9911796707
TMI Blog2023 (7) TMI 1574X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of depreciation on intangibles representing acquisition of business contract Ground No. 11 Ground No. 7 Disallowance under section 14A Ground No. 12 Ground No. 8 Disallowance under section 36(1)(va) Ground No. 13 Ground No. 9 Disallowance under section 43B Ground No. 14 Ground No. 10 Short credit for Advance Tax - Ground No. 11 Denial of Foreign Tax Credit - Ground No. 12 Short credit of TDS Ground No. 15 Ground No. 13 Interest under section 234C & 234D Ground No. 16 Ground No. 14 Initiating penalty proceedings Ground No. 17 Ground No. 15 ITA 2451/Mum/2022 - A.Y. 2017-18) 3. The assessee is an IT enabled service (ITeS) provider engaged in delivering a wide portfolio of outsourcing services to its customers around the world. The assessee provides ITeS such as back-office administration, data management and contract centre management primarily to travel, banking, financial services and insurance industries. For the assessment year 2017-18 the assessee filed the return of income on 29.03.2019 declaring an income of Rs. 4,38,93,95,100. The return was processed under section 143(1) where a disallowance towards employees contribution towards ESI/PF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the year under consideration assessee has acquired 74,000 shares of WNS Global Services UK Limited from WNS (Holdings) Limited for an aggregate consideration of USD 6,55,87,500 and its equivalent value in Indian Rupees is Rs. 2,24,02,09,481. The assessee has submitted that this share purchase transaction was based on a valuation report obtained from merchant banker. As per the valuation report, the assessee has purchased share at the rate of USD 471 equivalent to Rs. 30273/- per share." 7.2.2 The assessee was therefore, asked to furnish the valuation report in this regard. The valuation report furnished by the assessee showed the calculation of value of shares which are being reproduced as under: Particulars Weights Fair Value USD Mn Income Approach:Discounted Cash Flow Method 50.0% 233.0 Market Approach: Comparable Companies Method 50.0% 236.0 Concluded Business Enterprise Value 234.5 Less:Borrowings 0.0 Less: Derivative Financial Instruments liability 2.2 Less: Other Non current liabilities 1.0 Less: Deferred Revenue 1.6 Add : Cash 18.0 Add: Derivative Financial Investments Asset 1.4 Add: Other N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 32,741/- and Rs. 19,612/- as loan during the year under consideration and the TPO imputed interest by applying the rate at 2.74%. Accordingly, the TPO arrived at an adjustment of Rs. 4,72,31,854/-. The TPO also imputed interest for the similar treatment of excess premium as loan pertaining to A.Y. 2016-17 to the tune of Rs. 1,80,70,872/-. The DRP gave partial relief to the assessee by applying interest rate at 6 months LIBOR (+) 100 basis points and accordingly the TP adjustment was reduced to Rs. 2,41,20,209/- for A.Y. 2017-18 and Rs. 1,43,77,555/- for share purchased in A.Y. 2016-17. 8. Before us, the Ld.AR reiterated the submissions made before the lower authorities. The Ld.AR submitted that the TPO has adopted actual against the projections while applying DCF method, which is not correct. The Ld.AR further submitted that the transaction is a capital account transaction with no income element and, therefore, there cannot be any TP adjustment. The Ld.AR submitted that the decision of the Hon'ble Bombay High Court in the case of Vodafone India (P) Ltd (supra) has been accepted and the CBDT vide Instruction No. 2/2015 dated 29/01/2015 has stated that he ratio decidendi of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l that date should be considered. 13. Moreover, reference to TPO on this issue is un-warranted hence, bad in law. As transaction of purchase of equity shares is a capital transaction and the same is not falling in the category of International Transaction as defined in section 92 of the Act, as there is no income arising on account of such transactions. In the light of these observations, we set aside the action of authorities below and allow ground No. 7 to 17 raised by the assessee. 11. During the course of hearing the ld AR submitted that the impugned transaction of sale of shares took place in tranches spread over 3 assessment years i.e. during AY 2016-17 9% of shares were sold, during AY 2017-18 26% and during AY 2018-19 14% were sold. Considering this fact, we are of the view that the above decision of coordinate bench in assessee's own case for AY 2016-17 is applicable for the year under consideration also. Therefore, respectfully following the above decision of the Hon'ble Tribunal, we hold that there cannot be any TP adjustment. These grounds are allowed in favour of the assessee Disallowance of depreciation on intangible assets - Ground No. 11 12. During the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP gave relief to the assessee with respect to the depreciation on customer contract with WNS UK - Town & Country to the tune of Rs. 10,88,199 by relying on the decision of the Hon'ble Tribunal in assessee's own case for AY 2006-07 and AY 2008-09. The DRP relied on its own order for AY 2012-13 to uphold the disallowance of depreciation claimed on customer contract with WCIL. With respect to depreciation claimed on customer contract and non-compete fee acquired from Value Edge and Denali DRP upheld the disallowance by relying on the decision of the Hon'ble Delhi High Court in the case of Sharp Business Systems vs CIT (2012) 27 taxmann.com 50 (Del) 15. The Ld.AR during the course of hearing submitted that the customer contracts acquired from WCIL is covered by the decision of co-ordinate bench in assessee's own case for A.Y. 2011-12. The Ld.AR further submitted that the customer contracts acquired from Value Edge Reserve Services Pvt Ltd are identical to the contracts entered into with WNS (UK) and WCIL and, therefore, should be covered by the decision of the co-ordinate bench. The Ld.AR further submitted that the depreciation on non-compete fee which is disallowed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder is that the contractual rights is a valuable commercial right and comes within the meaning of intangible asset as per section 32(l)(ii) r/w Explanation 3(b) of the Act. Applying the same ratio we hold that the depreciation claimed by the assessee on customer contracts acquired from WCIL, Value Edge and Denali are allowable. 18. With regard to the depreciation claimed on capitalization of non-compete fee, we notice that the Pune Bench of the Tribunal in the case of Serum Institute of India Ltd (supra) has held that - 13. Therefore, the limited disputed for adjudication before us relates to if the capital expenditure by way of 'non compete fee' in question is an 'intangible asset' and if the same is depreciable asset for the benefits u/s 32 of the Act. There is no dispute on the capital nature of the impugned 'non compete fee' in view of the reported judgment of the Supreme Court in case of Guffic Chem (P.) Ltd. v. CIT [2011] 332 ITR 602/198 Taxman 78/10 taxmann.com 105, which is adopted in the judgment in the case of Hari Shankar Bhartia v. CIT [2011] 203 Taxman 6 (Mag.)/15 taxmann.com 113 (Cal.). In any case, both the parties accepted the fact that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after that the protection of non-competition will not be available to the assessee. This means, this right is subject to wear and tear by the passage of time, in the sense, that after the lapse of a definite period of five years, this asset will not be available to the assessee and, therefore, this asset must be held to be subject to depreciation. Assessee would be entitled to depreciation in respect of non-compete fee which is in the nature of intangible asset. 14. From the above, it is vivid that the, by payment of non compete fee to another person to reduce the business or commercial competition for a period, the assessee acquires a right and it is a capital asset, which is a business or a commercial right as held by the above said decision of the Tribunal-Chennai Bench. Such rights are intangible ones and they are covered by the provisions of clause (ii) of section 32(1) of the Act relating 'Depreciation'. The said provisions w e f 1.4.1999 read as follows. " 32. (1) In respect of depreciation of- (i).... (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.AR also submitted that the DRP while confirming the disallowance has simply followed the order of assessment year 2016-17 and has not considered any of the submissions of the assessee. The Ld.AR brought to our attention that the co-ordinate bench of the Tribunal for A.Y. 2016-17 has deleted the disallowance made under section 14A read with rule 8D which has been relied by the DRP while confirming the AOs decision. 22. The Ld.DR relied on the order of the lower authorities. 23. We heard the parties and perused the material on record. The assessee against the exempt income earned has disallowed a sum of Rs. 12,52,224/- on its own in computation of income. The assessing officer did not accept this disallowance stating that the same is not commensurate with the income earned and arrived at a disallowance of Rs. 5,42,98,096/-. The DRP did not go into the merits of the case for the year under consideration but has sustained the disallowance by relying on its own order for AY 2016-17. It is relevant here to note that the coordinate bench in assessee's own case for A.Y. 2016-17 has deleted the disallowance made under section 14A r.w.r.8D. The relevant observations of the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 91 taxmann.com 154 (SC) has held as follows:- "41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO." 25. In view of the above Hon'ble Apex Court judgment, it is clear that no disallowance can be made u/s 14A of the Act read with Rule 8D(iii) of the IT Rules, where the A.O. failed to record dissatisfaction of correctness of the claim of the assessee. Therefore the disallowance made under section 14A r.w.r 8D(2)(iii) is deleted. This ground of the assessee is allowed Disallowance under section 36(1)(va) - Ground No. 13 26. The Ld.AR in this rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the DRP gave a direction for the Assessing Officer to verify and allow claim if the same has already been disallowed in the earlier year. It was submitted that the Assessing Officer while passing the final assessment order did not give effect to the said direction of the DRP. 29. We heard the parties and perused the material available on record. It is noticed that the Assessing Officer in the final order of assessment has retained the same disallowance made towards reversal of provisions claimed by the assessee based on the disallowance made in the earlier assessment year. It is also noticed that the DRP has given a direction to the Assessing Officer to verify the facts and the consider the return of income filed by the assessee for this year as well as the earlier year and allow the claim if it has already been disallowed. We, therefore, remit this issue back to the Assessing Officer with the direction to consider the relevant details filed by the assessee in this regard and allow the claim in accordance with law. Short Grant of TDS (Ground 15) 30. The Ld.AR in this regard submitted that the Assessing Officer did not give credit for the entire TDS claim by the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
