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TMI Blog2020 (3) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... dit period extended to AE s for receivables and credit period taken by the assessee for making payments to AE s for payables is netted of then, the credit period allowed to AE is less than four days and which is less than the credit period allowed to non AE s. Therefore, no adjustment is required, in respect of interest on receivables from AE s. We, further noted that as a matter of fact, the assesse does not charged any interest, either from the AE, or from the non AE s towards extended credit period. CIT(A) was right in deleting additions made by the Ld. AO towards TPA on account of notional interest on receivables from AE s and hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue. Disallowances of deduction u/s 10A in respect of profits earned by the eligible units in view of erstwhile provisions of section 10A(9) - HELD THAT:- We find that the Tribunal has considered an identical issue for AY 2005-06 2008-09 [ 2019 (1) TMI 1128 - ITAT MUMBAI] and after considering the amendment made by the Finance Act, 2003, provisions of section 10A of the Act, held that omission of sub-section (9) of section 10A by the Finance Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in holding that the international transaction entered into by the assessee with its Authorised Representative including management and marketing fee paid by the assessee to the Authorised Representatives, the receipt of contract revenues and the bearing of migration costs by the assessee be benchmarked separately though being interrelated and not aggregated as done by the TPO. 2. On the facts and in the circumstances of the case and in law, the Id, CIT(A) erred in holding that the Authorised Representatives in UK and USA can be taken as tested party as they are performing Less complex functions and their comparables too are based in the same geographical area subject to the same accounting standards and holding that the TPO was not right in selecting the assesses as the tested party for benchmarking the international transactions. 3. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that the contracting migration costs should not be considered for the calculation of the operating margin of the assessee though they are in the nature of operational costs. 4. On the facts and in the circumstances of the case and in law, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he subsequent assessment years. 9. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in directing that the assessee be allowed depreciation of ₹ 1,93,23,292/- on the 'intangible asset representing consideration paid for acquisition of business contracts. 10. On the facts and in the circumstances of the case and in law, the Id, CIT(A) failed to appreciate that a running business has been acquired on a lump sum payment and the acquisition of the capital asset is of the business as a whole, and the capital asset does not have the characteristics of intangible assets as listed in clause (b) of Explanation 3 to section 32(1) of the IT Act. 11. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in directing the Assessing Officer to allow deduction u/s.10A on the various additions / disallowances made to the profits of the business in terms of the provisions of section 30 to 43D of the Income tax Act, 1961 without appreciating that the assessee is not entitled to deduction u/s.10A in view of the change in shareholding of the assessee company in the previous year 2002-03. 12. On the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T.Act, 1961, dated 21/02/2011 and determined total income at ₹ 175,58,10,390/- by making additions towards TPA u/s 92CA(3) of the Act, disallowances of depreciation on intangibles and adhoc disallowances of administrative expenses. 4. Aggrieved by the assessment order, the assesee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has challenged additions made by the Ld. AO towards TPA, in respect of receipt of contract revenue and other services. The assesse has also challenged additions made by the Ld. AO towards notional interest charged on export receivables for belated realization of proceeds from AE s and also, additions made by the Ld. AO towards disallowances of depreciation on intangibles and adhoc disallowances of administrative expenses. The Ld.CIT(A) for the reasons stated in his appellate order, dated 30/12/2011 has deleted additions made by the Ld. AO towards TPA, in respect of payment of marketing and management fees and receipt on account of contract revenue ect. The Ld.CIT(A) has also, deleted additions made by the Ld. AO towards interest on export receivables, on the ground that, as per the working of debt collection period submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-ordinate bench of ITAT, Mumbai in assessee own case for AY 2005-06 and 2008- 09, where under identical set of facts, the Tribunal has deleted TPA made by the Ld. AO/TPO towards international transactions of the assessee with its AE s, on the ground that once, the department itself has accepted the AE s as tested party, but also accepted the foreign comparables proposed by the assesee. The TPO cannot aggregate the international transactions for benchmarking. The Tribunal, further held that the transactions of the assessee with its AE do not form a single composite transactions and the terms of each transactions have been agreed separately by the assesee with its AE s. Thus, the Ld. TPO approach of aggregating the international transactions is not appropriate. The relevant findings of the Tribunal are as under:- 8. We have considered rival submissions and perused materials on record. As could be seen from the order of the Transfer Pricing Officer, primarily relying upon his decision in assessment year 2004-05, he has held that the assessee has to be treated as tested party and all international transactions have to be aggregated for bench marking purpose. However, it is observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al contentions and find from the nature of the transactions mentioned above that they are not interlinked as the various transactions form part of different business models adopted by the assessee. Thus, the learned TPO's approach of aggregating these international transactions and benchmarking the assessee at an entity level is not appropriate since the FAR profile of WNS India is different in both the transactions and hence, aggregating these international transactions and considering WNS India as the tested party is wholly misplaced and contrary to the TP regulations. In view of these factual position, the Hon'ble CIT(A) has correctly upheld the benchmarking approach adopted by the assessee. 22. For this purpose reliance may be placed on decision of the Hon'ble High Court of Punjab Haryana in the case of Knorr- Bremse India Pvt. Ltd., ITA No.172 182 of 2013) wherein the Hon'ble Court has upheld the principle that only closely linked transactions which are components of single composite transaction can constitute a transaction. 23. In view of the above, we observe that the aforesaid transactions do not form a single composite transaction and the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d credit period taken by the assesse for making payments to AE s, in respect of payables is netted off then. The credit period allowed to AE s is less than the credit period allowed to non AE s and hence, no TPA could be made, in respect of receivables from AE s. The Ld. AR, further submitted that in order to re-characterize receivables as international transactions, the Ld. TPO should bring on record, the benefit derived by the assessee by extended credit period to the AE s. Simply, because there is extended credit period for the AE s, no adjustment could be made, in respect of notional interest, when the assesee has explained the reasons for delay in realization of receivables from AE s. 10. The Ld. DR, on the other hand, strongly supporting order of the Ld.AO/TPO submitted that the issue, whether export receivables is a international transaction or not has been settled by the Hon ble Delhi High Court, in the case of M/s Mckinsey Knowledge Center India Pvt.Ltd. vs. PCIT ( 2018) taxmann.com 237, where it was held that if, there is any delay in the realization of a trading debt arising from the sales of goods or services rendered in the course of carrying on the business, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion receivables does not mean that de-hors the context every item of receivables appearing in the accounts of entity, which may have dealing with foreign AE s would automatically be characterized, as an international transactions. There may be delay in collection of money s for supplies made, even beyond the agreed limit due to a variety of factors, which will have to be investigated on case to case basis. The Hon ble Court, further held that when, the assesee is already factored the receivables in the working capital and thereby on its pricing/profitability vis- -vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterized the transactions, this was clearly impermissible in law. Therefore, he submitted even after making say ,the law is very clear, in respect of receivables from AE s, as per which each transactions has to be examined, in light of facts brought out by the assessee to bring it within the ambit of international transactions. He, further submitted that the ITAT has considered all these aspects for earlier years and held that while characterizing the export receivables fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions made by the Ld. AO towards TPA on account of notional interest on receivables from AE s and hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue. 14. The Next issue that came up for our consideration from ground No.7,8 11 of revenue appeal is disallowances of deduction u/s 10A of the I.T.Act, 1961, in respect of profits earned by the eligible units in view of erstwhile provisions of section 10A(9) of the Act. The Ld. AR for the assessee submitted that this issue is also covered in favour of the assessee by the decision of ITAT, Mumbai K bench in assessee own case for AY 2005-06 2008-09, where it has been held that omission of sub-section (9) of section 10A of the Act, by Finance Act, 2003 would effectively mean that the provision never existed in the statute. 15. The ld. DR, on the other hand, fairly accepted that the issue is covered in favour of the assessee by the decision of Tribunal for earlier years. 16. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that the Tribunal has considered an identical issue for AY 2005-06 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the I.T.Act, 1961, in respect of profits earned by the eligible units and hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the revenue. 18. The next issue that came up for our consideration from ground No.9 10 of assessee appeal is disallowances of depreciation on intangibles representing acquisition of business contracts. The Ld. AR for the assessee submitted that this issue is also covered in favour of the assessee by the decision of ITAT, Mumbai, K bench in assessee own case for AY 2005-06 2008-09. 19. We have heard both the parties, perused the material available on record. We find that the Tribunal has considered an identical issue for AY 2008-09, where under identical set of facts, it has bench held that the assessee has acquired contractual rights, which no doubt is a valuable commercial right and hence,it comes within the meaning of intangible assets, as per section 32(1)(ii) r.w. Explanation 3(b) of the Act and hence, the assessee is entitled for depreciation on said intangibles at the rate applicable to intangible assets. The relevant findings of the Tribunal are as under:- 40. We have considered rival submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses. The Ld. AO has disallowed administrative expenses of ₹ 5,35,000/-, on the ground that the onus is on the assesee to prove the fact of expenses, as well as to establish that these expenses were incurred for the purpose of the business, as provided u/s 37(1) of the I.T.Act, 1961. Since, the assessee has failed to provide necessary evidences, he has disallowed total expenditure of ₹ 5,35,000/- u/s 37(1) of the I.T.Act, 1961. The Ld.CIT(A) has restricted disallowances made by the Ld. AO towards administrative and other expenses to 50% of such expenses. 23. The Ld. AR for the assessee submitted that this issue is also covered in favour of the assessee by the decision of ITAT, Mumbai K bench for AY 2005-06 2008-09, where the Tribunal has directed the AO to restrict the disallowances to 10% of the total expenditure claimed by the assessee under the head other expenses. The ld. DR, on the other hand, fairly accepted that this issue is squarely covered in favour of the assessee by the decision of Tribunal for earlier years. 24. We have heard both the parties and perused the material available on record. We find that the issue is covered in favour of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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