Great Learning Education Services Private Limited vs The Assessing Officer, Assessment Unit

Ground No. 1 and 2 are General in nature and does not require separate adjudication, and hence accordingly disposed off.

Ground No. 3 with respect to the assessment being barred by limitation, is not pressed by the assessee, and hence accordingly dismissed.

Ground No. 4 to 4.7 The assessee has applied TNMM Method while computing ALP of the international transactions entered into by it with its AE’s with respect to provision of learner support and customer care services provided by the assessee to its Associated Enterprises. In its TPSR(Page 12/TPSR) , it is stated that as per agreement between assessee and its AE , the assessee has provided business support services to its AE , namely Great Learning Singapore which include Marketing research and support services , customer support services , technological support and accounting support services. It is further stated in page 15-16 of TPSR that business support services provided by the assessee include following activities:-

Marketing Research and Business Support Services

Conducting Marketing Research on the products of AE and research data analysis

ii) Appraising potential customers about AE’s product services

iii) Guidance to customers in terms of course enrolment process, fee payments etc.

Customer Service and Support:

On boarding AE’s customers , scheduling of the program sessions, updating on students progress and orientation process.

ii) Follow-up with the faculty, assessors and evaluators to track and ensure scheduled delivery of the programs.

Technological Support

Managing and providing technological support to the customers for cloud-based products of AE.

ii) Providing technical support for the website and portal maintenance and administration of cloud infrastructure to ensure uninterrupted program delivery.

Booking Keeping and Accounting Support Services-

All the basic book-keeping services line recording , storing and retrieval of financial transactions etc.

ii) Other accounting services like

Providing bills for services provided to clients

Scheduling the payment of suppliers

Monitoring individual accounts receivables and accounts payable

Recording depreciation and other adjustment entries

General Ledger maintenance

Bank account reconciliations.

The assessee has chosen itself to be tested party.The Profit Level Indicator(PLI) for benchmarking purposes adopted by assessee is OP/OC(OP-Operating Profit, OC-Operating Cost), and the operating margin computed by assessee is 15%. The assessee adopted search criteria which are listed by TPO in its order at page no.3. The assessee for the purposes of computing ALP proposed 13 comparables in its Transfer Pricing Study Report. The Median margin of the Comparables selected by the assessee was to the tune of 6.25% , and since the margin of the assessee was higher , the ALP adjustment was Rs. NIL as per the assessee. The TPO modified search criteria, which is listed at page 3 and 4 of the its order. The TPO rejected 9 comparables as proposed by assessee, and finally proposed 12 comparables(including 4 proposed by assessee in its TP Study Report) and issued SCN with observations , inter-alia, wrt comparables , as under:

The TPO computed Median Margin of 24.37% , and since assessee margin was 15% , the TPO proposed adjustment to ALP to the tune of Rs. 1,08,17,941/-, and accordingly draft assessment was passed by the AO. The assessee filed objections with ld. DRP and the ld. DRP issued directions. Based on the directions issued by ld. DRP, the TPO gave order giving effect proposing adjustment to ALP to the tune of Rs. 61,42,097/- by re-computing margin of final set of comparables @20.32%. The AO passed final assessment based on order giving effect passed by TPO, wherein adjustment to the ALP to the tune of Rs. 61,42,097/- was made by the AO to the income of the assessee.

Now , during the proceedings before the Tribunal during the course of hearing before the Bench, the ld. Counsel for the assessee has restricted its arguments to the selection of ANZ Support Services India Private Limited(hereinafter called ‘ANZ’) by TPO. It was submitted by ld. Counsel for the assessee forcefully that its selection by TPO is so blatantly wrong that it needs to be excluded as comparable to the assessee (tested party) while computing ALP under TP regime, and if the said comparable is excluded, the ALP adjustment will be reduced to Nil. Thus, it was prayed that the Bench should adjudicate the inclusion of ANZ Support Services India Private Limited, and other issues should be kept open as they have become academic in nature.

Thus, We are confining ourselves to the said comparable ANZ. During the course of proceedings before the TPO, the assessee company has submitted that this company is functionally dissimilar and annual report of ANZ is not available.Thus, prayer was made to exclude the same from the list of comparable. As could be seen, the TPO proposed ANZ ,while issuing SCN with following remarks :

The TPO observed while rebutting assessee contentions that the annual report of ANZ is easily available in public domain. The TPO in its order at page 24 observed from the financial statement of ANZ that the ANZ is rendering IT support services and description of services are ‘Other Professional , Technical and Business Services’. The TPO rejected the contentions of the assessee.

Before ld. DRP, the assessee contended that ANZ is functionally dissimilar as ANZ is providing banking , financial products and various banking solutions related to bank accounts, credit cards, home loans etc. It was contended that ANZ is similar to bank and offers saving interest to its customers. It was submitted that it was engaged in banking activities and it can be considered as a part of banking company, engaged in undertaking banking operations. It was submitted by the assessee that ,thus, ANZ cannot be compared with the assessee as the assessee is engaged in learner support and customer care services. The ld. DRP directed TPO to highlight the functional profile of the company and include this in set of comparables only if it satisfied the broad functional similarity criteria as required under TNMM and pass all quantitative filters applied by him, and TPO was directed to pass speaking order. While passing order giving effect to the aforesaid directions of the ld. DRP, the

The ld TPO while passing order giving effect to ld. DRP directions, observed as under:

Thus, the ld. TPO while giving order effect to ld. DRP directions included ANZ as comparable for computing ALP adjustment.

The assessee has filed copy of Annual Financial statement of ANZ for financial year 2020-21 in the paper book filed with the Tribunal (Page 1-192 of Annual Report Compilation). The assessee has also filed its financial statements for financial year 2020-21 before the Tribunal. The assessee has also filed Master Agreement dated 01.04.2019 along with copy of statement of work in related to the Master Service Agreement dated 01.04.2019 as well sample invoices raised by it to its AE. The ld counsel for the assessee submitted that ANZ was wrongly included as comparable by the TPO for the following reasons:

The Related party filter adopted by TPO was to exclude companies where RPT exceeds 25% of the sales . It was submitted that ANZ has RPT of more than 25% of the sales, and it could not be included as comparable. It was submitted that RPT/total Sales of ANZ during the year was as high as 97.59% , so thus it is not a good comparable. The assessee submitted following chart as under in its written submissions, with respect to RPT of ANZ with its AE’s to total sales, as under:

Thus, it was submitted that on this short ground of ANZ having RPT of more than 25% of total sales , ANZ has to be excluded as comparable, as TPO has adopted a filter of RPT of not more than 25% of total sales, while ANZ during the year under consideration has RPT of 97.59% of sales. The assessee has also challenged inclusion of ANZ on the ground that ANZ is functionally dissimilar to the assessee’s functions. It was submitted that ANZ is providing high end IT enable services related to core banking operations of ANZ group, and hence functionally not comparable. The assessee has given submissions wrt ANZ , as under to this effect:-

The ld. CIT-DR on the other hand submitted in rebuttal that this ground of objection of RPT of ANZ being in excess of 25% of the sales is taken by the assessee for the first time before the ITAT as this objection was not taken by the assessee before TPO nor even before the ld. DRP, and it was prayed by ld. CIT-DR that the matter can be restored back to the ld. TPO for necessary verifications. It was submitted that the authorities below has rightly included ANZ as the assessee is also engaged in business of ITES.

The ld. Counsel for the assessee submitted in rebuttal that the ld. DRP gave clear directions to the TPO to include ANZ as comparable if it qualifies all filters. It was submitted that the assessee is not in the business of ITES , as it is rendering services in the field of book keeping, accounting and customer relationship. The ld. Counsel for the assessee drew our attention to the directions of ld. DRP to that effect, which are reproduced hereunder:

We have carefully gone through the entire factual matrix and the material placed before us, The facts are enumerated above and not repeated. We are confining our adjudication to comparable ANZ, as the assessee has strongly contended before us that there was blatant error on the part of TPO in including ANZ as comparable as RPT is more than 25% of sales, and hence ANZ is to be excluded as comparable.It is also contended that if ANZ is excluded, the ALP adjustment will be Reduced to Rs. Nil. We have observed that the TPO admittedly has adopted one of the search criteria for comparable viz. that the RPT should not be more than 25% of the sales i.e. when RPT exceed 25% , the comparable cannot be included while computing ALP and the same has to be rejected . The search filter adopted by TPO wrt RPT reads as under:

We have gone through the financial statements of ANZ for financial year 2020-21 , placed on record in file by the assessee(page 1-192/Annual Report compilation). We have observed that the total sales/income of ANZ during the financial year 2020-21 was Rs. 7759.87 Millions. The business of ANZ as stated in its audited accounts is IT Enabled services to ANZ group Companies. ANZ was incorporated on 27^th September, 2007 . ANZ is a wholly owned subsidiary of ANZ Banking Group Limited, Melbourne. ANZ has principle place of business at Eucalyptus, Manyata Embassy Business Park, SEZ, Outer Ring Road, Nagavara Village, Hobli, Bengaluru, Karnataka-560045. ANZ has set up a unit in SEZ which was operational from 01^st August, 2008. We have observed that it has RPT with following AE’s as disclosed in its financial statement (Page 173-179) :

ANZ has also reported RPT with respect to Expenses, receivables and payables in its audited financial statements. The same are not reproduced by us, but the same are available in financial statements filed by the assessee. The same are also not included by us while computing RPT/Sales ratio. Thus, it can be seen that RPT of rendering of services and other income aggregates to Rs. 2290.98 Millions , while total revenue reported is Rs.7759.87 Million, which translates to income with RPT to total sales/income ratio of 29.5% which is more than 25% . While calculating the above , we have not included other RPT transactions viz. expenses , receivables , payables and remuneration , entered into by the assessee with related parties. However, this contention that ANZ could not be accepted as comparable as the related party transactions to sales ratio exceeds 25% and hence fails the search criteria adopted by ld. TPO, is raised by the assessee for the first time before the Bench, and none of the authorities below have verified the truthfulness of this contention. Thus, this contention needs verification by TPO. The ld. DRO has directed TPO to include ANZ as comparable only if it satisfies to be functionally comparable to the assessee and also that it qualifies all the filters adopted by TPO. Thus, clearly it does not pass RPT filter of having related party transactions of sales of not exceeding 25% of total sales(subject to verification by TPO). Under these circumstances, ANZ fails as comparable, and thus needs to be excluded. It is also equally true that this contention is raised by the assessee before us for the first time, and hence we are directing TPO to verify this fact of ANZ having failed on the search filter of Related Parties Transactions as adopted by TPO itself while passing order u/s 92CA(3) of the 1961 Act, and if the contentions of the assessee is found to be correct that ANZ has failed RPT filter as adopted by TPO , then in that eventuality the ld. TPO is directed to exclude ANZ as comparable. The assessee has forcefully contended that if ANZ is excluded as comparable, then other grounds concerning TP Adjustment to ALP are academic and hence become infructuous, thus, the same are not adjudicated by us and are kept open. We order accordingly.

Ground No. 9 Penalty u/s 270A is premature at this stage and is dismissed accordingly.