Income Tax Appellate Tribunal - Delhi
M/S. Concentrix Daksh Services India ... vs Acit, New Delhi on 4 February, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHE 'I-1', NEW DELHI
Before Sh. N. S. Saini, Accountant Member
And
Sh. Sudhanshu Srivastava, Judicial Member
ITA No. 2096/Del/2015 : Asstt. Year : 2010-11
M/s Concentrix Daksh Services India Vs Deputy Commissioner of
Pvt. Ltd., (Erstwhile known as IBM Income Tax, Circle-4(1),
Daksh Business Process Services Pvt. New Delhi
Ltd.), 4th Floor, Tower-B, Building No.
8, Cyber City, DLF, Phase-II,
Gurgaon, Haryana
(APPELLANT) (RESPONDENT)
PAN No. AABCD4187D
ITA No. 2495/Del/2015 : Asstt. Year : 2010-11
Deputy Commissioner of Vs M/s Concentrix Daksh Services India
Income Tax, Circle-4(1), Pvt. Ltd., (Erstwhile known as IBM
New Delhi Daksh Business Process Services Pvt.
Ltd.), 4th Floor, Tower-B, Building No.
8, Cyber City, DLF, Phase-II,
Gurgaon, Haryana
(APPELLANT) (RESPONDENT)
PAN No. AABCD4187D
ITA No. 1560/Del/2016 : Asstt. Year : 2011-12
M/s Concentrix Daksh Services India Vs Assistant Commissioner of
Pvt. Ltd., DLF IT SEZ, Building No. Income Tax, Circle-6(2),
14, Tower D, 17th Floor, DLF Cyber New Delhi
City, Sector 24 & 25A, DLF Phase-III,
Gurgaon, Haryana-122002
(APPELLANT) (RESPONDENT)
PAN No. AABCD4187D
Assessee by : Sh. G. C. Srivastava, Adv.,
Sh. Suvinay Kr. Dash, Adv. &
Sh. Parichay Solanki, CA
Revenue by : Sh. Sanjay I. Bara, CIT DR
2 ITA Nos. 2096 & 2495Del/2015
ITA No. 1560/Del/2016
Concentrix Daksh Services India Pvt. Ltd.
Date of Hearing :29.01.2019 Date of Pronouncement : 04.02.2019
ORDER
Per N. S. Saini, AM:
ITA No. 2096/Del/2015 and ITA No. 2495/Del /2015 are
cross appeal s fil ed by the assessee and revenue against the orde r of DRP-IV, New Del hi dated 15.12.2014 for asse ssment year 2010-11 and ITA No. 1560/D el /2016 i s the appeal fil ed by the assessee agai nst the order of DRP-I, New Del hi dated 28.11.2015 for assessment year 2011-12.
2. Ground No. 1 for assessment years 2010-11 and 2011-12 reads as under:
"1. That on the facts and circumstances of the case and in law, the assessment order passed by the Learned Asse ssing Officer ( 'Ld. AO') pu rsuant to the directions of Learned Di spute Resolution Panel ('Ld. DRP') is ba d in law and void ab-initio."
3. Thi s ground of appeal i s general in nature and hence does not requi re separate adjudi cati on by us.
4. Ground No. 2 for asse ssment year 2010-11 and groun d no. 2 for assessment year 2011-12 reads as under:
AY: 2010-11 "2. TP adjustment with respect to business process outsourcing ( 'BPO') services segm ent from Associated Enterprises other than IBM Worl d Trade Corporation ('IBM WTC') and IBM United Kingdom Ltd. ('IBM UK') That on the facts and circumstan ces of the case an d in law, the Ld. AO (following the directions of the Ld. 3 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016 Concentrix Daksh Services India Pvt. Ltd.
DRP), erred on facts and in law in enhancing the income of the Appellant by Rs. 3 0,11,35,718 holdin g that the international transact ion pertaining to provisi on of BPO services wi th its Associated Enterprises, other than IBM WTC and IBM UK, do not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ('the Act'), and in doing so have grossly erre d in:
2.1. rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant and in invoking provisions of 92C(3) of t he Act contending that the information or dat a used in the computation of the arm's length price is not reliable or corre ct.
2.2. using data available at the time of assessment proceedings, instea d of using dat a available at the time of pre paring the TP documentation for compa rable companies. In doi ng so, the Ld. Transfer Pricing Officer ( 'Ld. TPO') has ignored th e fact that this data was n ot available to the Appellant at the time of compl ying with the TP documentation requirements.
2.3. not applying multiple year/ prior year data for compa rable companies, while dete rmining the arm's length price.
