NORTONLIFELOCK SOFTWARE SOLUTIONS PVT LIMITED (NSSPL) (EARLIER KNOWN AS SYMANTEC SOFTWARE SOLUTIONS PRIVATE LIMITED),MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 14(1)(2), MUMBAI

The captioned appeal preferred by the assessee arises against the assessment order dated 31.07.2022passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 [hereinafter referred to as “Act”], for Assessment Year (AY) 2018-19,

The grounds of the appeal raised by the assessee reads as under: - General ground on transfer pricing adjustment 1. erred in proposing an upward adjustment amounting to INR 6,11,64,466 to the value of international transaction pertaining to provision of software development support services to its associated enterprise ('AE') and INR 17,50,90,181 to the value of international transaction pertaining to sales and marketing support services to AE by rejecting the analysis undertaken by the Appellant in its transfer pricing documentation. Final assessment order barred by limitation 2. erred in not appreciating that the time limit prescribed under section 153 is the outer time limit for passing the final assessment order and hence, the final assessment order dated 31 July 2022 is time barred and liable to be quashed Final assessment order is invalid 3. erred in contravening the provisions of section 144B of the Income-tax Act, 1961 ("the Act") by passing the final assessment order u/s Section 143(3) r.w.s 144C(13) of the dated 31 July 2022 by Jurisdictional Assessing Officer (ACIT, Circle 14(1)(2) Mumbai) and not by the National Faceless

Brief background of the case is, that the assessee hade-filed original return of income on 30.11.2018, declaring total income of Rs. 25,34,35,810/-. Later on, the said return was revised on 29.03.2019, declaring the total income of Rs. 24,14,41,730/-. The case thereafter was selected for complete scrutiny under E- assessment Scheme, 2019 on the following issues: - S.No Issues i. Claim of Any Other Amount Allowable as Deduction in Schedule BP ii. Reduction of Income in Revised Return & Claim of Refund iii. International Related Party Transactions in Services iv. Default in TDS & Disallowance for such Default

The statutory notices under Section 143(2) and 143(1) alongwith questionswere issued and responded by the assessee through ITBA. Before that, the Assessing Officer has passed a draft assessment order dated 01.09.2021 under section 144C of the Act, in consultation with order of Transfer Pricing Officer, ACIT, TP 3(1)(1), Mumbai dated 28.07.2021 dated by referring the TP Transactions involved, which was objected by the assessee before the Ld. Dispute Resolution Panel (Ld. DRP). The objections of the assessee were addressed by the DRP and the Order giving directions to the AO was passed under Section 144C(5) of the Act on 29.06.2022. Pursuing to the directions of Ld. DRP, the Ld. TPO has further revised his order and passed an amended order on 12.07.2022, making certain changes in the comparable and had recalculated the adjustments. The AO, then, had passed the final assessment order making therein the adjustments as directed, thereby, had observed and concluded as under:-

Adjustment to Arm's Length Prices in relation to international Transaction:

1 The assessee is engaged in providing routine software development support services and sales and marketing support and technical support services to its associated enterprises ('AEs'). During the year under consideration, the assessee entered into International Transactions with its Associated Enterprises within the meaning of Section 92B of the IT Act. Accordingly, a reference u/s 92CA(1) of the Act was made to the TPO for determination of Arm's Length Price with reference to all the international transactions report in Form No. 3CEB filed by the assessee.

2 Thereupon, the Transfer Pricing Officer ACIT TP 3(1) (1), Mumbai passed an order dated 28.07.2021 u/s 92CA(3) of the Act for computation of Arm's Length Price in relation to International Transactions and determined Transfer Pricing adjustment of Rs. 15,46,41,985/-.

