TMI Blog2020 (3) TMI 1418X X X X Extracts X X X X X X X X Extracts X X X X ..... dered view that the addition made by the TPO cannot be sustained. We further note that the DRP has also erred in not following any of the prescribed method and agreed with the incremental benefit approach adopted by the TPO by taking the actual figures up to A.Y. 2014-15 and for subsequent year directing the TPO to deflate the projected revenue figures by applying average rate of 22.68%. The case of the assessee is supported by case of Tecumseh Products India (P) Ltd. [ 2014 (4) TMI 816 - ITAT HYDERABAD] In the case of Firmenich Armatics India (P) Ltd. [ 2018 (9) TMI 1007 - ITAT MUMBAI] as held that TPO is duty bound to determine arm s length price of international transaction by adopting one of the methods prescribed under statute and cannot deviate from restrictions/conditions imposed under statute. It further held that there is no provisions under the Act empowering TPO to determine arm s length price on estimate basis, that too, by entertaining doubts with regard to business expediency of payment and in process stepping into shoes of the AO for making disallowance u/s. 37(1) We are of the view that the adjustment as made by the TPO/DRP is without any jurisdiction and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own case A.Y. 2003-04 respectfully, following the said order allow the ground raised by the assessee. Deduction u/s 10A after setting off the losses of certain STP/SEZ units against the profits of the STP/SEZ units of the assessee - HELD THAT:- As decided in own case for A.Y. 2005-06 [ 2019 (1) TMI 1128 - ITAT MUMBAI] decided the issue in favour of the assessee as relying on case of Yokogawa India Ltd. [ 2016 (12) TMI 881 - SUPREME COURT] Disallowance of deprecation on intangible assets acquired by the assessee on acquisition of customer contracts, which do not fall under the definition of intangible assets u/s. 32(1) - HELD THAT:- We find that co-ordinate Bench of the Tribunal has decided identical issue in favour of the assessee in its own case for A.Ys. 2005-06 [ 2019 (1) TMI 1128 - ITAT MUMBAI] there is no dispute that by acquiring M/s. Town and Country Assistance Ltd. the assessee has also acquired contractual rights which, no doubt, is a valuable commercial right. 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. - Decided in favour of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not given effect to the order of the DRP. We direct the Assessing Officer to give effect to the order of the DRP and after verifying the claim of the assessee, allow the same to the extent available in terms of the directions of DRP. This ground is allowed. Disallowance of depreciation on the acquisition of MSA from foreign AE WCIL - HELD THAT:- Since for A.Y. 2011-12 we have already decided the issue in favour of the assessee holding that the price paid by the assessee to foreign AE on account of purchase of MSA is at arm s length price and is a commercial right. Since this is a intangible assets being commercial rights within the meaning of section 32(1)(ii) of the Act and eligible for depreciation. Accordingly , we hold that depreciation is to be allowed to assessee. The AO is directed accordingly by setting aside the order of DRP on this issue. Disallowance of depreciation on intangible assets - HELD THAT:- Commercial rights acquired by the assessee are in the nature of intangible asset as per section 32(1)(ii) read with Explanation 3(b) of the Act and depreciation is allowable on the said rights. Accordingly, we allow the grounds raised by the assessee. Grounds are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 144C(5) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relating to assessment years 2011-12 2012-13 respectively. 2. We shall first take up appeal in ITA No.1955/Mum/2016 for A.Y. 2011-12, wherein following Grounds of appeal have been raised: Based on the facts and in the circumstances of the case and in law, the Appellant respectfully craves leave to prefer an appeal against the order passed by the Deputy Commissioner of Income-tax, Circle - 14(3)(1), Mumbai [ learned AO], under Section 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 ('Act') ('Assessment order'), in pursuance of the directions issued by Dispute Resolution Panel - 2 ('Hon'ble DRP'), Mumbai, on the following grounds : On the facts and circumstances of the case and in law, the Learned AO, based on the directions of the Hon'ble DRP has: General Ground 1. The learned AO/Hon'ble DRP erred in determining the total taxable income of the Appellant for AY 2011-12 at Rs 85,35,18,207 instead of the income offered by the Appellant for the subject AY under normal provisions of the Act in its income-tax return. 2. The learned AO has erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble DRP erred in following inconsistent approach and holding that the profits derived by eligible STP units (under section 10A of the Act) should be computed without considering the gain from forex derivative contracts. 