M/S. GENPACT SERVICES LLC (INDIA BRANCH),NEW DELHI vs. ADIT, NEW DELHI

This appeal by the assessee is directed against the final order passed by the Assessing Officer u/s 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter also called `the Act’) on 30.01.2014 in relation to the assessment year 2009-10.

The only issue raised in this appeal is against the making of addition amounting to Rs.1,31,19,435/- on account of transfer pricing adjustment made by the Assessing Officer (AO).

Briefly stated, the facts of the case are that the assessee is an Indian branch of Genpact Services LLC, a US Corporation. During the year under consideration, the assessee was involved in providing collections/call centre services and related back office support services, mainly for the customers of its associated enterprise (AE). The assessee is responsible for executing the collections/call centre services from such contacts from the facility in India. The assessee reported three international transactions in Form No.3CEB including `Provision of services’ with transacted value of Rs.9,47,14,980. On a reference made by the AO to the Transfer Pricing Officer (TPO), the latter took up determination of the arm’s length price (ALP) of these international transactions. The TPO disputed correctness of the ALP of the international transaction of `Provision of services’ only. He observed that the assessee had selected itself as a tested party for characterizing it as a routine BPO service provider assuming limited risks associated with carrying out such business. Transactional Net Margin Method (TNMM) was selected as the most appropriate method with the Profit level indicator of Operating profit/total cost (OP/TC). Certain comparables were chosen whose profit margin was demonstrated within the permissible range of the assessee’s profit margin at 8%. The TPO made certain alterations in the companies chosen by the assessee as comparable inasmuch as certain companies were excluded and certain new companies, including e-Clerx Services Ltd., were included. With the final set of comparables of four companies, the TPO determined their mean profit margin at 27.98%. The same was applied to the Operating costs incurred by the assessee at Rs.8.76 crore and odd to recommend transfer pricing adjustment of Rs.1.75 crore. The assessee challenged the draft order, incorporating addition towards the transfer pricing adjustment, before the Dispute Resolution Panel (DRP) who gave certain directions. Complying with the same, a final addition of 3 Rs.1,31,19,435/- came to be made by the AO in his final order, which is subject matter of the extant appeal.

We have heard the rival submissions and perused the relevant material on record. There is no dispute about the application of the TNMM as the most appropriate method with the PLI of OP/TC. The assessee has challenged no issue other than certain comparables chosen by the TPO. In fact, the ld. AR restricted herself to challenging the inclusion of e-Clerx Services Ltd. only, in the list of comparables by the TPO.

Before embarking upon the comparability or otherwise of e-Clerx Services Ltd., it is significant to note the functional profile of the assessee. We have noticed above that the assessee is involved in providing collections/call centre services and related BPO services for customers of its AEs. We have also gone through the assessee’s Transfer pricing study report which is available in the paper book. Page 4 of the TP study report indicates that the group with its headquarter located in Bermuda, has operations in certain other countries. The Group provides a wide range of business process, technology and knowledge services including Finance and Accounting, Collections and Customer Relations, Insurance, Procurement and Supply Chain, Analytics, Software, IT infrastructure, Content Solutions and Re-engineering. By offering these services, Genpact draws on three core capabilities – process expertise, analytical capabilities and technology expertise – as well as the operational insight gained from the experience of managing numerous processes in diverse industries. The services of the assessee given to its AEs have been enumerated in paras 1.2.3 and 1.2.4 of its TP study report, which discern that the assessee is a service provider, undertaking offshore business process outsourcing (BPO) services including collections/call centre services and other back office support services for the customers of Hungary Branch. The assessee is responsible for executing the designated BPO/collections services for such contracts from facility in India. It delivers such services in accordance with the requirements and study schedules provided by the Hungary branch. The assessee primarily focuses on collections activity concentrating on the collections on the end customers businesses. In the 5 collections area, the assessee follows processes that enhance its customers’ performance in relation to recovery of their debts. Above narration from the assessee’s TP study report along with the TPO’s order makes it manifest that the assessee is engaged in rendering BPO services which are in the nature of collections/call centres mainly for the customers of its AE, which position has not even been disputed by the TPO as well.

In so far as E-Clerx Services Ltd. is concerned, we have gone through its Annual report for the year under consideration, a copy of which has been made available. It may be noticed from such Annual report that this company provides sales and marketing support services to leading global manufacturing, retail, travel and leisure companies.

The impugned order is, therefore, set aside and the matter is sent back to the TPO/AO for re-determining the ALP of the international transaction of the assessee by excluding e-Clerx Services Ltd. from the list of comparables.

In the result, the appeal is allowed for statistical purposes.