TMI Blog2022 (1) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Therefore, it comes within the meaning of intangible asset as per section 32(1)(ii) r/w Explanation 3(b) of the Act. Hence, depreciation claimed by the assessee is allowable. The decisions relied upon by the learned Sr. Counsel for the assessee also supports our aforesaid view. Accordingly, we uphold the decision of the learned Commissioner (Appeals) by dismissing the grounds raised. Adhoc disallowance of professional expenses, electricity charges and miscellaneous expenses - HELD THAT:- We find that this issue is covered by the Circular issued by the CBDT vide Circular No.37/2016 dated 02/11/2016 wherein it has been clarified that disallowance of certain expenses made on account of specific expenditure claimed in respect of eligible unit would only go to enhance the claim of deduction u/s.80IA of the Act. The said analogy would be very much applicable for the claim of deduction u/s.10A of the Act also. It is not in dispute that the aforesaid administrative expenses were incurred by the assessee company only in respect of its eligible units. Hence, there would be no purpose that would be served by making disallowance of certain expenses for want of evidences which were incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivables from AEs Trade outstanding payables to AEs) and impute interest cost thereon. The interest rate to be adopted thereon would be only LIBOR without any basis points. Hence, the ld. TPO is directed to re-compute the notional interest on net outstanding receivables by applying LIBOR rates and make adjustment to ALP thereon accordingly. Hence, the ground No.12 raised by the assessee is allowed for statistical purposes. - ITA No.7377/Mum/2010 - - - Dated:- 6-12-2021 - Shri M.Balaganesh, Accountant Member And Shri Amarjit Singh, Judicial Member For the Assessee : Shri Poras Kaka, Sr. Counsel Shri Manish Kanth, Advocate For the Revenue : Ms. Varsha Saxena ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.7377/Mum/2010 for A.Y.2006-07 preferred by the order against the final assessment order passed by the Assessing Officer dated 22/09/2010 u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, hereinafter referred to as Act, pursuant to the directions of the ld. Dispute Resolution Panel (DRP in short) u/s.144C(5) of the Act dated 18/08/2010 for the A.Y.2006-07. 2. The assessee has raised the following grounds of appeal:- The fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and the DRP further erred in upholding the reference to the learned Transfer Pricing Officer ( TPO‟), which is not in accordance with the provisions of Section 92CA(1) of the Act. The Appellant prays that the proceedings initiated by the TPO under Section 92CA of the Act on the basis of the said reference be held as void ab initio and thus the order passed by the learned TPO under Section 92CA(3) of the Act be cancelled. 7. On the facts and in the circumstances of the case and in law, the learned AO has erred in confirming / following and the DRP further erred in upholding the order of the learned AO / TPO that the international transactions of the Appellant with its Associate Enterprise ('AE') are not at arm's length and in thereby confirming the adjustment of ₹ 41,01,71,389 made to the value of the said international transaction. The Appellant prays that the transfer pricing additions made by the learned AO on the basis of the order passed by the TPO under Section 92CA(3) of the Act be deleted. 8. On the facts and in the circumstances of the case and in law, the learned AO has erred in confirming the learned TPO's holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm's length price for interest on receivables at ₹ 7,20,18,279 instead of Rs. Nil. The Appellant prays that the aforesaid addition be deleted. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 3. The brief facts of this appeal are that assessee company filed its return of income for the A.Y.2006-07 on 28/11/2006 declaring loss of ₹ 10,46,49,546/-. The assessee also filed a revised return on 06/11/2007 declaring loss of ₹ 10,46,49,546/-. The assessee filed copy of audited balance sheet / audited profit and loss account, copy of acknowledgement of original and revised return of income along with copy of computation of income and original and revised notes to return of income, copy of audit report in Form No.56F certifying the claim of deduction u/s.10A of the Act in respect of its Software Technology Park (STP) Unit, copy of tax audit report in Form 3CA and 3CD and its annexures and copy of transfer pricing report in Form No.3CED before the ld. AO. 3.1. Reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imbursement made for lease line charges paid by WNS UK on 6,89,67,402 At Cost behalf of the company 7 -do- Reimbursement made for expenses paid by WNS UK on behalf of the company 1,83,32,671 At Cost 8. WNS North America Inc., USA Reimbursement made for lease line charges paid by WNS NA on behalf of the company 6,41,87,580 At Cost 9. -do- Reimbursement made for expenses paid by WNS NA on behalf of the company 4,10,70,798 At Cost 10. -do- Reimbursement of agent error and customer resource charges incurred by WNS NA on