AI Drafter 
TaxTMI 
TaxTMI 
2022 (12) TMI 999
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....aw, the Ld CIT(A) was justified in deleting the disallowance of Rs 25,10,58,134/- on account of Depreciation on Assets (Famer Lease) without appreciating the fact that in finance lease, all the risks and rewards incidental to ownership of an asset is referred to the lessee and the lessor connot claim depreciation on the leased plans and machinery citing the reason that the Jessie has not claimed depreciation on the leased plant & machinery. (b) On rejection of Excel Infoways Limited as a comparable: 1.1 Whether on the facts and circumstances of the case and in law, the ld CIT(A) is correct in rejecting Excel Infoways Limited as a comparable, by simply sting in a cryptic non-speaking manner. "After examining the contentions of the Appellant and verifying the nature of services rendered by Excel, this company is rejected as a comparable"? 1.2 Whether on the facts and circumstances of the case and in law, the ld CIT(A) correct in not giving her clear findings in a speaking manner in her order on the contentions of the assessee? 1.3 Whether on the facts and circumstances of the case and in law, the ld CIT(A) is correct in rejecting Excel Infoways Lim....
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....l but suffice to be similar? 2.4 Whether on the facts and circumstances of the case and in law, the ld CIT(A) while deleting the comparable Eclerx Services Ltd. is correct in placing reliance on the decision of the Hon. ITAT in the assessee own case for AY 2011-12 which placed further reliance on the judgement of Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd v/s DCIT (TS-387-HC-2015-(Del) without taking into account the admission of SLP on the issue of making difference between BPO and KPO? (d) On rejecting Acropetal Technologies Limited as comparable: 3.1 Whether on the facts and circumstances of the case and in law, the ld. CIT(A) is correct in rejecting Acropetal Technologies Limited as a comparable, by simply stating in a cryptic non-speaking manner "After examining the contentions of the Appellant and verifying the nature of services rendered by Excel, this company is rejected as a comparable" 3.2 Whether on the facts and circumstances of the case and in law, the ld CIT(A) is correct in not giving her clear findings in a speaking manner in her order on the contentions of the assessee? 3.3 Whether on the fa....
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....n the facts and circumstances of the case and in law, the ld. CIT(A) is right in including Sparsh BPO Services Lid as a comparable without appreciating that abnormal profits or losses of a comparable due to extraordinary circumstances will not lead to credible comparability analysis as held by the courts in various decisions like Teva India (P) Ltd vs DCIT [2011] 44 SOT 105 (Mumbai- Tribunal). Adobe Systems India (P) Ltd vs Addl.CIT [2011] 44 SOT 49(Delhi-Trib), TIBCO Software (India) Pvt Ltd vs DCIT, [2015] 58 taxmann.com 215 (Pune- Trib), Q Logic(India) (P) Ltd vs DCIT [2014] 52 taxmann.com 225 (Pune-Trib) etc.? 4.3 Whether on the facts and circumstances of the case and in law, the Id. CIT(A) is right in including Sparsh BPO Services Ltd as a comparable on the ground that the TPO adopted it as a comparable for an earlier AY, ignoring the basic tenet that the transfer pricing audit is highly facts-intensive and facts-driven and the contemporaneous facts have to considered and evaluated for every AY independently as dictated by Rule 10B(4)? (f) On inclusion of Techprocess Payment Services Ltd. as comparable: 5.1 Whether on the facts and circumstances of t....
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....eport of the company was not available for analysis purposes without appreciating that the ld. CIT(A) under the Income-tax Act 1961 has the power to call for the same by invoking powers vested us 133(6) or calling for the same from the TPO? 7.2 Whether on the facts and circumstances of the case and in law, the ld. CIT(A) is right in excluding Inmacs Management Services Limited as a comparable by stating that there is a functional dissimilarity in the comparable without appreciating that even if the comparable is catering to different types of clients, the functions performed are similar Le business support services? 7.3 Whether on the facts and circumstances of the case and in law, the ld CIT(A) is right in excluding Inmaes Management Services Limited as a comparable without looking into the basic tenet of transfer pricing that in TNMM under Rule 10B(e), the comparable need not be identical but suffice to be similar? (i) The appellant prays that the order of CITCA) on the above grounds be set aside and that of Assessing Officer he restored." 3. The issue arising in ground no. (a), raised in Revenue's appeal, is pertaining to deletion of disallowance of....
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.... of the Tribunal in assessee's own case in preceding assessment year. Being aggrieved, the Revenue is in appeal before us. 5. During the course of hearing, learned Departmental Representative ('learned DR') vehemently relied upon the order passed by the AO. On the other hand, learned Authorised Representative ('learned AR') submitted that this issue is covered in favour of the assessee by the decisions of coordinate bench of the Tribunal in assessee's own case. 6. We have considered the rival submissions and perused the material available on record. We find that the coordinate bench of the Tribunal in assessee's own case in Reliance Corporate IT Park Ltd. vs DCIT, in ITAs No. 4717 and No. 4873/Mum/2017, for assessment year 2011-12, vide order dated 26/06/2019, while deciding similar issue in favour of the assessee, observed as under: "16. We have heard both parties, perused the material available on record and gone through the orders of authorities below. The ass had entered in to lease agreement with Ms Relance Industries Ud, and leased out Polymer Plant located at 5. TTC Indaial area, Ghansal, Thane, Belapur road, Navi Mumbal As per lease agreement dated 31/12/2008....
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....rgue that it is entitled for depreciation. The assessee has filed a confirmation from the lessee and stated that lessee did not claim depreciation on plant and machinery, because the ownership of the asset is not transferred to the lessee during subsistence of lease period. Accordingly, the assessee argued that particular mode of recording the transactions in books is of no consequence, but what is relevant is nature of the transactions which to be considered to arrive at proper conclusion. The assessee has also referred Circular No. 2 of 2001 of CBDT, where it was mentioned that the method prescribed in As-19 per se will not effect the claim of depreciation in the hands of the owner of the assets and the depreciation on assets will be guided by ownership of the asset and use of assets for the purpose of business. As regards the location of the asset, the physical shifting of the relevant plant and machinery from its present location to the location of the lessee was carried out for better utilisation of the asset in the business which has been leased out, otherwise the AO has never disputed the fact of the ownership of the asset i.e. remains with the assessee and also use of such ....
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.... where it was clarified that AS-19 will not have any implication on allowance of depreciation on assets under the provisions of the Income Tax Act. Further, the assessee has also filed a confirmation from the lessee, where it was stated that lessee did not claim depreciation on leased asset. From the above facts, it is very clear that the assessed is continued to be owner of the asset even after the lease. Further, the entries in books of account is not determinative for deciding the nature of income which is assessable under the Act, what is relevant is statute as per which ownership of an asset is must for claiming depreciation and in this case, there is no doubt of whatsoever with regard to ownership which is clearly evident from the lease agreement and accordingly we are of the considered view that the assessee is rightly claimed depreciation on leased asset under the Income Tax Act. 19. Coming back to the case laws relied upon by the assessee. The assessee has relied upon the decision of Hon'ble Supreme Court in the case of ICDS vs CIT(supra). We find that Hon'ble Supreme Court had considered an issue of depreciation in case of leased asset, where it was held ....
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...... The right of one or more persons to possess or use a thing to the exclusion of others. The right by which a thing belongs to some one in particular, to the exclusion of all other persons. The exclusive right of possession, enjoyment or disposal; involving as an essential attribute the right to control, handle, and dispose." The same dictionary defines the term "own" as "To have a good legal title !. These definitions essentially make ownership a function of legal right or title against the rest of the world. However, as seen above, it is "nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject matter to which it is applied." 22. A scrutiny of the material facts at hand raises a presumption of ownership in favour of the assessee. The vehicle, along with its keys, was delivered to the assessee upon which, the lease agreement was entered into by the assessee with the customer. Moreover, the relevant clauses of the agreement between the assessee and the customer specifically provided that: (1) The assessee was the exclusive owner of the vehicle at all points of time; (ii) If th....
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....sor shall refund the amount of security deposit. If the lessee fails to deliver the equipment to the Lessor in accordance with any direction given by the Lessor, the Lessee shall be deemed to be the tenant of the assets at the same rental and upon the same terms herein expressed and such tenancy may be terminated by the Lessor immediately upon default by the lessee hereunder or upon 7 days notice previously given.." 23. The Revenue's objection to the claim of the assessee is founded on the lease agreement. It argued that at the end of the lease period, the ownership of the vehicle is transferred to the lessee at a nominal value not exceeding 1% of the original cost of the vehicle, making the assessee in effect a financer. However we are not persuaded to agree with the Revenue. As long as the assessee has a right to retain the legal title of the vehicle against the rest of the world, it would be the owner of the vehicle in the eyes of law. A scrutiny of the sale agreement cannot be the basis of raising question against the ownership of the vehicle. The clues qua ownership lie in the lease agreement itself, which clearly point in favour of the assessee. We agree with the....
