Facts of the Case

The assessee, Ameriprise India Pvt. Ltd., is a wholly owned subsidiary of Ameriprise USA, which is engaged in financial planning, asset management, brokerage, and pension advisory services. The Indian entity was incorporated in August 2005 and started operations in October 2005 to provide IT-enabled back-office support services to its associated enterprise (AE).

During the relevant assessment year, the assessee entered into international transactions with its AE relating to the provision of IT-enabled services (ITES). The assessee benchmarked these transactions using the Transactional Net Margin Method (TNMM) as the most appropriate method and calculated its Operating Profit/Operating Cost (OP/OC) margin.

The Transfer Pricing Officer (TPO) examined the comparability analysis and included certain companies in the list of comparables, including Cosmic Global Ltd. (segment) and other entities. The assessee objected to the inclusion of some companies and the rejection of others on the basis of functional differences and turnover filters.

Issues Involved

  1. Whether a company can be excluded from the list of comparables merely on the ground of low turnover, even though it is functionally comparable to the assessee.
  2. Whether companies engaged in IT-enabled services but operating in different verticals can still be considered comparable under TNMM.
  3. Whether functional similarity should prevail over turnover filters while determining comparables in transfer pricing analysis. 

Petitioner’s Arguments (Assessee)

  • The assessee argued that certain companies included by the TPO were not functionally comparable with the services rendered by the assessee.
  • It contended that Cosmic Global Ltd. (Accounts BPO segment) should be excluded because its turnover was extremely low compared to the assessee.
  • The assessee further submitted that turnover differences materially affect comparability and therefore companies with very small revenue should not be considered comparables. 

Respondent’s Arguments (Revenue / Department)

  • The Revenue argued that the concerned company was functionally comparable as it was engaged in providing BPO/ITES services, similar to the activities carried out by the assessee.
  • It was contended that turnover alone cannot be a decisive factor for rejecting a comparable if the company performs similar functions.
  • The Department relied on judicial precedents stating that the TNMM allows broader comparability, and exact functional similarity is not required. 

Court Order / Findings

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, held that:

  • Turnover alone cannot be the basis for excluding an otherwise functionally comparable company from the list of comparables.
  • If a company satisfies the functional similarity test, it should not be rejected merely because its turnover is higher or lower than that of the assessee.
  • Under TNMM, comparability is determined based on overall similarity of functions, assets, and risks, and not on exact identity of services.
  • The Tribunal relied on the Delhi High Court decision in ChrysCapital Investment Advisors (India) Pvt. Ltd. vs DCIT, which held that high or low turnover cannot be the sole criterion for exclusion of comparables.

Accordingly, the Tribunal held that the concerned company could not be excluded solely due to its low turnover if it is otherwise functionally comparable. 

Important Clarification

The Tribunal clarified that:

  • Under Transactional Net Margin Method (TNMM), strict identity of services is not required.
  • Companies operating in the same broad segment (ITES/BPO) may still be considered comparable even if the specific vertical or services differ.
  • Functional comparability prevails over turnover filters in transfer pricing analysis.

Link to download the order -  https://itat.gov.in/public/files/upload/1703229801-2191Ameriprise%20India...pdf

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