AI Insights
The case involves Genpact Services LLC, an Indian branch of a USA-based company, appealing against the order of the Assistant Commissioner of Income Tax concerning the assessment year 2020-21. The primary contention was regarding the adjustment made by the Transfer Pricing Officer (TPO) in the cost allocation methodology from headcount ratio to salary expenses ratio, which led to a disallowance of INR 9,32,12,889. The Tribunal examined the precedents set in earlier assessment years and the methodologies applied by the TPO and the Assessing Officer. The Tribunal's decision also considered the implications of a survey conducted at the assessee's premises and the subsequent findings.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 712540 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-07-2025
Appeal Filed By
Assessee
Order Result
Partly Allowed
Assessment Year
2020-2021
Judgement Text
" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘H’: NEW DELHI BEFORE SHRI PRAKASH CHAND YADAV, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No. 4477/DEL/2024 [Assessment Year: 2020-21] Genpact Services LLC, Plot 22A and B, Sector 18, Udyog Vihar, Gurgaon, Haryana-122002 Vs Assistant Commissioner of Income Tax, Circle-International Tax-1(3)(1), Delhi-110002 PAN-AACCG3353P Appellant Respondent Appellant by Shri Vishal Kalra, Adv., Ms. Reema Malik, Adv.& Ms. Snigdha Gautam, Adv. Respondent by Shri S.K. Jadhav, CIT DR Date of Hearing 30.07.2025 Date of Pronouncement 31.07.2025 ORDER PER BRAJESH KUMAR SINGH, AM, This appeal by the assessee is directed against the order of the Assessing Officer dated 29.07.2024 passed u/s 143(3) r.w.s.144C(13) of the Income Tax Act, 1961 (hereinafter ‘the Act’) in pursuance to the directions of Dispute Resolution Panel dated 25.06.2024 pertaining to Assessment Year 2020-21. 2. The relevant facts are that the assessee is an 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 Printed from counselvise.com 2 ITA No.4477/Del/2024 services to its AEs. The assessee is responsible for rendering the designated BPO / collections services from its facility / infrastructure in India. As for Assessment Year 2020-21, the assessee filed its return of income (ROI') declaring an income of INR 20,57,10,540/- on 07.01.2021. During the course of scrutiny, the Assessing Officer made a reference u/s 92CA of the Act to the Transfer Pricing Officer (‘TPO’) to determine the Arm’s Length Price (‘ALP’) in respect of International transaction entered into by the assessee. 2.1. The ld. TPO proposed an adjustment of Rs.9,32,12,889/- in his order passed u/s 92CA(3) of the Act dated 27.07.2023. The TPO changed the cost allocation methodology from headcount ratio to salary expenses ratio, thereby partly disallowing support services cost. Before making the said disallowance, the TPO issued a show-cause notice dated 08.06.2023, placed at page no.3 to of the TPO’s Order, the relevant extract of which is reproduced as under:- 3. A survey action us 133A of the Act was carried out on 25-27 February, 2019 at the premises of India branch of the assessee and its Indian associated enterprise, Genpact India Private Limited, or GIPL, (formerly Genpact India) including inter-alia the following premises: DLF Phase V. Sector 53, Gurugram, Haryana and Plot No 22A and B, Udyog Vihar, Sector 18, Gurugram. Haryana. 4. During the course of survey, it came to light that several companies of the Genpact Group are engaged in business activities in India. Two of these companies are Genpact Services LLC (GSL), the present assessee and Genpact India, or GI (now Genpact India Pvt. Ltd). As described by the Director Shri Qureshi in his statement, business activities of the Genpact Group of companies in India comprise provision of business process outsourcing and IT outsourcing services etc, to end customers primarily based in the USA, Europe and Australia. Customer contracting entities of Genpact group are based in US and UK and sub-contract the work to various companies doing business in other countries, including India. Gl and Genpact Services LLC (GSL) India Branch are two such companies to whom the above Printed from counselvise.com 3 ITA No.4477/Del/2024 mentioned type of work have been subcontracted by customer contacting entities of the Genpact Group located overseas. 5. During the survey, from the statement of various functionaries recorded and the documents inspected, it was noticed that many important functions of the businesses of Genpact group's companies in India are performed in an integrated manner by common teams of people, using common infrastructure and resources, These functions include HR, (including recruiting. training, etc. employee matters etc.), logistics, infrastructure, finance, legal, administration and management, 6. The businesses of the assessee (GSL) and the Indian group company Genpact India Private Ltd (Hereafter GIPL) are performed in an integrated manner by common teams of people, using common infrastructure and resources, These functions include HR, (including recruiting, training, employee matters etc), logistics, infrastructure, finance, legal, administration and management, etc. Perusal of Cost sharing agreement between GSL and GIPL shows that the persons performing these functions are on the payroll of Gl and the resources/infrastructure used in the performance of these services are also owned or acquired by GIPL and that at the end of each month GIPL shall allocate the costs incurred by it under each head to GSL India Branch. Perusal of previous years data available with the department. it is observed that the cost is allocated under the following heads Technical and facilities maintenance, communication charges, electricity and water, repair and maintenance, management charges, rent, infrastructure and support cost, staff welfare and other expenses Since assessee failed to provide the data regarding cost allocation key being used in the captioned year even when asked specifically by the TPO, therefore it is assumed that the cost allocation remains the same as being followed by the assessee in prior years. Excluding Electricity and water and repair & maintenance for a part of Plot no.22, Udyog Vihar, Sector 18 Gurugram, all expenses under various heads are allocated on a annual average head count basis, i.e., at the end of each financial year, number of employees in GSL India branch at the end of each month is taken and average for the period April to March is calculated. That average so calculated is the basis of allocation of cost under the heads 1. Technical facilities maintenance, 2. Communication cost, 3. Infrastructure support and management charges and 4. Staff welfare expenses. 