3 As per the provisions of section 92CA(4) of the Act, it is mandatory for the Assessing Officer to compute the total income of the assessee in conformity with Arm's Length Price as determined by the Transfer Pricing Officer. In view of the same and as finalized by the TPO, an addition of Rs. 15,46,41,985/-was proposed to the total income of the assessee and a draft assessment order was passed by Assessing Officer u/s 143(3) r.w.s 144C(1) of the Act on 01.09.2021. Penalty proceedings u/s 270A of the Act was initiated separately for under reporting of income. Penalty proceedings u/s 271AA of the Act was initiated separately for non-maintenance of records and documents as per Rule 10D of the IT Rules.

4 Aggrieved by draft order, the Assessee filed objections before the Dispute Resolution Panel on 30.09.2021. 3.5 The Hon'ble Dispute Resolution Panel-2, Mumbai passed an order dated 29.06.2022. Vide its order, the Hon'ble DRP-2, Mumbai has directed the TPO to delete certain comparables and recalculate the adjustment on account of 1. Provision of software development support services

Provision of sales and marketing support and technical support services.

6 Following the direction of Hon'ble DRP-2, Mumbai, the TPO, ACIT, TP 3(1)(1) has passed an order dated 12.07.2022. The relevant part of the TPO's order is as under: “......

Provision of Software Development Support Services: As directed by the Ld. DRP, the adjustment in the order u/s. 92CA(3) of the Act in the case of assessee for A.Y 2018-19 is revised as under:

1 Revised dataset of the Comparable Companies following the order of DRP: S No Name of the company Weighted Average% OP/OC

Harbinger Systems Private Limited 6.87

Sasken Technologies Limited 10.24

CG-VAK software & Exports Limited 14.95

Sagarsoft (India) Limited 17.56

R systems international Limited

32

SQS India BFSI Limited 20.87

Nihilent Ltd 21.74

Infobeans Technologies Pvt Ltd 26.67

Cybage Software Pvt Ltd

33 Range OP/OC 35th percentile 14.95% Median 18.94% 65th percentile 20.87%

Provision of Sales And Marketing Support And Technical Support Services.

1 Revised dataset of the Comparable Companies following the order of DRP: S No Name of the company Weighted Average% OP/OC 1 Concept Public Relations India Ltd. 11.21 2 India Tourism Development Corporation

97 Ltd. 3 PR Pundit public Relations Pvt. Ltd. 15.43 4 ICRA Management Consulting Services

79 Ltd. Arithmetic Mean

6

In view of the above, the total adjustment after giving effect to the directions of the Ld DRP u/s 144C(5) of the Act is revised to Rs. 23,62,54,647/- as under: S.No TP Adjustment Amount of Relief/Enha Amount and . made on account Adjustment ncement Adjustment of made by Given by After DRP's TPO (Rs.) DRP (Rs.) order (Rs.) 1 Software 7,21,48,852 1,09,84,386 6,11,64,466 development (Relief) support services 2 Sales and 8,24,93,133 9,25,97,048 17,50,90,181 Marketing (Enhanced) support Total 15,46,41,985 8,16,12,662 23,62,54,647 (Enhanced)

7 Therefore, in view of the directions of the DRP u/s 144C(5) of the Act, the total Transfer Pricing adjustment to the Arm's Length Price of the International Transaction is determined to Rs. 23,62,54,647/-as finalized by the TPO vide its order giving effect dated 12.07.2022 in accordance with the provisions of section 92CA(4) of the Act. TP addition: 23,62,54,647/-

8 Penalty proceedings u/s 270A of the Act are initiated separately for under reporting of income and Penalty proceedings u/s 271AA of the Act are initiated

Issue other than TP issue:

1 The assessee company also raised the issue of considering total income of Rs. 25,75,45,570/- as against Rs. 24,14,41,730/- u/s 143 (1) of the Act.

2 The Hon'ble DRP vide its order dated 29.06.20222 directed to verify the same and recompute accordingly.

3 As per the direction of Hon'ble DRP, the assessee was served a notice dated 25.07.2022 to make it submissions in view of the DRP's direction. The assessee did not reply till date. So the income computed as per 143(1) remain as it is in the final order.

