Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act against the order dated 18.08.2017 passed by the Income Tax Appellate Tribunal in IT (TP) A No. 111/Bang/2014 for Assessment Year 2009-10. The assessment was completed under Section 143(3) read with Section 144C pursuant to directions issued by the Dispute Resolution Panel.

The assessee, Symphony Marketing Solutions India Pvt. Ltd., was engaged in providing call centre services to its Associated Enterprise and was a routine captive service provider. During transfer pricing proceedings, the Transfer Pricing Officer applied the Transactional Net Margin Method and selected certain comparables, resulting in a transfer pricing adjustment of ₹7,26,28,614 based on an average profit level indicator of 25.03% as against the assessee’s margin of 15.95%.

The assessee objected to inclusion of certain companies such as Infosys BPO Ltd., Accentia Technologies Ltd. and Eclerx Services Ltd., and also sought inclusion of certain entities excluded by the TPO. The ITAT accepted the assessee’s contentions and directed exclusion of the said entities. Aggrieved, the Revenue preferred an appeal before the High Court.

Issues Involved

Whether the ITAT was justified in excluding Infosys BPO Ltd., Accentia Technologies Ltd. and Eclerx Services Ltd. from the set of comparables while benchmarking the assessee’s international transactions, and whether such findings give rise to any substantial question of law under Section 260A.

Petitioner’s Arguments

The Revenue contended that the ITAT erred in excluding the said companies as comparables and that the Tribunal’s approach was contrary to transfer pricing principles. It was argued that the exclusion materially affected the arm’s length price determination and warranted interference by the High Court.

Respondent’s Arguments

The assessee supported the order of the ITAT and submitted that the excluded entities were functionally dissimilar. It was argued that Accentia Technologies was engaged in diversified medical transcription and related services, Eclerx Services was a KPO providing specialised analytics services, and Infosys BPO was a full-fledged risk-bearing entity with significant intangibles, whereas the assessee was a low-risk captive BPO. It was contended that comparability analysis is a factual exercise not giving rise to a substantial question of law.

Court Order / Findings

The Delhi High Court noted that the ITAT had examined the functional profile of the excluded entities in detail and had returned factual findings that Accentia Technologies and Eclerx Services were functionally dissimilar to the assessee. The Court observed that Eclerx was a KPO service provider rendering high-end analytics services, while the assessee was merely providing call centre services.

The Court further noted that the issue of exclusion of Infosys BPO Ltd. had already been examined earlier by the Court, and the functional differences, risk profile and ownership of intangibles clearly distinguished Infosys from a captive service provider like the assessee.

The Court took note of the Supreme Court decision in SAP Labs India Private Ltd. v. Income Tax Officer, which clarified that transfer pricing comparability issues are largely factual and do not ordinarily give rise to substantial questions of law under Section 260A.

In view of the settled legal position and the detailed factual analysis undertaken by the ITAT, the Court held that no substantial question of law arose for consideration.

Important Clarification

The High Court reiterated that determination of comparability in transfer pricing cases involves factual appreciation of functional profile, assets employed and risks assumed, and interference under Section 260A is not warranted unless a clear substantial question of law arises.

Final Outcome

The appeal filed by the Revenue was disposed of. The Delhi High Court upheld the order of the Income Tax Appellate Tribunal excluding Infosys BPO Ltd., Accentia Technologies Ltd. and Eclerx Services Ltd. as comparables and held that no substantial question of law arose for consideration.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769856890_PR.COMMISSIONEROFINCOMETAX4NEWDELHIVsSYMPHONYMARKETINGSOLUTIONSINDIAPVT.LTD.NOWMERGEDWITHGENPACTINDIA.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.