AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (8) TMI 685
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.... directions. 2 That on facts and circumstances of the case and in law. the directions issued by the Dispute Resolution Panel ("DRP") are bad in law, void ab initio and liable to be quashed as the same have been passed in violation of the provisions of sub-section (8) to section 144C of the Act. 3. That on facts and circumstances of the case and in law, the AO/ TPO erred in making transfer pricing adjustment amounting to Rs. 1,48,30,634 to the income of the Appellant and holding that the international transaction pertaining to provision of Business Process Outsourcing ('BPO') services do not satisfy the arm's length principle ('ALP); and in doing so have grossly erred in modifying comparability analysis by: 3.1 including Inductis India Private Limited and Mentor Graphics India Private Limited as comparable companies disregarding the fact apparent from the annual report that these companies fail the related party filter applied by the TPO and also, not appreciating that these companies are not functionally comparable to the Appellant; 3.2 arbitrarily selecting functionally non-comparable companies, namely, Nihilent limited, Infobean....
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.... is a nullity inasmuch as the AO defied the specific directions of the DRP and thereby contradicting the provisions of section 144C(10) of the Act. 7. That on facts and circumstances of the case, the AO has erred in not granting the credit of taxes deducted at source (TDS'), advance tax and self-assessment tax while computing the amount of demand payable by the Appellant. 8. That on facts and in circumstances of the case, the AO has erred in computing excess interest under section 234B and 234Cof the Act while computing the amount of demand payable by the Appellant. That the above grounds and sub grounds of objections are without prejudice to each other. The Appellant craves leave to alter, amend or withdraw all or any of the Grounds of objections herein or add any further grounds as may be considered necessary and to submit such statements, documents and papers as may be considered necessary either before or during the hearing." 2. The assessee has also filed the Additional Ground of Appeal which reads as under:- "That on the facts and circumstances of the case and in law, the Ld. AO has erred in not granting the depreciation all....
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....Company Name OP/TC(%) 1. R Systems International Ltd. 15.84% 2. Power Weave Software Services Pvt. Ltd. 16.60% 3. Mindtree Ltd. 16.73% 4. Tech Mahindra Business Services Ltd. 19.00% 5. Inductis India Pvt. Ltd. 19.07% 6. Nihilent Ltd. 20.04% 7. L & T Technology Services Ltd. 20.61% 8. Manipal Digital Systems Pvt. Ltd. (Merged) 23.03% 9. Infobeans Technologies Ltd. 25.52% 10. Mentor Graphics (India) Pvt. Ltd. 26.17% 35^TH PERCENTILE 19.00% 65^TH PERCENTILE 20.61% MEDIAN 19.55% Accordingly, the arm's length price of the international transaction related to provision of services and receipt of services is computed as below: Particulars Amount Operating Cost 859,713,378 OP/OC(%) 19.55% Arm's Length Margin 16,80,73,965 Arm's Length Price 1,02,77,87,343 Price shown by assessee 1,01,29,56,709 Proposed Adjustment 1,48,30,634 Based on above, an adjustment of Rs. 1,48,30,634/- is proposed in respect of provision of ITES support services. 5. Against the above order, assessee filed the objectio....
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....ase passed in ITA No. 1833/Del/2022 (AY 2017-18), wherein the Tribunal has held as under:- "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% provided in the cost sharing agreement and had not disputed the allocation of expenses in respect of services rendered to the assessee from its AEs. The ld AR before us argued that the ld. AO had proceeded to retest the ALP of the international transaction pertaining to support services. It is not in dispute that cost allocation key followed by the assessee was accepted by the revenue over the years. However, during the year under consideration, the ld AO had sought to disturb the cost allocation methodology in the form of 'headcount basis' which has been accepted from AY 2012-13 onwards, and proposing a disallowance of Rs 6,43,00,860/-. The ld AR also placed reliance on the CBDT Instruction No.3/2016 dated 10.03.2016. 8. Further, ld AO in his order had observed that management, administration, human resource, legal, ....
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.... 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/ payout ratio might lead to an abrupt allocation. 3. HR, training, finance, legal etc. Headcount Support provided to the business of the Appellant is not represented by the employee cost, but by the number of employees employed. 4. Staff welfare cost Headcount Primarily consists of transportation cost of the employees (cab, buses etc.) which is standard for all employees. 5. Rent Area usage Charged on the basis of total area usage which is irrespective of the revenue earned. 6. Electricity and water Area usage Charged on the basis of total area usage which is irrespective of the revenue earned. 7. Repair and maintenance Area usage Charged on the basis of total area usage which is irrespective of the revenue earned. 10. It is pertinent to note that the allocations made by the assessee with regard to rent, electricity, water and repair and maintenance above we....
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.... 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 fact of services being rendered is not disputed by the revenue right from the time of survey. In fact, both the ld AO and ld DRP merely rely on the findings given in AY 2015-16. In our considered opinion, the cost allocation Key on 'headcount basis' has been duly examined and accepted by the ld TPO to be at ALP in the transfer pricing proceedings u/s 92CA(3) of the Act. The same cannot be subjected to retest by the ld AO in the peculiar facts and circumstances of the instant case , under the garb of examining the same in the context of allowability of deduction u/s 37 of the Act as argued by the ld DR before us. No doubt, the scope of ld TPO is only to ensure whether the pricing of services is at arm's-length or not. But for....
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....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 incurred by its related parties for and on its behalf. In order to verify the genuineness of the aforesaid claim of receipt/payment of reimbursement of expenses the A.O called upon the assessee to furnish the requisite details in respect of the same. In reply, it was submitted by the assessee that Cable and Wireless group had two entities operating in India viz. (i) Cable And Wireless India Ltd. (i.e the assessee); and (ii) Cable & Wireless Networks India Pvt. Ltd. (for short 'CWNIPL). It was stated by the assessee that CWNIPL was engaged in the business of carrying on telecommunication networking services which included providing of National Long Distance (NLD) and International Long Distance (ILD) services. I....
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....t 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), 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'. On the basis of his order passed under Sec. 92CA(3), dated 25.01.2016, the TPO had held the international transactions of the assessee to be at arm's length. It has been the claim of the assessee before the lower authorities, and also before us, that once the TPO had held the transaction of reimbursement of expenses to be at arm's length, the A.O as per Sec. 92CA(4) was obligated to pass an order in conformity with the ALP determined by the TPO. As such, it was the claim....
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....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 reimbursement of expenses by the assessee to its AE viz. CWNIPL, therefore, a relooking into the basis of allocation of such expenses inter se the assessee and CWNIPL would clearly militate against the express provisions of Sec. 92CA(4) of the Act. Our aforesaid view, that the A.O as per the mandate of Sec. 92CA(4) is obligated to compute the income of the assessee in conformity with the ALP so determined by the TPO, is fortified by the judgment of the Hon'ble High Court of Bombay in Vodafone India Service (P) Ltd. Vs. Union of India (2013) 359 ITR 133 (Bom) and that of the Hon'ble High Court of Delhi in CIT Vs. Oracle India (P) Ltd. (2011) 243 CTR 103 (Del). Also, support is drawn from ....
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....der of the ITAT. 9.1 In view of the aforesaid discussions, we admit the aforesaid Additional Ground. 9.2 We note that this Additional Ground is squarely covered in favour of the assessee by the decision dated 19.4.2024 of the ITAT, Delhi Coordinate Bench in assessee's own case passed in ITA No. 1833/Del/2022 (AY 2017-18), wherein the Tribunal has held as under:- "16. The assessee has raised additional Ground vide letter dated 16.08.2023 together with the petition under Rule 11 of the Income Tax Appellate Tribunal Rules, 1963. The additional ground is reproduced here under:- "That on the facts 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 ....
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....nsequently, upheld the assessment order, dated May 21, 2014, passed by your predecessor, whereby INR 22, 16,00,276 incurred by the Appellant was to be treated as capital expenditure and depreciation was to be allowed on the same. Considering the disallowance of revenue expenditure treating the same as capital expenditure and allowance of depreciation thereon in the assessment order of AY 2010-11, and subsequent upholding of the same by the Hon'ble ITAT for AY 2010-11, the Appellant is eligible to claim depreciation allowance of Rs 73,95,017 (being depreciation at the rate of 25% on the written down value of intangible assets so created in AY 2010-11) for the AY 2017-18. However, the said depreciation of Rs. 73,95,017 has not been allowed to the Appellant vide the captioned assessment order, dated June 27, 2022, passed for the AY 2017-18. Hence, it is submitted that the Appellant should be allowed the depreciation allowance of Rs. 73,95,017 on the intangible assets, in line with the assessment order upheld by the Hon'ble ITAT for AY 2010-11." 18. In view of the above, we direct the ld AO to grant depreciation consequent to the order of the tribunal....