Subject to the above remarks and respectfully following the directions of Hon'ble DRP, the total income of the assessee company is computed as under:

Assessed u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 at an income of Rs. 49,38,00,117/-. Give credit for taxes paid after due verification. Interest is being charged u/s 234A, 2348, 234C & 234D as per the Act. Tax computation is as per ITNS 150A, which forms integral part of this order.

Being aggrieved by the aforesaid adjustments made in the final assessment order, the assessee has preferred an appeal before the Tribunal, which is under consideration in the present proceedings.

At the outset, the learned Counsel for the assessee (in short, “Ld. AR”) submitted a ground-wise summary chart, setting out the comparables/issues, the reasons recorded by the TPO/DRP for their acceptance or rejection, the assessee’s contentions for acceptance or rejection thereof, and the relevant judicial precedents relied upon in support of its contentions,The same are dealt with and adjudicated as under:

Ground No. 1 is general in nature, thus requires no separate adjudication.

Ground No.2 related to limitation prescribed u/s 153, which is not pressed by the assessee.

Ground No.3 is regarding jurisdiction of the Assessing Officer, the same is not pressed by the assessee.

Ground No.4 is again academic in nature.

Ground No 5

1 The issue herein pertains to certain adjustments made by the Transfer Pricing Officer (TPO) considering the directions of Ld. DRP, by including / excluding certain comparables, which according to the assessee are not acceptable.

2 The ld. DRP and ld. TPO have rejected the aforesaid comparables from the list of comparables submitted by the assessee, stating the reasons for “Evoke Technologies Private Limited” that the data is not available and the functionality is non-comparable, as the company is engaged in IT design and development services for application,

3 In order to substantiate that the comparables have logical similarities the Ld. AR had furnished following reasons:

4 Ld. AR has relied upon the decisions of coordinate benches of ITAT Hyderabad in the case of ADP (P) Limited, reported in (2022) 135taxmann.com 44 (Hyd-Trib.) for assessment year 2016-17, and ITAT Mumbai in the case of Varian Medical System International (India) Private Limited in ITA No. 510/Mumbai/2022, dated 27 December 2023. In both the aforesaid decisions the issue regarding provision of software development service has been examined by the tribunal and held that the aforesaid two companies, namely Evoke Technologies Private Limited and Maverick Systems Limited, are comparable as they were treated to be comparable in preceding years in assessee’s case, but were rejected by the TPO and DRP for the present year. The relevant observations of the tribunal in the aforesaid two cases are as under:

4 We observe that this company is functionally comparable to assessee company and accepted in earlier years as comparable as there is no change in nature of business and engaged in IT decision and development

5 Though, in both the aforesaid cases the reason for accepting the comparable by the tribunal was that the same comparables were accepted in earlier years in those assessee’s own cases, such facts are not there before us in the present case. Still, we find prima facie substance in the submissions of the assessee. Therefore, we are restoring this issue back to the file of ld. AO/TPO for re-consideration and to re-revisit of these comparables, considering the assessee’s contention, since the assessee is engaged in the identical services, provided by the companies referred to in aforesaid two decisions, which were considered by the revenue to treat them good comparable, the matter therefore is restored back to the file of AO/TPO for fresh adjudication considering the facts of the decisions relied upon by the assessee comparing the same with functional profile of the assessee.

6 Ground no 5 of the assessee therefore allowed for statistical purposes.

Ground No. 6 – Functional Comparability of Certain Comparables

1 Apropos, Ground No. 6 of the assessee’s appeal, the assessee has assailed the inclusion of certain companies by the learned TPO in the set of comparables for benchmarking the international transactions pertaining to the “Software Development Support Services” segment. The learned AR submitted that both the learned TPO and the learned DRP had considered the aforesaid companies to be functionally comparable with the assessee. However, according to the assessee, the said companies are functionally dissimilar and, therefore, ought to be excluded from the final set of comparables. In support of its contentions, the assessee placed the relevant material and documents before the lower authorities.

