech Books Electronics Services Pvt. Ltd. (TS-772-ITAT- 2016(DEL)-TP). 1.4 That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in directing the exclusion of Coral Hub Ltd. and Cosmic Global Ltd. from the comparables, merely relying upon the decision in Mercer Consulting Ltd., and without considering how the facts are similar, and without considering CBDT circular SO 890 (E) dated 26.09.2000 listing products or services which could be claimed under ITES. 1.5 That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in directing exclusion of E-clerx Services Ltd. and ICRA Online Ltd. from the comparables, without considering the functional profile of the assessee and these comparables. 2.1 That in the facts and circumstances of the case, and in law, the Ld. CIT (A) erred in allowing relief on the transfer pricing adjustment towards intra group services.

7 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT 2.2 That in the facts and circumstances of the case, and in law, the Ld. CIT (A) erred in allowing relief on the transfer pricing adjustment towards intra group services, erroneously observing that recharacterization of the transaction and questioning expediency is not permissible, without considering that in this case, the arm's length price has been determined at nil after examining the facts. 2.3 That in the facts and circumstances of the case, and in law, the Ld. CIT](A) erred in allowing relief on the transfer pricing adjustment towards intra group services without considering the detailed facts and reasons given in the TPO's order. 3. The appellant craves leave to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.”

the laws of USA and engaged in the banking business. The Indian

Branch was set up during Financial Year 2007-08 after obtaining

the requisite license from Reserve Bank of India to carry on

following activities:-

(1) Credit Card Business (2) Service in relation to sale of TCs and (3) Acceptance of institutional deposits as defined by RBI

2009-10 declaring income at Rs. 52,74,06,080/-. The case of the

assessee was selected for scrutiny and notice u/s 143(2) of the

8 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT

Income Tax, 1961 (‘Act’ for short) was issued. The assessee

participated in the assessment proceedings. During the assessment

proceedings, on perusal of Form No. 3CEB filed by the assessee, it

was noticed that the assessee had entered into International

Transactions with its Associated Enterprises (‘AE') amounting to Rs.

3.20 billions. A reference u/s 92CA(3) of the Act was made to the

Transfer Pricing Officer (‘TPO’). The TPO vide order dated

23/01/2013 passed u/s 92CA(3) of the Act made transfer pricing

adjustment amounting to Rs. 24,30,24,147/-. The cumulative

adjustment made by the TPO are as under:-

Sl. No. Nature ALP ALP Adjustment international determined by determined by u/s 92CA(INR) transaction the assessee TPO (INR) (INR) 1 Provision of IT 199590000 216072808 16482808 enable services 2 Receivable NIL 453 453 3 Intra Group 226540886 NIL 226540886 services Total 243024147

143(3)/144C of the Act on 15/05/2023 by making addition of Rs.

24,30,24,147/-. Aggrieved by the order dated 15/05/2013, the

9 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT assessee preferred an Appeal before the CIT(A). The Ld. CIT(A) vide

order dated 31/07/2017 directed the TPO to grant 50% of the

adjustment claimed by the assessee on account of Intra Group

Services availed by the assessee.

account of ITEs made following exclusions in the comparable

Companies.

And directed to include of following comparableies:

Aggrieved by the order of the Ld. CIT(A) both the assessee as well as

the Revenue filed the present Appeal on the grounds mentioned

above.

and general in nature which requires no adjudication.

10 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT INTRA GROUP SERVICES (IGS)

of the Ld. CIT(A) in determining the Arm’s Length Price of

international transaction to be 50% of the amount paid by the

Assessee to its AE for receipt of Intra Group Services from its AE's

and the Ground No. 2.1 to 2.3 of the Revenue are against the

granting of 50% relief to the assessee on ad-hoc manner. Therefore,

the above Grounds of the assessee and the Revenue are adjudicated

as under:-

to its AE as payment for receipt of Intra Group Services (IGS). To

enquire about the said transaction, for determination of ALP, the

TPO issued show cause notice on 28/12/2012 to the assessee

company calling the assessee to furnish the details and documents.

