M/s. Concentrix Daksh Services India Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 1560/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5017 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 22-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 23-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: G C SRIVASTAVA; SUVINAY KR DASH; PARICHAY SOLANKI
• Keywords: Depreciation; Transfer pricing; Double taxation relief; International transaction; Deemed dividend
• Section: 271(1)(c); 92C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E I - 1 , NEW DELHI BEFORE SH. N. S . SAINI, ACCOUNTANT MEMBER A ND SH. SUDHANSHU SRIVASTAVA , JUDICIAL MEMBER ITA NO. 2096 /DEL/2015 : ASSTT. YEAR : 2010 - 1 1 M/S CONCENTRIX D AKSH SERVICES INDIA PVT. LTD., (ERSTWHILE KNOWN AS IBM DAKSH BUSINESS PROCESS SERVICES PVT. LTD.), 4 TH FLOOR, TOWER - B, BUILDING NO. 8, CYBER CITY, DLF, PHASE - II, GURGAON, HARYANA VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 4(1), NEW DELHI (APPELLANT) (RESPONDENT) P AN NO. A ABCD4187D ITA NO. 2495/DEL/2015 : ASSTT. YEAR : 2010 - 1 1 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 4(1), NEW DELHI VS M/S CONCENTRIX D AKSH SERVICES INDIA PVT. LTD., (ERSTWHILE KNOWN AS IBM DAKSH BUSINESS PROCESS SERVICES PVT. LTD.), 4 TH FLOOR, TOWER - B, BUILDING NO. 8, CYBER CITY, DLF, PHASE - II, GURGAON, HARYANA (APPELLANT) (RESPONDENT) PAN NO. A ABCD4187D ITA NO. 1560/DEL/2016 : ASSTT. YEAR : 2011 - 1 2 M/S CONCENTRIX D AKSH SERVICES INDIA PVT. LTD., DLF IT SEZ, BUILDING NO. 14, TOWER D, 17 TH FLOOR, DLF CYBER CITY, SECTOR 24 & 25A, DLF PHASE - III, GURGAON, HARYANA - 122002 VS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 6(2), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A ABCD4187D ASSESSEE BY : SH. G. C. SRIVASTAVA, ADV., SH. S U VINAY KR. D ASH , ADV. & SH. PARICHAY SOLANKI, CA REVENUE BY : SH. SANJAY I. BARA, CIT DR ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 2 DATE OF HEARING : 29 .01 .201 9 DATE OF PRONOUNCE MENT : 04 .0 2 .201 9 ORDER PER N. S . SAINI, AM : I TA NO. 2096/DEL/2015 AND ITA NO. 2495/DEL/2015 ARE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF DRP - IV, NEW DELHI DATED 15 .12.2014 FOR ASSESSMENT YEAR 2010 - 11 AND ITA NO. 1560/DEL/2016 IS THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF DRP - I, NEW DELHI DATED 28.11.2015 FOR ASSESSMENT YEAR 2011 - 12 . 2. GROUND NO. 1 FOR ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 READS AS UNDER: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSMENT ORDER PASSED BY THE LEARNED AS SESSING OFFICER ( LD. AO ) PURSUANT TO THE DIRECTIONS OF LEARNED DISPUTE RESOLUTION PANEL ( LD. DRP ) IS BAD IN LAW AND VOID AB - INITIO. 3. THIS GROUND OF APPEAL IS GENERAL IN NATURE AND HENCE DOES NOT REQUIRE SEPARATE ADJUDICATION BY US. 4. GROUND NO. 2 FOR ASSESSMENT YEAR 2010 - 11 AND GROUND NO. 2 FOR ASSESSMENT YEAR 2011 - 12 READS AS UNDER: AY: 2010 - 11 2. TP ADJUSTMENT WITH RESPECT TO BUSINESS PROCESS OUTSOURCING ( BPO ) SERVICES SEGMENT FROM ASSOCIATED ENTERPRISES OTHER THAN IBM WORLD TRADE CORPORATIO N ( IBM WTC ) AND IBM UNITED KINGDOM LTD. ( IBM UK ) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO (FOLLOWING THE DIRECTIONS OF THE LD. ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 3 DRP), ERRED ON FACTS AND IN LAW IN ENHANCING THE INCOME OF THE APPELLANT BY RS. 30,11,35,718 H OLDING THAT THE INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF BPO SERVICES WITH ITS ASSOCIATED ENTERPRISES, OTHER THAN IBM WTC AND IBM UK, DO NOT SATISFY THE ARM S LENGTH PRINCIPLE ENVISAGED UNDER THE INCOME - TAX ACT, 1961 ('THE ACT'), AND IN DOING S O HAVE GROSSLY ERRED IN: 2.1. REJECTING THE TRANSFER PRICING ( TP') DOCUMENTATION MAINTAINED BY THE APPELLANT A ND 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 I GNORED 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 IDENT IFIED BY THE APPELLANT IN THE TP DOCUMENTATION, ALTHOUGH SUCH COMPANIES ARE COMPARABLE. 