Majorel India Pvt. Ltd. (earlier known as Bertelsmann Marketing Services India Pvt. Ltd.) (“the assessee”) provided back-office support and ITeS to both AEs and non-AEs. For AY 2010-11, the assessee adopted Internal TNMM, with margins of 31.02% for AE transactions and 3.73% for non-AE transactions. The TPO rejected the internal benchmarking and applied External TNMM
Contentions:
Assessee | Revenue |
The assessee contended that the functions performed and risks assumed for AE and non-AE transactions were similar, and therefore Internal TNMM was the more reliable method for benchmarking. | The Revenue argued that External TNMM was appropriate for benchmarking the ITeS transactions, contending that the AE and non-AE segments were different and that the segmental accounts were not audited. |
It was submitted that the internal segmental data was more reliable and accurate than data from external comparables. Reliance was also placed on the OECD and UN transfer pricing guidelines supporting preference for internal comparables. | The TPO rejected Internal TNMM primarily on the grounds that there was no proper allocation of expenses between AE and non-AE segments and that the nature of services was the same. |
Court’s Judgement |
ITAT held that the services provided to AEs and non-AEs were fundamentally similar and that no specific defects in the segmental analysis or allocation keys were demonstrated. Hence, Internal TNMM was the better-suited method |
Following the assessee’s own cases for AYs 2012-13 and 2013-14, ITAT directed that the transactions be benchmarked using Internal TNMM |
ITAT held that Internal TNMM should be preferred over External TNMM where reliable internal segmental data is available and the AE and non-AE transactions involve fundamentally similar functions. Following the assessee’s own earlier cases, ITAT directed the TPO/AO to adopt Internal TNMM for benchmarking the ITeS transactions; consequently, the Revenue’s appeal was dismissed.
