TMI Blog2020 (10) TMI 1200X X X X Extracts X X X X X X X X Extracts X X X X ..... s incurred and business receipts as a whole and the designation of the employees who made the travelling - HELD THAT:- As the company is in export of call centre services, setting up a successful international call centre requires up-to-date technology, quality assurance, data analysis and continuous training of employees, international level of communication, skills, continuous business development and for this purpose, the top management and the other related employees went abroad to gain knowledge of the call centres to have international standards. As mentioned elsewhere, this is the first year of the business. Therefore, it is more important for the appellant company to update its key employees with advanced technology. - Decided against revenue. Legal and Professional Expenses - AO formed a belief that the assessee has claimed expenditure under this head, which does not have any business nexus, and purpose for payment of legal and professional expenses are not justified - HELD THAT:- Assessing Officer fell into error in holding that the expenditure under this head does not have any business nexus. As mentioned in the earlier ground that the Assessing Officer should not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing relief of ₹ 20,91,000/ on account of domestic sales without appreciating that exemption under section 10A is allowable for exports sales only and the facts mentioned elaborately in the assessment. (ii) That the Ld. CIT (A) has erred in law and on facts by allowing relief of ₹ 30,04,822/- on account of Foreign Traveling expenses without appreciating the facts mentioned elaborately in the assessment order that the travel was not undertaken by the employees of the company and that the expenses related to finding business for the holding company and not for the assessee company. (iii) That the Ld. CIT(A) has erred in law and on facts by allowing relief of ₹ 1,11,15,572/- on account of legal Professional expenses without appreciating the facts mentioned elaborately in the assessment order and ignoring that there was no company that was merged or acquired by the assessee company, hence expenses were made for holding company and not allowable. (iv) That the Ld. CIT (A) has erred in law and on facts by allowing relief of ₹ 2,89,59,306 /- on account of addition made by the Assessing Officer relying the order of TPO u/s 92CA(3) without appre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given in Section 10A(4) of the Act for calculating deduction u/s 10A of the Act in respect of the undertaking registered with STPI. It was further explained that there is no provision in Section 10A of the Act for separately calculating profit in respect of domestic sales and export sales even if segmental accounts are available. 8. After considering the facts and submissions, the CIT(A) found that u/s 10A(4) of the Act, a formula has been given, wherein the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. 9. After analysing the formula given the CIT(A) observed that : if we go with the reasoning of the Assessing Officer, then in the case of loss in domestic sales and profit in export sales on the basis of segmental account of the undertaking, then loss of the domestic sales need to be carried further and 100% deduction on profit of the export sales to be allowed which is not as per the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer did not question the genuineness of these transactions and as the expenses were incurred by the assessee for business development and training of employees for call centre business, expenses were allowable and accordingly, directed the Assessing Officer to delete the disallowance. 18. Before us, the ld. DR strongly supported the findings of the Assessing Officer. 19. Per contra, the learned counsel for the assessee reiterated what has been stated before the lower authorities. 20. We have carefully perused the orders of the authorities below. We find that the foreign travel expenses related to employees of the appellant company, which include CFO, CEO, CCEs Head Technology, team leaders and Manager, Business development and places visited like USA, UK and Thailand for the purposes of business development, business meetings, for attending seminars and training. 21. In our considered opinion, as the company is in export of call centre services, setting up a successful international call centre requires up-to-date technology, quality assurance, data analysis and continuous training of employees, international level of communication, skills, continuous b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he findings. 27. We have also gone through the details which are as under: Avendus Advisor s Pvt Ltd. Mumbai The assessee engaged Avendus to identify prospects in overseas market which suit the strategic growth objectives of Colwell. The objective is clear from the Agreement attached at Page No. 148 of Paper Book (PB)- I. Thus this expenditure is for development of business of the Company and not for merger or acquisition as such. As Colwell is engaged in the service sector i.e. providing Voice based BPO therefore the purpose of acquiring any business is to increase the client base and the company is not interested in setting up and infrastructure of the acquire company. As in service sector there is no big business set up or infrastructure but the client base which is important for any company who is acquiring the business. Thus the said expenditure is normal marketing business expenditure incurred for development of the business of the Company and allowable as such. The AO has fully verified this expenditure and the same is fully as per audited accounts but the AO has only issue regarding the nature of the same. 6,76,510 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd, Mumbai The assessee engaged Avista to identify prospects in overseas market which suit the strategic growth objectives of Colwell. The objective is clear from the Agreement attached at Page No. 144 of Paper Book (PB)- I. Thus this expenditure is for development of business of the Company and not for merger or acquisition as such. As Colwell is engaged in^the service sector i.e. providing Voice based BPO therefore the purpose of acquiring any business is to increase the client base and the company is not interested in setting up and infrastructure of the acquiree company. As in service sector there is no big business set up or infrastructure but the client base which is important for any company who is acquiring the business. Thus the said expenditure is normal marketing business expenditure incurred for development of the business of the Company and allowable as such. The AO has fully verified this expenditure and the same is fully as per audited accounts but the AO has only issue regarding the nature of the same. 7,70,000 7.O.P. Kahaitan Co., Delhi O.P. Kahaitan Co. is a firm of Solicitors Advo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action, results of benchmarking analysis was as under: Particulars OP/OC% OP/OC of C S USA 2.17% Average OP/OC of 6 comparable companies 2.85% 30. During the TP assessment proceedings, the Assessing Officer questioned the selection of the tested party and was of the firm belief that the assessee should be tested party for the purpose of benchmarking analysis and accordingly, undertook fresh search of comparable companies and arrived at a set of 12 companies with operating profit to cost ratio of 9.52% and accordingly, an adjustment of ₹ 3.64, crores towards the difference in ALP was made. 31. Before the CIT(A), the assessee justified the ALP of the international transaction with multiple possibilities. Firstly, the assessee justified its AE as tested party. Secondly, the assessee justified its international transaction to be at ALP on the basis of under-utilisation of the capacity and further justified with internal comparables. Though the CIT(A) considered the submissions made by the assessee, but finally adjudicated upon under-uti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of B.R. Bhamasi 83 ITR 233. 39. We have given thoughtful consideration to the rival submissions and have carefully perused the orders of the authorities below. It is true that the assessee has justified its international transaction to be at ALP from multiple angles before the CIT(A). It is equally true that though the CITA has considered all the alternative submissions made by the assessee, but has finally adjudicated upon the under-utilisation of the capacity. As mentioned elsewhere, this being the first year of business and the business was run only for 9 months in the F.Y. under consideration, obviously the assessee has not achieved optimum level of capacity utilisation. 40. Moreover, the assessee has to absorb certain start up costs and fixed operating costs. In the absence of optimum utilisation of its capacity it has suffered average loss during the year. On the other hand, the net profit margin of the comparable cases who are already into business from past many years unutilised capacity can be understood from the following chart: Particulars Year Ended March 31, 2004 Export Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41. From the above chart, it can be seen that total available man hours for calling during the year was 1,93,440 and total billed hours were 1,01,851/-. Thus, the idle hours of calls 91,589 which makes unutilised capacity at 47.35%. In the subsequent years, capacity utilisation has been increased from 50% to 100%. We, therefore, do not find any infirmity in deciding this issue on unutilised capacity by the CIT(A). 42. We are of the opinion that the alternative TP study done by the assessee fulfils the requirements of TP regulations and is found to be correct. OP/TC with C S USA is 11.20% which is more than the average OP/TP of the comparable companies at minus 6.89%. Assuming that the OP/TC of the comparable companies as per the TPO is correct, which is at 9.52%, the assessee s OP/TC being 11.20%, we are of the considered view that the international transaction is at ALP and needs no further adjustment and accordingly, no interference is called for in the findings of the CIT(A). Ground No. 4 is dismissed. 43. In the result appeal filed by the revenue is dismissed. ITA No. 1117/DEL/2012 44. The grounds of appeal in Assessment Year 2005-06 are identical to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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