TaxTMI 
TaxTMI 
2022 (1) TMI 120
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....nel ('DRP') further erred in upholding the disallowance of deduction under Section 10A of the Income tax Act, 1961 ('the Act1) of Rs. 551,793,451 in respect of the profits earned by the eligible units of the Appellant Company viz. Mumbai -1, Pune -1 and Pune - II units in view of erstwhile deleted provisions of Section 10A(9) of the Income-tax Act, 1961 ('Act'). It is prayed that the learned AO be directed to allow deduction under Section 10A of the Act of Rs. 551,793,451 in respect of the profits earned by the three eligible units of the Appellant Company viz. Mumbai -1, Pune -1 and Pune - || units. 2. On the facts and circumstances of the case, and in law, the learned AO erred in proposing and the DRP further erred in upholding the disallowance of depreciation amounting to Rs. 25,765,238 on intangible assets acquired by the Appellant Company. It is prayed that the learned AO be directed to allow depreciation of Rs. 25,765,238 claimed on intangible assets acquired by the Appellant Company. 3. Without prejudice to ground no. 2 above, on the facts and circumstances of the case and in law, it is prayed that the learned AO be directed to ....
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....eciating the fact that none of the conditions set out in Section 92C(3) of the Act are satisfied in the case. The Appellant prays that the transfer pricing additions made by the AO be deleted. 9. On the facts and in the circumstances of the case and in law, the learned AO/ TPO/DRP has by not accepting the tested party selected by the Appellant Company and disregarding the guidance provided under: * The Income-tax Rules, 1962, * The Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations issued by Organization for Economic Cooperation and Development; * Various judicial and other precedents; and * Section 1.482-5 of the US transfer pricing regulations. The Appellant prays that due consideration be given to the explanations provided in respect of the selection of tested party and that the adjustments made by the AO/ TPO due to the non-acceptance of the tested party selected by the Appellant Company be deleted. 10. On the facts and in the circumstances of the case and in law, the learned AO/ TPO / DRP erred in aggregating the international transactions of Payment of marketing and management fees, Receipt o....
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.... 3.2. The assessee is engaged in the business of providing variety of information technology enabled business process outsourcing services including back office administrative services and call centre services to customers primarily in the pharmaceutical and insurance industry. It also provides offshore processing services to leading companies in the insurance / pharmaceutical and market research industries. WNS India (assessee herein) is 100% held by WNS Mauritius Ltd., which inturn is 100% held by WNS Holdings Ltd., Jersey. Warburg Pincus Group holds 73% in WNS Holdings Ltd. 3.3. The details of international transactions entered into by the assessee during the year under consideration and the most appropriate method adopted (MAM) thereon for benchmarking the said transactions are as follows:- Sr.No. Name of the AE Nature of Transaction Amount (Rs.) Method Used 1. WNS Global Services (UK) Ltd., UK Payment of marketing and management fees 26,46,48,242 TNMM 2. WNS North America Inc USA Payment of marketing and management fees 41,02,61,224 TNMM 3. WNS Global Services (UK) Receipt of contract revenue in respect of contacts exe....
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....td.,) 20.66 12 Transworks Information Services Ltd., 19.56 13 Pentasoft Technologies Ltd., (Seg.) 9.36 Average 21.03 3.5. From the aforesaid table, the ld. TPO arrived at the average margin of comparables @21.03% as against the margin of 12.29% declared by the assessee. The ld. TPO sought to make an adjustment of Rs. 34,81,53,110/- in respect of receipt of contract revenues and payment of marketing and management fees as under:- A Sale Turnover Rs. 4,34,59,17,558 B Profit before tax Rs. 46,52,22,822/- C Add Donation Rs. 6,71,303/- D Add Loss on sale of asset Rs. 2,60,726/- E Add Foreign exchange loss, net Rs. 1,24,49,568 F Less other income Rs. 28,60,097 G PBIT Rs. 47,57,44,322 H Total Costs (A-f) Rs. 3,87,01,73,236 I OP/TC 12.29% J Arm's length margin on Total Costs 21.03% K Arm's length profit margin (H*J) Rs. 81,38,97,432/- L Difference Rs. 33,81,53,110/- 3.6. This order of the ld. TPO was adopted by the ld. AO i....
