M/S. NORTHERN OPERATING SERVICES PRIVATE LIMITED,BENGALURU vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), BANGALORE

ITTPA 1017/BANG/2022Status: DisposedITAT Bangalore03 October 2025AY 2018-1914 pages
AI SummaryDismissed

What were the facts?

M/s. Northern Operating Services Pvt. Ltd. (the assessee) filed an appeal against an assessment order for Assessment Year 2018-19. The order was passed under section 143(3) read with section 144C(13) and 144B of the Income Tax Act, 1961, pursuant to directions from the Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP). The TPO had scaled down an arm's-length price adjustment from ₹888,069,382 to ₹456,713,162, determining the total income at ₹1,687,633,862 against the returned income of ₹1,230,920,700. Subsequently, the assessee entered into a bilateral Advance Pricing Agreement (APA) with the Central Board of Direct Taxes on 17/10/2024, covering IT-enabled and IT services transactions with associated enterprises, including rollback years from AY 2016-17 to 2019-20. The assessee withdrew grounds related to APA-covered transactions but sought to apply the APA margin to non-US based associated enterprise transactions.

What did the Tribunal hold?

The Tribunal rejected the assessee's argument to apply the APA margin of 17.13% to transactions with non-US-based associated enterprises. The Tribunal noted that the APA, dated 17/10/2024, explicitly states in paragraph 3.3 that covered transactions are with Northern Trust Corporation and its subsidiaries in the USA. Therefore, only US transactions are covered by the APA. The Tribunal found that the assessee's transfer pricing study report indicated different agreements and distinct functions for transactions with US and non-US entities, contradicting the assessee's claim of similarity. The Tribunal also observed that even if the Transactional Net Margin Method (TNMM) was used, which subsumes dissimilarities, it did not justify extending the APA rate to non-US entities when the functions were demonstrably different. The Tribunal emphasized that Section 92CC and 92CD of the Act do not provide for an APA covering one set of transactions to govern others not covered. The judicial precedents cited by the assessee pertained to MAP, not APAs, and thus were not applicable. Consequently, the appeal concerning the determination of the arm's-length price for non-US entity transactions was dismissed.

What were the issues?

1. Whether the margin of 17.13% on operating costs, as determined under a bilateral Advance Pricing Agreement (APA) for transactions with US-based associated enterprises, should be applied to transactions with non-US-based associated enterprises, given the similarity in functions, assets, and risk profiles. Assessee's Contention: The assessee argued that transactions with US and non-US associated enterprises are similar, comprising only 1.75% of total international transactions. They contended that no distinction was made in transfer pricing documentation, financial statements, or the TPO's comparability analysis between US and non-US entities. The assessee relied on judicial precedents like JPMorgan Services India Pvt. Ltd., ABB Global Industries and Services Pvt. Ltd., Textron India Pvt. Ltd., ANZ Operations and Technology Pvt. Ltd., and EIT Services India Pvt. Ltd., suggesting that MAP resolutions can be adopted for other AE transactions. Revenue's Contention: The revenue argued that the APA specifically covers transactions with US entities only and cannot be extended to non-US transactions. They stated there is no provision in the Income Tax Act for an APA covering one set of transactions to apply to others not covered. The revenue also contended that the cited judicial precedents relate to Mutual Agreement Procedure (MAP) and not APAs, making them inapplicable.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 144B,Section 92CA(3),Section 92CC,Section 92CD

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE

Before: SHRI LAXMI PRASAD SAHU & SHRI SOUNDARARAJAN K.

For Appellant: Shri Chavali Narayan, CA
For Respondent: Dr. Divya K.J, CIT-DR

PER SOUNDARARAJAN K., JUDICIAL MEMBER

This appeal is filed by Northern Operating Services Pvt. Ltd. against the assessment order passed under section 143 (3) read with section 144C (13) read with section 144B of the Income Tax Act, 1961 (the Act) dated 23/8/2022 passed by the Assessment Unit, Income Tax Department in pursuance of the order passed under section 92CA (3) of the Income Tax Act on 26 July 2021 by the Deputy Commissioner of Income Tax (Transfer IT(TP)A No. 1017/Bang/2022 Pricing) – 2 (1) (2), Bangalore (the learned TPO’s) and direction of t

The order continues below.

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