DCIT, BANGALORE vs. M/S NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD.,, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI. A.K. GARODIA, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A No.653/BANG/2016 Assessment Year : 2011 – 12

Asst. Commissioner of NTT Data Global Delivery Income-tax, Services Pvt. Ltd., Circle-5(1)(1), (In the case of M/s NTT Bengaluru. Vs. Data India Enterprises Application Services Pvt. Ltd., Formerly known as M/s Intelligroup Asia Pvt. Ltd., No.17 & 17/1, South End Road, Basavangudi, Bengaluru-560 004.

PAN – AABCK 7777 J APPELLANT RESPONDENT

IT(TP)A No.584/BANG/2016 Assessment Year : 2011-12

NTT Data Global Delivery Asst. Commissioner of Services Pvt. Ltd., Income-tax, (In the case of M/s NTT Circle-5(1)(1), Data India Enterprises Vs. Bengaluru. Application Services Pvt. Ltd., Formerly known as M/s Intelligroup Asia Pvt. Ltd., No.17 & 17/1, South End Road, Basavangudi, Bengaluru-560 004.

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PAN – AABCK 7777 J APPELLANT RESPONDENT

Assessee by : Shri Chavali Narayan, C.A Revenue by : Shri Muzaffar Hussain, CIT (DR)

Date of Hearing : 08-10-2020 Date of Pronouncement : 12-10-2020

ORDER PER BEENA PILLAI, JUDICIAL MEMBER

Present cross appeals has been filed by assessee as well as revenue against final assessment order dated 29/01/2016 passed by Ld. AO under section 143 (3) read with section 144C (13) of the Act, on following grounds of appeal:

ITA No.584/Bang/2016 Based on the facts and circumstances of the case and in law, NTT DATA Global Delivery Services Private Limited [successor of NTT DATA India Enterprise Application Services Private Limited] ('the Appellant") respectfully craves leave to prefer an appeal under section 253 of the Income-tax Act, 1961 ("the Act") against the order passed by the Deputy Commissioner of Income Tax, Circle 5(1)(1) Bangalore ["the learned AD"] under section 143(3) read with section 144C(13) of the Act pursuant to the directions issued by the Dispute Resolution Panel ("DRP"), Bangalore, on the following grounds: (I) General The order of the learned AO is based on incorrect appreciation of facts and interpretation of law and is, therefore, bad in law. 2. On the facts and in the circumstances of the case, the learned AO has erred, in law and facts, in assessing the total income of the Appellant at INR 312,875,888 as against the returned income of INR

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194,511,019 and arriving at the total tax and interest payable (as reduced by the tax deducted at source and advance tax) by the Appellant at INR 59,299,550.

(II) Transfer Pricing grounds 3. The learned AO/ Transfer Pricing Officer ("TPO") erred in making an addition of INR 113,287,872 to the total income of the Appellant on account of adjustment in the arm's length price of the software development services transaction entered by the Appellant with its associated enterprise; 4. The learned AO/ TPO erred, in law and in facts, by not accepting the economic analysis undertaken by the Appellant in accordance with provisions of the Act read with the Income-tax Rules, 1962 ('the Rules"), and modifying the same for determination of arm's length prices ('ALP') of the impugned transaction to hold that the same is not at arm's length. 5. The learned AO/ TPO erred, in law and in facts, by determining the arm's length margin/ price using only FY 2010-11 data which was not available to the Appellant at the time of complying with the transfer pricing documentation requirements; 6. The learned AO! TPO erred, in law and in facts, by rejecting the supplementary/ alternate economic analysis using internal TNMM as submitted by the Appellant; 7. The learned AG! TPO erred in rejecting certain comparable companies by applying the following quantitative and qualitative filters: (a) The learned AO/ TPO erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant for having different accounting year (i.e. companies having accounting year other than March 31 or companies whose financial statements were for a period other than 12 months); (b) The learned AOITPO erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant on account of showing diminishing revenues trend; (c) The learned AOITPO erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant using 'Employee cost greater than 25 percent of total cost' as a comparability criterion; (d) The learned AO!TPO erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant using 'Export earnings less than 75 percent of operating revenues' as a comparability criterion; 8. The learned AOITPO erred, in law and in facts, by accepting I rejecting companies based on unreasonable comparability criteria. 9. The learned AOITPO erred, in law and in facts, by not considering gains/ losses arising out of foreign exchange fluctuations, bank charges and provision for doubtful debts while computing the operating margins of the comparable companies. 10. The learned AOITPO erred, in law and in facts, by incurring computational errors in the impugned TP order;