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....with effect from 1 April 2015 2. Reimbursement of client billings to WNS India in respect of a specific contract executed by WNS Customer Solutions (Singapore) Private Limited ('WNS Singapore') • WNS Customer Solutions (Singapore) Private Limited (WNS Singapore) - The transaction with WNS Singapore shall be entered into for the period from 1 April 2013 to 31 March 2014 as WNS Singapore's contract with the client is expiring with effect from 1 April 2014 3. Provision of BPO and IT services by WNS India to its AEs • WNS UK (Assistance Unit); BPO service • WNS Global services (private) Limited ('WNS Sri Lanka')- BPO service • WNS UK (BizAps Unit)- IT Service -These transactions shall be entered into for all 5 years covered under the APA (i.e. for a period from 1 April 2013 to 31 March 2018) 4. Provision of BPO services by WNS Sri Lanka to WNS India • WNS Sri Lanka - The transaction shall be entered into for all 5 years covered under the APA (i.e. for a period from 1 April 2013 to 31 March 2018) 4.2. He drew our attention to the most appropriate method accepted under the APA for the....
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....ficer, primarily relying upon his decision in assessment year 2004-05, he has held that the assessee has to be treated as tested party and all international transactions have to be aggregated for bench marking purpose. However, it is observed, while deciding identical issue in assessee's own case for the assessment year 2004-05, the Tribunal has upheld learned Commissioner (Appeals)'s decision in treating the AEs as the tested party on the following observations: - "15. While deleting the addition made by TPO disregarding the benchmarking approach, CIT(A) observed as under:- i. The Appellant has changed the business model to increase its turnover which require the risk free environment to its marketing companies i.e., its A.Es as risks and rewards from customers are passed on to the Assessee under the new business model. ii. The two business models of the Appellant are entirely different in functional analysis: a. In Business Model I, the risks and rewards is with the Appellant. The A.Es which are remunerated on a cost plus fees are insulated from the risks which is borne by the Appellant as entrepreneur. The AEs render only marketing and....
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....TA No.172 & 182 of 2013) wherein the Hon'ble Court has upheld the principle that only closely linked transactions which are components of single composite transaction can constitute a transaction. 23. In view of the above, we observe that the aforesaid transactions do not form a single composite transaction and the terms of each transactions have been agreed separately by the assessee with its AEs. Thus, the learned TPO's approach of aggregating the international transactions is not appropriate and the learned DR's claim of following the learned TPO's claim is not acceptable. Furthermore, detailed findings given by CIT(A) are as per material on record, which has not been controverted by Department by bringing any positive material on record. Accordingly, we do not see any justifiable reason to interfere in the findings of CIT(A) which resulted into deletion of addition made on account of international transaction." 10. The learned Departmental Representative having not brought any material difference in fact in the impugned assessment year, respectfully following the decision of the Tribunal as referred to above, we uphold the decision of the learn....
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....by a third party experienced in such operations and functions to achieve economic efficiencies and other advantages from outsourcing. Thus, it was agreed between WNS N.A. and Travelocity that WNC N.A. would reimburse Travelocity for the cost associated with the use of Travelocity assets and Travelocity personnel during the migration period. These costs to be incurred by WNS N.A. have been passed on to the assessee, because, WNS N.A. had entered into back-to-back contract with the assessee wherein all the functions/rewards/risks associated with the contract were passed on to the assessee. Thus, it was submitted by the assessee that as the Travelocity contract is with a third party, the transaction has to be treated at arm's length since the costs have been passed on to the assessee on back-to-back basis. It was submitted, the assessee has claimed these costs as reimbursement paid to WNS N.A., hence, not a part of international transaction to be bench marked. The Transfer Pricing Officer, however, did not find merit in the submissions of the assessee and held that since the cost incurred by the assessee in respect of Travelocity contract is inter related with the main function of....
