TaxTMI 
TaxTMI 
2025 (8) TMI 378
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....ering the designated BPO / collections services from its facility / infrastructure in India. As for Assessment Year 2020-21, the assessee filed its return of income (ROI') declaring an income of INR 20,57,10,540/- on 07.01.2021. During the course of scrutiny, the Assessing Officer made a reference u/s 92CA of the Act to the Transfer Pricing Officer ('TPO') to determine the Arm's Length Price ('ALP') in respect of International transaction entered into by the assessee. 2.1. The ld. TPO proposed an adjustment of Rs. 9,32,12,889/- in his order passed u/s 92CA(3) of the Act dated 27.07.2023. The TPO changed the cost allocation methodology from headcount ratio to salary expenses ratio, thereby partly disallowing support services cost. Before making the said disallowance, the TPO issued a show-cause notice dated 08.06.2023, placed at page no.3 to of the TPO's Order, the relevant extract of which is reproduced as under:- 3. A survey action us 133A of the Act was carried out on 25-27 February, 2019 at the premises of India branch of the assessee and its Indian associated enterprise, Genpact India Private Limited, or GIPL, (formerly Genpact India) including inter-alia the fo....
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.... the following heads Technical and facilities maintenance, communication charges, electricity and water, repair and maintenance, management charges, rent, infrastructure and support cost, staff welfare and other expenses Since assessee failed to provide the data regarding cost allocation key being used in the captioned year even when asked specifically by the TPO, therefore it is assumed that the cost allocation remains the same as being followed by the assessee in prior years. Excluding Electricity and water and repair & maintenance for a part of Plot no.22, Udyog Vihar, Sector 18 Gurugram, all expenses under various heads are allocated on a annual average head count basis, i.e., at the end of each financial year, number of employees in GSL India branch at the end of each month is taken and average for the period April to March is calculated. That average so calculated is the basis of allocation of cost under the heads 1. Technical facilities maintenance, 2. Communication cost, 3. Infrastructure support and management charges and 4. Staff welfare expenses. 7. The total expenses incurred under each of these heads are apportioned among GIPL, GSL India branch and other GE Gr....
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....of cost allocation in the present case, an appropriate method, reflecting the realities of the business of GIPL and GSL needs to be applied. Based on the information available with me at this stage, one such method that appears to be appropriate for cost allocation in this case is cost allocation on the basis of salary expense. This appears to be an appropriate method because in the services sector, more so in the BPO sector, in which the assessee group is engaged, the true estimate of value of work performed is given not by the number of employees (head count), but by the salary expense towards those employees. 10. From perusal of data submitted by the assessee and materials available on record it is evident that the salary expense ratio of GSL and GI for FY 2015-16 is 1.16 %. This is much lower than the headcount ratio for this financial year (FY 2015-16), which is 1.60%. In fact, for each year from FY 2011-12 to 2017-18 (all years for which the figures were provided by the assessee), the salary ratio is significantly lower than the headcount ratio. The headcount ratio of GSL and all entities combined among which cost is shared (i.e. GI, GSL and Other Entities) for FY 20....
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.... to 8 of the Draft Assessment Order. 2.4. The Assessing Officer after considering the reply of the assessee rejected the headcount ratio application towards shared cost and applied the salary expenses ratio and the difference of (Rs.20,87,51,815/- - Rs. 11,55,38,926/-) amounting to Rs. 9,32,12,889/- was reduced from the cost claimed as deductible by the assessee and was disallowed and added back to the total income of the assessee. 3. In ground Nos. 3 to 3.3 of the appeal, the assessee has challenged the disallowance of the support services cost amounting to INR 9,32,12,889/- Ld. AR has submitted that grounds are supported by the assessee's own cases, Genpact Services LLC vs ACIT: [2024] 101 taxmann.com 785 /TA Na 1992/Del/2022 for AY 2017-18 and Genpact Services LLC vs ACIT: [2024] TS-359-ITAT-2024DEL-TP /ITA No. 1834/Del/2022 for AY 2018-19 and ITA No.788/Del/2023 for AY 2019- 20 as decided by this Co-ordinate Bench. The said grounds of appeal are reproduced as under:- "3. That on facts and circumstances of the case and in law, the TPO/DRP/AO have grossly erred in partly disallowing the support services cost amounting to INR 9,32,12,889 paid by the Appellant to....
