NTT Data FA Insurance Systems (India) Pvt. Ltd. Vs DCIT (ITAT Bangalore)
The appeal filed by NTT Data FA Insurance Systems (India) Pvt. Ltd. was directed against the final assessment order passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961, for AY 2016-17. The principal dispute concerned transfer pricing adjustments relating to software development (SWD) services provided to the assessee’s Associated Enterprise (AE) and interest on outstanding trade receivables.
The assessee, a wholly owned subsidiary of NTT Data FA Insurance Systems Pte. Ltd., provided software development services to its parent company. For the year, the international transaction relating to SWD services was valued at Rs. 25.53 crore. The TPO determined an adjustment of Rs. 5.89 crore on the SWD transaction and a further adjustment towards interest on delayed receivables. Following the DRP’s directions, the total TP adjustment was enhanced to Rs. 6.10 crore.
The assessee challenged, among other things, the TPO’s rejection of its segmental profitability analysis. The assessee had computed a 10.17% operating margin by allocating revenues and expenses between AE and non-AE segments, whereas the TPO computed the margin at entity level at 3.90%. The Tribunal noted that in the assessee’s own case for AY 2005-06, it had held that the ALP should be determined with reference to the international transactions with the AE and that operating costs relating to non-AE transactions should not be included. Accordingly, the Tribunal directed the AO/TPO to consider the segmental profitability analysis furnished by the assessee.