The relevant portion of the show cause notice is reproduced as

under:-

“Intra Group Services from other overseas entities: In Please furnish all the arrangements entered into by the assessee company, related to the Intro Group Services

11 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT obtained by the assessee Company from the AEs during the year. 2. Please Identify each of the services actually received by the assessee company. 3. Please specify the amount of payment made for each of such services. 4. Please submit the contemporaneous documentary evidence to show that these services have actually been received the assessee company. 5. Please justify the need for the receipt of such services for which payment has been made. 6. Please state with documentary evidences as to when and how these services were requisitioned from the AEs. 7. Please state as to how the rate or payment for IGS has been determined at the time of entering in to the agreement? Please also furnish the basis thereof. 8. Please state as to whether any cost benefit analysis was done while entering into the agreement and while requisitioning the services for payment of IGS? a. if so the details of such cost benefit analysis should be furnished. The cost benefit analysis should include the expected benefit from the IGS vis-a-vis the payment made for the same. b. Please specifically state as to whether any benchmarking analysis was done at the time of entering into the agreement so as to compare the payment of IGS to the AE vis-a-vis an independent party under similar circumstances. If so, the details thereof. 9. Please show with evidence as to what tangible and direct benefit has been derived by the assessee company from the use of such IGS.

12 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT 10. Whether the services availed from AEs, have also been performed by the assessee company itself or also availed from independent parties? If yes, a. The details of such expenditure for each of the services should be furnished. b. Please state as to why a separate payment has been made for such services to the AE. 11. Please furnish details and documentary evidence of cost incurred by the AE for rendering each type of services purportedly received by the assessee company and the mark up applied, if any by the AE. Please also state as to whether the cast incurred by the AE is audited. 12. Whether AE is rendering such services to any other AEs/independent parties also. if yes the details thereof including the rates/amount charged from such AEs along with mark up if any. 13. If the AB has rendered services to more than one entity including the assessee company, then the basis of allocation amongst various entities may be furnished. Please also furnish the basis of choosing a particular allocation key. 14. If the above information is not furnished, complete in all respects, along with contemporaneous documentary evidences, the arm's length payment for these intra group services would be treated as Nil by applying CUP method. If the above information is not furnished along with contemporaneous documentary evidences and separate benchmarking for these transactions is not done, the payment for these intra group services would be treated as Rs. Nil by applying CUP method.”

13 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT

reply which is reproduced as under:-

Nature of Comments Services Technology The assessee has claimed to have received technology service Services which helped it to maintain and support its hardware and telecommunication resources for processing of key application service. The assessee has also claimed to received specific- technology services like Strategic Quality Plan ("SQP") Development, Maintenance, Technologies Infrastructure, Support Services, Application Infrastructure Uplift ("AIU"), Centralized Group and Security & Compliance, Business Consultancy. The assessee in its submission gave detailed description of the aforementioned services claimed to have been received by it from its AE. However no supporting documentary evidence for furnished by it which could establish that it could actually received these services. The assessee also failed to give any basis for the cost allocation for aforementioned services. It is seen that the assessee has also incurred Business Promotion and Selling Expenses in the amount of Rs /. Hence, my findings to the payment for the marketing services is Twofold-for one there is a high possibility of duplication of services in the sense that the assessee itself could have done the marketing and there was no need for the same to have been done by AEs. Similarly, the assessee has also not been able to demonstrate that the sales achieved are indeed the result of efforts of the overseas marketing support team and not a result of the marketing efforts of the assessee. However, it is seen that no evidence has been brought on record to show exactly what corporate marketing services were rendered by the AE. The quantum of payment made for this service has not been provided separately by the assessee, in absence of which it is impossible to claim that that the assessee indeed took into consideration the value of services provided viz-z-viz benefit claimed for the payment made for this service. Risk The assessee has claimed to have received this service from its information AE which was primarily meant to reduce fraudulent use of management American express product and services. For this service also, the assessee in its submission gave detailed description, however no supporting documentary evidence was furnished by it by way of which it could establish the receipt of the service. The assessee also failed to give any basis for the cost

