Facts of the Case

  • The assessee, engaged in IT-enabled services (ITES), categorized its operations into:
    • Research & Information Services Division
    • IT Support Services Division
  • The dispute arose from AY 2011–12, where:
    • The ITAT partly allowed the assessee’s appeal by excluding certain comparables
    • Both Revenue and assessee challenged aspects of the ITAT order
  • The High Court earlier decided issues including:
    • ALP determination
    • Treatment of receivables
  • The assessee filed a review petition under Section 260A, alleging errors in the judgment

Issues Involved

  1. Whether interest on delayed receivables constitutes a separate international transaction under Section 92B
  2. Whether the Explanation to Section 92B applies retrospectively
  3. Whether the assessee’s services are KPO or BPO in nature
  4. Whether wrong comparables were included/excluded
  5. Whether review is maintainable after dismissal of SLP by Supreme Court
  6. Whether errors apparent on record justify recall of judgment

Petitioner’s Arguments

  • Interest on receivables:
    • Cannot be treated as a separate international transaction for AY 2011-12
    • Explanation to Section 92B is prospective (from AY 2013-14)
  • The issue was never framed in the original appeal
  • The Court ignored binding precedent in:
    • Kusum Health Care Pvt. Ltd.
  • Incorrect classification:
    • Services are BPO (back-office), not KPO
  • Earlier judgment (AY 2006–07) already recognized services as BPO
  • Important evidence and segmentation (IT support vs knowledge management) was overlooked
  • Reliance on Maersk Global was incorrect, especially after Rampgreen Solutions ruling

Respondent’s Arguments (Revenue)

  • Review petition is not maintainable as SLP was dismissed by Supreme Court
  • Relied on:
    • Khoday Distilleries Ltd. vs Sri Mahadeshwara Sahakara
  • Judgment already considered all arguments and was well-reasoned
  • No apparent error justifying review

Court Findings / Judgment

1. Maintainability of Review

  • Review is maintainable even after dismissal of SLP, if dismissal is by a non-speaking order
  • Doctrine of merger does not apply in such cases

2. Interest on Delayed Receivables

  • Court held:
    • Earlier order dated 07.02.2018 had remitted the issue to ITAT
    • Deciding it conclusively in final judgment was an error apparent on record
  • Issue restored for fresh consideration

3. Applicability of Section 92B Explanation

  • Court acknowledged:
    • Argument of prospective applicability requires examination
  • Left issue open for ITAT

4. KPO vs BPO Classification

  • Court found errors in earlier judgment:
    • Ignored prior ruling treating assessee as BPO
    • Failed to consider segmentation of services
  • Held:
    • Nature of services requires fresh evaluation

5. Comparables & Transfer Pricing

  • Reliance on Maersk Global was incorrect
  • Court emphasized Rampgreen Solutions principle:
    • KPO and BPO are functionally different
    • Comparables must match functional profile and skill level

6. Final Order

  • Review petition allowed
  • Earlier judgment dated 09.08.2018 recalled
  • Appeals restored for fresh hearing on merits

Important Clarifications

  • Dismissal of SLP ≠ bar on review
  • Interest on receivables is not automatically an international transaction
  • Functional comparability is crucial in transfer pricing
  • KPO vs BPO distinction must be strictly applied
  • Courts must consider prior binding judgments in assessee’s own case

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2019:DHC:2174-DB/SRB16042019ITA5262017.pdf

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