ITAT Delhi Rules in Favour of IQOR India Services: Transfer Pricing Comparables and Forex Treatment Settled for AY 2012-13
Overview of the Case
The Income Tax Appellate Tribunal, Delhi Bench, delivered its ruling in DCIT Vs IQOR India Services Pvt. Ltd. (ITA No. 3713/Del./2018) on 14th July 2022, pertaining to Assessment Year 2012-13. The Tribunal disposed of both the Revenue's appeal and the cross objection filed by the assessee, which had originated from the order passed by the CIT(A)-44, New Delhi dated 09.04.2018.
The case revolved around four core disputes: (i) the characterisation of foreign exchange fluctuation gain as operating or non-operating income, and (ii) the exclusion of three companies — Infosys BPO Ltd., e4e Healthcare Services Pvt. Ltd., and TCS E-Serve Ltd. — from the final set of transfer pricing comparables.
Background and Nature of Business
iQor India Services Pvt. Ltd. was incorporated in September 2004 as a wholly-owned subsidiary of iQor US Inc., a New York-based business process outsourcing company offering services such as customer care, receivables management, and revenue recovery. The Indian entity, registered with Software Technology Parks of India and operating as a 100% export-oriented unit, was engaged in providing customer management solutions specialising in collections, accounts receivable management, and customer retention.
For AY 2012-13, the assessee disclosed an international transaction with its Associated Enterprise (AE), iQor Inc. USA, involving provision of IT-Enabled Services (ITES) amounting to Rs. 51,77,39,312/-. The Arm's Length Price (ALP) was determined by applying the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM), with Operating Profit to Operating Cost (OP/OC) as the Profit Level Indicator (PLI).
Assessee's Transfer Pricing Computation
The assessee computed its PLI as follows:
| Particulars | Amount (Rs.) |
|---|---|
| Export of Services | 5,17,739,312 |
| Foreign Exchange Gain | 32,965,323 |
| Total Operating Income (A) | 5,50,704,635 |
| Personal Expenses | 3,37,109,983 |
| Admin and Other Expenses | 1,33,778,613 |
| Less: Bank Charges | (2,95,923) |
| Depreciation | 6,87,088 |
| Total Operating Expenditure (B) | 4,71,279,761 |
| Operating Profit (C = A - B) | 79,424,874 |
| OP/OC (%) | 16.85% |
The assessee arrived at a set of 7 comparables through a search on public databases, with a weighted average PLI of 12.94%, thereby concluding that its transactions were at arm's length.
Transfer Pricing Officer's Findings
The Transfer Pricing Officer (TPO), upon independent inquiry, recomputed the comparables and arrived at a final set of 8 companies with an average OP/OC of 27.06%:
| S. No. | Company Name | OP/OC |
|---|---|---|
| 1 | Accentia Technologies Ltd. | 11.95% |
| 2 | Eclerx Services Ltd. | 58.40% |
| 3 | Informed Technologies India Ltd. | 7.62% |
| 4 | Infosys BPO Ltd. | 36.75% |
| 5 | Jindal Intellicom Ltd. | -0.05% |
| 6 | TCS E-Serve Ltd. | 63.69% |
| 7 | e4e Healthcare Services Pvt. Ltd. | 19.85% |
| 8 | Acropetal Technologies Ltd. (Segment) | 18.32% |
Additionally, the TPO excluded the foreign exchange gain from the assessee's operating income. Based on this revised computation, the TPO vide his order dated 29.01.2016 proposed a transfer pricing adjustment of Rs. 8,10,68,752/-.