LEHMAN BROTHERS SECURITIES PVT. LTD., MUMBAI V. D.C.I.T. 4(3), MUMBAI

ITA 4574/MUM/2012

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8164 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 09-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 06-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR
• Assessee Lawyers: RAHUL K MITRA
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Arm length price
• Section: 143(3); 10B; 10

Judgement Text

1 K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 4574/ MUM/2012 ( / ASSE SSMENT YEAR : 2007 - 08) LEHMAN BROTHERS SECURITIES PVT. LTD. C/O KPMG INDIA PRIVATE LIMITED LODHA EXCELUS, 1 ST FLOOR, APOLLO MILLS COMPOUND, MAHALAXMI, MUMBAI 400011 / V. DCIT 4(3) R.NO. 649, 6 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI 400020 ./ PAN : AABCL1353R ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI. RAHUL K. MITRA REVENUE BY : SHRI. JAYANT KUMAR ,CIT - DR / DATE OF HEARING : 13 - 9 - 2017 / DATE OF PRONOUNCEMENT : 1 2 . 1 2 . 2 0 1 7 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 4574/MUM/2012 FOR ASSESSMENT YEAR 2007 - 08, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 12 - 04 - 2012 PASSED BY LEARNED COMMISSIONER O F INCOME - T AX (APPEALS) - 15, MUMBAI (H EREINAFTER CALLED THE CIT(A)) FOR ASSESSMENT YEAR 2007 - 08, APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM THE ASSESSMENT ORDER DATED 18.02.2011 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143 OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSMENT HAS BEEN FRAMED BY THE A.O U/S. 143(3) OF THE 1961 ACT VIDE ASSESSMENT ORDER DAT ED 18.02.2011 WHEREIN , IN TER - ALIA , TRANSFER PRICING ADDITION S TO THE TUNE OF RS. 33.10 CRORES HAVE BEEN MADE BY ADJUSTMENT TO ARM LENGTHS PRICE WITH RESPECT TO I.T.A. NO. 4574/ MUM/2012 2 THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISE (A.E) , THE TP ADDITIONS MADE BY THE AO IN THE ASSESSMENT ORDER WERE IN TURN BASED UPON ORDER S DATED 28.10.2010 PASSED BY TRANSFER PRICING OFFICER(TPO) U/S. 92CA(3) , WHEREIN AN ADJUSTMENT OF RS. 33.1 0 CRORE S WAS PROPOSED BY TPO TO THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION EN TERED INTO BY THE ASSESSEE WITH ITS AES WITH RESPECT TO THE INVESTMENT BANKING SERVICES R ENDERED BY THE ASSESSEE. IT IS CLAIMED BY THE ASSESSEE THAT IT IS PART OF LEHMAN BROTHERS GROUP, HEADQUARTERED IN NEW YORK, AND HAD OFFERED FINANCING AND ADVISORY SAL UTATIONS TO ITS CLIENTS IN IN DIA IN THE FIELD OF INVESTMENT BANKING D IVISION. IT IS CLAIMED THAT THE INVESTMENT BANKING DIVISION (IBD ) SERV E CORPORATE, INSTITUTIONAL AND G OVERNMENT CLIENTS. IT SERVES THE CLIENTS CAPITAL - RAISING NEEDS THROUGH SPECIALIZED PRODUCT GROUPS IN UNDERWRITING, PRIVATE PLACEMENTS, LEVERAGED FINANCE AND OTHER ACTIVITIES ASSOCIATED WITH DEBT AND EQUITY PRODUCTS. WITH RESPECT TO ITS INVESTMENT BANKING D IVISION TRANSACTION WITH ITS AE, THE ASSESSEE CLAIMED TO HAVE SUBMITTED ITS TRANSFER PRICING STUDY WHEREIN ARM LENGTH PRICE (ALP) OF R EVENUES FROM IBD WAS COMPUTED AND OFFER ED FOR TAXATION BY THE ASSESSEE WITH RESPECT TO ITS TRANSACTIONS WITH A.E . BY APPLYI NG GLOBAL G ROUP POLIC Y OF LEHMAN BROTHER G