2 The companies whose exclusion has been sought by the assessee are as under:

3 The learned Departmental Representative, on the other hand, supported the action of the learned TPO and submitted that the aforesaid companies are P a g e | 24 A.Y. 2018-19 NortonLifelock Software Solutions Pvt. Ltd.(NSSPL) functionally comparable with the assessee and, therefore, their inclusion in the set of comparables is justified.

4 In support of its contention regarding the exclusion of the aforesaid companies, the learned AR placed reliance upon various judicial pronouncements, including decisions rendered by the coordinate Benches of the Tribunal. The relevant decisions relied upon by the assessee are considered company-wise as under:

5 In support of exclusion of Nihilent Limited, reliance was placed on the decision of the coordinate Bench in Ingram Micro India SSC Private Limited, ITA No. 1320/Mum/2021, order dated 29.01.2024, wherein the Tribunal, after considering the nature of activities undertaken by the assessee and Nihilent Limited, observed as under:

6 With regard to Infobeans Technologies Private Limited, the learned AR placed reliance on the decision of the Tribunal in the assessee’s own case for AY

7 As regards Cybage Software Private Limited, reliance was placed on the decision of the Bangalore Bench of the Tribunal in Wipro GE Healthcare (P.) Ltd. [(2023) 154 taxmann.com 97 (Bangalore-Trib.)], pertaining to AY 2018-19. In the said decision, the Tribunal considered the objection of the assessee that Cybage Software Private Limited was functionally dissimilar, did not have appropriate segmental information and was primarily engaged in onsite services and product development/R&D activities. The Tribunal, following the decision of the Pune Bench in Optiva India Technologies (P.) Ltd., directed exclusion of Cybage Software Private Limited from the set of comparables. The relevant observations, as relied upon by the learned AR, read as under:

8 We have considered the rival submissions, perused the material available on record and examined the judicial pronouncements relied upon by the learned AR. The issue before us is confined to the functional comparability of Nihilent Limited, Infobeans Technologies Private Limited and Cybage Software Private Limited with the assessee in respect of its Software Development Support Services segment.

9 We note that, in respect of Nihilent Limited, the coordinate Bench in Ingram Micro India SSC Private Limited (supra) has considered the nature of activities undertaken by the said company vis-à-vis routine software development and support services and, after noting the absence of segmental reporting, held the company to be functionally dissimilar.

10 In respect of Infobeans Technologies Private Limited, we further note that the Tribunal, in the assessee’s own case for AY 2013-14, after considering the activities disclosed in the annual report, including sale of software products and diversified activities involving development of customised software, as well as the absence of segmental details, held the company not to be comparable with a software development service provider.

11

13 Having regard to the aforesaid judicial precedents relied upon by the assessee, the nature of activities of the respective companies and the material

14 Ground No. 6 of the assessee’s appeal is accordingly allowed.

Ground No. 7 – Inappropriate Inclusion of SQS India BFSI Limited as a Comparable

1 Ground No. 7 of the assessee’s appeal is directed against the inclusion of SQS India BFSI Limited as a comparable for benchmarking the international transactions pertaining to the Software Development Support Services segment for AY 2018-19. 13.2 The learned AR submitted that the related party transactions (“RPT”) of SQS India BFSI Limited constitute 74.56% of its operating revenue. It was contended that the said percentage is substantially in excess of the 25% RPT filter applied by the assessee as well as by the learned TPO for determining the comparability of companies. Accordingly, it was submitted that SQS India BFSI Limited could not be retained as a comparable.

3 The learned AR further submitted that the aforesaid issue had already been brought to the notice of the learned TPO by way of a rectification application. However, the said application had not been disposed of by the learned TPO. It was, therefore, prayed that the computation of the RPT percentage be verified and, if found to be in excess of the prescribed filter, the company be excluded from the final set of comparables.

4 We have considered the submissions of the learned AR and perused the material available on record. Since the assessee has specifically raised an issue regarding the computation of the RPT percentage of SQS India BFSI Limited and has also stated that a rectification application on the same issue is pending before the learned TPO, we consider it appropriate that the matter be examined at the level of the learned AO/TPO.

5 Accordingly, the issue relating to the inclusion of SQS India BFSI Limited is restored to the file of the learned AO/TPO for verification of the RPT computation and its comparability in accordance with the applicable RPT filter. The learned AO/TPO shall examine the issue afresh after affording reasonable opportunity of P a g e | 32 A.Y. 2018-19 NortonLifelock Software Solutions Pvt. Ltd.(NSSPL) being heard to the assessee and thereafter pass an appropriate order in accordance with law.

6 Ground No. 7 of the assessee’s appeal is accordingly allowed for statistical purposes.

Ground No.8 is general and academic in nature, needs no separate adjudication.

Ground No.9, erroneous computation of weighted average unadjusted operating margins for some comparables pertaining to software development service segment: The Ld. AR contended before us to issue directions for verification of erroneous computation. The matter therefore, is restored back to the file of Ld. AO for verification and computation as per facts available on record. In result, Ground No.9 is allowed for statistical purposes.

Ground 10: Regarding non-granting of working capital adjustment to operating margin of comparable companies pertaining to software development support service segment.

1 It is submitted the issue herein is already decided and covered by assessee’s own case for assessment year 2013-14 in ITA number 7347/Mumbai/2017, vide order dated 27 September 2021, wherein the Hon’ble ITAT has held as under:

2

Ground No.11 and 12 are general and academic in nature, needs no separate adjudication.

Ground No.13 regarding erroneous computation of weighted average unadjusted operating margins for certain comparables of sales and marketing service segment: The assessee has challenged the inclusion of “ICRA Management Consulting Services Limited” being accepted by the TPO as well as by the assessee, however the TPO has considered the income margin of the company. Also the DRP has directed the Ld. TPO to verify the margin computation working submitted by the assessee. However, the Assessing Officer while passing the final order has considered the same incorrect margin which was considered by the TPO in his order. It was the prayer before us to direct the Ld. AO/TPO to verify and consider the correct margin at (–) 9.49%.

Since the issue needs verification of facts, therefore, in the interest of justice we are remitting this issue back to the file of Ld. AO/TPO for factual verification and P a g e | 35 A.Y. 2018-19 NortonLifelock Software Solutions Pvt. Ltd.(NSSPL) consider the correct margin after re-computation. The assessee is directed to provide necessary information to assist the Ld. AO/TPO in the set aside proceedings.

Ground No.14 regarding non-granting of working capital adjustment to operating margins of comparable companies for sales and marketing support service segment: This issue is identical to the issue raised by the assessee in Ground No.10 of the present appeal regarding non-granting of working capital adjustment to operating margins of comparable companies pertaining to software development support services. Under such circumstances, having parity of facts and actions by the respective parties, we find it appropriate to apply our decision mutatis mutandis which is observed in Ground No.10 of the present appeal. Accordingly, the issue is restored back to the file of Ld. AO/TPO for fresh consideration on similar terms. In result, Ground No.14 is allowed for statistical purposes.

Ground Nos.15, 16 and 17 regarding erroneous amount of capital gains, disallowance of claim u/s 40A(7) relating to gratuity and disallowance of claim u/s 43B relating to leave encashment: All these issues are already raised by the assessee in its rectification application before the Ld. AO but the same is still undisposed of P a g e | 36 A.Y. 2018-19 NortonLifelock Software Solutions Pvt. Ltd.(NSSPL) before the Ld. AO. We therefore direct the Ld. AO to consider the request of the assessee and adjudicate these issues after factual verification in accordance with the law. In result, Ground No.15, 16 and 17 are set aside to the file of Ld. AO and allowed for statistical purposes.

Ground Nos.18, 19, 20 and 21 are consequential in nature and premature at this stage, therefore the same are restored back to the file of Ld. AO/TPO for giving consequential effect to the same. In result, these grounds, i.e., Ground Nos. 18, 19, 20 and 21 are allowed for statistical purposes.

In result the appeal of assessee is allowed for statistical purposes, in terms of our aforesaid observations.