7. The total expenses incurred under each of these heads are apportioned among GIPL, GSL India branch and other GE Group entities having businesses in India in the ratio of their annual average head counts. According to the cost sharing agreement as submitted by the assessee, the provider (GIPL) would charge GSL at cost along with mark-up of 5%. The agreement also states that the provider shall deliver invoices for services rendered to Genpact LLC on a monthly basis. However, the assessee has not submitted Printed from counselvise.com 4 ITA No.4477/Del/2024 monthly invoices, or even monthly calculation of common expenses incurred by Gl on behalf of GSL. 8. The TP study report the assessee has mentioned as collection being the only main function performed by GSL. It follows that the employees of GSL are of lower skill levels and lower paid, while the employees of GIPL are not only of a higher skill endowment, but also include all personnel engaged in management, administration, HR, (including recruiting, training, employee matters etc ), legal, finance, logistics, infrastructure and allied matters. The nature of work, salary, and the extent and worth of contribution of the employees of GIPL and GSL is consequently of such a wide variation that head count can certainly not be an appropriate way of allocation of profits. Headcount basis treats all employees as equal, which cannot correspond to the truth, more so in a purely service based company like the Genpact group, where employees' skills and talent are the main contributor to profits. The TP study report the assessee has mentioned as collection being the only main function performed by GSL. It follows that the employees of GSL are of lower skill levels and lower paid, white the employees of GIPL are not only of a higher skill endowment, but also include all personnel engaged in management, administration, HR, (including recruiting, training, employee matters etc ), legal, finance, logistics, infrastructure and allied matters. The nature of work, salary, and the extent and worth of contribution of the employees of GIPL and GSL is consequently of such a wide variation that head count can certainly not be an appropriate way of allocation of profits. Headcount basis treats all employees as equal, which cannot correspond to the truth, more so in a purely service based company like the Genpact group, where employees' skills and talent are the main contributor to profits. 9. Since headcount basis is a wholly inappropriate and misleading method of cost allocation in the present case, an appropriate method, reflecting the realities of the business of GIPL and GSL needs to be applied. Based on the information available with me at this stage, one such method that appears to be appropriate for cost allocation in this case is cost allocation on the basis of salary expense. This appears to be an appropriate method because in the services sector, more so in the BPO sector, in which the assessee group is engaged, the true estimate of value of work performed is given not by the number of employees (head count), but by the salary expense towards those employees. 10. From perusal of data submitted by the assessee and materials available on record it is evident that the salary expense ratio of GSL and GI for FY 2015-16 is 1.16 %. This is much lower than the headcount ratio for this financial year (FY 2015-16), which is 1.60%. In fact, for each year from FY 2011-12 to 2017-18 (all years for which the figures were provided by the assessee), the salary ratio is significantly lower than the headcount ratio. The headcount ratio of Printed from counselvise.com 5 ITA No.4477/Del/2024 GSL and all entities combined among which cost is shared (i.e. GI, GSL and Other Entities) for FY 2015-16 is 706/45115 =1.56%, whereas salary expense ratio of GSL and all entities combined among which cost is share for the same FY is 1.13% In fact, for each year, from FY 2011-12 to 2017-18, the salary ratio of GSL and all cost sharing entities combined is significantly lower than the headcount ratio. 11. The assessee used an inappropriate and wholly unscientific method for charging of costs to GSL, which resulted in a higher ratio of common costs allocated to GSL every year than is allocable based on sound and appropriate methodology. It is also relevant to note here that these costs have not been allocated on monthly basis, as should have been done, and as was required vide the terms of the Cost Sharing Agreement, but was done as a once in a year (annual) exercise using average annual data. This method adds to the inaccuracy and blurs real-time figures. This also amounts to inaccurate methodology of cost allocation. 12. For the captioned year the average annual Headcount ratio for GSL vis-à-vis GIPL is 1.81 and salary expense ratio is 1.20. There is a difference of (208,751,815 - 115,538,926) = Rs. 9,32,12, 889/- between the shared cost arrived at using headcount ratio debited by the assessee to its P&L account and the shared cost as calculated above applying the salary expense ratio. This difference deserved to be reduced from the cost claimed as deductible by the assessee to arrive at the arms length price of the aforesaid transactions. 2.2. Further, the TPO after considering the reply of the assessee rejected the headcount ratio application towards shared cost and applied ‘other method’ and applied the salary expenses ratio and reduced Rs.9,32,12,889/- from the cost claimed as deductible by the assessee to arrive at the arms length price of the aforesaid transactions. 2.3. On receipt of the order of the TPO, the Assessing Officer also issued a show cause notice dated 06.09.2023 on similar lines as the TPO for changing the cost allocation methodology from headcount ratio to salary expense ratio. In the said show-cause notice, the Assessing Officer incorporated the findings of TPO for applying the other method and asked the assessee to show cause why the amount of Rs.9,32,12,889/- should not be disallowed, which was the same amount of disallowance as Printed from counselvise.com 6 ITA No.4477/Del/2024 determined by the TPO. The said show-cause notice is placed on page no.1 to 8 of the Draft Assessment Order. 2.4. The Assessing Officer after considering the reply of the assessee rejected the headcount ratio application towards shared cost and applied the salary expenses ratio and the difference of (Rs.20,87,51,815/- - Rs.11,55,38,926/-) amounting to Rs.9,32,12,889/- was reduced from the cost claimed as deductible by the assessee and was disallowed and added back to the total income of the assessee. 3. In ground Nos. 3 to 3.3 of the appeal, the assessee has challenged the disallowance of the support services cost amounting to INR 9,32,12,889/- Ld. AR has submitted that grounds are supported by the assessee's own cases, Genpact Services LLC vs ACIT: [2024] 101 taxmann.com 785 /TA Na 1992/Del/2022 for AY 2017-18 and Genpact Services LLC vs ACIT: [2024] TS-359-ITAT-2024DEL-TP /ITA No. 1834/Del/2022 for AY 2018-19 and ITA No.788/Del/2023 for AY 2019- 20 as decided by this Co-ordinate Bench. The said grounds of appeal are reproduced as under:- “3. That on facts and circumstances of the case and in law, the TPO/DRP/AO have grossly erred in partly disallowing the support services cost amounting to INR 9,32,12,889 paid by the Appellant to its associated enterprise, and while doing so, have erred in: 3.1 rejecting the arm's length price as determined by the Appellant in the transfer pricing documentation and arbitrarily applying 'other method' to benchmark the transaction of support services cost paid by the Appellant; 3.2. changing the cost allocation methodology from headcount ratio to salary expense ratio thereby disallowing support services cost amounting to INR 9,32,12,889; and Printed from counselvise.com 7 ITA No.4477/Del/2024 3.3. not appreciating the fact that headcount represents an appropriate allocation key for allocating such costs, since the employees represent key resources utilized in their industry and overheads are planned/ incurred considering the number of employees in the organization as against salary paid to them. 3.1. In this regard, the assessee filed a written submission in support of the above ground during the course of hearing on 05.05.2025, which is reproduced as under: “(a) During the relevant AY, the Appellant undertook international transaction of 'receipt of