SBI Business Process Management Services Pvt. Ltd. Vs DCIT (ITAT Delhi)
Conclusion: Since in the financial statement for the relevant year (F.Y. 11-12), the auditor had made a clear disclosure that no revenue had been recognized on account of services rendered to SBI despite having incurred a cost of Rs. 3.2 crore and moreover, as per the matching ‘principle, if cost in connection with provision of the said services had been incurred and accounted for in books in FY 2011-12, the revenue corresponding to the same (Rs. 2.87 crore) must also be considered in F.Y. 2011- 12. These facts were totally ignored by the TPO/AO and therefore, in the interest of justice, it was deemed proper to remand back this issue to the file of TPO/AO for proper verification and adjudication as per the facts and law.
Held: Assessee-company which was a Joint Venture in which GE Consumer Mauritius Investment Ltd and SBI had now merged with SBI Cards and Payment Services Limited (SBI Cards and Payment Services Pvt. Limited) . It was engaged in providing IT enabled services to banks who issued credit cards. It was carrying out back end activities of card operations, i.e., transaction processing on cards, billings, updating of collections, statements of account, resolving card- member queries, etc. Assessee not being a captive service provider, rendered the aforementioned services to various credit card companies in India and entire revenue in the present financial year (of Rs. 183.11 crores) was earned from unrelated parties. In order to provide these services, assessee had obtained software licenses, data server, management services, CIS training from its Associated Enterprises (“AE”) located in Australia and USA. During the relevant financial year, assessee had entered into the international transactions with its Associated Enterprises. Assessee contended that AO and TPO had made incorrect computation of assessee’s margin. It was held that assessee-company rendered services to SBI for collection of overdue amounts from SBI’s customers and up-gradation of customer databases. But as there was no agreement between SBI and assessee till F.Y. 2011-12, the revenue accruing to the company for rendering these services was not recognized by assessee. Subsequently, during F.Y. 2012-13, the company entered into an agreement with SBI and the assessee recognized the revenue amounting to Rs. 49,535,290 pertaining to the period 01 September 2010 to 31st March 2012 (out of which Rs. 2,87,55,643 pertains to F.Y. 2011-12). This has been duly recorded by the statutory auditor in its report for F.Y. 2012-13. In the financial statement for the relevant year (F.Y. 2011-12), the auditor had made a clear disclosure that no revenue had been recognized on account of services rendered to SBI despite having incurred a cost of Rs. 3.2 crore. These facts were totally ignored by the TPO/AO and therefore, in the interest of justice, it was deemed proper to remand back this issue to the file of TPO/AO for proper verification and adjudication as per the facts and law. Needless to say, assessee be given opportunity of hearing by following principles of natural justice.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the assessee against the order dated 17/11/2016 passed by DCIT, Circle-10 (1), New Delhi u/s 143(3) read with Section 144C (13) of the Income Tax, 1961 for Assessment Year 2012-13.
2. The grounds of appeal are as under:-
1. General
1.1. That on the facts and circumstances of the case and in law, the Assessing Officer („Learned AO‟) erred in completing the assessment at income of Rs. 20,91,86,420 as against the returned income of Rs. 5,16,10,900 after making the following additions/disallowances:
a) Addition of 4,85,54,206 made by the Transfer Pricing Officer (“Learned TPO’) in respect of services availed by the Appellant from its associated enterprises; and
b) Disallowance of Rs. 10,90,21,322 under section 37(1) of the Act on account of license fee and data service management charges paid to GE Capital Corporation, USA for use of „Vision Plus‟ software by erroneously treating the same as capital expenditure.
2. Adjustment on account of Transfer Pricing Addition
The Ld. TPO/AO/DRP erred in enhancing the income of the Appellant by Rs. 4,85,54,206 by holding that the international related party transactions relating to payment for data server management charges and other transactions, aggregated being inextricably linked to the provision of information technology enabled support services (ITES), do not satisfy the arm’s length principle envisaged under the Act and in doing so have grossly erred in:
2.1 not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case;
2.2 disregarding the Arm‟s Length Price („ALP‟) determined by the Appellant in the Transfer Pricing (‘TP’) documentation maintained by it as per section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 („Rules‟);
2.3 disregarding approach adopted by the Appellant of using data of latest available year in TP documentation and holding that current year (i.e. FY 2011-12) data for comparable companies should be used, despite the fact that complete data for the FY 2011-12 was not available to the assessee in the public domain at the time of preparing documentation;
2.4 not taking business exigencies and commercial contractual limitations into consideration while evaluating related party transactions, especially in light of the fact that assessee is a Joint Venture Company, and would not have been allowed to have undertaken related party transactions at other than arm‟s length price
2.5 rejecting the comparable companies selected by the Appellant without providing any cogent and/or sufficient reasoning
2.6 holding that the Appellant is a KPO as against IT enabled service (ITeS) provider, without appreciating the functional, assets and risk profile of the Appellant
2.7 rejecting the comparability analysis conducted by the Appellant in the TP documentation and undertaking comparability analysis by rejecting / modifying quantitative filters applied by the Appellant in its TP documentation and applying additional/revised filters, as follows:
2.7.1 rejecting the filter of research and development expenditure/sales applied by the assesse in its TP documentation;
2.7.2 excluding companies whose employee cost is less than 25 percent of total cost
2.7.3 excluding companies having export sales less than 75% of total income;
2.7.4 in rejecting companies with different financial year ending without appreciating that a different financial year ending in no manner affects the comparability of the company and that such companies ought to be part of the benchmarking analyses;
2.7.5 increasing threshold for exclusion of companies having related party transactions from 20% to 25% of sales. Further, Ld. TPO/AO/DRP erroneously included BNR Udyog in the final set of comparables that fails to meet aforesaid filter.