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....porting the assessee. He submitted, earlier the assessee was only rendering BPO services to British Airways which completely changed after assignment of all contracts to the assessee. He submitted, since the Travelocity contract was a big contract and the assessee initially did not have the infrastructure to execute the work, it asked the AEs to do the work and reimbursed the cost as onetime expenditure. The learned Sr. Counsel submitted, while deciding identical issue arising in assessee's own case for assessment year 2004-05, the Tribunal has allowed the claim of the assessee. 17. We have considered rival submissions and perused materials on record. Notably, identical issue came up for consideration before the Tribunal in assessee's own case for assessment year 2004-05. The Tribunal while deciding the issue in the order referred to above, has held that the cost incurred by the assessee is purely in the nature of reimbursement without any mark-up. Hence, cannot be treated as part of operating cost. Thus, the Tribunal ultimately upheld the decision of the learned Commissioner (Appeals) on the issue. There being no difference in fact brought to our notice by the lea....
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....ny and the assessment was completed under section143(3) of the Act vide order dated 17/3/2006 allowing the assessee deduction claimed under section 10A of the Act. 2.2 Subsequently, the CIT-10, Mumbai in exercise of revisionary powers passed an order under section263 of the Act dated 20/11/2007, set aside the assessee's claim for deduction under section10A of the Act and directed the Assessing Officer to re-examine the assessee's claim in the light of the provisions of section 10A(9) of the Act. In this order under section 263 of the Act, the CIT also rejected the assessee's claim for deduction under section80HHE of the Act. On appeal by the assessee, the Co-ordinate bench of this Tribunal vide order in ITA ITA No. 4520/MUM/2013 (Assessment Year : 2003-04) No.348/Mum/2008 dated 17/6/2009 upheld the assumption of jurisdiction by the CIT(A) under section 263 of the Act on the ground that the Assessing Officer had not examined the assessee's claim for deduction under section10A of the Act in the light of the provisions of section 10A(9) of the Act for re-examination thereof. In respect of the CIT's rejection of the assessee's alternate claim for deduct....
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....-10(2)(4), Mumbai and disallowing the claim of deduction under section 10A of the Act of INR 31,89,63,890/- in respect of the Appellant's STP Units in the light of the erstwhile provisions of section 10A(9) of the Act." 3.2.1 The Ld. Representative for the assessee reiterated the submissions put forward before the authorities below that by virtue of the omission of section 10A(9) of the Act from the statute by Finance Act, 2003 w.e.f. 1/4/2004. Section 10A of the Act should be read as if the provisions of sub-section(9) thereof never existed on the statute book since the omission of sub-section (9) of section 10(A) of the Act was made without a saving clause In these circumstances, the Ld. Representative for the assessee submitted that the deduction under section10A of the Act was correctly claimed by the assessee in respect ITA No. 4520/MUM/2013 (Assessment Year : 2003-04) of its Mumbai Unit-I and Pune Unit-1&2 and ought to have been allowed. 3.2.2 The Ld. Representative for the assessee submitted that the amendment made by Finance Act, 2003 omitting section 10A(9) of the Act is curative in nature and requires to be applied retrospectively as the same is supp....
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.... No.876 & 877/2008 dated 25/11/2014, wherein Revenue's appeal against the aforesaid order was dismissed and the substantial question of law was answered in favour of the assessee. 3.2.5 The Ld. Representative for the assessee submits that in view of the facts and circumstances of the case on hand and the judicial pronouncements relied upon, the orders of the authorities below in denying the assessee deduction under section 10A of the Act in respect of the assessee's STPI units at Mumbai and Pune in view of the erstwhile provisions of section 10A(9)of the Act be reversed and the assessee's claim for deduction under section10A of the Act be allowed. 3.3.1 Per contra, the Ld. Departmental Representative strongly supported the orders of the CIT(A) in disallowing the assessee's claim ITA No. 4520/MUM/2013 (Assessment Year : 2003-04) for deduction under section10A of the Act in respect of its STPI units, in view of the fact that its claim is hit by the provisions of sub-section (9) of section 10A of the Act which was repealed only w.e.f. 1/4/2004 and was, therefore, applicable for the year in question. Citing, inter-alia, the decision of the Hon'ble ....
