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TMI Blog2016 (11) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside to the file of the Ld. assessing officer for verification of the correctness of allocation keys, because in the remand report Ld. assessing officer could not point out any infirmity or irrationality involved in adoption of the allocation keys suggested by the assessee further even the 1st appellate authority is also convinced about the appropriateness of the allocation key and before us the Ld. departmental representative could not point out any error in the order of the keys adopted by the assessee in the order of the Ld. that 1st appellate authority. It is also important to note that even if the business support cost is located on the basis of revenue then also PLI of the assessee is higher than the PLI of comparables. This fact also suggest that original selection of allocation keys without identifying direct cost and indirect cost and also allocation of space cost was erroneous. Further with respect to exclusion of one of the comparable namely Apex Logical data Conversions Private Limited by Ld. Transfer pricing officer without assigning any reason, the Ld. CIT (A) has included this comparable in the final set of comparable companies. Before us Ld. departmental rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t point out any quantification made by the Ld AO about the amount expenditure related to previous year and earlier years. Therefore when the assessment order does not mention about the vouchers and declaration which are pertaining to earlier years, then in that case that verification needs to be done by the lf AO only, hence there is no infirmity in the order of ld CIT (A) in directing ld AO to verify the claim of the assessee form that aspect and quantify the disallowance, if any. In view of this, we confirm the order of the first appellate authority deleting the disallowance of subsistence allowance expenses. - Decided against revenue Addition u/s 40A - Held that:- The provisions of section 40 A (2) (a) speaks that where any expenditure has been incurred by the assessee paid to a specified person and Ld. assessing officer forms an opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods for which the payment is made or the legitimate needs of the business of the assessee or the benefit derived by or accruing to him, then he can disallow so much of the expenditure as is considered by him to be excessive or unreasonable. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue has raised the following grounds of appeal in ITA No.2283/Del/2011 for the Assessment Year 2004-05 against the order of the Ld. Commissioner of Income Tax (Appeals)-XX, New Delhi[ hereinafter 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 ₹ 1,19,35,400/-, the adjustment of ₹ 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 circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21,97,584 3. Provision of IT enabled services (received) 18,14,42,916 4. Reimbursement (received) 7,00,00,419 5. Reimbursement (paid) 3,96,753 5. Therefore, reference was made by Ld. assessing officer[hereinafter referred to as AO ] to the LD Transfer Pricing Officer [hereinafter referred to as TPO ] to determine the arms length price [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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 418574482/- deduction u/s 10A was determined at ₹ 280540361/- and thereby causing disallowance of ₹ 138034121/-. 9. A further sum of ₹ 110986543/- was disallowed u/s 40a(i) of the Act for non-deduction of tax at source and payment without evidence wherein 25% of total subsistence allowance of ₹ 44.39 crore was disallowed. 10. Over and above some other disallowance were also made such as disallowance of ₹ 827000/- u/s 40A (2) of the Act and disallowance of ₹ 2822882/- on account of legal and professional charges expenses holding that it is paid to various non residence and on which tax is not deducted at source therefore disallowable u/s 40a(i) of the Act. Some other minor disallowances were also made. 11. The assessee aggrieved with the order of the ld Assessing Officer preferred an appeal before the ld CIT(A) XX, New Delhi who vide order dated 28.02.2011 confirmed 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 ₹ 91320537/- made by the Ld. transfer prici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the ld. Transfer Pricing Officer without giving any reason was included in the comparables and thereby computed the average PLI of comparables at 17.15% and determined the arms length price of the transaction of ₹ 194970402/- against the transaction ₹ 183035000/- and confirmed the addition of ₹ 11935402/-. Therefore revenue is in appeal before us by this ground of appeal and it is appropriate to mention here that assessee is in appeal on confirmation of addition of ₹ 11935402/-on account of transfer pricing issues. 14. The LD Departmental representative has submitted that according to para 7.14 the LD CIT(A) has accepted the explanation of the assessee with respect to allocation of business support cost as submitted by the assessee. He submitted that assessee itself has allocated the business support cost on the basis of headcount‟ and it was accepted by the Ld. TPO. No arguments were raised for applying different allocation keys to allocate the business support cost of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt cost. Wherever issue of locating indirect cost arises the respective allocation keys are used. When the expenses are related to the number of employees it is located on the basis of headcount and in other cases such as space cost it is located on the basis of seats. He also referred to a chart submitted wherein after such allocation profit before interest and taxes as percentage of cost was 12% and the profit level indicator was worked out as 17.5%. In nutshell he submitted that headcount of the employees is not correct allocation key for allocation of business support cost. For this proposition a relied upon the decision of the Hon‟ble Delhi High Court in case of CIT versus EHPT India private limited (ITA No. 1172/2008). He further submitted that margin of the appellant company is at 12% which is within the range of 5% of comparables at 17.5% and therefore the international transactions of the group of IT enabled services is at arm‟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 rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia private limited (6 ITR (TRI) 81 (Bangalore)) and other decisions. In the result he submitted that that the Ld. CIT (A) has considered the correct allocation key of the business support cost of the assessee based on the appropriate allocation key with respect to each expenditure. 18. We have carefully considered the rival contentions and also perused the material available on record as well as the arguments advanced by the parties. The only dispute involved in this ground of appeal is that international transactions of appellant pertaining to provision of IT enabled services to its associated enterprise has resulted into a loss originally shown by the assessee at 19.16 %. Earlier according to the assessee such losses arose because of initial period of setting up of the business of BPO segment of the appellant and it was gestation period therefore there was a mismatch between the cost incurred in respect of the same segment and the revenue generated 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason that BPO segment is in a primitive stage or in a start-up stage. In any case it may be an idle capacity created and therefore for the working out of the PLI of the BPO segment that particular cost also requires to be eliminated. In view of the above facts and circumstances, we do not see any infirmity in the revised working of allocation of direct cost of business support services as well as allocation of indirect business support cost based on headcount and space cost on the basis of number of desk. Further with respect to the change in the stand of appellant on various allocation keys, we are of the view that object is to find out whether the international transactions have been carried out by the assessee with its associated enterprise is at arm‟s length or not. Provisions of section 92C prescribes 6 methods by which this exercise can be done by adopting most appropriate method having regard to the nature of transaction or 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables. This fact also suggest that original selection of allocation keys without identifying direct cost and indirect cost and also allocation of space cost was erroneous. 19. Further with respect to exclusion of one of the comparable namely Apex Logical data Conversions Private Limited by Ld. Transfer pricing officer without assigning any reason, the Ld. CIT (A) has included this comparable in the final set of comparable companies. Before us Ld. departmental representative could not point out any reason that why this comparable was excluded from the final list without giving any reason. The appellant has also included this comparable into its TP study report and also neither the Ld. transfer pricing officer nor Ld. departmental representative could point out that this company was functionally not comparable with the appellant we find no infirmity in the order of Ld. CIT appeal in including this comparable for the comparability analysis 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 10A of the Act as expenses incurred in foreign currency specified above are not includible in export turnover‟ as per clause (iv) of the explanation 2 to that section. He further referred to number of decisions where in it is held that for computation of deduction under section 10A of the Act, total turnover in the denominator and export turnover in the numerator have to be read in the same manner and accordingly, the expenses incurred in foreign exchange are to be excluded from export turnover in the numerator then the same are also to excluded from total turnover in the denominator. He submitted that Delhi Bench of the Tribunal in the assessee‟s case for assessment year 2003-04 has upheld the contention in this regard. In view of the above, he submitted that even if any freight, telecommunication or insurance expense or expenses in providing technical services outside India during the year, are reduced from the export 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 alre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to be withheld in India on such payment as it is merely a reimbursement of the amount of subsistence allowance initially paid by the UK company on behalf of the appellant to its employees and there is no income chargeable to tax in India. He further held that such subsistence allowance would be taxable in the hands of the employees if it is demonstrated that the entire payment is not actually spent for official purposes by the employees. He further noted that since 75% of the expenses are supported by the evidence of the actual expenditure it is allowed by the Ld. assessing officer and to the extent of 25% of the amount merely declaration has been furnished with respect to the such amount spent in the course of travel abroad. He held that such expenditure cannot be disallowed when the same is confirmed by way of declaration received from various employees. Revenue aggrieved with the order of the Ld. CIT appeal has preferred this ground in 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 allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ITI Limited (CA Nos. 1001, 1002 to 1009 of 2005) rendered vide order dated 21.01.2009, wherein it is held that the employer, for allowing exemption of local travel allowance under section 10(5) of the Act, was under no statutory obligation to collect and examine the supporting evidence to the declaration submitted by the employee while deducting tax at source under section 192 of the Act. It was stated that it has been held likewise by the Supreme Court in the case of CIT vs. Larsen and Toubro Ltd Ors.: (2009) 313 ITR 1 vide order dated 21.01.2009. He stated that it is not disputed that the payment of subsistence allowance is made to the employees, who were on travel overseas for business purposes of the assessee. Further, payment of subsistence allowance to the employees has been made by Xansa UK on behalf of and as per instructions of the assessee. The payment is made to Xansa UK towards reimbursement for the amount of subsistence allowance paid by 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsistence allowance to the employees of the assessee, on the basis of a certificate issued by a Chartered Accountant certifying that no tax was required to be deducted from such payment. He relied up on the decision of Honourable Supreme Court in GE India Technology Centre (supra), where in it is held that no tax is required to be deducted under section 195(1) of the Act from the payment to non-resident, which is not chargeable to tax in India. The Supreme Court further held that the payer is required to obtain certificate under section 195(2) of the Act from the assessing officer only in a case where the payer is of the view that the payment is liable to tax in India, but is not certain as to what part of payment would constitute 'income' chargeable to tax in India. In that view of the matter, the disallowance of 25% of the total expenditure on subsistence allowance amounting to ₹ 44,39,46,173 is based wholly on conjectures and surmises, and 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 ₹ 43946173/-paid by appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a company or to a foreign company, on which tax is deductible at source under Chapter XVJI-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 11.62 Section 40a(i) of the Act provides for disallowance of any expenditure being interest, royalty, fee for technical services or other some chargeable under this Act payable to a non resident on whioch tax is deductible at source under Chapter-XVII-B and such tax has not been deducted. For making disallowance under section 40a(i), the payment should be of a sum chargeable under this Act on which tax id deductible at source under Chapter XVII-B. Therefore, we are required to examine as to the payment of subsistence allowance by the appellant is chargeable under this Act and tax was deductible at source from such payment. 11.63 The appellant 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees, who are on travel to UK. The said amount paid by Xansa-UK towards subsistence allowance to the employees is reimbursed by the appellant. 11. 66 The employees subsequently on their return from travel settle their tour expenses with the appellant and submit vouchers / supporting papers for the expenses incurred by them to the extent of 75% of the subsistence allowance and for balance 25%, a confirmation/certificate certifying that to that extent the amount was actually spent on various expenses on subsistence, is submitted by the employee. The above fact relating to reimbursement of subsistence allowance are borne out from facts on record and are not disputed. 11.67 It is also not disputed that to the extent of 75% of the amount paid as substance allowance to the employees, the employees have furnished to the appellant supporting papers / vouchers for the actual expenses on boarding, lodging, etc., incurred by them. For 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would be necessary that the aforesaid payment on account of reimbursement of subsistence allowance to Xansa UK is chargeable to tax in India in its hands. 11.71 The Supreme Court in the case of Transmission Corporation of A.P. Ltd. v. CIT: 239 ITR 587, held that the tax is required to be deducted from payment made to non-resident as per section 195 of the Act, if such payment is chargeable to tax in India 11.72 The Supreme Court, recently, in the case of GE India Technology Centre (P) Ltd. vs CIT: 327 ITR 456 held that no tax is required to be deducted under section 195(1) of the Act from the payment to non resident which are not chargeable to tax in India. The Supreme Court further held that the payer is required to obtain certificate under section 195(2) of the Act from the assessing officer only in a case where the payer is sure that the payment is liable to tax in India, but is not certain as to what 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident, the payer is under an obligation to deduct TAS in respect of such composite payments. The obligation to deduct TAS is, however, limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. This obligation being limited to the appropriate proportion of income flows from the words used in Section 195(1), namely, chargeable under the provisions of the Act . It is for this reason that vide Circular No. 728 dated October 30, 1995 the CBDT has clarified that the tax deductor can take into consideration the effect of DTAA in respect of payment of royalties and technical fees while deducting TAS. It may also be noted that Section 195(1) is in identical terms with Section 18(3B) of the 1922 Act. In CIT vs. Cooper Engineering [68 ITR 457] it was pointed out that if the payment made by the resident to the non-resident was an amount which was not 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s liable to tax in India. The payer is bound to deduct TAS only if the tax is assessable in India. If tax is not so assessable, there is no question of TAS being deducted. [See: Vijay Ship Breaking Corporation and Others vs. CIT 314 ITR 309] 11.73 Therefore, in my view, since the payment to Xansa-UK is only a reimbursement of subsistence allowance paid to the employees of the appellant, and is not chargeable to tax in India, no tax was required to be deducted from such payment and hence provisions of section 40a(i) cannot be invoked to make disallowance. 11.74 Section 10(14)(i) of the Act exempts certain special allowance or benefit which are granted to meet expenses wholly, necessarily and exclusively for performance of the duties of office or employment to the extent to which such expenses are actually incurred for that purpose. Further, Rule 2BB(1) of the Income-tax Rules prescribes for the purpose of 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 oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imbursed by the appellant to Xansa-UK. The 25% of the amount paid as subsistence allowance which is held as non business expenditure by the assessing officer, is confirmed by way of declaration received from employees. 11.79 It is also a settled position that any amount paid by way of salary or remuneration to the employees is to be held as allowable business expenditure. I, therefore, disagree with this contention of the assessing officer and held the entire payment of subsistence allowance as business expenditure. (d) Previous year expenditure : 11.80 The assessing officer has noted that some part of the expenditure of subsistence allowance claimed as deduction in the relevant previous year relates to expenditure actually incurred in the preceding previous year. If the expenditure is not incurred in the relevant previous year, the same cannot be allowed as deduction. The assessing officer is directed 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rification needs to be done by the lf AO only, hence there is no infirmity in the order of ld CIT (A) in directing ld AO to verify the claim of the assessee form that aspect and quantify the disallowance, if any. In view of this, we confirm the order of the first appellate authority deleting the disallowance of subsistence allowance expenses and dismiss ground No. 3 of the appeal of the revenue. 30. Ground No. 4 of the appeal of the revenue is against disallowance of ₹ 827000/- paid to M/s Roto power projects private limited by invoking provisions of section 40 A (2) (b) of the income tax act deleted by the 1st appellate authority. During the relevant assessment year, the assessee had purchased diesel for the purpose of its business from Roto Power Projects (P.) Ltd. The assessee had also paid liasoning charges of ₹ 8,27,000 to RPPPL, being 10% of the amount paid for purchase of diesel as per the agreement, for the additional 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 expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue is dismissed. 34. Ground No. 5 of the appeal of the revenue is the disallowance of ₹ 2822882/-made out of legal and professional charges expenses by holding that the said payments made to various non-resident was taxable in India by the Ld. of assessing officer by invoking the provisions of section 40 (a) (ia) is deleted by the 1st appellate authority. 35. The brief facts of the disallowances that the assessee has made the certain payments under the head legal and professional expenditure without deduction of tax under section 195 of the income tax act. Therefore invoking the provisions of section 40 (a) (i) the amount was disallowed. 36. Ld. departmental representative submitted that the payment of legal and professional fees , the income is chargeable to tax in India in view of the provisions of section 9(1)(vii) rws explanation 2 of the income tax act. It was further submitted that according to the article 23 of the double taxation 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of royalty or fee for technical services, covered under Article 13 of the DTAA with UK were not liable to tax in India. Also, payment aggregating to ₹ 2,38,491 comprising of ₹ 70,035, ₹ 1,15,372 and ₹ 53,084, were paid to E Y, Singapore were on account of professional services rendered by them and they were not in the nature of fee for technical services‟ covered under Article 12(4)(b) of DTAA with Singapore since they do not make available technical skill, know how etc. through which the assessee is enabled to apply the said skill, know how etc. to its business. For similar reasons, payment made to Xansa Singapore of ₹ 3,62,741, being reimbursement for the professional services rendered by them was not in the nature of fee for technical services in terms of Article 12 of DTAA with Singapore and therefore not liable to tax in India. In nutshell he submitted that there is no requirement of tax deduction at source on the sums in India applying the provisions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2,38,491 (comprising of ₹ 70,035, ₹ 1,15,372 and ₹ 53,084) to E Y, Singapore was on account of professional services rendered by them. 14.24 The aforesaid payment is not in the nature of royalty or fee for technical services in terms of Article 12 of the Double Taxation Avoidance Agreement with Singapore and it is, in fact, independent personal sendees covered under Article 14 of the Double Taxation Avoidance Agreement with Singapore. The said payment also is not liable to tax in India as the same does not involve stay of service provider in India for the period exceeding 90 days. The aggregate payment of ₹ 28,22,882, therefore, made to the non resident is not taxable in India. Tax, therefore, is not required to be deducted from such payment and there is no occasion to invoke section 40(a)(i) of the Act for non deduction of tax at source from the payment. The disallowance made by the assessing officer, therefore, is not correct and is directed to the deleted. 39. According to the article 13 (4) of the double taxation avoidance Agreement between India and Great Britain the definition of fees for technical services‟ is as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisition of the businesses. According to us the Ld. CIT appeal has correctly held that the above test of make available is not satisfied in terms of the provisions of article 13 of the Indo UK DTAA hence the fees paid by appellant to the UK company would not be taxable in India. Similarly with the fees paid to the Ernst Young Singapore was on account of professional services rendered by them, which are not in the nature of the fees for technical services but on account of the professional services rendered by them. Similarly the amount paid to M/s Xansa , Singapore was also on account of the reimbursement of the professional services rendered by them and not being in the nature of the fees for technical services. Ld. Departmental representative before us could draw our attention towards the fact that how these services have been made available to the assessee by the various service providers. We also do not find content of any services where the ld AO has shown that such services have been made available to the assessee in terms 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the result, appeal of the revenue in ITA number to 283/Del/2011 for assessment year 2004 05 is dismissed. 43. Now we come to the appeal of the assessee wherein assessee has raised the following grounds of appeal in ITA No.2577/Del/2011 for the Assessment Year 2004-05:- 1. That the Commissioner of Income-tax (Appeals) (UCIT(A) ) erred on facts and in law in sustaining addition to the income of the appellant to the extent of ₹ 1,19,35,402 on account of the alleged difference in the arm's length price of the international transaction of provision of IT enabled services by the appellant to its Associated Enterprise, Xansa UK. 1.1 That the CIT(A) erred on facts and in law in not appreciating that loss in BPO segment of the appellant was an abnormal loss due to the same being a start up unit and in the gestation period. 1.2 That the CIT(A) erred on facts and in law in not rejecting the contention of the TPO that the loss in BPO segment of the appellant was inextricably linked to the price setting mechanism of the appellant 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 serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he admission of the additional ground prayer under rule 11 of the income tax appellate Tribunal Rules 1963 was filed. It was contended by Ld. authorized representative that there is no estoppels in law and it is open for the assessee to resile from the position wrongly taken as this comparable has been taken by the assessee in its Transfer pricing Study report. It was further submitted that above additional ground of appeal does not require any fresh adjudication into facts as the facts relating to these comparable forms part of the transfer pricing study filed by the assessee and considered by the Ld. transfer pricing officer and the 1st appellate authority. It was further submitted that in view of the various decision of coordinate benches holding that Fortune Infotech Ltd is not a valid comparable to an assessee engaged in the profession of ITES and therefore the omission to raise the additional ground of appeal is neither willful nor deliberate. In view of this he submitted that the additional ground of appeal may be admitted. 46. Referring to the comparables selected for the purpose of comparability in analysis, he submitted that the Ld. TPO and CIT (A) in their orders have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f DCIT versus Quark systems private limited 4 ITR (trib) 606 wherein it is held that assessee is not estopped from pointing out at any stage that a comparable is wrongly selected. Therefore we reject the contention of the Ld. departmental representative that though assessee has taken the same comparable into its transfer pricing study report now it cannot resile from that stand contending for its exclusion. Further, as assessee has already taken this comparable into its transfer pricing study report, which is available on record we are of the opinion that additional ground of appeal needs to be admitted, as no further facts are required to be adduced. In the result we admit the additional ground of appeal for adjudication. 49. Firstly we adjudicate the additional ground of appeal and respectfully following the decision of the special bench of the tribunal in case of DCIT versus Quark systems private limited (supra) , we deem it fit and proper to remit the matter to the file of the Assessing Officer for consideration of claim of the taxpayer and make a de novo adjudication of the arm's length price deciding about this comparable in view of various decisions of the coordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not find any finding in the order with respect to ground No. 2.1 to 2.6 raised before him. Therefore we set aside this ground of appeal to the file of the Ld. CIT (A) to decide them afresh. Accordingly we allow ground No. 1 of the appeal of the assessee accordingly with above direction. 53. Ground No. 2 of the appeal was not pressed before us as after verification of facts, the expenditure has been allowed in the year under consideration by the assessing officer vide order dated 20.10.2011 passed under section 250/143(3) of the Act and therefore it is dismissed. 54. Ground No. 3 of the appeal is against the disallowance of ₹ 212941/- on account of prior period expenses confirmed by the Ld. and 1st appellate authority on the ground that the expenditure should have been claimed in the year in which it was incurred. During the relevant assessment year, the appellant had disclosed certain prior period expenses. From such expenditure, the appellant had set-off the prior period income. In the return of income, assessee made a net addition of ₹ 3,15,679/- to the total income, on account of prior period expenditure, by reducing net prior period income of ₹ 2,12,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that once the assessing officer had assessed prior period income in the present year, there was no reason to disallow the claim of the appellant regarding the prior period expenses. In view of the aforesaid, it was submitted that the assessing officer erred in adding back prior period expenses to the profit and loss account of the appellant as the expenses had crystallized during the relevant previous year only and, therefore, the disallowance made by the assessing officer in this regard may be deleted. He also raised an alternative argument that the assessing officer may kindly be directed to allow the expenditure relatable to the previous year relevant to assessment year 2003-04, to which such expenses pertain. 56. Ld. departmental representative relied upon the order of the lower authorities and submitted that the expenditure have been stated to be pertaining to the earlier years which cannot be allowed in this year and therefore the disallowance has rightly been made and confirmed by the 1st appellate authority. 57. We have carefully considered the rival contentions. The Ld. assessing officer has disallowed this expenses wide para number VIII of the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 276005/- made by the AO by disallowing 25% of subsistence allowance. 2. ld CIT(A) erred in law and on the facts of the case in allowing the claim of the assessee under section 10A of the Act at ₹ 791913860/- as against ₹ 492560381/- allowed by the AO. 61. Before us the parties submitted that the ground No. 1 of the appeal of the revenue is identical to the ground No. 3 of the appeal of the revenue in ITA number to 2283/ Del/ 2011 for assessment year 2004- 2005. Parties also submitted that arguments raised by them for and against this ground in that appeal are also squarely applicable to the facts of this case and therefore they may be considered. 62. We have carefully considered the rival contentions and we also perused ground No. 1 of the appeal of the revenue in this appeal with the ground No. 3 of the appeal of the revenue for assessment year 2004- 2005. The parties did not point out any change in the facts and circumstances of the case .We also are of the view that they are same except the amount of addition/disallowances. We have already dismissed the ground No. 3 of that appeal giving our reasons for the same and therefore for identical reasons we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy dismissed the ground No. 3 of that appeal and therefore we also dismiss ground No. 1 of the appeal of the revenue in the present appeal. 69. 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 the case of assessee. The parties also stated that the same arguments may also be considered while deciding this ground of appeal. 70. 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 same reasons we also dismiss ground No. 2 of the appeal of the revenue for this year. 71. In the result appeal of the revenue in ITA No. 3673/ Del/ 2013 for assessment year 2006-07 filed by the revenue is dismissed. ITA NO 5798/Del/2012 A Y 2008-09 ( BY Assessee) 72. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the export turnover of the Noida-4 unit, without / making the similar adjustment from the turnover has resulted into absurd and unintended results. 3.2 That the assessing officer/DRP erred in excluding foreign exchange fluctuation gain from the 'export turnover' of Chennai unit, for the purpose of computing deduction under section 10A of the Act. 3.3 Without prejudice that the assessing officer erred in not excluding foreign exchange fluctuation loss from the 'total turnover1 of Chennai unit, for the purpose of computing deduction under section 10A of the Act. 3.4 That the assessing officer/DRP erred, while making the purported adjustment from the export turnover , following the assessment order for preceding assessment years, without appreciating that the said issue has already been decided by the ITAT in favor of the appellant for the assessment year 2003-04. 3.5 Without prejudice that the assessing officer/DRP erred in not excluding foreign exchange fluctuation loss from the 'total turnover' of Noida-4 unit, for the purpose of computing deduction under section 10A of the Act, specifically in view of the fact that the foreign ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he grounds of appeal and the issue involved therein. The issue is about the computation of the export turnover and total turnover while computing deduction under section 10 A of the income tax act. We have already decided ground No. 2 of the appeal of the revenue for assessment year 2004 -2005 by this order. We have dismissed that ground. Therefore similarly we allow ground No. 3 of the appeal of the assessee for similar reasons. 79. The ground No. 4 of the appeal of the assessee is against charging interest under section 234B of the income tax act. It was submitted before us that this is a consequential ground hence we dismiss the same. In the result ground No. 4 of the appeal of the assessee is dismissed. 80. In the result appeal of the assessee in ITA No. 5798/DEL/2012 for assessment year 2008 -2009 is partly allowed. ITA No.628/Del/2014 ( by revenue) Assessment Year 2009-10:- 81. Revenue has raised the following grounds of appeal in ITA No.628/Del/2014 for the Assessment Year 2009-10:- 1. The CIT(A) has erred in deleting the disallowance of ₹ 26339000/- being 25% of the expenditure on subsistence allowance by wrongly holding that disallowance of non-d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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