2.6. INCLUDING ADDITIONAL COMPANIES AS PART OF THE FINAL SET OF COMPANIES, ALTHOUGH SUCH COMPANIES DO NOT SATISFY THE TEST OF COMPARABILITY. ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 4 2.7. APPLYING CERTAIN AR BITRARY FILTERS IN DETERMINING THE ARM S LENGTH PRICE IN CONNECTION WITH THE INTERNATIONAL TRANSACTIONS PERTAINING TO THE BPO SER VICES SEGMENT AND HOLDING THAT THE APPELLANT S INTERNATIONAL TRANSACTION IS NOT AT ARM S LENGTH. 2.8. COMPUTING THE MARK - UPS OF COMPARABLE COMPANIES BASED ON ERRONEOUS COMPUTATION METHODOLOGY. 2.9. NOT PROVIDING APPROPRIATE ECONOMIC ADJUSTMENTS (SUCH AS RISK AND DEPRECIATION ADJUSTMENT) CLAIMED BY THE APPELLANT AND THUS CONSEQUENTLY ARRIVING AT AN ERRONEOUS MARK - UP ON COST FOR THE COMPARABLE COMPANIES SELECTED IN THE TP ORDER. AY: 2011 - 12 1. TP ADJUSTMENT WITH RESPECT TO BUSINESS PROCESS OUTSOURCING ( BPO ) SERVICES SEGMENT FROM ASSOCIATED ENTERPRISES OTHER THAN IBM WORLD TRADE CORPORATION ( IBM WTC ) AND IBM UNITED KINGDOM LTD, ( 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 BY INR 33,25,09,036 HOLDING THAT THE INTERNATIONAL TRANS ACTION PERTAINING TO PROVISION OF BPO SERVICES WITH ITS ASSOCIATED ENTERPRISES, OTHER THAN IBM WTC AND IBM UK, DO NOT SATISFY THE ARM S LENGTH PRINCIPLE ENVISAGED UNDER THE INCOME - TAX ACT, 1961 ( THE ACT ), AND IN DOING SO HAVE GROSSLY ERRED IN: 1.1. REJ ECTING THE TRANSFER PRICING ( TP ) DOCUMENTATION MAINTAINED BY THE APPELLANT AND IN INVOKING PROVISIONS OF 926(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. ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 5 1.2. 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. 1.3. REJECTING COMPARABILITY ANALYSIS UNDERTAKEN BY THE APPELLANT IN THE TP DOCUMENTATION, IGNORING THAT SUCH ANALYSIS WAS IN ACCORDANCE WITH THE PROVISIONS O F THE ACT READ WITH THE INCOME TAX RULES, 1962, ('THE RULES'). 1.4. REJECTING CERTAIN COMPANIES IDENTIFIED BY THE APPELLANT IN THE TP DOCUMENTATION, ALTHOUGH SUCH COMPANIES ARE COMPARABLES. 1.5. INCLUDING ADDITIONAL COMPANIES AS PART OF THE FINAL SET O F 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 HOLD ING 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 A CT AND THEREBY NOT DISCHARGING THE NECESSARY JUDICIAL FUNCTION ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 6 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 TRANS ACTION PROCESSING AND CUSTOMER CARE SERVICES SEGMENTS. THE ASSESSEE OFFERS REMOTE SUPPORT SERVICES INCLUDING CUSTOMER CARE AND TECHNICAL SUPPORT THROUGH MULTIPLE COMMUNICATION CHANNELS, BACK - END TRANSACTION PROCESSING, OUTBOUND COLLECTIONS, TELEMARKETING W EB BASED SERVICES INCLUDING REAL TIME CHAT. THE UNIQUE CO - SOURCING MODEL AND 100 PER CENT BPO FOCUS ENABLED IT TO RE - ENGINEER PROCESSES AND ALSO PROVIDE VALUE ADDED SERVICES. THE ASSESSEE HAS SHOWN RECEIPTS FROM BPO SERVICES AT RS.6,456,729,194/ - . THE ASSE SSEE EMPLOYED TNMM METHOD AND OP/TC AS THE PLI. THE ASSESSEE ARRIVED AT A SET OF 7 COMPANIES WITH AN AVERAGE MARGIN OF 14.31%. THE ASSESSEE USED MULTIPLE YEAR DATA. THE ASSESSEE S OWN MARGIN WAS WORKED OUT AT 10.04% UNDER BPO SERVICES SEGMENT. BASED ON THE ANALYSIS, THE ASSESSEE CONCLUDED THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARM S LENGTH. THE ASSESSING OFFICER REFERRED THE MATTER TO THE TPO FOR DETERMINATION OF THE ARM S LENGTH PRICE. THE TPO TOOK THE FOLLOWIN G COMPARABLES AND ARRIVED AT PBD IT AS COMP ARABLES SELECTED BY HIM AS UNDER: SL. NO. COMPANY NAME OP/OC PBDIT 1. ACCENTIA TECHNOLOGY LTD. 42.52% 61.52% 2. COSMIC GLOBAL LTD. 18.28% 20.36% 3. E4E HEALTHCARE LTD. 31.03% 40.12% 4. FORTUNE INFOTECH LTD. 22.80% 48.84% 5. IGATE GLOBAL SOLUTIONS LTD . 