ITAT Hyderabad's Landmark Ruling on Transfer Pricing for Non-Covered AE Transactions

Case: Synchrony International Services Pvt. Ltd. v. ACIT  |  ITA Nos. 2071–2073/Hyd/2025  |  AY 2016-17 to 2018-19  |  Pronounced: 30 March 2026

Here is a situation many captive ITeS companies find themselves in: you have worked hard to negotiate a Bilateral Advance Pricing Agreement (BAPA) with the CBDT. It covers 95% of your international transactions. But what about the remaining 5% — the transactions with AEs outside the US that the BAPA simply does not mention?

Do you run a fresh transfer pricing study? Do you accept whatever margin the TPO determines? Or can you argue that the margin you negotiated — after months of rigorous bilateral negotiations — should apply to those transactions too, given that the functions, assets, and risks involved are exactly the same?

The ITAT Hyderabad answered that question on 30 March 2026. And the answer, for taxpayers in similar positions, is worth understanding carefully.

What Is This Case About? A Quick Overview

Synchrony International Services Private Limited is a Hyderabad-based captive service provider — the kind that does all the heavy lifting (back-office, ITeS) for its overseas parent and related entities, charges a cost-plus margin, and takes on limited risk. For AY 2016-17, it declared total income of Rs. 47.38 crore.

The company had entered into a BAPA with the CBDT — a bilateral agreement negotiated with the US tax authority under the India-US tax treaty. This BAPA covered transactions with its US-based Associated Enterprises (AEs), which made up around 95.75% of total revenue. The remaining 4.25% came from non-US AEs, and those transactions sat outside the BAPA's formal scope.

The TPO stepped in. Without doing any separate benchmarking for the non-US AE transactions, he proposed a transfer pricing adjustment of Rs. 26.24 crore for AY 2016-17. The AO passed a final assessment order on 09.01.2020 under Section 143(3), pushing the assessed income to Rs. 73.63 crore. A small disallowance of Rs. 4.46 lakh under Section 43B for delayed provident fund payment was also made.

The BAPA Was There — So Why Was There Still a Transfer Pricing Dispute?

This is the part that frustrates many practitioners. The company had done everything right — entered into a bilateral APA, got it accepted by both India and the US, and structured its transactions accordingly. Yet the TPO still made an adjustment.

The reason? The BAPA covered transactions with US-based AEs. The 4.25% of revenue from non-US AEs was technically outside the agreement. The TPO applied a uniform benchmarking approach across all transactions — but then the Revenue turned around before the CIT(A) and argued that the BAPA margin cannot be extended to non-covered transactions.

Synchrony's position before the CIT(A) was straightforward: the same services are being rendered to the non-US AEs. The FAR profile is identical. The TPO himself did not make any distinction. Apply the BAPA margin.

The CIT(A) rejected this. The reasoning? The decisions cited by Synchrony were in the context of MAP (Mutual Agreement Procedure) resolutions, not BAPA. Case closed, appeal dismissed.

That is where the matter came to the ITAT.

What Synchrony Argued Before the ITAT — and How the Revenue Pushed Back

The Assessee's Case

Synchrony's authorized representative kept the argument focused and did not try to overcomplicate it. The submissions before the Tribunal were:

• The non-US transactions were tiny — just 4.25% of total revenue. They were not separately benchmarked by the TPO. He used one uniform approach for everything.

• The nature of services to non-US AEs was identical to those rendered to US-based AEs. Same functions, same assets employed, same risks assumed. There was no FAR distinction anywhere on record.

• Two coordinate bench decisions had directly addressed this situation — Texas Instruments (India) Pvt. Ltd. v. ACIT (2022) 141 Taxmann.com 159, Bangalore Tribunal, and JCB India Ltd. v. ACIT (2025) 172 Taxmann.com 196, Delhi Tribunal. In both cases, the APA/BAPA margin was extended to transactions with AEs not covered under the agreement.

• The CIT(A) was wrong to dismiss these decisions just because they arose in MAP contexts. The underlying principle — consistency in benchmarking for functionally identical transactions — applies equally to BAPAs.

The Revenue's Counter

• The Revenue's departmental representative argued on straightforward statutory grounds:

• A BAPA is an agreement between specific parties for specific transactions. It binds only what it covers. Period.

• Extending the BAPA margin to transactions not enumerated in the agreement is not permissible under the law.

• Every AE, every transaction, must be benchmarked independently. An APA with a US competent authority says nothing about what is arm's length for a transaction with, say, a Singapore or UK entity.

 

How the ITAT Reasoned Its Way to a Decision

The Tribunal — Shri Ravish Sood (Judicial Member) and Shri Madhusudan Sawdia (Accountant Member) — went through the Texas Instruments and JCB India decisions in detail before arriving at its findings. Here is the substance of what the Bench said.

The TPO's Own Conduct Undermined the Revenue's Argument

This is possibly the most practically important point in the entire order. The TPO did not separately benchmark the non-US AE transactions. He applied a uniform approach to all international transactions without distinguishing between US and non-US AEs. The Tribunal simply pointed out the obvious: you cannot use a single benchmark for all transactions during the TP proceedings and then argue that the transactions are different when the assessee asks for consistent treatment.

No Evidence of FAR Difference — So No Basis for a Different Margin

The Revenue brought nothing on record to show that the FAR profile of transactions with non-US AEs was different from transactions with US-based AEs. In transfer pricing, comparability begins and ends with FAR. Without a demonstrated functional difference, there was no defensible basis to apply a different arm's length price.

The Coordinate Bench Decisions Were on Point

In Texas Instruments (India), the Bangalore Tribunal had applied the APA margin (determined for US AE transactions) to transactions with Natsem Malaysia — a non-APA-covered AE — because the services and FAR profile were identical and the TPO had made no distinction. The ITAT in the present case found the facts indistinguishable.

In JCB India Ltd., the Delhi Tribunal went further and invoked the principle of consistency in the context of MAP proceedings and APAs — holding that while these agreements may not have formal precedential value for a different assessee, in the case of the same assessee they carry strong persuasive weight. The tax authorities cannot artificially distinguish functionally identical transactions just to apply a higher margin.

Principle of Consistency — Not Just a Soft Argument

The principle of consistency is sometimes dismissed as a vague, equitable argument with no teeth. The Tribunal's approach here suggests otherwise. Where a detailed bilateral negotiation has produced an accepted margin, and where there is no evidence that the remaining transactions are functionally different, consistency is not just persuasive — it is the right analytical framework.

The Final Order: All Three Appeals Allowed

The ITAT Hyderabad allowed all three appeals for AY 2016-17, 2017-18, and 2018-19. The direction to the AO/TPO was clear: adopt the BAPA margin for determining the arm's length price of transactions with non-US AEs as well.

Since the facts and issues in AY 2017-18 and 2018-19 were identical to AY 2016-17, the Tribunal applied the same findings to all three years in a consolidated order.

What This Ruling Means for Taxpayers — Six Practical Points

If you are advising a captive service provider or a multinational with an existing APA or BAPA, this decision has direct relevance. Here is what to take away:

1. If your APA covers most but not all your AE transactions, document why the remaining transactions are functionally identical.

The single most important thing Synchrony had going for it was that no one — not even the TPO — had ever claimed the non-US transactions were different. Make sure your transfer pricing documentation makes this explicit upfront.

2. Watch how the TPO conducts the benchmarking during TP proceedings.

If the TPO applies a uniform approach to all transactions without distinguishing between APA-covered and non-covered ones, put that on record. It becomes a strong argument for consistency at the appellate stage.

3. Do not let the CIT(A) dismiss BAPA/APA precedents just because earlier decisions arose in a MAP context.

The underlying principle in Texas Instruments, Dell International, JCB India, and now Synchrony is consistent: an accepted pricing outcome for functionally identical transactions of the same assessee is highly persuasive. The instrument — MAP, APA, or BAPA — matters less than the functional analysis behind it.

4. A BAPA is more than just a compliance tool — it is a benchmark.

The Tribunal's characterisation of the BAPA margin as a reliable and persuasive benchmark — even beyond its formal scope — elevates the value of an APA in litigation strategy. Include this argument explicitly in your grounds of appeal where relevant.

5. For small residual transactions, the proportionality argument matters.

The 4.25% proportion was repeatedly noted by the Tribunal. Where non-covered transactions are a small tail on a large APA-governed body of transactions, courts and tribunals are likely to take a pragmatic view — especially when the FAR profile is indistinguishable.

6. The line of authority is now clearer and stronger.

Texas Instruments (Bangalore, 2022) → JCB India (Delhi, 2025) → Synchrony International (Hyderabad, 2026). Three benches, three cities, consistent outcome. If you are facing this issue, you now have a solid trio of decisions to cite.

Closing Thoughts

The Synchrony ruling is not earth-shattering in isolation. But it is one of those decisions that will be cited often, because the underlying fact pattern — a captive service provider with a BAPA covering most but not all AE transactions — is extremely common in the Indian ITeS landscape.

What the Tribunal has done is sensible and commercially sound. A BAPA is the product of a detailed, bilateral, negotiated process between the assessee, CBDT, and a foreign competent authority. If that process produces a margin for services of a particular functional character, applying a different margin to services of the exact same functional character — rendered to a different AE, in a different geography — makes no analytical sense.

The Revenue's argument that a BAPA is strictly bounded by its text has formal merit. But transfer pricing is ultimately an economic exercise, not a formalistic one. And the Tribunal was right to recognize that.

For tax professionals advising companies in similar situations: get your FAR documentation in order, track the TPO's approach during assessment, and do not hesitate to invoke the consistency principle at appeal. This decision gives you the authority to do so.