2.8 including companies having abnormal/volatile margins due to high brand value, dissimilar to that of assessee, disregarding judicial pronouncements on the issue and with the intention of making an addition to the returned income of the Appellant
2.9 including certain companies that are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed for benchmarking the international transaction entered by the Appellant
2.10 rejecting certain companies and adding certain companies to the final set of comparables for the impugned transaction on an ad-hoc basis. The Ld. TPO has resorted to cherry picking of comparables to determine ALP for the impugned transaction;
2.11 rejecting the additional comparables introduced by the assessee without any cogent reasons;
2.12 committing errors in the computation of the operating profit margin of certain companies considered as comparable;
2.13 While calculating impuged adjustment, ld. TPO/A.O/DRP erred in:
2.13.1 incorrectly computing actual price received by not considering Rs. 28.755.543 i.e. revenue accounted for during FY 2012-13 which actually pertains to FY 2011-12;
2.13.2 computing adjustment on transactions with Computer Science Corporation which is an unrelated entity, and which has been disclosed on abundant caution basis.
3. Disallowance of license fee and data service management charges paid to GE Capital Corporation. USA („GECC‟) – Rs. 10.90,21,322
3.1. That on the facts and circumstances of the case and in law, the Learned AO has erred in law and facts making the disallowance of Rs. 10,90,21,322 on account of license fee for use of Vision plus software and data service management charges paid to GECC, by regarding the same as capital expenditure.
3.2 That on the facts and circumstances of the case and in law, the learned AO has grossly erred in not following the decision of the Hon‟ble Tribunal in Appellant‟s own case for ASSESSMENT YEAR 2007-08 and 2008- 09 that has deleted the said disallowance by treating the payment of license fee paid for use of vision plus software and data service management charges as revenue expenditure and without appreciating that there has been no change in the facts/circumstances of the case since the time the said order was passed by the Tribunal
3.3. That on the facts and were Ssmstances of the case and in law, the learned AO has erred in making disallowance on account of license fee for use of visions plus software and data service management charges without appreciating that the said issue has been consistently decided in favour of Appellant in Appellant‟s own case for AYs 2008-09, 2009-10, 2010-11, by the Commissioner of Income Tax (Appeals).
3.4 That on the facts and circumstances of the case and in law, the leaned AO has erred in not following the doctrine of judicial discipline by which the AO was duty bound to follow the orders of the superior judicial authorities passed in Appellant‟s own case.
3.5 That on the facts and circumstances of the case and in law, the Ld. DRP has also grossly erred to an extent it has directed the AO to disallowed the amount paid for use of vision plus software and data service management charges if the department has preferred an appeal before the High Court without appreciating that Ld. DRP is bound by the orders passed by this Hon‟ble Tribunal in Appellant‟s own case for AY 2007-08 and 2008-09.
3.6 That on the facts and circumstances of the case and in law, the Ld. AO and the DRP has erred in not appreciating that to the extent information available with the Appellant, the order of the Tribunal has not been appealed against before the Delhi High Court and has become final and accordingly accepted by the tax department.
3.7. That on the facts and circumstances of the case and in law, the Learned AO has grossly erred in law and in complete contravention of the provisions of section 144C(13) of the Act, neither followed the directions received from the Hon‟ble DRP nor provided any evidence The Hon’ble DRP had directed the Learned AO to provide relief to the Appellant upon confirmation that the Revenue has accepted the decision of the Hon‟ble Tribunal for AY 2007-08 and AY 2008-09 and has not agitated the order further.
3.8. That on the facts and circumstances of the case and in law, the Learned AO has erred in facts by making incorrect factual observations with respect to the End User License Agreement entered into between the Appellant and GECC, which are absolutely contrary to the contents of the agreement.
3.9 Without prejudice to the above, the Learned Assessing Officer
3.9.1 erred in facts and in law in disallowing the entire amount without regarding the fact that the said sum was already disallowed by the Appellant under section 40(a)(i) of the Act while computing its total income as per the return of income, leading to double taxation of the self-same amount.
3.9.2 erred in not allowing depreciation @ 60% on the above payments applicable to computer software in accordance with the provisions of section 32 of the Act.
4. Short grant of prepaid taxes and erroneous levy of interest
4.1. That on the facts and in the circumstances of the case and in law, the Learned AO has erred in not granting the TDS credit to the extent of Rs. 4,40,63,648 as claimed by the Appellant in the revised return of income.
4.2. That on the facts and in the circumstances of the case and in law, the Learned AO has erred in levying excess interest under section 234C of the Act.
4.3. That on the facts and in the circumstance of the case, the Appellant has filed a rectification application before the Learned AO on December 13, 2016 requesting rectification of the above mentioned mistakes apparent from records and the same is pending for disposal with the Learned AO as on the date of filing of this appeal.
3. SBI Business Process Management Services Pvt. Ltd. (earlier known as GE Capital Business Process Management Services Private Limited) which was a Joint Venture in which GE Consumer Mauritius Investment Ltd II held 60% and SBI held 40%) now merged with SBI Cards and Payment Services Limited (earlier known as SBI Cards and Payment Services Pvt. Limited) was engaged in providing IT enabled services to banks who issued credit cards. It was carrying out back end activities of card operations, i.e., transaction processing on cards, billings, updating of collections, statements of account, resolving card- member queries, etc. The assessee not being a captive service provider, rendered the aforementioned services to various credit card companies in India and entire revenue in the present financial year (of Rs. 183.11 crores) is earned from unrelated parties. In order to provide these services, the assessee had obtained software licenses, data server ‘”management services, CIS training from its Associated Enterprises (“AE”) located in Australia and USA. During the relevant financial year, the assessee had entered into the following international transactions with its Associated Enterprises.