9. The learned AO erred in not setting off brought forward business losses and unabsorbed depreciation pertaining to earlier years to the tune of Rs. 189,06,58,168 (as per the return of income) against the assessed total income for the assessment year under consideration and carry forward of the balance business loss and unabsorbed depreciation to future years as per the provisions of the Act. 10. The learned AO has erred in initiating penalty proceedings under Section 271(1)(c) of the Act. 3. The facts in brief are that that assessee i.e. WNS Global Services Private Limited, hereinafter referred to as WNS India. The assessee filed its return of income on 30.11.2011 declaring total income at Rs Nil, which was processed u/s. 143(1) of the Act. Subsequently, the case was selected for scrutiny and statutory notices were duly issued and served upon the assessee. It is engaged in the business of providing information technology enabled business process outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year 2009, as a part of restructuring exercise carried out by WNS, all Indian legal entities servicing Aviva under the MSA were merged into the assessee under the Scheme of Amalgamation sanctioned by the Hon ble Bombay High Court vide its order dated 11.08.2009. With the merger of various WNS group Indian legal entities servicing Aviva having merged into one entity, assessee became the primary entity servicing the MSA in India. The assessee also became liable for entire service deliveries not only in India but also in Sri Lanka and thereby responsible for all the economic profits derived from the Sri Lankan operations of the MSA. Further pursuant to the purchase of MSA, the 15:85 arrangement between WCIL and WNS Sri Lanka was terminated and new agreement was entered into by the assessee with WNS Sri Lanka under which WNS Sri Lanka operated on a cost plus mark-up basis. 6. The learned TPO determined the ALP based on incremental benefit approach. He determined the ALP by considering only incremental value earned by WNS India by replacing actual billings for the period 1.4.2011 to 31.03.2014. Accordingly, by passing an order u/s. 92CA(3) of the Act on 30.01.2015 made an adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 233.72 68.58 22.68 8.19. The DRP is constrained to note that the revenues are overprojected by more than 33.27% for the F.Y. 2013-14, if the projected revenue is used as a base. It is also pertinent to note that just for 3 years the revenues have been over-valued by an amount of USD 68.58 million. In these circumstances, the DRP has come to a conclusion that the projected figures provide by the assesses compandor the valuation are highly inflated. Thus, the entire valuation Report is vitiated because of the wrong projected revenues provided by the assesses company. 8.20 It is also noted by the DRP that the revenues are over-projected by more than 49.86% for the F.Y, 2013-14, if the projected revenue is used as a base. The relevant calculation for the various years is tabulated below:- S.No. Financial Year Projected Revenues (In Million USD) Actual Revenues (In Million USD) Difference (In Million USD) % Overvaluation with Actuals as Base 1 2011-12 88.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signed an 'extension of the deal for 6 more years without paying any upfront fees, therefore, the incremental revenues for these 6 years should also be taken into account In this regard, the DRP has noted that the initial MSA was only for 100 months, out of which 33 months have already elapsed. Thus, after entering into the 'Novation and Amendment Agreement', the assessee company has got the contract for the balance 67 months only. Neither, the MSA dated 11.7.2008 nor the 'Novation and Amendment Agreement dated 24.3.2011 talks of any extension of the provision of services beyond the period of 8 years and 4 months. In any case, the price paid by the assessee company to WCIL is for the remaining period of 67 months and not for the extension of the agreement beyond the stipulated period of 100 months. 8.25 For the purpose of determining the ALP, the DRP is of the view that actual figures of revenue available on record should be used, as the figures of projected revenue of the assessee company are highly unreliable. Further, for the next two years for which the actuals are not available, the AO/ TPO are directed to get the actuals for F.Y. 2014-15 from the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r functions performed by such persons or such other relevant factors which may be prescribed by the Board 9. The learned AR further submitted that while servicing of the MSA, WCIL subcontracted the work under the MSA to various legal entities that were part of the WNS Group across India and Sri Lanka on a non-exclusive basis. Accordingly, the contract for MSA was valued by an independent valuation expert, who valued the MSA at a price that a third party service provider would be willing to pay for the purchase of MSA from WCIL. The learned AR further submitted that the independent valuation report obtained by the assessee to price the customer should be considered as the ALP for the following reasons: i. Since the valuation was based on expected earnings from the MSA for the balance unexpired period of the MSA and factoring suitably the expected growth in revenues from Aviva Singapore over a period of time, Mutli period Excess Earning Method ('MEEM') was selected as the best method for the valuation ii. MEEM determines the fair value i.e. the price at which an asset / liability is to be transferred between market participants as on the date of transfer. Market pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of adhoc valuation without having appointed a valuation expert to determine the value of the MSA. In defence of his arguments, learned AR place reliance on the following decisions: Tecumseh Producs India (P.) Ltd. vs. ACIT (ITA 1686/Hyd/2010) Global Payments Asia Pacific (India) (P.) Ltd. vs. Dy. CIT Social Media India Ltd. vs. ACIT (28 ITR (T) 212) 10. The learned AR also submitted before the Bench that for securing this contract of MSA WCIL had paid Aviva Singapore an incentive payment of GBP 80 million with a minimum business of 3,000 full time employees for the entire contract period of 8 years and 4 months. The learned AR submitted that such type of incentive payments to the customer are fairly common in the IT/BPO industry, especially in the context of large, multi-year outsourcing contracts. The learned AR submitted that given the upfront fees by WCIL to Aviva Singapore, it may be appreciated that the minimum amount that any seller would expect to recover from the sale of MSA is the portion of the incentive payment which is akin to cost incurred by WCIL to acquire the customer contract with Aviva at first place and remains attributable over the unexpired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation has been carried out based on management s projections, the same should be considered as reasonable. The learned AR placed his reliance on the decision of the Tribunal in the case of DQ (International) Ltd. vs. ACIT (TA 151/Hyd/2015). 12. The learned AR also submitted that the assessee has signed an extension of the MSA in November 2014 well in advance of the date on which the MSA would have come up for renewal in November 2016. Given this, as an alternative, the total expected earnings from the extended period of the contract from November 2016 to March 2022 ( which has already been sighed up in November 2014) should be considered as an incremental benefit accruing to the assessee from the actual working of the contract. He further contended that the total incremental benefits only in respect of the extension of the contract with Aviva Singapore amounts to USD 57.61 million. The learned AR contended that by ignoring the said factors, the TPO has computed the value of the contract on an approach, which is contradictory, erroneous and deserves to be set aside. 13. The learned AR submitted that DRP has made an adhoc estimate by reducing the projections by an average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. Based on the above, the learned AR submitted that 85% of the client billings for the work done by WNS Sri Lanka as reduced by the cost mark-up paid by the assessee to WNS Sri Lanka is another incremental benefit for the assessee from the purchase of the MSA from WCIL. Total incremental earnings on this account amounts to USD 10.14 million (calculation thereof is placed at page 803 of the paper-book. 16. Summarising the benefits which was calculated at USD 111.14 million, the learned AR submitted that the incremental benefits of USD 111.14 million on the basis of actual is more than the price of USD 110 million paid by the assessee. Further the incremental benefits as calculated by the assessee based on projected revenues from the valuation report and the customer relationship as submitted before the TPO and the learned DRP comes to USD 125.19 million, which is higher than the price paid by the assessee for purchasing the contract from WCIL. The learned AR also submitted for the Bench that incremental benefit arising from the purchase of MSA including value attributable to extension of contract works out to USD 129.14 million, which is also more than the price paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d adjustment made and the order of the DRP, who has dealt with the issue in a detailed manner as is apparent from pages 3 to 27 of the DRP order. On the issue of valuation commercial rights, the independent valuer i.e. American Appraisal has estimated the fair value of MSA for its remaining life as of the valuation date. The assessee has stated that in the TP study, he has followed CUP as the most appropriate method with the value determined under the valuation report given by an independent valuer as a valid CUP. The learned DR stated that the assessee has gone to extent of saying that independent valuation report is a valid CUP which is not factually correct. There are assumptions in the valuation report which has been considered by the valuer while determining the value. These assumptions are embedded with assumptions and presumptions. By referring to various pages of the Americal Appraisal report, learned DR also referred to the transfer pricing report of the assessee and pointed out that the assessee clearly outlined that none of the direct methods can be applied to establish Arm's length value of the companies international transaction, due to paucity of comparables. Wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery rare that these data were not available, makes an alibi for the assessee. He further submitted that since it was laced with too many assumptions, their limitations are inherent. Now with the hindsight if the actuals are available, then, considering actual cost on the basis of estimates and projections do not hold good and make sense. The method employed by the assessee has various limitations and on the TP adjustment, the assessee can have reasons for not imposing the penalty, if the assessee can show the bona fide of data given, but the logic that TP adjustment itself cannot be operated is not a Sound logic, as the process is for determining the actual cost of the asset which is relevant for determining depreciation in future years. The learned DR relied heavily on the orders of the TP and the learned DRP in support of the transfer pricing adjustment proposed to the income of the assessee and prayed before the Bench that the order of the DRP may kindly be affirmed so that the assessee is not given the benefit of depreciation in the subsequent years on the cost, which is hypothetical and unreasonable. 