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....earing on behalf of the assessee also pointed out a large number of cases, accepted and unchallenged by the Revenue, wherein the lessor has been held as the owner of an asset in a lease agreement. CIT v. A.M. Constructions [1999] 238 ITR 775 (AP); CIT v Bansal Credits Ltd. [2003] 259 ITR 69/126 Taxman 149 (Delhi); CIT v. M.G.F. (India) Ltd. [2006] 285 ITR 142/[2007] 159 Taxman 335 (Delhi); CIT v.Annamalai Finance Ltd. [2005] 275 ITR 451/146 Taxman 627 (Mad.). In each of these cases, the leasing company was held to be the owner of the asset, and accordingly held entitled to claim depreciation and also at the higher rate applicable on the asset hired out. We are in complete agreement with these decisions on the said point. 20. The assessee has relied upon the decision of ITAT, Delhi in the case of Minda Corporation Ltd. vs ACIT (2016) 69 TMC 317(Del Trib). We find that the Tribunal has considered identical issue in light of AS-19 issued by ICAI and held that AS-19 on accounting of lease issued by ICAI only applicable for the accounting lease transactions in the books of account. We further noted that it is settled law that treatment in the books of account is not determinati....
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....rder dated 17/02/2022, for assessment years 2013 - 14 and 2014 - 15, by following earlier decision in assessment year 2011 - 12, rendered similar findings. The learned DR could not show us any reason to deviate from the aforesaid orders and no change in facts and law was alleged in the relevant assessment year. The issue arising in the present case is recurring in nature and has been decided by the coordinate bench of the Tribunal in assessee's own case for preceding as well as subsequent assessment years. Thus, respectfully following the judicial precedents in assessee's own case cited supra, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. Accordingly, ground no. (a) raised in Revenue's appeal is dismissed. 8. The issues arising in grounds no. (b) to (h), raised in Revenue's appeal, are pertaining to transfer pricing adjustment qua the comparables. 9. The brief facts of the case, as emanating from the record, are: During the year under consideration, assessee was engaged in providing Information Technology Enabled Support (ITeS) services and Business Support services to its associated enterprises viz. GAPCO Kenya Ltd, GAPCO Tanzania Ltd....
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.... • Generating daily report on receivable outstanding, age-wise analysis of receivables as well as overdue debtors, • Report on performance review of Business Operations, • Monitoring insurance policy, support for insurance claims, • Updation of HR policy on employee performance, • Introduction of Balance Score Card for Management Employees, • Evaluation of employee performance on periodic basis, • Providing training support for functional role as well as for employee development, • System network management services, • Telecommunication system operations and maintenance, • Infrastructural support services, Operational or administrative assistance in any manner; • Maintenance of computer hardware, internet and intranet facilities." 12. As per the assessee, the business support services includes back office support services relating to accounts payable (e.g. supplier master maintenance; supplier invoice management; payment processing, reconciliation, etc.), accounts receivable (e.g. customer master maintenance; billing, collection of payment....
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....d at a set of following 6 comparables for benchmarking the international transaction pertaining to 'provision of business support services': Sr. no. Company Name Year OP/OC % 1. Murugappa Management Services Ltd. March 12 3.00 2. ICRA Management Consulting Services Ltd. March 12 6.70 3. Killick Agencies And Marketing Ltd. March 12 9.04 4. BVG India Ltd. March 12 24.22 5. Axis Integrated Systems Ltd. March 12 10.27 6. Inmacs Management Services Ltd. March 12 50.98 Arithmetic Mean 17.39% 16. The average operating profit to operating cost of aforesaid comparables selected by the TPO was computed at 17.39%. By applying the arm's length margin, the TPO proposal an upward adjustment of Rs. 1,16,04,109, in respect of international transaction of 'provision of business support services'. Accordingly, the TPO vide order passed under section 92CA(3) of the Act proposed a total adjustment of Rs. 3,18,90,529. In conformity, the AO passed the assessment order under section 143(3) read with section 144C(3) of the Act, inter-alia, after incorporating the adjustment proposed by the TPO.....
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.... cost filter. Further, the company is also having fluctuating margins and hence, not a good comparable. 20. We have considered the rival submissions and perused the material available on record. From the perusal of annual report of Excel Infoways Ltd., forming part of the paper book from page no. 581 to 642, we find that for the relevant financial year, the company has earned revenue from Information Technology/BPO related services and sales from infra activities. The TPO has claimed to have considered only ITeS segment of this company for purpose of benchmarking the impugned international transaction. We further find from the financials of this company that expenditure incurred on purchase of stock in trade amounting to Rs. 7,48,53,060 has only been debited against the revenue earned from 'sales from infra activities' segment at internal page 43 of the annual report. We further find that apart from this cost no other expenditure has been debited against the income from this segment. It is surprising that only one item of cost pertains to this segment, which generates around 48% of the gross revenue from operations of this company and no other expenditure including common expend....
