Transfer Pricing: ITAT Excludes Incomparable BPO Entities & Allows Working Capital Adjustment

RBS Services India Pvt.Ltd. Vs DCIT (ITAT Mumbai)

Summary: The Delhi “I” Bench of the Income Tax Appellate Tribunal considered cross-appeals for Assessment Year 2007-08 arising from the order of the CIT(A)-15, Mumbai in the case of RBS Services India Pvt. Ltd., formerly RBS Business Services Pvt. Ltd. The assessee was engaged in back-office support, software and KPO services for its Group and had international transactions with Associated Enterprises. The TPO proposed total adjustments of INR 98,27,66,884, while the assessment order under section 143(3) incorporated those adjustments and reduced the section 10A deduction from INR 81,97,75,474 claimed to INR 74,57,93,220. The Tribunal first considered the assessee’s transfer-pricing grounds concerning back-office support services and comparables. It directed exclusion of Mold-Tek Technologies Ltd., Eclers Services Ltd., Vishal Information Technology Pvt. Ltd., Accentia Technologies Ltd., HCL Comnet Systems & Services Ltd., Informed Technologies India Ltd., Iservices India Pvt. Ltd., Asit C. Mehta Financial Services Ltd., Genesys International Corporation Ltd. and Cosmic Global Ltd. on the factual and functional considerations discussed in the order, including specialised engineering or KPO activities, outsourcing, extraordinary events, abnormal growth or margins, turnover differences, demerger and lack of appropriate segmental comparability. Caliber Point Business Solutions Ltd. was retained as a comparable. The Tribunal also directed the AO/TPO to allow a working-capital adjustment, subject to the assessee furnishing the necessary working. In relation to delayed receivables, the Tribunal noted that the assessee had already factored the working-capital impact into its pricing and, following the reasoning in PCIT-V Vs Kusum Health Care Pvt. Ltd., held that a further adjustment for outstanding receivables was not required and deleted the INR 3,16,14,696 adjustment. On unbilled revenue for section 10A computation, the Tribunal directed the AO/TPO to follow the assessee’s own case for AY 2005-06 in ITA No.2554/Mum/2010 and recompute the matter, allowing the ground for statistical purposes.