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2018 (4) TMI 705

ld that:- In assessment year 2010-11 DRP held the assessee eligible to claim depreciation on the said consideration paid being intangible asset, covered by the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Smifs Securities Ltd. (2012 (8) TMI 713 - SUPREME COURT). Since the Assessing Officer in the year under consideration had also held the payment made by the assessee was at best being payment for goodwill and where similar claim has been allowed in the hands of assessee in assessment year 2010-11, we hold the assessee to be entitled to claim depreciation on the right to render BPO services being goodwill in the hands of assessee. Thus, we reverse the order of Assessing Officer in disallowing depreciation of ₹ 2.26 crores. Accordingly, we direct the Assessing Officer to allow the said claim of assessee. The grounds of appeal No.1 and 2 raised by the assessee are allowed. - Ground raised by the assessee on without prejudice basis in allowing the said expenditure as deductible under section 37(1) of the Act is rejected. - Transfer pricing adjustment - Held that:- The assessee was offering skills and rule based services i.e. transaction processing, finance & ac .....

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he appellant to its Associated Enterprise, at ₹ 36,60,61,947 instead of ₹ 30,37,24,020; thereby making an addition of ₹ 6,23,37,926. The learned AO, TPO and DRP ought to have appreciated that such high pitched addition is totally illogical considering the fact that the AE company has only retained ₹ 2.74 Crores from the end customers invoicing. 5. The learned AO, TPO & DRP erred in law and on facts in determining u/s 92CA, the Arm's Length Price (ALP) of international transaction of software services by adopting a mark-up of 31.93% over costs instead of the appellant's earned mark up of 9.46% on cost. 6. The learned AO erred in law and on facts in not granting appropriate working capital adjustment to the appellant. 7. The AO, TPO & DRP erred in law and on facts in not granting benefit of proviso to section 92C(2) of the ITA, 1961 though specifically requested during the course of hearing. 8. The appellant craves leaves to add, modify, alter, amend, or withdraw all or any of the Ground of appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 4. Further, the ass .....

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nchise nor any other business or commercial right or similar nature. In reply, the assessee claimed that it was in accordance with Accounting Standard 26 issued by the Institute of Chartered Accountants of India and being intangible asset, was entitled to depreciation @ 25%. The assessee referred to different terms of agreement in order to explain the exact nature of transaction and also to establish its claim that the expenditure was incurred wholly and exclusively for the purpose of business. The relevant submissions of assessee in this regard are reproduced at pages 4 to 6 of the assessment order. The assessee also explained that the business was generated under the agreement for financial year 2008-09 and also in succeeding years. The Assessing Officer first deliberated upon the concept of depreciation vide para 3.5 at page 10 of the draft assessment order and referred to AS-6 of ICAI. He then referred to the definition of intangible assets under section 32(1)(ii) of the Act and observed that the claim of assessee that the assessee was eligible for claiming depreciation on the face of it was erroneous. The Assessing Officer was of the view that by no stretch of imagination can .....

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services to Cummins in USA. Vide ground of appeal No.3, the assessee has raised alternate plea that the entire payment of ₹ 20.18 crores for acquisition of right to render BPO services was deductible expenditure under section 37(1) of the Act. 8. The learned Authorized Representative for the assessee pointed out that the Assessing Officer had denied the claim as it does not fit into definition of intangible assets. However, the Assessing Officer further says that the payment made was similar to goodwill i.e. any other asset of similar nature. He further pointed out that when the Assessing Officer passed the order, the decision of Hon'ble Supreme Court in CIT Vs. Smifs Securities Ltd. (2012) 24 taxmann.com 222 (SC) was not available, hence the claim was not allowed in assessment year 2008-09. He further pointed out that in assessment year 2009-10 before the Assessing Officer, the assessee relied on the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Smifs Securities Ltd. (supra), but the Assessing Officer denied depreciation, against which the assessee is in appeal. However, in assessment year 2010-11, the DRP allowed the claim of assessee and the Revenue is n .....

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Plus Jewellery India Ltd. (supra) and Mumbai Bench of Tribunal in Skyline Caterers (P) Ltd. Vs. ITO (2008) 116 ITD 348 (Mum-Trib). 11. We have heard the rival contentions and perused the record. The first issue which is raised in the present appeal is against claim of depreciation on payment made for acquiring right to render BPO services to Cummins Inc, USA. The assessee during the year under consideration had entered into tripartite Master Service Agreement between Cummins Inc & KPIT Cummins Infosystems Ltd. on one hand and the assessee on the other hand. Copy of said agreement is placed on record. The assessee entered into this agreement on 17.07.2007 and the term of said agreement was for a period of 60 months. Under the said agreement, Cummins Inc granted the assessee a right to render business process outsourcing services to Cummins group entities on global basis from its office in Pune, India. This was the purpose as per clause (1) of the said tripartite agreement. In lieu thereof i.e. for securing the right to render business process outsourcing services to Cummins group entities globally, the assessee agreed to pay Cummins USD 5,00,000 equivalent to ₹ 20.67 crore .....