ROUP APPLICABLE TO ALL ITS ENTITIES, BASED ON P ROFIT/ R EVENUE SPLIT METHOD. IT WAS CLAIMED BY THE ASSESSEE THAT THIS IS A FIRST YEAR OF OPERATIONS A ND THE GLOBAL R EVENUES FOR THE I NVESTMENT B ANKING DIVISION IN THE FINANCIAL YEAR 2006 - 07 WERE ALLOCATED AMONG ALL ENTITIES OF LEHMAN BROTHERS WORLDWIDE WITH RE GARD TO COMPENSATION, HEAD COUNT AND REVENUE ALLOCATION AND AN ARM LENGTH RANGE WAS THEN DERIVED FOR EACH ENTITY FROM THESE COMBINATIONS OF AFORESAID ALLOCATIONS, WHEREIN ASSESSEES SHARE IN GLOBAL REVENUES OF IBD ARE COMPUTED AT 0. 5 6 % OF THE TOTAL IBD REVENUE , WHICH WORKED OUT TO U.S. D OLLAR S 41,28,055/ - EQUIVALENT TO INDIAN RS. 28,88,26,985/ - , COMPUTED AS ALP OF THE IB D DIVISION WITH RESPECT TO THE I NTERNATIONAL TRANSACTIONS WITH ITS A.E . BASED ON GLOBAL TRANSFER P RICING POLICY OF THE LEHMAN GROUP UNIFORMLY AND CONSISTENTLY APPLIED TO ALL LEHMAN BROTHER ENTITIES WORLDWIDE . THE TPO REJECTED THIS METHOD AS THE ASSESSEE COULD NOT EXPLAIN THE SAME PROPERLY AND TPO A PPLIED TNM M METHOD AT ENTITY LEVEL AND COMPARABLES WERE DRAWN BY TPO ACCORDINGLY . TH E ASSESSEE ON ITS PART HAD SUBMITTED THAT THE PROFIT/R EVENUE SPLIT METHOD IS THE MOST APPROPRIATE METHOD TO BENCH MARK INTERNATIONAL TRANSACTIONS BASED UPON THE GLOBAL TRA NSFER PRICING POLICY OF THE LEHMAN GROUP WHICH IS I.T.A. NO. 4574/ MUM/2012 3 CONSISTENTLY AND UNIFORMLY APPLIED TO ALL LEHMAN GROUP ENTITIES ACROSS VARIOUS COUNTRIES SINCE FINANCIAL YEAR 1999 - 2000 AS BASIS OF ALLOCATION OF REVENUE/I NCOME TO VARIOUS LEHMAN GROUP ENTITIES. T HE ASSESSE E CLAIMED THAT THE ASSESSEE BUSINESS MODEL IS UNIQUE ONE AND THERE IS NO COMPARABLE COMPANY IN THE SEGMENT IN WHICH THE ASSESSEE DEALT WITH . IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE TPO THAT T HE FUNCTIONS PERFORMED IN THE AE SEGMENTS RELATED TO INVESTME NT BANKING DIVISION AND CONCERNS UNDERWRITING, LEVERAGE FINANCE, PRIVATE PLACEMENT, MERGERS AND ACQUISITIONS, RESTRUCTURING ETC. . IT WAS STATED BY THE ASSESSEES THAT BY NO STRETCH OF IMAGINATION, SUCH FUNCTIONS BE BENCHMARKED WITH THE NON - BINDING INVESTM ENT ADVISORY SERVICES PROPOSED IN THE SHOW CAUSE ISSUED BY TPO . THE TPO COULD NOT FIND COMPARABLE W.R.T. IBD DIVISION , WHEREIN COMPARABLES WERE CHOSEN BY TPO FROM ITES/BPO SEGMENT , AS UNDER: IT WAS ALSO CLAIMED BY THE ASSESSEE THAT IT IS THE FIRST YEAR OF OPERATIONS IN INDIA AND THERE ARE CERTAIN EXTRA ORDINARY EXPENSES SUCH AS START UP COST AND NON - RECURRING EXPENSES WHICH WERE INCURR ED BY THE ASSESSEE SUCH AS SIGN UP BONUSES , RE LOCATION EXPENSES , RECRUITMENT EXPENSES ETC. WH ICH NEED TO BE FACTORED IN WHILE COMPUTING ALP . I T WAS ALSO CLAIMED THAT THE ASSESSEE HAS NOT OPERATED AT FULL CAPACITY DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR AS THE ASSESSEE WAS IN THE PROCESS OF EMPLOYING ., ,C SI. NO. NAME OF THE COMP A N Y 2006 - 07 .C: . .. , . ..,.. 1 B 2 K CORP. PVT . LTD. NA 2 B N R UDYOG LTD. 3 0.73 3 CMC LIMITED T 3 2.91 4 COSMIC GLOBAL LTD . 1 1 . 31 5 DATAMATICS T ECHNO L OGIE S LTD . 4 .03 6 FORTUNE INFOTECH L TD. 12.82 7 GALAXY COMMERCIA IS L TD 14.22 8 HCL TECHNOLOGIES L TD. 20.06 9 KPIT CUMMINS GLOBAL BUSINESS 19 . 