FIS Global Business Solutions India Pvt. Ltd., New Delhi V. DCIT, Circle- 11(1), New Delhi

ITA 423/DEL/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8393 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2010-2011
• Appeal Filed On: 21-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHASHI KAJLE SENIOR
• Keywords: Depreciation; Transfer pricing; Rectification of order; Principle of natural justice; International transaction; Reasonable cause; Set aside
• Section: 271(1)(c); 143(3); 234B; 250; 144C; 13; 154; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.422/DEL./2019 (ASSESSMENT YEAR : 2010-11) ITA NO.423/DEL./2019 (ASSESSMENT YEAR : 2010-11) FIS GLOBAL BUSINESS SOLUTIONS INDIA VS. DCIT, CIRC LE 11 (1), PRIVATE LIMITED, NEW DELHI. S 405 (LGF), GREATER KAILASH PART II, NEW DELHI 110 048. (PAN : AAACH2815H) ITA NO.3087/DEL./2019 (ASSESSMENT YEAR : 2010-11) ITA NO.579/DEL./2019 (ASSESSMENT YEAR : 2010-11) DCIT, CIRCLE 11 (1), VS. FIS GLOBAL BUSINESS SOLUT IONS INDIA NEW DELHI. PRIVATE LIMITED, S 405 (LGF), GREATER KAILASH PART II, NEW DELHI 110 048. (PAN : AAACH2815H) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VISHAL KALRA, ADVOCATE REVENUE BY : MS. SHASHI KAJLE, SENIOR DR DATE OF HEARING : 04.03.2020 DATE OF ORDER : 18.06.2020 O R D E R ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 2 PER KULDIP SINGH, JUDICIAL MEMBER : AFORESAID FOUR CROSS APPEALS FILED BY FIS GLOBAL BU SINESS SOLUTIONS INDIA PRIVATE LIMITED (HEREINAFTER REFERR ED TO AS THE TAXPAYER) AND DCIT, CIRCLE 11 (1), NEW DELHI (HERE INAFTER REFERRED TO AS THE REVENUE) CHALLENGING THE COMPO SITE IMPUGNED ORDERS DATED 12.10.2018 PASSED BY THE COMMISSIONER OF INCOME- TAX (APPEALS)-43, NEW DELHI DISMISSING OF THE APPEA LS FILED AGAINST THE ORDERS PASSED BY THE ASSESSING OFFICER (AO) UNDER SECTION 143 (3) READ WITH SECTION 144C AND ORDER UN DER SECTION 154 READ WITH SECTION 143 (3) OF THE INCOME-TAX ACT, 19 61 (FOR SHORT THE ACT) FOR THE SAME YEAR I.E. ASSESSMENT YEAR 2010-11 ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER TO AV OID THE REPETITION OF DISCUSSION. 2. APPELLANT, FIS GLOBAL BUSINESS SOLUTIONS INDIA P RIVATE LIMITED, THE TAXPAYER, BY FILING THE PRESENT APPEAL S SOUGHT TO SET ASIDE THE IMPUGNED ORDERS BOTH DATED 12.10.2018 PAS SED BY THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-43, NEW DELHI CHALLENGING THE ORDERS PASSED BY THE LD. TPO/AO QUA THE ASSESSM ENT YEAR 2010-11 ON THE GROUNDS INTER ALIA THAT :- ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 3 ITA NO.422/DEL/2019 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ('LD. AO')/ COMM ISSIONER OF INCOME TAX(APPEALS) ('LD.CIT(A)')! TRANSFER PRICING OFFICER ('LD.TPO') HAS ERRED IN ASSESSING THE TOTAL INCOME OF THE APPELLANT UNDER SECTION 143(3) READ WITH SECTION144 C OF THE ACT, FOR THE RELEVANT ASSESSMENT YEAR AT INR 51,94,13,02 5 AS AGAINST THE RETURNED INCOME OF INR 33,64,00,315. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/ CIT(A) HAVE ERRED IN NOT APPRECIATING THAT THE REFERENCE MADE BY THE LD. AO TO THE LD. TPO FOR DET ERMINATION OF ARM'S LENGTH PRICE WAS VOID AB-INITIO AND BAD IN LAW AS THE LD. AO FAILED TO PROVIDE COPY OF APPROVAL GRANTED BY TH E COMMISSIONER OF INCOME-TAX AND AFFORDING ANY OPPORT UNITY OF BEING HEARD TO THE APPELLANT, IN VIOLATION OF THE P RINCIPLES OF NATURAL JUSTICE 3. THE LD. TPO/ AO/ LD. CIT(A) ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN DETERMINING THE ARM'S LENGTH ADJUSTMENT TO THE APPELLANT'S INTERNATIONAL TRANSAC TIONS FROM ASSOCIATED ENTERPRISES ('AES') AND THEREBY RESULTIN G IN THE ENHANCEMENT OF RETURNED INCOME OF THE APPELLANT. 4. THE LD. AO/ TPO/ CIT(A) ERRED ON FACTS AND IN LA W IN THE ASSESSMENT OF THE ARM'S LENGTH PRICE OF THE APPELLA NT'S INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRI SES FOR ITS IT ENABLED SERVICES ('ITES') SEGMENT IN THE FOLLOWING MANNER: 4.1. THE LD. AO/LD. TPO/LD. CIT(A) ERRED IN REJECT ING THE QUANTITATIVE FILTERS SELECTED BY THE APPELLANT IN T HE TP DOCUMENTATION/ FRESH SEARCH BY APPLYING FEW ADDITIO NAL/ MODIFIED QUANTITATIVE FILTERS WHICH LACKED VALID AN D COGENT REASONING 4.2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. AO/ CIT(A)/ TPO HAVE ERRED IN REJECTING THE TRANSFER PRICING STUDY OF THE APPELLANT AND USING ARBITRARY FILTERS 4.3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. AO/ CIT(A)/ TPO HAVE ERRED, IN ARBITRA RILY REJECTING CERTAIN FUNCTIONALLY COMPARABLE COMPANIES IDENTIFIE D BY THE APPELLANT ON A SUBJECTIVE BASIS, INTER ALIA, USING UNREASONABLE COMPARABILITY CRITERIA. 4.4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. AO/ TPO/ CIT(A) HAVE ERRED IN ARBITRAR ILY SELECTING COMPARABLE COMPANIES BASED ON INCORRECT APPRECIATIO N OF FUNCTIONAL, ASSET AND RISK PROFILE, AND ARBITRARY F ILTERS. ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 4 4.5. THE LD. AO/ TPO/ CIT(A) ERRED IN DENYING THE ECONOMIC ADJUSTMENT FOR THE DIFFERENCE IN WORKING CAPITAL OF THE APPELLANT VIS-A-VIS COMPARABLE COMPANIES. 4.6. THE LD. AOI TPO/ CIT(A) ERRED IN DENYING THE ECONOMIC ADJUSTMENT FOR THE DIFFERENCE IN RISK PROFILE OF TH E APPELLANT VIS- A-VIS COMPARABLE COMPANIES. 4.7. THE LD. AO/ TPO/ CIT(A) WRONGLY COMPUTED THE MARGINS OF THE COMPARABLE COMPANIES. 4.8. THAT THE LD. AO/ TPO/ CIT(A) HAS ERRED IN MAK ING A TRANSFER PRICING ADJUSTMENT ESPECIALLY AS THE HON'B LE COMMISSIONER OF INCOME TAX (APPEALS) HAS ACCEPTED T HE ARM'S LENGTH NATURE OF THE INTERNATIONAL TRANSACTIONS IN FY 2004-05, FY 2006-07, FY 2007-08 AND FY 2008-09. 4.9 THE LD. AO/ TPO/ CIT(A) CONSIDERED THE CURRENT YEAR (I.E. FINANCIAL YEAR 2009-10) DATA FOR COMPARABILIT Y DESPITE THE FACT THAT AT THE TIME OF COMPARISON DONE BY THE APP ELLANT, DATA FOR FINANCIAL YEAR 2009-10 WAS NOT AVAILABLE WITHIN THE PUBLIC DOMAIN. 5. THAT THE LD. AO/ TPO/ CIT(A) ERRED BY NOT GIVING DUE COGNIZANCE TO THE FACT THAT THE APPELLANT HAS ENTER ED INTO ADVANCE PRICING AGREEMENT WITH CBDT FOR IDENTICAL INTERNATIONAL TRANSACTIONS AND HAS ERRED IN NOT APP LYING THE TERMS OF ADVANCE PRICING AGREEMENT TO INTERNATIONAL TRANSACTIONS WITH AES DESPITE THE FACT THAT THERE I S NO CHANGE IN THE FUNCTIONS, ASSETS AND RISKS ('FAR') OF THE APPE LLANT IN THE RELEVANT YEAR COMPARED TO THE YEARS COVERED UNDER A PA. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED BOTH IN FACTS AND IN LAW IN INITIATING PE NALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. ITA NO.423/DEL/2019 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER ('AO') COMMISSIONER OF I NCOME TAX(APPEALS) ('LD.CIT(A)')/ TRANSFER PRICING OFFICE R ('LD.TPO') HAS ERRED IN ASSESSING THE TOTAL INCOME OF THE APPELLANT UNDER SECTION 154 READ WITH SECTION143(3) OF THE ACT, FOR THE RELEVANT ASSESSMENT YEAR AT INR 65,26,55,04 0 AS AGAINST THE RETURNED INCOME OF INR 33,64,00,315. ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 5 2. THE LD. TPO/ AO/ CIT(A) ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN DETERMINING THE ARM'S LENGTH ADJUSTMENT TO THE APPELLANT'S INTERNATIONAL TRANSAC TIONS FROM ASSOCIATED ENTERPRISES ('AES') AND THEREBY RESULTIN G IN THE ENHANCEMENT OF RETURNED INCOME OF THE APPELLANT. 