behalf of the company 16,40,48,343 At Cost 11. WNS Global Services (UK) Ltd., UK Reimbursement received for expenses paid by the company on behalf of WNS UK 76,60,891 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at the average margin of comparables @21.03% as against the margin of 12.29% declared by the assessee. The ld. TPO sought to make an adjustment of ₹ 34,81,53,110/- in respect of receipt of contract revenues and payment of marketing and management fees as under:- A Sale Turnover ₹ 4,34,59,17,558 B Profit before tax ₹ 46,52,22,822/- C Add Donation ₹ 6,71,303/- D Add Loss on sale of asset ₹ 2,60,726/- E Add Foreign exchange loss, net ₹ 1,24,49,568 F Less other income ₹ 28,60,097 G PBIT ₹ 47,57,44,322 H Total Costs (A-f) ₹ 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y AEs and WNS India where WNS India is entrepreneur WNS North America Inc ( WNS NA ) WNS Global Services (UK) Ltd., ( WNS UK ) WNS Global Services Netherlands Cooperative U.A (WNS Netherlands) WNS Capital Investment Ltd (WCIL Mauritius) - - The transactions with WNS NA, WNS UK and WCIL Mauritius shall be entered into for all 5 years covered under the APA (i.e. for a period from 1 April 2013 to 31 March 2018) - The transaction with WNS Netherlands shall be entered into for the period from 1st April 2013 to 31 March 2015 as WNS Netherland s contract with the client is expiring with effect from 1 April 2015 2. Reimbursement of client billings to WNS India in respect of a specific contract executed by WNS Customer Solutions (Singapore) Private Limited ( WNS Singapore ) WNS Customer Solutions (Singapore) Private Limited (WNS Singapore) - The transaction with WNS Singapore shall be entered into for the period from 1 April 2013 to 31 March 2014 as WNS Singapore s contract with the client is expiring with effect from 1 Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of not more than 15% 4.3. Apart from this, he also drew our attention to the order passed by this Tribunal in assessee s own case for A.Y.2005-06 in ITA No.396/Mum/2011 (Assessee appeal) and ITA No.631/Mum/2011 (Revenue Appeal) dated 16/01/2019 and for A.Y.2008-09 in ITA No. 7378/Mum/2012 dated 16/01/2019 wherein the transfer pricing disputes other than issue of notional interest on outstanding receivables are fully covered in assessee s own case. 4.4. Per contra, the ld. DR accepted to the fact that the transfer pricing disputes other than notional interest on outstanding receivables, raised by the assessee in its grounds are covered by the order of this Tribunal dated 16/01/2019. The functions performed, the assets employed and risks undertaken in respect of international transactions carried out during the year remain the same with those prevailing in A.Y.2005-06. Hence, we deem it fit to reproduce the relevant portion of the order passed by this Tribunal in A.Y.2005-06 in ITA No.631/Mum/2011 dated 16/01/2019 as under:- 8. We have considered rival submissions and perused materials on record. As could be seen from the order of the Transfer Pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds of appeal in the Department's appeal with respect to transfer pricing related issues become academic in nature. 9. As regards the issue relating to separate benchmarking of international transactions with the AEs, the Tribunal has held as under:- 21 We have considered rival contentions and find from the nature of the transactions mentioned above that they are not interlinked as the various transactions form part of different business models adopted by the assessee. Thus, the learned TPO's approach of aggregating these international transactions and benchmarking the assessee at an entity level is not appropriate since the FAR profile of WNS India is different in both the transactions and hence, aggregating these international transactions and considering WNS India as the tested party is wholly misplaced and contrary to the TP regulations. In view of these factual position, the Hon'ble CIT(A) has correctly upheld the benchmarking approach adopted by the assessee. 22. For this purpose reliance may be placed on decision of the Hon'ble High Court of Punjab Haryana in the case of Knorr-Bremse India Pvt. Ltd., ITA No.172 182 of 2013) whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets of comparables. Therefore, we are unable to accept the submissions of the learned Departmental Representative for restoring the issue to the Assessing Officer/Transfer Pricing Officer for reconsideration. In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) on these issues by dismissing the grounds raised. 12. In ground No.3, the Department has challenged the decision of the learned Commissioner (Appeals) in holding that the contract migration cost should not be considered for calculating the operating margin. 