93 SOLUTIONS LTD 1 0 T S R DARASHAW LTD . 4 4. 64 - - - . A RIT H M ETI C A L MEAN 21. 18 I.T.A. NO. 4574/ MUM/2012 4 NEW EMPLOYEES BEING T HE FIRST YEAR OF OPERATION AND THE COSTS WERE INCURRED FOR RECRUITMENT CHARGES AS ALSO THERE ARE PREMI SES LYING VACANT W HICH COULD NOT BE USED DUE TO NON EMPLOYMENT OF EMPLOYEES BEING FIRST YEAR OF OPERATIONS . I T WAS A LSO SUBMITTED THAT LEHMAN GROUP HAD C OLLAPSED WORLDWIDE AND THE ASSESSES IS TRYING TO COLLATE INFORMATION WITH GREAT DIFFICULTY AS EMPLOYEES HAVE LEFT THE GROUP. THE TPO IN THE ABSENCE OF DETAIL S FURNISHED BY THE ASSESSEE PROCEEDED TO APPLY TNM M METHOD AT THE ENTITY LEVEL TO BENCH MARK INTERN ATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AE . THE TPO IDENTIFIED COMPARABLES I N THE FIELD OF IT E NABLE D SERVICES/BUSINESS PROCESSING O UTSOURCING (BPO) AS TPO COULD NOT LOCATE COMPARABLES IN THE FIELD OF INVESTMENT BANKING D IVISION IN WHICH ASSESSEE WA S ENGAGED IN AND TNMM METHOD WAS APPLIED BY THE TPO , WHICH LED TO NET ADDITION S TO THE TUNE OF RS. 33.1 0 CRORE BY APPLYING AVERAGE MARGIN OF 21.18% TO THE TOTAL COST OF RS. 55.7 CRORE S (AFTER EXCLUDING CERTAIN EXTRA - ORDINARY START UP CO STS FOR WHICH DETAILS WERE BROUGHT ON RECORD BY THE ASSESSEE) BEING PROPOSED ADJUSTMENT TO ALP BY THE TPO WHICH LED TO THE ADDITIONS TO THE TUNE OF RS. 33.10 CRORES BEING MADE BY THE AO VIDE ASSESSMENT ORDER DATED 18.02.2011, WHICH WAS LATER CONFIRMED BY LEARNED CIT( A ) VIDE ITS APPELLATE ORDERS DATED 12.04.2012 . 3. A GGRIEVED BY THE APPELLATE ORDER DATED 12.04.2012 PASSED BY LEARNED CIT(A), THE ASSESSEE HAS COME IN AN APPEAL BEFORE THE T RIBUNAL . 4. A T THE OUTSET , LD. COUNSEL FOR THE ASSESSEE PLEADED THAT THERE WAS AN EXTRA ORDINARY SITUATION PREVAILING DURING ASSESSMENT PROCEEDINGS ARISING OUT OF THE COLLAPSE OF LEHMAN BROTHERS WORLDWIDE WHICH WAS LIQUIDATED IN 2009 AND BECAUSE OF THAT PROPER REPRESENTATION AND EXP LANATION COULD NOT BE MADE BEFORE THE AUTHORITIES BELOW LEADING TO HUGE ADDITIONS TO THE TUNE OF RS. 33.10 CRORES TO ALP BY WAY OF TP ADDITIONS . IT IS PRAYED AND STATED BEFORE US BY THE LD. COUNSEL FOR THE ASSESSEE THAT IF AN FRESH OPPORTUNITIES IS GRANT ED TO THE ASSESSEE BY SETTING ASIDE THE MATTER TO THE FILE OF A.O . /TPO , THE ASSESSEE IS NOW IN A POSITION TO OFFER PROPER EXPLA N ATIONS AND MAKE PROPER REPRESENTATION BEFORE THE AUTHORITIES BELOW TO JUSTIFY ITS METHODOLOGY OF BENCHMARKING OF INTERNATIONAL TRANSACTIONS WITH ITS A.E . AS WELL COMPUTATION OF ALP AS WAS MADE BY IT IN ITS TP STUDY. IT IS CLAIMED BY THE I.T.A. NO. 4574/ MUM/2012 5 LEARNED COUNSEL FOR THE ASSESSEE THAT THE METHOD ADOPTED BY THE ASSESSEE FOR BENCH MARKING OF INTERNATIONAL TRANSACTIONS WITH AE BEING REVENUE SPL IT METHOD WAS THE MOST APPROPRIATE METHOD BECAUSE THE SERVICES OFFERED BY THE ASSESSEE IN IBD SEGMENT ARE INTEGRATED , INTER - CONNECTED AND SEAMLESS WHEREIN SEVERAL ENTITIES ACROSS GLOBE OF LEHMAN BROTHER S GROUP COLLABORATE ALONG WITH CL IENTS AND BANKS TO COMPLETE TRANSACTION IN IBD SEGMENT WHEREIN REVENUE SPLIT METHOD IS THE MOST APPROPRIATE METHOD FOR BENCHMARKING AND COMPUTATION OF ALP OF ITS INTERNATIONAL TRANSACTIONS WITH AE . I T WAS SUBMITTED THAT THIS WAS