3. THE LD. AO/ TPO/ CIT(A) ERRED ON FACTS AND IN LA W IN THE ASSESSMENT OF THE ARM'S LENGTH PRICE OF THE APPELLA NT'S INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRI SES FOR ITS SOFTWARE DEVELOPMENT SERVICES ('SDS') SEGMENT IN TH E FOLLOWING MANNER: 3.1. THE LD. AO/LD. TPO/LD. CIT(A) ERRED IN REJECT ING THE QUANTITATIVE FILTERS SELECTED BY THE APPELLANT IN T HE TP DOCUMENTATION/ FRESH SEARCH BY APPLYING FEW ADDITIO NAL/ MODIFIED QUANTITATIVE FILTERS WHICH LACKED VALID AN D COGENT REASONING 3.2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. AO/ CIT(A)/ TPO HAVE ERRED IN REJECTING THE TRANSFER PRICING STUDY OF THE APPELLANT AND USING ARBITRARY FILTERS 3.3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. AO/ CIT(A)/ TPO HAVE ERRED, IN ARBITRA RILY REJECTING CERTAIN FUNCTIONALLY COMPARABLE COMPANIES IDENTIFIE D BY THE APPELLANT ON A SUBJECTIVE BASIS, INTER ALIA, USING UNREASONABLE COMPARABILITY CRITERIA. 3.4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. AO/ TPO/ CIT(A) HAVE ERRED IN ARBITRAR ILY SELECTING COMPARABLE COMPANIES BASED ON INCORRECT APPRECIATIO N OF FUNCTIONAL, ASSET AND RISK PROFILE, AND ARBITRARY F ILTERS . 3.5 THE LD. AO/ TPO/CIT(A) ERRED IN DENYING THE ECO NOMIC ADJUSTMENT FOR THE DIFFERENCE IN WORKING CAPITAL OF THE APPELLANT VIS-A-VIS COMPARABLE COMPANIES. 3.6 THE LD. AO/ TPO/ CIT(A) ERRED IN DENYING THE EC ONOMIC ADJUSTMENT FOR THE DIFFERENCE IN RISK PROFILE OF TH E APPELLANT VIS- A-VIS COMPARABLE COMPANIES. 3.7 THE LD. AO/ TPO/ CIT(A) WRONGLY COMPUTED THE MA RGINS OF THE COMPARABLE COMPANIES. 3.8 THAT THE LD. AO/ TPO/ CIT(A) HAS ERRED IN MAKIN G A TRANSFER PRICING ADJUSTMENT ESPECIALLY AS THE HON'B LE COMMISSIONER OF INCOME TAX (APPEALS) HAS ACCEPTED T HE ARM'S LENGTH NATURE OF THE INTERNATIONAL TRANSACTIONS IN FY 2004-05, FY 2006-07, FY 2007-08 AND FY 2008-09. ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 6 3.9 THE LD. AO/ TPO/ CIT(A) CONSIDERED THE CURRENT YEAR (I.E. FINANCIAL YEAR 2009-10) DATA FOR COMPARABILIT Y DESPITE THE FACT THAT AT THE TIME OF COMPARISON DONE BY THE APP ELLANT, DATA FOR FINANCIAL YEAR 2009-10 WAS NOT AVAILABLE WITHIN THE PUBLIC DOMAIN. 4. THAT THE LD. AO/ TPO/ CIT(A) ERRED BY NOT GIVING DUE COGNIZANCE TO THE FACT THAT THE APPELLANT HAS ENTER ED INTO ADVANCE PRICING AGREEMENT WITH CBDT FOR IDENTICAL INTERNATIONAL TRANSACTIONS AND HAS ERRED IN NOT APP LYING THE TERMS OF ADVANCE PRICING AGREEMENT TO INTERNATIONAL TRANSACTIONS WITH AES DESPITE THE FACT THAT THERE I S NO CHANGE IN THE FUNCTIONS, ASSETS AND RISKS ('FAR') OF THE APPE LLANT IN THE RELEVANT YEAR COMPARED TO THE YEARS COVERED UNDER A PA. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234A OF THE ACT, IGNORING THE FACT THAT THE RETURN WAS FILED WITHIN THE STATUTORY DUE DATE AS EXTENDED BY CBDT. FURTHER, THE LD. CIT( A) ERRED IN NOT GIVING ANY SPECIFIC FINDING IN RELATION TO INCO RRECT LEVY OF INTEREST UNDER SECTION 234A OF THE ACT. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B AN D 234C OF THE ACT. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED BOTH IN FACTS AND IN LAW IN INITIATING PE NALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT. 3. APPELLANT, DCIT, CIRCLE 11 (1), NEW DELHI BY FIL ING THE PRESENT APPEALS SOUGHT TO SET ASIDE THE IMPUGNED OR DERS BOTH DATED 12.10.2018 PASSED BY THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-43, NEW DELHI CHALLENGING THE ORDERS PASS ED BY THE LD. TPO/AO QUA THE ASSESSMENT YEAR 2010-11 ON THE GROUN DS INTER ALIA THAT :- ITA NO.3087/DEL/2019 1. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE AD DITION OF RS.4,30,50,8768/- MADE BY THE AO ON ACCOUNT OF ALP ADJUSTMENT OF INTERNATIONAL TRANSACTIONS FROM ASSOCIATED ENTER PRISES. ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 7 ITA NO.579/DEL/2019 1. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE AD DITION OF RS.4,30,50,8768/- MADE BY THE AO ON ACCOUNT OF ALP ADJUSTMENT OF INTERNATIONAL TRANSACTIONS FROM ASSOCIATED ENTER PRISES. 4. AT THE VERY OUTSET, THE LD. DR FOR THE REVENUE S UBMITTED THAT THERE IS A DELAY OF 70 DAYS IN ITA NO.3087/DEL/2019 FILED BY THE REVENUE IN FILING THE APPEAL BEFORE THE TRIBUNAL AN D SOUGHT TO CONDONE THE DELAY. KEEPING IN VIEW THE REASONABLE CAUSE GIVEN IN THE APPLICATION, THE DELAY OF 70 DAYS IN FILING THE PRESENT APPEAL IS HEREBY CONDONED. 5. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : FIS GLOBAL BUSINESS SOLUT IONS INDIA PRIVATE LIMITED (FORMERLY EFUNDS INTERNATIONAL INDI A PRIVATE LIMITED), THE TAXPAYER WAS INCORPORATED IN JULY 199 7 AND OPERATES AS A SOFTWARE DEVELOPMENT CENTRE FOR GROUP COMPANIE S AND A DEDICATED PROVIDER OF BUSINESS PROCESS OUTSOURCING (BPO) SERVICES TO ITS ASSOCIATED ENTERPRISES (AE). THE T AXPAYER OPERATES THROUGH THE FOLLOWING BUSINESS DIVISIONS :- (I) SOFTWARE DEVELOPMENT CENTRE (SDC), CHENNAI : TH E COMPANY HAS A SOFTWARE DEVELOPMENT CENTRE LOCATED I N CHENNAI WHICH PROVIDES SOFTWARE PRODUCT ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 8 DEVELOPMENT AND RELATED SUPPORT SERVICES TO ITS AES ; AND (II) SHARED SERVICES CENTRES (SSC), GURGAON : THE S SC IS ENGAGED IN THE PROVISION OF FINANCIAL SHARED SERVIC ES AND DATA ENTRY SERVICES (FSS). THIS CENTRE ACTS AS A DEDICATED FINANCE AND ACCOUNTS BUSINESS PROCESS OUTSOURCING CENTRE FOR THE CUSTOMERS OF ITS ASSOCIA TED ENTERPRISES. 6. DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER E NTERED INTO INTERNATIONAL TRANSACTION WITH ITS AE AS UNDER :- S.NO. INTERNATIONAL TRANSACTION AMOUNT (IN RS.) 1 SOFTWARE DEVELOPMENT SERVICES 684,304,076 2 BUSINESS PROCESS MANAGEMENT AND CALL CENTRE SERVICES 1,579,457,268 3 INTEREST RECEIVED (LOAN WITH INTEREST 6.25%) 41,392,674 4 INTEREST RECEIVED (LOAN WITH INTEREST 6.00%) 23,796,074 7. THE TAXPAYER IN ORDER TO BENCHMARK ITS INTERNATI ONAL TRANSACTIONS QUA SOFTWARE DEVELOPMENT SERVICES (S DS) ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) WITH OPERATI NG PROFIT/ OPERATING COST (OP/OS) AS PROFIT LEVEL INDICATOR (P LI) AS THE MOST APPROPRIATE METHOD (MAM) CHOSEN 11 COMPARABLES AND COMPUTED AVERAGE MARGIN BY USING MULTIPLE YEAR DATA AT 13.94% AS AGAINST ITS OWN MARGIN OF 15.64% AND FOUND ITS TRAN SACTIONS AT ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 9 ARMS LENGTH. HOWEVER, LD. TPO ACCEPTED THE METHOD OF TNMM WITH OP/OC AS PROFIT LEVEL INDICATOR (PLI) ADOPTED BY THE TAXPAYER AFTER APPLYING VARIOUS FILTERS ENUMERATED IN PARA 2.1 OF THE TP ORDER AND AFTER CALLING OBJECTIONS OF THE TAXPAY ER, FINALLY SELECTED 13 COMPARABLES WITH AVERAGE OF 27.55% AND COMPUTED THE MARGIN OF THE TAXPAYER AT 9.75% AND CONSEQUENTLY PR OPOSED ADJUSTMENT AT RS.547,40,801/-. 8. IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACT IONS QUA ITES, THE TAXPAYER AGAIN APPLIED TNMM WITH OP/OC AS THE PLI AS MAM CHOSEN 10 COMPARABLES AND COMPUTED MARGIN AT 13.94% AS AGAINST TAXPAYERS OWN MARGIN OF 15.64% AND FOUN D ITS TRANSACTIONS AT ARMS LENGTH. HOWEVER, LD. TPO AFT ER APPLYING VARIOUS FILTERS ACCEPTED THE METHOD OF TNMM WITH OP /OC AS PLI ADOPTED BY THE TAXPAYER CHOSEN 9 COMPARABLES WITH M ARGIN OF 32.07% AND COMPUTED THE MARGIN OF THE TAXPAYER AT 1 8.57% AND THEREBY PROPOSED THE ADJUSTMENT AT RS.17,80,96,798/ -. 9. LD. TPO ALSO PROPOSED ADJUSTMENT ON ACCOUNT OF I NTEREST TO BE RECEIVED BY THE TAXPAYER ON LOAN ADVANCED TO THE AE @ 14.88% PER ANNUM AT RS.7,85,01,217/-. 10. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. CIT (A) BY WAY OF FILING THE APPEAL WHO HAS PARTLY ALLOWED TH E SAME BY MAKING EXCLUSION OF FIVE COMPARABLES AND THEREBY RE DUCED THE ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 10 ADJUSTMENT FROM RS.17,80,96,798/- TO RS.14,93,29,56 7/- IN THE SDC SEGMENT AND REDUCED THE ADJUSTMENT FROM RS.54,7 4,08,012/- TO RS.4,04,57,154/- BY REJECTING THE TWO COMPARABLE S IN ITES SEGMENT AND ALSO DELETED THE ADDITION OF RS.7,85,01 ,217/- AND RS.49,15,912/- ON ACCOUNT OF INTEREST RECEIVABLES A ND LOANS ADVANCED TO ITS AE AND ON ACCOUNT OF FOREIGN TRAVEL EXPENSES RESPECTIVELY. 11. CONSEQUENTLY, TPO/AO AFTER GIVING EFFECT TO THE ORDER PASSED BY THE LD. CIT (A) MADE THE ADJUSTMENT OF RS.14,93,29,567/- AND RS.4,04,57,154/- IN ITES AND SDC SEGMENT RESPECTIVELY. 12. HOWEVER, AO AFTER INVOKING THE PROVISIONS CONTA INED U/S 154 READ WITH SECTION 143 (3) PASSED RECTIFICATION ORDER DATED 04.02.2016 BY RECTIFYING THE AMOUNT OF ALP ADJUSTME NT OF RS.5,47,40,801/- AND RS.7,85,01,217/- IN SDC SEGMEN T AND INTEREST RECEIVABLES ON LOAN ADVANCED RESPECTIVELY. 13. FEELING AGGRIEVED, THE TAXPAYER AS WELL AS THE REVENUE HAVE COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PR ESENT CROSS APPEALS. 14. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 11 ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. (TAXPAYERS APPEALS) GROUND NOS.1 TO 4 & 4.1 TO 4.9 OF ITA NO.422/DEL/2019 GROUND NOS.1 TO 3 & 3.1 TO 3.9 OF ITA NO.422/DEL/2019 AND GROUND NO.5 OF ITA NO.422/DEL/2019 GROUND NO.4 OF ITA NO.423/DEL/2019 (REVENUES APPEALS) GROUND NO.1 OF ITA NO.579/DEL/2019 GROUND NO.1 OF ITA NO.3087/DEL/2019 15. GROUND NOS.1 TO 4 & 4.1 TO 4.9 AND GROUNDS NO.1 TO 3 & 3.1 TO 3.9 OF ITA NOS.422/DEL/2019 & 423/DEL/2019 RESP ECTIVELY RAISED BY THE TAXPAYER REGARDING TRANSFER PRICING A DJUSTMENT MADE BY THE AO/TPO/CIT(A) HAVE NOT BEEN PRESSED DURING T HE COURSE OF ARGUMENTS RATHER LD. AR FOR THE TAXPAYER ARGUED GRO UND NO.5 & GROUND NO.4 OF ITA NOS.422/DEL/2019 & 423/DEL/2019 RESPECTIVELY SEEKING RELIEF ON THE BASIS OF ADVANCE PRICING AGREEMENT (APA) ENTERED INTO WITH CENTRAL BOARD OF DIRECT TAXES (CBDT) ON 29.08.2016 FOR CONSECUTIVE 5 YEARS FROM F Y 2014-15 TO FY 2018-19 (REFERRED TO AS APA YEARS) AND CONS ECUTIVE 4 ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 12 YEARS FROM FY 2010-11 TO FY 2013-14 (REFERRED TO AS ROLLBACK YEARS. 16. LD. AR FOR THE TAXPAYER CONTENDED THAT AO/TPO/C IT(A) HAVE NOT TAKEN COGNIZANCE OF THE FACT THAT THE TAXP AYER HAS ENTERED INTO ADVANCE PRICING AGREEMENT (APA) WITH CBDT FOR IDENTICAL INTERNATIONAL TRANSACTIONS THUS NOT APPLIED THE TER MS OF THE APA TO INTERNATIONAL TRANSACTIONS WITH ITS AE DESPITE THE FACT THAT THERE IS NO CHANGE IN THE FAR OF THE TAXPAYER IN THE RELEVAN T YEAR VIS--VIS YEARS COVERED UNDER APA. 17. UNDISPUTEDLY, THE TAXPAYER HAS ENTERED INTO APA DATED AUGUST 29, 2016 WITH CBDT, AVAILABLE AT PAGES 17 TO 56 OF THE PAPER BOOK VOLUME 1. TERMS OF AGREEMENT AND COVERE D TRANSACTIONS OF APA READ AS UNDER :- 2. THE TERM OF THE AGREEMENT THE AGREEMENT SHALL APPLY TO CONSECUTIVE FIVE YEARS COMMENCING FROM PREVIOUS YEAR 2014-15 TO PREVIOUS YEAR 2018-19 (RELEVANT TO ASSESSMENT YEARS 2015-16 TO 2019-20). THE AGREEMENT SHALL ALSO APPLY TO CONSECUTIVE FOUR ROLLBACK YEARS COMMENCING FROM PREVIOUS YEAR 2010-11 TO PREV IOUS YEAR 2013-14 (RELEVANT TO ASSESSMENT YEARS 2011-12 TO 20 14-15) {HEREINAFTER REFERRED TO AS 'ROLLBACK YEARS'}. 