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Is Key: Delhi ITAT Upholds Exclusion of Four Companies From WNS Comparables
In a significant ruling on , the has underscored that comparables for benchmarking must be evaluated on their actual functional profile, not merely on their inclusion in the same broad industry. The Tribunal dismissed the Revenue's appeal for Assessment Year 2011-12, thereby upholding the exclusion of four companies—Eclerx Services, TCS E Serve, Infosys BPO, and Acropetal Technologies—from WNS Business Consulting Services' comparable set. The decision, delivered by a Bench comprising Judicial Member Satbeer Singh Godara and Accountant Member Manish Agarwal on 25 August, also affirmed the deletion of a ₹1.06 crore disallowance under .
Case Background
WNS Business Consulting Services Pvt. Ltd., a company engaged in exporting IT-enabled Business Process Services (BPO) including and to US customers in the financial services industry, had declared an income of ₹2.73 crore for AY 2011-12. The Officer (TPO) proposed an adjustment of ₹87.72 lakh in the ITES segment, and the Assessing Officer also disallowed ₹1.06 crore out of the deduction claimed under Section 10A.
The deleted both additions, relying on the assessee's own earlier years and judicial precedents. The Revenue challenged these deletions before the ITAT.
Arguments and Comparable-Wise Analysis
The Revenue contended that the CIT(A) had erroneously excluded certain comparables selected by the TPO and included an additional comparable, Informed Technologies India Ltd. The Tribunal examined each contested company:
Informed Technologies India Ltd. – The assessee had originally included this company in its study report, but the TPO excluded it due to lack of segmental details. The CIT(A) ordered its inclusion, noting it had been accepted in preceding assessment years. The Tribunal upheld this, applying the , as the Revenue failed to controvert the facts.
Eclerx Services Ltd. – With an operating profit to operating cost margin of 57.62%, Eclerx was included by the TPO. However, the assessee argued that Eclerx outsourced most of its services, whereas WNS performed services through its own employees, creating a . The CIT(A), following the ruling in B.C. Management Services Pvt. Ltd. vs DCIT (2017), excluded Eclerx. The Tribunal affirmed, observing that “the TPO has silent on the issue of ; therefore, this company cannot be held as comparable to the assessee who is mainly providing services through its own employees and had not outsourced the same.”
TCS E Serve Ltd. and Infosys BPO Ltd. – These two giants were excluded by the CIT(A) on grounds of . The Revenue did not dispute these facts, and the Tribunal upheld the exclusion, noting that the Revenue “has not controverted this fact stated by ld. CIT(A) who had excluded these two companies being not comparable looking to their volume and size as well as their brand value viz a viz of the assessee.”
Accentia Technologies Ltd. – This company was engaged in diverse activities including medical transcription, KPO, and high-end software services, and segmental information was not available. Following the decision in Execo India Pvt. Ltd. (2016) and the assessee's own case for AY 2009-10, the Tribunal upheld its exclusion.
Acropetal Technologies Ltd. (Seg.) – The TPO included this company, but the assessee challenged it on functional dissimilarity. The CIT(A) excluded it, relying on the ruling in Daksh Business Process (2016), which held that Acropetal performed engineering design services (KPO) and was not to a BPO provider. The Tribunal concurred, stating that “this company was not with the assessee and this fact has not been controverted before us.”
Section 10A Deduction Upheld
On the second issue, the disallowance of ₹1.06 crore from the Section 10A deduction was challenged by the Revenue. The Tribunal noted that the assessee's Gurgaon units were registered with the and provided services to US customers in the financial services sector. Crucially, expressly covers , call centres, and within the definition of “computer software” for Section 10A purposes.
The issue was squarely covered by the jurisdictional High Court's decision in the assessee's own case for AY 2006-07 (ITA No.807/2017), where the Court held that satisfied the definition of computer software under . Following this precedent and consistent orders for subsequent years, the Tribunal confirmed the deletion of the disallowance.
Key Observations
The Tribunal made several notable observations in its order:
- “TPO has silent on the issue of , therefore, this company cannot be held as comparable to the assessee who is mainly providing services through its own employees and had not outsourced the same.” – On Eclerx Services.
- “Before us, the Revenue has not controverted this fact stated by ld. CIT(A) who had excluded these two companies being not comparable looking to their volume and size as well as their brand value viz a viz of the assessee.” – On TCS E Serve and Infosys BPO.
- “As this company was not with the assessee and this fact has not been controverted before us, therefore, we find no error in the order of ld. CIT(A) in excluding the same in the final set of comparables.” – On Acropetal Technologies.
Conclusion
The ITAT dismissed the Revenue's appeal in its entirety, affirming both the deletion of the ₹87.72 lakh adjustment and the ₹1.06 crore Section 10A disallowance. The ruling reinforces the principle that is paramount in selecting comparables for analysis, and that arrangements, brand value, and size can render a company non-comparable even within the same broad industry segment. It also highlights the continuing validity of Section 10A deductions for BPO services as defined by the .
