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TMI Blog2020 (3) TMI 1418X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed any of those methods, which is not a curable defect and goes to the root of the matter. We are of the considered view that the addition made by the TPO cannot be sustained. We further note that the DRP has also erred in not following any of the prescribed method and agreed with the incremental benefit approach adopted by the TPO by taking the actual figures up to A.Y. 2014-15 and for subsequent year directing the TPO to deflate the projected revenue figures by applying average rate of 22.68%. The case of the assessee is supported by case of Tecumseh Products India (P) Ltd. [ 2014 (4) TMI 816 - ITAT HYDERABAD] In the case of Firmenich Armatics India (P) Ltd. [ 2018 (9) TMI 1007 - ITAT MUMBAI] as held that TPO is duty bound to determine arm s length price of international transaction by adopting one of the methods prescribed under statute and cannot deviate from restrictions/conditions imposed under statute. It further held that there is no provisions under the Act empowering TPO to determine arm s length price on estimate basis, that too, by entertaining doubts with regard to business expediency of payment and in process stepping into shoes of the AO for making disallowance u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the issue is identical to the one as decided by the co-ordinate Bench in assessee s own case A.Y. 2003-04 respectfully, following the said order allow the ground raised by the assessee. Deduction u/s 10A after setting off the losses of certain STP/SEZ units against the profits of the STP/SEZ units of the assessee - HELD THAT:- As decided in own case for A.Y. 2005-06 [ 2019 (1) TMI 1128 - ITAT MUMBAI] decided the issue in favour of the assessee as relying on case of Yokogawa India Ltd. [ 2016 (12) TMI 881 - SUPREME COURT] Disallowance of deprecation on intangible assets acquired by the assessee on acquisition of customer contracts, which do not fall under the definition of intangible assets u/s. 32(1) - HELD THAT:- We find that co-ordinate Bench of the Tribunal has decided identical issue in favour of the assessee in its own case for A.Ys. 2005-06 [ 2019 (1) TMI 1128 - ITAT MUMBAI] there is no dispute that by acquiring M/s. Town and Country Assistance Ltd. the assessee has also acquired contractual rights which, no doubt, is a valuable commercial right. Therefore, it comes within the meaning of intangible asset as per section 32(1)(ii) r/w Explanation 3(b) of the Act. Hence, depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available as per law. However, the Assessing Officer has not given effect to the order of the DRP. We direct the Assessing Officer to give effect to the order of the DRP and after verifying the claim of the assessee, allow the same to the extent available in terms of the directions of DRP. This ground is allowed. Disallowance of depreciation on the acquisition of MSA from foreign AE WCIL - HELD THAT:- Since for A.Y. 2011-12 we have already decided the issue in favour of the assessee holding that the price paid by the assessee to foreign AE on account of purchase of MSA is at arm s length price and is a commercial right. Since this is a intangible assets being commercial rights within the meaning of section 32(1)(ii) of the Act and eligible for depreciation. Accordingly , we hold that depreciation is to be allowed to assessee. The AO is directed accordingly by setting aside the order of DRP on this issue. Disallowance of depreciation on intangible assets - HELD THAT:- Commercial rights acquired by the assessee are in the nature of intangible asset as per section 32(1)(ii) read with Explanation 3(b) of the Act and depreciation is allowable on the said rights. Accordingly, we allow t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as "the Act") relating to assessment years 2011-12 & 2012-13 respectively. 2. We shall first take up appeal in ITA No.1955/Mum/2016 for A.Y. 2011-12, wherein following Grounds of appeal have been raised: "Based on the facts and in the circumstances of the case and in law, the Appellant respectfully craves leave to prefer an appeal against the order passed by the Deputy Commissioner of Income-tax, Circle - 14(3)(1), Mumbai [ learned AO], under Section 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 ('Act') ('Assessment order'), in pursuance of the directions issued by Dispute Resolution Panel - 2 ('Hon'ble DRP'), Mumbai, on the following grounds : On the facts and circumstances of the case and in law, the Learned AO, based on the directions of the Hon'ble DRP has: General Ground 1. The learned AO/Hon'ble DRP erred in determining the total taxable income of the Appellant for AY 2011-12 at Rs 85,35,18,207 instead of the income offered by the Appellant for the subject AY under normal provisions of the Act in its income-tax return. 