24.54% 29.91% 6. INFOSYS B P O LTD. 31.44% 40.24% ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 7 7. JINDAL INTELLICOM LTD. 13.62% 19.63% 8. T C S E - SERVE INTERNATIONAL LTD. 54.03% 71.87% 9. T C S E - SERVE LTD. 63.42% 72.65% AVERAGE 33.52% 45.01% 6 . THE TPO OBSERVED THAT THE RE SULTS SUBMITTED BY THE TAXPAYER ARE AS UNDER: PARTICULARS AMOUNT OPERATING REVENUES 6,456,729,000 OPERATING EXPENSES 5,867,844,000 OPERATING PROFIT 588,885,000 OP/OC 10.04% METHOD USED TNMM PLI OP/OC NO. OF COMPARABLES 7 MEAN MARGIN OF COMPARABLES (ADJUSTED) 14.31% 7 . THEREAFTER, THE AO COMPUTED THE ARM S LENGTH PRICE OF THE BPO TRANSACTION OF THE ASSESSEE AS UNDER: OPERATING COST 5,867,844,111 ARM S LENGTH PRICE AT A MARGIN OF 33.52% 7,834,745,457 PRICE RECEIVED 6,456,729,194 105% OF THE PRIC E RECEIVED 6,779,565,654 PROPOSED OF THE PRICE RECEIVED 1,378,016,263 THEREBY MADE AN ADDITION OF RS.137,80,16,263/ - . 8 . THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE DRP WHO CONFIRMED THE ACTION OF THE TPO FOLLOWING THE DECISION OF THE DRP IN A SSESSEE S CASE FOR ASSESSMENT YEAR 2009 - 10 AND REASONING GIVEN THEREIN. ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 8 9 . BEFORE US, THE AR OF THE ASSESSEE SUBMITTED THAT AS THE MATTER WITH THE UNITED KINGDOM ASSOCIATED ENTERPRISES AND THE UNITED STATES OF AMERICA ASSOCIATED ENTERPRI SES HAS BEEN SETTL ED UNDER THE MUTUAL AGREEMENT P ROCEDURE 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 NO S. 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/AGR EED IN THE MAP TO BENCHMARK THE TRANSACTION OF NON - US AE ALSO. 10 . THE DEPARTMENTAL REPRESENTATIVE VEHEMENTLY OPPOSED THE SUBMISSION OF THE AR OF THE ASSESSEE. HE ARGUED THAT AS THE BUSINESS CONDITIONS IN OTHER COUNTRIES MAY NOT BE THE SAME AS WERE IN THE CASE OF UK AND US ASSOCIATED ENTERPRISES TRANSACTION. THEREFORE, THE NET PROFIT MARGIN ADOPTED IN THE UK ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 9 AND US ASSOCIATED ENTERPRISES CANNOT BE ADOPTED IN CASE OF OTHER ASSOCIATED ENTERPRISES OF THE ASSESSEE. 1 1 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN BOTH THE YEARS UNDER CONSIDERATION, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BPO SERVICES. TURNOVER OF THE ASSESSEE DURING THE ASSESSMENT YEAR 2010 - 11 WAS RS.6,456,729,194/ - AND FOR THE ASSESSMENT YEAR 2011 - 12 WAS RS.9,387,771,171/ - . THE BREAK - UP OF THE SAM E ARE AS UNDER: NAME OF THE COUNTRY AY 2010 - 11 AY 2011 - 12 US/UK MAP 77% 75% NON - UK/US COUNTRIES 23% 25% 12 . THE ENTIRE TRANSACTION WAS ENTERED INTO WITH ASSOCIATED ENT ERPRISES. THE ASSESSEE HAS SHOWN INCOME AT THE RATE OF 10.04% IN ASSESSMENT YEAR 2010 - 11 AND AT THE RATE 10% IN THE ASSESSMENT YEAR 2011 - 12. THE TPO, HOWEVER, DETERMINED THE MARGIN AT THE RATE OF 33.52% IN THE ASSESSMENT YEAR 2010 - 11 AND AT THE RATE OF 35. 78% IN THE ASSESSMENT YEAR 2011 - 12. 13 . THEREAFTER, MAP WAS ENTERED INTO BY THE ASSESSEE AND THE DEPARTMENT WHEREBY NET MARGIN IN RESPECT OF TURNOVER WITH USA AND UK WAS AGREED UPON AT 14.99% FOR THE ASSESSMENT YEAR 2010 - 11 AND AT 15.01% FOR THE ASSESSMEN T YEAR 2011 - 12. THUS, IT IS NOW SETTLED BETWEEN THE PARTIES THAT IN RESPECT OF TURNOVER OF 77% IN THE ASSESSMENT YEAR 2010 - 11 N ET MARGIN IS TO BE CALCULATED AT 14.99% AND IN RESPECT OF THE ASSESSMENT YEAR 2011 - 12 IN RELAT ION TO 75% OF THE TURNOVER NET MARG IN IS TO BE CALCULATED AT THE RATE OF 15.01%. ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 10 1 4 . THUS, THE ISSUE WHICH IS STILL IN DISPUTE IS THE MARGIN WHICH IS TO BE CALCULATED IN RESPECT OF TURNOVER OF NON - USA AND UK COUNTRIES WHICH IS 23% OF THE TOTAL TURNOVER IN THE ASSESSMENT YEAR 2010 - 11 AND 27 % OF THE TOTAL TURNOVER IN THE ASSESSMENT YEAR 2011 - 12. 15 . WE FIND THAT IT IS NOT IN DISPUTE THAT THE NATURE OF TRANSACTION WHICH WAS ENTERED INTO WITH ASSOCIATED ENTERPRISES SITUATED IN US AND UK WERE SAME AS ASSOCIATED ENTERPRISES SITUATED IN NON - US AN D UK COUNTRIES. THE TPO HAS ALSO APPLIED SAME NET PROFIT MARGIN RATE FOR TURNOVER OF NON - USA AND UK COUNTRIES AS WAS APPLIED FOR USA AND UK COUNTRIES. WE, THEREFORE, DO NOT FIND ANY GOOD REASON WHY THE MARGIN RATE AGREED UPON UNDER MAP IN RESPECT OF USA AN D 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, THER EFORE, 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 N O. 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 ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 11 WITHOUT APPRECIA TING 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 SHOU LD BE ALLOWED TO THE APPELLANT IN THE RESPECT TO THE PRIOR PERIOD EXPENSES AMOUNTING TO INR 6,13,44,133 DISALLOWED BY THE APPELLANT IN ITS RETURN OF INCOME FOR AY 2011 - 12. 17 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED PRIOR PE RIOD EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT AMOUNTING TO RS.2,18,97,701/ - AS THEY PERTAINED TO THE EARLIER YEAR AND NOT TO THE YEAR UNDER APPEAL 18 . ON APPEAL, THE DRP CONFIRMED THE ACTION OF THE AO. THE AR OF THE ASSESSEE SUBMITTED THAT THIS BEN CH OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF IN THE ASSESSMENT YEAR 2009 - 10 VIDE ORDER DATED 05.07.2016 PASSED IN ITA NO. 2666/DEL/2014 HAD RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER AND THEREFORE, THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE VERY SAME DIRECTION AS GIVEN IN THE ASSESSMENT YEAR 2009 - 10. 19 . T HE DR HAD NO OBJECTION TO THE ABOVE SUBMISSIONS OF THE AR OF THE ASSESSEE. 2 0 . WE FIND THAT TRIBUNAL IN THE ASSESSMENT YEAR 2009 - 10 HELD AS UNDER: 25. GROUND NO. 5 RELATING TO 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 ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 12 HAVE CRYSTALLIZED IN THE YEAR UNDE R APPEAL. HENCE THE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 2 1 . HENCE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMAND THIS ISSUE BACK TO THE FILE OF THE AO WITH THE VERY SAME DIRECTION AS GIVEN IN ASSESSMENT YEAR 2009 - 10. THUS, THIS GROU ND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 22 . GROUND NO. 4 FOR ASSESSMENT YEAR 2011 - 12 READS AS UNDER: 4. POWER OF THE DRP TO ENHANCE IS RESTRICTED TO DISALLOWANCES/ VARIATIONS PROPOSED IN THE DRAFT ORDER. 4.1. THAT THE LD. DRP H AS ERRED IN LAW IN DIRECTING THE LD. AO TO ENHANCE THE INCOME OF THE APPELLANT BY INVOKIN G THE PROVISIONS OF SECTION 144C (8) OF THE ACT WITHOUT APPRECIATING THAT THERE IS NO DISALLOWANCE/ VARIATION PROPOSED BY THE LD. AO UNDER SECTION 4O(A)(I) OF THE ACT I N THE DRAFT ASSESSMENT ORDER NOR ARE THERE ANY OBJECTIONS RAISED BY THE APPELLANT IN THIS REGARD BEFORE THE DRP. 4.2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP FAILED TO APPRECIATE THAT THE INSERTION OF EXPLANATION BELOW SUB SECTION 8 OF SECTION 144C OF THE ACT WAS TO MAKE AN ENHANCEMENT ON THE VARIATION PROPOSED IN THE DRAFT ASSESSMENT ORDER AND NOT TO RAISE 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 PURSUAN T TO DIRECTION OF DRP UNDER 144C (8) OF TH E ACT WHICH ARE ILLEGAL, WITHOUT JURISDICTION AND BAD IN LAW. ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 13 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 2011 - 12 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 TH E 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 COM PUTING THE DEDUCTION ALLOWABLE UNDER SECTION 10A OF THE ACT. 4.2. WITHOUT PREJUDICE TO THE ABOVE, THE LD. AO AND THE LD. DRP ERRED IN LAW IN REDUCING THE TELECOMMUNICATION CHARGES OF RS. 21,57,84,583 ONLY FROM THE EXPORT TURNOVER AND NOT MAKING ANY CORRES PONDING REDUCTION FROM THE TOTAL TURNOVER WHILE RE - COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. 4.3. WITHOUT PREJUDICE TO THE ABOVE, THE LD. AO AND THE LD. DRP ERRED IN REDUCING THE TELECOMMUNICATION CHARGES OF RS. 21,57,84,583 ONLY FROM THE ELIG IBLE UNITS (ON WHICH DEDUCTION WAS CLAIMED) WITHOUT APPRECIATING THAT COMMUNICATION EXPENSES ALSO RELATED TO NON - ELIGIBLE UNITS. 4.4. THE LD. AO AND THE LD. DRP ERRED IN NOT CONSIDERING THE ENHANCED PROFITS ON ACCOUNT OF ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 14 DISALLOWANCES OF PRIOR PERIOD EXPE NSES AMOUNTING TO RS. 2,18,97,701 WHILE COMPUTING THE DEDUCTION U/S 10A/10AA. AY: 2011 - 12 6. DEDUCTION UNDER SECTION 10A OF THE ACT . 6.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP, ERRED IN REDUCING THE TELECOMMUNIC ATION CHARGES OF INR 21,97,91,546 FROM THE EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION ALLOWABLE UNDER SECTION 10A OF THE ACT. 2 5 . FOR ASSESSMENT YEAR 2010 - 11, THE AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF GENPACT INDIA VS CIT REPORTED IN 203 TAXMANN.COM 632 WHEREIN IT WAS HELD AS UNDER: 14. HAVING CONSIDERED THE ARGUMENTS ADVANCED BY THE COUNSEL FOR THE PARTIES, WE ARE IN COMPLETE AGREEMENT WITH THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY(SUPRA). IN ORDER TO AVOID PROLIXITY, WE SET OUT THE RELEVANT PORTION OF THE DECISION OF THE BOMBAY HIGH COURT IN GEM PLUS JEWELLERY AND ENDORSE THE SAME. THE RELEVANT PORTION OF THE SAID DECISION IS AS UNDER: 6. THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPORT AND THE TURNOVER FROM LOCAL SALES. THE EXPORT TURNOVER CON STITUTES THE NUMERATOR IN THE FORMULA PRESCRIBED BY SUB - SECTION (4). EXPORT TURNOVER ALSO FORMS A CONSTITUENT ELEMENT OF THE DENOMINATOR INASMUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. 7. THE EXPORT TURNOVER, IN THE N UMERATOR MUST HAVE THE SAME MEANING AS THE EXPORT TURNOVER WHICH IS A CONSTITUENT ELEMENT OF THE TOTAL ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 15 TURNOVER IN THE DENOMINATOR. THE LEGISLATURE HAS PROVIDED A DEFINITION OF THE EXPRESSION EXPORT TURNOVER IN EXPLANAT ION 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 EX CHANGE 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 LEGISLA TURE 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 T URNOVER, 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 PURPOSE S 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 EXPRESSION EXPORT TURNOVER CANNOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY, IT WAS O PEN TO PARLIAMENT TO MAKE A PROVISION TO THE CONTRARY. HOWEVER, NO SUCH PROVISION HAVING BEEN MADE, THE PRINCIPLE WHICH HAS BEEN ENUNCIATED EARLIER MUST PREVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OTHER INTERPRETATION WOULD LEAD TO AN ABSURDITY. IF THE CONTENTION OF THE REVENUE WERE TOBE ACCEPTED, THE SAME EXPRESSION VIZ. EXPORT TURNOVER WOULD HAVE A ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 16 DIFFERENT CONNOTATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMIS SION OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE, THOUGH IT HAS BEEN SPECIFICALLY EXCLUDED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUMERATOR WOULD BE BROUGHT IN AS PART OF THE EXPORT TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMINATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISION WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. (UNDERLINING ADDED) 16. ALL THE POINTS RAISED BY MR SABHARWAL STAND ANSWERED IN THE REASONING GIVEN BY THE BOMBAY HIGH COURT AND KARNATAKA HIGH COURT IN THE SAID DECISIONS WITH WHICH WE ARE IN COMPLETE AGREEMENT. 2 6 . THE DR COULD NOT CONTROVERT THE SUBMISSION OF THE AR OF THE ASSESSEE. 27 . THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF GENPACT INDIA (SUPRA), WE SET ASIDE OF THE ORDERS OF LOWER AUTHORITIES AND DIRECT THE AO TO COMPUTE DEDUCTION U/S 10A OF THE ACT AFT ER DEDUCTING THE TELECOMMUNICATION EXPENSES BOTH FROM EXPORT TURNOVER AND TOTAL TURNOVER OF THE ASSESSEE. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 28 . AT THE TIME OF HEARING, THE AR OF THE ASSESSEE SUBMITTED THAT AS ENHANCED DEDUCTION WAS A LLOWED TO THE ASSESSEE IN ASSESSMENT YEAR 2011 - 12 , T HEREFORE, THIS GROUND OF APPEAL IS NOT PRESSED IN ASSESSMENT YEAR 2011 - 12. HENCE , THIS GROUND OF APPEAL IS DISMISSED FOR WANT OF PROSECUTION. ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 17 29 . GROUND NO. 5 OF THE APP EAL FOR ASSESSMENT YEAR 2010 - 11 A ND GR OUND NO. 7 FOR ASSESSMENT YEAR 2011 - 12 READ AS UNDER: AY: 2010 - 11 5. THE LD.AO ERRED IN ONLY ALLOWING PART CREDIT OF TAXES DEDUCTED AMOUNTING TO RS. 29,62,20,870 INSTEAD OF RS. 29,92,72,786 CLAIMED IN THE RETURN OF INCOME. AY: 2011 - 12 6. ON THE FA CTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED 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, T HIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 33 . GROUND NO. 3 OF THE APPEAL FOR ASSESSMENT YE AR 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 . ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 18 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 OF INCOME AND EX PENDITURE AND APPLYING MARK - UP ON THE COST INCURRED BY THE APPELLANT. 3.2. HOLDING THAT THE REIMBURSEMENT OF EXPENSES RECEIVED FROM AES IS CLOSELY LINKED TO THE PRIMARY TRANSACTION OF PROVISION OF BPO SERVICES AND ACCORDINGLY APPLYING A MARK - UP BASED O N AVERAGE RETURN ON TOTAL COST EARNED BY COMPARABLES SELECTED IN FINAL ASSESSMENT ORDER. 34 . THE AR OF THE ASSESSEE SUBMITTED THAT THIS AMOUNT HAS BEEN SUBSUMED IN COMPUTATION DONE FOR INDIA - US AND INDIA - UK MAP. HENCE, MAP RATE SHOULD BE APPLIED ON BALAN CE TRANSACTION. 35 . WE FIND THAT THE ISSUE DOES NOT ARISE OUT OF THE ORDER OF THE AO. HENCE, THIS GROUND OF APPEAL IS DISMISSED. 36 . GROUND NO. 5 OF THE APPEAL FOR ASSESSMENT YEAR 2011 - 12 READS AS UNDER: 5. DISALLOWANCE UNDER SECTION 4O(A)(I) OF THE ACT . 5.1 . THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO , PURSUANT TO THE DIRECTIONS OF THE LD. DRP, ERRED IN DISALLOWING INR 6,00,53,106 UNDER SECTION 4O(A)(I) OF THE ACT ON ACCOUNT OF NON - DEDUCTION OF TAXES AT SOURCE ON REIM BURSEMENTS OF EXPENSES MADE TO ASSOCIATED ENTERPRISES CAES ). ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 19 5.2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO AND LD. DRP ERRED IN NOT APPRECIATING THAT THE NATURE OF THE TRANSACTIONS WERE MERELY COST TO COST REIMBURSEME NT OF EXPENSES WHICH WERE NOT LIABLE TO DEDUCTION OF TAXES AT SOURCE UNDER THE ACT AS WELL AS RELEVANT DTAA. 5.3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. DRP ERRED IN NOT APPRECIATING THAT THE DECISION OF CENTRICA (REPORTED I N 44 TAXMANN.COM 300) WAS DISTINGUISHABLE AND NOT APPLICABLE TO THE INSTANT CASE. 37 . AT THE TIME OF HEARING, THE AR OF THE ASSESSEE DID NOT PRESS THIS GROUND OF APPEAL . T HEREFORE, THIS GROUND OF APPEAL IS DISMISSED FOR WANT OF PROSECUTION. 38 . GROUND N O. 7 OF THE APPEAL FOR THE ASSESSMENT YEAR 2010 - 11 AND GROUND NO. 8 OF THE APPEAL FOR ASSESSMENT YEAR 2011 - 12 ARE DIRECTED AGAINST LEVY OF INTEREST U/S 234B, 234C AND 234D OF THE ACT. 39 . AT THE TIME OF HEARING, THE AR OF THE ASSESSEE SUBMITTED THAT CHARG ING OF INTEREST IS CONSEQUENTIAL. THEREFORE, THESE GROUNDS OF THE APPEAL OF THE ASSESSEE ARE DISMISSED. 40 . GROUND NO. 8 OF THE APPEAL FOR ASSESSMENT YEAR 2010 - 11 AND GROUND NO. 9 FOR ASSESSMENT YEAR 2011 - 12 ARE DIRECTED AGAINST INITIATION OF PENALTY PROC EEDINGS U/S 271(1)(C) OF THE ACT. 41 . THIS GROUND OF APPEAL IS PRE - MATURE AND IS ACCORDINGLY DISMISSED. ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 20 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 (B ANGALORE) WHERE IT WAS HELD AS UNDER: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE HOLDING COMPANY OF THE ASSESSEE BASED IN MAURITIUS IS HOLDING MORE THAN 99.99% OF THE SHARES OF THE ASSESSEE. THEREFORE IF ANY PAYMENT IS MADE BY THE ASSESSEE TO THE HOLDING COMPANY, THE SAME WOULD BE TREATED AND DEEMED AS DIVIDEND IN VIEW OF THE PROVISION OF SECTION 2(22) OF THE ACT HOWEVER, IN THIS CASE THE PAYMENT IN QUESTION HAS BEEN MADE BY THE ASSESSEE TO THE HOLDING COMPANY ON ACCOUNT OF BUY BACK OF SHARES. THEREFORE TO THE ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 21 EXTENT OF THE TRANS ACTION OF BUY BACK OF SHARES, THE SAME CANNOT BE CLASSIFIED AS DIVIDEND AS PER THE PROVISIONS OF SECTION 2(22) WHEN THE EXCLUSION CLAUSE (IV) OF SECTION 2(22) HAS SPECIFICALLY EXCLUDED SUCH A PAYMENT ON PURCHASE OF ITS OWN SHARES FROM A SHAREHOLDER IN ACCO RDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT FROM THE DEFINITION OF DIVIDEND. FOR READY REFERENCE, WE QUOTE CLAUSE (IV) OF SECTION 2(22) AS UNDER: 'SECTION 2(22)(IV) : ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OWN SHARES FROM A SH AREHOLDER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956 (1 OF 1956).' WE FURTHER NOTE THAT SECTION 115QA HAS BEEN INTRODUCED IN THE STATUTE BY FINANCE ACT, 2013 W.E.F. 1.6.2013. THEREFORE ANY PAYMENT ON ACCOUNT OF PURCHASE OF ITS OWN SHARES BY THE COMPANY PRIOR TO 1.6.2013 CANNOT BE TERMED AS DIVIDEND AS PER THE PROVISIONS OF SECTION 115QA. WE QUOTE SECTION 115QA AS UNDER: 115QA. (1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, IN ADDITION TO THE INCO ME - TAX CHARGEABLE IN RESPECT OF THE TOTAL INCOME OF A DOMESTIC COMPANY FOR ANY ASSESSMENT YEAR, ANY AMOUNT OF DISTRIBUTED INCOME BY THE COMPANY ON BUY - BACK OF SHARES (NOT BEING SHARES LISTED ON A RECOGNISED STOCK EXCHANGE) FROM A SHAREHOLDER SHALL BE CHARG ED TO TAX AND SUCH COMPANY SHALL BE LIABLE TO PAY ADDITIONAL INCOME - TAX AT THE RATE OF TWENTY PER CENT ON THE DISTRIBUTED INCOME. EXPLANATION. - FOR THE PURPOSES OF THIS SECTION, (I) 'BUY - BACK' MEANS PURCHASE BY A COMPANY OF ITS OWN SHARES IN ACCORDANCE W ITH THE PROVISIONS OF [ANY LAW FOR THE TIME BEING IN FORCE RELATING TO COMPANIES]; ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 22 (II) 'DISTRIBUTED INCOME' MEANS THE CONSIDERATION PAID BY THE COMPANY ON BUY - BACK OF SHARES AS REDUCED BY [THE AMOUNT, WHICH WAS RECEIVED BY THE COMPANY FOR ISSUE OF SUCH S HARES, DETERMINED IN THE MANNER AS MAY BE PRESCRIBED], (2) NOTWITHSTANDING 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 SUB - SECTION (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 SHARE HOLDER 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 THEREFOR E 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 T HEREON. 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 ASSESSEE IS PRIOR TO 1.6.2013 THEREFORE THE SAID PROVISION OF SECTION 115QA IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS IT IS EXPLAINED BY THE CBDT VIDE CIRCULAR NO.3/16. WE QUOTE THE RELEVANT PARA NOS.1, 4 AND 5 OF THE CIRCULAR : ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 23 '1. AS PER PROVISIONS OF SECTION 46A OF TH E INCOME TAX ACT, 1961, APPLICABLE WITH EFFECT FROM 1.4.2000, ANY CONSIDERATION RECEIVED BY A SHAREHOLDER OR A HOLDER OF OTHER SPECIFIED SECURITIES FROM ANY COMPANY ON PURCHASE OF ITS OWN SHARES/OTHER SPECIFIED SECURITIES SHALL BE, SUBJECT TO PROVISIONS CO NTAINED IN SECTION 48, DEEMED TO BE CAPITAL GAINS. FURTHER, SUB - CLAUSE (IV) OF CLAUSE (22) OF SECTION 2 OF THE ACT EXCLUDES ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OWN SHARES IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 77A OF THE COMPAN IES ACT FROM THE AMBIT OF 'DIVIDEND'. FINANCE ACT, 2013 SUBSEQUENTLY INTRODUCED SECTION 115QA (W.E.F 1.6.2013) TO PROVIDE THAT ANY AMOUNT OF DISTRIBUTED INCOME BY A COMPANY ON BUYBACK OF UNLISTED SHARES SHALL BE CHARGED TO TAX AND THE COMPANY SO DISTRIBUTI NG ITS INCOME SHALL BE LIABLE TO PAY ADDITIONAL INCOME TAX AT THE RATE OF TWENTY PERCENT OF THE DISTRIBUTED INCOME. 2 3 4. ACCORDINGLY, THE CBDT HEREBY CLARIFIES THAT CONSIDERATION RECEIVED ON BUYBACK OF SHARES BETWEEN THE PERIOD 1.4.2000 T ILL 31.5.2013 WOULD BE TAXED AS CAPITAL GAINS IN THE HANDS OF THE RECIPIENT IN ACCORDANCE WITH SECTION 46A OF THE ACT AND NO SUCH AMOUNT SHALL BE TREATED AS DIVIDEND IN VIEW OF PROVISIONS OF SECTION 2(22)(IV). 5. WITH A VIEW TO BRING ABOUT FURTHER CLARITY ON THIS ISSUE AS A STEP TOWARDS NON - ADVERSARIAL TAX REGIME, THE CBDT HEREBY DIRECTS THAT AS A MATTER OF GENERAL PRINCIPLE, NO FRESH NOTICE FOR ASSESSMENT/REASSESSMENT/NON - DEDUCTION OF TDS AT SOURCE SHALL BE ISSUED WHERE BUYBACK OF SHARES HAS TAKEN PLACE P RIOR TO 1.6.2013 AND THE CASE IS COVERED UNDER SECTION 46A READ WITH SECTION 2(22)(IV) OF THE ACT. IN CASES WHERE NOTICES HAVE ALREADY BEEN ISSUED AND ASSESSMENT PROCEEDINGS ARE PENDING, TAX AUTHORITIES SHALL COMPLETE THE ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 24 ASSESSMENT KEEPING IN VIEW THE ABO VE LEGAL POSITION.' IN THE BEGINNING OF PARA 1, THE CBDT HAS CLARIFIED THAT THE CONSIDERATION RECEIVED ON BUY BACK OF SHARES BETWEEN THE PERIOD 1.4.2000 TO 31.5.2013 WOULD BE TAXED AS CAPITAL GAIN IN THE HANDS OF THE RECIPIENT IN ACCORDANCE WITH THE PROVI SIONS OF SECTION 46A OF THE ACT AND NO SUCH AMOUNT SHALL BE 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 WI TH THE SUBMISSIONS OF THE AR OF THE ASSESSEE. 47 . AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE M ATERIAL AVAILABLE ON THE RECORD, W E 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 HE AD 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. ITA NOS. 2096 & 2495DEL/2015 ITA NO. 1560/DEL/2016 CONCENTRIX DAKSH SERVICES INDIA PVT. LTD. 25 48 . IN THE RESULT, THE APPEAL S OF THE ASSESSEE ARE PARTLY ALLOWED AND THE APPEAL OF THE DEPARTMENT IS DISMISSED. (ORDER PRON OUNCED IN THE OPEN COURT ON 04 /0 2 /2019 ) SD/ - SD/ - ( SUDHANSHU SRIVASTAVA ) (N. S . SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED: 04 /0 2 /2019 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR