Morgan Stanley Advantage Services Pvt. Ltd. (“the assessee”) rendered IT/ITeS services to overseas group entities. For AY 2022-23, its BAPA with CBDT prescribed a 15.70% operating margin for US AEs. However, the transaction with its UK AE, MSIP, was not covered under the BAPA, and the TPO independently benchmarked it at 25.54%, resulting in a TP adjustment of ₹3.29 crores.
Assessee’s Contentions | Revenue's Contentions | Court's Judgment |
|---|---|---|
The assessee contended that the transaction with the UK AE was identical to the transactions covered under the BAPA with US AEs. The FAR analysis of the transaction had already been examined during the BAPA proceedings. Accordingly, the ALP agreed under the BAPA should also apply to the UK transaction. | The transaction with MSIP, UK was not covered by the BAPA. Accordingly, the TPO independently benchmarked the transaction using comparable companies and determined an operating margin of 25.54% | The ITAT held that the transactions with the US AEs and the UK AE were similar. Therefore, the margin accepted under the BAPA for US AEs was to be regarded as the arm’s length mark-up for the UK AE transaction as well. |
It was submitted that 99.80% of the relevant AE transactions were covered by the BAPA and only the UK transaction was outside its scope. The assessee therefore requested that the ALP for the UK transaction be aligned with the BAPA margin. | The Revenue did not accept extension of the BAPA margin to the UK transaction, and the TPO proceeded with an independent benchmarking analysis for the transaction with MSIP. | The ITAT, following the assessee’s own earlier case and coordinate bench decisions, directed that the UK transaction be aligned with the BAPA margin of 15.70%. The resulting adjustment was restricted to ₹2,32,369. |
ITAT held that the BAPA margin of 15.70% accepted for US AEs could be regarded as the arm’s length mark-up for the identical transaction with the UK AE. The TP adjustment was accordingly restricted to ₹2,32,369, while clarifying that the decision was restricted to the facts of the present case and should not be treated as a precedent.
