9911796707
TMI Blog2016 (11) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... er referred to as‟ CIT (A)‟ or the 1st appellate authority]. "(1) "On the facts and the circumstances of the case, the Ld. CIT(A) has erred in restricting to Rs. 1,19,35,400/-, the adjustment of Rs. 9,13,20,537/-made on account of arm's length price on the ground that business support costs had not been correctly allocated by the TPO between the software and BPO segments and that Apex logical Data Conversions Pvt. Ltd., was to be considered in the set of comparable companies. (2) On the facts and circumstances of the case the Ld. CIT(A) had erred in holding that expenses incurred on telecommunication charges (Rs.2.68 crores), subsistence for onsite employees (Rs.59.71 crores) standby and call out charges (Rs.5.80 crores), traveling expenses paid in foreign currency (Rs,0.85 crores) and LERMS (Rs.1.52 crores) are not to be taken into account for the purpose of computing the profit eligible for deduction u/s 10A of the Act. (3) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 1,09,86,543/- being 25% of the expenditure on subsistence allowance by wrongly holding that disallowance for non-de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [hereinafter referred to as „ALP"] u/s 92CA(3) of the income tax act [hereinafter referred to as „The Act‟] with respect to the above international transactions. The assessee while bench marking this transaction selected transaction net margin method (hereinafter referred to as TNMM) as the most appropriate method for determining its arms length price of the transactions. As a profit level indicator[hereinafter referred to as PLI] it selected operating margin as a percentage of operating cost. For software services it has earned operating profit by total cost margin of 36.71% and for ITES services it has shown a loss of 19.16%. As a justification for loss it was documented that substantial expansion activity in the BPO segment was carried out during the previous year and therefore there is increase in the fixed cost such as communication expenses, electricity and repair charges, therefore there is a higher fixed cost involved in the current year. The assessee for its ITES segment selected 9 comparables showing the weighted average OP/TC and PLI of 11.43% and submitted that international transaction of IT enables services are at arm‟s length. For this the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmed some additions and deleted some additions and therefore revenue as well as the assessee is in appeal before us. 12. The ground No. 1 of the appeal of the revenue is on transfer pricing issue based on the adjustment of Rs. 91320537/- made by the Ld. transfer pricing officer which has been restricted to Rs. 11935400/- on account of incorrect allocation between the software and BPO segment and rejecting the comparable Apex Logical Data Conversion Pvt. Ltd without reasoning by Ld. CIT (A). It is appropriate to state here that the assessee has also preferred appeal as per ground No. 1 against the confirmation of the addition to the extent of Rs. 11935402/-. The crux of the transfer pricing issue is with respect to incorrect determination of margins of the assessee. Admittedly the assessee in its its TP study report has also considered the margin of the provision of IT enables services having total value of the transaction of Rs. 181442916/- and taking appellant as tested party of (-) 19.16% and compared it with margins of the comparables computing arithmetic mean at -11.43%. However, before the Ld. Transfer Pricing Officer vide letter dated 27.10.2006 the assessee submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying different allocation keys to allocate the business support cost of Rs. 564258447/- to various segments compiled with the original transfer pricing document of the appellant, he submitted that it amounts to reallocation of the cost, as Ld. Assessing Officer did not have an opportunity to examine appropriateness of these keys the matter should be sent back to the file of Ld. Assessing Officer. On the issue of rejecting the comparable of Apex Logical Data Conversion Pvt Ltd. he submitted that it is an error and therefore, the matter may be sent back to the Assessing Officer for verification. 15. Regarding the availability of benefit of + or - 5% of range as per proviso to section 92C(2) he submitted that the same has not been decided by ld CIT(A), therefore, same may be sent back to his file. 16. Ld Authorised representative submitted that the appellant company is at startup stage and has very low capacity utilization with respect to its ITES segment, as it is only the 2nd year of its operation. He further referred that originally the allocation of the overhead between the software division and BPO segment was based on „headcount‟ in each department. This fact was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8223;s length. He submitted that there is no estoppel under the income tax proceedings in making a claim and appellant can make such a claim that is correct claim at any point of time during the continuations of assessment proceedings. He raised this argument for the reason that even if assessee has taken headcount allocation key originally but it can be corrected at any time. He further referred to the decision of special bench in case of DCIT versus Quark systems private limited (ITA number 100 & 115/CHD/2009) to state that the transfer pricing documentation would not act as an estoppels for