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....below were correct or not in disallowing the assessee's claim for deduction under section 10A of the Act amounting to Rs. 31,89,63,,890/- in respect of the assessee's STPI units in Mumbai and Pune in the light of the erstwhile provisions of sub-section(9) of section 10A of the Act. 3.5.2 In the year under consideration WNS(Mauritius) Ltd. a wholly owned subsidiary of WNS Holdings acquired the entire share capital of the assessee from British Airways Ltd., U.K. In the return of income the assessee for assessment year 2003-04 the assessee had claimed deduction under section 10A of the Act; submitting that the amendment carried out by Finance Act, 2003, wherein section 10A(9) of the Act was deleted was an amendment of clarificatory nature and such deletion should be considered to have been omitted retrospectively. In ITA No. 4520/MUM/2013 (Assessment Year : 2003-04) original scrutiny assessment proceedings, the assessment was completed under section 143(3) of the Act vide order dated 17/3/2006 allowing this claim and accordingly the assessee was granted the deduction under section10A of the Act. In the order of re-assessment for assessment year 2003-04, passed under s....
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....the ITAT(supra). In para 4 of this order the substantial question of law before the Hon'ble High Court was: "Whether the Tribunal was correct in holding that in view of the omission of sub-section 9 to Section 10B of the Act, w.e.f. 01.04.2004, it should be understood that the said section never existed in the statute book and therefore the benefit claimed by the assessee u/s. 10B should be allowed?" Their Lordships at para 7 and 8 of their order (supra) have answered the question holding as under:- "7. The Apex Court in the case of KOLHAPUR CANESUGAR WORKS LTD. VS UNION OF INIDA reported in AIR 2000 SC 811 dealing with the effect of deletion of a provision in the statute is held at Para 38 as under:- "38. The position is well-known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute book as completely as if it had never been passed, and the statute must be considered as a law that never existed. To this Rule, an exception is engrafted by the provisions of Section 6(1). If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proce....
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....ia Pvt. Ltd. (supra) we hold that there being no saving clause or any amendment while omitting sub-section (9) of section 10A of the Act, the result is that it is to be read as having never been passed and had never existed on the statute. In this view of the matter, we reverse the order of the CIT(A) ITA No. 4520/MUM/2013 (Assessment Year : 2003-04) on this issue and direct the Assessing Officer to allow the assessee's claim for deduction under section 10A of the Act for assessment year 2003-04. It is accordingly ordered. 3.5.6 Before parting, we record that we have carefully perused the orders of the Co-ordinate benches of ITAT in ITA No.2566/Mum/2009 for assessment year 2004-05 and ITA No.348/Mum/2008 dated 17/06/2008 cited by the Ld. Departmental Representative. We find that contrary to this averments, these Co-ordinate benches have not adjudicated on the merits of the assessee's claim for deduction under section10A of the Act for assessment year 2003-04. In the Tribunal's order for assessment year 2004-05, the bench could not have adjudicated on the matter, as the present appeal for assessment year 2003-04 was not before it. In respect of the Tribunal'....
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.... and what the assessee has acquired is a capital asset but it does not have characteristics of intangible assets as mentioned in Section 32(1) of the Act. The ld. AO also observed that the right acquired by the assessee company may be commercially right but the same is different than the commercial right so as to fall within the definition of intangible assets as mentioned in Explanation -3 to Section 32 of the Act. With these observations, he proceeded to disallow the depreciation on intangible assets claimed by the assessee in the sum of Rs. 2,57,65,238/-. This disallowance was upheld by the ld. DRP. Aggrieved by the final assessment order passed by the ld. AO in this regard, the assessee is in appeal before us. 6.2. We find that the issue in dispute is already covered by this order of this Tribunal in assessee's own case for A.Y.2005-06 in ITA No.631/Mum/2011 (Revenue appeal) dated 16/01/2019. The relevant portion of the Tribunal order is reproduced hereunder:- "35. In grounds No.8 and 9, the Department has challenged the decision of the learned Commissioner (Appeals) in allowing assessee's claim of depreciation on intangibles representing acquisition of business....