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asset, covered by the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Smifs Securities Ltd. (supra). The relevant findings of DRP in paras 7.6 to 7.8 are clear from the copy of DRP order, placed on record by the assessee. Since the Assessing Officer in the year under consideration had also held the payment made by the assessee was at best being payment for goodwill and where similar claim has been allowed in the hands of assessee in assessment year 2010-11, we hold the assessee to be entitled to claim depreciation on the right to render BPO services being goodwill in the hands of assessee. Thus, we reverse the order of Assessing Officer in disallowing depreciation of ₹ 2.26 crores. Accordingly, we direct the Assessing Officer to allow the said claim of assessee. The grounds of appeal No.1 and 2 raised by the assessee are allowed. However, the ground of appeal No.3 raised by the assessee on without prejudice basis in allowing the said expenditure as deductible under section 37(1) of the Act is rejected. 14. The additional ground of appeal raised by the assessee of granting deduction under section 10A of the Act on the increased income due to disallowance of depreci .....

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rbo Technologies Ltd. Vs. DCIT (IT) (2015) 53 taxmann.com 492 (Pune - Trib.). In respect of Crossdomain Solutions Ltd., the learned Authorized Representative for the assessee pointed out that the said concern was providing high end KPO services and was not comparable to the assessee. The learned Authorized Representative for the assessee in this regard placed reliance on the ratio laid down by the Pune Bench of Tribunal in Cummins Turbo Technologies Ltd. Vs. DCIT (IT) (2016) 68 taxmann.com 273 (Pune - Trib.) and the Hon ble High Court of Delhi in Rampgreen Solutions Pvt. Ltd. Vs. CIT (2015) 377 ITR 533 (Del). 17. Another concern which the assessee wants to be excluded is Genesys International Corporation Ltd., which was also high end KPO service provider. In this regard, he placed reliance on the decision of Pune Bench of Tribunal in Vistcon Engineering Center (India) (P.) Ltd. Vs. ACIT (2016) 70 taxmann.com 248 (Pune - Trib.). 18. The learned Authorized Representative for the assessee further pointed out that two other concerns the assessee wants to be excluded are Triton Corporation and Maple eSolutions Ltd. In this regard, he placed reliance on the ratio laid down by Pune Bench .....

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ing, finance & accounting, HR processing, etc; technology based services e.g. Technical help desk solutions and knowledge based solutions such as Sarbanes Oxley solutions, data analytics, etc. The assessee was offering enterprise and extensive solutions in the core business area of knowledge based, skill based and technology based services. The TPO notes that the assessee was providing transaction management & compliance services to global clients in the core domain verticals of manufacturing & diversified financial services. The assessee had undertaken international transactions with its associated enterprises of provision of outsourcing services totaling ₹ 31,03,86,216/-. The TPO noted from the TP study report that the assessee was engaged in ITES segment. The assessee had selected TNMM method as most appropriate method and in TNMM analysis, operating profits earned by comparables were compared on PBIT over operating revenue. The assessee had identified certain concerns as comparable. The operating margins of assessee was 8.65% on operating cost. However, during the course of TP proceedings, the assessee submitted the updated margins of comparables selected and .....

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ment in the TP adjustments. The assessee objected to the same on the ground that the DRP had not considered submissions of assessee that both the concerns Maple eSolutions Ltd. and Triton Corporation Ltd. were bad comparable. Rejecting the same, the Assessing Officer in the final assessment order made transfer pricing adjustment of ₹ 6,23,37,926/-, against which the assessee is in appeal. 24. The first issue which is raised is in respect of selection / rejection of comparables. First, we may take up comparables for which directions of DRP were given i.e. Triton Corporation Ltd. and Maple eSolutions Ltd. The assessee had claimed that both the concerns were fraudulent companies and though it had selected said concerns as comparable during last year but since the new financial details were available, the same were not to be applied. In this regard, the Assessing Officer had applied the margins of said concerns, whereas the DRP directed that only the margins of segmentals should be applied. The learned Authorized Representative for the assessee in this regard has pointed out that exclusion of Triton Corporation Ltd. and Maple eSolutions Ltd. has been decided by the Pune Bench of .....

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is Crossdomain Solutions Ltd., which as per the assessee is engaged in providing high end KPO services. The plea of learned Departmental Representative for the Revenue before us was that the assessee is also engaged in providing knowledge based services and hence, functionally comparable. We find that the issue of a concern providing ITES services being dissimilar to a concern providing KPO services is covered by the decision of Pune Bench of Tribunal in Maximize Learning Private Limited Vs. ACIT in ITA No.267/PN/2014, relating to assessment year 2009-10, order dated 29.04.2015, wherein it was held as under:- 19. The last plea raised by the assessee was for exclusion of Crossdomain Solutions Ltd. from the list of comparables. The said comparable was part of the final list of comparables selected by the TPO for benchmarking the international transaction of the assessee in assessment year 2008-09. The said comparable was engaged in high end KPO services and hence were claimed to be not a comparable with the assessee which was a normal ITES provider. The Tribunal accepting the said plea of the assessee in assessment year 2008-09 held the said concern was to be excluded from the final .....