A FIRST YEAR OPERATION AND THE ASSESSEE WAS ENGAGED IN INVESTMENT BANKING BUSINESS , AND THE TRANSFER PRICING WAS DONE WORLDWIDE BY LEHMAN BROTHERS GROUP BY FOLLOWING GLOBAL POLICY UNIFORMLY AND CONSISTENTLY WHEREIN REVENUE SPLIT METHOD IS ADOPTED TO COMPUTE ALP OF INTERNATIONAL TRAN SACTIONS WITH AE . IT WAS SUBMITTED THAT THE TRANSFER PRICING METHODOLOGY OF REVENUE SPLIT ADOPTED BY LEHMAN BROTHERS GLOBALLY SINCE SEVERAL YEARS CONSISTENTLY AND UNIFORMLY WAS ALSO APPLIED THE CASE OF ASSESSEE WHICH WAS REJECTED BY TPO AS WELL BY LEARNED CIT( A ) AND INSTEAD TNMM WAS APPLIED . IT WAS SUBMITTED THAT THE BUSINESS MODEL OF THE ASSESSEE IS UNIQUE BEING INVESTMENT BANKING , THERE ARE NO COMPARABLE AVAILABLE. IT WAS SUBMITTED THAT THERE WAS A N AMENDMENT IN 2012 WHEREIN LEGISLATURE HAS INTRODUCED RU LE 10AB BY THE IT (SIXTH AMENDMENT ) RULES , 2012 W.E.F. 01 - 04 - 2012 UNDER THE SUB HEAD OTHER METHOD OF DETERMINATION OF ALP WHICH WA S HELD TO BE RETROSPECTIVE BY DELHI ITAT IN THE CASE OF GLOBAL ONE INDIA P. LTD. V. ACIT IN ITA NO. 5571/DEL/2011 AND ITA 5 896/DEL/2012 VIDE ORDERS DATED 15 - 04 - 2014 AND IT IS CLAIMED THAT REVENUE S PLIT METHOD COULD FALL UNDER ANY OTHER SUITABLE METHOD FOR COMPUTING ALP . THE ASSESSEE ALSO RELIED UPON THE DECISION OF MUMBAI - TRIBUNAL IN THE CASE OF ACIT V. AGILITY LOGISTICS P. LTD. IN ITA NO. 2000 ,6004 & 8146 /MUM/2010 VIDE ORDERS DATED 25 - 01 - 2012 AND THE DECISION IN THE CASE OF DCIT V. DHL DANZAS LEMUIR PRIVATE LTD. IN ITA NO. 9112/MUM/2010 , 8119/MUM/2011 VIDE ORDERS DATED 10 - 02 - 2014 AND ALSO DECISION OF DELHI B ENCH ES OF THE T R IBUNAL IN THE I.T.A. NO. 4574/ MUM/2012 6 CASE OF TOLL GLOBAL FORWARDING INDIA P RIVATE LTD. IN ITA NO. 5025/ DEL /2010 VIDE ORDERS DATED 18 - 11 - 2014. I T IS SUBMI TTED THAT ASSESSEE HAS ADOPTED REVENUE S PLIT METHOD AND SHARE OF THE ASSESSEE IS CONSIDERED TO BE 0.56% IN GLOBAL REVENUES OF IBD BUSINESS OF LEHMAN BROTHERS GROUP. I T IS SUBMITTED THAT EVEN IF THE REVENUE S PLIT METHOD IS NOT ACCEPTABLE TO TPO , HE COULD HAVE MODIFIED IT TO PROFIT S PLIT METHOD TO COMPUTE ALP BUT OUT RIGHT REJECTION OF THE METHOD WAS NOT WARRANTED AND TNM M AS ADO PTED BY REVENUE WHICH WAS LATER CONFIRMED BY LEARNED CIT(A) IS NOT SUITABLE METHOD KEEPING IN VIEW BUSINESS MATRIX OF THE ASSESSE . THE A SSESSEE AGAIN REITERATED THAT THE ASSESSEE BUSINESS OF IBD INVOLVES INTEGRATED , INTER - CONNECTED AND SEAMLESS BUSINESS OPERATIONS WHEREIN SEVERAL LEHMAN BROTHER ENTITIES WORLDWIDE AS WELL CLIENTS AND BANKS ARE INVOLVED TO SUCCESSFULLY COMPETE TRANSACTIONS AND HENCE R EVENUE/PROFIT SPLIT IS THE MOST SUITABLE METHOD. IT IS ALSO S TATED BEFORE US THAT DUE TO COLLAPSE OF LEHMAN BROTHERS WORLDWIDE AND ITS LIQUIDATION IN 2009 , THE ASSESSEE EMPLOYEES LEFT THE ORGANISATION WHEREIN THE ASSESSEE COULD NOT EFFECTIVELY MAKE REPRESENTATIO NS BEFORE THE AUTHORITIES BELOW AND DUE TO THIS EXTRA ORDINARY SITUAT ION PREVAILING WHEN ASSESSMENT WAS PROGRESSING , THE ADDITIONS WERE MADE DUE TO LACK OF PROPER REPRESENTATIONS BY THE ASSESSEE . I T WAS STATED BY LEARNED COUNSEL FOR THE ASSESSEE THAT IF AN FRESH OPPORTUNITIES IS NOW GIVEN TO THE ASSESSEE , IT WILL SUBMIT EXPLANATIONS