20. We have heard the rival parties and perused the material on record as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of the coordinate bench of IT A T, Mumbai in the case of Ballast Nedam Dredging (supra) to submit that in the absence of any contrary certificate, the certificate relied upon by Assessee has to be accepted. In the said case, Assessee has filed two certificates and TPO tweaked with two certificates so as to arrive at the so called difference in the ALP. On those facts, it was held that if proper analysis was made there would not be any difference from the price paid to the price determined, as demonstrated before the TPO both on the basis of the third party quotations which are considered as internal CUP and the VG Bomv Certificates as external CUP. Under both the workings Assessee is able to justify the price paid and on this reason also, we have to accept Assessee 's contentions. Similarly, in the case under consideration, Assessee justified the price paid by way of a certificate which can be considered as external CUP. Since TPO/DRP did not rely on any other certificate and in the absence of any contrary information, price paid by Assessee, which was lesser than the value mentioned in the certificate can be accepted as such. For these reasons, we allow Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such persons or such other relevant facts which may be prescribed by the Board... The Hon ble Court further emphasized that Revenue must operate within the boundaries of law, by observing as under: This Court is of opinion that to apply the TNMM, the assessee's net profit margin realized from international transactions had to be calculated only with reference to cost incurred by it, and not by any other entity, either third party vendors or the AE. Textually, and within the bounds of the text must the AO/TPO operate, Rule 10B(1)(e) does not enable consideration or imputation of cost incurred by third parties or unrelated enterprises to compute the assessee's net profit margin for application of the TNMM. Rule 10B(1)(e) recognizes that the net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise ... (emphasis supplied). It thus contemplates a determination of ALP with reference to the relevant factors (cost, assets, sales etc.) of the enterprise in question, i.e. the assessee, as opposed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re with the valuation of an expert. ... 22. We find merit in the contention of the learned AR that valuation of an intangible requires expertise and knowledge in the domain of valuation principles, markets and business. Even if the TPO/DRP were not in agreement with the variables assumed/valuation undertaken by the independent valuer, they ought to have desisted from their own exercise of adhoc valuation without having appointed a valuation expert to determine the value of the MSA. The case of the assessee is supported by Tecumseh Products India (P.) Ltd. (supra), wherein the Bench has held as under: ... This being so, the value paid by Assessee duly supported by valuation report cannot be ignored. In case of any doubt on the matter, the best way is to refer the machinery to the valuation officer under the IT Act. Without doing so, the TPO or the DRP has no base to determine the value at Nil and consequently denying the depreciation claim of the assessee while at the same time, the payment of custom duty and countervailing duty are considered as value of cost. ... The learned counsel in the course of arguments relied on the decision of the coordinate bench of IT AT, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WCIL is at arm s length standard and consequently, no adjustment to the value of international transaction is required to be made. 25. On the issue of projections not to be substituted by actual and hindsight ought not to affect the valuation report as submitted by the learned AR, we note that on the specific valuation date, the valuation has to be done on the basis of certain parameters or forecasts made as at the point of time of valuation. Thus, any future happening/occurrence based to the date of valuation canoe be foreseen and, therefore, the argument of the assessee merits consideration that whatever price has been determined in the valuation report needs no further adjustment as that events were not foreseeable on the date of valuation. The case of the assessee is supported by the decision of the Tribunal in the case of DQ (International) Ltd. vs. ACIT , wherein it has held as under: - the valuation method adopted for determining the future years cannot be replaced with actuals down the line, the valuation will go either way. When it goes to north, the revenue may adopt the same time, when it goes to south, the assessee may adopt, there won't be any consistency. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not find the approach of TPO in determining the value of the international transaction based on incremental benefit from purchase of MSA as correct unless the value of customer relationship along with other incremental benefits/actual of profits are considered. We note that the incremental benefit in respect of customer relationship with Aviva Singapore works out to USD 39.61 million. In view of these facts, the value of contract based on the approach as adopted by the TPO is self contradictory and cannot be sustained. 27. In view of the above facts and circumstances, we are inclined to set aside the order of DRP and direct the AO to delete the adjustment made to the cost of MSA. The ground raised by the assessee is allowed. 28. The issue raised in ground no.5 pertains to disallowance of deduction u/s. 10A of the Act amount to Rs 30,80,76,458/- in respect of Pune Unit II under the provisions of erstwhile subsection (9) of Section 10A of the Act on account of change in shareholding of the assessee during A.Y. 2003-04. 29. At the outset, learned counsel for the assessee submitted that the issue is squarely covered by the decision of the co-ordinate Bench in assessee s own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of intent of the legislature for omitting sub-section (9) of section 10A of the Act was that the concessions extended to the IT Sector under sections 10A 10B of the Act are to be continued as originally envisaged. In this context, the present position as per law that such companies as currently covered by these tax exemption lose these benefits upon change in ownership is not logical, and therefore, these restrictions are being removed so that the benefit of such tax exemptions will remain even in cases of amalgamation or demerger. In this regard, we refer to the judgment in the case of the Bangalore Bench of the 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 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 savi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pending proceeding for the same purpose may be initiated under the new provision. 8. Admittedly, in the instant case, there is no saving clause or provision introduced by way of an amendment while omitting sub-section (9) of Section 10B. Therefore, once the aforesaid section is omitted from the statute book, the result is it had never been passed and be considered as a law that never exists and therefore, when the assessment orders were passed in 2006, the Assessing Officer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09, vide order dated 16.01.2019. The learned AR therefore, prayed that the issue may kindly be decided in favour of the assessee. He also pointed out that the DRP has issued directions in A.Y. 2012-13 following the co-ordinate Bench decision in the case of the assessee itself. On the other hand, the learned DR, relied on the orders of the authorities below. 33. After hearing both the parties, we observe that the issue is squarely covered in favour of the assessee in its own case for A.Ys 2005-06 to 2008-09. The relevant operative part of the order for A.Y. 2005-06 is reproduced as under: 52. We have considered rival submissions and perused materials on record. In our considered opinion, the issue does not required deliberation at length in view of the ratio laid down by the Hon'ble Supreme Court in Yokogawa India Ltd. (supra). In fact, the DRP following the aforesaid decision of the Hon'ble Supreme Court has decided the issue in favour of the assessee in assessment year 2012 13, vide order dated 26th December 2016. In view of the aforesaid, we do not find any infirmity in the decision of the learned Commissioner (Appeals) on the issue. Ground raised is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uphold the decision of the learned Commissioner (Appeals) by dismissing the grounds raised. Respectfully, following the said order, we set aside the order of the DRP and allow the ground raised by the assessee. 36. The grievance of the assessee in ground no.8 is with regard to the AO/DRP following inconsistent approach and holding that the profits derived by eligible STP units (u/s. 10A of the Act) to be computed without considering the gain from forex derivative contracts. 37. The facts in brief are that the assessee has entered into foreign exchange forward and option contracts to cover the risks associated with the change in foreign exchange rates on forecasted revenue dominated in foreign currencies and on revaluation of monetary assets and liabilities. The profit and loss arising out of the foreign currency forward and option contracts was recognized in the year in which settlement took place. During A.Y 2011-12, an amount of Rs 63,50,36,264/- representing net realised foreign currency exchange gains on settlement of derivative contracts was offered to tax while computing the income from business or profession not eligible for deduction u/s. 10A of the Act. During th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of law to maintain the export proceeds in the EEFC account but, this is a facility which is made available by the Reserve Bank. The transaction of export is complete in all respects upon the repatriation of the proceeds. It lies within the discretion of the exporter as to whether the export proceeds should be received in a rupee equivalent in the entirely or whether a portion should be maintained in convertible foreign exchange in the EEFC account. The exchange fluctuation that arises, it must be emphasized, is after the export transaction is complete and payment has been received by the exporter. Upon the completion of the export transaction, -what the seller does with the proceeds, upon repatriation, is a matter of his option. The exchange fluctuation in the EEFC account arises after the completion of the export activity and does not bear a proximate and direct nexus with the export transaction so as to fall within the expression derived* by the assesses in sub-s. (1) of s. 80HHC. Both the AO and the CIT(A) have made a distinction, which merits emphasis. The exchange fluctuation, as both those authorities noted, arose subsequent to the transaction of export. In other words, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this issue. 16.5 Further, the DRP has noted that the AO has not made any variation to the returned income on this issue. On the claim of the assesses company that the principle of consistency should have been followed by the AO, the DRP has noted that such a claim has not been accepted by the assessee company in the earlier year and is being contested. Even legally, in the case of Goetze (India) Ltd. (284 ITR 323), the Hon'ble Supreme Court has held that the Assessing Officer cannot entertain any claim for allowing deduction resulting in a reduction in the total income returned, which is not claimed in the original return or a revised return. Accordingly, no directions are given to the AO/ TPO on this issue. 38. The learned AR vehemently submitted before the Bench that the AO has erred in adopted different positions with regard to the issue of whether profits derived from eligible units should be computed after considering the loss/gain from forex derivative contracts and should be consisted with the position with the position adopted for the earlier assessment years. In defence, the learned AR relied on the following decisions: Radhasoami Satsang vs. CIT [1992 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly. In other words, while computing deduction u/s. 10A, the AO did not treat the said gain as part of the profit from export activity for the purpose of deduction u/s. 10A. However, during the year the AO treated the said gain differently. In other words, while computing deduction u/s. 10A, the AO did not treat the said gain as part of the export activity for the purpose of deduction u/s. 10A of the Act. Apparently, there being no change in the facts and circumstances during the year, we are quiet in agreement with contentions of the learned AR that the principle of consistency should be followed and forex gain should be treated as profit from export activity and deduction should be allowed u/s. 10A of the Act. The case of the assessee is supported by the decision of the Apex court in the case of Radhasoami Satsang vs. CIT (supra), wherein the Hon ble Court has held that while dealing with the principle of consistency and principle of res judicata, unless there is a material change justifying to take a different view in the matter, shall not be appropriate for the Revenue to take a contrary view. Similarly, Hon ble Bombay High Court in the case of CIT vs. Darius Pandole (supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness loss and unabsorbed depreciation to future years as per the provisions of the Act. 43. After hearing the parties and on perusal of the material available on record, we find that the learned DRP has directed the Assessing Officer to verify the claim of the assessee regarding the business and depreciation loss and allow the same to the extent available as per law. However, the Assessing Officer has not given effect to the order of the DRP. We direct the Assessing Officer to give effect to the order of the DRP and after verifying the claim of the assessee, allow the same to the extent available in terms of the directions of DRP. This ground is allowed. 44. Ground no.10 is premature and, hence, dismissed. Appeal is partly allowed. 45. We shall now take up the appeal in ITA No. 2257/Mum/2017 for A.Y. 2012-13, wherein following grounds have been raised: General Ground 1. erred in determining the total taxable income of the Appellant for AY 2012-13 at Rs 216,45,38,415 instead of the income offered by the Appellant for the subject AY in its income-tax return of Rs. NIL Transfer Pricing Grounds 2. erred in not providing adequate opportunity of being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STP units (under section 10A of the Act) should be computed without considering the gain from forex derivative contracts. (c) Without prejudice to the position adopted by the Appellant in the tax return, the learned AO/Hon'ble DRP erred in not apportioning the foreign exchange loss between the STP and SEZ units of the Appellant, though the foreign exchange loss can be said to be attributable to export activity carried from STP and SEZ units. 8. (a) The learned AO/Hon'ble DRP erred in making a disallowance of Rs 2,63,20,568 under Section 14A of the Act read with Rule 8D of the Income tax Rules, 1962. (b) The learned AO erred in making a disallowance under Section 14A of the Act without giving an opportunity of being heard to the Appellant to explain the nature of suo moto disallowance of expenses in detail, thereby violating the principles of natural justice. (c) Without prejudice to the above Ground 8 (b), the learned AO/Hon'ble DRP erred in invoking the provisions of Section 14A(2) read with Rule 8D of the Rules, without appreciating the fact that the Appellant has suo moto disallowed Rs 7,53,750 under Section 14A of the Act. (d) Without prejudice to all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n same on Written Down Value basis amounting to Rs 45,85,659/- in relation to the commercial rights acquired from WNS UK and Rs 1,22,90,43,750/- qua the commercial rights acquired from WCIL in terms of section 32(1)(ii) of the Act and accordingly, added the same to the income of the assessee. At the outset, the learned counsel for the assessee submitted that the issue involved in these grounds is covered by the order of the Tribunal in its own case for A.Ys. 2005-06 and 2008-09. There being no material change in the facts and circumstances of the case in the year under consideration, depreciation may kindly be allowed on business/commercial rights. 48. We have heard the parties and perused material available on record. We find that the issue involved in these grounds is covered in favour of the assessee by the order of the Tribunal for A.Ys. 2005-06 and 2008-09, wherein it has been held as under: '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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h regard to Ground no.8, facts in brief are that during the year assessee earned dividend income from Mutual Funds amounting to Rs 2,09,64,709/- which was claimed as exempt u/s. 10(35) of the Act. The assessee incurred direct expenses in relation to the said income amounting to Rs 7,53,750/- and the same was suo moto disallowed u/s. 14A of the Act. The said disallowance was made in consonance with the report of the Tax Auditor given in Form 3CD in terms of provisions of section 44AB of the Act. The Assessing Officer in the draft assessment order has observed that the assessee has made huge investment in F Y 2011-12 and the suo moto disallowance made is not acceptable as it is not in accordance with the provisions of section 14A read with Rule 8D of the Rules. The Assessing Officer further held that disallowance u/s. 14A of the Act should be made without any discretion in accordance with the mechanism provided in Rule 8D of the Rules. The order of the Assessing Officer was affirmed by the DRP by holding that the Assessing Officer has recorded his satisfaction with respect to the correctness of the claim made by the assessee and, thus, confirmed the addition. 51. The learned AR su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein the Bench has held that if any interest expenditure, which is directly relatable to any particular income or receipt, such receipt expenditure is not to be considered under Rule 8D(2)(ii). He also submitted that the assessee s own funds were far more than the investments made in the Mutual Funds by referring to the audition accounts, wherein the own funds were Rs 532.52 crores vis- -vis total investments were Rs 134.22 crores as on 31.03.2012. He submitted that no disallowance is called for by relying on a series of decisions viz. CIT vs. Reliance Utilities Power Ltd. [2009] 313 ITR 340 (Bom); Ultratech Cement Ltd. vs. ACIT [2017] 186 TTJ 547; Daga Global Chemicals Pvt. Ltd. vs. ACIT [2017] 46 ITR 70 (Mum) and Gujarat Fluorochemicals Ltd. vs. DCIT [2018] 97 taxmann.com 10 (Ahmedabad). Without prejudice to the above submissions, the learned AR further submitted that the disallowance u/s. 14A read with Rule 8D cannot exceed the exempt income earned by the assessee. He also submitted that the disallowance made u/s. 14A cannot be extended to the book profit as calculated u/s. 115JB of the Act as is apparent from the provisions of section 14A, which can only be applied for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DRP and direct the Assessing Officer to delete the disallowance. We are not dealing with the other contentions of the assessee, as we have already allowed the ground on first plea. 54. In respect of Ground no.9, we note that the issue in this ground is qua not allowing the set off of brought forward business losses and unabsorbed depreciation relating to earlier years to the tune of Rs 142,46,11,016 as per the income tax return filed against the assessed income for the instant assessment year and also allowing the carry forward of balance unabsorbed losses and depreciation to subsequent year. We note that the DRP has already issued directions to the Assessing Officer to verify the loss and unabsorbed depreciation as under: 16.1 This ground of objection relates to set off of brought forward business loss and unabsorbed depreciation. In this regard, the DRP has noted that factual position regarding brought forward business loss and depreciation is not ascertainable from material on its record. Thus, the Assessing Officer is directed to verify the claim of the assessee from the original records in his position, regarding the business and depreciation loss allow the same t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