2. The learned AO has erred in passing a draft assessment order in the case of the Appellant in lieu of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by eligible STP units (under section 10A of the Act) should be computed without considering the gain from forex derivative contracts. 9. The learned AO erred in not setting off brought forward business losses and unabsorbed depreciation pertaining to earlier years to the tune of Rs. 189,06,58,168 (as per the return of income) against the assessed total income for the assessment year under consideration and carry forward of the balance business loss and unabsorbed depreciation to future years as per the provisions of the Act. 10. The learned AO has erred in initiating penalty proceedings under Section 271(1)(c) of the Act." 3. The facts in brief are that that assessee i.e. WNS Global Services Private Limited, hereinafter referred to as WNS India. The assessee filed its return of income on 30.11.2011 declaring total income at Rs Nil, which was processed u/s. 143(1) of the Act. Subsequently, the case was selected for scrutiny and statutory notices were duly issued and served upon the assessee. It is engaged in the business of providing information technology enabled business process outsourcing servicing, including data processing and transmission of data. During the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervicing Aviva under the MSA were merged into the assessee under the Scheme of Amalgamation sanctioned by the Hon'ble Bombay High Court vide its order dated 11.08.2009. With the merger of various WNS group Indian legal entities servicing Aviva having merged into one entity, assessee became the primary entity servicing the MSA in India. The assessee also became liable for entire service deliveries not only in India but also in Sri Lanka and thereby responsible for all the economic profits derived from the Sri Lankan operations of the MSA. Further pursuant to the purchase of MSA, the 15:85 arrangement between WCIL and WNS Sri Lanka was terminated and new agreement was entered into by the assessee with WNS Sri Lanka under which WNS Sri Lanka operated on a cost plus mark-up basis. 6. The learned TPO determined the ALP based on incremental benefit approach. He determined the ALP by considering only incremental value earned by WNS India by replacing actual billings for the period 1.4.2011 to 31.03.2014. Accordingly, by passing an order u/s. 92CA(3) of the Act on 30.01.2015 made an adjustment of Rs 171,93,20,475/- to the ALP on account of purchase of business rights (MSA for Rs 4,91,61,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenues provided by the assesses company. 8.20 It is also noted by the DRP that the revenues are over-projected by more than 49.86% for the F.Y, 2013-14, if the projected revenue is used as a base. The relevant calculation for the various years is tabulated below:- S.No. Financial Year Projected Revenues (In Million USD) Actual Revenues (In Million USD) Difference (In Million USD) % Overvaluation with Actuals as Base 1 2011-12 88.3 81.18 7.12 8.77 2 2012-13 100.3 76.67 23.63 30.82 3 2013-14 113.7 75.87 37.83 49.86 Total 302.3 233.72 68.58 29.34 8.21 Similar overvaluation of revenues is also seen for the earnings / revenue attributable to Srilanka. A comparison of the actuals with the projected revenues is revealing and thus is tabulated below:- S.No. Financial Year Projected Revenues (In Million USD) Actual Revenues (In Million USD) Difference (In Million USD) % Overvaluation with Actuals as Base % Overvaluation with Projected Revenues as Base 1 2011-12 13.25 12.18 1.07 8.78 8.07 2 2012-13 15.05 11.5 3.55 30.86 23.58 3 2013-14 17.06 11.38 5.68 49.91 33.29 Total 45.36 35.06 0.3 29.37 22.70 8.22 The DRP has noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenues in a substantial manner. Accordingly, the Assessing Officer/TPO is directed to re-compute the ALP of the international transaction and the TP adjustment on this account. Aggrieved by the order of the DRP, the assessee preferred appeal before us. 8. During the course of hearing, learned senior counsel for the assessee Shri Porus Kaka vehemently argued that neither the TPO nor the DRP has followed any of the transfer pricing method as specified in section 92C of the Act to determine the ALP for the purchase of MSA from the associate concern viz. WCIL. The learned AR submitted that the assessee in its transfer pricing study has followed Comparable Uncontrolled Price (CUP) as the most appropriate method with the value determined under the valuation report given by an independent valuer as a valid CUP. In defence of this