ALONG WITH ALL NECESSARY EVIDENCES TO SUPPORT ITS CONTENTIONS . I T WAS STATED BY LD. COUNSEL FOR ASS ESSEE THAT KEEPING IN VIEW FACTUAL MATRIX OF THE CASE AS THERE WAS NO PROPER REPRESENTATION BEFORE THE AUTHORITIES BELOW DURING ASSESSMENT PRO CEEDINGS AS WELL BEFORE LEARNED CIT(A) AS INFORMATION COULD NOT BE COLLATED DUE TO COLLAPSE OF LEHMAN BROTHERS , THERE COULD BE AN OPEN ENDED SET ASIDE TO THE FILE OF THE A.O/TPO WHEREIN ALL THE CONTENTION S /ISSUES CAN BE LEFT OPEN INCLUDING ANY FRESH ISSUE WHICH MAY ARISE FOR CONSIDERATION BY TPO/AO DURING DE - NOVO PROCEEDINGS , AND TPO/AO CAN DECIDE THE ISSUE S AFRESH DENOVO ON MERITS IN ACCORDANCE WITH LAW INCLUDING CONSIDERING I.T.A. NO. 4574/ MUM/2012 7 THE MOST SUITABLE METHOD FOR COMPUTING ALP W.R.T. ITS INTERNATIONAL TRANSACTION S WITH AE . THE LEARNED CIT - DR ON THE OT HER HAND SUBMITTED THAT AS PER R ULE 10B ( 1 )(D) OF INCOME - TAX RULES, 1962, ONLY PROFIT SPLIT METHOD IS ACCEPTABLE TO COMPUTE THE ALP . IT WAS SUBMITTED THAT THERE IS NO SUCH REVENUE S PLIT METHOD AS ADOPTED BY THE ASSESSEE WHICH IS ACCEPTED IN INDIAN TP JURISPRUDENCE AND COMBINED NET PROFIT OF THE GROUP GLOBALLY IS TO BE SPLIT FOR WHICH NO DETAILS WERE FURNISHED BY THE ASSESSEE . IT WAS SUBMITTED THAT THE ASSESSEE DID NOT SUBMITTED DUE I NFORMATION AND EVIDENCES DURING ASSESSMENT PROCEEDINGS AS WELL BEFORE LEARNED CIT(A) AND HENCE THE TPO APPLIED TNMM METHOD TO COMPUTE ALP OF ITS INTERNATIONAL TRANSACTIONS WITH AE. IT WAS FAIRLY AGREED THAT IF THE LEARNED COUNSEL FOR THE ASSESSEE HAVE AGRE ED TO THE OPEN ENDED SET ASIDE TO TPO/AO FOR DE - NOVO ASSESSMENT WHEREIN TPO/AO MAY CONSIDER ALL ISSUES WHICH ARISES OR MAY ARISE TO FRAME DENOVO ASSESSMENT , THE REVENUE WILL NOT HAVE OBJECTION AND ALL THE ISSUES WHICH MAY ARISE TO FRAME ASSESSMENT ARE TO B E LEFT OPEN TO BE DECIDED BY THE AO/TPO IN DE - NOVO PROCEEDINGS ON MERITS IN ACCORDANCE WITH LAW. 4. W E HAVE CONSIDERED RIVAL CONTENTIONS AND HAVE PERUSED MATERIAL ON RECORD INCLUDING ORDERS OF THE AUTHORITIES BELOW AND CASE LAWS CITED BEFORE US . W E HAVE OBSERVED THAT THE ASSESSEE IS AN ENTITY WHICH WAS PART OF LEHMAN BROTHERS GROUP AND HAD OFFERED FINANCING AND ADVISORY SALUTATIONS TO ITS CLIENTS IN IN DIA IN THE FIELD OF INVESTMENT BANKING D IVISION. IT IS CLAIMED THAT THE INVESTMENT BANKING DIVISION (IBD ) SERV E CORPORATE, INSTITUTIONAL AND G OVERNMENT CLIENTS. IT CLAIMED TO SERVE THE CLIENTS CAPITAL - RAISING NEEDS THROUGH SPECIALIZED PRODUCT GROUPS IN UNDERWRITING, PRIVATE PLACEMENTS, LEVERAGED FINANCE AND OTHER ACTIVITIES ASSOCIATED WITH DEBT AND EQUITY PR ODUCTS. WITH RES PECT TO ITS INVESTMENT BANKING D IVISION TRANSACTION WITH ITS AE, THE ASSESSEE SUBMITTED ITS TRANSFER PRICING STUDY WHEREIN ARM LENGTH PRICE (ALP) OF REVENUES FROM IBD WAS COMPUTED AND OFFER ED FOR TAXATION BY THE ASSESSEE WITH RESPECT TO ITS INTERNATIONAL TRANSACTIONS WITH A.E . BASED ON R EVENUE S PLIT METHOD WHICH WAS CLAIMED TO BE BASED ON GLOBAL POLICY OF LEHMAN BROTHERS GROUP I.T.A. NO. 4574/ MUM/2012 8 WORLDWIDE BEING MADE APPLICABLE TO ALL ITS ENTITIES SINCE 1999 - 00 WHICH WAS ALSO CLAIMED TO HAVE BEEN APPLIED TO THE ASSESSEE FOR COMPUTING ALP OF ITS INTERNATIONAL TRANSACTIONS WITH AE . THE REVENUE WAS CLAIMED TO BE ALLOCATED AMONG ALL ENTITIES OF LEHMAN BROTHERS WORLDWIDE WITH RE GARD TO COMPENSATION, HEAD COUNT AND REVENUE ALLOCATION AND AN ARM LENGTH RANGE WAS THEN D ERIVED FOR EACH ENTITY FROM THESE COMBINATIONS OF AFORESAID ALLOCATIONS, WHEREIN ASSESSEES SHARE IN GLOBAL REVENUES OF IBD WAS CLAIMED TO BE COMPUTED AT 0. 