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....#39;, thereby partly disallowing support services cost paid by the Appellant. (d) This ground is supported by the decision of this Hon'ble Bench in Appellant's own case: - Genpact Services LLC vs ACIT: [2024] 161 taxmann.com 765 / ITA No. 1833/Del/2022 for AY 2017-18 (refer paras 11, 14 at pages 209-211, 202 of compilation) - Genpact Services LLC vs ACIT: [2024] TS-359-ITAT- 2024DEL-TP / ITA No. 1834/Del/2022 for AY 2018-19 (refer paras 8.2-8.3 at pages 191-201 of compilation) The issues in question are identical to those of the preceding assessment years (AY 2017-18 and AY 2018-19) (e) The TPO's observation regarding Appellant failing to provide basis of cost allocation and cost sharing agreement, is incorrect and baseless. The Appellant had provided the cost sharing agreement and allocation basis before the TPO for receipt of support services during the year under consideration (refer pages 46-49/PB for submission dated March 1, 2023, 56-58/PB for submissions dated March 28, 2022 filed before the TPO in this regard, pages 155-162/PB for cost sharing agreement dated November 19, 2009 and pages 50/PB working in respect of all....
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....loyees in the organization. - Key costs incurred such as technical facilities management, staff welfare, communication costs, HR costs etc. are driven by the number of employees using these facilities and accordingly, headcount represents an appropriate allocation key for allocating costs in line with the basis of incurring such costs. (i) However, the TPO proceeded to apply salary expense ratio without appreciating that it would be unreasonable to expect that support/facilities extended to the employees depend on the salary of the respective employees. (i) In this regard, reliance is placed on the following decisions wherein 'headcount" has been affirmed as an appropriate allocation key: - Fujitsu India Pvt. Ltd. vs. DCIT: [2017) ITA No. 604 of 2017 (Delhi) [SLP filed by the Revenue Department dismissed vide SLP No. 28291 of 2019] - CIT vs EHPT India (P.) Ltd.: [2011] 350 ITR 41 (Delhi) - Orange Business Services India vs DCIT: ITA No. 6928/2017 (Del - Trib.) - Cable and Wireless (India) Limited vs DCIT: [2017) ITA No. 756, 6074-6075 of 2017 (Mumbai - Trib.) - Cisco Systems (India) P Ltd vs ACIT: [2021] 12....
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....d. vs DCIT: [2023] 157 taxmann.com 498 / ITA No. 6748 of 2017 (Mumbai - Trib.) - Palmer Investment Group Ltd. vs DCIT: [2023] 148 taxmann.com 4 / ITA No.2929 & 2930 of 2018 (Bengaluru - Trib.) - Ineos Styrolution India Ltd. vs DCIT: [2022] 142 taxmann.com 450 / ITA No.58 of 2022 (Ahmedabad - Trib.) - Sulzer Tech India (P.) Ltd. vs ACIT: [2022] 142 taxmann.com 246 / ITA No. 633 of 2021 (Mumbai - Trib.) - Gulf Energy Maritime Services Pvt. Ltd. vs ITO: I.T.A. No.3812/Mum/2015 (Mumbai - Trib.) Hence, in light of above, the approach proposed to be adopted by the DRP / AO / TPO is not maintainable. 4. The Ld. CIT-DR supported the orders of the authorities below. 5. We have heard both the parties and perused the material available on record. On perusal of the TPO order u/s 92CA(3) of the Act dated 27.02.2023, the draft assessment order (hereinafter referred as DAO) and the final assessment order (hereinafter referred as FAO), we find that, the issues in question are identical to those of the preceding assessment years (AY 2017-18 and AY 2018-19). 5.1. This fact has also been noted by the Ld. Dispute Resolution Panel in its concluding ....