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(III) Corporate tax grounds 13. Disallowance of interest and late payment fee of professional tax and service tax amounting to INR 22,750 and INR 226,302 respectively, totalling to INR 249,052 13.1. The learned AG has erred, in law and in facts, by disallowing the amount paid towards interest and late payment of professional tax and service tax amounting to INR 22,750 and INR 226,302 respectively, totalling to INR 249;052 by considering the same as penal in nature. 13.2. The learned AG has erred in law and facts by not appreciating the fact that such interest payments are compensatory in nature and not penal in nature. 14. Disallowance of expenses under section 14A of the Act amounting to INR 515,175 14.1. The learned AG has erred in law and facts, by stating that there is expenditure attributable to earning exempt income without appreciating the fact that the Appellant has not incurred any expenditure in relation to such exempt income. 14.2. The learned AG has erred in not considering the submissions made by the Appellant and appreciating the fact that the Appellant has not incurred any expenditure in relation to income not includible in total taxable income. 14.3. The learned AG has erred, in law and on facts, by computing INR 515,175, as disallowance under section 14A of the Act by applying the provisions of Rule 8D of the Rules. 15. Disallowance of expenses as per the provisions of section 40(a)(i) and 40(a)(ia) of the Act amounting to INR 2,992,562 resulting in double disallowance 15.1. The learned AG has erred in law and in facts in disallowing the year end provisions amounting to INR 22,98,683 under section 40(a)(i) and section 40(a)(ia) of the Act without appreciating the fact that such amount represents taxes on expenses which has already been offered to tax in the Return of Income filed by the Appellant. 15.2. The learned AG has erred in not considering the submissions made by the Appellant and appreciating the fact that the disallowance has wrongfully resulted in the same amount being disallowed twice and hence is not as in accordance with the principles of natural justice.

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(IV) Other grounds 16. The learned AO has erred in law and facts, in not granting deduction eligible under Chapter VI-A of the Act of INR 360,733 as claimed by the Appellant in its Return of Income. 17. The learned AO has erred in law and facts, by restricting credit towards tax deducted at source ('TDS") and advance tax to an aggregate amount of INR 58,999,914 as against INR 71 896,342 claimed by the Appellant in its Return of Income resulting into reduction of TDS and advance tax claim by INR 12,896,428. 18. The learned AO has erred in levying interest of INR 548,766 under section 234A of the Act, INR 15,914,214 under section 234B of the Act, INR 2,724,805 under section 234D of the Act and INR 829,108 under section 244A of the Act. The above grounds are mutually exclusive and without prejudice to each other. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Honourable Tribunal to decide on the appeal in accordance with the law.”

ITA No.653/Bang/2016 1. The direction of the Dispute Resolution Panel are opposed to the law and not on the facts and circumstances of the case. 2. On the facts and in the circumstances of the case, the DRP erred in law in directing the Assessing Officer to reduce the expenditure incurred in travel, telecommunication etc, both from the Export Turnover as well as the Total Turnover for the purpose of computation of deduction u/s.10A of the IT Act without appreciating the fact that the statue allows exclusion of such expenditure only from the Export turnover by way of specific definition of Export Turnover as envisaged by sub-clause(4) of explanation 2 below sub-section 8 of section 10A. On the other hand, there is no specific provision in section 10A warranting exclusion of above expenses from total turnover also. 3. For these and other grounds that may be urged upon, direction of the Dispute Resolution Panel may be reversed and that assessment order be restored. 4. The appellant craves leave to add, alter, amend or delete any other grounds on or before hearing of the appeal.” 2. At the outset Ld.AR submitted that assessee has sought to resolve transfer prising issues arising out of international transactions undertaken with U.S. associated enterprises vide MAP resolution entered between respective competent authorities

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dated 01/06/2020. Communication of resolution of dispute under MAP with USA is placed as Annexure 1 to letter dated 24/09/2020 filed by assessee before this Tribunal. Ld.AR submitted that, in view of MAP resolution, assessee wishes to withdraw ground of appeal 3-13, in appeal filed by assessee. In the light of above resolution agreed between competent authorities of USA and India, Ld.TPO/AO is directed to consider e transfer prising issue with US AE’s in accordance with MAP resolution. Accordingly, we dismiss Grounds 3-13 raised by assessee in its appeal as withdrawn. 3. Ld.AR filed letter dated 05/10/2020 by assessee, wherein it is stated that, in respect of Ground No. 1, 2 and 14-30 assessee is opting for VSVS 2020, and that, these grounds raised may be allowed to be withdrawn with liberty. 4. Ld.Sr.DR did not object to the same. 5. We have perused submissions advances by both sides in light of records placed before us. 6. As assessee has sought for VSVS- scheme 2020, no purpose will be served in keeping the present appeal pending. Considering the situation, we dismiss the present appeal as withdrawn. However, liberty is granted to move appropriate application for recall of this order, in the event, Form 1 filed by assessee is not accepted by revenue. Accordingly, grounds 1-2 and 14-30 in assessee’s appeal are allowed to be withdrawn with liberty.

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ITA No. 653/Bang/2016

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Accordingly these grounds raised by revenue stands dismissed. In the result appeal filed by assessee stands withdrawn as indicated hereinabove and appeal filed by revenue stands dismissed. Order pronounced in the open court on 12th Oct, 2020 Sd/- Sd/- (A.K GARODIA) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 12th Oct, 2020. /Vms/

Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file By order

Assistant Registrar, ITAT, Bangalore