5 6 % OF THE TOTAL IBD REVENUE , WHICH WORKED OUT TO U.S. D OLLAR S 41,28,055/ - EQUIVALENT TO INDIAN RS. 28,88,26,985/ - , COMPUTED AS ALP OF THE IB D DIVISION WITH RESPECT TO THE I NTERNATIONAL TRANSACTIONS WITH ITS A.E . . THE ASSESSEE CONTENDED BEFORE LOWER AUTHORITIES DURING THE COURSE OF ASSESSMENT/FIRST APPELLATE PROCEEDINGS THAT THE ASSESSEE COULD NOT MAKE PROPER REPRESENTATIONS BEFORE THE AUTHORITIES BELOW OWING TO COLLAPSE OF LEHMAN BROTHER GROUP WHICH LED TO ITS LIQUIDATION IN 2009 AND THE EMPLOYEES OF THE GROUP LEFT THE ORGANISATION , WHICH MADE IT DIFFICULT TO COLLATE INFORMATIO N AS DESIRED BY THE AUTHORITIES BELOW DURING ASSESSMENT/FIRST APPELLATE STAGE . TH E ASSESSEE HAD SUBMITTED THAT THE PROFIT/R EVENUE SPLIT METHOD IS THE MOST APPROPRIATE METHOD TO BENCH MARK INTERNATIONAL TRANSACTIONS WITH ITS AE AS THE TRANSACTIONS WERE INTE GRATED , INTER - CONNECTED AND SEAMLESS WHEREIN VARIOUS LEHMAN BROTHER ENTITIES ACROSS GLOBE PARTICIPATE ALONG WITH BANKERS AND CLIENT TO SUCCESSFULLY CONCLUDE THE TRANSACTIONS AND HENCE REVENUE SPLIT WAS CLAIMED TO BE MOST APPROPRIATE METHOD TO BENCH MARK I TS INTERNATIONAL TRANSACTIONS WITH ITS AE AND THE SAID METHOD WAS CLAIMED TO BE CONSISTENTLY AND UNIFORMLY APPLIED SINCE 1999 - 00 BY LEHMAN BROTHER GROUP WORLDWIDE ACROSS ALL ITS ENTITIES . T HE ASSESSEE CLAIMED THAT THE ASSESSEE BUSINESS MODEL IS UNIQUE ON E AND THERE ARE NO COMPARABLE COMPANIES AVAILABLE IN THE SEGMENT IN WHICH THE ASSESSEE IS ENGAGED INTO . IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE TPO THAT T HE FUNCTIONS PERFORMED IN THE AE SEGMENTS RELATED TO INVESTMENT BANKING DIVISION AND CONCERNS UNDE RWRITING, LEVERAGE FINANCE, PRIVATE PLACEMENT, MERGERS AND ACQUISITIONS, RESTRUCTURING ETC. . IT WAS STATED BY THE ASSESSEE THAT BY NO STRETCH OF IMAGINATION, SUCH FUNCTIONS BE BENCHMARKED WITH THE NON - BINDING INVESTMENT ADVISORY SERVICES PROPOSED IN THE S HOW CAUSE ISSUED BY TPO . THE TPO REJECTED THIS METHOD AS THE ASSESSEE COULD NOT EXPLAIN THE BASIS OF THE SAME PROPERLY AND APPLIED TNM M METHOD AT ENTITY LEVEL AND COMPARABLES WERE DRAWN BY TPO ACCORDINGLY. THE TPO COULD NOT FIND I.T.A. NO. 4574/ MUM/2012 9 COMPARABLE FROM INVESTMEN T BANKING SEGMENT WHILE THE SAME WERE DRAWN FROM ITES/BPO SEGMENT , AS UNDER: IT WAS ALSO CLAIMED BY THE ASSESSEE THAT IT IS THE FIRST YEAR OF OPERATIONS IN INDIA AND THERE ARE CERTAIN EXTRA ORDINARY EXPENSES SUCH AS START UP COST AND NON - RECURRING EXPENSES WHICH WERE INCURR ED BY THE ASSESSEE SUCH AS SIGN UP BONUSES , RELOCATION EXPENSES , RECRUITMENT EXPENSES ETC. WHICH NEED TO BE FACTORED IN AND EXCLUDED WHILE COMPUTING ALP. I T WAS ALSO CLAIMED THE ASSESSEE HAS NOT OPERATED AT FULL CAPACITY DURING THE PREVIOUS YE AR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR BEING THE FIRST YEAR OF OPERATIONS AS THE ASSESSEE WAS IN THE PROCESS OF EMPLOYING NEW EMPLOYEES AND COSTS WERE INCURRED FOR RECRUITMENT CHARGES AS ALSO THERE ARE PREMISES LYING VACANT FOR WHICH HEAVY RENTS ARE PAID BUT PREMISES COULD NOT BE UTILISED DUE TO NON EMPLOYMENT OF EMPLOYEES AS BEING THE FIRST YEAR OF OPERATIONS . I T WAS A LSO SUBMITTED THAT LEHMAN GROUP HAD COLLAPSED WORLDWIDE AND THE ASSESSES IS TRYING TO COLLATE THE INFORMATION WITH GREAT DIFFICULT Y AS THE EMPLOYEES HAD LEFT THE GROUP. THE TPO IN THE ABSENCE OF DETAIL S FURNISHED BY THE ASSESSEE PROCEEDED TO APPLY TNM M METHOD AT THE ENTITY LEVEL TO BENCH MARK THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WHICH LED TO NET TRANSFER PRIC ING ADDITION S PROPOSED BY THE TPO TO THE TUNE OF RS. 33.1 CRORE BY APPLYING AVERAGE MARGIN OF 21.18% TO THE TOTAL COST OF RS. 55.7 ., ,C SI. NO. NAME OF THE COMP A N Y 2006 - 07 .C: . .. , . ..,.. 1 B 2 K CORP. PVT . LTD. NA 2 B N R UDYOG LTD. 3 0.73 3 CMC LIMITED T 3 2.91 4 COSMIC GLOBAL LTD . 1 1 . 31 5 DATAMATICS T ECHNO L OGIE S LTD . 4 .03 6 FORTUNE INFOTECH L TD. 12.82 7 GALAXY COMMERCIA IS L TD 14.22 8 HCL TECHNOLOGIES L TD. 20.06 9 KPIT CUMMINS GLOBAL BUSINESS 19 . 93 SOLUTIONS LTD 1 0 T S R DARASHAW LTD . 4 4. 64 - - - . A RIT H M ETI C A L MEAN 21. 18 I.T.A. NO. 4574/ MUM/2012 10 CRORE S (AFTER EXCLUDING CERTAIN EXTRA - ORDINARY START UP COSTS) WHICH LED TO THE ADDITIONS TO THE TUNE OF RS. 33.10 CRORES BEING MADE BY THE AO VIDE ASSESSMENT ORDER DATED 18.02.2011, WHICH WAS LATER CONFIRMED BY LEARNED CIT(A) VIDE ITS APPELLATE ORDERS DATED 12.04.2012 . THE ASSESSEE HAS RELIED UPON SEVERAL CASES LAWS CITED ABOVE IN PRECEDING PARAS AND TRIED TO JUSTIFY THAT THE ASSESSEE BUSINESS IS INTEGRATED , INTER - CONNECTED AND SEAMLESS BUSINESS OF INVESTMENT BANKING WHEREIN SEVERAL LEHMAN BROTHERS ENTITIES GLOBA L L Y PARTICIPATE ALONG WITH BANKS AND CLIENTS TO SUCCESSFULLY COMPLETE THE TRANSACTIONS AND THE REVENUE SPLIT MET HOD IS THE MOST SUITABLE . REFERENCE IS MADE TO AN AMENDMENT BROUGHT IN BY AMENDMENT IN 2012 WHEREIN LEGISLATURE HAS INTRODUCED RULE 10AB BY THE IT (SIXTH AMENDMENT) RULES , 2012 W.E.F. 01 - 04 - 2012 UNDER THE SUB HEAD OTHER METHOD OF DETERMINATION OF ALP TO JUSTIFY THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR BENCHMARKING INTERNATIONAL TRANSACTIONS BY ADOPTING REVENUE SPLIT METHOD INSTEAD OF PROFIT SPLIT METHOD OR OTHER SPECIFIED METHODS AS ARE ACCEPTABLE IN INDIAN TP JURISPRUDENCE . WE HAVE OBSERVED BASED ON MATERIAL ON RECORD THAT T HE AS SESSEE COULD NOT MAKE EFFECTIVE REPRESENTATIONS BEFORE THE AUTHORITIES BELOW DUE TO EXTRAORDINARILY SITUATION FACED BY THE ASSESSEE OWING TO COLLAPSE OF LEHMAN BROTHERS GROUP WORLDWIDE LEADING TO LIQUIDATION IN 2009 . THIS YE AR WAS ALSO THE FIRST YEAR OPERATIONS AND IT IS CLAIMED THAT THERE CERTAIN EXTRAORDINARY EXPENSES SUCH AS FEES PAID FOR INCREASE IN SHARE CAPITAL , RENTAL PAID FOR PREMISES LYING VACANT DUE TO NON APPOINTMENT OF EMPLOYEES BEING FIRST YEAR OF OPERATION , SI GNUP BONUSES BEING GIVEN TO EMPLOYEES ON JOINING THE ASSESSEE AND RECRUITMENT COST INCURRED IN THE INITIAL PHASE OF APPOINTMENT OF THE NEW EMPLOYEES AS ASSESSEE S BASE