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....llowing noting- "During dictation, it emerged that during AY 2020-21, the TPO has also made adjustment u/s 92CA(3) of the Act, amounting to Rs. 9,32,12,889/-, whereas in the case relied upon by the assessee in its own case for AY 2018-19 and AY 2017-18 in ITA No.1833/Del/2022 & 1834/Del/2022, no such adjustment was made by the TPO for the said years. In view of this fact, this case requires clarification on this issue. Therefore, the Registry is directed to fix this appeal for clarification hearing on 30.07.2025. Both the parties to be informed." 5.4. During the clarification hearing, the Ld. AR submitted that the facts in the present case are identical to the case of the assessee for Assessment Years 2017-18 and 2018-19, because the TPO has also given the same finding and has applied the same basis for making the adjustment on account of headcount ratio to salary expenses ratio to make the adjustment of the ALP in the case of the assessee. The ld. AR further submitted that all the facts were available before the Assessing Officer/TPO, in this year was also available before the said authorities during AYs 2017-18 and 2018-19. In this regard, the ld. AR submitted that TP....
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....his, the ld AR submitted that the assessee was responsible for performance of these functions, the execution of the same was outsourced by the assessee to its AE, for which cost of support services are to be incurred. Further, the ld. AO had observed that the assessee had not provided the copy of cost sharing agreement either to ld TPO or before him. This is factually incorrect in view of the fact that the assessee had indeed provided the cost sharing agreement before the ld TPO for receipt of support services during the year under consideration which is evident from pages 183 to 190 of the paper book. In fact, the ld TPO had duly examined the said agreement together with the supporting evidences submitted by the assessee and had accepted the mark up of 5% in respect of cost of support services to be at ALP. We also find that the very same cost sharing agreement was also filed before the ld AO by the assessee in response to reply to Question No.7, vide letter dated 30.03.2021. Hence, it could be safely concluded that the findings recorded by the ld AO and affirmed by the ld DRP are based on incorrect assumption of facts. 1. With regard to plea taken by the ld DR that thoug....
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.... AO. It was submitted that the very fact that different expenses were allocated on different basis, considering the nature of expenses, itself, demonstrate that such allocation was based on proper analysis by the assessee. We find that the assessee had explained before the lower authorities that it had considered "headcount" as an appropriate allocation key since the level of support required is dependent on the headcount in each entity. Key costs incurred such as electric facility, management, staff welfare, communication costs, human resources costs, etc, are driven by the number of employees using these facilities and accordingly, the headcount represents an appropriate allocation key for allocating costs in line with the basis of incurring such costs. It was also submitted that 'salary cost' would not be an appropriate allocation key in view of the following reasons:- Salary cost of employees is not an appropriate indicator of the support required by the businesses. It would be unreasonable to expect that the time or communication facilities extended to the employees depend on the salary of the respective employees. Similarly, for other heads as well, headcount was app....
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....e very much material for the ld TPO to examine and conclude whether the pricing thereon is at ALP or not. In the instant case, all these documents were duly placed on record before the ld TPO and the same was accepted to be at ALP by the ld TPO. It is also pertinent to note that the reference u/s 92CA(1) of the Act to the ld TPO was made by the ld AO after the survey proceedings. Hence, even the findings of the survey team were very much available before the ld TPO. We find that the cost allocation on the basis of "headcount" has been affirmed to be an appropriate allocation key by the Hon'ble jurisdictional High Court in the case of CIT Vs. EHPT India Private Limited reported in 350 ITR 41 (Del). Similar was the view taken by the coordinate bench of this tribunal in the case of Orange Business Services India Solution Pvt Ltd Vs. DCIT in ITA No. 6928/Del/2017 for AY 2013-14 dated 15.07.2021. Further, the coordinate bench of Mumbai tribunal in the case of Cable and Wireless India Ltd Vs. DCIT in ITA No. 6075/Mum/2017 for AY 2012-13, 756/Mum/2017 for AY 2013-14, 6074/Del/2017 for AY 2014-15 dated 25.02.2020, also had an occasion to adjudicate the similar issue, as is the case before ....
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....were managed by common staff which was under the payroll of CWNIPL. On the basis of the aforesaid facts, it was the claim of the assessee that the expenses which were incurred in respect of the aforesaid administrative functions were cross charged to it by CWNIPL on cost to cost basis. As per the details furnished by the assessee, it was noticed by the A.O that the assessee had during the year under consideration claimed to have reimbursed an amount of Rs. 2,34,56,929/- to CWNIPL. It was the claim of the assessee that the aforesaid amount of reimbursement was towards support costs consisting of salary, leave encashment and gratuity expenses which were incurred by CWNIPL for and on its behalf on cost to cost basis. In order to fortify its aforesaid claim the assessee had also placed on record sample copies of 'debit notes'. On a perusal of the details furnished in the course of the assessment proceedings, it was noticed by the A.O that the assessee had claimed that the expenses incurred by CWNIPL in respect of rendering of administrative functions were allocated to the assessee by adopting the allocation key of head count basis, as under: Cross Charge Basis - Details of number of....
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.... 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. 4. 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 authori....
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....CA(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 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'bl....
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....ench in the case of SABIC India Pvt. Ltd. vs DCIT [2022] 96 ITR (T) 368(Del. Trib.) and further confirmed by the Hon'ble jurisdictional High Court in ITA No.512/2014 (Delhi). 6.3. Therefore, respectfully following the order of the Tribunal in assessee's own case for AY 2017-18 (supra) the ground Nos. 3.2 and 3.3 raised by the assessee are allowed and the disallowances of expenses amounting to Rs. 9,32,12,889/- stands deleted. Ground no.3 to 3.3 of the appeal is allowed. 7. Ground no.4 is against the disallowance of deduction amounting to Rs. 16,90,975/- u/s 80G of the Act The Assessing Officer disallowed the above sum in the draft assessment order as per his findings in para 5.2 of the order which is reproduced as under:- "5.2. In the case of the assessee company, the assessee has claimed an amount of Rs. 33,81,950/- on account of CSR (i.e. Corporate Social Responsivity). The payment has been purportedly paid to M/s Teach to Lead. From a perusal of the evidence furnished, it is seen that the said concern is registered under Section 12AA as well as under Section 80G(5) of the Act. The assessee has also furnished confirmation from this concern. Corporate socia....
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....emed to be an expenditure incurred by the assessee for the purposes of the business or profession." Thus, from a perusal of the above provisions, it is evident that expense incurred on account of CSR (i.e. Corporate Social Responsively) cannot be permitted to a corporate assessee at all. It is settled law that what cannot be done directly, cannot also be done indirectly. No authority is required for this proposition, but if any authority is required the authorities in the case of Jagir Singh Vs. Ranbir Singh and Another and the case of District Collector, Chittor and Others Vs. Chittoor District Groundunt Traders" Association, Chittoor and Others are sufficient. In Jagir Singh's case the Supreme Court has held that what cannot be done directly, cannot be allowed to be done indirectly as that would be an evasion of the statute. The Supreme Court has held that it is a well known principle of law that the provisions of law cannot be evaded by shift or contrivance. The Supreme Court has held that in an indirect or circuitous manner the objects of a statute cannot be defeated. In the District Collector's case a circular was issued under the Commodities Act purp....
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....ax return (refer pages 151/PB for Rol). c) The AO has erred in selectively and incorrectly reading the provisions of section 37 of the Act. It is submitted that explanation 2 to section 37(1) of the Act is relevant only for determining the allowability of any expenditure under section 37 of the Act while computing income under the head 'Profits and gains of business or profession'. Therefore, such explanation is not applicable for determining allowability of deduction under section 80G of the Act. d) On perusal of section 80G of the Act it is clear that restrictions on deductibility of a donation made pursuant to CSR obligations is expressly provided under section 80G(2)(a) (ilihk)/(ilihl) of the Act. Therefore, other than the two restrictions clearly mentioned, no further restriction can be read into the law. e) In this regard, reliance is placed on following decisions: - Interglobe Technology Quotient (P.) Ltd. ACIT [2024] 163 taxmann.com 542 (Delhi - Trib.) - Power Mech Projects Ltd. vs DCIT: [2023] 156 taxmann.com 575 / ITA No.155/2023 (Hyd. - Trib.) - Optum Global Solutions (India) (P.) Ltd. vs DCIT: [2023] 203 ITD ....
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....Jpr/2023 (Jpr Trib.) - Naik Seafoods Pvt Ltd vs. PCIT: ITA 490/Mum/2021 (Mum Trib.) - Societe Generale Securities India Pvt Ltd vs. PCIT: ITA 1921/Mum/2023 (Mum Trib.) 7. Learned DR has failed to bring forth any decision to the contrary. Thus, we accept the plea of learned counsel on the basis of case law cited, denial of CSR expenditure u/s 37(1) of the Act is not embargo to claim deduction u/s 80G of the Act. 7.1 Further, we like to observe that as a matter of fact as per Section 135 of the Companies Act, 2013 ('CA 2013), the qualifying Companies as mentioned therein are required to spend certain percentage of profits of last three years on activities pertaining to Corporate Social Responsibility (CSR). The expenditure on CSR, could be by way of expenditure on projects directly undertaken by said companies, such as setting up and running schools, social business projects, etc. Such expenditure would include expenditure otherwise falling for consideration under section 37(1) of the Act. On the other hand, companies, instead of undertaking or participating directly in a project, may choose to give donations to institutions that are engaged in....
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....ation of income of the assessee under the Income Tax Act, that means it continues to form part of the Total income of the assessee. Section 80G(1) of the Act provides that in computing the total income of an assessee, there shall be deducted, in accordance with the provisions of this section, such sum paid by the assessee in the previous year as a donation. Further, section 80G(2) lists down the sums on which deduction shall be allowed to the assessee. Section 80G falls in Chapter VIA, which comes into play only after the gross total income has been computed by applying the computation provisions under various heads of income, including the Explanation 2 to section 37(1) of the Act. Thus, there is no correlation between suo-moto disallowance in section 37(1) and claim of deduction under section 80G of the Act. 7.5 As with regard to the reasoning that CSR expenditure are not voluntary but mandatory in nature due to penal consequences, we are of considered view that voluntary nature of donation is by nature of fact that it is not on the basis of any reciprocal promise of donee. The CSR expenditures are also without any reciprocal commitment from beneficiary being philanthrop....
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....ary 15, 2016, passed under section 250 of the Act, had upheld the view taken by the AO. Further, the CIT(A), for the limited purpose of allowing depreciation under the Act, held that out of the total sum of Rs. 22,16,00,276, only Rs. 16,05,41,276 was to be considered as the value of intangible assets for allowing depreciation at the rate of 25%. This Tribunal vide its order dated January 31, 2023, in ITA No.2524/Del/2016 in assessee's own case for AY 2010-11 modified the decision of CIT(A) to the extent of valuation of intangible assets treating the value of intangible assets to be Rs. 22,16,00,276 and allowing depreciation on the same. 8.1. Considering the aforesaid order passed by this Tribunal in AY 2010- 11, the Assessee has claimed vide this additional ground to be now eligible to claim depreciation allowance of INR 31,19,773/- in the impugned AY (being depreciation at the rate of 25% on the written down value of intangible assets of Rs. 16,00,276). 8.2. We notice that in assessee's own case, Genpact Services LLC vs ACIT: [2024] 161 taxmann.com 765 / ITA No. 1833/Del/2022 for AY 2017-18 and Genpact Services LLC vs ACIT: [2024] TS-359-ITAT- 2024DEL-TP / ITA No. 1834/Del/2....