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TMI Blog2024 (7) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... o pertinent to note that the reference u/s 92CA(1) of the Act to the ld TPO was made by the ld AO after the survey proceedings. Hence, even the findings of the survey team were very much available before the ld TPO. We find that the cost allocation on the basis of headcount has been affirmed to be an appropriate allocation key by the Hon ble jurisdictional High Court in the case of CIT Vs. EHPT India Private Limited. [ 2011 (12) TMI 49 - DELHI HIGH COURT] It is also pertinent to note that no adjustment has been made on the impugned transactions in the hands of Genpact India Private Limited in AYs 2017-18 and 2018-19 in the scrutiny assessments framed u/s 143(3) read with section 144C(13) read which section 144B. Thus following the principle of consistency, we hold that the cost allocation key on the basis of headcount should not be disturbed for the year under consideration. Accordingly, the ground Nos. 2 and 3 raised by the assessee are allowed. Non granting the depreciation allowance towards the intangible assets (being customer contracts as well as assembled workforce - HELD THAT:- We find that in AY 2010-11 [ 2023 (3) TMI 83 - ITAT DELHI] this Tribunal in assessee s own case ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt services cost; 3.2 not appreciating the fact that headcount represents an appropriate allocation key for allocating such costs, since the employees represent key resources utilized in the industry and overheads are planned/ incurred considering the number of employees in the organization." 3. We have heard the rival submissions and perused the material available on record. The ground No. 1 raised by the assessee is general in nature and does not require any specific adjudication. 4. The ground Nos. 2 and 3 raised by the assessee are challenging the disallowances of cost of support services amounting to ₹ 6,43,00,860/-. 5. We have heard the rival submissions and perused the material available on record. The assessee is the Indian branch office of Genpact LLC, a USA Company. The assessee is a service provider rendering off- shore support services akin to BPO services, including collections/analytics, call centre services and other back-office support services to its Associated Enterprises (AEs). The assessee is responsible for rendering the designated BPO collections services from its facility/ infrastructure in India. For the AY 2017-18, the assessee filed its return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Admittedly, the ld TPO in the instant case was satisfied with the mark up of 5% provided in the cost sharing agreement and had not disputed the allocation of expenses in respect of services rendered to the assessee from its AEs. The ld AR before us argued that the ld. AO had proceeded to retest the ALP of the international transaction pertaining to support services. It is not in dispute that cost allocation key followed by the assessee was accepted by the revenue over the years. However, during the year under consideration, the ld AO had sought to disturb the cost allocation methodology in the form of 'headcount basis' which has been accepted from AY 2012-13 onwards, and proposing a disallowance of Rs 6,43,00,860/-. The ld AR also placed reliance on the CBDT Instruction No.3/2016 dated 10.03.2016. 8. Further, ld AO in his order had observed that management, administration, human resource, legal, finance and accounting functions are independently performed by Genpact Services Ltd India branch by itself. To buttress this, the ld AR submitted that the assessee was responsible for performance of these functions, the execution of the same was outsourced by the assessee to its AE, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. 3. HR, training, finance, legal etc. Headcount Support provided to the business of the Appellant is not represented by the employee cost, but by the number of employees employed. 4. Staff welfare cost Headcount Primarily consists of transportation cost of the employees (cab, buses etc.) which is standard for all employees. 5. Rent Area usage Charged on the basis of total area usage which is irrespective of the revenue earned. 6. Electricity and water Area usage Charged on the basis of total area usage which is irrespective of the revenue earned. 7. Repair and maintenance Area usage Charged on the basis of total area usage which is irrespective of the revenue earned. 10. It is pertinent to note that the allocations made by the assessee with regard to rent, electricity, water and repair and maintenance above were duly accepted by the AO. Only allocation of expenditure on the basis of "headcount" was sought to be disturbed by the ld AO. It was submitted that the very fact that different expenses were allocated on different basis, considering the nature of expenses, itself, demonstrate that such allocation was based on proper analysis by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, headcount is the appropriate basis of allocation for these services. 11. The fact of services being rendered is not disputed by the revenue right from the time of survey. In fact, both the ld AO and ld DRP merely rely on the findings given in AY 2015-16. In our considered opinion, the cost allocation Key on 'headcount basis' has been duly examined and accepted by the ld TPO to be at ALP in the transfer pricing proceedings u/s 92CA(3) of the Act. The same cannot be subjected to retest by the ld AO in the peculiar facts and circumstances of the instant case , under the garb of examining the same in the context of allowability of deduction u/s 37 of the Act as argued by the ld DR before us. No doubt, the scope of ld TPO is only to ensure whether the pricing of services is at arm's-length or not. But for that purpose, the cost sharing agreement, cost allocation keys used thereon and reasons for such usage of allocation keys are very much material for the ld TPO to examine and conclude whether the pricing thereon is at ALP or not. In the instant case, all these documents were duly placed on record before the ld TPO and the same was accepted to be at ALP by the ld TPO. It is also p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y had reimbursed its share of common pool expenses which were claimed to have been incurred by its related parties for and on its behalf. In order to verify the genuineness of the aforesaid claim of receipt/payment of reimbursement of expenses the A.O called upon the assessee to furnish the requisite details in respect of the same. In reply, it was submitted by the assessee that Cable and Wireless group had two entities operating in India viz. (i) Cable And Wireless India Ltd. (i.e the assessee); and (ii) Cable & Wireless Networks India Pvt. Ltd. (for short 'CWNIPL). It was stated by the assessee that CWNIPL was engaged in the business of carrying on telecommunication networking services which included providing of National Long Distance (NLD) and International Long Distance (ILD) services. It was submitted by the assessee that administrative functions of finance, human resources for both of the aforesaid entities were managed by common staff which was under the payroll of CWNIPL. On the basis of the aforesaid facts, it was the claim of the assessee that the expenses which were incurred in respect of the aforesaid administrative functions were cross charged to it by CWNIPL on cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment proceedings made a reference to the Transfer Pricing Officer-1(3)(1), Mumbai (for short 'TPO') for the purpose of determining the Arm's Length Price (ALP) of the international transactions of the assessee as were detailed in its 'Audit report' in 'Form No. 3CEB'. On the basis of his order passed under Sec. 92CA(3), dated 25.01.2016, the TPO had held the international transactions of the assessee to be at arm's length. It has been the claim of the assessee before the lower authorities, and also before us, that once the TPO had held the transaction of reimbursement of expenses to be at arm's length, the A.O as per Sec. 92CA(4) was obligated to pass an order in conformity with the ALP determined by the TPO. As such, it was the claim of the Id. A.R, that after the TPO had held the reimbursement of expense by the assessee to its AE viz. CWNIPL to be at arm's length, the A.O was divested of his jurisdiction to relook into the basis of allocation of such expenses, as he as per Sec. 92CA(4) of the Act remained under a statutory obligation to pass the order in conformity with the ALP determined by the TPO. (ii). We have given a thoughtful co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, had not disturbed the arm's length price of the transaction of reimbursement of expenses by the assessee to its AE viz. CWNIPL, therefore, a relooking into the basis of allocation of such expenses inter se the assessee and CWNIPL would clearly militate against the express provisions of Sec. 92CA(4) of the Act. Our aforesaid view, that the A.O as per the mandate of Sec. 92CA(4) is obligated to compute the income of the assessee in conformity with the ALP so determined by the TPO, is fortified by the judgment of the Hon'ble High Court of Bombay in Vodafone India Service (P) Ltd. Vs. Union of India (2013) 359 ITR 133 (Bom) and that of the Hon'ble High Court of Delhi in CIT Vs. Oracle India (P) Ltd. (2011) 243 CTR 103 (Del). Also, support is drawn from the order of the ITAT, Delhi in DCIT vs, YKK India Pvt. Ltd. Accordingly, on the basis of our aforesaid observations, we are of a strong conviction that the rejection of the allocation key of reimbursement of expenses by the assessee to its AE viz. CWNIPL after the arm's length price of the same had been accepted by the TPO, would clearly be contrary to the mandate of law. 13. Further, we find that the allocation k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed workforce) was claimed as revenue expenditure by the Appellant on its return of income ('ROI'), filed for AY 2010-11. Subsequently, the ROI of AY 2010-11 was selected for scrutiny assessment under section 143(3) of the Act. The Ld. AO, vide assessment order, dated May 21, 2014 (enclosed as Appendix 1), inter-alia, took a view that the aforesaid amount of Rs. 22,16,00,276, incurred by the Appellant towards acquisition of customer contracts and assembled workforce, is in the nature of capital expenditure and hence the same should have been capitalised as intangible assets by the Appellant. Accordingly, the sum of Rs. 22, 16,00,276 was added back to the returned income of the Appellant and a corresponding depreciation claim of 25% i.e., Rs. 5,54,00,069 was allowed to the Appellant under section 32(1)(ii) of the Act. Being aggrieved by the aforesaid assessment order passed for AY 2010-11, the Appellant preferred an appeal before the Ld. Commissioner of Income-tax (Appeal) ['CIT(A)'] On appeal, the Ld. CIT(A) vide its order, dated February 15, 2016, passed under section 250 of the Act, had upheld the view taken by dead Further, the Ld. CIT(A), for the limited ..... X X X X Extracts X X X X X X X X Extracts X X X X
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