suggesting correct treatment of allocation of expenditure. He further referred to the fact that during the course of assessment proceedings, assessee filed correct statement of segmented profit analysis whereby the profit of the ITES segment was 20.74% as shown in the TP study report but Ld. Transfer pricing officer did not correct that particular error. Despite direction of Ld. Dispute resolution panel to rectify the error the Ld. Transfer pricing officer summarily rejected the rectification application filed by the assessee without giving effect to the direction of DRP and the addition was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enerated there from. Before learned CIT (A) appellant reworked operating profit margins of the various divisions after re allocating business support cost on different basis then what is taken in its transfer pricing report as well as in the order of the Ld. Transfer pricing officer. Based on above allocation keys it was contended that PLI of the appellant‟s 12% compared to 11.43% of the comparable companies. In the revised allocation of business support services cost appellant has allocated the actual expenses identifiable to each segment directly to that segment and for other expenses it has adopted various allocation keys. For costs related to the employees, conveyance expenses, Gen Administration expenses, IT expenses, communication, "head count" was taken as allocation key. For the purpose of the space cost of it is allocated with respect to number of seats in each same segment and when there are vacant seats cost is allocated to the IT segment. These allocations of expenses are verified by the Ld. 1st appellate authority. The 1st appellate authority has not found any of the allocation keys to be unreasonable and improper. Further more if the allocation key of headcount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... class of transactions or functions performed by the parties. In the present case the revenue as well as appellant both has agreed that transactional net margin method is the most appropriate method for determination of ALP. This method compares the net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise and net profit margin is computed after determining the appropriate cost incurred. Therefore the determination of the cost incurred for the purpose of determining ALP is an important task. There may be direct and indirect cost involved in performing certain services. Where there are direct costs are involved they are required to be directly attributed to the particular profitability statement of that segment however when indirect costs are involved it is necessary that appropriate allocation keys which are rational and quantifiable are adopted for allocating them to the particular business segment to derive its correct profitability. This exercise can be carried out by the authorities as well as the appellant to fulfill the object of determination of the arm‟s length pricing of an international transaction. As t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of the international transaction. In the result ground No. 1 of the appeal of the revenue on the transfer pricing issues is dismissed. 20. Ground No. 2 of the appeal of the revenue is against the order of Ld. CIT appeal in directing to exclude expenses on telecommunication charges, subsistence for on-site employees charges, standby and callout charges, travelling expenses paid in foreign currency and LERMS for reducing them from export turnover but not adjusting total turnover accordingly for the purpose of computing the profit eligible for deduction under section 10 A of the income tax act. The Ld. assessing officer while working out the deduction under section 10 A of the income tax act with respect to the software technology Park industrial undertaking of the appellant has noted that a expenses of Rs. 509376201 has been excluded from the export turnover as well as total turnover of the assessee. Therefore he held that according to the form No. 56F, assessee has already given total turnover of the business as per books of accounts at Rs. 3154493439/- which is also shown in the profit and loss account under that turnover therefore reducing this charges out of the total turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port turnover, such sums will also have to be reduced from the total turnover of the company. He further submitted that there is no change in the facts and in the law. 23. We have carefully considered the rival contentions. As the issue has already been decided by the coordinate bench in the assessee‟s own case for assessment year 2003- 2004 wherein it has been held that though the term „total turnover" has not been defined under section 10 A of the act and items which have been excluded from export turnover in the numerator must also be extruded from total turnover in the denominator for computing deduction under section 10 A of the act. The Ld. departmental representative could not point out any infirmity in the order of Ld. CIT appeal and also could not point out any reason that why decision of the coordinate bench should not be followed by us. Therefore in view of this we are inclined to confirm the order of the Ld. CIT appeal where he followed the decision of the coordinate bench in case of assessee for the previous year and directed the assessing officer to recompute the deduction under section 10 A of the income tax act. In view of this ground No. 2 of the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present appeal. 26. The Ld. departmental representative submitted that deduction is been claimed by the appellant without providing any details of supporting evidences for such expenditure. He further submitted that this is an allowance being paid to the employees of the appellant and therefore while making payment to the holding company the assessee should have deducted tax at source under section 195 of the income tax act which assessee has failed to do. Therefore he contended that disallowance has rightly been made by the Ld. assessing officer. 27. Ld. authorized representative submitted that during the relevant assessment year, the assessee incurred expenditure of Rs. 44,39,46,173 for reimbursement of subsistence allowance paid by Xansa Plc. to the assessee‟s employees positioned overseas. The subsistence allowance was paid on the basis of actual vouchers/details submitted by the employees to the assessee. Such allowance was, thus, a mere reimbursement of the actual expenses incurred by the assessee‟s employees. He submitted that in terms of the agreement with Xansa UK, Xansa UK acts as a disbursing agent for payment of subsistence allowance to the employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them to its employees on tour for official purposes. Such payment has been made through banking channel and the factum of payment to Xansa UK is also not disputed. It would further be appreciated that the factum of payment of the aforesaid amount (to the extent of 25% of the subsistence allowance) to the employees of the assessee by Xansa UK is evidenced by the confirmation / declaration by the employees. Notwithstanding the fact, the payment of subsistence allowance to the extent of 25% has been made on the basis of confirmation / declaration from the employees, such payment has been made to the employees in the course of carrying on of the business of the assessee of software development. In case of the assessee, too, payment to Xansa UK on account of reimbursement of subsistence allowance paid to the employees of the assessee, were liable to deduction of tax at source under section 192 of the Act (subject to exemption available under section 10(14)(i) of the Act). The assessee was, therefore, it was submitted, not required to deduct tax at source there from under section 195 of the Act. It is submitted that the aforesaid claim of non withholding of tax at source on reimbursemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been rightly deleted by the CIT(A). 28. We have carefully considered the rival contentions and also perused the material available on record. The claim of the subsistence allowance of Rs. 43946173/-paid by appellant company to its UK holding company is on account of reimbursement of the expenses on deputation. Admittedly no tax has been deducted on the sum under section 195 of the income tax act under the pretext that there is no income chargeable to tax in India as it is a case of pure reimbursement of expenses. This was one of the reasons for disallowance of the sum. Furthermore assessee produced the bills/ vouchers/ declaration but according to the Ld. assessing officer , assessee did not clearly establish that the bills are in connection with employees of the assessee as on none of the bills name of employees are appearing and in the breakup many expenses pertain to earlier years. Furthermore according to the Ld. assessing officer such subsistence allowance should have been reflected in form No. 16 issued by the appellant to its employees, which is not included. Therefore the addition was made. The 1st appellate authority has deleted disallowance on various issues except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is rendering software development services to the customers of Xansa UK, out source software development contract to the appellant on principal to principal basis in terms of agreement dated 9th day of March, 1999, relevant portion of which reads as follows: "This agreement is made this 9th day of March, 1999 between Fl Group PLC, a company having its registered office at Campus 300, Maylands Avenue, Hemal Hemastead, Hertfordshire, HP2 7TQ, England (hereinafter referred to as Fl) and US Infotech Ltd,, a company registered under the Indian Companies Act, 1956 having its registered office at D-l/3, Okhla Industrial Area, Phase-II, New Delhi, India and Corporate Office at C-2, Sector-1, Noida, India (hereinafter referred to as US Infotech'). Whereas * IIS Infoteoh is a software development organization that develops software and undertakes software projects both offshore and onshore for overseas clients; and * Fl may require software products and services from time to time which US Infotech is keen to provide. NOW THEREFORE IT IS AGREED AS FOLLOWS: 1) APPOINTMENT Fl appoints US Infotech as its preferred supplier for the provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the remaining 25% of the subsistence allowance, the employees have submitted a declaration / confirmation of having spent the amount to that extent on food, telephone, etc., during their stay / travel outside India. In view of the findings on record, it cannot be disputed that subsistence allowance to the extent of 25% is paid to the employees. However, the further expenses incurred by the employees out of such amount is not supported by actual vouchers. In view of the aforesaid categorical facts discernable from record, the payment of the aforesaid amount to Xansa-UK is towards reimbursement of the amount paid by the said company to the employees of the appellant as subsistence allowance. Xansa-UK in the entire transaction has only acted as conduit for making payment of subsistence allowance to the employees of the appellant and there is no income received by Xansa-UK. 11.68 It is a settled position that a mere reimbursement of expenses incurred by a non resident on behalf of a resident in India, does not have any element of income and the same cannot be subjected to tax in India in the hands of the non resident. Reliance may be placed in this regard on the following decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of payment would constitute 'income chargeable to tax in India. In other words, where a person responsible for deduction is fairly certain that the payment is not chargeable to tax in India, he can make his own determination. Relevant observations of the Supreme Court in that case read as follows: "7. Under Section 195(1), the tax has to be deducted at source from interest (other than interest on securities) or any other sum (not being salaries) chargeable under the l.T. Act in the case of non-residents only and not in the case of residents. Failure to deduct the tax under this Section may disentitle the payer to any allowance apart from prosecution under Section 276B. Thus, Section 195 imposes a statutory obligation on any person responsible for paying to a nonresident, any interest (not being interest on securities) or any other sum (not being dividend) chargeable under the provisions of the l.T. Act, to deduct income tax at the rates in force unless he is liable to pay income tax thereon as an agent. Payment to non-residents by way of royalty and payment for technical .services rendered in India are common examples of sums chargeable under the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable to tax in India, then no tax is deductible at source even though the assessee had not made an application under Section 18(3B) (now Section 195(2) of the I.T. Act). The application of Section 195(2) pre- supposes that the person responsible for making the payment to the non-resident is in no doubt that tax is payable in respect of some part of the amount to be remitted to a non-resident but is not sure as to what should be the portion so taxable or is not sure as" to the amount of tax to be deducted. In such a situation, he is required to make an application to the ITO(TDS) for determining the amount. It is only when these conditions are satisfied and an application is made to the ITO(TDS) that the question of making an order under Section 195(2) will arise. In fact, at one point of time, there was a provision in the I.T. Act to obtain a NOC from the Department that no tax was due. That certificate was required to be given to RBI for making remittance. It was held in the case of Czechoslovak Ocean Shipping International Joint Stock Company vs. ITO [81 ITR 162(Calcutta)] that an application for NOC cannot be said to be an application under Section 195(2) of the Act. Whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 10(14)(i) of the Act, inter alia, any allowance granted to an employee on tour to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty. 11.75 It was submitted that for determining taxability or otherwise of the amount paid by way of per diem (subsistence) allowance to the employees for the purpose of deduction of tax at source under the head 'salaries' as per section 192 of the Act, the assessee obtains from the employees evidence of actual expenses incurred against such subsistence allowance. 11.76 The payment of subsistence, therefore, would be taxable in the hands of the employees, if it is demonstrated that the entire amount is not actually spent for official purpose by the employees. In the present case, there is no '" dispute that the payment to the extent of 75% of the subsistence allowance the employees is supported by the evidence of the actual expenditure incurred for official purpose. To the extent of 25% of the amount paid as subsistence allowance, the employees has merely furnished a declaration / confirmation for having spent the said amount in the course of travel abroad. In c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to examine from records the total amount of expenditure on subsistence allowance which does not relate to the relevant previous year and make disallowance of the same." 29. On perusal of the above decision it is apparent that the 1st appellate authority has considered the provisions of section 195 of the income tax act and held that that this payment of subsistence allowance is only a reimbursement of expenditure which is not chargeable to tax in India and hence no withholding tax was required to be deducted from such payment and hence provisions of section 40a (i) does not apply. Even otherwise he held that such payment of subsistence allowance if not fully spent for the official purposes of the employees then it would be chargeable to tax in the hands of the employees only, and as it is an expenditure of the employer incurred wholly and exclusively for the purposes of the business, which cannot be disallowed in parts. We also concur with the reasons given that such subsistence allowance is supported by the evidence of the actual expenditure incurred for official purposes to the extent of 75% and for the balance 25%, employees have submitted a declaration of having spent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional facility of delivery of diesel at the assessee‟s premises. Such charges were, however, disallowed by the assessing officer under section 40A(2)(b) of the Act, alleging that there was no legitimate business need for incurring such expenditure. On appeal before the Ld. CIT appeal the addition was deleted, therefore revenue has challenged this issue before us. 31. Ld. departmental representative relied upon the order of the assessing officer and submitted that the assessee could have easily bought the diesel from any petrol pump , no liasoning charges are required to be paid and therefore there is no legitimate need for making any payment of Rs. 827,000/- therefore it was disallowed by invoking the provisions of section 40 A (2) (b) of the act. 32. Against this Ld. authorized representative submitted that The CIT(A) has fairly allowed the issue in assessee‟s favor by holding that for invoking section 40(A)(2) of the Act, it is the onus of the assessing officer to establish with evidence market value of such service charges paid to RPPPL. The said onus has clearly been not discharged by the assessing officer and, therefore, disallowance made by the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion avoidance agreement such income would be chargeable to tax as other income not as fees for technical services. He submitted that therefore tax should have been deducted on this sum, as it is chargeable to tax in India. 37. Ld. authorized representative submitted that The expenses of Rs. 17,17,863 consisting of Rs. 17,05,830 and Rs. 12,033 were made to Xansa, UK pursuant to agreement between it and the assessee, dated 16.4.2003. In the present case, Xansa UK has rendered management, business advisory services, design / lay out services, and provided assistance in engagement of overseas consultants, lawyers, to explore the possibilities of acquisition of businesses. He further submitted that in terms of, payments for rendering any technical and consultancy services which make available technical knowledge, skill, etc., are included within the ambit of "fees for technical services" under the Indo-UK DTAA. He referred that definition of the term "fees for technical services" in terms the Article 13(4)(c) of the Indo-UK DTAA is restricted in scope, in as much as payment of consideration for services of managerial, technical or consultancy nature would be regarded as 'fees for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the double taxation avoidance agreement as according to him they are not chargeable to tax in India. He referred to the number of decisions of various courts to support his argument placed before us. Regarding the contention of the Ld. departmental representative that in the present case article 23 shall apply which is pertaining to other income, he submitted that in the present case in the hands of the recipient the article 7 or article 13 shall apply which is related to the business income of the recipient. 38. We have carefully considered the rival contentions. The Ld. 1st appellate authority has decided this issue is under:- "14.22 I have considered the submissions of the AR. In terms of section 90(2) of the Act, provisions of Double Taxation Avoidance Agreement, if it is beneficial, is to be followed for determining the tax liability of the non resident, assessee. I have examined the Double Taxation Avoidance Agreement between India and UK and India and Singapore, which are relevant for deciding taxability or otherwise of the above payment aggregating to Rs. 28,22,882 made by the appellant to non resident entities. It is not disputed that payment of Rs. 17,17,863 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation avoidance Agreement between India and Great Britain the definition of „fees for technical services‟ is as under:- 4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5 of this Article, the term "fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of ser- vices of technical or other personnel) which : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this Article is received ; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or (c) make available technical knowledge, experience, skill, know- how or processes, or consist of the development and transfer of a tech- nical plan or technical design. 40. Similarly according to the article 12 (4) of the double taxation avoidance Agreement between India and Singapore the definition of „fees for technical services‟ is under: 4. The term "fees fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the requirement of the DTAA. Therefore we do not find any infirmity in the order of the Ld. 1st appellate authority in holding that that these income are not chargeable to tax in India in terms of the double taxation avoidance agreement and therefore no tax is required to be withheld on such payments and hence he deleted the disallowance. Regarding the argument of the Ld. departmental representative that article 23 shall apply with respect to these payments, we are of the opinion that this argument is deserves to be rejected for the reason that article 23 of India UK DTAA provides as under: Article 23 Other income 1. Subject to the provisions of paragraph 2 of this Article, items of income beneficially owned by a resident of a Contracting State, wherever arising, other than income paid out of trusts or the estates of deceased persons in the course of administration, which are not dealt with in the foregoing Articles of this Convention, shall be taxable only in that State. 2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant with its AE. 1.3 That the CIT(A) erred on facts and in law in not appreciating that the appellant was a low risk captive service provider and appropriate adjustment in the operating profit margin of the assessee or the comparable companies was required to be made on this account. 1.4 Without prejudice, the CIT(A) erred on facts and in law in not considering the four years' average operating results of the appellant for the purpose of benchmarking international transactions of provision of IT enabled services to its associated enterprise. 1.5 Without prejudice, that the CIT(A) erred on facts and in law in not considering the operating profit results of only start-up companies for the purpose of benchmarking international transactions of provision of IT enabled services to its associated enterprise. 1.6 That the CIT(A) erred on facts and in law in not considering Alsec Technologies Ltd. and Compudyne Winfosystems Ltd. as comparable companies on the basis of the contention of the TPO that these companies had negative net worth and abnormal financial results. 1.7 That the CIT(A) erred on facts and in law in not considering Twin Star Sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the comparables selected for the purpose of comparability in analysis, he submitted that the Ld. TPO and CIT (A) in their orders have considered M/s Fortune Infotech Ltd as one of the comparable companies but he submitted that it is not functionally comparable as it has developed its own software system for rendering specialized services and cannot be compared with the BPO services. He supported his argument by the decision of Bangalore bench of tribunal in case of 24 x 7 customer.com private Ltd versus DCIT in ITA No. 22 7/Bangalore/2010 where it has been noted that the company has developed its own software and therefore cannot be considered as comparable to the assessee who was engaged in providing BPO services. He further referred to the decision of Delhi bench of tribunal in case of ESL services.com private limited versus ACIT ITA No. 1940 and 1982/del/2008 for the assessment year 2008 - 09 wherein this comparable has been rejected. He therefore pressed that this comparable should be removed from the list of comparables for comparing the arms length transaction of the international transactions entered into by the assessee. He further submitted that after exclusion of this com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... novo adjudication of the arm's length price deciding about this comparable in view of various decisions of the coordinate benches cited before us, after providing a reasonable opportunity of being heard to the assessee. We order accordingly. 50. Coming to the ground No. 1 of the appeal of the assessee against the order of the Ld. CIT appeal in sustaining the addition to the income of the appellant to the extent of Rs. 11935402/-, it was submitted before us that that the assessing officer while computing the adjustment to the arm‟s length price did not consider the benefit of range of 5% available to the appellant in terms of section 92C (2) of the income tax act. The Ld. and authorized representative referred to the explanatory memorandum to the Finance Bill 2002 and also to the various decisions of the tribunal wherein it is held that that the assessee is allowed the standard deduction of 5%. Furthermore it was also submitted that that loss in BPO segment of the appellant was an abnormal loss and not considering the 4 years average operating results of the appellant for the purpose of benchmarking of the international transactions. Assessee further contended by various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income, on account of prior period expenditure, by reducing net prior period income of Rs. 2,12,941 from export segment and adding back net prior period expenditure of Rs. 5,28,620 in the domestic segment. The assessing officer, however, made an addition of Rs. 2,12,941, holding that such set-off of prior period income from prior period expenditure is not allowable under section 37(1) of the Act. On appeal before the 1st appellate authority he confirmed the disallowance and therefore assessee is in appeal before us. 55. Ld. authorized representative submitted that the assessing officer has erred in making addition of net income arising from Exports segment on the ground that prior period expense is not allowable. On the other hand, disallowance of prior period expenses of Domestic segment have been allowed. He further submitted Without prejudice, though the expenses may be for the period prior to the relevant previous year but the expenses crystallized during the year as the expenses had been approved and passed in the accounts during the relevant previous year. He therefore referred to the decision of Hon‟ble Gujarat High Court in the case of Saurashtra Cement & Chemica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer has disallowed this expenses wide para number VIII of the assessment order wherein he held that that the prior period expenses are not allowable as expense. Ld. 1st appellate authority wide para No. 16.4 of his order has rejected the contention of the Ld. authorised representative that the adjustment may be allowed in assessment year 2003- 2004. However the detail of such liability adjustment is available at page No. 552 of the paper book wherein in schedule „O" of the annual accounts of the company bifurcated into the export segment and the domestic segment and netted adjustment of Rs. 3 15879/-is debited to the profit and loss account. Vide Paper book page No. 554 to 558 details of such expenditure in the form of the Ledger accounts are also provided. It is an accepted proposition that the expenses are not considered prior period expenses merely because they pertain to the earlier period to the accounting period as they may be admitted by the parties during the current year. This is also the basic principle of the mercantile system of accounting that when the parties admit the liabilities the right to recover the expenses arises. Therefore when the bills are approve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same and therefore for identical reasons we also dismiss ground No. 1 of this appeal of the revenue. 63. Ground No. 2 of the appeal was also stated to be similar to ground No. 2 of the appeal of the revenue for assessment year 2004 -2005 in case of the assessee. The parties also stated that the same arguments may also be considered while deciding this ground of appeal. 64. We have carefully considered the rival contentions and also perused ground No. 2 of the appeal of the revenue for assessment year 2004- 2005 which has been decided by us by this common order. The parties before us did not point out any change in the facts and circumstances of the case. We find both the grounds similar except the amounts. We have already decided ground No. 2 in that particular appeal where we have dismissed the ground of the appeal of the revenue. Therefore, similarly for identical reasons we also dismiss ground No. 2 of the appeal of the revenue for this year. 65. In the result appeal of the revenue in ITA No. 3671 Del 2013 for assessment year 2005 2006 filed by the revenue is dismissed. ITA NO 3673/Del/2013 ( by revenue ) AY 2006-07 66. Revenue has raised the following grounds of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has raised the following grounds of appeal in ITA No.5798/Del/2012 for the Assessment Year 2008-09:- "1. That the assessing officer erred on facts and in. law in completing the assessment under section 144C/143(3) of the Income-tax Act, 1961 ('the Act') at an income of Rs. 76,64,85,790 as against income of Rs. 60,01,15,583 returned by the appellant. 2. That the assessing officer/DRP erred on facts and in law in disallowing Rs. 15,70,53,928, being 25% of subsistence allowance paid by the appellant amounting to Rs. 62,82,15,691, on account of overseas stay of the appellant's employees. 2.1 That the assessing officer/DRP erred on facts and in law in not appreciating that the subsistence allowance was paid by the appellant on account of actual expenditure incurred by the appellant's employees and the same was duly supported by vouchers/ declarations given by the employees. 2.2 That the assessing officer/DRP erred on facts and in law in alternatively holding that 25% of subsistence allowance paid by the appellant was, even otherwise, disallowable under section 40(a)(i) as the appellant failed to deduct tax at source under section 195 of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputing interest under sections 234B of the Act." 73. In the present case appellant filed its return of income on 30/09/2008 declaring income of Rs. 600115583/-and Ld. assessing officer passed an assessment order pursuant to the direction of Ld Dispute Resolution Panel making disallowance of deduction under section 10A of Rs. 583136774/-and disallowance of subsistence allowance of Rs. 15705 3928/-. Against this disallowance this appeal is filed before us. 74. Ground No. 1 of the appeal of of the assessee is general in nature and therefore same is dismissed. 75. Ground No. 2 of the appeal of the assessee is that the Ld. assessing officer on direction of Ld. DRP disallowed Rs. 15705 3928/-being 25% of subsistence allowance paid by the appellant amounting to Rs. 628215691/- on account of overseas stay of the appellant‟s employees. Parties before us submitted that this is identical to the ground No. 3 of the appeal of the revenue in case of the assessee in ITA No. 2283/DEL/2011 for assessment year 2004-05. Parties also submitted that there is no difference in the facts and circumstances of the case for this year. They also submitted that the same arguments which were advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lecommunication charges (Rs. 2.73 lacs), subsistence for onsite employees (Rs. 410.44 lacs ) and standby and call out charges (Rs/ 51.59 lacs) are not to be taken into account for the purpose of computing the profit eligible for deduction u/s 10A of the Act." 82. The ground No. 1 of the appeal of revenue is against the disallowance of subsistence allowance to the extent of 25% deleted by the Ld. CIT appeal. The parties before us submitted that this is identical to the ground No. 3 of the appeal of the revenue for assessment year 2004 -2005 when there is no change in the facts and circumstances of the case in their arguments also remain similar, which may be considered. 83. We have carefully considered the rival contentions and also perused ground No. 3 of the appeal of the revenue for assessment year 2004- 2005 and we are of the view that similar issue is involved in this ground. We have already dismissed ground No. 3 of the appeal of the revenue for assessment year 2004- 2005 therefore similarly we also dismiss ground No. 1 of the appeal of the revenue in this appeal. 84. Ground No. 2 of the appeal of the revenue is against reduction in deduction under section 10 A of the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