14 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT

allocation for aforementioned services. Head quarter In this category the assessee has claimed to have received support services pertaining to Legal and Compliance Services, Security services Services, Corporate Affairs and Communications Services, Strategic Planning Services and External Professional Services. These services seem to be of a very generic nature with there being nothing so unique in these services that the assessee itself may not have been able to perform. Every organization has its own performance measurement, and troubleshooting mechanisms in place. Hence, it is not understandable as to why the assessee relying on its AEs for accomplishment of such routine tasks. No evidence has been put forth to show that the AE has indeed helped the assessee in this regard. The assessee is already incurring expenditure on personnel cost and professional cost. The assessee has not demonstrated as to what kind of management services, HR Services or legal services have actually been availed by the assessee. There is no evidence submitted the show what strategic management directions, advices etc. were given by the AE, which consultants were engaged with the help of the AE which the assessee could not engage itself, what guidance was received from the AE. Moreover, what benefit the assessee has received from these services. The functions which have been specified by the assessee in the management services are of generic nature and without any support furnished by the assessee. It may not be out of place to mention that the assessee has paid legal and profession charges an amounting to Rs. 187521000 during the year. A part from this payment of Rs. 4826000 has been made to auditors. This payment by itself reflects indirectly that there is strong possibility of duplication of services. Technology Under this head the assessee has claimed to have received Services/back diverse services like rvices/back Business development, office support planning & financial analysis, regional acquisitions & services/treas campaign management, regional marketing & product ury development, public affairs and communication (pa&c), finance, services/region global procurement, human resources and strategic resource al head quarter management etc. It may however be mentioned that for none of services the services, the assessee was able to give any documentary evidence in support of having been provided these services by its AE. Visa-v-s marketing support services, it may be of interest to know that the assessee has spent on account of Rs 98,48,02,000 on account of marketing expenditure. This payment by itself reflects indirectly that there is strong possibility of duplication of services

15 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT 11. It is evident from the above reply that the assessee claimed to

have receiving services in the fields of technology, Services, Risk

Information Management, Head quarter, Technology Services/back

office support services/treasury/regional headquarter services etc.

On going through the reply filed by the assessee, it is found by the

T.P.O. that the assessee has failed to furnish any evidence which

could establish receipt/rendering of service, though the assessee

submitted description of services, but has not submitted any

evidence. The TPO observed that the assessee has submitted

“Performance score card” which showed evaluation of services, but

failed to establish its authenticity and neither submitted any

evidence regarding the details, how such services were received.

The observation of the TPO is reproduced as under:-

“18.2.2. As regards the submission of contemporaneous documentary evidence to show that these services have actually been received no documentary evidence was furnished. It merely submitted "performance score card" which basically showed the evaluation of the company on various parameters. Even for the performance score cards, no evidence was furnished regarding its authenticity. Even otherwise, this evaluation in no way reflected receipt of any of the above mentioned services. In the absence of such crucial information, the Assessees contention that specific services have been performed which were needed by the assessee and for which it did not have expertise or

16 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT logistics in India does not seem tenable. Thus, the assessee has failed to substantiate that any service in this regard has actually been availed by it.”