2.4. rejecting compara bility analysis undertaken by the Appellant in the TP documentation, ignorin g that such analysis was in accordance with the provisi ons of the Act read with the Income Tax Rules, 1962, ("the Rules").
2.5. rejecting certain companies iden tified by the Appellant in the TP documentation, although such companies are compa rable.
2.6. including additional companies a s part of the final set of companies, although such companies d o not satisfy the test of comparabilit y.4 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016
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2.7. applying certain arbitra ry filters in determining the arm's length price in connection with the international transactions pe rtai ning to the BPO services segment and hol ding that the Appellant's international transaction is not at arm's length.
2.8. computing the mark-ups of comparable companies base d on erroneous computation methodology.
2.9. not providing a ppropriate economic adjustments (such as risk and depreciati on adjustment) claimed by the Appellant and thus consequently arriving at an erron eous mark-up on cost for the com para ble compani es selected in the TP Orde r."
AY: 2011-12 "1. TP adjustment with respe ct to Business Process Outsourcing ('BPO') se rvices segm ent from Associate d Enterprises other than IBM Worl d Trade Corporation ('IBM WTC') and IBM United Kingdom Ltd, ('IBM UK') That on the facts and circumstances of the case, and in law, the Ld. AO (following the directions of the Ld. DRP), erred on facts and in law in enhancing the income of the Appellant by INR 33,25,09,036 holdin g that the international transact ion pertaining to provisi on of BPO services wi th its Associated Enterprises, other than IBM WTC and IBM UK, do not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ('the Act ), and in doing so have grossly erre d in:
1.1. rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant and in invoking provisions of 926(3) of the Act contending that the information or dat a used in the computation of the arm's length price is not reliable or corre ct.5 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016
Concentrix Daksh Services India Pvt. Ltd.
1.2. using data available at the time of assessment proceedings, instea d of using dat a available at the time of pre paring the TP documentation for compa rable companies. In doi ng so, the Ld. Transfer Pricing Officer ( 'Ld. TPO') has ignored th e fact that this data was n ot available to the Appellant at the time of compl ying with the TP documentation requirements.
1.3. rejecting comparability analysis undertaken by the Appellant in the TP documentation, ignorin g that such analysis was in accordance with the provisi ons of the Act read with the Income Tax Rules, 1962, ("the Rules").
1.4. rejecting certain companies iden tified by the Appellant in the TP documentation, although such companies are compa rables.
1.5. including additional companies a s part of the final set of companies, although such companies d o not satisfy the test of comparabilit y.
1.6. applying certain a rbitra ry filters i n determining the arm's length price in connection with the international transactions pe rtai ning to the BPO services segment and hol ding that the Appellant's international transaction is not at arm s length.
1.7. not applying multiple year/ prior year data for compa rable companies, while dete rmining the arm's length price.
1.8. computing the mark-ups of comparable companies base d on erroneous computation methodology.
1.9. not examining the transfer prici ng issue and without applying his mind with respect to the TP documentation/ other details i nstead made a reference to the Ld. Transfe r Pricing Officer unde r section 92C(i) of the Act and thereby not discharging the necessary judicial function 6 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016 Concentrix Daksh Services India Pvt. Ltd.
conferred unde r section 92C and section 92CA of the Act."
5. The bri ef facts of the case are that the assessee has don e busi ness of provi ding BPO se rvi ces to Fortune 500 compani es i n the transacti on processi ng and customer ca re servi ces segments. The assessee offers remote support servi ces i ncl udi ng customer care and techni cal support through mul ti pl e communi cati on channel s, back-end transacti on processi ng, outbound col l ecti ons, telemarketing web ba sed se rvi ces i ncl udi ng real ti me chat. The uni que co-sou rci ng model and 100 per cent BPO focus enabl ed i t to re-engi neer processes and al so provi de val ue added servi ces. The assessee has shown recei pts from BPO servi ces at Rs.6,456,729,194/-. The assessee empl oyed TNMM method and OP/TC as the PLI. The assessee a rri ved at a set of 7 compani es wi th an average margi n of 14.31%. The a ssessee used mul ti pl e year data. Th e assessee's own margi n was worked out at 10.04% under BPO servi ces segment. Based on t he anal ysi s, the assessee concl uded that i ts i nternati onal transacti ons are at arm's l ength. The Assessi ng Offi cer ref erred the matter to the TPO for determi nati on of the arm's l ength pri ce. The TPO took the foll owi ng comparabl es and a rri ved at PBDIT as com para bl es sel ected by him as under:
SL. No. Comp any Nam e OP/OC PBDIT
1. Accentia Technology Ltd. 42.52% 61.52%
2. Cosmic Global Ltd. 18.28% 20.36%
3. e4e Healthcare Ltd. 31.03% 40.12%
4. Fortune Infotech Ltd. 22.80% 48.84%
5. Igate Global Solutions Ltd. 24.54% 29.91%
6. Infosys B P O Ltd. 31.44% 40.24%
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7. Jindal Intellicom Ltd. 13.62% 19.63%
8. T C S E-Se rve International 54.03% 71.87% Ltd.
9. T C S E-Serve Ltd. 63.42% 72.65% Averag e 33.52% 45.01%
6. The TPO obse rved that the resul ts submi tted by the taxpayer are as under:
Particulars Amount
Operating Revenues 6,456,729,000
Operating Expenses 5,867,844,000
Operating Profit 588,885,000
OP/OC 10.04%
Method used TNMM
PLI OP/OC
No. of compa rables 7
Mean Margin of C omparable s 14.31%
(Adjusted)
7. Thereafter, the AO computed the arm's l ength pri ce of the BPO transacti on of the assessee as under:
Operating C ost 5,867,844,111 Arm's Length Price at a Ma rgin of 7,834,745,457 33.52% Price Received 6,456,729,194 105% of the Price Received 6,779,565,654 Propose d of the Price Received 1,378,016,263 Thereby made an addi ti on of Rs.137,80,16,263/-.
8. The assessee carri ed the matter in appeal before the DRP who confi rmed the acti on of the TPO fol l owi ng the deci si on of the DRP in assessee's case for a ssessment year 2009-10 and reasoni ng gi ven therei n.
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9. Before us, the AR of the assesse e submi tted that as the matter wi th the Uni ted Kingdom Associ ated Enterpri ses and the Uni ted States of Ameri ca Associ ated Enterpri ses has been settl ed under the Mutual Agreement Procedure as pe r copy forwa rded by the Assessi ng Offi cer on Ma rch 14, 2018 i n case of Indi a-Uni ted Ki ngdom Mutual Agreement Resol uti on and copy forwa rded by the AO dated 23.07.2018 in case of Indi a-Uni ted States MAP resol uti on. Therefore , they are n o l onger unde r di spute. He submi tted that in case of BPO se rvi ces from associ ated enterpri ses other than IBM, Worl d Tra de Corporati on and IBM Uni ted Ki ngdom Ltd. The determi nati on made i n the Mutual Agreement Procedure wi th UK and US shoul d al so be appl i ed in case of busi ness of BPO wi th other associ ated enterpri ses. For thi s, he rel i ed on the deci si on of Del hi 'I-2' Bench of the Tri bunal i n the case of Fi deli ty Busi ness Servi ces Indi a Pvt. Ltd. Vs DCIT, Ci rcl e-II, New Del hi in ITA Nos. 5872/Del /2011 and 4180/Del /2014 for the assessment years 2007-08 and 2008-09, order date d 13.02.2018 and submi tted that i n the sai d deci si on, the Tri bunal has hel d and di rected the TPO to make adjustment after ta king the net profi t margi n as adopted/ agree d i n the MAP to benchmark the transacti on of non-US AE al so.
10. The departmental repre sentati ve vehemently opposed the submi ssi on of the AR of the asse ssee. He a rgued that as th e busi ness condi ti ons i n other countri es may not be the same as were in the case of UK and US Associ ated Enterpri ses transacti on. Therefore , the net profi t margin adopted i n the UK 9 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016 Concentrix Daksh Services India Pvt. Ltd.
and US Associ ated Enterpri ses cannot be a dopte d i n case of other associ ated enterpri ses of the assessee.
11. We have heard the ri val submi ssi ons and peruse d the orde rs of the l ower authori ties and materi al s avail abl e on record. In both the yea rs under consi derati on, the assessee i s engaged i n the busi ness of BPO servi ces. Turnover of the assessee du ri ng the assessment year 2010-11 was Rs.6,456,729,194/- an d for the a ssessment year 2011-12 wa s Rs.9,387,771,171/-. The break-up of the same are as under:
Name of the country AY 2010-11 AY 2011-12 US/UK MAP 77% 75% Non-UK/US countries 23% 25%
12. The enti re transacti on was entered i nto wi th associ ated enterpri ses. The assessee has shown i ncome at the rate of 10.04% i n assessment year 2010-11 and at the rate 10% i n the assessment year 2011-12. Th e TPO, however, determi ned the margi n at the rate of 33.52% in the assessment year 2010- 11 and at the rate of 35.78% i n the assessment year 2011-12.
