NOMURA SERVICES INDIA P.LTD, MUMBAI V. ADDL CIT 10(3), MUMBAI

ITA 1146/MUM/2014

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5930 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: J
• Assessment Year: 2009-2010
• Appeal Filed On: 19-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; TDS

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘J‘ BENCH MUMBAI BEFORE: SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI M.BALAGANESH, ACCOUNTANT MEMBER ITA No.1146/Mum/2014 (Asse ssment Year :2009-10) M/s. Nomura Services India Pvt. Ltd., (Formerly Lehman Brothers Services India Pvt. Ltd.,) 10 th Floor, Nomura Off. High Street Hiranandani Business Park Powai, Mumbai – 400 076 Vs. Additional Commissioner of Income Tax-10(3) Aayakar Bhavan M.K.Road Mumbai – 400 020 PAN/GIR No.AABCL0053C (Appellant) .. (Respondent) ITA No.1710/Mum/2015 (Asse ssment Year :2010-11) Dy. Commissioner of Income Tax-15(2)(1) Room No.403, 4 th Floor Aayakar Bhavan M.K.Road, Mumbai – 400 020 Vs. M/s. Nomura Services India Pvt. Ltd., (Formerly Lehman Brothers Services India Pvt. Ltd.,) 9 th Floor, Nomura Hiranandani Business Park Powai, Mumbai – 400 076 PAN/GIR No.AABCL0053C (Appellant) .. (Respondent) CO No.70/Mum/2015 (Arising out of ITA No.1710/Mum/2015) (Asse ssment Year :2010-11) M/s. Nomura Services India Pvt. Ltd., (Formerly Lehman Brothers Services India Pvt. Ltd.,) 9 th Floor, Nomura Hiranandani Business Park Powai, Mumbai – 400 076 Vs. Dy. Commissioner of Income Tax-15(2)(1) Room No.403, 4 th Floor Aayakar Bhavan M.K.Road, Mumbai – 400 020 PAN/GIR No.AABCL0053C (Appellant) .. (Respondent) ITA No.1146/Mum/2014 and other appeals Nomura Services India Pvt. Ltd., 2 Assessee by Shri F.V. Irani / Ms. Harshita Pincha Revenue by Ms. Vatsala Jha Date of Hearing 30/06/2022 Date of Pronouncement 15/07/2022 आदेश / O R D E R PER M. BALAGANESH (A.M): ITA No.1146/Mum/2014 A.Y.2009-10 This appeal in ITA No.1146/Mum/2014 for A.Y.2009-10 preferred by the order against the final assessment order passed by the Assessing Officer u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, hereinafter referred to as Act, pursuant to the directions of the ld. Dispute Resolution Panel-II, Mumbai (DRP in short) u/s.144C(5) of the Act dated 30/10/2016 respectively for the A.Y.2009-10. ITA No.1710/Mum/2015 & CO No.A.Y.2010-11 This appeal in ITA No.1710/Mum/2015 & CO No.70/Mum/2015 for A.Y.2010-11 preferred by the order against the final assessment order passed by the Assessing Officer u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, hereinafter referred to as Act, pursuant to the directions of the ld. Dispute Resolution Panel-II, Mumbai (DRP in short) u/s.144C(5) of the Act dated 13/11/2014 respectively for the A.Y.2009-10. ITA No.1146/Mum/2014 and other appeals Nomura Services India Pvt. Ltd., 3 Let us take up the appeal of the assessee in ITA No.1146/Mum/2014 for A.Y.2009-10. 2. At the outset both the parties stated that though appeal for A.Y.2008- 09 is pending disposal before this Tribunal, this Tribunal need not await disposal of appeal of A.Y.2008-09 as the outcome of the said appeal would not have any bearing on appeal for A.Y.2009-10. 2.1. Though the assessee has raised several grounds challenging the transfer pricing adjustment made in respect of ITES segment, we find that the ld. AR stated before us that if one comparable i.e. CG-VAK Software and Exports Ltd., is included in the final list of comparables then assessee would be falling within the +/-5% tolerance band and no TP adjustment would be warranted. Hence, we proceed to adjudicate the issue of inclusion of comparable - CG-VAK Software and Exports Ltd., first. 3. We have heard rival submissions and perused the materials available on record. We find that assessee was formerly known as M/s. Lehman Brothers Services India Pvt. Ltd., a 100% owned captive business process outsourcing unit of Nomura Group in India. The assessee is engaged in provision of software development services and Information Technology Enabled Services (ITES) for business and technology process outsourcing to its group companies i.e. Associated Enterprises (AEs) outside India. During the year ended 31/03/2009, the assessee provided ITES to its AEs to the tune of Rs.425.22 Crores. The assessee benchmarked the said international transaction using Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM). The assessee charged a net ITA No.1146/Mum/2014 and other appeals Nomura Services India Pvt. Ltd., 4 margin of 18% on operating cost to its AEs which is worked out as under:- Total Income (ITES) - Rs.425,22,43,612/- Total Cost - Rs.360,35,96,282/- Net Operating Profit - Rs. 64,86,47,330/- Net Operating Profit on Total Cost (OP/TC) - 18% 3.1. The ld. TPO included the following comparable companies in the final list of comparables wherein average mean margin of the comparable companies was arrived at 29.415% as under:- sl. No. Name of the Company Margin as per TP report {%) OP/TC Updated margin j (OP/TC) using FY 2008- 09 data (%)/ Comments 1 Calibre Point Solution Ltd 21.31 29.67 2 Cosmic Global Ltd 8.15 48.20% 3 Informed Technologies Ltd # 21.77 23.13% 4 ICRA Online Ltd 16.74 41.42 5 Nittany Outsourcing (also e4e Healthcare Ltd) ## 15.55 32.22% 6 Transwork Information services Ltd also known as Aditya Birla Minacs World wide Lid 14.24 ' 1.85% Average 29.415% #The assessee computed the margin as 18.76 but correct margin is 23.13% ## The assessee computed the margin as 30.18 but correct margin is 32.22% ### The assessee computed the margin as -1.68 but correct margin is 1.85% 3.2. Since the average mean margin of the comparable companies was higher than the margin of assessee, the ld. TPO proceeded to make ITA No.1146/Mum/2014 and other appeals Nomura Services India Pvt. Ltd., 5 upward adjustment of Rs.41,13,50,516/- to the international transaction by working out as under:- Particulars Amount Operating Costs (OC) 3,603,596,282 ALP Sales OCx 1.29415 466,35,94,128 Transaction Value 4,252,243,612 105% of Transaction value 446,48,55,793 95% of transaction value 403,96,31,431 Adjustment 41,13,50,516 3.3. We find that assessee had sought to include CG-VAK Software and Exports Ltd., as a good comparable in its TP study report while benchmarking the international transaction of provision of ITES to its AEs. But this was rejected by the ld. TPO on the ground that the said comparable company is persistent loss making company and hence, not a good comparable. Other than this, the ld. TPO had not disputed the functional similarity of CG-VAK Software and Exports Ltd., with that of the assessee company in the transfer pricing order. The action of the ld. TPO was upheld by the ld. DRP. 3.4. We find from the materials available on record, the ld. TPO himself had included CG-VAK Software and Exports Ltd., as a good comparable in A.Y.2007-08 as it was making profit during that year. This is evident from the order passed by the ld. TPO u/s.92CA(3) of the Act dated 20/09/2010 for A.Y.2007-08. We find that in the case of sister concern of the assessee i.e. Nomura Structured Finance Services Pvt. Ltd., vs. DCIT in ITA No.2009 and 2130/Mum/2014 for A.Y.2009-10 dated 31/03/2016 (which is the same assessment year under consideration before us), this tribunal ITA No.1146/Mum/2014 and other appeals Nomura Services India Pvt. Ltd., 6 had an occasion to consider inclusion of CG-VAK Software and Exports Ltd., as a good comparable. In that order, the Revenue had raised a ground in its appeal before this Tribunal in ITA No.2130/Mum/2014 wherein the Revenue had categorically stated that CG-VAK Software and Exports Ltd., had made marginal operating profit in F.Y.2008-09 i.e. A.Y.2009-10, being the year under consideration before us. It is pertinent to note that the sister concern of the assessee i.e. Nomura Structured Finance Services Pvt. Ltd., also is engaged in the business of providing ITES to its AEs and had benchmarked its income from services rendered to its AEs on the basis of TNMM that OP/OC as Profit Level Indicator (PLI), hence, any reliance placed by us on the decision of the order by this Tribunal passed in the case of sister concern of the assessee would be relevant. In that case also, the ld. TPO had rejected CG-VAK Software and Exports Ltd., as not a good comparable with that of that assessee in view of the fact that it is persistent loss making company. In that case, the ld. DRP had held that CG-VAK Software and Exports Ltd., could not be excluded from the list of comparables as it had made profits in F.Y.2008- 09 relevant to A.Y.2009-10. All these facts are recorded in para 3 of the Tribunal Order referred to supra. We find that this Tribunal after verifying the financials of CG-VAK Software and Exports Ltd., for the year under consideration had categorically held that it had made profits during the A.Y.2009-10 and had also made profits in subsequent years and had upheld the findings of the ld. DRP by dismissing the appeal of the Revenue in the case of sister concern of the assessee. We also find that the workings of PLI i.e. OP/OC of CG-VAK Software and Exports Ltd., as on 31/03/2009 are enclosed in page 90 of the appeal set wherein it is found that the said comparable company had earned operating profit of Rs.3,44,058/- and PLI of 3.84%. This fact remains uncontroverted by the Revenue before us. Hence, we hold that the lower authorities are wrong ITA No.1146/Mum/2014 and other appeals Nomura Services India Pvt. Ltd., 7 in stating that this comparable is persistent loss making company. It is also pertinent to note that the aforesaid Tribunal order passed in the case of sister concern was subjected to further appeal before the Hon’ble Jurisdictional High Court by the Revenue in Income Tax Appeal No.738 of 2017 dated 20/08/2019 wherein one of the questions raised by the Revenue before the High Court is as under:- “Question No.(b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the CG-VAK Software and Exports Ltd., is a comparable for the purpose of determining the arm’s length pricing in the case of assessee.” 3.5. The Hon’ble Jurisdictional High Court in para 4 in response to Question No.(b) raised before it had held that CG-VAK Software and Exports Ltd., is a profit making company during the year under consideration and in view of the concurrent finding of the fact recorded by the ld. DRP and the Tribunal which had not shown to be perverse by the Revenue, accordingly, held that the question framed does not give raise to any substantial question of law. Hence, the decision of this Tribunal in the case of sister concern on the inclusion of very same comparable company with that of ITES rendered to its AEs which is also similar to the assessee for the very same A.Y.2009-10 has attained finality. We further find that even in A.Y.2010-11 in the case of aforesaid sister concern, the Co-ordinate Bench decision of this Tribunal in ITA No.1711/Mum/2015 for A.Y.2010-11 dated 03/02/2022 had also held that CG-VAK Software and Exports Ltd., is functionally comparable with that of Nomura Structured Finance Services Pvt. Ltd., and they had also categorically recorded that the said CG-VAK Software and Exports Ltd., earned profit of 3.81% in F.Y.2008-09 (A.Y.2009-10) and profit of 0.29% in F.Y.2009-10 (A.Y.2010-11) in the BPO segment. The Tribunal further ITA No.1146/Mum/2014 and other appeals Nomura Services India Pvt. Ltd., 8 held thus CG-VAK Software and Exports Ltd., have satisfied the criteria of not being a persistent loss making company as in 2 out of 3 past consecutive financial year, the company was earning profit. 3.6. From the above observations, it could be seen that CG-VAK Software and Exports Ltd., had earned profit in A.Y.2007-08 and 2009-10 and had incurred loss only in A.Y.2008-09. Hence, it has earned profit in two out of three past consecutive financial years. In view of the same and in view of our aforesaid judicial precedents, we hold that CG-VAK Software and Exports Ltd., should be included as a good comparable with that of the assessee company. The ld. AR Stated that once this comparable is included in the final list of comparables, it would be well within the +/-5% tolerance band and hence, no transfer pricing adjustment would be required to be made in respect of ITES segment of the assessee. In view of this, inclusion and exclusion of other comparables challenged by the assessee are not adjudicated by this Tribunal and they are left open. Accordingly, ground No. 1&2 raised by the assessee are allowed. 4. The ground No.3 raised by the assessee is challenging the addition of Rs.10,33,974/- made to the total income of the assessee on account of un-reconciled receipts with Form 26AS in respect of unit eligible for deduction u/s.10A of the Act. 4.1. We have heard rival submissions and perused the materials available on record. We find that the ld. AO had requested the assessee to reconcile their receipts with regard to reimbursement or cost sharing from its sister concern with reference to the TDS certificates and AIR data as per the ITD system with the annual receipts accounted by the assessee in its books of accounts. The assessee reconciled the receipts (except for ITA No.1146/Mum/2014 and other appeals Nomura Services India Pvt. Ltd., 9 certain receipts pertaining to professional fees and rent received) which were accounted in the AIR data as per the ITD system with the TDS certificates and the amount accounted in the books of accounts. However, the assessee could not reconcile the receipts amounting to Rs.10,33,974/- which was sought to be added by the ld. AO to the total income of the assessee and upheld by the ld. DRP. It is not in dispute that assessee is eligible for deduction u/s.10A of the Act. It is not in dispute that the said un-reconciled receipts from sister concern also pertains to 10A unit of the assessee. The deduction u/s.10A of the Act as directed by the ld. DRP was not granted to the assessee on the ground that the said un- reconciled receipt of Rs.10,33,974/- was not included in Form No.56F issued by the Chartered Accountant for claiming deduction u/s.10A of the Act. We hold that once the receipt of Rs.10,33,974/-, whether reconciled with AIR data or not reconciled with AIR data, pertains to 10A Unit, then the whole of the profits of the said undertaking / eligible unit would be eligible for deduction u/s.10A of the Act. This is the mandate provided in the provisions of Section 10A of the Act itself. Accordingly, any addition made which goes to increase the profits of the 10A Unit would only result in consequential increase in grant of deduction u/s.10A of the Act. Reliance in this regard is placed on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Gem Plus Financial India Ltd., reported in 330 ITR 175 (Bom). Accordingly, we direct the ld. AO to grant deduction u/s.10A of the Act for unreconciled receipt of Rs.10,33,974/-. Accordingly, the ground No.3 raised by the assessee is allowed. 