AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (7) TMI 26
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal transaction of expenditure incurred towards support services, without appreciating that the same has been considered to be at arm's length by the TPO. 2.1 The AO/ DRP have further erred in disallowing the expenditure incurred towards support services without appreciating the fact that the impugned transaction has been accepted by the TPO over the years, including the year under consideration, and hence, the same should not have been disturbed, arbitrarily alleging that the cost allocation policy is incorrect and ignoring the documentary evidence/ submissions made by the Appellant. 2.2 Not appreciating that the same have been incurred wholly and exclusively for the purposes of business and hence, an allowable business expenditure. 3. That on the facts and circumstances of the case and in law, the AO/ DRP have grossly erred in partly disallowing the support services cost amounting to Rs. 6,43,00,860 paid by Appellant to the associated enterprise, and while doing so, have erred in: 3.1 changing the cost allocation methodology from headcount ratio to salary expense ratio, thereby partly disallowing support services cost; 3.2 not appreciating the fact that headcou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the international transactions undertaken by the assessee. During the course of assessment, the assessee provided all the details such as Form 3CEB, audited financials, TP Study along with cost sharing agreement dated 19.11.2009. The ld. TPO, after analyzing the arm's length price (ALP) of the international transaction related to provision and receipt of services, made adjustment basis revised arm's length range after exclusion / inclusion of comparable companies vide order dated 27.7.2021 and had accepted the 'headcount' allocation key for provision of support services. However, the ld. AO assumed jurisdiction over the international transaction and went ahead to make an addition of Rs 6,43,00,860/- in respect of provision of support services. The ld. AO erred in arbitrarily changing the cost allocation methodology from 'headcount ratio' to 'salary expense ratio', thereby partly disallowing support services cost. 7. Assessee's case raised a legal issue as to whether once transaction has been accepted to be at ALP by the ld TPO, can the same be questioned by the ld AO while passing an order. Admittedly, the ld TPO in the instant case was satisfied with the mark up of 5% pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ain fresh development triggering the ld AO to take a divergent stand. The ld AR before us submitted that the entire set of documents in support of the workings of the cost allocations were duly furnished before the survey team itself at the time of survey. No defect whatsoever was pointed out in the said workings either by the survey team or by the ld AO. It would also be relevant to understand the entire basis of expenditure based on the cost sharing agreement together with its allocations keys and the same are tabulated hereunder:- S.no. Nature of support services Allocation Key Reasons for adopting the said allocation key 1. Technical facilities maintenance Headcount Consists of annual maintenance charges of hardware and software, which is primarily based on the number of users. 2. Communication/ Telecommunication cost Headcount Charged on the basis the number of users irrespective of the revenue earned/ hierarchy. Thus, headcount method is more appropriate as compared to salary expenses ratio, which due to level of position/ pay- out ratio might lead to an abrupt allocation. 3. HR, training, finance, legal etc. Headcount Support provided to the bus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re appropriate as compared to salary expenses ratio, which due to level of position/pay-out ratio might lead to an abrupt allocation. - The amount of support HR department provides to the business of the assessee is not represented by the employee cost, but the number of employees employed by the it. - The technical facilities maintenance primarily consists of annual maintenance charges of hardware and software's, which is primarily based on the number users. Accordingly, salary ratio is not an appropriate methodology for allocation the said cost and headcount is the apt basis of allocation for these support costs. Trainings in the BPOs are of standard nature and are imparted to all the employees (part of the infrastructure support costs). Accordingly, headcount is the appropriate basis of cost allocation. - The staff welfare cost primarily consists of transportation cost of the employees (cab, buses etc.) which is allocation for these services. - The staff welfare cost primarily consists of transportation cost of the employees (cab, buses etc) which is standard for all employees. Accordingly, headcount is the appropriate basis of allocation for these services. 11. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5. The assessee company is engaged in the business of providing telecommunication networking services which includes network design and management, project management and implementation, network management, providing lease circuit and trading of equipment and maintenance. The assessee company had filed its return of income for A.Y. 2012-13 on 30.11.2012, declaring its total income at Rs. 6,71,08,313/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. During the course of the assessment proceedings the A.O made a reference under Sec. 92CA(1) of the Act to the Transfer Pricing Officer 1(3)(1), Mumbai (for short 'TPO') for the purpose of determining the Arm's Length Price (ALP) of the international transactions of the assessee as were detailed in its 'Audit report' in 'Form No. 3CEB'. Further, on a perusal of the financial statements, it was observed by the A.O that the assessee company pursuant to certain related party transactions had received amounts towards reimbursement of expenses. Also, it was noticed by the A.O that the assessee company had reimbursed its share of common pool expenses which were claimed to have been....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e aforesaid facts, the A.O was of the view that in case the allocation key of head count basis was to be accepted, then the amount of administrative and human resource expenses would not had remained constant throughout the year. Accordingly, the A.O backed by his aforesaid conviction was of the view that the logic of adopting the head count basis as the allocation key for the aforesaid expenses could not be accepted and rejected the same. Observing, that as neither any valid methodology for allocation of expenses was submitted by the assessee nor the one submitted was found to be substantiated, therefore, the A.O was of the view that there was no other option but to appropriate on an estimate basis a part of the aforesaid expenses as not covered under Sec. 37(1) of the Act. As such, in the absence of the requisite information the A.O on an ad hoc basis disallowed 30% of such expenses and made a consequential addition/disallowance of Rs. 70,37,078/- under Sec. 37 of the Act. 12. Findings of the tribunal are as under:- "D(i). As is discernible from the records, the A.O had in the course of the assessment proceedings made a reference to the Transfer Pricing Officer-1(3)(1), Mumba....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Bang). In our considered view, now when the TPO on a reference made to him under Sec. 92CA(1) of the Act for benchmarking the international transactions of the assesssee, had accepted the ALP of the reimbursement of expenses by the assessee to its AE viz. CWNIPL, ITA Nos.6074, 6075 & 756/Mum/2017 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) thereafter, the A.O as per the mandate of Sec. 92CA(4) of the Act, was statutorily bound to compute the total income of the assessee in conformity with the arm's length price so determined by the TPO. Although, the A.O in the course of the assessment proceedings continues to remain vested with the jurisdiction to verify as to whether or not an expense claimed by the assessee as a deduction was incurred wholly and exclusively for the purpose of its business, however, in the garb of exercise of such jurisdiction he is precluded to redetermine the arm's length price of an international transaction, in any way. In our considered view, now when the TPO while benchmarking the international transactions of the assessee, had not disturbed the arm's length price of the transaction of re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acts and circumstances of the case and in law, the Ld. AO has erred in not granting the depreciation allowance of Rs. 73,95,017 towards the intangible assets (being customer contracts as well as assembled workforce." 17. We find that in AY 2010-11 this Tribunal in assessee's own case vide its letter dated 31.01.2023 had held that the cost of intangible assets to be capital expenditure and accordingly granted depreciation at the rate of 25%. This additional Ground is only consequential to the finding given by the tribunal. This would be evident from the narration of the following facts qua this issue :- "During the FY 2009-10 (relevant to AY 2010-11), the Appellant acquired a business of third- party debt collection services as well as part of the analytics business from Genpact India Pvt Ltd ('the seller entity') for a total sum of Rs. 62,12,70,648 vide agreement to sell entered into between the Appellant and Genpact India. Out of the total purchase consideration of Rs. 62,12,70,648, an aggregate sum of Rs. 22,16,00,276 (paid towards acquisition of customer contracts as well as the assembled workforce) was claimed as revenue expenditure by the Appellant on its return of....