13. Brief facts are, in course of proceedings before him, the Transfer Pricing Officer noticed that the assessee has paid an amount of ₹ 90,44,55,398 to WNS N.A. in respect of Travelocity contract. After verifying the details, he found that WNS N.A. has entered into a contract with Travelocity.com L.P. to outsource their back office and contract centre operation. The aforesaid contract entered into in January 2004, was to subsist for a period of seven years. However, Travelocity desired that certain non-core operations and functions currently performed internally be performed and managed by a third party experienced in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit for the assessee. Thus, the learned Commissioner (Appeals) relying upon his decision on identical issue in assessment year 2004-05, held that the migration cost relating to Travelocity contract being an exceptional and onetime cost, should not be treated as part of operating cost for computing the profitability of the assessee. 15. The learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted, learned Commissioner (Appeals) without properly analysing the issue has held that the migration cost will not form part of the operating cost. He submitted, if the learned Commissioner (Appeals) was unable to accept the benchmarking of the Transfer Pricing Officer, he himself should have done the correct benchmarking. The learned Departmental Representative submitted, learned Commissioner (Appeals)'s reasoning for excluding the migration cost is not on sound basis. 16. The learned Sr. Counsel for the assessee submitted, from assessment year 2004-05 onwards all the contracts were assigned to the assessee and the assessee became the major entrepreneur, whereas, the AEs were only supporting the assessee. He submitted, earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaring income of ₹ 24,59,770/- after claiming ITA No. 4520/MUM/2013 (Assessment Year : 2003-04) deduction under section 10A of the Income Tax Act, 1961 ( in short ' the Act' ) amounting to ₹ 31,89,63,929/-. The assessee, a part of the WNS Group and in May 2002, WNS (Mauritius) Ltd., a wholly owned subsidiary of WNS Holdings acquired the entire share capital of the assessee from M/s. British Airways. The assessee carries out its business from 4 Software Technology Parks through seven units located at Mumbai( 2 units), Pune (3 units) and Nasik (2 units). The deduction under section 10A of the Act was claimed in respect of Mumbai Unit-1 and Pune unit-1 only. Subsequently, the assessee filed a revised return of income on 23/03/2014 declaring total income at Nil after setting off the loss from Pune Unit-II against income from Mumbai Unit-I and Pune Unit-I and claiming deduction of ₹ 31,89,63,929/- under section 10A of the Act. The assessee had also put forth an alternate claim that it be granted deduction under section 80HHE of the Act in case the claim under section 10A of the Act was not allowed. The case was taken up for scrutiny and the assessment was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer concluded the assessment rejecting the assessee's claim for deduction under section 10A but allowed the assessee's alternate claim for ITA No. 4520/MUM/2013 (Assessment Year : 2003-04) deduction under section 80HHE(4) of the Act amounting to ₹ 16,59,23,129/-. The assessment was accordingly completed under section 143(3) r.w.s. 254 of the Act vide order dated 23/12/2010. 2.5 On appeal by the assessee, the CIT(A) rejected the assessee's claim for deduction under section10A of the Act on the ground that sub-section (9) to section 10A of the Act being omitted by Finance Act, 2003 w.e.f. 1/4/2004, the provisions of Section 10A(9) of the Act were in the force for assessment year 2003-04. Holding thus, the CIT(A) dismissed the assessee's appeal vide the impugned order dated 1/3/2013 3.1 Aggrieved by the order of the CIT(Appeals)-22, Mumbai, the assessee is in appeal before the Tribunal raising the following ground:- 1. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals)-22, Mumbai has erred in upholding the order of the learned Income Tax Officer -10(2)(4), Mumbai and disallowi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act ( which is pari-materia to the provisions of section 10A(9) of the Act) at para 11 of its order has held that even though the Finance Act, 2003 mentions that the aforesaid sub-section(9) is omitted with effect from ITA No. 4520/MUM/2013 (Assessment Year : 2003-04) 1st April 2004, in view of the fact that the said omission is different from repeal, the saving clause provided in section 6 of the General Clauses Act is not applicable. Therefore, section 10B of the Act should be read as though it never had sub-section(9) in it all in all the proceedings under the Act. It is submitted that since the facts of the case on hand are identical to those in the case of GE Thermometrics India Pvt. Ltd. (supra) rendered in the context of section 10B(9) of the Act, which is pari-materia to section 10A(9) of the Act, similarly, section 10A of the Act should also be read as if it never had sub-section(9). 3.2.4 The Ld. Representative for the assessee further submitted that the aforesaid decisions of the Co-ordinate bench in the case of GE Thermometrics India Pvt. Ltd. (supra) has been upheld by the Hon'ble Karnataka High Court vide order in ITA No.876 877/2008 dated 25/11/2014, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re that bench for adjudication of this issue. In this context, the Ld. Representative for the assessee contends that the averments of the Ld. Departmental Representative were factually ITA No. 4520/MUM/2013 (Assessment Year : 2003-04) erroneous and misleading. As regards Ld. Departmental Representative's submission that the said issue has been held against the assessee in the order of the Co-ordinate bench in its order on 263 proceedings for assessment year 2003-04(supra), the Ld. Representative for the assessee submitted that in this order also the submissions of the Ld. Departmental Representative are factually incorrect since the said order only upholds the assumption of jurisdiction by the CIT under section 263 of the Act and has not adjudicated on the assessee's claim for deduction under section 10A of the Act in the light of the provisions of sub-section (9) thereof. 3.5.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. The issue before us for consideration and adjudication is whether the order of the authorities below were correct or not in disallowing the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT in the case of GE Thermometrics India Pvt. Ltd. in ITA Nos. 257 258/Bang/2008 for assessment years 2003-04 and 2005-06, which we feel squarely covers the issue before us in favour of the assessee. In this order (supra) the ITA No. 4520/MUM/2013 (Assessment Year : 2003-04) Bench, in respect of the effect of deletion of section 10B(9) of the Act (which is pari-materia to section 10A(9) of the Act) at para 11 of its order has held that even though the Finance Act, 2003 mentions that the aforesaid sub-section (9) is omitted w.e.f. 1/4/2004; in view of the fact that the said omission is different from repeal, the saving clause provided in section 6 of the General Clauses Act is not applicable, therefore, section 10B of the Act is to be read as though it never had sub-section (9) in it at all in all proceedings of the Act. 3.5.4 In coming to this view we place reliance and draw support on the decision of the Hon'ble Karnataka High Court in the case of GE Thermometrics India Pvt. Ltd. in ITA Nos. 876/2008 dated 25/11/2014 for assessment year 2003-04 on Revenue's appeal against the order of the Co-ordinate Bench of the ITAT(supra). In para 4 of this order the substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not justified in taking note of a provision which was not in the statute book and denying benefit to the assessee. The whole object of such omission is to extend the benefit under Section 10B of the Act irrespective of the fact whether during the period to which they are entitled to the benefit, the ownership continues with the original assessee or it is transferred to another person. Benefit is to the undertaking and not to the person who is running the business. We do not see any merit in these appeals. The substantial question of law is answered in favour of the assessee and against the revenue. Accordingly, the appeals are dismissed. 3.5.5 In the facts and circumstances of the case and taking into account the legal precedents, we are of the considered opinion that the aforesaid finding rendered by the Hon'ble Karnataka High Court in the case of GE Thermometrics India Pvt. Ltd. (supra) squarely applies to the case of the assessee; section 10B and 10A of the Act being pari-materia . Respectfully following the aforesaid decision of the Hon'ble Karnataka High Court in the case of GE Thermometrics India Pvt. Ltd. (supra) we hold that there being no saving clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing customer service data management back office administration services etc. to its various clients. The assessee, WNS India acquired all the business of M/s. Town Country Assistance Ltd., from WNS U.K. vide agreement executed in Mumbai on 13.01.2004 for a consideration of 1750000 pounds. The business acquired by WNS India i.e. the assessee, consisted of various contracts of M/s. Town Country Assistance Ltd with third party clients. The amount paid by the assessee was capitalized in the books of accounts and the assessee termed it as an intangible asset and claimed depreciation @25%. During the previous year, assessee claimed depreciation of ₹ 2,57,65,238/-. After taking into consideration, nature of rights acquired by the assessee and other facts, assessee was requested to explain why the depreciation should not be disallowed. We find that assessee vide letter dated 12/10/2009 made a detailed submission justifying its claim of depreciation on intangible assets. We find that the ld. AO observed that assessee had acquired running business on a lumpsum payment and the acquisition is of the business as a whole and what the assessee has acquired is a capital asset b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Assessing Officer the assessee preferred appeal before the first appellate authority. 37. After considering the submissions of the assessee learned Commissioner (Appeals) held that the right acquired by the assessee on assignment of contract is an intangible asset and accordingly allowed assessee's claim of depreciation. 38. The learned Departmental Representative, though, fairly submitted that the issue has been decided in favour of the assessee by the Tribunal in assessment year 2004-05, however, he relied upon the observations of the Assessing Officer. 39. The learned Sr. Counsel for the assessee relied upon the findings of the learned Commissioner (Appeals). 