Bertelsmann Marketing Services India Pvt. Ltd., New Delhi Vs DCIT, New Delhi

This case involves Bertelsmann Marketing Services India Pvt. Ltd. appealing against adjustments made by the Deputy Commissioner of Income Tax (DCIT) concerning transfer pricing for the Assessment Year 2011-12. The core of the dispute lies in the re-computation of the arm's length price (ALP) for international transactions, specifically ITeS services. The assessee argued that the Assessing Officer (AO) and Transfer Pricing Officer (TPO) erred in their calculations and recharacterisation of their services, while the revenue authorities maintained their adjustments.

INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “I-2”: NEW DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER

ITA No. 6579/Del/2015
(Assessment Year: 2011-12)

Bertelsmann Marketing Services India Pvt. Ltd,215, Second Floor, Suneja Tower-II, District Centre,Janakpuri, New Delhi PAN: AABCB8378GQ
(Appellant) 

Vs.

DCIT,Circle-4(2),New Delhi
(Respondent)

Assessee by : Shri Vishal Kalra, Adv
Ms. Reema Malik, Adv
Revenue by: Shri Nidhi Sharma, Sr. DR
Date of Hearing 21/8/2020
Date of pronouncement 19/11/2020

O R D E R

PER PRASHANT MAHARISHI, A. M.

1. This is an appeal filed by Bertelsmann Marketing Services India PrivateLimited (The Assessee/ Appellant) against the order of the ld DeputyCommissioner Of Income Tax, Circle 4 (2), New Delhi (the learned AO) dated 9/10/2015 passed u/s 143 (3) read with Section 144C of The Income Tax Act, 1961 (The Act)dated 09/10/2015 for the Assessment Year 2010-11determining the total income of the assessee at Rs Nil against the returned income at a loss of ₹ 7,323,902/– as per return of income filed on 29/11/2011. The returned income has one adjustment of Rs 195,70,892/–on account of the order of the learned Asst Commissioner Of Income Tax,Transfer Pricing Officer –I (1) (1), New Delhi [ The Ld TPO] passed u/s 92CAof the act on 7/1/2015 where the total adjustment was proposed at ₹ 21,113,342/– comprising of arm’s-length price of the ITeS services of ₹21,053,389 and another adjustment on account of outstanding receivableof ₹ 59,953/– which was subject to the direction of the Dispute ResolutionPanel – 1, New Delhi (the learned DRP) dated 9/9/2015 after which the ALP of provision of ITeS services of ₹ 141,969, 072/– was determined at ₹ 135,208,614/– which resulted into an adjustment of Rs 1 95,10,939/– andinterest on outstanding receivable was retained at ₹ 59,953/–. Thereby, assessee is aggrieved and has preferred this appeal.

2. The assessee has raised the following ground of appeal:-

“1. That on facts and in the circumstances of the case and in law, the Learned Assessing Officer (AO) / Learned Transfer Pricing Officer (TPO)/ Hon‟ble Dispute Resolution Panel (DRP) erred in making an addition to the returned income of the appellant by Rs. 1,95,70,892 byrecomputing the arm‟s length price (ALP) of the international transactions under section 92 of the Income-tax Act, 1961 (the Act).

2. That on facts and in the circumstances of the case and in law, the reference made by the AO to the TPO suffers from jurisdictional error as the AO has not recorded any reasons in the assessment order based on which he reached the conclusion that it was „necessary or expedient‟ to refer the matter to the TPO for computation of ALP, as is required under section 92CA(1) of the Act.

3. That on facts and in the circumstances of the case and in law, the DRP/AO/TPO erred in not appreciating that none of the conditions setout in section 92C(3) of the Act are satisfied in the present case.
 
4. The DRP/AO/TPO erred on facts and in the circumstances of the case and in law by rejecting the Assessee‟s claim of being an low end IT enabled service provider (“ITES”) and recharacterizing it as a Knowledge process outsourcing (“KPO”)

5. That on facts and in the circumstances of the case and in law, the DRP/AO/TPO erred in rejecting the Internal Transactional Net Margin Method (“TNMM”) applied by the Appellant on the ground that:

5.1. Services rendered by the Appellant to associated enterprises (AEs) and non-AEs are not similar;

5.2. Basis of allocation of costs in respect of AE and non-AE segments have not been furnished by the Appellant.

6. That on facts and in the circumstances of the case and in law, the DRP/AO/TPO erred in modifying the economic analysis conducted by the Appellant as a corroborative analysis i.e. External TNMM by:6.1. Inappropriately applying the quantitative filters to arrive at a cherry-picked result;

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