Brief of the case:
In the case of Ameriprise India Pvt. Ltd. Vs. ACIT Delhi Bench of ITAT held that the AO was not justified in considering forex loss as non-operating cost as against the assessee’s claim of operating cost. ITAT further held that the amount of foreign exchange gain/loss arising out of revenue transactions is required to be considered as an item of operating revenue/cost, both of the assessee as well as comparables. Apart from this ITAT also give its finding on the inclusion/exclusion of certain companies in/from the list of comparables.
Facts of the case:
- Assessee is a wholly owned subsidiary of Ameriprise, US, which parent company is engaged in the business of insurance, annuities, asset management and brokerage.
- The primary object of Ameriprise US is to provide services towards financial planning and other areas like institutional asset management and advisory, pension fund management, the management and administration of certain plans.
- The assessee was incorporated in August, 2005 and started operations in October, 2005. It is engaged in providing Information Technology (IT) enabled services to Ameriprise US.
- The assessee reported two international transactions, including remuneration from the `Provision of IT-enabled back office services’ with transacted value of Rs.41,78,36,037/-.
- The assessee applied the Transactional Net Margin Method (TNMM) as the most appropriate method for benchmarking the international transaction of provision of IT enabled back office support services.
- Profit level indicator (PLI) of Operating Profit/Total Cost (OP/TC) was computed by the assessee at 14.66%. Six companies were considered as comparable which have been listed in the Transfer Pricing Officer’s (TPO) order.
- It was shown that their arithmetic mean of operating profits compared favourably with assessee’s profit rate and, hence, the international transaction of `Provision of IT enabled back office services’ was at arm’s length price (ALP).
- On a reference made by the AO for determining the ALP of the international transactions, the TPO treated only three companies as comparable from the assessee’s list.
- AO added four new companies, thereby making a total of seven companies, considered comparable.
- On the basis of the above average operating profit margin of the comparable companies at 46.66%, computed on the basis of only the current year’s data, the TPO proposed transfer pricing adjustment, which has been assailed in the instant appeal.
- The TPO’s order enlists the functions performed by the assessee, which have been classified broadly into certain categories as follows:
(1) Financial services – which includes Accounting support, Mutual fund accounting, Sales and use tech support.
(2) Financial planning services – which refers to the assessee providing support in client data entry for assistance in preparation of draft reports for customers.
(3) General counsel office services – , which includes E-discovery, Compliance, Profit and loss relations, Intellectual property claims and contracts drafting.
(4) Data analytics services – which involves scrambling and assembling of data into a more meaningful form to enable Ameriprise, US to review the performance of various products offered to its customers and other related activities.
(5) Vendor management services – which mean performing data processing services in respect of call centres and back office operations of certain companies, outsourced by Ameriprise US.
(6) Procurement services- Under this category, the assessee conducts basic analytics for better understanding of the `spend’ and determines how to optimize such spend across commodities.
(7) Human resources shared services – under which the assessee helps manage some human resources processes for the US employees including processing payroll, calculating benefits, managing leave of absence, etc.