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....nalytics services and process solutions to verticals like financial services, sales and marketing divisions of largest fortune 500 scale companies. The Ld. CIT(A) further noted KPO services rendered by the Eclers services Ltd. cannot be functionally comparable to the low-end ITES services rendered by the assessee, more so that the turnover of the assessee in rendering these services is merely Rs.7.6 crores. Further, out of a total revenue, 59% of the revenue of the comparable is from SEZ facilities. Since, SEZ units eared tax exemptions and benefits, their profit margins are higher as compared to operating margins of non-SEZ units. Therefore, the same cannot be compared to the profits earned by the assessee which is providing captive services to its AE. We further noted that the Eclerx Services Ltd. has been excluded on account of functionally not comparable to companies provided ITeS services to its AE. The Hon'ble Delhi High Court in the case of Rampgreeen Solutions Pvt. Ltd. vs DCIT (TS 387-HC-2015-(Del) had considered Eclerx Services Ltd. and held that company providing captive services to its AE cannot be comparable to company which is rendering high and KPO services. The ....
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....t has huge un-allocable expenditure. 27. We have considered the rival submissions and perused the material available on record. From the perusal of annual report of Acropetal Technologies Ltd, forming part of the paper book from page No. 643 - 797, we find that the company operates in 3 segments i.e. engineering design services, information technology services and healthcare services. Further, from the perusal of notes forming part of the financial statement, we find that the company has un-allocable expenses of Rs. 23,76,51,122 during the relevant financial year, which has not been allocated to any of the aforesaid operating segment, and therefore renders the financial information relating to the aforesaid 3 segments unreliable. Further, the employee cost also cannot be computed for the alleged relevant segment on the basis of available segmental data. Thus, due to non-availability of reliable segmental data, Acropetal Technologies Ltd. cannot be considered to be comparable to the assessee. Accordingly, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result ground no.(d) raised in Revenue's appeal is dismissed. (iv) Sparsh BPO Serv....
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....bilities and accordingly, correct net worth of the company is Rs. 26.02 crores. The learned CIT(A) vide impugned order accepted the contention of the assessee and included this company as a comparable. Since, in the present case, functional comparability of this company is not in dispute, therefore, in view of the aforesaid submission of the assessee before the learned CIT(A), we are of the considered opinion that the TPO has computed the net worth of the company incorrectly and for the year under consideration, the correct net worth of the company is not negative. Accordingly, we find no infirmity in the impugned order passed by the learned CIT(A) in accepting Sparsh BPO Services Ltd as comparable to the assessee for benchmarking the international transaction pertaining to 'provision of ITeS services'. As a result, ground no.(e) raised in Revenue's appeal is dismissed. (iv) BVG India Ltd. 31. The first comparable under dispute is BVG India Ltd for the purpose of benchmarking of international transaction pertaining to 'provision of business support services'. BVG India Ltd was selected as a comparable by the TPO vide order passed under section 92CA(3) of the Act. In appeal, l....
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....f the Act. In appeal, learned CIT(A) vide impugned order accepted the contention of the assessee and rejected this company as comparable for benchmarking the international transaction pertaining to 'provision of business support services'. Being aggrieved, Revenue is in appeal before us. 35. During the course of hearing, learned DR vehemently relied upon the order passed by the TPO. On the other hand, learned AR submitted that annual report of the company is not available in public domain. 36. We have considered the rival submissions and perused the material available on record. From the record it is evident that this company was proposed to be considered as a comparable by the TPO. During the course of transfer pricing assessment proceedings, assessee submitted that the annual report of this company for the year ending 31/03/2012 is not available in public domain and therefore no information is available on the services rendered by Inmacs Management Services Ltd. However, as is evident from the record, despite the above submission, the data pertaining to this company was not provided to the assessee by the TPO and this company was considered for benchmarking the internationa....
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....oogle search. However, upon verification, it was found that the amalgamation took place in the year 2017 i.e. much after the year under consideration. In any way, vide aforesaid written submission, learned DR emphasised on the aspect that this company is not functionally comparable to the assessee. 39. On the other hand, learned AR submitted that this company was considered as comparable by the TPO in the immediately preceding assessment year and there is no change in functional profile of this company in the year under consideration. 40. We have considered the rival submissions and perused the material available on record. From the perusal of annual report of Techprocess Solutions Ltd., forming part of the paper book from page No. 1173 - 1251, we find that the company is online payment service provider. For the year under consideration, the company has claimed to have significantly enhanced its capacity in online payment space by integrating more banks and payment options on its online platform. We further find that the TPO considered this company as a comparable to the assessee for benchmarking the international transaction pertaining to'provision of business support servic....