This Special Bench has been constituted by the Hon’ble President to dispose of the appeal filed by the assessee against the order passed by the ld. ACIT- Circle -6(3), Mumbai (A.O.) u/s 143(3) of the Income Tax Act, 1961 in pursuance of the directions given by the Dispute Resolution Panel – I (DRP) u/s 144-C-(5) of the Income tax Act, 1961 and specifically to decide the following important questions (as reframed) involved therein:-
“1) Whether for the purpose of determining arm’s length price of international transactions of the assessee-company, providing back office support services to their overseas associated enterprises, companies performing KPO functions should be considered as comparable?
2) Whether, in the facts of the assessee’s case, companies earning abnormally high profit margin should be included in the list of comparable cases for the purpose of determining the arm’s length price of an international transactions?”
2. The assessee in the present case is a company incorporated in India on 19-11-2003. It is a wholly owned subsidiary of Maersk GSC Holdings A/S, which in turn is a downstream subsidiary of APMM Group (“Maersk Group). It is engaged, inter alia, in the business as shared service centre and renders transaction processing, data entry, reconciliation of statements, audit of shipping documents and other similar support services. It also renders I.T. services such as process support, process optimization and technical support services. The return of income for the year under consideration was filed by it on 30-9-2008 declaring total income of Rs. 34,14,980/- under the normal provisions of the Act and book profit of Rs. 12,29,06,881/- computed u/s 115 JB of the Act. In the said year, it had carried out, inter alia, the international transactions of providing I.T. enabled services to its Associated Enterprises (AEs) for the aggregate value of Rs. 117,56,19,974/-. The nature of such services was stated to be transaction processing, data entry, accounting and other support services. During the course of assessment proceedings, a reference was made by the A.O. to the TPO u/s 92CA(1) of the Act to determine the arm’s length price (ALP) of these international transactions of the assessee with its AEs along with other international transactions.
3. In the TP study report submitted by the assessee, the Arm’s Length Price (ALP) of the international transactions representing I.T. enabled services provided to the AEs was determined by applying Transactional Net Margin Method (TNMM) and adopting the operating profit to total cost (OP/TC) as the Profit Level Indicator (PLI). The OP/TC of the assessee company was worked out at 12.82% while the average OP/TC of the thirteen comparables selected by the assessee was arrived at 13.90%. Since the profit margin of the assessee company after claiming working capital adjustment at 4.79% and risk adjustment at 7.46% was higher than the average profit margin of the comparables, it was claimed in the TP study report that the price charged by the assessee company to its AEs for the international transactions involving provision of I.T. enabled services was at arm’s length.