BEING SET UP IN INDIA WHICH DESERVES TO BE SEEN BY THE AUTHORITIES BELOW ON MERITS IN AC CORDANCE WITH LAW BEFORE ARRIVING ALP OF ITS INTERNATIONAL TRANSACTIONS WITH AE .THE ASSESSEE HAS PRAYED AND AGREED FOR OPEN SET - ASIDE TO ENABLE IT TO MAKE EFFECTIVE REPRESENTATION BEFORE THE AUTHORITIES BELOW IN DE - NOVO PROCEEDINGS WHEREIN NECESSARY EVIDENCES AND EXPLANATIONS COULD BE FURNISHED AND AUTHORITIES BELOW CAN TAKE VIEW ON ISUSES I.T.A. NO. 4574/ MUM/2012 11 WHICH ARISES OR MAY ARISE DURING DE - NOVO ASSESSMENT PROCEEDINGS ON MERITS IN ACCORDANCE WITH LAW AFTER HEARING THE ASSESSEE. LD. DR HAS ALSO AFTE R CONSIDERING THE FACTUAL MATRIX OF THE CASE AND CONCESSION GRANTED BY THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY AGREED FOR AN OPEN SET ASIDE WHEREIN ALL THE ISSUES WHICH ARISES OR MAY ARISE IN ASSESSMENT ARE KEPT OPEN AND TPO/AO WILL BE FREE TO ADJUDICA TE ALL SUCH ISSUE S AFRESH ON MERITS IN ACCORDANCE WITH LAW AFTER HEARING THE ASSESSEE AND CONSIDERING THE MATERIAL PLACED ON RECORD . W E HAVE DUL Y CONS IDERED THE FACTUAL MATRIX OF THIS CASE AND ARE OF THE CONSIDERED VIEW THAT KEEPING IN VIEW EXCEPTIONAL CIRCUMSTANCES FACED BY THE ASSESSEE DURING THE PERIOD WHEN THE PROCEEDINGS WERE UNDER WAY WITH THE REVENUE FOR FRAMING ASSESSMENTS AS WELL DURING FIRST APPELLANT PROCEEDINGS , DUE TO COLLAPSE OF LEHMAN BROTHER GROUP WORLDWIDE, THE ASSESSEE COULD NOT MAKE E FFECTIVE REPRESENTATIONS BEFORE THE AUTHORITIES BELOW AND INTEREST OF JUSTICE DEMAND THAT THE ASSESSEE BE GIVEN ONE MORE OPPORTUNITY TO PRESENT ALL EVIDENCES AND EXPLANATIONS IN ITS SUPPORT BEFORE THE AUTHORITIES BELOW IN DE - NOVO ASSESSMENT PROCEEDINGS . T HE ONUS SHALL BE ON THE ASSESSEE TO BRING ON RECORD NECESSARY EVIDENCES AND EXPLANATION IN SUPPORT OF ITS CONTENTIONS W.R.T. ISSUES THAT ARISES OR MAY ARISE DURING DE - NOVO PROCEEDINGS . H ENCE KEEPING IN VIEW FACTUAL MATRIX OF THE CASE , WE ARE INCLINED TO SET ASIDE AND RESTORE THE MATTER BACK TO THE FILE OF THE AO/TPO FOR AFRESH DETERMINATION OF ALL ISSUES WHICH HAD ARISEN OR MAY ARISE DURING ASSESSMENT ON MERITS IN ACCORDANCE WITH LAW INCLUDING THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR BENCHMARKING ITS INTERNATIONAL TRANSACTIONS WITH AE . WE WOULD LIKE TO MAKE IT CLEAR THAT IT IS AN OPEN SET ASIDE AND AO/TPO SHALL MAKE THE ASSESSMENT DE - NOVO ON MERITS IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THAT THE AUTHORITIES BELOW SHALL PROVIDE PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. THE ASSESSEE WILL BE ALLOWED BY AUTHORITIES BELOW TO FURNISH ALL NECESSARY AND RELEVANT EVIDENCES AND EXPLANATIONS IN I.T.A. NO. 4574/ MUM/2012 12 SUPPORT OF ITS CONTENTIONS WHICH SHAL L BE ADMITTED IN THE INTEREST OF JUSTICE . WE ORDER ACCORDINGLY. 5 . IN THE RESULT APPEAL OF THE ASSESSEE IN ITA 4574/MUM/2012 FOR ASSESSMENT YEAR 2007 - 08 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 1 2 .12 .2017 1 2 .12 .2017 S D / - S D / - (MAHAVIR SINGH ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 1 2 .12.2017 NISHANT VERMA SR. PRIVATE SECRETARY COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, E 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI