Facts
The Respondent, American Express (India) Pvt. Ltd. (AEIPL), is a 100% subsidiary of American Express International Inc., USA, providing IT-enabled services (ITeS) such as data management and back-office support.
Source reference: p. 1-2For Assessment Year 2009-10, the assessee reported international transactions with its associated enterprises using the Transactional Net Margin Method (TNMM).
Source reference: p. 2, 10The Transfer Pricing Officer (TPO) made adjustments to the Arm’s Length Price (ALP) by excluding certain comparables selected by the assessee and including others.
Source reference: p. 2-3On appeal, the ITAT directed the inclusion of four companies (Cepha Imaging, R Systems, Allsec Technology, and CG Vak Software) and the exclusion of two (E-Clerx and Vishal Information/Coral Hub).
Source reference: p. 13-14The Revenue challenged these inclusions/exclusions and the grant of deduction under Section 10A before the High Court.
Source reference: p. 8-10Issues
1. Whether the ITAT erred in directing the inclusion of M/s Cepha Imaging Pvt. Ltd. without considering functional dissimilarity despite export earning filter compliance?
Source reference: p. 8, Issue A2. Whether the ITAT erred in including M/s CG Vak Software & Exports Ltd. despite it failing the turnover filter applied by the TPO?
Source reference: p. 9, Issue F3. Whether the ITAT was justified in allowing deduction under Section 10A in respect of the APGSC unit?
Source reference: p. 9, Issue GLaw Applied
The court applied Section 92CA of the Income Tax Act, 1961 regarding the determination of Arm’s Length Price.
Source reference: p. 2The court relied on the principle that "e-publishing services" are distinct from ITeS as per CBDT Notification No. 890/2000.
Source reference: p. 14, 26Regarding turnover filters, the court applied the precedent from CIT v. Agnity India Technologies (P. Ltd.), which held that giant corporations are not comparable to small captive units.
Source reference: p. 17, 30The court applied PCIT v. Actis Global Services, emphasizing that the scale of operations (size and turnover) is a material factor in FAR (Functions, Assets, and Risk) analysis.
Source reference: p. 31-32Reasoning
Regarding Cepha Imaging, the court found that while the ITAT addressed the export turnover filter, it failed to adjudicate upon "functional comparability".
Source reference: p. 27Since the Revenue contended that e-publishing is not an ITeS under the relevant CBDT notification, the court determined that the ITAT should have examined whether the functions were truly similar before directing inclusion.
Source reference: p. 27Regarding CG Vak Software, the court rejected the ITAT’s reliance on Chryscapital, noting an extreme mismatch: the assessee’s turnover (approx. ₹782 crores) was nearly 100 times larger than the comparable’s ITeS turnover (approx. ₹86 lakhs).
Source reference: p. 28-30The court reasoned that such a vast difference in scale significantly impacts operating costs and margins, rendering the companies incomparable under Rule 10B(2).
Source reference: p. 30-32Holding
The High Court answered Question 1 in favor of the Revenue by directing the TPO to re-examine the functional similarity of Cepha Imaging Pvt. Ltd. in light of CBDT Notification No. 890/2000.
It answered Question 2 in favor of the Revenue, holding that M/s CG Vak Software & Exports Ltd. must be excluded due to the extreme turnover mismatch.
Source reference: p. 32Questions B, C, D, E, and G were dismissed as they were covered by prior judgments, and the matter was remanded to the TPO for limited verification as per the directions.
Source reference: p. 23-24, 27, 32Acts & Sections Cited
10 provisions across 1 statute referred to in this judgment. Linked provisions open on LawLens.
Income Tax Act, 1961
Original Court PDF
Pr. Commissioner Of Income Tax - 1vsM/S. American Express (India) Pvt. Ltd.
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