support services' with its AE namely, Genpact India Private Limited. which comprised of certain support services in the nature of technology, communication, facility, infrastructure, management, and general support charge (such as finance, HR), etc. from its AE (i.e. Genpact India Private Limited), for which it made payment of support services fee. The AE had incurred common expenses under the various heads, which were subsequently allocated to the various group companies, including the Appellant based on appropriate allocation keys (i.e., area, headcount ratio). (b) The TPO disregarded the allocation key (i.e., Headcount ratio) adopted by the Appellant in relation to technical facilities maintenance, communication cost, infrastructure cost (except depreciation cost other than software and computer), and staff welfare cost, and applied a different allocation key i.e., the ratio of salary costs of the Appellant and the AE, thereby making a transfer pricing addition of INR 9,32,12,889 (c) It is submitted that the DRP / AO / TPO have erred in rejecting the benchmarking analysis undertaken by the Appellant in respect of receipt of support services, by arbitrarily changing the cost allocation methodology from headcount ratio to salary expense ratio under the guise of 'other method', thereby partly disallowing support services cost paid by the Appellant. (d) This ground is supported by the decision of this Hon'ble Bench in Appellant's own case: - Genpact Services LLC vs ACIT: [2024] 161 taxmann.com 765 / ITA No. 1833/Del/2022 for AY 2017-18 (refer paras 11, 14 at pages 209-211, 202 of compilation) - Genpact Services LLC vs ACIT: [2024] TS-359-ITAT- 2024DEL-TP / ITA No. 1834/Del/2022 for AY 2018-19 (refer paras 8.2-8.3 at pages 191-201 of compilation) Printed from counselvise.com 8 ITA No.4477/Del/2024 The issues in question are identical to those of the preceding assessment years (AY 2017-18 and AY 2018-19) (e) The TPO's observation regarding Appellant failing to provide basis of cost allocation and cost sharing agreement, is incorrect and baseless. The Appellant had provided the cost sharing agreement and allocation basis before the TPO for receipt of support services during the year under consideration (refer pages 46-49/PB for submission dated March 1, 2023, 56-58/PB for submissions dated March 28, 2022 filed before the TPO in this regard, pages 155-162/PB for cost sharing agreement dated November 19, 2009 and pages 50/PB working in respect of allocation). The primary onus to substantiate the arm's length nature of international transactions had been discharged by the assessee sufficiently during the course of its transfer pricing proceedings. (f) The Appellant, based on understanding of the business and practical application, allocated the expenses based on appropriate allocation keys, relevant to the nature of expense. The same are tabulated as follows: S. No. Nature of support Services Allocation Key Reasons for adopting the said allocation key 1. Technical facilities maintenance Headcount Consists of annual maintenance charges of hardware and software, which is primarily based on the number of users. 2. Communication/Telecom munication cost Headcount Charged on the basis the number of users irrespective of the revenue earned/hierarchy. Thus, headcount method is more appropriate as compared to salary expenses ratio, which due to level of position/pay- out ratio might lead to an abrupt allocation. 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. Printed from counselvise.com 9 ITA No.4477/Del/2024 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. (g) The fact that different expenses were allocated on different basis that were more appropriate to the nature of expense itself demonstrates that allocation was based on a proper analysis. (h) Furthermore, it is submitted that the Appellant has considered \"Headcount\" as an appropriate apportionment key for the allocation of impugned expenditure for the following reasons: - The level of support required is dependent on the headcount in each entity. - Employees represent key resources utilized in the industry in which the Appellant operates, and overheads are planned/ incurred considering the number of employees in the organization. - Key costs incurred such as technical facilities management, staff welfare, communication costs, HR costs etc. are driven by the number of employees using these facilities and accordingly, headcount represents an appropriate allocation key for allocating costs in line with the basis of incurring such costs. (i) However, the TPO proceeded to apply salary expense ratio without appreciating that it would be unreasonable to expect that support/facilities extended to the employees depend on the salary of the respective employees. (i) In this regard, reliance is placed on the following decisions wherein 'headcount\" has been affirmed as an appropriate allocation key: - Fujitsu India Pvt. Ltd. vs. DCIT: [2017) ITA No. 604 of 2017 (Delhi) [SLP filed by the Revenue Department dismissed vide SLP No. 28291 of 2019] - CIT vs EHPT India (P.) Ltd.: [2011] 350 ITR 41 (Delhi) - Orange Business Services India vs DCIT: ITA No. 6928/2017 (Del - Trib.) Printed from counselvise.com 10 ITA No.4477/Del/2024 - Cable and Wireless (India) Limited vs DCIT: [2017) ITA No. 756, 6074-6075 of 2017 (Mumbai - Trib.) - Cisco Systems (India) P Ltd vs ACIT: [2021] 127 taxmann.com 62 (Bang-Trib.) (k) Furthermore, it can be seen from the TP order that the TPO himself states that the method applied by him is 'one such method that appears to be appropriate' (refer internal page 8 of the TP order). This demonstrates that the TPO himself accepts that there can be more than one appropriate method of allocation. Thus, when the Appellant has justified cost allocation basis headcount vide cost sharing agreement, allocation working etc., the same cannot be rejected based on surmises and conjectures. TPO has not provided any data for the application of other method (1) As per the rule 10AB(2) of the Income Tax Rules, 1962, it is possible to use other method should takes into account: - the price which has been charged or paid for the same or similar uncontrolled transactions, with or between non-AEs, under similar circumstances considering all the relevant facts. (m) Reliance is placed on para 5.58 of the Guidance Note on Report Under Section 92E of the Income-Tax Act, 1961 by Institute of Chartered Accountants of India, which states that the 'Other Method' offers more flexibility and permits 'comparison' by 'use of a price which has been charged or paid, or would have been charged or paid' thereby allowing use of bonafide quotations, bids, proposals as comparable transactions or prices, and also economic and commercially justifiable models and similar approaches. (n) In view of the above, for determination of ALP for application of 'other method', comparables or similar uncontrolled comparable prices are required. However, in instant case, the TPO erred in not providing any comparable price / valid comparison as well as reasoning for applying other method (refer internal page 10 of TP order). (o) Reliance is also placed on the following decisions wherein it has been held that the TPO / assessee without searching for similar uncontrolled transaction between non-associated enterprises and finding out the independent entity in a comparable transaction, cannot straightaway resort to applying 'other method': Printed from counselvise.com 11 ITA No.4477/Del/2024 - SABIC India Pvt. Ltd. vs DCIT: [2022] 96 ITR(T) 368 (Del. - Trib.) upheld by Hon'ble jurisdictional High Court in PCIT vs SABIC India Pvt. Ltd.: ITA No.514/2024 (Delhi) - CLSA India (P.) Ltd. vs DCIT: [2023] 157 taxmann.com 498 / ITA No. 6748 of 2017 (Mumbai - Trib.) - Palmer Investment Group Ltd. vs DCIT: [2023] 148 taxmann.com 4 / ITA No.2929 & 2930 of 2018 (Bengaluru - Trib.) - Ineos Styrolution India Ltd. vs DCIT: [2022] 142 taxmann.com 450 / ITA No.58 of 2022 (Ahmedabad - Trib.) - Sulzer Tech India (P.) Ltd. vs ACIT: [2022] 142 taxmann.com 246 / ITA No. 633 of 2021 (Mumbai - Trib.) - Gulf Energy Maritime Services Pvt. Ltd. vs ITO: I.T.A. No.3812/Mum/2015 (Mumbai - Trib.) Hence, in light of above, the approach proposed to be adopted by the DRP / AO / TPO is not maintainable. 