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ssary functions. KPO firms earn extraordinary profits due to the highly skilled resources they employ in the form of highly-qualified professionals. 26. On the other hand, the Ld. CIT-DR appearing for the Revenue contended that the TPO as well as the DRP have rejected the plea of the assessee as the submissions were on a wrong footing. It was reiterated that the nature of services rendered by the said concern were falling in the category of IT enabled services which is also broadly the category of the services being rendered by the assessee. Therefore, the said concern was rightly included by the TPO in the list of comparables. 27. We have carefully considered the rival submissions. Ostensibly, the reason advanced by the TPO to reject the plea of the assessee are too general and are not justified. Even where two concerns may be undertaking activities which can be broadly categorized as ITES in common parlance but where an assessee is able to establish that intrinsically the activities are not comparable, such a concern would not be included for the purposes of comparability analysis. In the context of the present case, the plea of the assessee is that the business of M/s Crossdomai .....

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e Tribunal in the case of DCIT vs. M/s Willis Processing Services (India) Pvt. Ltd. vide ITA No.2152/Mum/2014 dated 10.10.2014 in order to justify the exclusion of Crossdomain Solutions Ltd.. 14. We find that M/s Wills Processing Services (India) Pvt. Ltd. (supra) was a concern where the tested party was providing IT enabled services to its various group concerns and activities were quite similar to the activity of IT enabled services rendered by assessee to its affiliates. In this context, the concern, M/s Crossdomain Solutions Ltd. was found to be functionally not comparable by the DRP and such decision was affirmed by the Tribunal by making the following discussion :- 3. M/s Crossdomain Solutions Ltd. This company has been rejected by the DRP on the ground that it is indulged in high skill IT services which are not comparable to the routine I.T. Enabled services. The Tribunal Hyderabad Bench in the case of M/s Market Tools Research Pvt. Ltd. in ITA No.1811/Hyd/2012 has held that this company is providing services which are in the nature of KPO. Further, the company is engaged in providing Niche services as well as developed its own brand Exdion‟ to target the insurance ind .....

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needs verification at the end of TPO. Accordingly, we remit this issue back to the file of TPO for verification. The assessee shall furnish relevant data before the TPO / Assessing Officer, who shall decide the issue after providing reasonable opportunity of hearing to the assessee and in accordance with law. The TPO/Assessing Officer is thus, directed to re-compute the adjustment on account of arm's length price in this regard, if any. 31. The learned Authorized Representative for the assessee pointed out that in case these concerns are rejected, then other TP issues raised would become academic. Hence, we do not adjudicate the same. 32. Before parting, we may also refer to the observations of TPO that the transactions with associated enterprises were in fact controlled. The assessee on the other hand, claims that associated enterprises were incurring losses i.e. overheads were being looked after by them. Hence, the total value of arm's length price should be taken at Nil as the assessee had charged maximum possible. In case it charges more price from the associated enterprises, then loss of associated enterprises would go up. We are not adjudicating this issue, in view o .....

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during the course of hearing. 3. The learned AO erred in law and on facts in not granting credit for the full taxes paid by the Company including taxes deducted at source from the payments received by the Company from its customers. 34. The Revenue in ITA No.459/PUN/2014, relating to assessment year 2009-10 has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case, the Dispute Resolution Panel erred in directing the Assessing Officer to exclude Crossdomain Solutions Pvt. Ltd. as comparable company based on the definition provided in Safe Harbor Rules not appreciating the fact that the Safe Harbor Rules have been introduced vide Notification No.S.O.2810(E) dated 18/9/2013 and could not be applied retrospectively. 2. On the facts and in the circumstances of the case, the Dispute Resolution Panel erred in directing to exclude the above company as comparable even though no information was available in the annual report indicating it as KPO service provider. 3. On the facts and in the circumstances of the case, the Dispute Resolution Panel erred in directing the Assessing Officer to include Sparash BPO Ltd. as comparable company since it is into .....

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easoning, we hold that Coral Hubs Ltd. is to be excluded from final set of comparables. 39. Now, coming to the next concern i.e. Crossdomain Solutions Ltd. The DRP had noted the said concern to be providing high end KPO services and had directed its exclusion; but the Assessing Officer in final assessment order has retained the said concern. However, the Assessing Officer has included the margins of said concern in the mean margins of comparables selected. 40. The Revenue is in appeal against the order of DRP in directing its exclusion. We have already decided this issue in the paras hereinabove while deciding the appeal for assessment year 2008-09 and had directed its exclusion. Accordingly, we uphold the order of DRP in this regard and dismiss the grounds of appeal No.1 and 2 raised by the Revenue. 41. The assessee is in appeal as the said concern was retained by the Assessing Officer in final assessment order. We find no merit in the order of Assessing Officer in this regard, especially after the directions of DRP in para 2.2.4.5 at page 12 of its order. Accordingly, we direct the Assessing Officer to exclude the said concern Crossdomain Solutions Ltd. from final set of comparab .....

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