40. We have considered rival submissions and perused materials on record. Insofar as factual aspect of the issue is concerned, there is no dispute that by virtue of acquisition of M/s. Town and Country Assistance Ltd., various contracts executed by the said concern with third party clients were assigned to the assessee. It is also a fact that such acquisition took place by virtue of an agreement executed on 13th January 2004. It is also a fact on record that in assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Commissioner under section 263 of the Act. Thus, he submitted, such mistakes being in the nature of mistake apparent on the face of record should be rectified. 3. The learned Departmental Representative did not oppose the submissions of the learned Sr. Counsel for the assessee. 4. Having considered the submissions of the parties in the context of the facts and material on record, we are of the view that certain factual mistakes have crept into the order of the Tribunal as referred to hereinbefore. Since, such mistakes are apparent from record, as envisaged under section 254(2) of the Act, we proceed to rectify them by substituting Para-36 and 40 of the appeal order with the following paragraph 36 and 40, which should form part of the appeal order. 36. Brief facts are, during the assessment proceedings, the Assessing Officer while examining assessee's claim of depreciation noticed that the assessee by virtue of an agreement executed on 13th January 2004, with WNS U.K., has acquired customer contracts from a company, formerly called M/s. Town and Country Assistance Ltd., now called WNS Global Services Pvt. Ltd. WNS U.K. for a consideration of 17,50, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comes within the meaning of intangible asset as per section 32(1)(ii) r/w Explanation 3(b) of the Act. Hence, depreciation claimed by the assessee is allowable. The decisions relied upon by the learned Sr. Counsel for the assessee also supports our aforesaid view. Accordingly, we uphold the decision of the learned Commissioner (Appeals) by dismissing the grounds raised. 5. At this stage, we must make it clear, the rectification carried out by us will not have any impact on the decision taken by us on the issue of claim of depreciation. 6. In the result, misc. application is allowed to the extent indicated above. 6.4. We also find that similar decision was rendered by this Tribunal in assessee s own case for A.Y.2007-08 and A.Y.2009-10 also following the orders of the A.Y.2005-06. In view of the above, the ground Nos. 2 3 raised by the assessee are allowed. 7. Ground Nos. 4 5 raised by the assessee is challenging adhoc disallowance of professional expenses, electricity charges and miscellaneous expenses amounting to ₹ 6,57,078/-. 7.1. We have heard rival submissions and perused the materials available on record. The assessee was called upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of certain expenses made on account of specific expenditure claimed in respect of eligible unit would only go to enhance the claim of deduction u/s.80IA of the Act. The said analogy would be very much applicable for the claim of deduction u/s.10A of the Act also. It is not in dispute that the aforesaid administrative expenses were incurred by the assessee company only in respect of its eligible units. Hence, there would be no purpose that would be served by making disallowance of certain expenses for want of evidences which were incurred in respect of eligible units. In view of the above, we direct the ld. AO to delete the disallowance of administrative expenses of ₹ 6,57,078/- as it would be purely revenue neutral. Accordingly, the ground Nos. 4 5 of the assessee are allowed. 8. The last ground to be decided in this appeal is with regard to transfer pricing adjustment made by the ld. TPO and upheld by the ld. DRP by computing arm s length price for interest on outstanding receivables at ₹ 7,20,18,279/- in the facts and circumstances of the instant case. 8.1. We have heard rival submissions and perused the materials available on record. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Period beyond 60 days 148 days 8.2. Accordingly, the ld. TPO sought to impute the interest rate benchmarking at six months LIBOR + 250 basis points as on 31/03/2006 which comes to 7.64% (LIBOR rate of 5.14% + 2.5% basis points). The ld. TPO arrived at the arm s length interest amount which should have been received by the assessee on its receivables from its AEs of ₹ 7,20,18,279/- which is worked out as under:- Average receivables during the year ₹ 2,324,772,875/- Arm s length interest rate 7.64% Annual interest amount ₹ 17,76,12,648/- Interest amount for 148 days ₹ 7,20,18,279/- 8.3. This adjustment was upheld by the ld. DRP and hence, the ld. AO in the final assessment order dated 22/09/2010 adopted the same. Aggrieved by the same, assessee is in appeal before us. 8.4. The ld. AR before us pleaded that net debit (i.e. receivables from AE (-) payables to AE) should be taken for computing the arm s length interest. It is not in dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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