4. The Ld. CIT-DR supported the orders of the authorities below. 5. We have heard both the parties and perused the material available on record. On perusal of the TPO order u/s 92CA(3) of the Act dated 27.02.2023, the draft assessment order (hereinafter referred as DAO) and the final assessment order (hereinafter referred as FAO), we find that, the issues in question are identical to those of the preceding assessment years (AY 2017-18 and AY 2018-19). 5.1. This fact has also been noted by the Ld. Dispute Resolution Panel in its concluding directions in para no.20 of its order which is reproduced as under:- “In view of the above, Panel concludes that if head count based allocation of expenses is done will lead to inaccurate results. Allocation is required to be done based on salary.” Printed from counselvise.com 12 ITA No.4477/Del/2024 5.2. This is also mentioned by the Assessing Officer on page no.5 of DAO, which is part of the show cause notice dated 06.09.2023 issued by the Assessing Officer which is reproduced as under: “10.5 The salary expense ratio of GSL and Gl for FY 2019-20 is 1.20%. This is much lower than the headcount ratio for this financial year (FY 2019-20), which is 1.86%. In fact, for each year from FY 2011-12 to 2017-18, the salary ratio is significantly lower than the headcount ratio. The headcount ratio of GSL and all entities combined among which cost is shared (i.e. GI, 9 | Page GSL and Other Entities) for FY 2019-20 is 1051/57939 =1.81%, whereas salary expense ratio of GSL and all entities combined among which cost is share for the same FY is 1.20% In fact, for each year, from FY 2011-12 to 2017-18, the salary ratio of GSL and all cost sharing entities combined is significantly lower than the headcount ratio. The assessee GSL used an inappropriate and wholly unscientific method for charging of costs to itself i.e. GSL, which resulted in a higher ratio of common costs allocated to GSL every year than is allocable based on sound and appropriate methodology. It is also relevant to note here that these costs have not been allocated on a monthly basis as should have been done, and as was required vide the terms of the Cost Sharing Agreement; but was done as a once in a year (annual) exercise using average annual data. This method adds to the inaccuracy and blurs real-time figures. This also amounts to inaccurate methodology of cost allocation.” 5.3. However, we further note that during the year, the TPO in his order dated 27.02.2023 rejected the arm’s length price as determined by the assessee in the transfer pricing documentation and applied other method to benchmark the transaction of support services cost paid by the assessee, whereas, in the preceding years i.e. 2017-18 and 2018-19, the disallowance was made by the Assessing Officer u/s 37 of the Act, wherein, the TPO had accepted the ALP offered by the assessee. On this issue, the case was put up for clarification hearing on 30.07.2025 as per the following noting- “During dictation, it emerged that during AY 2020-21, the TPO has also made adjustment u/s 92CA(3) of the Act, amounting to Printed from counselvise.com 13 ITA No.4477/Del/2024 Rs.9,32,12,889/-, whereas in the case relied upon by the assessee in its own case for AY 2018-19 and AY 2017-18 in ITA No.1833/Del/2022 & 1834/Del/2022, no such adjustment was made by the TPO for the said years. In view of this fact, this case requires clarification on this issue. Therefore, the Registry is directed to fix this appeal for clarification hearing on 30.07.2025. Both the parties to be informed.” 5.4. During the clarification hearing, the Ld. AR submitted that the facts in the present case are identical to the case of the assessee for Assessment Years 2017-18 and 2018-19, because the TPO has also given the same finding and has applied the same basis for making the adjustment on account of headcount ratio to salary expenses ratio to make the adjustment of the ALP in the case of the assessee. The ld. AR further submitted that all the facts were available before the Assessing Officer/TPO, in this year was also available before the said authorities during AYs 2017-18 and 2018-19. In this regard, the ld. AR submitted that TPO had not provided any data for application of other method and referring to the remark of the TPO stating that the method applied by him is ‘once such method that appear to be appropriate’ demonstrated that the TPO himself accepts that there can be more than one appropriate method of allocation. In this regard, the ld. AR referred to its submissions in support of the above submission wherein it has been held that the TPO / assessee without searching for similar uncontrolled transaction between non-associated enterprises and finding out the independent entity in a comparable transaction, cannot straightaway resort to applying 'other method' and relied upon the following case laws: Printed from counselvise.com 14 ITA No.4477/Del/2024 - SABIC India Pvt. Ltd. vs DCIT: [2022] 96 ITR(T) 368 (Del. - Trib.) upheld by Hon'ble jurisdictional High Court in PCIT vs SABIC India Pvt. Ltd.: ITA No.514/2024 (Delhi) - CLSA India (P.) Ltd. vs DCIT: [2023] 157 taxmann.com 498 / ITA No. 6748 of 2017 (Mumbai - Trib.) - Palmer Investment Group Ltd. vs DCIT: [2023] 148 taxmann.com 4 / ITA No.2929 & 2930 of 2018 (Bengaluru - Trib.) - Ineos Styrolution India Ltd. vs DCIT: [2022] 142 taxmann.com 450 / ITA No.58 of 2022 (Ahmedabad - Trib.) - Sulzer Tech India (P.) Ltd. vs ACIT: [2022] 142 taxmann.com 246 / ITA No. 633 of 2021 (Mumbai - Trib.) - Gulf Energy Maritime Services Pvt. Ltd. vs ITO: I.T.A. No.3812/Mum/2015 (Mumbai - Trib.) 5.5. On the other hand, the ld. CIT-DR submitted that a survey was conducted in this case of the assessee on 25.02.2019, wherein, it was found that there were common employees of the assessee and Genpact India Pvt. Ltd. and the findings in the survey has negated the basis of headcount and therefore the TPO was justified in applying other method in this case. 6. Upon careful consideration of the facts in the case of the assessee for the present assessment year, we observe that similar issue had come up for consideration in assessee’s own case in AY 2017-18, wherein, the Co-ordinate Bench of the Tribunal had approved the cost allocation key adopted by the assessee i.e. head count basis in the following manner:- ”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, for which cost of support services are to be incurred. Further, the ld. AO had observed Printed from counselvise.com 15 ITA No.4477/Del/2024 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. 1. 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, due to the survey proceedings, which brought certain fresh development triggering the ld AO to take a divergent stand. The ld AR before us submitted that the entire set of documents in support of the workings of the cost allocations were duly furnished before the survey team itself at the time of survey. No defect whatsoever was pointed out in the said workings either by the survey team or by the ld AO. It would also be relevant to understand the entire basis of expenditure based on the cost sharing agreement together with its allocations keys and the same are tabulated hereunder:- S.no. Nature of support services Allocation Key Reasons for adopting the said allocation key 1. Technical facilities maintenance Headcount Consists of annual maintenance charges of hardware and software, which is primarily based on the number of users. 2. Communication/ Telecommunication cost Headcount Charged on the basis the number of users irrespective of the revenue earned/ hierarchy. Thus, headcount method is more appropriate as compared to salary expenses ratio, which due to level of position/ pay-out ratio might lead to an abrupt allocation. 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. Printed from counselvise.com 16 ITA No.4477/Del/2024 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. 2. 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 the assessee. We find that the assessee had explained 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, Headcount method in this case would be more appropriate as compared to salary expenses ratio, which due to level of position/pay-out ratio might lead to an abrupt allocation. - The amount of support HR department provides to the business of the assessee is not represented by the employee cost, but the number of employees employed by the it. Printed from counselvise.com 17 ITA No.4477/Del/2024 - The technical facilities maintenance primarily consists of annual maintenance charges of hardware and software's, which is primarily based on the number users. Accordingly, salary ratio is not an appropriate methodology for allocation the said cost and headcount is the apt basis of allocation for these support costs. Trainings in the BPOs are of standard nature and are imparted to all the employees (part of the infrastructure support costs). Accordingly, headcount is the appropriate basis of cost allocation. - The staff welfare cost primarily consists of transportation cost of the employees (cab, buses etc.) which is allocation for these services. - The staff welfare cost primarily consists of transportation cost of the employees (cab, buses etc) which is standard for all employees. Accordingly, headcount is the appropriate basis of allocation for these services. 3. 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 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 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 Printed from counselvise.com 18 ITA No.4477/Del/2024 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 in India with effect from 23.03.1995. The assessee company is engaged in the business of providing telecommunication networking services which includes network design and management, project management and implementation, network management, providing lease circuit and trading of equipment and maintenance. The assessee company had filed its return of income for A.Y. 2012-13 on 30.11.2012, declaring its total income at Rs. 6,71,08,313/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. During the course of the assessment proceedings the A.O made a reference under Sec. 92CA(1) of the Act 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’. Further, on a perusal of the financial statements, it was observed by the A.O that the assessee company pursuant to certain related party transactions had received amounts towards reimbursement of expenses. Also, it was noticed by the A.O that the assessee company 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 to cost basis. As per the details furnished by 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 Printed from counselvise.com 19 ITA No.4477/Del/2024 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/-,respectively. In the backdrop of the aforesaid facts, the A.O was of the view that in case the allocation key of head count basis was to be accepted, then the amount of administrative and human resource expenses would not had remained constant throughout the year. Accordingly, the A.O backed by his aforesaid conviction was of the view that the logic of adopting the head count basis as the allocation key for the aforesaid expenses could not be accepted and rejected the same. Observing, that as neither any valid methodology for allocation of expenses was submitted by the assessee nor the one submitted was found to be substantiated, therefore, the A.O was of the view that there was no other option but to appropriate on an estimate basis a part of the aforesaid expenses as not covered under Sec. 37(1) of the Act. As such, in the absence of the requisite information the A.O on an ad hoc basis disallowed 30% of such expenses and made a Printed from counselvise.com 20 ITA No.4477/Del/2024 consequential addition/disallowance of Rs. 70,37,078/- under Sec. 37 of the Act. 4. Findings of the tribunal are as under:- “D(i). As is discernible from the records, the A.O had in the course of the assessment 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 consideration to the aforesaid claim of the assessee, 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. ACIT (2016) 65 taxmann.com 143 (Bang). In our considered view, now when the TPO on a reference made to him under Sec. 92CA(1) of the Act for benchmarking the international transactions of the assesssee, had accepted the ALP of the reimbursement of expenses by the assessee to its AE viz. CWNIPL, ITA Nos.6074, 6075 & 756/Mum/2017 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) thereafter, the A.O as per the mandate of Sec. 92CA(4) of the Act, was statutorily bound to compute the total income of the assessee in conformity with the arm‟s length price so determined by the TPO. Although, the A.O in the course of the assessment proceedings Printed from counselvise.com 21 ITA No.4477/Del/2024 continues to remain vested with the jurisdiction to verify as to whether or not an expense claimed by the assessee as a deduction was incurred wholly and exclusively for the purpose of its business, however, in the garb of exercise of such jurisdiction he is precluded to redetermine the arm‟s length price of an international transaction, in any way. In our considered view, now when the TPO while benchmarking the international transactions of the 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. 6.1. However, we observe that the only difference in the present appeal is that in those years, the allocation method has been disturbed by the AO. However, in this year, the TPO has taken cognizance of the allocation method used by the assessee and has applied other method for making adjustment qua these expenses. However, we further note that there is no material change in the basis and the conclusion arrived both by the TPO and the Assessing Officer in this case and the identical amount of disallowance of Rs.9,32,12,889/- has been determined by the TPO by changing the cost allocation methodology from headcount ratio to salary expense ratio. Therefore, even though in this case, the adjustment was made by the TPO but no new finding has been given by the TPO for the Assessing Officer to make out a distinguishable case from the finding given by the Tribunal in assessee’s own case for AY 2017-18 as discussed above. Printed from counselvise.com 22 ITA No.4477/Del/2024 6.2. It is further observed that the Co-ordinate Bench of the Tribunal while deciding the issue in earlier year has taken note of the fact that a survey was conducted at the premises of the assessee and on the basis of that material, the Assessing Officer has disallowed these expenses. Therefore, the argument of the ld. DR that in the impugned year, the TPO has made the adjustment on the basis of material gathered in survey proceedings is not acceptable as no new fact has been brought either by the TPO or the Assessing Officer other than what has been already considered by the Tribunal in assessee’s own case for AY 2017-18 as referred above. Before parting, we note that the ld. TPO has failed to conduct the exercise of selecting comparable before resorting to other method, which is legally not permissible in view of the order of the Co- ordinate Bench in the case of SABIC India Pvt. Ltd. vs DCIT [2022] 96 ITR (T) 368(Del. Trib.) and further confirmed by the Hon’ble jurisdictional High Court in ITA No.512/2014 (Delhi). 