3. COVERED TRANSACTION THE INTERNATIONAL TRANSACTIONS OF PROVISION OF SOFT WARE DEVELOPMENT SERVICES INCLUDING DEBTORS/RECEIVABLES, PROVISION OF IT-ENABLED SERVICES INCLUDING DEBTORS/RECEIVABLES, REIMBURSEMENT OF ESPP AND ESOP/RSUS PAID/PAYABLE AN D REIMBURSEMENT OF EXPENSES BETWEEN THE APPLICANT AND ITS AES, AS DESCRIBED IN APPENDIX I, SHALL BE THE COVERED TR ANSACTIONS FOR ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 13 THE AGREEMENT AND THIS AGREEMENT SHALL APPLY TO THE SE INTERNATIONAL TRANSACTIONS. 18. IT IS ALSO AGREED UPON IN APA THE ARMS LENGTH PRICE AS UNDER:- 6. ARM'S LENGTH PRICE THE ARM'S LENGTH PRICE (HEREINAFTER REFERRED TO AS 'ALP') OF THE COVERED TRANSACTIONS SHALL BE 16.60% FOR THE PREVIO US YEAR OF THE APA TERM. THE DETERMINATION OF ALP FOR ROLLBACK YEARS IS SUBJ ECT TO THE CONDITION THAT THE ALP WOULD GET MODIFIED TO THE EX TENT THAT IT DOES NOT RESULT IN REDUCING THE TOTAL INCOME OR INCREASI NG THE TOTAL LOSS, AS THE CASE MAY BE, OF THE APPLICANT AS ALREADY DECLAR ED IN THE RETURNS OF INCOME OF THE SAID YEARS. 19. LD. AR FOR THE TAXPAYER CONTENDED THAT APA ARE DULY APPLICABLE TO THE INTERNATIONAL TRANSACTIONS ENTERE D INTO BETWEEN THE TAXPAYER AND ITS AE DURING THE YEAR UNDER ASSESSMEN T AS THERE IS NO CHANGE IN THE FUNCTIONS, ASSETS & RISKS (FAR) OF TH E TAXPAYER DURING THE YEAR UNDER ASSESSMENT VIS--VIS YEARS CO VERED UNDER APA AND RELIED UPON THE CASES CITED AS PCIT VS. AMERIPRISE INDIA PVT. LTD. IN ITA NO.206/2016 RENDERED BY HONBLE DE LHI HIGH COURT AND CASES CITED AS SPENCER STAURT (INDIA) PVT . LTD. VS. ACIT IN ITA NOS.7117/MUM/2012, 1680/MUM/2014, 922/MUM/2015 & 1832/MUM/2016 AND 3I INDIA PVT. LTD. VS. DCIT IN ITA NO.581/MUM/2015 RENDERED BY THE COORDIN ATE BENCH OF THE TRIBUNAL . ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 14 20. UNDISPUTEDLY, ARMS LENGTH MARGIN (OPERATING PR OFIT / OPERATIVE COST) (OP/OC) AGREED UPON IN THE APA IS 1 6.60% FOR BOTH THE SEGMENTS VIZ. SDS SEGMENT AND ITES SEGMENT WHEREAS DURING THE YEAR UNDER ASSESSMENT CONSOLIDATED MARGI N (OP/OC) OF THE TAXPAYER IS 19.26% (I.E. SDS SEGMENT 18.68% AND ITES SEGMENT 18.57%). THE TAXPAYER COMPUTED THE CONSOLI DATED MARGIN (OP/OC) FOR THE YEAR UNDER CONSIDERATION AS PER APA AT 19.26% (I.E. 21.20% FOR SDS SEGMENT AND 18.39% FOR ITES SE GMENT), AVAILABLE AT PAGE 57 OF THE PAPER BOOK, WHICH IS EX TRACTED AS UNDER:- PARTICULARS SOFTWARE DEVELOPMENT SERVICE SEGMENT (A) ITES/ BPO SERVICE SEGMENT (B) NON OPERATING ITEM (C) TOTAL (A+B+C) RECO AS PER AUDITED FINANCIALS FY 2009-10 INCOME REVENUE 71,81,31,453 1,56,43,92,305 2,28,25,23,758 2,28,25,23,758 ADD : NON OPERATING INCOME 2,75,61,058 2,75,61,058 9,71,13,873 INTEREST INCOME ON FD 6,51,88,748 6,51,88,748 INTEREST INCOME ON LOANS 14,56,140 14,56,140 PROFIT ON SALE OF ASSETS 29,07,927 29,07,927 INTEREST ON TAX REFUND TOTAL INCOME 71,81,31,453 1,56,43,92,305 2,37,96,37,631 2,37,96 ,37,631 EXPENDITURE DIRECT COST 33,42,62,321 85,33,87,455 1,18,76,49,7 76 INDIRECT COST 20,90,58,085 30,04,66,214 50,95,24,299 CORPORATE ALLOCATION 2,64,33,176 9,02,19,123 11,66,52,299 DEPRECIATION 2,26,91,805 7,71,15,736 9,98,07,541 BANK 90,463 2,37,096 3,27,559 ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 15 CHARGES 1,94,02,54,250 ADD : NON OPERATING EXPENSES INTEREST ON SECURED LOAN 9,97,637 9,97,637 FOREIGN EXCHANGE OPERATING GAIN / LOSS 1,40,92,023 1,40,92,023 ESOP COST 1,30,71,913 1,30,71,913 CORPORATE ALLOCATION NON OPERATING COST (REVENUE DIFF) (18,68,795) (18,68,795) TOTAL EXPENDITURE 59,25,35,850 1,32,14,25,623 2,62,92,778 1,94,02,54, 250 OPERATING PROFIT 12,55,95,603 24,29,66,682 36,85,62,286 OPERATING PROFIT/ OPERATING COST 21.20% 18.39% 19.26% PBT AS PER AUDITED FINANCIALS AS ON 31 ST MARCH 2010 43,93,83,381 21. LD. DR FOR THE REVENUE WITHOUT DISPUTING THE FA CT THAT THERE IS NO CHANGE IN THE FAR OF THE TAXPAYER IN THE YEAR UNDER