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....ry 2004. It is also a fact on record that in assessment year 2004-05, the assessee for the first time claimed depreciation by treating the capitalized value of the amount paid towards acquiring M/s. Town and Country Assistance Ltd., as an intangible asset and claimed depreciation @ 25%. Notably, the Assessing Officer while completing assessment under section 143(3) of the Act also allowed assessee's claim of depreciation. However, learned Commissioner of Income Tax revised the assessment order under section 263 of the Act. Subsequently, while deciding assessee's appeal against the said order the Tribunal quashed the order passed under section 263 of the Act and restored the assessment order. Thus, in effect, assessee's claim of depreciation in respect of intangible asset became final. In any case of the matter, there is no dispute that by acquiring M/s. Town and Country Assistance Ltd. the assessee has also acquired contractual rights which, no doubt, is a valuable commercial right. Therefore, it comes within the meaning of intangible asset as per section 32(1)(ii) r/w Explanation 3(b) of the Act. Hence, depreciation claimed by the assessee is allowable. The decisions r....
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....obal Services Pvt. Ltd. WNS U.K. for a consideration of 17,50,000 pound. He also noticed that by acquiring the business contracts, the assessee also acquired various contracts of the said company with third parties. He further noticed that the amount paid by the assessee for acquiring the aforesaid business contracts from WNS U.K. was capitalised in the books of account and the assessee treated it as an Intangible asset and also claimed depreciation @ 25% on such asset which worked out to Z 2,77,76,245. After calling upon the assessee to justify the claim of depreciation and examining assessee's submissions the Assessing Officer ultimately disallowed assessee's claim of depreciation by holding that the right acquired by the assessee is not in the nature of commercial right as mentioned in Explanation 3 to section 32 of the Act to treat it as an intangible asset. Being aggrieved with the aforesaid decision of the Assessing Officer the assessee preferred appeal before the first appellate authority. "40. We have considered rival submissions and perused materials on record. Insofar as factual aspect of the issue is concerned, there is no dispute that by virtue....
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....ed the materials available on record. The assessee was called upon to furnish the details of professional charges, electricity charges and miscellaneous expenses by the ld. AO in the draft assessment proceedings. The assessee furnished the details and out of the same, the ld. AO observed that assessee could not furnish the evidences in respect of the following expenses:- Professional charges - Rs. 1,71,808/- Electricity Charges - Rs. 2,82,487/- Miscellaneous Expenses - Rs. 2,02,783/- Total Rs. 6,57,078/- 7.2. The assessee submitted that given the nature of business of the assessee company spread across eight units / locations and voluminous number of transactions, certain details of expenses which are of small nature are clubbed under the head "others". However, it pleaded that the entire expenses have been incurred wholly and exclusively for the purpose of its business only. It was also alternatively pleaded by the assessee that any disallowance of the aforesaid expenditure would only go to increase the profits eligible for deduction u/s.10A of the Act as admittedly these expenses were incurred only for the eligible units. The ld. AO h....
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.... extent of Rs. 234,92,95,246/-. The ld. TPO has observed that since assessee has granted extended credit period to its AEs for receiving its trade debts and accordingly, showcaused the assessee as to why the notional interest on such receivables should not be imputed and why the arm's length price adjustment should not be made for the same. The assessee vide letter dated 14/10/2009 submitted before the ld. TPO that there are several amounts that are due to its AEs and due from its AEs. The assessee submitted that both payables and receivables had arose during the course of its business and the same cannot be construed as any kind of loan or accommodation given to the AEs. It pointed out that in some cases, dues are received from its AE beyond its credit period and in some cases, dues are received by the assessee in advance from its AEs. The assessee submitted that credit period effectively allowed to its AEs is only 33 days which is within the usual industry norm. The ld. TPO however, disregarded the contentions of the assessee and observed that the renewed credit period that could be granted to its AEs would be 60 days and assessee in the instant case had allowed excess credit per....