be treated as NIL as the assessee has failed to establish receipt of

such services. Further the contentions of the assessee has not

been accepted by the TPO on following grounds:-

• “There is no evidence that the services have actually been provided. The assessee has failed miserably to demonstrate the need for these services as also the receipt of the same. • Even if it is considered that some sort of services have been provided by the designated persons, there is no evidence that those persons have not provided any service to the AE. Those persons are in the payroll of AE and therefore, major portion of work must have been carried out by them for the AE and only ancillary services would have been provided to the assessee company and therefore, any charge in this regard is not justified in view of OECD TP guidelines paragraph 7.13 under chapter VII. • So far as claim of revenue generation, the auditor of the assessee company has not mentioned anything about such arrangement in audited financials either in the Notes to accounts or anywhere else. Therefore, the claim of the assessee has no credible basis and cannot be accepted. • Moreover, cost allocation is also not certified by any independent auditor and the basis of cost allocation is also not understandable. • There is no basis / evidence for revenue claimed to have been generated from the alleged services.

17 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT

• Cost allocation for the intra group services has no basis nor any such basis has been given for each segmental intra group services received. The assessee has further contended that analysis undertaken by the assessee cannot be rejected without an appropriate basis. in this regard it is to be pointed out that the assessee could not substantiate its claim that services claimed to be availed have actually been availed by it and an independent enterprise would be willing to pay such amount under such circumstances. Moreover, analysis is without any basis and is not credible. Therefore, such analysis is liable to be rejected. The assessee has also contended that for proposed analysis on CUP for determination of ALP for these transactions as NIL, no reason/ data has been given to the assessee. In this regard it is pointed out that the assessee has failed to substantiate itself by documentary evidence that such services have actually been rendered to the assessee and so it is natural corollary that ALP of such transaction will be nil where payment is made for no services. It can be said on the basis of discussion made above that this arrangement is nothing but a profit shifting device. • The assessee has failed to establish any direct nexus, whatsoever, of any kind, which may help its case of having received the business from its AE as a result of services provided by the ΑΕ. • The assessee has failed to establish that its associated enterprises have specifically dedicated service centers for the assessee. The AE was not prohibited from rendering services to third parties as well. It is apparent, as has been mentioned above, that services of such nature are being performed by the assessee itself during its normal course of business. Under arm's length circumstances no

18 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT independent enterprise would be willing to pay for services which are a part of its routine business performed by it and would not engage it to receive such incidental services for a payment, even at cost. • Moreover, it is not disputed that the activities for which it is paying, are also performed by itself. Under the OECD guidelines, no intra-group service should be found for activities undertaken by one group member that merely duplicate a service that another group member is performing for itself, or that is being performed for such other group member by a third party. Moreover, even if it is presumed without conceding that business exigencies do permit third party involvement in spite of its own endeavor, in no case is there is scope for duplicity of services. Moreover, the cost of such services, if any, would need to be identified to prove that it has not overpaid its AE than what would have been paid under arm's length circumstances.”

discussion of the case laws cited, came to conclusion and computed

the ALP of Intra Group Services as ‘NIL’ on the ground that the

assessee failed to submit any evidence to establish receipt of

services.

while directing the TPO to grant 50% of the adjustment claimed by

the assessee on account of Intra Group Services availed by the

19 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT assessee, failed to elaborate the details of materials which have

been produced before him to come to a conclusion that ‘there is

enough material on record to conclude that some services were

availed by the Company’.

conclude that some services were availed by the Company.

Considering the profile of the Assessee and the business structure

of the Assessee, we find that the T.P.O. is not correct in arriving the

ALP at NIL on the ground that the Assessee has not produced the

evidence for the receipt/rendering of service. The TPO should

have looked into all the evidences submitted by the assessee and

give finding after adjudicating the same. It is an accepted fact that

the transaction between the Assessee and AE will be always

subjective in nature, it is fact that the assessee American Express

being a running and established foreign entity and they have

established the business in India. Thus, there is a considerable

advantage engaged by Indian entity, hence there is a greater chance

of Intra Group Services transferred to Indian entity which has to be

verified by the TPO by applying applicable transfer pricing

20 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT mechanism as per Income Tax Rules and determine the TP

Adjustment. We once again reiterate that the TP Adjustment

cannot be at ‘NIL’ as determined by the TPO. Accordingly with the

above observations, we remand the matter to the file of TPO for

determining the ALP afresh. Thus, the Ground No. 5 to 11 of the

assessee and Ground No. 2.1 to 2.3 of the Revenue are partly

allowed for statistical purpose.

Company selected by the Assessee CG Vak Software and Exports

Ltd. identified by the Assessee.

M/s CG VAK Software and Exports Ltd.,

identified by the assessee using turnover filter of less than 5 crore.

The Ld. TPO has excluded the said Company on the ground that the

said Companies are failing turnover filter and are engaged in

providing software development services thus the same are not

comparables.

21 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT 18. The Ld. Counsel for the Assessee submitted that this

Company operates in three segments namely software service

segment, training services segment and BPO services segment. For

the purposes of benchmarking of international transaction, BPO

service segment has been considered as comparable to Assessee

and further submitted that quantum turnover can be no reason for

exclusion of a company which is otherwise comparable and relied

on the Judgment of Hon’ble High Court of Delhi in the case of

Chrys Capital Investment Advisors (India) Pvt. Ltd. (376 ITR 183).

record. The Ld. CIT(A) after verifying the record found that the

turnover is ITeS segment is only about Rs. 86,00,000/- out of total

turnover of Rs. 7.23 Crore (i.e. 6.37 crore pertain to software

services and remaining Rs. 0.86 crore pertains to ITEs Segment),

whereas the turnover of the assessee is more than Rs. 19.95 Crore

in ITEs Segment. Therefore, the ratio laid down by the Hon'ble High

Court of Delhi in the case of M/S Chrys Capital Investment Advisors (India) P. Ltd. (supra) relied by the Ld. Assessee's

Representative is not applicable to the present case.

22 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT

error or infirmity in the findings and conclusion of the Ld. CIT(A) in

excluding M/s CG VAK Software and Exports Ltd. from the final list

of comparables accordingly, the Ground No. 12 to 18 of the

Assessee are dismissed.

consequential, requires no adjudication.

challenged inclusion of comparables namely Cepha Imaging Pvt.

Ltd., R System International Ltd. and exclusion of Coral Hub Ltd.,

Cosmic Global Ltd., E-Clerx Services Ltd. and ICRA Online Ltd.

Cepha Imaging Pvt. Ltd.

CIT(A) erred in directing the inclusion of Cepha Imaging Pvt. Ltd, as

comparable without considering the TPOs finding of functional

dissimilarity.

23 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT 24. Per contra, the Assessee's Representative submitted that the

TPO has erroneously rejected the said company on the ground that

the said Company does not qualify export earning filter and the Ld.

CIT(A) after verifying the Annual Report of Cepha Imaging Pvt. Ltd

found that the export earning of the said Companies 100% during

the year under consideration, accordingly, included the same in the

final list which requires no interference.

available on record. As per the annual report of the said Company,

the export earning of the said company is 100% during the year

under consideration which is extracted as under:-

Particulars F.Y 2008-09 Foreign exchange earnings (A) 142,028,305 Sales (B) 142,028,305 Export earring/sales C=A/B 100 Percent

the said Company meets the exports earning filter as adopted by

the TPO. In our considered opinion, the Ld. CIT (A) has rightly

directed the A.O/TPO to verify the export earning of the Company

and to include the said in the final list of the Company if Company

24 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT passes the export earning filter. Thus the said findings of the

CIT(A) requires no interference, accordingly, we dismiss the Ground

No. 1.1 to 1.2 of the Department’s Appeal.

R System International Ltd.

International Ltd. in final list of comparable if quarterly audited

data provided by the assessee for computing the operating profit

margin for the instant Assessment Year.

that the Ld. CIT(A) erred in directing the inclusion of R System

International Ltd. as comparable without considering Rule 10B(4) of

the Rules and without considering the amounts of operating profit

or operating cost etc.

of the CIT(A) sought for dismissal of the Ground No. 1.3 of the

Department.

25 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT 30. The Ld. TPO while excluding to consider R System

International Ltd. from the comparables found that there are

different Financial Year ending of December 2008 instead of March

2009, although the TPO found that functional profile of BPO

segment of R System International Ltd. is similar to that of the

Assessee and its satisfies all comparability criteria. In the Appeal,

the Ld. CIT(A) observed that if quarterly audited data is provided by

the assessee for computing the operating profit margin for the said

Assessment Year, the TPO directed to include the Company in final

list of comparables. The Hon'ble High Court of Delhi in the case of

Commissioner Of Income Tax-II vs Mckinsey Knowledge Centre

India Pvt. in ITA No. 217/2014 laid down the ratio that a

functional comparable company cannot be rejected on the ground

that data of entire financial year is not available in following

manners:-

“14. The Revenue is in appeal before this Court questioning the admissibility of the above mentioned comparables while computing Arm’s Length Price regarding the IT Support services after the TPO and AO rejected the above mentioned companies but was later allowed by the CIT (A) and ITAT. While the AO had confirmed the findings of the TPO, the Ld. CIT(A) after considering the Assessee's submissions accepted all the four companies rejected by the TPO. The revenue submits that Fortune Infotech Ltd. was correctly rejected by TPO because the company had different financial year

26 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT ending on December, 2006, whereas Assessee’s financial year ended on March, 2006. There is nothing shown to the court that supports the revenue’s argument that the ITAT fell into error in holding that if a comparable is following different financial year then the same cannot be included in the list of comparables selected for benchmarking the international transaction. Therefore, the ITAT has held that if the comparable is functionally same as that of tested party then same cannot be rejected merely on the ground that data for entire financial year is not available. If from the available data on record, the results for financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings.”

Considering the above facts and circumstances and relying on

the Judgment of the Jurisdictional High Court in the case of

Mckinsey Knowledge Centre, we find no error the action of the

Ld. CIT(A) in directing the TPO to consider R System International

Ltd. in final list of comparables if quarterly audited data is provided

by the assessee for computing the operating profit margin for the

instant Assessment Year. Finding no merit in Ground No. 1.3, we

dismiss the Ground No. 1.3 of the Department.

CORAL HUB LTD. AND COSMIC GLOBAL LTD.

Tribunal in the case of Mercer Consulting directed to exclude Coral

Hub Ltd. and Cosmic Global Ltd. from list of comparables.

27 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT

CIT(A) committed error in directing to exclude Coral Hub Ltd. and

Cosmic Global Ltd. from the comparables merely by relying upon

the decision in the case of Mercer Consultancy Ltd. without

considering how the facts are similar and without considering the

CBDT Circular SO 890(E)/26/09/2000 listing products or services

which could be claimed under ITEs.

Ld. CIT(A) has relied on the order of the Tribunal in the case of

Mercer Consultancy Pvt. Ltd. and both Cosmic Global and coral

Hub were directed to be excluded as the major outsourcing activity

being carried out by it, therefore, the order of the CIT(A) requires no

interference at the hands of the Tribunal.

available on record. The Ld. CIT(A) while directing the A.O/TPO to

exclude the Coral Hub Ltd. and Cosmic Global Ltd. from the list of

comparables, relied on the order of the Coordinate Bench of the

28 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT Tribunal in the case of Mercer Consultancy (India) Pvt. Ltd. in ITA

No. 966/Del/2014 in following manners:-

“The Ld. AR has argued that companies are working on a different business model. The outsourcing charges of these companies are significant, being 90.57% in the case of Coral Hub and 57.31% in the case of Cosmic Global. Ld. AR relied on the decision of Hon'ble ITAT in the case of Mercer Consulting cited supra where Coral Hub Ltd has been excluded in the final list of comparables and Cosmic Global Ltd. was also excluded. The relevant portion judgment is reproduced as under:- "The facts of the appellant's case are also similar to the findings by the Hon'ble ITAT in the case of Mercer Consulting (India) Private Limited ITA No.966/Del/2014) where the TPO was directed to exclude Coral Hub Limited and Cosmic Global relevant extract is pasted below for your kind reference: 12.3......... The Mumbai Bench of the Tribunal in the case of Hapag Lloyd Global Services (supra) has held that Vishal Information Technologies Limited cannot be considered as comparable because of the overwhelming outsourcing activity carried out by it. This view was taken by relying on another order passed by the Mumbai Bench of the Tribunal in ACIT vs. Maersk Global Service Centre (India) Private Limited ITA No.3774/M/2011). In the later case also, the Tribunal held that the case of Vishal Information Technologies Limited or Coral Hub Limited was not includible in the list of comparables because of major outsourcing. Since the facts of the instant case are on all fours with these two cases, we are of the considered opinion that this case is required to be excluded from the list of comparables. We order accordingly."

29 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT "13.3 However, we find this case to incomparable on the alternative argument advanced by the id. AR to the effect that total revenue of the Accounts BRO segment of Cosmic Global Limited is very low at Rs. 27. 76 lacs. We have discussed this aspect above in the context of CG- VAK's case and held that a captive unit cannot be compared with a giant case and thus excluded CG-VAK with turnover from Accounts BPO segment at Rs. 86.10 lacs. As the segmental revenue of BRO segment of Cosmic Global Limited at Rs. 27.76 lac is still on much lower side, the reasons given above would fully apply to hold Cosmic Global Limited as incomparable. This case is, therefore, directed to be excluded from the list of comparables." 6.4.2 I have considered the arguments of the Ld AR and perused the decision of Hon'ble ITAT Delhi in the case of Mercer Consulting. Following the decision of Hon'ble ITAT, I direct the AO/TPO to exclude Coral Hub Ltd. and Cosmic Global Ltd. from the list of final comparables.”

Comparables finding that the major outsourcing activities being

carried out by it and also by relying on the order of the Tribunal in

the case of Mercer (India) Pvt. Ltd. (Supra), since the Revenue has

not brought anything on record to point out any change of

circumstances in Assessee’s case, we find no reason to interfere

with the finding of the Ld. CIT(A). Find no merit in Ground No. 1.4

of the Department, we dismiss the Ground No. 1.4 of the

Department.

30 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT E-Clerx Services and ICRA Online

Clerx Services and ICRA Online in Ground No. 1.5. The Ld.

Departmental Representative submitted that the Ld. CIT(A) has

committed error in directing to exclude the above two Companies

from the comparables without considering the functional profile of

the assessee and those comparables.

the above Companies are engaged in providing KPO Services i.e.

high ended ITEs whose nature of business is from different from

that of the assessee. Therefore, the Ld. CIT(A) has rightly directed

the TPO to exclude the Company from final set of comparables

which requires no interference.

available on record. The Ld. CIT(A) directing to exclude the above

two Companies perused the annual report including the business

over views and management discussion analysis in annual reports.

The above Companies have claim to be leading knowledge process

outsourcing Companies providing data analytic and data process

31 ITA Nos. 6253 & 6455/Del/2017 American Express Banking Corp. Vs. ADIT out sources to some of the largest brand of the world and the said

Companies are engaged in providing KPO Services i.e. high end

ITEs. In our considered opinion the said findings and the

conclusion of the Ld. CIT(A) requires no interference, finding no

merit in Ground No. 1.5 of the Department’s Appeal, we dismiss the

same.

6253/Del/2017 and Appeal filed by the Department in ITA No.

6455/Del/2017 are partly allowed for statistical purpose.

Order pronounced in open Court on 07th August, 2024

Sd/- Sd/- (S. RIFAUR RAHMAN) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 07/08/2024 R.N, Sr.ps