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TMI Blog2019 (2) TMI 2126X X X X Extracts X X X X X X X X Extracts X X X X ..... nder MAP in respect of USA and UK business should not be applied for business transaction of other countries also. We have no material to hold that the net margin rate for the non-UK and USA countries will be different from the net margin rate of transactions with USA and UK. We, therefore, set aside the orders of the lower authorities and direct the AO to adopt net margin @ 14.99% for the assessment year 2010-11 and 15.01% for the assessment year 2011-12. Therefore, the ground of appeal of the assessee is partly allowed. Disallowance of Prior Period expenses - HELD THAT:- The issue of alleged prior period expenses is restored to the file of the AO for examining/verifying the claim of the assessee and allowing the same if it is found that the payments have crystallized in the year under appeal. Deduction u/s 10A - Respectfully following the decision of Genpact India [2011 (11) TMI 119 - DELHI HIGH COURT] we set aside of the orders of lower authorities and direct the AO to compute deduction u/s 10A of the Act after deducting the Telecommunication expenses both from export turnover and total turnover of the assessee. Thus, this ground of appeal of the assessee is allowed. TDS cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm's length principle envisaged under the Income-tax Act, 1961 ('the Act'), and in doing so have grossly erred in: 2.1. rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant and in invoking provisions of 92C(3) of the Act contending that the information or data used in the computation of the arm's length price is not reliable or correct. 2.2. using data available at the time of assessment proceedings, instead of using data available at the time of preparing the TP documentation for comparable companies. In doing so, the Ld. Transfer Pricing Officer ('Ld. TPO') has ignored the fact that this data was not available to the Appellant at the time of complying with the TP documentation requirements. 2.3. not applying multiple year/ prior year data for comparable companies, while determining the arm's length price. 2.4. rejecting comparability analysis undertaken by the Appellant in the TP documentation, ignoring that such analysis was in accordance with the provisions of the Act read with the Income Tax Rules, 1962, ("the Rules"). 2.5. rejecting certain companies identified by the Appellant in the TP documentation, although such compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , although such companies are comparables. 1.5. including additional companies as part of the final set of companies, although such companies do not satisfy the test of comparability. 1.6. applying certain arbitrary filters in determining the arm's length price in connection with the international transactions pertaining to the BPO services segment and holding that the Appellant's international transaction is not at arm s length. 1.7. not applying multiple year/ prior year data for comparable companies, while determining the arm's length price. 1.8. computing the mark-ups of comparable companies based on erroneous computation methodology. 1.9. not examining the transfer pricing issue and without applying his mind with respect to the TP documentation/ other details instead made a reference to the Ld. Transfer Pricing Officer under section 92C(i) of the Act and thereby not discharging the necessary judicial function conferred under section 92C and section 92CA of the Act." 5. The brief facts of the case are that the assessee has done business of providing BPO services to Fortune 500 companies in the transaction processing and customer care services segments. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the matter with the United Kingdom Associated Enterprises and the United States of America Associated Enterprises has been settled under the Mutual Agreement Procedure as per copy forwarded by the Assessing Officer on March 14, 2018 in case of India-United Kingdom Mutual Agreement Resolution and copy forwarded by the AO dated 23.07.2018 in case of India-United States MAP resolution. Therefore, they are no longer under dispute. He submitted that in case of BPO services from associated enterprises other than IBM, World Trade Corporation and IBM United Kingdom Ltd. The determination made in the Mutual Agreement Procedure with UK and US should also be applied in case of business of BPO with other associated enterprises. For this, he relied on the decision of Delhi 'I-2' Bench of the Tribunal in the case of Fidelity Business Services India Pvt. Ltd. Vs DCIT, Circle-II, New Delhi in ITA Nos. 5872/Del/2011 and 4180/Del/2014 for the assessment years 2007-08 and 2008-09, order dated 13.02.2018 and submitted that in the said decision, the Tribunal has held and directed the TPO to make adjustment after taking the net profit margin as adopted/agreed in the MAP to benchmark the transaction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UK countries. We, therefore, do not find any good reason why the margin rate agreed upon under MAP in respect of USA and UK business should not be applied for business transaction of other countries also. We have no material to hold that the net margin rate for the non-UK and USA countries will be different from the net margin rate of transactions with USA and UK. We, therefore, set aside the orders of the lower authorities and direct the AO to adopt net margin @ 14.99% for the assessment year 2010-11 and 15.01% for the assessment year 2011-12. Therefore, the ground of appeal of the assessee is partly allowed. 16. Ground No. 3 of the appeal for assessment year 2010-11 reads as under: "3. Prior Period expenses That on the facts and in the circumstances of the case and in law, the Ld. AO erred in disallowing prior period expenses amounting to Rs. 2,18,97,701 without appreciating that the said expenses were incurred for the purpose of the business and were crystallized during the relevant previous year. 3.1. That on the facts and in the circumstances of the case and in law and without prejudice to Ground No. 3, deduction should be allowed to the appellant in the respect to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fresh issue which is not the subject matter of either the draft assessment order or any issue raised by the Appellant before the Ld. DRP. 4.3. That on the facts and circumstances of the case and in law, the Ld. AO erred in making a disallowance of INR 6,00,53,106 under section 40(a)(i) of the Act in final assessment order pursuant to direction of DRP under 144C(8) of the Act which are illegal, without jurisdiction and bad in law." 23. At the time of hearing, the AR of the assessee did not press this ground of appeal, hence, the same is dismissed for want of prosecution. 24. Ground No. 4 of the appeal for the assessment year 2010-11 and ground no. 6 of the appeal for assessment year 201112 read as under: AY: 2010-11 "4. Deduction under section 10A of the Act. That on the facts and in the circumstances of the case and in law, the Ld. AO and Ld. DRP erred in computing the deduction under section 10A at Rs. 2,47,27,66,772. 4.1. That on the facts and in the circumstances of the case and in law, the Ld. AO and the Ld. DRP, erred in reducing the telecommunication charges of Rs. 21,57,84,583 from the export turnover while computing the deduction allowable under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " in Explanation 2 to Section 10A by which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in, or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India. Therefore, in computing the export turnover the Legislature has made a specific exclusion of freight and insurance charges. 8. The submission which has been urged on behalf of the Revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the Revenue, however, misses the point that the expression "total turnover" has not been defined at all by Parliament for the purposes of section 10A. However, the expression "export turnover" has been defined. The definition of "Export turnover" excludes freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in only allowing part credit of taxes deducted at source while calculating the tax liability of Appellant." 30. At the time of hearing, the AR of the assessee submitted that this issue should be restored back to the file of the AO directing him to allow TDS claim credit in the return of income filed by the assessee after verification. 31. The DR has no objection to the same. 32. We, therefore, restore this issue back to the file of the Assessing Officer for allowing credit for TDS claimed by the assessee in the return of income after verification as per law. Thus, this ground of appeal of the assessee is allowed for statistical purposes. 33. Ground No. 3 of the appeal for assessment year 2011-12 reads as under: "3. TP adjustment with respect to Business Process Outsourcing services segment - Reimbursement received from Associated Enterprises other than IBM WTC and IBM UK. That on the facts and circumstances of the case, and in law, the Ld. AO (following the directions of the Ld. DRP), erred on facts and in law in enhancing the income of the Appellant and in doing so have grossly erred in: 3.1. including the reimbursement received from AEs and the cost incurred as part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture and is accordingly dismissed. 42. In the revenue's appeal for assessment year 2010-11, the sole issue is directed against the order of DRP holding that gain on buyback of shares is to be taxed under the head capital gain and not as deemed dividend u/s 2(22)(d) of the Act. 43. The facts of the case are that the assessee bought back 2,890,428 shares from its shareholder from South Asia at Rs.525 per share as against book value of Rs.1/-. This buyback of shares resulted in loss in the share capital of the assessee @ Rs.524/- per share. The Assessing Officer held that buyback of shares by the assessee is colourable device of payment of tax on the distribution of profit. Accordingly, the excess amount paid on buyback of shares of Rs.151,45,84,272/- was taxed u/s 2(22)(d) r.w.s. 115-O of the Act. 44. On appeal, the DRP confirmed the action of the AO. 45. Before us, the AR of the assessee submitted that the issue is covered by decision of Bangalore 'B' Bench of the Tribunal in the case of Fidelity Business Services India Pvt. Ltd. Vs ACIT, Circel-3(1)(1), Bangalore (2017) 80 Taxmann.com 230 (Bangalore) where it was held as under: "6. We have considered the rival submissions as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding that no income-tax is payable by a domestic company on its total income computed in accordance with the provisions of this Act, the tax on the distributed income under subsection (1) shall be payable by such company. (3) The principal officer of the domestic company and the company shall be liable to pay the tax to the credit of the Central Government within fourteen days from the date of payment of any consideration to the shareholder on buy-back of shares referred to in sub-section (1). (4) The tax on the distributed income by the company shall be treated as the final payment of tax in respect of the said income and no further credit therefore shall be claimed by the company or by any other person in respect of the amount of tax so paid. (5) No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the income which has been charged to tax under sub-section (1) or the tax thereon. Thus after the insertion of Section 115QA, the purchase of its own shares by the company in accordance with the provisions of section 77A of the Companies Act shall be charged to DDT. Since this transaction in the case of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treated as dividend in view of the provisions of Section 2(22)(iv) of the Act. The Assessing Officer has accepted that the capital gain in the hand of the holding company is not chargeable to tax as per the provisions of Article 13(4) of indo-Mauritius DTAA. Therefore on principle we are of the view that the transaction of buy back of shares prior to 1.6.2013 does not attract Section 115QA as well as Section 2(22) of the Act." 46. The DR agreed with the submissions of the AR of the assessee. 47. After considering the rival submissions and perusing the material available on the record, we find that the assessment year under appeal is 2010-11 and as per above quoted decision and CBDT Circular No. 3/2016 prior to 01.06.2013 provision of Section 115QA of the Act is not applicable to the assessee. Therefore, we hold that the receipt of buyback of share cannot be taxed as deemed dividend u/s 2(22)(d) of the Act. However, same has to be taxed under the head capital gains. Accordingly, we direct the AO to verify as to whether the assessee has shown the amount under the head capital gains. With these directions, the ground of appeal of the revenue is dismissed. 48. In the result, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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