arguments, the learned AR relied on the following decisions: i) Tecumseh Products India (P) Ltd. vs. ACIT ITA 1686/Hyd/2010 and ii) Social Media India Ltd. vs. ACIT 28 ITR (T) 212 The learned AR further submitted that TPO is duty bound to determine the ALP of international transactions by adopting one of the methods prescribed under the act and cannot d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench the detailed methodology and steps undertaken by the valuer to arrive at the valuation. He submitted that since the TPO & the DRP have found no fault in steps/methodology adopted by the independent valuer to arrive at the valuation, the same should be accepted as the ALP. The learned AR also referred and relied upon the note from Duff & Phelps India Private Limited (earlier known as American Appraisal India Private Limited) which clearly explains the rationale of undertaking the valuation from a market participant approach i.e. determination of fair value of a market based measurement is not an entity specific measurement. Accordingly, the learned AR contended the projected revenue and projected operating EBIT from unexpired period of the MSA was considered to determine the price payable by WNS India to WCL. The learned AR also referred and relied on the decision of Hon'ble Apex Court in the case of G L Sultania and Anr. Vs. SEBI & Ors (AIR 2007 SC 2172), wherein the Apex court while dealing with objections related to the issue on valuation has clearly held that "unless it is shown that some well accepted principle of valuation has been department from without any reason, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on 31 March 2011 (Number of months) 33 Unexpired portion of MSA (Number of moths) 67 Unamortized portion of the MSA Incentive Payment (USD million) 106.83 The learned AR submitted that the amortized value (USD 106.83 million) of the incentive payment for remaining number of months being the payment made to Aviva (the third party customer) ought to be a valid CUP benchmark to determine the ALP of the transaction and, accordingly, the consideration of USD 110 million paid by the assessee to WCIL should be considered as the ALP and no adjustment to the value of the international transaction be made in the present case. The learned AR relied on the decision of the Tribunal in the case of DCIT vs. Calance Software (P.) Ltd. (ITA 5023/Del/2012). 11. The learned AR also contended that the projections cannot be substituted by actuals and hindsight ought not to affect a valuation report. The learned AR submitted that the value determined as of a specific point of time is a function of facts that existed and events anticipated as at that point of time of undertaking the valuation. Because factual evidence from subsequent events that occurred would not have been available to a willi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that there is no provision under Act empowering TPO to determine ALP on estimate basis. 14. The learned AR stated that assessee has purchased the business and commercial rights from WCIL in March 2011 on the basis of a valuation undertaken by an independent valuer, who valued the rights from servicing of the MSA entered into between WCIL and Aviva Singapore on 11th July 2008. He submitted that prior to restructuring undertaken in 2009, the delivery centres in India and Sri Lanka received 85% of the revenues collected by WCIL from Aviva Singapore while 15% of the revenue was retained by WCIL. Pursuant to the purchase of MSA, the assessee became the primary entity servicing the contract and, accordingly, 100% of the revenues in respect of this MSA accrued to the assessee from Aviva Singapore. Given the above scenario, the learned AR submitted that it is quite evident that 15% of the total billings to Aviva Singapore which would have otherwise been retained by WCIL should also now additionally be considered as the incremental earnings for the assessee, which are directly resulting from the purchase of the MSA. The total incremental earnings on this account amounts to USD 61.39 mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are two appeals pertaining to A.Ys. 2011-12 and 2012-13. He requested to hear the appeals simultaneously so that the orders are passed together as A.Y. 2012-13 has a bearing for A.Y. 2011-12. The learned DR submitted that for A.Y. 2012-13, the learned DRP has held the core issue is whether depreciation is allowable or nor on the business or commercial rights purchased by the assessee. According to the DR, the provision of section 32(1)(ii) of the Act depreciation is intended to a limited category of intangible asset. The customer base acquired by the assessee cannot be termed as knowhow, patent, copyright or trademark or franchise as these are enforceable rights while in the instant case is of commercial rights not having the similar nature. It also cannot be considered as license or business or commercial right of similar nature, as it does not relate to any intellectual property, whereas section 32(1 )(ii) contemplate depreciation in respect of those license or right which relate to intellectual property. The section 32(1)(ii) contemplates business or commercial right relating to intellectual property and not to all categories of business or commercial right. The learned DR whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Hon'ble Delhi High Court in the case of CIT vs Dalmia Dadri Cement Ltd [1980] 124 ITR 510. The learned DR also relied on the order of the Tribunal, dated 04.11.2016, in the case of Sanyo BPL Pvt. Ltd vs. DCIT being TA No. 1395/Bang/2014 for A.Y. 2006-07, wherein it has held that the Assessing Officer is justified in denying depreciation claim on the intangible asset of distribution network on the inflated value of the asset. It is an attempt by the assessee company to claim higher depreciation and avoid payment of tax in the hands of the transferor of the business by claiming to be a slump sale transaction. This has been done by invoking the provisions of Explanation 3 to section 43(1) of the Act dealing with actual cost. The Tribunal observed that it is nothing but a colourful device adopted with an intention to avoid tax. The learned DR submitted that depreciation is allowable and admissible on the actual cost as defined u/s. 143(1) of the Act. 19. The Legislature has prefixed the word 'actual' to the word 'cost' in section 43(1) which suggests that the intention of the Legislature was to curb the malpractices and tendencies to inflate capital costs for obtaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or such other relevant factors as the Board may prescribe. Thus, it has been specifically provided in the provisions of section 92C(1) that TPO is duty bound to determine the arm's length price of the international transaction only by following any one of the method prescribed. However, in the present case the TPO has not followed any of those methods, which is not a curable defect and goes to the root of the matter. Under these circumstances, we are of the considered view that the addition made by the TPO cannot be sustained. We further note that the DRP has also erred in not following any of the prescribed method and agreed with the incremental benefit approach adopted by the TPO by taking the actual figures up to A.Y. 2014-15 and for subsequent year directing the TPO to deflate the projected revenue figures by applying average rate of 22.68%. The case of the assessee is supported by the decision of the Hyderabad Bench of the Tribunal in the case of Tecumseh Products India (P) Ltd. vs. ACIT ITA (supra). The relevant para is reproduced as under: "... This being so, the value paid by Assessee duly supported by valuation report cannot be ignored. In case of any doubt on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding a valuation report as external CUP. Nothing has been brought on record by the TPO or by the DRP to determine the ALP against the value shown by the assessee. In the absence of any counter report by the TPO/DRP or separate valuation done by the TPO, the assessee 's valuation has to be accepted as it was supported by an independent valuer, who determined the cost price on the actual expenditure incurred by the AE. Considering the totality of the facts of the case, we are of the opinion that the website purchased by the assessee has to be considered at Arm's length. " In the case of Firmenich Armatics India (P) Ltd. vs. DCIT [2018] 96 Taxmann.com 649, the Co-ordinate Bench has held that TPO is duty bound to determine arm's length price of international transaction by adopting one of the methods prescribed under statute and cannot deviate from restrictions/conditions imposed under statute. It further held that there is no provisions under the Act empowering TPO to determine arm's length price on estimate basis, that too, by entertaining doubts with regard to business expediency of payment and in process stepping into shoes of the AO for making disallowance u/s. 37(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fixed percentage of the free on board value of export made by unrelated party vendors. " Having considered the facts of the case in the light of the ratio laid down in the above decisions by the Delhi High Court and various co-ordinate Benches of the Tribunal, we are of the view that the adjustment as made by the TPO/DRP is without any jurisdiction and cannot be sustained. 21. Even on the issue of determining arm's length price on the basis of valuation report from the independent valuer, we find that the TPO/DRP has not found any fault in the report in which the projected revenue and projected operating from the unexpired period of the MSA was considered to determine the price payable by WNS India to WCIL and, therefore, the TPO/DRP cannot resort to their own estimate in determining the arm's length price. The case of the assessee is supported by the decision of the Hon'ble Supreme Court in the case of G L Sultania & Anr. Vs. SEBI & Ors. (AIR 2005 SC 2172), wherein the Apex Court while dealing with the objection related to the issue on valuation has clearly held as under: "80.... It appears to us that the appellant expects this Court to act as an expert itself. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt Assessee 's contentions. "Similarly, in the case under consideration, Assessee justified the price paid by way of a certificate which can be considered as external CUP. Since TPO/DRP did not rely on any other certificate and in the absence of any contrary information, price paid by Assessee, which was lesser than the value mentioned in the certificate can be accepted as such. For these reasons, we allow Assessee's ground and direct the AO/TPO to accept Assessee's valuation and allow depreciation as claimed. Grounds pertaining to this issue are allowed. " 23. In view of these facts, we are not able to subscribe to the conclusion reached by the learned DRP/TPO. 24. We further note that WCIL had paid Aviva Singapore an incentive payment of GBP 80 million for securing contract with Aviva Singapore with a minimum business of 3000 Full Time Employees for the entire contract period of 8 years and 4 months and the unamortized portion of the MSA incentive payment as on the date of purchase of MSA by the assessee was USD 106.83 million and the assessee was to be benefitted by the higher hourly charge outs agreed with Aviva Singapore. This payment is akin to the cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion making the actual results are irrelevant. In the present case, the valuation was done by two independent valuers not by the assessee. The other issue with this are that the revenue adopted the actuals of AE without considering whether they were revenues generated out of the 'IP' or not. They simply adopted the revenues ofAE without giving proper findings that the revenues ofAE were all generated only out of this 'IP' (Jungle Book). The assessee submitted that these revenues were generated by 'AE' out of other properties (IPs) as well. The revenue cannot adopt such values without proper verification. For valuation of an intangible asset, only the future projections alone can be adopted and such valuation cannot be reviewed with actuals after 3 or 4 years down the line. Accordingly, the grounds raised by assessee are allowed." 26. We are also of the view that in case the actual working of the contract/hindsight is to be treated as genuine for valuation then transfer of customer relationship by WCIL to the assessee and renewal/extension of contract apart from the MSA incentive payment for the unamortized period must be taken into account for determining th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 10A of the Act amounting to Rs.31,89,63,,890/- in respect of the assessee's STPI units in Mumbai and Pune in the light of the erstwhile provisions of sub-section(9) of section 10A of the Act. 3.5.2 In the year under consideration WNS(Mauritius) Ltd. a wholly owned subsidiary of WNS Holdings acquired the entire share capital of the assessee from British Airways Ltd., U.K. In the return of income the assessee for assessment year 2003-04 the assessee had claimed deduction under section 10A of the Act; submitting that the amendment carried out by Finance Act, 2003, wherein section 10A(9) of the Act was deleted was an amendment of clarificatory nature and such deletion should be considered to have been omitted retrospectively. In original scrutiny assessment proceedings, the assessment was completed under section 143(3) of the Act vide order dated 17/3/2006 allowing this claim and accordingly the assessee was granted the deduction under section10A of the Act. In the order of re-assessment for assessment year 2003-04, passed under section 143(3) r.w.s. 263 of the Act vide order dated 23/12/2008, pursuant to revisionary proceedings, the assessee's claim for deduction under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f. 01.04.2004, it should be understood that the said section never existed in the statute book and therefore the benefit claimed by the assessee u/s. 10B should be allowed?" Their Lordships at para 7 and 8 of their order (supra) have answered the question holding as under:- "7. The Apex Court in the case of KOLHAPUR CANESUGAR WORKS LTD. VS UNION OF INIDA reported in AIR 2000 SC 811 dealing with the effect of deletion of a provision in the statute is held at Para 38 as under:- "38. The position is well-known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute book as completely as if it had never been passed, and the statute must be considered as a law that never existed. To this Rule, an exception is engrafted by the provisions of Section 6(1). If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission finds them, and if final relief has not been granted before the omission goes into effect, it cannot be granted afterwards. Savings of the nature contained in Section 6 or in special Acts may modify the position. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer to allow the assessee's claim for deduction under section 10A of the Act for assessment year 2003-04. It is accordingly ordered. 3.5.6 Before parting, we record that we have carefully perused the orders of the Co-ordinate benches of ITAT in ITA No.2566/Mum/2009 for assessment year 2004-05 and ITA No.348/Mum/2008 dated 17/06/2008 cited by the Ld. Departmental Representative. We find that contrary to this averments, these Co-ordinate benches have not adjudicated on the merits of the assessee's claim for deduction under section10A of the Act for assessment year 2003-04. In the Tribunal's order for assessment year 2004-05, the bench could not have adjudicated on the matter, as the present appeal for assessment year 2003-04 was not before it. In respect of the Tribunal's order dated 17/6/2009 the CIT's order under section 263 of the Act for assessment year 2003-04(supra), the bench has only upheld the CIT(A)'s assumption of jurisdiction under section 263 and not adjudicated on the assessee's claim for deduction under section 10A of the Act." Since the issue is identical to the one as decided by the co-ordinate Bench in assessee's own case, respectfully, following the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue is concerned, there is no dispute that by virtue of acquisition of M/s. Town and Country Assistance Ltd., various contracts executed by the said concern with third party clients were assigned to the assessee. It is also a fact that such acquisition took place by virtue of an agreement executed on 13th January 2004. It is also a fact on record that in assessment year 2004- 05, the assessee for the first time claimed depreciation by treating the capitalized value of the amount paid towards acquiring M/s. Town and Country Assistance Ltd., as an intangible asset and claimed depreciation @ 25%. Notably, the Assessing Officer while completing assessment under section 143(3) of the Act also allowed assessee's claim of depreciation. However, learned Commissioner of Income Tax revised the assessment order under section 263 of the Act. Subsequently, while deciding assessee's appeal against the said 29 WNS Global Services Pvt. Ltd. order the Tribunal quashed the order passed under section 263 of the Act and restored the assessment order. Thus, in effect, assessee's claim of depreciation in respect of intangible asset became final. In any case of the matter, there is no dispute that by ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P was also of the view that the foreign exchange gain is not directly generated or derived from export activity and results from a post export activity after the payment has been received and as such gain cannot be considered as profit derived by the assessee from export of goods. The observations of the DRP are as under: "16.1 On this issue, the DRP is of the view that the foreign exchange gain is not directly generated or derived from the export activity and results from a post export activity after the payment has been received. In these facts, such gain cannot be considered as profit derived by the assesses from the export of goods. Reliance in this regard, is placed on the judgment of CIT Vs. Shah Originals 327 ITR 19 (Bom), wherein it was held that exchange fluctuation in the EEFC account as well as the interest which has arisen as a result of the deposits maintained in the EEFC account, cannot be regarded as being part of the profits derived by the assesses from the export of goods or merchandise, therefore, cannot be included in the profit of business, while calculating deduction under s. 80HHC, The relevant portion of the judgment is reproduced below:- "11, The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication as income from other sources. Undoubtedly, as counsel appearing on behalf of the assessee submits, in determining under which head income would fall, the Court must be guided by the principle laid down by the Supreme Court in Nalinikant Ambalal Mody vs. S.A.L. Narayan Row, CIT (1966) 61 JTR 428 (SQ. The Supreme Court held that "whether an income falls under one head or another has to be decided according to the common notions of practical man, for the Act does not provide any guidance in the matter". The interest which accrued to the assessee on the deposits held in the EEFC account cannot be treated as business income, " 16.2 Reliance in this regard is also placed, on the following judgments of the Hon'ble Supreme Court: - (a) Cambay Electric Supply Co. Vs. CIT i 13 ITR 84 (SC) (b) CIT vs. Sterling Foods [1999] 237 ITR 579 (SC) (c) Pandian Chemicals Ltd. 262 ITR 278 (SC) 16.3 Also reliance is placed on the judgment of Hon'ble Madras High Court in the case of CIT vs. Eastern Sea Foods Exports P. Ltd. 215 ITR 64 (Mad.) Further, reliance is also placed on the judgment of Hon'ble Madras High Court in the case of India Cement International ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived from forward contracts entered into by the assessee engaged in export activity should be eligible for deduction:- • CIT vs. Gem Plus Jeweller India Ltd. 330 ITR 175 • PCIT vs. Jindal Drugs Ltd. 101 taxmann.316 (Bom) • CIT vs. Symantee Software India (P) Ltd. (Bom) In view of the above, the learned AR prayed that the AO's approach in assessee's own case for A.Ys. 2009-10, 2010-11 and 2012-13 and as has been held in the above judgments by the Hon'ble Bombay High Court, the AO be directed to follow consistency and forex gain on forward contracts be considered for computation of deduction u/s. 10A/10AA of the Act. 39. The learned DR, on the other hand, relied on the orders of the AO and learned DRP. He submitted that since such a huge gain is derived from the activities which are post export therefore, they should not be allowed to form part of the profit derived from export activity for the purpose of deduction u/s. 10A of the Act. On the issue of consistency, the AO submitted that year is different and the principle of res judicata is not applicable in the income-tax proceedings. 40. We have heard both the parties and perused the material available on re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple ofresjudicata could not as an abstract principle apply to assessment proceedings since each year of assessment has to be considered separately, yet when a fundamental aspect was duly considered after a query was raised by the Assessing Officer and was answered by the assessee on the same facts, a change in view, was evidently not warranted for the assessment year in question. So construed, we do not find that the decision of the Tribunal will give rise to any substantial question of law." 41. In view of the aforesaid facts and the ratio laid down by the Hon'ble Bombay High Court, we are of the view that the forex gain resulting from the settlement of derivative contract is part of the profit from export activity and eligible for deduction u/s. 10A. Besides, Hon'ble Bombay High Court has held in a series of decisions referred to by learned counsel for the assessee namely CIT vs. Gem Plus Jewellery India Ltd., PCIT vs. Jindal Drugs Ltd. and CIT vs. Symantec Software (P) Ltd. , that loss or gain derived from forward contracts entered into by an assessee engaged in export activity should be eligible for deduction. Accordingly, we set aside the order of the DRP on this issue and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er consideration which is a consequence of the adjustment proposed by the learned TPO's predecessor to the valuation of business and commercial rights purchased by the Assessee from its associated enterprise in AY 2011-12 without appreciating that disallowance of depreciation, if any, does not fall within Chapter X of the Act. Non Transfer Pricing Grounds 5. erred in disallowing depreciation amounting to Rs 45,85,659 on intangible assets acquired from WNS Global Services (UK) Limited by the Appellant contending that the rights acquired by the Appellant on acquisition of customer contracts do not fall under the definition of intangible assets under Section 32(1) of the Act. 6. erred in enhancing the disallowance of depreciation amounting to Rs 122,90,43,750 on intangible assets acquired from WNS Capital Investments Private Limited, Mauritius by the Appellant contending that the business rights acquired by the Appellant do not fall under the definition of intangible assets under Section 32(1) of the Act. 7. (a) The learned AO/Hon'ble DRP erred in holding that the loss from forex derivative contracts form part of the export activity of the Appellant and thus the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome for the assessment year under consideration as per the provisions of the Act. 10. The learned AO has erred in initiating penalty proceedings under Section 271 (1)(c) of the Act. Ground no.1 is general in nature and needs no adjudication. Accordingly, it is dismissed. 46. Ground nos. 2 to 4 is with regard to the disallowance of depreciation of Rs 42,98,30,119/- on the acquisition of MSA from foreign AE WCIL. Since for A.Y. 2011-12 we have already decided the issue in favour of the assessee holding that the price paid by the assessee to foreign AE on account of purchase of MSA is at arm's length price and is a commercial right. Since this is a intangible assets being commercial rights within the meaning of section 32(1)(ii) of the Act and eligible for depreciation. Accordingly , we hold that depreciation is to be allowed to assessee. The AO is directed accordingly by setting aside the order of DRP on this issue. 47. Ground nos. 5 and 6 pertain to disallowance of depreciation on intangible assets amounting to Rs 1,23,36,29,409/-. During the year the assessee has claimed depreciation on two commercial rights. One, the rights acquired by the assessee of Town & Country Assista ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 263 of the Act and restored the assessment order. Thus, in effect, assessee's claim of depreciation in respect of intangible asset became final. In any case of the matter, there is no dispute that by acquiring M/s. Town and Country Assistance Ltd. the assessee has also acquired contractual rights which, no doubt, is a valuable commercial right. Therefore, it comes within the meaning of intangible asset as per section 32(l)(ii) r/w Explanation 3(b) of the Act. Hence, depreciation claimed by the assessee is allowable. The decisions relied upon by the learned Sr. Counsel for the assessee also supports our aforesaid view. Accordingly, we uphold the decision of the learned Commissioner (Appeals) by dismissing the grounds raised.' From the perusal of the above, it is clear that the commercial rights acquired by the assessee are in the nature of intangible asset as per section 32(1)(ii) read with Explanation 3(b) of the Act and depreciation is allowable on the said rights. Accordingly, we allow the grounds raised by the assessee. Grounds are allowed. 49. The issue in ground no.7 is identical to ground no.8 as decided by us in the appeal for A.Y. 2011-12 above. Facts and cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Without prejudice to the arguments of the assessee in relation to invoking of Rule 8D, the learned AR submitted that interest expenditure of Rs 55.38 crores were directly attributable to a particular income/receipt. The learned AR submitted that the said interest comprised:- i) Interest on compulsorily convertible debentures of Rs 48.31 crores of interest; proceeds therefore were utilised for the purpose of acquiring customer contract. ii) Bank interest of Rs 3.84 crores, pertaining to pre-shipment credit in Foreign Currency facility taken for working capital purposes from BNP Paribas Bank/Citibank NA/Other banks and were specifically used for the purpose of export business and meet working capital requirements. Hence, the interest expenses of Rs 3.84 crores should not be considered for the purpose of computing disallowance under Rule 8D(2)(ii) of the Rules. iii) Interest on loan from related party of Rs 3.17 crores: The assessee had borrowed funds of Rs 22.55 cr from WNS Business Consulting Pvt. Ltd during the merger process in 2009 and, therefore, the interest should not be considered for the purpose of computing disallowance under Rule 8D(2)(ii). iv) Other interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer has only noted in the assessment order that disallowance of Rs 7,53,750/- is not correct as the same is not in accordance with the provisions of section 14A rule 8D. A reading of the said order reveals that the Assessing Officer has failed to record any satisfaction with respect to suo moto disallowance and how the disallowance as calculated by the Tax Auditor in the Tax Audit Report in Form 3CB in terms of section 44A of the Act is wrong having regard to the book of accounts. In our view, recording of satisfaction is a pre-requisite under the provisions of section 14A(2) before invoking the provisions of section 14A Rule 8D, which the Assessing Officer has failed to do. The case of the assessee is squarely covered by the decision of the jurisdictional High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra), wherein the Hon'ble Court has held that satisfaction of the Assessing Officer has to be objectively arrived at after considering all relevant facts and circumstances and books of accounts of the assessee. In the case of Maxopp Investment Ltd. & Ors. vs. CIT (supra), Hon'ble Delhi High Court has held that provisions of section 14A Rule 8D wou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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