13. Thereafter, MAP was entere d i nto by the assessee and the department whereby net ma rgi n i n respect of turn over wi th USA and UK was agree d upon at 14.99% for the assessment year 2010-11 and at 15.01% for the assessment year 2011-12. Thus, i t i s now settl ed between the parti es that i n respect of turnover of 77% i n the assessment year 2010-11 net margi n i s to be cal cul ated at 14.99% and i n respect of the asse ssment year 2011-12 i n rel ati on to 75% of the turnover net margi n i s to be cal cul ated at the rate of 15.01%.
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14. Thus, the i ssue whi ch i s still i n di spute i s the margi n whi ch i s to be cal cul ated i n respect of turnover of non-USA an d UK countri es whi ch is 23% of the total turnover in the assessment year 2010-11 and 27 % of the total turnover i n the assessment year 2011-12.
15. We find that it i s not i n di spute that the nature of transacti on whi ch was entered i nto wi th associ ated enterpri ses si tuated i n US and UK were sa me as associ ated enterpri ses si tuated i n non-US and UK countri es. The TPO has al so appl i ed same net profi t margi n rate for turnover of non-USA and UK countri es as was appli ed for USA and UK countri es. We, therefore, do n ot fi nd any good reason why the margi n rate agreed upon unde r MAP i n respect of USA and UK busi ness shoul d not be appl i ed for busi ness transacti on of othe r countri es al so. We have no materi al to hol d that the net margi n rate for the non-UK and USA countri es will be di fferent from the net margi n rate of transactions wi th USA and UK. We, therefore, set asi de the orders of the l ower authori ti es and di rect the AO to adopt net margi n @ 14.99% for the assessment year 2010-11 and 15.01% for the assessment yea r 2011-12. Therefore, the ground of appeal of the assessee i s partl y all owed.
16. Ground No. 3 of the appeal for assessment year 2010-11 reads as under:
"3. Prior Peri od expenses That on the facts and in the circumstances of the case and in law, the Ld. AO e rred in disallowing pri or period expense s amounting to Rs. 2,18,97,701 11 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016 Concentrix Daksh Services India Pvt. Ltd.
without appreciating that the sa id expenses we re incurred for the purpose of the business and were crystallized during the relevant previous year.
3.1. That on the facts and in the circumstances of the case and in law and with out pre judice to Ground No. 3, deducti on should be allowed to the appellant in the respect to the prior pe riod expenses amounting to INR 6,13,4 4,133 disallowe d by the appellant in its return of income for AY 2011-12."
17. The bri ef facts of the case a re th at the Assessi ng Offi cer di sall owed pri or pe ri od expenses debi ted i n the profi t and l oss account amounti ng to Rs.2,18,97 ,701/- as they pertai ned to the earli er year and not to the year under appeal
18. On appeal , the DRP confi rmed the acti on of the AO. The AR of the assessee submitted that thi s Bench of the Tri bunal i n the case of the assessee i tsel f i n the assessment year 2009-10 vi de order dated 05 .07.2016 passed i n ITA NO. 2666/Del /2014 had restored the matter back t o the fil e of the Assessi ng Offi cer and therefore, the matte r shoul d be restored back t o the fil e of the Assessi ng Offi cer with the very same di recti on as gi ven i n the assessment year 2009-10.
19. The DR had no objecti on to the above submi ssi ons of the AR of the assessee.
20. We fi nd that Tri bunal i n the assessment year 2009-10 hel d as under:
"25. Ground NO. 5 relating to t he issue of alleged prior peri od expenses is rest ored t o the file of the AO for examining/verifying the claim of the assessee and allowing the same if it is found that the payments 12 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016 Concentrix Daksh Services India Pvt. Ltd.
have crystallized in the yea r unde r appeal. Hence the ground is allowe d for statistical pu rposes."
21. Hence, we set asi de the orders of the l ower authori ti es and remand thi s i ssue back to the fil e of the AO wi th the very same di recti on as given i n assessment year 2009-10. Thus, thi s ground of appeal of the assessee i s all owed for stati sti cal purposes.
22. Ground No. 4 f or a ssessment year 2011-12 reads as under:
"4. Power of the DRP t o enhance is restricted to disallowances/ variati ons proposed in the draft order.
4.1. That the Ld. DRP has e rred in la w in directing the Ld. AO t o enhance the income of the Appellant by invoking the provisions of section 144C(8) of the Act without appreci ating that there i s no disallowance/ variation proposed by the Ld. AO unde r section 4o(a)(i) of the Act in the draft assessment order nor are there any objections raised by the Appellant in this regard before the DRP.
4.2. That on the facts and ci rcumstances of the case and in law, the Ld. DRP failed to appreci ate that the insertion of explanation below sub section 8 of section 144C of the Act was to make an enhancement on the variation proposed in the draft assessment orde r and n ot to raise a fresh issue which is not the subject matter of either the draft assessment order or any issue raised by the Appellant before the Ld. DRP.
4.3. That on the facts and ci rcumstances of the case and in law, the Ld. AO erred in m aking a disallowance of INR 6,00,53 ,106 under section 40(a)(i) of the Act in final assessment order pursuant to direction of DRP under 144C(8) of the Act which are illegal, without jurisdiction and bad in law."13 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016
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23. At the ti me of heari ng, the AR of the assessee di d not press thi s ground of appeal , hence, the same i s di smi ssed for want of prosecuti on.
24. Ground No. 4 of the appeal for the assessment year 2010- 11 and ground no. 6 of the appe al for assessment year 2011- 12 read as under:
AY: 2010-11 "4. Deduction under section 10A of the Act.
That on the facts and in the circumstances of the case and in law, the Ld. AO and Ld. DRP e rre d in computing the deducti on under section 10A at Rs. 2,47,27,66,772.
4.1. That on the facts and in the circumstances of the case and in law, the Ld. AO and the Ld. DRP, erred in reducing the telecommunication charges of Rs. 21,57,84,583 from the export turnover while computing the deduction allowable under section 10 A of the Act.
4.2. Without prejudice to the above, the Ld. AO and the Ld. DRP e rred in law in reducing the telecommunication charges of Rs. 21,57,84,583 only from the export turnover and not making any corresponding re duction from t he total turnover while re-computing the deduction under section 10A of the Act.
4.3. Without prejudice to the above, the Ld. AO and the Ld. DRP erre d in reducing the telecommunication charges of Rs. 21,57,84,583 only from the eligible units (on which deduction was claimed) without appreciating that communication expenses also related to non-eligi ble units.
4.4. The Ld. AO and the Ld. DRP erred in not considering the enhanced profit s on account of 14 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016 Concentrix Daksh Services India Pvt. Ltd.
disallowances of pri or peri od expe nses amounting to Rs. 2,18,97,701 while computing the deduction u/s 10A/10AA."
AY: 2011-12 "6. Deduction under section 10A of the Act.
6.1. That on the facts and in the circumstances of the case and in law, the Ld. DRP, erred in reducing the telecommunication charges of INR 21,97,91,546 from the export turnove r while computing the deduction allowable under secti on 10A of the Act."
25. For assessment year 2010-11, the AR of the assessee submi tted that the i ssue stands covered in favour of the assessee by the deci si on of Hon'bl e Delhi Hi gh Court i n the case of Genpact Indi a Vs CIT reported i n 203 Taxmann.com 632 wherei n it was hel d as under:
"14. Having considere d the argu ments advanced by the counsel for the pa rties, we are in complet e agreement with the decision of the Bombay High Court in the case of Gem Plus Jewellery(supra). In orde r to avoid prolixity, we set out the relevant porti on of the decision of the Bombay High Court in Gem Plus Jewellery and e ndorse the same . The relevant portion of the said decision is as under:
"6. The total turnover of the busi ness carried on by the undertaking w ould consist of the turnover from export and th e turnover from local sales. The export turn over constitutes the numerator in the formula prescribe d by sub-section (4). Export turnov er also forms a constituent element of the denominator inasmuch as the export turnover is a part of the total turnover.
7. The export turnover, in the numerator must have the same meaning as the export turnove r which is a constituent element of the tota l 15 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016 Concentrix Daksh Services India Pvt. Ltd.
turnover in the denominator. The Legislature has provided a definition of the expression "export turnover" in Explanati on 2 t o Se ction 10A by which the expression is de fined to mean the consideration in respect of export by the undertaking of articles, things or compute r software received in, or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India . Therefore, in computing the export turnove r the Legislature has made a specific exclusion of freight and insurance charges.
8. The submission which has bee n urged on behalf of the Revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard t o total turnover. The submission of the R evenue, however, misses the point that the expression "total turnover" has not been defined at all by Parliament for the purposes of section 10A. However, the expressi on "export turnover" has been defined. The definition of "Export turnover"
excludes freight and insurance. Since export turnover has been defined by Pa rl iament and there is a specific exclusion of f reight and insurance , the expression "export turnover" cannot have a different meaning when it f orms a constituent part of the total turnover f or the purpose s of the application of the formula.
Undoubtedly, it was open to Parliament to make a provision t o the cont rary. However, no such provision having been made, the principle which has been enunciated earlier must prevail as a matter of correct statutory interpretation. Any other interpretati on woul d lead to an a bsurdity. If the contention of the Revenue were tobe accepted, the same expression viz. "ex port turnover" would have a 16 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016 Concentrix Daksh Services India Pvt. Ltd.
different connotation in the a pplication of the same formula. The submission of the Revenue would lea d t o a situation wh ere freight an d insurance, though it has been specifically excluded from "export turn over" f or the purposes of the numerator w ould be brought i n as part of the "export turnover" when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided." (underlining added)
16. All the points raise d by Mr Sa bharwal stand answered in the reasoning given by the Bombay High Court and Karnataka High Court in the said decisions with which we are in complete agreement."
26. The DR coul d not controvert the submi ssi on of the AR of the assessee.
27. Therefore, respectfull y foll owing the deci si on of the Hon'bl e Del hi Hi gh Court i n the case of Genpact Indi a (supra), we set asi de of the orders of l ower authori ties and di rect the AO to compute deducti on u/s 10A of the Act after deducti ng the Tel ecommuni cati on expenses both from export turnover an d total turnover of the assessee. T hus, thi s ground of appeal of the assessee i s all owed.
28. At the time of heari ng, the AR of the assessee submi tted that as enhanced deducti on was all owed to the assessee i n assessment year 2011-12, theref ore, thi s ground of a ppeal i s not pressed i n assessment year 20 11-12. Hence, thi s ground of appeal i s di smi ssed for want of prosecuti on.
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29. Ground no. 5 of the appeal for assessment year 2010-11 and ground no. 7 for assessment year 2011-12 read as under:
AY: 2010-11 "5. The Ld.AO erre d in only allowing part credit of taxes deducted amounting to Rs. 29,62,20,870 instead of R s. 29 ,92,72,786 claimed in the Return of Income."
AY: 2011-12 "6. On the facts and in the circum stances of the case and in law, the Ld. AO e rred in only allowing part credit of taxes de ducted at source while calculating the tax liability of Appellant."
30. At the time of heari ng, the AR of the assessee submi tted that thi s i ssue shoul d be rest ore d ba ck to the fil e of the AO di recting hi m to all ow TDS cl ai m credi t i n the return of i ncome filed by the assessee after veri fi cati on.
31. The DR has no objecti on to the same.
32. We, therefore, rest ore thi s i ssue back to the fil e of the Assessi ng Offi cer for all owi ng credi t for TDS cl ai med by the assessee i n the return of i ncome after veri fi cati on as per l aw. Thus, thi s ground of a ppeal of the assessee i s all owed for stati sti cal purposes.
33. Ground No. 3 of the appeal for assessment year 2011-12 reads as under:
"3. TP adjustment with respect t o Business Process Outsourcing se rvices segment - Reimbursement received from Associate d Enterpri ses other than IBM WTC and IBM UK.18 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016
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That on the facts and circumstances of the case, and in law, the Ld. AO (following the directions of the Ld. DRP), erred on facts and in law in enhancing the income of the Appellant and in doing so have grossly erred in:
3.1. including the reimbursement received from AEs and the cost incurred as part of income an d expenditure and applying mark-up on the cost incurred by the Appellant.
3.2. holding that the reimbursement of expenses received from AEs is 'closely linke d' t o the primary transaction of provisi on of BPO se rvices an d accordingly applying a mark-up based on avera ge return on total cost earned by comparables selecte d in final assessment order."
34. The AR of the assessee submi tted that thi s amount has been subsumed i n computati on done for Indi a-US and Indi a-UK MAP. Hence, MAP rate shoul d be appli ed on bal ance transacti on.
35. We fi nd that the i ssue does not a ri se out of the order of the AO. Hence, thi s ground of appeal i s di smi ssed.
36. Ground No. 5 of the appeal for assessment year 2011-12 reads as under:
"5. Disallowance under se ction 4o( a)(i) of the Act.
5.1. That on the facts and in the circumstances of the case and in law, the Ld. AO , pursuant to the directions of the Ld. DR P, erred in disallowing INR 6,00,53,106 under section 4o(a )(i) of the Act on account of non-deducti on of ta xes at source on reimbursements of expenses m ade to Associate d Enterprises CAEs').19 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016
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5.2. That on the facts and in the circumstances of the case and in law, the Ld. AO a nd Ld. DRP erred in not appreciating that the nature of the transaction s were merely cost to cost reimbursement of expenses which were not liable to deduction of taxes at source under the Act as well as relevant DTAA. 5.3. That on the facts and in the circumstances of the case and in law, Ld. DRP erred in not appreciating that the decision of Centrica (reported in 4 4 taxmann.com 300) was distinguishable and not applicable to the instant case."
37. At the ti me of heari ng, the AR of the assessee di d not press thi s ground of a ppeal . There fore, thi s ground of appeal i s di smi ssed for want of prosecuti on.
38. Ground no. 7 of the appeal for the assessment year 2010- 11 and ground no. 8 of the appe al for assessment year 2011- 12 are di rected agai nst l evy of interest u/s 234B, 234C and 234D of the Act.
39. At the time of heari ng, the AR of the assessee submi tted that chargi ng of i nterest i s consequenti al . Therefore, these grounds of the appeal of the assessee are di smi ssed.
40. Ground no. 8 of the appeal for assessment year 2010-11 and ground no. 9 for assessmen t year 2011-12 are di rected agai nst i niti ati on of penal ty proceedi ngs u/s 271(1)(c) of the Act.
41. Thi s ground of appeal i s pre-mature and i s accordi ngl y di smi ssed.
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42. In the revenue's a ppeal for a ssessment year 2010-11, the sol e i ssue i s di rected agai nst the order of DRP hol di ng that gai n on buyback of shares i s to be taxed under the head capi tal gai n and not as deemed di vi dend u/s 2(22)(d) of the Act.
43. The facts of the case are that the assessee bou ght back 2,890,428 shares from i ts sharehol der from South Asi a at Rs.525 per share as agai nst book val ue of Rs.1/-. Thi s buyback of shares re sul ted i n l oss in the share capi tal of the assessee @ Rs.524/- per sha re. The Assessi ng Offi cer hel d that buyback of shares by the assessee i s col ourabl e devi ce of payment of tax on the di stri buti on of profi t. Accordi ngl y, the excess amount pai d on buyback of shares of Rs.1 51,45,84,272/- was taxed u/s 2(22)(d) r.w.s. 115-O of the Act.
44. On appeal , the DRP confi rmed the acti on of the AO.
45. Before us, the AR of the asse ssee submi tted that the i ssue i s covered by deci si on of Bangal ore 'B' Bench of the Tri bunal i n the case of Fi delity Busi ness Servi ces Indi a Pvt. Ltd. Vs ACIT , Ci rcel-3(1)(1), Bangal ore (2017) 80 Taxmann.com 230 (Bangal ore) where i t was hel d as under:
"6. We have consi dered the rival submissions a s well as the relevant material on record. There is no dispute that the holding com pa ny of the assessee based in Mauritius is holding more than 99.99% of the shares of the assessee. The refore if any payment is made by the assessee to the holding company, the same would be treated and deemed as dividend in view of the provision of Section 2(22) of the Act however, in this case the payment in question has been made by the a ssessee to t he holding company on account of buy back of sha res. Therefore t o the 21 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016 Concentrix Daksh Services India Pvt. Ltd.
extent of the transaction of buy back of shares, the same cannot be cl assified a s di vidend as per the provisi ons of Section 2(22) when the exclusion clause
(iv) of Section 2(22) has specifically excluded such a payment on purchase of its own shares from a shareholde r in accordance with the provisions of Section 77A of the C ompanies Act from the definition of dividend. For ready reference, we quote clause (iv) of Section 2(22) as under:
"Section 2(22)(iv) : Any payment made by a company on purchase of its ow n shares from a shareholde r in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956)."
We further note that Se ction 115QA ha s been introduced in the statute by Finan ce Act, 2013 w .e.f. 1.6.2013. Therefore any payment on account of purchase of its own shares by the company prior t o 1.6.2013 cannot be termed as dividend as per the provisi ons of Secti on 115QA. We quote Section 115QA as under:
115QA. (1) Notwithstanding anything contained in any other provision of this Act, in addition to the income-tax chargea ble in re spect of the tot al income of a domestic com pany for any assessment year, any amount of distributed income by the company on buy-back of shares (not being shares listed on a recognised stock e xchange) from a shareholde r shall be charge d to tax and such company shall be liable to pay additional income- tax at the rate of twenty pe r cent on the dist ributed income.
Explanation.-For the purposes of t his section,--
(i) "buy-back" means purchase by a company of its own shares in accordance wit h the provisions of [any law for the time being in force rel ating to companies];22 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016
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(ii) "distributed income" means t he conside ration paid by the company on buy-ba ck of sha res a s reduced by [the amount, which was received by the company for issue of such sha res, dete rmined in the manner as may be prescribe d], (2) Notwithstanding that no income-tax is paya ble by a domestic company on i ts total income computed in accordance with the provisi ons of this Act, the tax on the distributed i ncome under sub- section (1) shall be payable by such company.
(3) The principal officer of the domestic com pany and the company shall be liable to pay the tax t o the credit of the Cent ral Government within fourteen days from the date of payment of any consideration to the sharehol der on buy-back of shares referred to in sub-section ( 1).
(4) The tax on the dist ributed income by the company shall be treated a s the final payment of tax in respect of the said incom e and no furthe r credit therefore shall be claimed by the company or by any other pe rson in respe ct of the amount of tax so paid.
(5) No deduction unde r any other provision of thi s Act shall be allowed to the company or a shareholde r in respect of the income which has been charged t o tax under sub-section (1) or the tax thereon.
Thus after the insertion of Section 115QA, the purchase of its own sha res by the company in accordance with the provisions of section 77 A of the Companies Act shall be charged to DDT . Since this transaction in the case of the assessee is pri or t o 1.6.2013 therefore the said provision of Secti on 115QA is n ot applicable in the case of the asse ssee a s it is explained by the C BDT vide C ircular No.3/16. We quote the relevant para Nos.1, 4 and 5 of the Circular:
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"1. As per provisions of Section 46A of the Income Tax Act, 1961, applicable with effect from 1.4.2000 , any consideration re ceived by a shareholder or a holder of other specified securities from any company on purchase of its own shares/othe r specified securities shall be, subject to provision s contained in Secti on 48, deem ed to be capita l gains. Further, sub-clause (iv) of clause (22) of Section 2 of the Act excludes any payment made by a company on purchase of its own sha res in accordance with the provisions contained in Section 77A of the Companies Act from the ambit of 'dividend'. Finance Act, 20 13 subsequently introduced section 115QA (w.e.f 1.6.2013) to provide that any am ount of distri buted income by a company on buyback of unlisted shares shall be charged to tax and the company so distributing its income shall be liable to pay addi tional income tax at the rate of twenty percent of the distributed income.
2 ......
3 ......
4. Accordingly, the CBDT here by clarifies tha t consideration re ceived on buyback of sha re s between the period 1.4.2000 till 31.5.2013 would be taxed as capital gains in t he hands of the recipient in accordance with section 46A of the Act and no such amount shall be treated as dividend in view of provisions of Section 2(22)(iv).
5. With a view to bring about further clarity on this issue as a step towa rds non-adversarial tax regime , the CBDT hereby directs that a s a matter of genera l principle, no f resh notice for assessment/reasse ssment/non-deduction of TDS at source shall be issued where buyback of share s has taken place prior to 1.6.2013 and the case is covered under Section 46A re ad with section 2(22)(iv) of the Act. In cases w here notices have already been issued and a ssessment proceedings are pending, tax authorities sh all complete the 24 ITA Nos. 2096 & 2495Del/2015 ITA No. 1560/Del/2016 Concentrix Daksh Services India Pvt. Ltd.
assessment keeping in view the above lega l position."
In the beginning of para 1, the CBDT has clarified that the consideration re ceived on buy back of share s between the period 1.4.2000 t o 31.5.2013 would be taxed as capital gain in the hands of the recipient in accordance with the provisions of Section 46A of the Act and no such am ount shall be treated as dividen d in view of the provisions of Secti on 2(22)(iv) of the Act. The Asse ssing Officer has accepted that the capital gain in the hand of the holding company is not chargeable t o tax as pe r the provisions of Articl e 13(4) of indo-Mauritius DT AA. Th erefore on principle we are of the view that the transa ction of buy back of shares prior to 1 .6.2013 does not attract Se ction 115QA as well as Section 2(22) of the Act."
46. The DR agree d wi th the submi ssi ons of the AR of th e assessee.
47. After consi deri ng the ri val submissi ons and perusi ng the materi al avail abl e on the record, we fi nd that the assessment year under appeal i s 2010-11 and as per above quoted deci si on and CBDT Ci rcul ar No. 3/2016 pri or to 01.06.2013 provi si on of Secti on 115QA of the Act i s not appl i cabl e to the assessee. Therefore, we hol d that the recei pt of buyback of share cannot be taxed as deemed di vi dend u/s 2(22)(d) of the Act. However, same has to be taxed under the head capi tal gai ns. Accordi ngl y, we di rect the AO to veri fy as to whether the assessee ha s shown the amount under the head capi tal gai ns. Wi th these di recti ons, the ground of appeal of the revenue i s di smi ssed.
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48. In the resul t, the appeal s of the assessee are pa rtl y all owed and the appeal of the department i s di smi ssed. (Orde r Pronounced i n the Open Court on 04/02/2019) Sd/- Sd/-
(Sudhanshu Srivastava) (N. S. Saini)
Judicial Member Accountant Member
Dated: 04/02/2019
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR