Chennai ITAT Sends TP Adjustment Back to TPO Over BPO and IT Services to AEs
The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has remanded a transfer pricing (TP) adjustment concerning support services—specifically BPO and IT services—provided to associated enterprises (AEs) for Assessment Year (AY) 2021–22. The case highlights procedural lapses and the need for thorough evaluation of taxpayer submissions under the Income Tax Act.
Case Background
The assessee, engaged in providing IT and BPO support services to its foreign AEs, applied the ‘Other Method’ as the Most Appropriate Method (MAM) for determining the Arm’s Length Price (ALP). In its TP study, it selected the AE as the tested party and identified comparable companies operating in the IT services space.
However, the Transfer Pricing Officer (TPO) rejected this approach. He opted for the Transactional Net Margin Method (TNMM) as the MAM and reasoned that since the financials of the foreign tested party and comparables were not available on any public platform, they could not be relied upon for TP analysis.
Dispute and Tribunal’s Findings
The ITAT noted that the TPO did not consider the assessee’s response to his specific notice requesting operational details of the foreign comparables. This, the Tribunal held, was a procedural oversight that limited the integrity of the TP determination.
In light of this, the Tribunal remanded the matter back to the TPO with directions to reconsider the ALP after duly examining the assessee’s complete set of submissions and justifications.
Key Takeaways for TP Practitioners and Taxpayers
This case underlines the importance of procedural fairness in transfer pricing assessments. It reaffirms that before rejecting a taxpayer’s methodology or comparables—especially when relying on the ‘Other Method’ or using a foreign tested party—TPOs must evaluate the information provided by the taxpayer comprehensively.
For professionals handling international transactions, this ruling is a timely reminder that robust documentation and timely response to TPO notices are crucial. Likewise, assessing officers must avoid summary rejections and ensure all taxpayer representations are adequately reviewed before finalizing TP adjustments.
