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TMI Blog2024 (8) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... support services - DRP disallowing the expenditure incurred towards support services - as argued impugned transaction has been accepted by the TPO over the years, including the year under consideration, and hence, the same should not have been disturbed - disallowing the support services cost paid by the Appellant to the associated enterprise -changing the cost allocation methodology from headcount ratio to salary expense ratio, thereby partly disallowing support services cost - HELD THAT:- The issue is squarely covered in favour of the assessee by the decision of the ITAT, Delhi Coordinate Bench in assessee s own case[ 2024 (7) TMI 26 - ITAT DELHI] cost allocation key on the basis of headcount should not be disturbed for the year under consideration. 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 as relying on case of CIT Vs. EHPT India Private Limited. [ 2011 (12) TMI 49 - DELHI HIGH COURT] Depreciation allowance towards the intangible assets (being customer contracts as well as assembled workforce) - additional ground raised - HELD T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, Infobeans Technologies Limited, Manipal Digital Systems Private Limited, L&T Technology Services Ltd, R Systems International Ltd, Power Weave Software Services Pvt Ltd and Mindtree Ltd, for benchmarking the international transaction pertaining to provision of BPO services; 3.3 arbitrarily rejecting functionally comparable companies, namely, Allsec Technologies Ltd, 24/7 Customer Pvt Ltd, Wipro Ltd, CES Ltd, Excel Realty N Infra Ltd. (formerly known as Excel Infoways Ltd), Cosmic Global Ltd, IKF Technologies Ltd, Cameo Corporate Services Ltd, Jindal Intellicom Ltd and Capgemini Solutions Private Limited, for benchmarking the international transaction pertaining to provision of BPO services. 4. That on facts and in the circumstances of the case and in law, the AO erred in assuming jurisdiction over the international transaction of expenditure incurred towards support services, without appreciating that the same has been considered to be at arm's length by the TPO. 4.1 The AO/ DRP have further erred in disallowing the expenditure incurred towards support services without appreciating the fact that the impugned transaction has been accepted by the TPO over the years, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as well as assembled workforce)." 3. Briefly stated facts, are that assessee i.e. Genpact was incorporated in the year 1997, under the name of GE Capital International Services. It was established as an independent business unit of GE Capital. The organization was chartered to provide Business Process Management (BPM) capabilities that would deliver efficiencies to all business across GE. Genpact services LLC (India Branch) is the Indian branch of Genpact Services LLC, a US Corporation, GSL India Branch is a service provider rendering off-shore Business Process management services including collections / call centre services and other back-office support services to its AE. India branch is responsible for rendering the designated BPM/collections services from the facility in India. 3.1 In the collections area, India branch follows processes that greatly enhanced customer's performance and productivity in relation to recovery of their debts. In the collect area, India Branch delivers both voice and non-voice (emails, letters, faxes, etc) based on processes. The collections services are supported by analytics activities, which help the clients to make fact-based decisions for sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved are squarely covered in favour of the assessee by the decision dated 19.4.2024 of the ITAT, Delhi Coordinate Bench passed in assessee's own case passed in ITA No. 1833/Del/2022 (AY 2017-18). 7.1 As regards Ground No 3 with regard to comparables, Ld. AR for the assessee submitted that assessee has pressed exclusion of two comparable companies, viz. Inductis India Pvt. Ltd and Mentor Graphics India Pvt. Ltd, only. He further submitted that if these two comparables are excluded as they fail Related Party Transaction (RPT) Filter, assessee would be satisfied and other comparables may be treated as academic for the present appeal. 7.2 Per contra, Ld. DR did not dispute the aforesaid proposition of the Ld. AR. 7.3 Upon careful consideration, we note that both the above comparables for Related Party Transaction as submitted at Page No. 41 & 407 of the Paper Book Volume-II . It is noted that as per Page No. 41 of Paper Book which is a copy of Annual Report of Inductis India Pvt. Ltd., for financial years 2017-18, 2018- 19 out of the revenue of the Company 99% of the revenue is generated from inter co transaction. It is further noted that as per Page No. 407 of Paper Book which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be incurred. Further, the ld. AO had observed that the assessee had not provided the copy of cost sharing agreement either to ld TPO or before him. This is factually incorrect in view of the fact that the assessee had indeed provided the cost sharing agreement before the ld TPO for receipt of support services during the year under consideration which is evident from pages 183 to 190 of the paper book. In fact, the ld TPO had duly examined the said agreement together with the supporting evidences submitted by the assessee and had accepted the mark up of 5% in respect of cost of support services to be at ALP. We also find that the very same cost sharing agreement was also filed before the ld AO by the assessee in response to reply to Question No.7, vide letter dated 30.03.2021. Hence, it could be safely concluded that the findings recorded by the ld AO and affirmed by the ld DRP are based on incorrect assumption of facts. 9. With regard to plea taken by the ld DR that though the basis of allocation of expenses on the basis of 'headcount' has been accepted by the revenue in assessee's own on case from AY 2012- 13 onwards, there is a distinction during the year under consideration, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined before the lower authorities that it had considered "headcount" as an appropriate allocation key since the level of support required is dependent on the headcount in each entity. Key costs incurred such as electric facility, management, staff welfare, communication costs, human resources costs, etc, are driven by the number of employees using these facilities and accordingly, the headcount represents an appropriate allocation key for allocating costs in line with the basis of incurring such costs. It was also submitted that 'salary cost' would not be an appropriate allocation key in view of the following reasons:- Salary cost of employees is not an appropriate indicator of the support required by the businesses. It would be unreasonable to expect that the time or communication facilities extended to the employees depend on the salary of the respective employees. Similarly, for other heads as well, headcount was appropriately reflective of the level of support required by the assessee, for instance: - Telecommunication cost (voice based, and non-voice based) are charged on the basis the number of users (Headcount) irrespective of the revenue earned/ hierarchy. Thus, Headcou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reported in 350 ITR 41 (Del). Similar was the view taken by the coordinate bench of this tribunal in the case of Orange Business Services India Solution Pvt Ltd Vs. DCIT in ITA No. 6928/Del/2017 for AY 2013-14 dated 15.07.2021. Further, the coordinate bench of Mumbai tribunal in the case of Cable and Wireless India Ltd Vs. DCIT in ITA No. 6075/Mum/2017 for AY 2012-13, 756/Mum/2017 for AY 2013-14, 6074/Del/2017 for AY 2014-15 dated 25.02.2020, also had an occasion to adjudicate the similar issue, as is the case before us in the case of the assessee herein. Relevant observations of the decision of Mumbai Tribunal are as under:- "2. Briefly stated, the assessee company is a branch of a foreign company incorporated in United Kingdom and has been granted permission by the Reserve Bank of India to set up a branch office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, it was noticed by the A.O that the assessee had during the year under consideration claimed to have reimbursed an amount of Rs. 2,34,56,929/- to CWNIPL. It was the claim of the assessee that the aforesaid amount of reimbursement was towards support costs consisting of salary, leave encashment and gratuity expenses which were incurred by CWNIPL for and on its behalf on cost to cost basis. In order to fortify its aforesaid claim the assessee had also placed on record sample copies of 'debit notes'. On a perusal of the details furnished in the course of the assessment proceedings, it was noticed by the A.O that the assessee had claimed that the expenses incurred by CWNIPL in respect of rendering of administrative functions were allocated to the assessee by adopting the allocation key of head count basis, as under: However, the A.O was unable to persuade himself to accept the aforesaid claim of allocation of expenses on head count basis. It was observed by the A.O, that though the number of employees had fluctuated during the year under consideration but the administrative and human resource expenses had remained static at an amount of Rs. 1,90,247/- and Rs. 7,63,849/-, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, and are persuaded to subscribe to the aforesaid contention so advanced by him. Admittedly, the transaction of reimbursement of expenses by the assessee (a branch of a foreign company) to CWNIPL i.e its Indian AE, is an International transaction within the meaning of Sec.92B of the Act. As per Sec. 92CA(4) of the Act, on receipt of order under sub-section (3) of Sec. 92CA, the A.O shall proceed to compute the total income of the assessee under sub-section (4) of Sec. 92C in conformity with the arm's length price so determined by the TPO. As is discernible from the order of the DRP, it was the claim of the assessee that now when the Asst. Commissioner of Income-tax (Transfer Pricing)-1(3)(1), Mumbai, had during the course of the TP proceedings accepted the reimbursement of expenses to be at arm's length, therefore, as per the provisions of Sec. 92CA(4) of the Act, the A.O was obligated to pass the order and compute the total income of the assessee in conformity with the arm's length price so determined by the TPO. Also, in support of his aforesaid claim the assessee had relied on the order of the ITAT, Bangalore in the case of Herbalife International India (P) Ltd. Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the revenue as under:- AY Order passed u/s Order dated 2011-12 143(3) 25.05.2015 2012-13 143(3) 16.03.2016 2013-14 143(3) 13.10.2016 2014-15 143(3) 13.10.2016 2015-16 143(1) 12.10.2016 2016-17 143(1) 01-08-2017 14. 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 of the Act dated 30.10.2022, which are enclosed in pages 263 to 624 of the paper book and 625 to 860 of the paper book, respectively. 15. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove and also by 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. 8.3 Since it is not a case where facts are different, hence, respectfully following the aforesaid precedent, we direct the Assessing Officer to grant the relief, consequent to the aforesaid earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purpose of allowing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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