5. The ground No.4 raised by the assessee is challenging the computation of interest u/s.234D of the Act which was stated to be not pressed by the ITA No.1146/Mum/2014 and other appeals Nomura Services India Pvt. Ltd., 10 ld. AR at the time of hearing. The same is reckoned as a statement made from the Bar and hence, dismissed as not pressed. 6. In the result appeal of the assessee in ITA No.1146/Mum/2014 for A.Y.2009-10 is partly allowed. 7. We find that for A.Y.2010-11, CG-VAK Software and Exports Ltd., has been rejected as a comparable company by the ld. TPO on the same reasoning of persistent loss making company. But the ld. DRP had held that it is a good comparable in view of the fact that it had made profits during the A.Y.2009-10 and A.Y.2010-11. Against the same, the Revenue is in appeal before us seeking an exclusion of CG-VAK Software and Exports Ltd., from the final list of comparables. We find that assessee had filed cross objections before us, seeking inclusion and exclusion of various comparable in addition to seeking working capital adjustment so on and so forth. But the ld. AR before us stated that if CG-VAK Software and Exports Ltd., alone is included in the final list of comparables, the assessee shall be well within +/-5% tolerance band and hence, no TP adjustment shall be required to be made for the year under consideration. We have already held hereinabove while adjudicating the very same issue in A.Y.2009-10 that CG-VAK Software and Exports Ltd., had earned operating profit in A.Y.2007-08, 2009-10 and 2010-11 and hence, the ld. TPO is wrong in treating the said comparable as a persistent loss making company. In view of the reasoning given hereinabove for A.Y.2009-10 and in view of the decision rendered by this Tribunal in the case of sister concern of the assessee DCIT vs. Nomura Structured Finance Services Pvt. Ltd., in ITA No.1711/Mum/2015 for A.Y.2010-11 dated 03/02/2022, we direct the ld. TPO / AO to include CG-VAK Software and Exports Ltd., ITA No.1146/Mum/2014 and other appeals Nomura Services India Pvt. Ltd., 11 in the final list of comparables. Accordingly, the original grounds raised by the Revenue are dismissed. 8. We find that the Revenue had also raised additional grounds before us vide letter dated 26/07/2017 stating that CG-VAK Software and Exports Ltd., is functionally not comparable having regard to its turnover with that of the assessee company. We do not deem it fit to even admit these additional grounds in view of the fact that these additional grounds does not emanate from the orders of the lower authorities in as much as CG- VAK Software and Exports Ltd., was rejected by the ld. TPO only on the ground that it is persistent loss making company as stated supra. It was not rejected by the ld. TPO on functional dissimilarity. Hence, we hold that the additional grounds raised by the Revenue do not emanate from the orders of the lower authorities and hence, does not deserve to get even admitted in the facts and circumstances of the instant case. 9. Pursuant to dismissal of the Revenue appeal for A.Y.2010-11, the adjudication of various grounds of inclusion and exclusion of other comparable companies in addition to grant of working capital adjustment etc., raised by the assessee in its cross objections, need not be gone into as it would be academic in nature, in view of the fact that assessee’s pricing after inclusion of CG-VAK Software and Exports Ltd., in the final list of comparables would be at arm’s length. Hence, the adjudication of grounds in cross objections of the assessee are left open and no opinion is given hereunder. ITA No.1146/Mum/2014 and other appeals Nomura Services India Pvt. Ltd., 12 10. In the result, appeal of the revenue for A.Y.2010-11 in ITA No.1710/Mum/2015 is dismissed and Cross objection of the assessee in CO No.70/Mum/2015 is dismissed as infructuous. TO SUM UP: ITA NO. AY APPEAL BY RESULT ITA No. 1146/Mum/2014 2009-10 Assessee Partly Allowed ITA No.1710/Mum/2015 2010-11 Revenue Dismissed CO No.70/Mum/2015 2010-11 Assessee Dismissed Order pronounced on 15/07/2022 by way of proper mentioning in the notice board. Sd/- (VIKAS AWASTHY) Sd/- (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 15/07/2022 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary / Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy//