India vs American Express (India) Pvt. Ltd., May 2026, High Court of Delhi, Case No ITA 656/2019
Table of Contents
Case Information
Court: High Court of Delhi at New Delhi
Case number: ITA 656/2019
Citation: ITA 656/2019
Applicant: Pr. Commissioner of Income Tax – 1
Respondent: M/s. American Express (India) Pvt. Ltd.
Jurisdiction: India (Delhi)
Judgment date: 18 May 2026
Judgment Summary
This appeal was filed by the Principal Commissioner of Income Tax – 1 under Section 260A of the Income Tax Act, 1961 for Assessment Year 2009-10, challenging the Income Tax Appellate Tribunal (ITAT) order dated 03.08.2018 in ITA 2577/Del/2014, by which the ITAT had allowed the assessee's case [para 1].
The assessee, American Express (India) Private Limited (AEIPL), is a 100 per cent subsidiary of American Express International Inc., USA, incorporated in India in 1994. It provides data management, information analysis and control activities, tele-servicing and transaction processing support, and travel and accommodation booking for corporate clients [para 2].
The primary transfer pricing dispute concerned the arm's length price for export of data processing and back office support services (ITeS) provided by AEIPL to its associated enterprises. The assessee applied the Transactional Net Margin Method (TNMM) as the most appropriate method, a point not in dispute between the parties [para 9].
The High Court admitted the appeal only on two of the seven proposed substantial questions of law, labelled Questions (1) and (2), concerning the inclusion of Cepha Imaging Pvt. Ltd. and CG Vak Software and Exports Ltd. respectively [para 36]. The remaining five proposed questions were found to be covered by existing precedents [para 35].
The court answered both admitted questions in favour of the Revenue and disposed of the appeal [paras 43, 51, 52].
Background
AEIPL filed its return of income on 26.09.2009 declaring net income of Rs.1,13,42,21,352/-, subsequently revised on 29.03.2011. The case was selected for scrutiny and a notice under Section 142(1) was issued on 11.10.2012 [para 3].
During the year under consideration, AEIPL had international transactions with its associated enterprises amounting to Rs.15 crore. The Revenue referred the matter to the Transfer Pricing Officer (TPO) for determination of arm's length price under Section 92CA of the Act [para 4].
On 16.01.2013, the TPO passed an order under Section 92CA(3) making an adjustment of Rs.6,26,71,930/- to the assessee's income. The TPO subsequently passed a revised order under Section 92CA(5) read with Section 154, enhancing the adjustment to Rs.71,41,54,973/- [paras 5, 13].
The assessee filed objections before the Dispute Resolution Panel (DRP), which disposed of them by order dated 24.12.2013. In compliance with the DRP directions, the Assessing Officer passed an assessment order dated 28.04.2014 under Sections 143(3) and 144C, assessing income at Rs.239,40,85,850/- and making a transfer pricing adjustment of Rs.67,05,58,495/- [paras 5, 14].
AEIPL is described as a captive contract IT-enabled service provider remunerated on a cost-plus basis, bearing no key business risks and holding no intellectual property rights over its output [para 6]. Its total revenue was approximately Rs.863 crores, of which income from Global Business Processing and Support was Rs.783,22,91,481/-, representing approximately 91 per cent of total receipts [para 10].
Core Dispute
The assessee applied TNMM as the most appropriate method and identified nine comparables, computing an average operating profit to operating cost ratio (PLI) of 19.06%. The TPO rejected four of those comparables, accepted five, and added two of its own (E-Clerx Services Ltd. and Microgenetics Systems Ltd.), arriving at an average PLI of 29.91% [paras 11, 12].
The ITAT directed the inclusion of Cepha Imaging Pvt. Ltd., R Systems International Ltd., Allsec Technologies Ltd. and CG Vak Software and Exports Ltd., and directed the exclusion of E-Clerx Services Ltd. and Coral Hub Ltd. (formerly Vishal Information Technologies Ltd.) [para 15].
The Revenue challenged those directions before the High Court. The two admitted questions were: (1) whether the ITAT erred in directing the TPO to include Cepha Imaging Pvt. Ltd. on the basis of the export earning filter without addressing the TPO's finding of functional dissimilarity; and (2) whether the ITAT erred in directing the TPO to include CG Vak Software and Exports Ltd. without considering that it failed the turnover filter applied by the TPO [para 36].
Court Findings
On Question (1) concerning Cepha Imaging Pvt. Ltd., the court noted that the ITAT had directed the TPO to re-examine the export turnover of the company and include it if the assessee's contention proved correct, but had drawn no finding on whether the company was functionally comparable with the assessee [paras 39, 41]. The Revenue's position was that Cepha Imaging Pvt. Ltd. is engaged in e-publishing services, which are not listed as ITeS under CBDT Notification No. 890/2000 dated 08.09.2000. The court observed that the notification does not include e-publishing services and that the ITAT should have remanded the matter on the aspect of functional similarity as well. The court accordingly directed the TPO to also examine the functional similarity of Cepha Imaging Pvt. Ltd. with the assessee, having particular regard to CBDT Notification No. 890/2000 [paras 40, 41, 42].
On Question (2) concerning CG Vak Software and Exports Ltd., the court noted that the assessee had a turnover of Rs.782,63,63,57,677/- from its ITeS segment, while CG Vak had total turnover of only Rs.7,23,39,181/- and ITeS export turnover of Rs.86,10,268/-, meaning the assessee's turnover was approximately 100 times that of the comparable [paras 44, 48]. The court held that the scale of operations of a comparable relative to the tested entity is a factor that must be kept in view and that a huge difference in turnover necessarily requires the comparable to be excluded [para 48]. The court relied on the Bombay High Court decision in Commissioner of Income Tax-2, Pune v. Principal Global Services Pvt. Ltd., Pune (Income Tax Appeal No. 57 of 2016) and this court's own decision in M/s Avaya India Pvt. Ltd. v. ACIT, 2019:DHC:3563-DB [paras 49, 50]. The court disagreed with the ITAT's reliance on Chrys Capital Investment Advisors India Pvt. Ltd. in the circumstances of this case [para 48].
For the remaining five proposed questions, the court found each was covered by existing precedent and declined to admit them. Question B (R Systems International Ltd., Rule 10B(4)) was covered by Commissioner of Income Tax II v. McKinsey Knowledge Centre India Pvt. Ltd. (ITA No. 217/2014; 2015:DHC:3029:DB). Questions C and D (E-Clerx Services Ltd. and Vishal Information Technologies Ltd.) were covered by Rampgreen Solutions Pvt. Ltd. v. CIT (2015) 377 ITR 533. Question E (Allsec Technologies Ltd.) involved a finding of fact on operating revenue and was covered on the export earning filter point by Commissioner of Income Tax v. Mercer Consulting India (P) Ltd., 2016 SCC Online P&H 6546. Question G (deduction under Section 10A of Rs.58,93,05,999/- in respect of AEGC STP unit) was covered by the court's own judgment dated 15.01.2025 in ITA 691/2012 [para 35].
Outcome
The appeal was admitted on two questions of law only. Both questions were answered in favour of the appellant/Revenue and against the assessee. On Question (1), the TPO was directed to examine the functional similarity of Cepha Imaging Pvt. Ltd. with the assessee, having regard to CBDT Notification No. 890/2000. On Question (2), the inclusion of CG Vak Software and Exports Ltd. as a comparable was set aside on account of the extreme disparity in turnover. The appeal was disposed of accordingly [paras 43, 51, 52].
TP Method Highlighted
Both the assessee and the TPO applied the Transactional Net Margin Method (TNMM) as the most appropriate method. There was no dispute between the parties on the choice of method [para 9]. The profit level indicator used was operating profit to operating cost ratio. The assessee computed an average PLI of 19.06% from nine comparables; the TPO computed an average PLI of 29.91% from seven comparables [paras 11, 12].
Major Issues / Areas of Contention
- Whether the ITAT erred in directing the TPO to include Cepha Imaging Pvt. Ltd. solely on the basis of the export earning filter without making any finding on functional comparability, given the Revenue's contention that e-publishing services are not ITeS under CBDT Notification No. 890/2000.
- Whether the ITAT erred in directing the TPO to include CG Vak Software and Exports Ltd., where the assessee's ITeS segment turnover of Rs.782,63,63,57,677/- was approximately 100 times greater than CG Vak's ITeS export turnover of Rs.86,10,268/-.
- Whether the ITAT erred in directing the TPO to include R Systems International Ltd. without regard to Rule 10B(4) of the Income Tax Rules, which requires data to correspond to the relevant financial year.
- Whether the ITAT erred in directing the exclusion of E-Clerx Services Ltd. on the basis that it is engaged in KPO and multifarious activities, without addressing the Revenue's submission based on the OECD 2010 guidelines on super-normal profit-making companies.
- Whether the ITAT erred in directing the exclusion of Coral Hub Ltd. (formerly Vishal Information Technologies Ltd.) on the ground of outsourcing costs without establishing how those costs adversely affected functional comparability.
- Whether the ITAT erred in directing the inclusion of Allsec Technologies Ltd. when the TPO had found it to be loss-making and failing the export earning filter.
- Whether the ITAT was justified in allowing a deduction under Section 10A of Rs.58,93,05,999/- in respect of the AEGC STP unit when the Revenue's appeals for earlier years were stated to be pending before the High Court.