IN THE ITAT, DELHI BENCH
KULDIP SINGH, J.M. & PRASHANT MAHARISHI, A.M.
Steria (India) Ltd. v. Addl. CIT
ITA Nos. 741, 3992/Del/2017, ITA No. 5745/Del/2018 and SA Nos. 250-252/Del/2020
28 September, 2020
Assessee by: Ajay Vohra, Sr. Advocate, Neeraj Jain, Advocate, Akshay Uppal, C.A., Shailey Gupta, C.A.
Department by: Anupam Kant Garg, CIT DR
Prashant Maharishi, A.M.
1. ITA No. 741 (Del) of 2017 is filed for assessment year 2012-13, I.T.A. No. 3992 (Del) of 2017 is filed for assessment year 2013-14 and I.T.A. No. 5745 (Del) of 2018 is filed for assessment year 2014-15 by M/s. Steria (India) Limited, (The assessee/Appellant). As some common issues are involved, for the sake of convenience, these were heard together, and are being disposed of by this consolidated order. Stay petitions were also heard on 17-7-2020, which are also disposed of by this order for all these years.
2. ITA No. 741/Del/2017 for assessment year 2012-13 is filed by the assessee against the assessment order passed under section 143(3) read with section 144C of the Income Tax Act, 1961 [the Act] dated 5-12-2016 passed by the Additional Commissioner of Income Tax, Special Range-8, New Delhi (the learned Assessing Officer/AO) wherein the returned income of Rs. 1,132,764,370 filed by the assessee on 29-11-2012 is assessed at Rs. 1,515,053,700. The assessee has raised following grounds of appeal :--
'1. That the assessing officer erred on facts and in law in completing assessment under section 144C read with section 143(3) of the Income Tax Act ('the Act') at an income of Rs. 151,50,53,700 as against the returned income of Rs. 113,27,64,370 under normal provisions of the Act.
Transfer Pricing issue:
2. That the assessing officer/DRP erred on facts and in law in making an adjustment of Rs. 11,70,02,000 to the arm's length price of the 'international transaction' of provision of IT enabled services on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer ('TPO').
2.1 That the DRP/TPO erred on facts and in law in not appreciating that the appellant being a routine back office support service provider cannot be compared with companies engaged in provision of Knowledge Process Outsourcing ('KPO') Services for the purpose of benchmarking analysis.
2.2 That the DRP/TPO erred on facts and in law in considering Acropetal Technologies Ltd. (Seg.) as comparable for the purpose of bench marking without appreciating that the company is not functionally comparable to the appellant.
2.3 That the DRP/TPO erred on facts and in law in considering following companies in the final set of comparable for the purpose of bench marking analysis not appreciating that these companies are not functionally comparable to the appellant in terms of Rule 10B(2) :--
(a) Eclerx Services Ltd.
(b) Infosys BPO Ltd.
(c) TCS E-Serve Ltd.
(d) Informed Technologies Limited
(e) BNR Udyog Ltd. (Seg.)
2.4 That the DRP/TPO erred on facts and in law in considering following companies in the final set of comparable companies without appreciating that companies with such high turnover does not satisfy the test of comparability laid down under rule 10B(2) of the Income Tax Rules, 1962, for being operating in different market conditions and level of competition :--
(a) Infosys BPO Ltd.
(b) TCS E-Serve Ltd.
2.5 That the DRP/TPO erred on facts and in law in considering following companies which are earning exceptionally high margin when it should be appreciated that a company engaged in provision of routine BPO services cannot be expected to earn such high operating margins :--
(a) BNR Udyog Ltd. (Seg.)
(b) Eclerx Services Ltd.
(c) Infosys BPO Ltd.
(d) TCS E-Serve Ltd.
2.6 That on the facts and circumstances of the case and in law, the DRP erred in accepting Infosys BPO Ltd., TCS E Serve Ltd. and eCLerx Services Ltd. as comparable companies not appreciating that such companies were rejected as comparable by the DRP in the earlier assessment years holding them to be functionally dissimilar to the assessee
2.7 That the DRP/TPO erred on facts and in law in not allowing appropriate risk adjustment to establish comparability on account of the appellant being a low-risk-bearing captive service provider as opposed to the comparable companies who were independent software service provider.
2.8 That on the facts and in the circumstances of the case and in law, the DRP/TPO erred in rejecting the contention of the assessee regarding risk adjustment, allegedly holding that the computation of risk adjustment provided by the assessee is vague and without any basis.
Corporate Tax Issues:
Disallowance of Management Services Fees
3. That on the facts and in the circumstances of the case and in law, the DRP/assessing officer erred in disallowing under section 40(a)(i) of the Act, expenditure of Rs. 20,03,73,067 incurred on account of management services fees, allegedly on the ground that the appellant failed to deduct tax at source therefrom under section 195 of the Act.
3.1 That the DRP/assessing officer erred on facts and in law in holding payment made to Groupe Steria SCA ('Steria France') towards management services fees to be in nature of fees for Technical services ('FTS') in terms of Article 13 of India-France Double Tax Avoidance Agreement ('the DTAA').
3.2 That the DRP/assessing officer erred on facts and in law in erroneously relying upon the order of the Authority of the Advance Ruling ('AAR') without appreciating that the findings of AAR are perverse in light of the favorable order passed by the jurisdictional Delhi High Court in appellant's own case, thereby resulting in gross violation of the principles of natural justice.
3.3 Without prejudice, the DRP/assessing officer erred on facts and in law in not appreciating that the payment for managerial services to Groupe Steria is not covered under the term 'technical' or 'consultancy' services, prescribed in Article 13 of the DTAA.
3.4 That the DRP/assessing officer erred on facts and in law in not appreciating that the said services provided by Steria France does not 'make available' technical knowledge', experience, or skill to the appellant, in order to be taxed as FTS in terms of Paragraph 7 of the Protocol read with Article 13 of the India-UK DTAA.