TaxTMI 
TaxTMI 
2019 (2) TMI 2126
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.... That on the facts and circumstances of the case and in law, the assessment order passed by the Learned Assessing Officer ('Ld. AO') pursuant to the directions of Learned Dispute Resolution Panel ('Ld. DRP') is bad in law and void ab-initio." 3. This ground of appeal is general in nature and hence does not require separate adjudication by us. 4. Ground No. 2 for assessment year 2010-11 and ground no. 2 for assessment year 2011-12 reads as under: AY: 2010-11 "2. TP adjustment with respect to business process outsourcing ('BPO') services segment from Associated Enterprises other than IBM World Trade Corporation ('IBM WTC') and IBM United Kingdom Ltd. ('IBM UK') That on the facts and circumstances of the case and in law, the Ld. AO (following the directions of the Ld. DRP), erred on facts and in law in enhancing the income of the Appellant by Rs. 30,11,35,718 holding that the international transaction pertaining to provision of BPO services with its Associated Enterprises, other than IBM WTC and IBM UK, do not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ('the Act'), and in doing so have grossly erred in: ....
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....O services with its Associated Enterprises, other than IBM WTC and IBM UK, do not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ('the Act ), and in doing so have grossly erred in: 1.1. rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant and in invoking provisions of 926(3) of the Act contending that the information or data used in the computation of the arm's length price is not reliable or correct. 1.2. using data available at the time of assessment proceedings, instead of using data available at the time of preparing the TP documentation for comparable companies. In doing so, the Ld. Transfer Pricing Officer ('Ld. TPO') has ignored the fact that this data was not available to the Appellant at the time of complying with the TP documentation requirements. 1.3. rejecting comparability analysis undertaken by the Appellant in the TP documentation, ignoring that such analysis was in accordance with the provisions of the Act read with the Income Tax Rules, 1962, ("the Rules"). 1.4. rejecting certain companies identified by the Appellant in the TP documentation, although such companies are compa....
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....une Infotech Ltd. 22.80% 48.84% 5. Igate Global Solutions Ltd. 24.54% 29.91% 6. Infosys B P O Ltd. 31.44% 40.24% 7. Jindal Intellicom Ltd. 13.62% 19.63% 8. T C S E-Serve International Ltd. 54.03% 71.87% 9. T C S E-Serve Ltd. 63.42% 72.65% Average 33.52% 45.01% 6. The TPO observed that the results submitted by the taxpayer are as under: Particulars Amount Operating Revenues 6,456,729,000 Operating Expenses 5,867,844,000 Operating Profit 588,885,000 OP/OC 10.04% Method used TNMM PLI OP/OC No. of comparables 7 Mean Margin of (Adjusted) Comparables 14.31% 7. Thereafter, the AO computed the arm's length price of the BPO transaction of the assessee as under: Operating Cost 5,867,844,111 Arm's Length Price at a Margin of 33.52% 7,834,745,457 Price Received 6,456,729,194 105% of the Price Received 6,779,565,654 Proposed of the Price Received 1,378,016,263 Thereby made an addition of Rs.137,80,16,263/-. 8. The assessee carried the matter in appeal before the DRP who confirmed the action of the TPO following the decision of....
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.... of 10.04% in assessment year 2010-11 and at the rate 10% in the assessment year 2011-12. The TPO, however, determined the margin at the rate of 33.52% in the assessment year 201011 and at the rate of 35.78% in the assessment year 2011-12. 13. Thereafter, MAP was entered into by the assessee and the department whereby net margin in respect of turnover with USA and UK was agreed upon at 14.99% for the assessment year 2010-11 and at 15.01% for the assessment year 2011-12. Thus, it is now settled between the parties that in respect of turnover of 77% in the assessment year 2010-11 net margin is to be calculated at 14.99% and in respect of the assessment year 2011-12 in relation to 75% of the turnover net margin is to be calculated at the rate of 15.01%. 14. Thus, the issue which is still in dispute is the margin which is to be calculated in respect of turnover of non-USA and UK countries which is 23% of the total turnover in the assessment year 2010-11 and 27% of the total turnover in the assessment year 2011-12. 15. We find that it is not in dispute that the nature of transaction which was entered into with associated enterprises situated in US and UK were same as associated....
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....und NO. 5 relating to the issue of alleged prior period expenses is restored to the file of the AO for examining/verifying the claim of the assessee and allowing the same if it is found that the payments have crystallized in the year under appeal. Hence the ground is allowed for statistical purposes." 21. Hence, we set aside the orders of the lower authorities and remand this issue back to the file of the AO with the very same direction as given in assessment year 2009-10. Thus, this ground of appeal of the assessee is allowed for statistical purposes. 22. Ground No. 4 for assessment year 2011-12 reads as under: "4. Power of the DRP to enhance is restricted to disallowances/ variations proposed in the draft order. 4.1. That the Ld. DRP has erred in law in directing the Ld. AO to enhance the income of the Appellant by invoking the provisions of section 144C(8) of the Act without appreciating that there is no disallowance/ variation proposed by the Ld. AO under section 4o(a)(i) of the Act in the draft assessment order nor are there any objections raised by the Appellant in this regard before the DRP. 4.2. That on the facts and circumstances of the cas....
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....the circumstances of the case and in law, the Ld. DRP, erred in reducing the telecommunication charges of INR 21,97,91,546 from the export turnover while computing the deduction allowable under section 10A of the Act." 25. For assessment year 2010-11, the AR of the assessee submitted that the issue stands covered in favour of the assessee by the decision of Hon'ble Delhi High Court in the case of Genpact India Vs CIT reported in 203 Taxmann.com 632 wherein it was held as under: "14. Having considered the arguments advanced by the counsel for the parties, we are in complete agreement with the decision of the Bombay High Court in the case of Gem Plus Jewellery(supra). In order to avoid prolixity, we set out the relevant portion of the decision of the Bombay High Court in Gem Plus Jewellery and endorse the same. The relevant portion of the said decision is as under: "6. The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. The export turnover constitutes the numerator in the formula prescribed by sub-section (4). Export turnover also forms a constituent element of the denominat....
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....ement of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided." (underlining added) 16. All the points raised by Mr Sabharwal stand answered in the reasoning given by the Bombay High Court and Karnataka High Court in the said decisions with which we are in complete agreement." 26. The DR could not controvert the submission of the AR of the assessee. 27. Therefore, respectfully following the decision of the Hon'ble Delhi High Court in the case of Genpact India (supra), we set aside of the orders of lower authorities and direct the AO to compute deduction u/s 10A of the Act after deducting the Telecommunication expenses both from export turnover and total turnover of the assessee. Thus, this ground of appeal of the assessee is allowed. 28. At the time of hearing, the AR of the assessee submitted that as enhanced deduction was allowed to the assessee in assessment year 2011-12, therefore, this ground of appeal is not pressed in assessment year 2011-12. Hence, this ground of appeal is dismissed for want of prosecution. 29. Ground no. 5 of the appeal for assessment year 2010-11 a....
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.... 5.1. That on the facts and in the circumstances of the case and in law, the Ld. AO , pursuant to the directions of the Ld. DRP, erred in disallowing INR 6,00,53,106 under section 4o(a)(i) of the Act on account of non-deduction of taxes at source on reimbursements of expenses made to Associated Enterprises CAEs'). 5.2. That on the facts and in the circumstances of the case and in law, the Ld. AO and Ld. DRP erred in not appreciating that the nature of the transactions were merely cost to cost reimbursement of expenses which were not liable to deduction of taxes at source under the Act as well as relevant DTAA. 5.3. That on the facts and in the circumstances of the case and in law, Ld. DRP erred in not appreciating that the decision of Centrica (reported in 44 taxmann.com 300) was distinguishable and not applicable to the instant case." 37. At the time of hearing, the AR of the assessee did not press this ground of appeal. Therefore, this ground of appeal is dismissed for want of prosecution. 38. Ground no. 7 of the appeal for the assessment year 201011 and ground no. 8 of the appeal for assessment year 201112 are directed against levy of interest u/s 234B....
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.... from a shareholder in accordance with the provisions of Section 77A of the Companies Act from the definition of dividend. For ready reference, we quote clause (iv) of Section 2(22) as under: "Section 2(22)(iv) : Any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956)." We further note that Section 115QA has been introduced in the statute by Finance Act, 2013 w.e.f. 1.6.2013. Therefore any payment on account of purchase of its own shares by the company prior to 1.6.2013 cannot be termed as dividend as per the provisions of Section 115QA. We quote Section 115QA as under: 115QA. (1) Notwithstanding anything contained in any other provision of this Act, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount of distributed income by the company on buy-back of shares (not being shares listed on a recognised stock exchange) from a shareholder shall be charged to tax and such company shall be liable to pay additional incometax at the rate of twenty per cent on the distributed inc....
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....any on purchase of its own shares in accordance with the provisions contained in Section 77A of the Companies Act from the ambit of 'dividend'. Finance Act, 2013 subsequently introduced section 115QA (w.e.f 1.6.2013) to provide that any amount of distributed income by a company on buyback of unlisted shares shall be charged to tax and the company so distributing its income shall be liable to pay additional income tax at the rate of twenty percent of the distributed income. 2 ...... 3 ...... 4. Accordingly, the CBDT hereby clarifies that consideration received on buyback of shares between the period 1.4.2000 till 31.5.2013 would be taxed as capital gains in the hands of the recipient in accordance with section 46A of the Act and no such amount shall be treated as dividend in view of provisions of Section 2(22)(iv). 5. With a view to bring about further clarity on this issue as a step towards non-adversarial tax regime, the CBDT hereby directs that as a matter of general principle, no fresh notice for assessment/reassessment/non-deduction of TDS at source shall be issued where buyback of shares has taken place prior to 1.6.2013 and the case....