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TMI Blog2024 (8) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... the directions issued by the Dispute Resolution Panel ("DRP") are bad in law, void ab initio and liable to be quashed as the same have been passed in violation of the provisions of sub-section (8) to section 144C of the Act. 3. That on facts and circumstances of the case and in law, the AO/ TPO erred in making transfer pricing adjustment amounting to Rs. 1,48,30,634 to the income of the Appellant and holding that the international transaction pertaining to provision of Business Process Outsourcing ('BPO') services do not satisfy the arm's length principle ('ALP); and in doing so have grossly erred in modifying comparability analysis by: 3.1 including Inductis India Private Limited and Mentor Graphics India Private Limited as comparable companies disregarding the fact apparent from the annual report that these companies fail the related party filter applied by the TPO and also, not appreciating that these companies are not functionally comparable to the Appellant; 3.2 arbitrarily selecting functionally non-comparable companies, namely, Nihilent limited, Infobeans Technologies Limited, Manipal Digital Systems Private Limited, L&T Technology Services Ltd, R Syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts and circumstances of the case, the AO has erred in not granting the credit of taxes deducted at source (TDS'), advance tax and self-assessment tax while computing the amount of demand payable by the Appellant. 8. That on facts and in circumstances of the case, the AO has erred in computing excess interest under section 234B and 234Cof the Act while computing the amount of demand payable by the Appellant. That the above grounds and sub grounds of objections are without prejudice to each other. The Appellant craves leave to alter, amend or withdraw all or any of the Grounds of objections herein or add any further grounds as may be considered necessary and to submit such statements, documents and papers as may be considered necessary either before or during the hearing." 2. The assessee has also filed the Additional Ground of Appeal which reads as under:- "That on the facts and circumstances of the case and in law, the Ld. AO has erred in not granting the depreciation allowance of Rs. 55,46,262/- towards the intangible assets (being customer contracts as well as assembled workforce)." 3. Briefly stated facts, are that assessee i.e. Genpact was incorporated in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L & T Technology Services Ltd. 20.61% 8. Manipal Digital Systems Pvt. Ltd. (Merged) 23.03% 9. Infobeans Technologies Ltd. 25.52% 10. Mentor Graphics (India) Pvt. Ltd. 26.17% 35TH PERCENTILE 19.00% 65TH PERCENTILE 20.61% MEDIAN 19.55% Accordingly, the arm's length price of the international transaction related to provision of services and receipt of services is computed as below: Particulars Amount Operating Cost 859,713,378 OP/OC(%) 19.55% Arm's Length Margin 16,80,73,965 Arm's Length Price 1,02,77,87,343 Price shown by assessee 1,01,29,56,709 Proposed Adjustment 1,48,30,634 Based on above, an adjustment of Rs. 1,48,30,634/- is proposed in respect of provision of ITES support services. 5. Against the above order, assessee filed the objections before the DRP and DRP upheld the order of the TPO and the AO retained the same. 6. Against the aforesaid action of the AO, assessee is in appeal before us. 7. We have heard both the parties and perused the records. At the time of hearing, Ld. AR for the assessee submitted that the issues involved are squarely covered in favour of the assessee by the decision date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement and had not disputed the allocation of expenses in respect of services rendered to the assessee from its AEs. The ld AR before us argued that the ld. AO had proceeded to retest the ALP of the international transaction pertaining to support services. It is not in dispute that cost allocation key followed by the assessee was accepted by the revenue over the years. However, during the year under consideration, the ld AO had sought to disturb the cost allocation methodology in the form of 'headcount basis' which has been accepted from AY 2012-13 onwards, and proposing a disallowance of Rs 6,43,00,860/-. The ld AR also placed reliance on the CBDT Instruction No.3/2016 dated 10.03.2016. 8. Further, ld AO in his order had observed that management, administration, human resource, legal, finance and accounting functions are independently performed by Genpact Services Ltd India branch by itself. To buttress this, the ld AR submitted that the assessee was responsible for performance of these functions, the execution of the same was outsourced by the assessee to its AE, for which cost of support services are to be incurred. Further, the ld. AO had observed that the assessee had not pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresented by the employee cost, but by the number of employees employed. 4. Staff welfare cost Headcount Primarily consists of transportation cost of the employees (cab, buses etc.) which is standard for all employees. 5. Rent Area usage Charged on the basis of total area usage which is irrespective of the revenue earned. 6. Electricity and water Area usage Charged on the basis of total area usage which is irrespective of the revenue earned. 7. Repair and maintenance Area usage Charged on the basis of total area usage which is irrespective of the revenue earned. 10. It is pertinent to note that the allocations made by the assessee with regard to rent, electricity, water and repair and maintenance above were duly accepted by the AO. Only allocation of expenditure on the basis of "headcount" was sought to be disturbed by the ld AO. It was submitted that the very fact that different expenses were allocated on different basis, considering the nature of expenses, itself, demonstrate that such allocation was based on proper analysis by the assessee. We find that the assessee had explained before the lower authorities that it had considered "headcount" as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed by the revenue right from the time of survey. In fact, both the ld AO and ld DRP merely rely on the findings given in AY 2015-16. In our considered opinion, the cost allocation Key on 'headcount basis' has been duly examined and accepted by the ld TPO to be at ALP in the transfer pricing proceedings u/s 92CA(3) of the Act. The same cannot be subjected to retest by the ld AO in the peculiar facts and circumstances of the instant case , under the garb of examining the same in the context of allowability of deduction u/s 37 of the Act as argued by the ld DR before us. No doubt, the scope of ld TPO is only to ensure whether the pricing of services is at arm's-length or not. But for that purpose, the cost sharing agreement, cost allocation keys used thereon and reasons for such usage of allocation keys are very much material for the ld TPO to examine and conclude whether the pricing thereon is at ALP or not. In the instant case, all these documents were duly placed on record before the ld TPO and the same was accepted to be at ALP by the ld TPO. It is also pertinent to note that the reference u/s 92CA(1) of the Act to the ld TPO was made by the ld AO after the survey proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on its behalf. In order to verify the genuineness of the aforesaid claim of receipt/payment of reimbursement of expenses the A.O called upon the assessee to furnish the requisite details in respect of the same. In reply, it was submitted by the assessee that Cable and Wireless group had two entities operating in India viz. (i) Cable And Wireless India Ltd. (i.e the assessee); and (ii) Cable & Wireless Networks India Pvt. Ltd. (for short 'CWNIPL). It was stated by the assessee that CWNIPL was engaged in the business of carrying on telecommunication networking services which included providing of National Long Distance (NLD) and International Long Distance (ILD) services. It was submitted by the assessee that administrative functions of finance, human resources for both of the aforesaid entities were managed by common staff which was under the payroll of CWNIPL. On the basis of the aforesaid facts, it was the claim of the assessee that the expenses which were incurred in respect of the aforesaid administrative functions were cross charged to it by CWNIPL on cost to cost basis. As per the details furnished by the assessee, it was noticed by the A.O that the assessee had during the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of determining the Arm's Length Price (ALP) of the international transactions of the assessee as were detailed in its 'Audit report' in 'Form No. 3CEB'. On the basis of his order passed under Sec. 92CA(3), dated 25.01.2016, the TPO had held the international transactions of the assessee to be at arm's length. It has been the claim of the assessee before the lower authorities, and also before us, that once the TPO had held the transaction of reimbursement of expenses to be at arm's length, the A.O as per Sec. 92CA(4) was obligated to pass an order in conformity with the ALP determined by the TPO. As such, it was the claim of the Id. A.R, that after the TPO had held the reimbursement of expense by the assessee to its AE viz. CWNIPL to be at arm's length, the A.O was divested of his jurisdiction to relook into the basis of allocation of such expenses, as he as per Sec. 92CA(4) of the Act remained under a statutory obligation to pass the order in conformity with the ALP determined by the TPO. (ii). We have given a thoughtful consideration to the aforesaid claim of the assessee, and are persuaded to subscribe to the aforesaid contention so advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its AE viz. CWNIPL, therefore, a relooking into the basis of allocation of such expenses inter se the assessee and CWNIPL would clearly militate against the express provisions of Sec. 92CA(4) of the Act. Our aforesaid view, that the A.O as per the mandate of Sec. 92CA(4) is obligated to compute the income of the assessee in conformity with the ALP so determined by the TPO, is fortified by the judgment of the Hon'ble High Court of Bombay in Vodafone India Service (P) Ltd. Vs. Union of India (2013) 359 ITR 133 (Bom) and that of the Hon'ble High Court of Delhi in CIT Vs. Oracle India (P) Ltd. (2011) 243 CTR 103 (Del). Also, support is drawn from the order of the ITAT, Delhi in DCIT vs, YKK India Pvt. Ltd. Accordingly, on the basis of our aforesaid observations, we are of a strong conviction that the rejection of the allocation key of reimbursement of expenses by the assessee to its AE viz. CWNIPL after the arm's length price of the same had been accepted by the TPO, would clearly be contrary to the mandate of law. 13. Further, we find that the allocation key based on 'headcount' was accepted in the past by the revenue as under:- AY Order passed u/s Order dated 2011-12 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case and in law, the Ld. AO has erred in not granting the depreciation allowance of Rs. 73,95,017 towards the intangible assets (being customer contracts as well as assembled workforce." 17. We find that in AY 2010-11 this Tribunal in assessee's own case vide its letter dated 31.01.2023 had held that the cost of intangible assets to be capital expenditure and accordingly granted depreciation at the rate of 25%. This additional Ground is only consequential to the finding given by the tribunal. This would be evident from the narration of the following facts qua this issue :- "During the FY 2009-10 (relevant to AY 2010-11), the Appellant acquired a business of third- party debt collection services as well as part of the analytics business from Genpact India Pvt Ltd ('the seller entity') for a total sum of Rs. 62,12,70,648 vide agreement to sell entered into between the Appellant and Genpact India. Out of the total purchase consideration of Rs. 62, 12,70,648, an aggregate sum of Rs. 22, 16,00,276 (paid towards acquisition of customer contracts as well as the assembled workforce) was claimed as revenue expenditure by the Appellant on its return of income (& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2017-18. However, the said depreciation of Rs. 73,95,017 has not been allowed to the Appellant vide the captioned assessment order, dated June 27, 2022, passed for the AY 2017-18. Hence, it is submitted that the Appellant should be allowed the depreciation allowance of Rs. 73,95,017 on the intangible assets, in line with the assessment order upheld by the Hon'ble ITAT for AY 2010-11." 18. In view of the above, we direct the ld AO to grant depreciation consequent to the order of the tribunal in AY 2010-11 and allow the additional ground raised by the assessee." 9.3 Since it is not a case where facts are different, hence, respectfully following the aforesaid precedent, we direct the Assessing Officer to grant the relief, consequent to the aforesaid earlier decision of the Tribunal and accordingly, we allow the Additional Ground raised by the Assessee. 10. Ld. AR for the assessee submitted that Ground No. 7 is relating to directions required to be given to the Assessing Officer in not granting the credit of taxes deducted at source (TDS), advance tax and self-assessment tax while computing the amount of demand payable by the assessee. 10.1 Upon careful consideration, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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