NTT INDIA PVT. LTD,MUMBAI vs. ADDL/JT/DY/ACIT/TAX/ITO, DELHI

1.6 The Hon'ble DRP / Ld. TPO / Ld. AO have erred in stating that NTT India receives a fixed quarterly charge of USD 4,182,048 for management services availed and have also erred in stating that such quarterly invoices raised by AE on the Appellant are without any cost base and allocation keys. 1.7 The Hon'ble DRP / Ld. TPO / Ld. AO have erred in rejecting the detailed documentary evidences with respect to 10 categories of services (Inputs on company policy related matters, Services related to human resource function, Assistance with corporate communications and brand management, Services related to business development and business operations, Legal support for corporate and compliance matters, Services related to finance and accounting. Services related to development of solutions, Services related to project management and consulting services, Information technology related assistance, Support with sales activities) produced by the Appellant, by stating generically that the activities were routine in nature, part of shareholder activities or evidences do not lead to availment of services. The Hon'ble DRP / Ld. TPO /Ld. Assessing Officer ('A.O.' for short) have further erred in concluding that no costs were incurred by AE for rendering the services and that no services were rendered by the AE. 1.8 The Hon'ble DRP / Ld. TPO / Ld. AO have erred in stating the fact that the Appellant has not been able to demonstrate any benefit received by it from services for which payment is made, when in fact the benefit demonstrated by the Appellant was multiple times more than the payment made to NTT Asia.

1.9 On the facts and in the circumstances of the case and in law, the Hon'ble DRP has erred in confirming the conclusion of the TPO that the gain in the form of discounts on the purchase price is not because of the efforts of NTT Asia but is on account of membership of the Appellant in the multinational group. Further, the Hon'ble DRP / Ld. TPO erred in concluding that the benefit of Rs 266.05 crores computed by the Appellant has no basis.

1.10 The Hon'ble DRP/ Ld. TPO / Ld. AO have erred in ignoring the benefits received and quantified by the Appellant and in ignoring the fact that the overall benefit derived by the Appellant is much higher than the cost charged by the AE for the management services and hence, it would be just and equitable to conclude that the Appellant has been able to justify the benefit test. The Appellant contends that as the payment of management fees is for the bundle of services, the benefit also has to be looked at in totality rather than for specific services. The Hon'ble DRP Ld. TPO/ Ld. AO have erred in ignoring the fact that the Appellant has the right to (A.Y. 2017-18) NTT India Pvt. Ltd. vs. NFCA, New Delhi avail any of the services mentioned in the umbrella agreement for various services entered with its AE. 1.11 The Hon'ble DRP / Ld. TPO T Ld. AO have erred in granting a partial relief of only 0.50% as a saving in the guarantee fee to the Appellant as against 3% to 4% claimed by the Appellant in respect of the guarantee provided by the AE which is bundled in the management services rendered by the AE. 1.12 The Hon'ble DRP / Ld. TPO / Ld. AO have erred in stating that the Appellant has not submitted the evidence of expenses incurred by the AE and the basis on which the charges were allocated. They have erred in ignoring the evidence submitted by the Appellant in respect of the third-party costs incurred by the AE and allocable to the Appellant to the tune of INR 8,58,91,740 on the turnover basis, in connection to the management services. The Hon'ble DRP / Ld. TPO /Ld. Assessing Officer ('A.O.' for short) have also erred in interlinking the management services with the technical support and maintenance services availed from the AE without appreciating the fact that the same is a separate class of transaction. 1.13 The Ld. TPO has further erred in not considering the details of third-party costs incurred by the AE pertaining to IT expenses (i.e., software, licences, etc) and allocable to the Appellant to the tune of INR 6,89,85,920/- submitted by the Appellant based on the directions of the Hon'ble DRP. The Ld. TPO has erred in stating that the Appellant has not provided any basis for allocation of said IT expenses when in fact the working of cost allocation clearly mentions employee headcount as the basis of allocation. 1.14. The Hon'ble DRP/ Ld. TPO / Ld. AO have erred in law by not considering the Mumbai Income-tax Appellate Tribunal's decision in the Appellant's own case for AY 2011-12 which specifically held that while deciding the Arm's Length Price (ALP')) of the umbrella of services what has to be considered is the right of Appellant that it is entitled to avail the services and non- availing of services cannot be the basis for rejecting the claim and it had accordingly decided the matter in favour of the Appellant.

2. Ground No.2: Erroneous computation of Total Income by the Ld. AO: The AO has erred in considering a Total income of INR 179,67,43,310/- in the Demand Computation sheet as against the correct Total income of INR 177,30,90,012/- which was mentioned in the final assessment order, resulting in an excess income of INR 2,36,53,298/-. Consequently the erroneous computation of total income results in a higher tax demand. The Appellant, therefore, prays the Hon'ble Members to direct the Ld. AO to consider the correct total income and consequently the tax and interest payable thereon.

4. Ground 4: Penalty Proceedings: The Ld. AO has erred in law in initiating penalty proceedings under section 274 rw.s. 270A of the Act.

(A.Y. 2017-18) NTT India Pvt. Ltd. vs. NFCA, New Delhi 3. The brief facts are that the assessee NTT India Pvt. Ltd. (NTT India) formerly known as Dimension Data India Pvt. Ltd. is part of NTT Group (Nippon Telegraph and Telephone group - formerly known as Dimension Data Group) and is a subsidiary of NTT Asia. The assessee is engaged in trading of network products and in providing services such as training, maintenance, installation, consultancy, facility management, outsourcing, system integration in the area of information communication system and computer networking and computer hardware and software and also engaged in IT enabled services at small scale. The assessee is also a dealer for Cisco and other networking products. The assessee had filed its return of income dated 30.03.2018 declaring total income at Rs.57,77,90,530/-. The assessee’s case was selected for scrutiny and notice u/s. 143(2) was issued on 27.08.2018. The assessee had entered into the following international transactions with its AE:

Sr. Nature of international transactions AY 2017-18 Method adopted for No. Amount (Rs.) bench marking 1 Sale of Goods 21,27,70,568 TNMM 2 Global Account Management Services Rendered 2,86,200 TNMM 3 Global Account Management Services Availed 5,53,88,656 TNMM 4 Management fees paid 121,94,85,623 TNMM 5 Training fees paid 2,83,48,867 TNMM 6 Technical Support Services Rendered (ITES) 16,73,33,880 TNMM 7 Maintenance & Technical Services Availed 5,04,96,660 TNMM 8 Maintenance & Technical Services Rendered 107,77,81,864 TNMM 9 Rendition of advisory services 7,81,73,803 TNMM 10 Other Income 3,53,51,419 TNMM 11 Cloud services availed 98,83,027 TNMM 12 Recovery of expenses 75,32,611 Other method 13 Reimbursement of expenses 4,14,16,995 Other method 14 Advance Billing 28,00,28,626 Other method

(A.Y. 2017-18) NTT India Pvt. Ltd. vs. NFCA, New Delhi 3(1)(1), Mumbai consequent to the change in name of the assessee from Dimension Data India Pvt. Ltd. to NTT Data India Pvt. Ltd. The TPO vide order dated 29.01.2021 passed u/s. 92CA(3) of the Act proposed an adjustment of Rs.121,24,85,623/- to the international transaction with regard to the allocation of management fees. The A.O. passed the draft assessment order dated 30.03.2021 u/s. 144C(1) of the Act after duly considering the proposed adjustment made by the TPO. The assessee had preferred an objection before the ld. DRP who vide order dated 25.01.2022 disposed off the objections raised by the assessee and thereby passed an order u/s. 144C(5) of the Act with specific direction to the TPO to revise the order based on the directions proposed. The ld. TPO then passed the revised order dated 18.02.2022 duly giving effect to the directions of the ld. DRP. The A.O. passed the final assessment order dated 23.02.2022 u/s. 143(3) r.w.s.

144C(13) r.w.s. 144B of the Act making an adjustment of Rs.119,52,99,430/- as per the revised order of the TPO pursuant to the direction of the DRP and determined the total income at Rs.177,30,90,010/-.

5. The assessee is in appeal before us, challenging the impugned order on various grounds:

(A.Y. 2017-18) NTT India Pvt. Ltd. vs. NFCA, New Delhi resource services, IT services. The assessee had bench marked the said transaction in entity level TNMM for the reason that the margins earned by the assessee at an entity level was in accordance with the provision of section 92C(2) of the Act and stated that the same was determined at ALP. The TPO was not in agreement with the ALP determined by the assessee for the reason that the assessee’s management fees agreement consist of 10 services which were not provided with itemwise break up and no justification was given for the requirement of the said services. The ld. TPO further stated that the assessee has failed to show the cost allocated to each of the said services along with the third party costs incurred by the AE for similar services. The ld. TPO necessitated FAR analysis and the benefit tests to determine the ALP for the said transaction. The assessee had submitted various details before the ld. TPO categorizing the various services included in the management services and also the benefits the assessee gets by availing these services. The ld. TPO rejected the contention of the assessee for the reason that it had failed to furnish the evidence for receipt of services for justifying the cost allocation and also that the assessee has also not maintained the books as to the time taken by the employees of the AE to provide the intra group services to the assessee and also the details of actual cost incurred by the AE for rendering the said services. The TPO bench marked the said transaction using CUP method as the most appropriate method thereby rejecting TNMM as the most appropriate method for determining the ALP. The ld. TPO further held that the assessee has relied upon the allocation keys which is not the prescribed method as per the provision of section 92C(1) of the Act and thereby applied CUP method for determining the ALP. The ld. TPO held that the ALP of the services rendered by the AE to the assessee is determined at nil by (A.Y. 2017-18) NTT India Pvt. Ltd. vs. NFCA, New Delhi applying CUP method and thereby proposed the impugned adjustment of Rs.121,94,85,623/-. The ld. DRP while disposing the objection filed by the assessee stated that this issue on management fees was there in assessee’s case for A.Ys. 2013-14 and 2014-15 where the DRP’s finding was on the issue of determination of ALP and not the purpose of rendering the said services. The ld. DRP further held that the TNMM method will not be applicable to bench mark the entire group services where identifying the cost of services for each service would be difficult. The DRP further held that the assessee has to prove that the said services were actually rendered and received and the actual expenditure incurred for each services should have been quantified and whether the same is at ALP has to be determined by the assessee. The ld. DRP further proposed the TPO to exclude to Rs.2,42,00,000/- towards the international transaction of providing group corporate guarantee @ 0.50% based on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Everest Kento Cylinders Ltd. (in of 2013 vide order dated 08.05.2015) and the same to be excluded from the adjustment of Rs.121,94,85,623/- on account of international transaction allocation of management fees.

(A.Y. 2017-18) NTT India Pvt. Ltd. vs. NFCA, New Delhi transaction but is closely associated with primary business activity of the assessee. The ld. AR further stated that these services are necessary for the benefit of the assessee’s business which impact the profit earned by the assessee. The ld. AR further stated that it is highly improbable to bifurcate the said transaction owing to the nature of the services availed by the assessee. The ld. AR further contended that the TPO has applied CUP method without any justification or finding and has also failed to considered the quarterly invoice raised by the AE for the services rendered to the assessee. The ld. AR further contended that the payment of management fees has to be considered in total and the same cannot be segregated for determining the ALP. The ld. AR also contended that the ld. TPO/A.O. has failed to considered the umbrella agreement entered into by the assessee with its AE for the purpose of availing various services. The ld. AR relied on the decision of the Hon'ble Jurisdictional High Court in the case of Merck Limited TS-608- HC-2016(BOM)-TP and also the assessee’s case in A.Y. 2011-12 on identical issue.

Dy. CIT (in vide order dated 27.02.2023). The ld. DR also stated that the ld. AR relying on the decision of the earlier orders is not applicable as the principle of resjudicata does not apply to the TP proceedings.

(A.Y. 2017-18) NTT India Pvt. Ltd. vs. NFCA, New Delhi

“.... (c) The grievance of the Revenue before us is that services only in three areas had been availed of by the respondent-assessee from its associated enterprises out of the twelve areas listed in the agreement. Therefore, the consideration paid to the associated enterprises is only attributable to the services received/avail (d) The finding of the Tribunal that the Transfer Pricing Officer has not applied any of the method prescribed under section 92C of the Act to determine the arm's length price in respect of fees for technical know how /consultancy fee paid by the respondent- assessee to its associated enter prices is not disputed before us. Further, the finding of the Tribunal that even in respect of three fields where the respondent-assessee had availed the services, no exercise to bench mark the same with similar transactions entered into between independent parties was carried out before holding that the arm’s lenth price in the three areas availed of is Rs.40 lakhs, is not disputed. The finding of the Tribunal that the agreement for technical know-how/consultancy was in respect of all the twelve services and the respondent- assessee could avail of all or any one of these twelve areas listed out in the agreement as and when the need arose. We find the agreement is similar to a retainer agreement. Consequently, the finding of the Assessing Officer attributing nil value to nine of the services listed in the agreement which were not availed of by the respondent-assessee in the present facts was not justified. Moreover, not adopting one of the mandatorily prescribed methods to determine the arm’s length price in respect of fees for technical services payable by the respondent-assessee to its associated enterprise, makes the entire transfer pricing agreement unsustainable in law. (e) In view of the above, the finding of fact arrived at by the Tribunal that Rs.157 crores paid by it to its associated enterprises is in respect of its right to avail and the obligation of the associated enterprises to provide technical assistance in any of the twelve services listed out in the technical know-how agreement entered into between the respondent-assessee with its associated enterprises is not shown to be perverse. The view taken by the Tribunal in the present facts is a possible view.” Here, we would also like to refer to the matter of AC Nielsen (India) Private Ltd. (supra). Relevant portion of the order reads as under: “2.2 The TPO found that during the year the assessee had paid Rs.11.14 crores to its AE, that the said payment was made in view of business support services received from the AE. It was claimed that above-mentioned payment was in the nature of intra-group services payment. He found that the first was signed on 02/06/2003 and its specified a Mark up of 5% in accordance with Article 4 whereas the second agreement was signed on 28.11.2007 and was stated to be effective from 01.01.2007. He found that the assessee had paid Euro 113315 + 339945 + USD103385 under the head Regional GSA (Business Support Services) for Client Services. He further found that under the heads Finance (Euro 19,000+ 5700+ US dollar 45. 713) and IT (Euro 48,851+ Euro 146552 plus US dollar 18, 759) thè assessee had made payments to its AE. The TPO directed the assessee to justify the ALP in respect of the GSA charges paid to its AE and to submit the gross allocation base, computation of allocation base, key of allocation and the basis of the key of allocation. The TPO examined the regional expenses allocation of Rs. 9.01 crores. After considering the submissions of the assessee dated 25/09/2010, 11/10/2010, 12/10/2010 and 19/10/2010, the TPO held that the IT was based upon components of costs that the assessee had not disclosed the basis for the allocation, that no details of special marketing Support was brought on record to show that specialist marketing and complication suppori service have been provided by the AE to the taxpayer, that the cost allocation included expenses on regional information technology team consisting of hundreds of employees located in New

(A.Y. 2017-18) NTT India Pvt. Ltd. vs. NFCA, New Delhi Zealand Australia and India and 140 people in other countries, that the assessee had not brought any evidence on record regarding employees located in India, that no customized research was conducted for the year for the assessee by the regional centre, that it had paid certain amounts towards business support services to its AE 's, that the total allocation could not be accepted to be India specific, that the submission of intra-group invoices could not be construed as sufficient compliance to show that payments made for GSA services were at arm 's length, that actual working for general costs incurred and its components were not produced for verification, that it was not proved that the assessee had really benefited out f the services of the regional team. That no one would pay any amount without knowing the actual basis and also the actual allocation figures in a third-party situation, that the assessee had its own client/server system, that total allocation could not be accepted to be India specific. He held that adjustment had to be made in the TP order. Accordingly, he made an adjustment of Rs. 4.50 crores (50% of Rs. 9.01 crores). 2.8. It is not denied by the TPO/DRP that expenses incurred by ACNielsen Corporation were not allocated to all the group entities on the basis of revenue. The assessee had made a claim that ACNielsen Asia Pacific has prepared a master file to determine an arm's length mark-up to be charged for the intra-group services. Both the authorities has not commented upon the said evidence and alleged errors,jf any, of the method approved by the Group. In short,the assessee had proved with documentary evidences that charges paid by the assessee were at arm 's length and that other arm 's length entity was prepared to pay for such services in comparable circumstances. 2.9 We are not agreeable to the proposition, advanced by the TPO/DRP, that when expenditure is incurred for the benefit of the group as a whole no charge of such expenditure is required Services rendered by AE help not only the group as a whole, but also helps others. Therefore, there is nothing wrong in charging cost for such services. As the cost incurred by the AE had been allocated to all the group companies on the basis of the revenue and detailed workings was shared with the TPO and DRP, so, it cannot be held that requisite information was not made available. It is other thing that both of them did not take notice of the details field, as discussed earlier. We are unable to understand the logic behind the argument of both the authorities that if the assessee had its own client service team then why costs of client service teams was included. According to us, it is gross violation of the ‘Laman-Rekha- drawn by the basic and fundamental taxation jurisprudence. No authority is required to hold that the jurisdiction of the A.O. u/s. 37 of the Act and that of the TPO u/s. 92CA are distinct. The authority of the TPO is to conduct a TP analysis to determine the ALP and not to determine whether or not there is a service from which the assessee benefits. So, when the TPO holds that the assessee did not benefit from these services it amounts to disallowing expenditure. Such a decision is outside the authority of the TPO. The decision as to whether the expenditure was "laid out or expended wholly and exclusively for the purposes of the business" is a fact determination or verification and that exercise is to be undertaken by the A0. That determination is not and cannot be made by the TPO. The Hon 'ble Delhi High Court in the case of Ekl Appliances Ltd. (345 ITR 241) has held as under: "It is not open to the Transfer Pricing Officer to question the judgment of the assessee as to how it should conduct its business and regarding the necessity or otherwise of incurring the expenditure in the interest of its business. t is entirely the choice of the assessee as to from whom it contemplates to source its technology or technical know-how and as to what steps should be taken to meet the competition prevalent in the market and to stave off the competitors. This is the domain of the businessman and the Transfer Pricing Officer has no say in the matter. As held by the Supreme Court in S. A. Builders Ltd. v. CIT (Appeals) (2007] 289 ITR 26 (SC) the Revenue cannot justifiably claim to place itself in the arm chair of businessman or in the position of the board of directors and assume the role to decide how much is the reasonable expenditure having regard to the circumstances of the case.

(A.Y. 2017-18) NTT India Pvt. Ltd. vs. NFCA, New Delhi

in favour of the assessee. As far as cases relied upon by the DR are concerned, we would like to state that both of then do not deal with the issue. Dispute before us, as stated earlier, is as to whether any TP adjustment can be made if an assessee avails only certain services out of the bunch of services mentioned in an agreement specially when the TPO does not doubt the arm's length price of availed services. Both the cases are not helpful to decide the issue before us.

10. From the above observation, it is evident that the Tribunal in assessee’s case for AY 2011-12 has considered the decision of the Hon'ble Jurisdictional High Court in the case of Merck Ltd. 389 ITR 70 and the Tribunal’s decision in the case of Nielsen (India)

Pvt. Ltd. (in and where on identical facts, it has been held that if the assessee availed even some of the services listed out in the composite agreement is suffice to prove the consideration paid to the AE’s and in case of intra group service payment, the TPO does not have an authority to decide whether the assessee has derived

(A.Y. 2017-18) NTT India Pvt. Ltd. vs. NFCA, New Delhi any benefit from these services or not and whether the said expenditure was incurred for the purpose of business of the assessee was to be determined by the A.O. and not by the TPO. Further it was held that the TPO is restricted only to determine whether the international transaction was at ALP. The issue in the present case is whether TP adjustment can be made in case where the assessee has availed only limited services out of bundle of services specified in the umbrella agreement, is answered in favour of the assessee. It is also pertinent to point out that the ld.TPO /A.O. has not given any justification for rejecting the TNMM method adopted by the assessee and in considering CUP as a most appropriate method. We, therefore, allow ground no. 1 raised by the assessee and hold that the same is at ALP. As this ground has been decided in favour of the assessee, ground no. 2 raised by the assessee becomes academic in nature.

Order pronounced in the open court on 04.09.2023.