6.3. Therefore, respectfully following the order of the Tribunal in assessee’s own case for AY 2017-18 (supra) the ground Nos. 3.2 and 3.3 raised by the assessee are allowed and the disallowances of expenses amounting to Rs.9,32,12,889/- stands deleted. Ground no.3 to 3.3 of the appeal is allowed. 7. Ground no.4 is against the disallowance of deduction amounting to Rs.16,90,975/- u/s 80G of the Act The Assessing Officer disallowed the above sum in the draft assessment order as per his findings in para 5.2 of the order which is reproduced as under:- Printed from counselvise.com 23 ITA No.4477/Del/2024 “5.2. In the case of the assessee company, the assessee has claimed an amount of Rs. 33,81,950/- on account of CSR (i.e. Corporate Social Responsivity). The payment has been purportedly paid to M/s Teach to Lead. From a perusal of the evidence furnished, it is seen that the said concern is registered under Section 12AA as well as under Section 80G(5) of the Act. The assessee has also furnished confirmation from this concern. Corporate social responsibility (CR) refers to initiatives taken up by companies to give back to society. The Financial Times defines it as a business approach that contributes to sustainable development by delivering economic, social, and environmental benefits for all stakeholders. It is the company's \"sense of responsibility\" towards the community and surrounding in which it operates. Also called corporate citizenship, it is a self-regulating business model developed by companies to create a positive impact on society. CSR addresses various issues like human rights, education, health, and safety. It also covers corporate governance, working conditions, environmental sustainability, and more. Along with economic development, CSR also focuses on social and environmental development (the triple bottom line). Thus, when spending on CSR is made, it is pertinent that the said amount must be spend by the recipient. In present case, the CSR expense incurred has been paid in such a manner that the recipient, a group concern of the assessee, does not stand to incur the amount. Rather the same has been paid by way of corpus so that the recipient can treat the receipt as part and parcel of its corpus/capital. This way the objective behind the incurrence of CSR expense is blatantly defeated. Accordingly, during the course of assessment proceeding, the assessee was required to place on record, the utilization certificate which could prove that the amount incurred on CSR was actually spend by receiver. In this regard, in-spite of specific opportunities, no utilisation certificates were placed on record. Further from a perusal of computation of total income (as per normal provisions of the Act), it is noted that the assessee company had claimed deduction under Section 80G of Rs. 16,90,975/- with respect to CSR (i.e. Corporate Social Responsivity) expense. The said deduction has been computed @ 50% of Rs. 33,81,950/-. In this regard, it would be relevant to refer to the provisions of Explanation 2 of Section 37(1) of the Act which is being reproduced hereunder: \"Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to Printed from counselvise.com 24 ITA No.4477/Del/2024 corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.\" Thus, from a perusal of the above provisions, it is evident that expense incurred on account of CSR (i.e. Corporate Social Responsively) cannot be permitted to a corporate assessee at all. It is settled law that what cannot be done directly, cannot also be done indirectly. No authority is required for this proposition, but if any authority is required the authorities in the case of Jagir Singh Vs. Ranbir Singh and Another and the case of District Collector, Chittor and Others Vs. Chittoor District Groundunt Traders\" Association, Chittoor and Others are sufficient. In Jagir Singh's case the Supreme Court has held that what cannot be done directly, cannot be allowed to be done indirectly as that would be an evasion of the statute. The Supreme Court has held that it is a well known principle of law that the provisions of law cannot be evaded by shift or contrivance. The Supreme Court has held that in an indirect or circuitous manner the objects of a statute cannot be defeated. In the District Collector's case a circular was issued under the Commodities Act purporting to impose restriction on movement of edible oil and oil seeds and to impose compulsory levy for supply of oil to State Government at a fixed price. The Supreme Court held that there was no power to impose levies and what could not be done directly could not be done indirectly by using the regulatory powers given to that Authority. This power cannot be used to subvert the provisions of the said Act and to assume powers and functions not conferred by the said Act. It is also noted that what section 80G permits is deduction on account of Donation, Donations perse are voluntary payments which are subjected to the discretion of the payer. On the contrary CSR (i.e. Corporate Social Responsivity) expense are mandatorily to be incurred by the assessee by virtue of provisions of law and thus, being obligatory cannot be treated as discretionary or voluntary. The mere fact that the CSR (i.e. Corporate Social Responsivity) expense has been paid to an organization which is registered or approved under Section 80G(5) of the Act can not in any way alter the nature and scope of the obligatory payment to a voluntary payment. In-any case, the fact that the purported payment has not been incurred at all (since no utilisation certificate was furnished) cannot be lost sight off. In view of the above facts and discussion, the deduction of Rs. 16,90,975/- claimed under Section 80G(5) of the Act is hereby disallowed and added to the total income of the assessee as per normal provisions of the Act…..……” Printed from counselvise.com 25 ITA No.4477/Del/2024 7.1. In the appellate proceedings, the ld. AR filed a written submission which is reproduced as under:- a) During the impugned assessment year, the appellant incurred the following expenditure on CST activities: Name of Recipient Type of donation Amount (INR) Reference Teach to Lead (refer page 23- 24/PB for the receipt) Donations entitles for 50% deduction subject to qualifying limit 16,90,975/- Page 150/PB for RoI, page 152/PB for COI, page 66/PB for financials, page 31/PB for Form 3 CD b) Accordingly, such expenditure incurred on CSR activities was suo moto disallowed by the Appellant under section 37 of the Act while computing its income under the head 'Profits and gains of business or profession' but 50% of the entitled donation was claimed as deduction under section 80G of the Act in the income tax return (refer pages 151/PB for Rol). c) The AO has erred in selectively and incorrectly reading the provisions of section 37 of the Act. It is submitted that explanation 2 to section 37(1) of the Act is relevant only for determining the allowability of any expenditure under section 37 of the Act while computing income under the head 'Profits and gains of business or profession'. Therefore, such explanation is not applicable for determining allowability of deduction under section 80G of the Act. d) On perusal of section 80G of the Act it is clear that restrictions on deductibility of a donation made pursuant to CSR obligations is expressly provided under section 80G(2)(a) (ilihk)/(ilihl) of the Act. Therefore, other than the two restrictions clearly mentioned, no further restriction can be read into the law. e) In this regard, reliance is placed on following decisions: - Interglobe Technology Quotient (P.) Ltd. ACIT [2024] 163 taxmann.com 542 (Delhi - Trib.) - Power Mech Projects Ltd. vs DCIT: [2023] 156 taxmann.com 575 / ITA No.155/2023 (Hyd. - Trib.) - Optum Global Solutions (India) (P.) Ltd. vs DCIT: [2023] 203 ITD 14 (Hyd. - Trib.) Printed from counselvise.com 26 ITA No.4477/Del/2024 - JMS Mining (P.) Ltd. vs PCIT: [2021] 91 ITR(T) 80 (Kol. - Trib.) - FNF India (P.) Ltd. vs ACIT: [2021] 133 133 taxmann.com 251 / ITA No.1565/2019 (Bang. Trib.) - Allegis Services (India) Pvt. Ltd. vs ACIT: ITA NO. 1693/2019 (Bang.-Trib.) - Goldman Sachs Services Pvt. Ltd. vs JCIT: [2020] 117 Taxmann.com 535 /IT(TP) Appeal No. 2355/2019 (Bang. - Trib.) Thus, in light of above submissions it is abundantly clear that there is no provision in the Act restricting claim for deduction in respect of donations made to Teach to Lead under section 80G of the Act, even if such expenditure is incurred on account of CSR activities in the form of donations paid to eligible institutions. 7.2. We have heard both the parties and perused the material available on record. This issue has been decided in favour of the assessee by the Co-ordinate Bench of the Tribunal in the case of Interglove Technology quotient(P) Ltd. (supra). The relevant extract of the said order is reproduced as under:- 6.5 Reliance was also placed on the decision of Mumbai Bench of the Tribunal in the case of Synergia Lifesciences Pvt Ltd vs DCIT: ITA No. 938/Mum/2023 (Mum Trib), which has relied on the decision of Bangalore bench of the Tribunal in the case of Allegis (supra) and held that \"the claim for deduction under section 80G of the Act in respect of CSR expenses cannot be denied\". The Tribunal, however, remitted the issue to the file of the assessing officer with the directions to allow deduction under section 80G of the Act is the conditions specified therein are satisfied. He also cited the following decisions for the same proposition of law. - FNF India Private Limited vs ACIT: 133 taxmann.com 251 (Bang Trib.) - Infinera India (P.) Ltd vs. JCIT: 194 ITD 463 (Bang Trib.) - First American (India) Private Limited: ITA No. 1762/Bang/2019 (Bang. Trib) - Sling Media (P) Ltd vs. DCIT: 194 ITD 1 (Bang Trib.) - JMS Mining (P.) Ltd vs PCIT: 130 taxmann.com 118 (Kol Trib.) Printed from counselvise.com 27 ITA No.4477/Del/2024 - DCIT vs. Peerless General Finance & Investment Co Ltd: 112 taxmann.com 410 (Kol Trib.) - Diamond Beverages Private Limited vs PCIT: ITA No.208/Kol/2022 (Kol Trib.) - Power Mech Projects Ltd vs DCIT: ITA No.155/Hyd/2023 (Hyd Trib.) - Supreme Buildestates Pvt Ltd vs DCIT: ITA No.495/Jpr/2023 (Jpr Trib.) - Naik Seafoods Pvt Ltd vs. PCIT: ITA 490/Mum/2021 (Mum Trib.) - Societe Generale Securities India Pvt Ltd vs. PCIT: ITA 1921/Mum/2023 (Mum Trib.) 7. Learned DR has failed to bring forth any decision to the contrary. Thus, we accept the plea of learned counsel on the basis of case law cited, denial of CSR expenditure u/s 37(1) of the Act is not embargo to claim deduction u/s 80G of the Act. 7.1 Further, we like to observe that as a matter of fact as per Section 135 of the Companies Act, 2013 ('CA 2013), the qualifying Companies as mentioned therein are required to spend certain percentage of profits of last three years on activities pertaining to Corporate Social Responsibility (CSR). The expenditure on CSR, could be by way of expenditure on projects directly undertaken by said companies, such as setting up and running schools, social business projects, etc. Such expenditure would include expenditure otherwise falling for consideration under section 37(1) of the Act. On the other hand, companies, instead of undertaking or participating directly in a project, may choose to give donations to institutions that are engaged in undertaking such projects, which is also a recognized way of compliance of CSR obligation. 7.2 The assessing officer and CIT(A) have relied upon General Circular 14/2021 dated 25.08.2021 issued by MCA and \"Explanatory Notes to the provisions of the Finance (No.2) Act, 2014\" to hold that donations made as part of CSR expenditure are not allowable as deduction. The foundation of their reasoning being that the donation is voluntary in nature, while CSR expenditures are under statutory obligations. 7.3 As we take notice of the fact that Parliament legislated that CSR expenses would not be eligible for deduction as business expenditure under section 37 of the Act by inserting Explanation 2 to section 37(1) vide the Finance (No.2) Act, 2014 (applicable from the assessment year 2015-16), which provided that any expenditure incurred by an assessee on the activities relating to CSR referred to in section 135 of the CA 2013, shall not be deemed to be an expenditure incurred by an assessee for the purpose of business or profession and shall not be allowed as deduction under section 37(1) of the IT Act. Printed from counselvise.com 28 ITA No.4477/Del/2024 The intent of Parliament in bringing the aforesaid provision is given in the Explanatory Memorandum to the Finance (No.2) Bill, 2014 and is reproduced as under ; “CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business, As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for .computing the taxable income of the company, Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure.\" (emphasis supplied) 7.4 The aforesaid explanatory memorandum categorically expresses the legislative intent and the rationale of disallowance of CSR expenditure referred to in section 135 of the Companies Act, that such expenditure is application of income and not incurred for the purposes of business. We are of considered view that this in itself justifies the grant of deduction u/s 80G. As CSR expenditure is application of income of the assessee under the Income Tax Act, that means it continues to form part of the Total income of the assessee. Section 80G(1) of the Act provides that in computing the total income of an assessee, there shall be deducted, in accordance with the provisions of this section, such sum paid by the assessee in the previous year as a donation. Further, section 80G(2) lists down the sums on which deduction shall be allowed to the assessee. Section 80G falls in Chapter VIA, which comes into play only after the gross total income has been computed by applying the computation provisions under various heads of income, including the Explanation 2 to section 37(1) of the Act. Thus, there is no correlation between suo-moto disallowance in section 37(1) and claim of deduction under section 80G of the Act. 7.5 As with regard to the reasoning that CSR expenditure are not voluntary but mandatory in nature due to penal consequences, we are of considered view that voluntary nature of donation is by nature of fact that it is not on the basis of any reciprocal promise of donee. The CSR expenditures are also without any reciprocal commitment from beneficiary being philanthropic in nature. The Act permits deduction of donations as per Section 80G of the Act, even though, assessee is not gaining any benefit out of any reciprocity from donee. Similar is the case of CSR expenditure. Thus the reasoning of learned Tax Authority, the CSR expenditure is mandatory, does not Printed from counselvise.com 29 ITA No.4477/Del/2024 justify disallowance of these expenditures u/s 80G, if other conditions of section 80G are fulfilled. There is no allegation of Revenue that other conditions of Section 80G are not fulfilled. We, thus sustain the ground. 7.3. Therefore, respectfully following the above order of the Tribunal, we delete the disallowance of deduction amounting to Rs.16,90,975/- made by the Assessing Officer which was claimed by the assessee u/s 80G(5) of the Act. Accordingly, Ground no.4 of the appeal is allowed. 8. Ground No. 5 This ground arises out of claim of assessee that during the FY 2009-10 (relevant to AY 2010-11), the Assessee acquired a business of third-party debt collection services as well as part of the analytics business from Genpact India Pvt. Ltd (the seller entity') for a total sum of Rs.62,12,70,648 vide agreement to sell entered into between the Assessee and Genpact India. Out of the total purchase consideration of Rs.62,12,70,648, an aggregate sum of Rs.22, 16,00,276 (paid towards acquisition of customer contracts as well as the assembled workforce) was claimed as revenue expenditure by the Assessee 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 AO, vide assessment order, dated May 21, 2014, inter-alia, took a view that the aforesaid amount of Rs.22,16,00,276/-, incurred by the Assessee 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 Assessee. Accordingly, the sum of Rs.22,16,00,276 was added back to the returned income of the Assessee and a corresponding depreciation claim of 25% i.e., Rs.5,54,00,069 was Printed from counselvise.com 30 ITA No.4477/Del/2024 allowed to the Assessee under section 32(1)(ii) of the Act. Being aggrieved by the aforesaid assessment order passed for AY 2010-11, the Assessee preferred an appeal before the Ld. Commissioner of Income-tax (Appeal) ['ІТ(А)]. On appeal, the CIT(A) vide its order, dated February 15, 2016, passed under section 250 of the Act, had upheld the view taken by the AO. Further, the CIT(A), for the limited purpose of allowing depreciation under the Act, held that out of the total sum of Rs.22,16,00,276, only Rs.16,05,41,276 was to be considered as the value of intangible assets for allowing depreciation at the rate of 25%. This Tribunal vide its order dated January 31, 2023, in ITA No.2524/Del/2016 in assessee’s own case for AY 2010-11 modified the decision of CIT(A) to the extent of valuation of intangible assets treating the value of intangible assets to be Rs.22,16,00,276 and allowing depreciation on the same. 8.1. Considering the aforesaid order passed by this Tribunal in AY 2010- 11, the Assessee has claimed vide this additional ground to be now eligible to claim depreciation allowance of INR 31,19,773/- in the impugned AY (being depreciation at the rate of 25% on the written down value of intangible assets of Rs.16,00,276). 8.2. We notice that in assessee’s own case, Genpact Services LLC vs ACIT: [2024] 161 taxmann.com 765 / ITA No. 1833/Del/2022 for AY 2017-18 and Genpact Services LLC vs ACIT: [2024] TS-359-ITAT- 2024DEL-TP / ITA No. 1834/Del/2022 for AY 2018-19, the issue in question with identical facts has been adjudicated with following relevant conclusion; Printed from counselvise.com 31 ITA No.4477/Del/2024 \"18. In view of the above, we direct the ld. AO to grant depreciation consequent to the order of the tribunal in AY 2010- 11 and allow the additional ground raised by the assessee.\" 8.3. In the light of above the ground in hand is sustained and we direct the ld. AO to grant depreciation consequent to the order of the tribunal in AY 2010-11. 9. Ground no.6 of the appeal is against the non-granting of TDS Credit of Rs.8,53,053/- and self assessment tax of Rs.24,10,000/- while computing tax payable by the assessee. The Assessing Officer is directed to verify the above claim of the assessee and allow the said credit as per law. Ground no.6 of the appeal is allowed. 10. Ground No.7 is against the levy of interest u/s 234A, 234B and 234C of the Act, which according to the assessee, the Assessing Officer has erred in its calculation. This ground of appeal is of consequential nature and the Assessing Officer is directed to charge interest as per law. Ground no.7 of the appeal is allowed for statistical purposes. 11. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 31st July, 2025. Sd/- Sd/- [PRAKASH CHAND YADAV] [BRAJESH KUMAR SINGH] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 31.07.2025. *Shekhar Copy forwarded to: 1. Appellant 2. Respondent 3. CIT Printed from counselvise.com 32 ITA No.4477/Del/2024 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi Printed from counselvise.com "
Other Referred Cases
Genpact Services LLC vs ACIT: [2024] 101 taxmann.com 785 /TA Na 1992/Del/2022 for AY 2017-18, Genpact Services LLC vs ACIT: [2024] TS-359-ITAT-2024DEL-TP /ITA No. 1834/Del/2022 for AY 2018-19, Genpact Services LLC vs ACIT: [2024] TS-359-ITAT-2024DEL-TP /ITA No. 1834/Del/2022 for AY 2019-20, Fujitsu India Pvt. Ltd. vs. DCIT: [2017) ITA No. 604 of 2017 (Delhi), CIT vs EHPT India (P.) Ltd.: [2011] 350 ITR 41 (Delhi), Orange Business Services India vs DCIT: ITA No. 6928/2017 (Del - Trib.), Cable and Wireless (India) Limited vs DCIT: [2017) ITA No. 756, 6074-6075 of 2017 (Mumbai - Trib.), Cisco Systems (India) P Ltd vs ACIT: [2021] 127 taxmann.com 62 (Bang-Trib.), SABIC India Pvt. Ltd. vs DCIT: [2022] 96 ITR(T) 368 (Del. - Trib.), CLSA India (P.) Ltd. vs DCIT: [2023] 157 taxmann.com 498 / ITA No. 6748 of 2017 (Mumbai - Trib.), Palmer Investment Group Ltd. vs DCIT: [2023] 148 taxmann.com 4 / ITA No.2929 & 2930 of 2018 (Bengaluru - Trib.), Ineos Styrolution India Ltd. vs DCIT: [2022] 142 taxmann.com 450 / ITA No.58 of 2022 (Ahmedabad - Trib.), Sulzer Tech India (P.) Ltd. vs ACIT: [2022] 142 taxmann.com 246 / ITA No. 633 of 2021 (Mumbai - Trib.), Gulf Energy Maritime Services Pvt. Ltd. vs ITO: I.T.A. No.3812/Mum/2015 (Mumbai - Trib.), Interglobe Technology Quotient (P.) Ltd. ACIT [2024] 163 taxmann.com 542 (Delhi - Trib.), Power Mech Projects Ltd. vs DCIT: [2023] 156 taxmann.com 575 / ITA No.155/2023 (Hyd. - Trib.), Optum Global Solutions (India) (P.) Ltd. vs DCIT: [2023] 203 ITD 14 (Hyd. - Trib.), JMS Mining (P.) Ltd. vs PCIT: [2021] 91 ITR(T) 80 (Kol. - Trib.), FNF India (P.) Ltd. vs ACIT: [2021] 133 133 taxmann.com 251 / ITA No.1565/2019 (Bang. Trib.), Allegis Services (India) Pvt. Ltd. vs ACIT: ITA NO. 1693/2019 (Bang.-Trib.), Goldman Sachs Services Pvt. Ltd. vs JCIT: [2020] 117 Taxmann.com 535 /IT(TP) Appeal No. 2355/2019 (Bang. - Trib.)
Laws Referred To
Income Tax Act, 1961
1:1 Consultation on Tax Litigation
₹1
1:1 Consultation on Salary Structuring
₹1
1:1 Consultation on Business Valuations
₹1
Form AOC-2 - Disclosure of Related Party Transaction
Mehul₹50
Declaration of Gift
Mehul₹500
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