ASSESSMENT VIS--VIS YEARS COVERED UNDER APA AND HA S ALSO NOT DISPUTED THE CONSOLIDATED MARGIN OF 19.26% COMPUTED BY THE TAXPAYER AS PER TERMS OF THE APA AGREEMENT, EXTRACT ED IN THE PRECEDING PARA, CONTENDED THAT SINCE APA HAS BEEN E NTERED INTO BETWEEN THE TAXPAYER OF THE CBDT FOR SPECIFIC YEARS , THE SAME CANNOT BE APPLIED TO THE YEARS UNDER ASSESSMENT. T HE LD. DR FURTHER CONTENDED THAT ALP RATE AGREED UPON IN THE APA FOR EARLIER ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 16 AND SUBSEQUENT YEARS CANNOT OVERRULE THE STATUTORY DETERMINATION OF ALP MADE BY THE TPO AS PER METHOD PRESCRIBED UND ER THE LAW. 22. WE ARE OF THE CONSIDERED VIEW THAT CONTENTION R AISED BY THE LD. DR IS NOT TENABLE FOR THE REASON THAT WHEN UNDI SPUTEDLY THERE IS NO CHANGE IN THE FAR OF THE TAXPAYER IN THE YEAR UN DER ASSESSMENT VIS--VIS YEARS COVERED UNDER APA AND CONSOLIDATED MARGIN (OP/OC) COMPUTED AS PER APA AT 19.26% IS MUCH MORE THAN THE CONSOLIDATED MARGIN AGREED UPON BETWEEN THE TAXPAYE R AND THE CBDT FOR THE YEARS COVERED UNDER APA AT 16.60% FOR BOTH THE SEGMENTS, APA THOUGH NOT SPECIFICALLY APPLICABLE TO THE YEAR UNDER ASSESSMENT, IS HAVING PERSUASIVE VALUE TO THE DISPU TE BETWEEN THE PARTIES FOR OTHER YEARS. 23. HONBLE DELHI HIGH COURT IN THE CASE OF PCIT VS. AMERIPRISE INDIA PVT. LTD. (SUPRA) HELD THAT WHEN UNDER THE APA ENTERED INTO BETWEEN THE TAXPAYER AND THE CBDT UNDE R SECTION 92CC AFOREMENTIONED COST PLUS PRICING METHODOLOGY H AS BEEN IMPLICITLY ACCEPTED, THE APA HAS PERSUASIVE VALUE T O THE DISPUTE IN QUESTION FOR OTHER YEARS. 24. COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 3I INDIA PRIVATE LTD. VS. DCIT (SUPRA) ALSO RELIED UPON APA ENTERED INTO BETWEEN THE TAXPAYER AND THE CBDT FOR THE SUBSEQUEN T YEARS AND HAS HELD AS UNDER :- ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 17 18 WHENCE, ON SIMILAR FUNCTIONS AND THE TRANSACTIONS THE ARMS LENGTH PRICE HAS BEEN AGREED AT 21% WHICH IF COMPARED WITH THE MARGIN OF 20% IN THI S YEAR, THEN SAME IS NOT AT VARIANCE, THEREFORE, IT C AN BE HELD THAT THE ASSESSEES MARGIN OF 20% FOR THE FUNC TIONS PERFORMED ARE AT ARMS LENGTH PRICE. ACCORDINGLY, WE HOLD THAT UPWARD ADJUSTMENT OF RS.8,83,93,866/- IS WITHOUT ANY BASIS AND IS DIRECTED TO BE DELETED. 25. COORDINATE BENCH OF THE TRIBUNAL IN ANOTHER CAS E TILTED AS SPENCER STAURT (INDIA) PVT. LTD. VS. ACIT (SUPRA) ALSO DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE TAXPAYER IN THE SI MILAR FACTS AND CIRCUMSTANCES BY RELYING UPON THE APA WHICH WAS FOR SUBSEQUENT YEARS BY OBSERVING AS UNDER :- 13. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW, APA DATED 30TH AUGUST 2016, AS WELL AS THE ORDER PASSED BY THE TRIBUNAL DATED 01/06/2018 IN CA SE OF ASSESSEE'S AE. WE FOUND THAT APA HAS LAID DOWN T HE APPLICATION OF MOST APPROPRIATE TRANSFER PRICING ME THOD AND THE ARM'S LENGTH PRICE FOR THESE TRANSACTIONS. WE ALSO FOUND THAT AFTER HAVING A GREAT DISCUSSION, TH E FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISK UNDERTAKEN BY THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES WAS FOUND TO BE REASONABLE. ACCORDINGLY , WE ALLOW ASSESSEE TO WITHDRAW THESE GROUNDS FOR THE A.Y.2008-09 AND 2009-10 IN SO FAR AS THESE GROUNDS ARE COVERED BY THE APA, THE PRINCIPLE LAID DOWN IN THE APA FOR BENCHMARKING ANALYSIS IN RESPECT OF THE INTERNATIONAL TRANSACTIONS BEING GUIDANCE VALUE SIN CE THERE IS NO CHANGE IN THE SAID ASSESSMENT YEARS IN THE NATURE OF INTERNATIONAL TRANSACTIONS. WE ALSO DIREC T THE DEPARTMENT TO PASS AN ORDER GIVING EFFECT U/S.92 CD (5) OF THE ACT IN THE A.Y. 2010-11 & 2011-12. WHEREAS FOR A.Y.2008-09 AND A.Y.2009-10, WE OBSERVE THAT THE PRINCIPLES LAID DOWN IN THE APA FOR BENCHMARKING/ COMPARABILITY ANALYSIS IN RESPECT OF THE INTERNATIO NAL ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 18 TRANSACTIONS SHALL HAVE A GUIDANCE VALUE SINCE THER E IS NO CHANGE IN THE SAID ASSESSMENT YEARS IN THE NATUR E OF THE INTERNATIONAL TRANSACTIONS, FUNCTIONAL, ASSET A ND RISK ('FAR') PROFILE OF THE ASSESSEE AND THE AES. W E DIRECT ACCORDINGLY. 26. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AN D FOLLOWING THE ORDERS (SUPRA) PASSED BY THE COORDINATE BENCH O F THE TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT WHEN IN THE APA ENTERED INTO BETWEEN THE TAXPAYER AND THE CBDT THOUGH FOR THE RO LL BACK YEARS AND SUBSEQUENT YEARS, APPLICATION OF MOST APPROPRIA TE TRANSFER PRICING METHOD AND ARMS LENGTH PRICE OF THESE TRAN SACTIONS HAVE ALREADY BEEN AGREED UPON BETWEEN THE TAXPAYER AND C BDT AND THERE IS NO CHANGE IN THE FAR AND NATURE OF INTERNA TIONAL TRANSACTIONS ENTERED INTO DURING THE YEAR UNDER CONSIDERATION VIS--VIS EARLIER YEARS AND SUBSEQUENT YEARS, PRINC IPLE LAID DOWN IN THE APA FOR BENCHMARKING THE INTERNATIONAL TRANSACT IONS IN QUESTION SHALL HAVE A GUIDANCE VALUE. MORESO THES E DAYS, IT IS ENDEVOUR OF THE UNION OF INDIA TO STOP AVOIDABLE LI TIGATIONS AND THIS CASE FALLS IN THE CATEGORY OF CASES WHERE LITI GATION CAN BE MINIMIZED. 27. FOR THE SAKE OF REPETITION, IT IS BROUGHT ON RE CORD BY THE TAXPAYER THE CONSOLIDATED MARGIN (OP/OC) FOR THE YE AR UNDER ASSESSMENT AS 19.26% AS AGAINST ALP AGREED UPON BET WEEN THE ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 19 PARTIES TO THE APPEAL UNDER APA AT 16.60%. SO, WE ARE OF THE CONSIDERED VIEW THAT TRANSFER PRICING ADJUSTMENT MA DE BY THE AO/TPO/CIT(A) BY APPLYING TRANSFER PRICING PRINCIPL ES IS NOT SUSTAINABLE, HENCE ORDERED TO BE DELETED SUBJECT TO THE VERIFICATION OF COMPUTATION OF MARGIN MADE BY THE TAXPAYER AS PE R APA REFERRED IN THE PRECEDING PARA NO.20. CONSEQUENTLY , GROUND NO.5 & GROUND NO.4 OF ITA NOS.422/DEL/2019 & 423/DEL/201 9 RAISED BY THE TAXPAYER ARE DETERMINED IN FAVOUR OF THE TAX PAYER AND GROUND NO.1 OF ITA NO.579/DEL/2019 & 3087/DEL/2019 RAISED BY THE REVENUE ARE DETERMINED AGAINST THE REVENUE. (TAXPAYERS APPEALS) GROUND NO.6 OF ITA NO.422/DEL/2019 AND GROUND NOS.5 & 6 OF ITA NO.423/DEL/2019 28. THE TAXPAYER CHALLENGED THE LEVYING OF INTEREST BY THE AO U/S 234A, 234B & 234C OF THE ACT ON THE GROUND THAT AO HAS IGNORED THE FACT THAT THE INCOME-TAX RETURN FILED B Y THE TAXPAYER ON 14.10.2010 U/S 139 OF THE ACT I.E. WITHIN THE DUE D ATE WHICH WAS EXTENDED UPTO 15.10.2010 FROM 13.09.2010 VIDE CBDT ORDER DATED 27.09.2010, COPY AVAILABLE AT PAGE 1305 OF THE PAPE R BOOK VOLUME-2. WHEN THE INCOME-TAX RETURN HAS BEEN FILE D BY THE ITA NO.422 & 433/DEL./2019 ITA NO.3087 & 579/DEL./2019 20 TAXPAYER WITHIN THE PRESCRIBED DUE DATE (EXTENDED D ATE UPTO 15.10.2010), NO INTEREST IS LEVIABLE. SO, AO IS DI RECTED TO DELETE THE INTEREST ACCORDINGLY AFTER DUE VERIFICATION. (TAXPAYERS APPEALS) GROUND NO.7 OF ITA NO.422/DEL/2019 AND GROUND NO.7 OF ITA NO.423/DEL/2019 29. GROUND NO.7 OF ITA NO.422/DEL/2019 & ITA NO.423/DEL/2019 BEING PREMATURE NEEDS NO SPECIFIC F INDINGS. 30. RESULTANTLY, THE APPEALS FILED BY THE TAXPAYER BEING ITA NOS.422/DEL/2019 & 423/DE3L/2019 ARE ALLOWED AND TH E APPEALS FILED BY THE REVENUE BEING ITA NOS.3087/DEL/2019 & 579/DEL/2019 ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 18 TH DAY OF JUNE, 2020. SD/- SD /- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 18 TH DAY OF JUNE, 2020 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A). 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.