WNS GLOBAL SERVICES P. LTD, MUMBAI V. DCIT CIR 14(3)(1), MUMBAI

ITA 1955/MUM/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0080 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 29-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUMAR SANJAY
• Keywords: Business income; Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Rule of consistency; Earning of tax free income; Additional evidence; Question of law; Wholly owned subsidiary; Valuation report; Scheme of amalgamation; Revised return; Unabsorbed depreciation; Capital expenditure; TDS; Rule 8D; Set aside; CHAPTER IV
• Section: 271(1)(c); 92C; 143(3); 14A; 115JB; 37(1); 10B; 143(1); 64; 44AB; 13; 22; 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.2257/MUM/2017 ASSESSMENT YEAR : 2012 -13 ITA NO.1955/MUM/2016 ASSESSMENT YEAR : 2011 -12 WNS GLOBAL SERVICES P. LTD. PL. NO.10, GATE NO.4, GODREJ & BOYCE COMPLEX, PHIROJSHANAGAR, LBS MARG, VIKHROLI (W), MUMBAI 400 079. PAN: AAACW 2598L VS. DY. CIT CIRCLE 14(3)(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PORUS KAKA & SHRI MANISH KANTH RESPONDENT BY : SHRI KUMAR SANJAY & SMT. KAVITA KAUS HIK DATE OF HEARING : 31 . 0 1 .20 20 DATE OF PRONOUNCEMENT : 19 . 0 3 . 20 20 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE TWO SEPARATE ORDERS OF THE DRP-2, MUMBAI, DATED 14.12.2015 & 26.12.2016 , U/S. 144C(5) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) RELATING TO ASSESSMENT YEARS 2011-12 & 2012-13 RESPECTIVELY. 2. WE SHALL FIRST TAKE UP APPEAL IN ITA NO.1955/MUM /2016 FOR A.Y. 2011-12, WHEREIN FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISE D: BASED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT RESPECTFULLY CRAVES LEAVE TO PREFER AN AP PEAL AGAINST THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME-TAX, CI RCLE - 14(3)(1), MUMBAI [ LEARNED AO], UNDER SECTION 143(3) R.W.S 14 4C(13) OF THE INCOME-TAX ACT, 1961 ('ACT') ('ASSESSMENT ORDER'), IN PURSUANCE OF THE DIRECTIONS ISSUED BY DISPUTE RESOLUTION PANEL - 2 ( 'HON'BLE DRP'), MUMBAI, ON THE FOLLOWING GROUNDS : WNS GLOBAL SERVICES PRIVATE LIMITED 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED AO, BASED ON THE DIRECTIONS OF THE HON'BLE DRP HAS: GENERAL GROUND 1. THE LEARNED AO/HON'BLE DRP ERRED IN DETERMINING THE TOTAL TAXABLE INCOME OF THE APPELLANT FOR AY 2011-12 AT R S 85,35,18,207 INSTEAD OF THE INCOME OFFERED BY THE APPELLANT FOR THE SUBJECT AY UNDER NORMAL PROVISIONS OF THE ACT IN ITS INCOME-TAX RETU RN. 2. THE LEARNED AO HAS ERRED IN PASSING A DRAFT ASS ESSMENT ORDER IN THE CASE OF THE APPELLANT IN LIEU OF THE FINAL ASSE SSMENT ORDER GIVEN THAT THE APPELLANT IS AN INDIAN COMPANY IN WHOSE CASE TH E TRANSFER PRICING ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT FOR T HE SUBJECT AY HAS NOT RESULTED IN ANY VARIATION TO THE INCOME OR LOSS RET URNED FOR THE SUBJECT AY. TRANSFER PRICING GROUNDS 3. THE LEARNED AO HAS ERRED IN MAKING A REFERENCE OF THE APPELLANT'S CASE TO THE LEARNED TPO, PURSUANT TO WH ICH THE LEARNED TPO ERRED IN PROPOSING A TRANSFER PRICING ADJUSTMENT OF RS 213,35,00,600 FOR THE PURCHASE OF A CUSTOMER CONTRACT. 4. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO/ HON'BLE DRP HAS ERRED IN SUBSTITUTING THE REVENUES PROJECTED BY THE APPELLANT WHILE UNDERTAKING A VALUATION FOR THE CONTRACT PURCHASED BY IT WITH THE ACTUAL NUMBERS/ DEFLATED NUMBERS AND THEREBY ENHANCING THE ADJUSTMENT FROM RS. 171,93,20,475 TO RS. 213,35,00,600 WITHOUT PROV IDING THE APPELLANT AN OPPORTUNITY TO BE HEARD. NON TRANSFER PRICING GROUNDS 5 (A) THE LEARNED AO/HON'BLE DRP ERRED IN DISALLOW ING DEDUCTION UNDER SECTION 10A OF THE AMOUNTING TO RS. 30,80,76, 458, IN RESPECT OF THE PROFITS EARNED BY THE PUNE UNIT- II OF THE APPE LLANT, UNDER THE PROVISIONS OF ERSTWHILE SUB-SECTION (9) OF SECTION 10A OF THE ACT ON ACCOUNT OF THE CHANGE IN SHAREHOLDING OF THE APPELL ANT DURING AY 2003- 04. (B) THE LEARNED AO/HON'BLE DRP ERRED IN NOT FOLLOW ING THE ORDER OF THE HON'BLE ITAT IN THE APPELLANT'S OWN CASE FOR AY 200-05, CONTENTING THAT THE ISSUE BEFORE THE HON'BLE ITAT WAS ONLY REL ATED TO THE VALIDITY OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263 OF THE ACT. 6. THE LEARNED AO/HON'BLE DRP ERRED IN HOLDING THAT THE DEDUCTION UNDER SECTION 10A OF THE 'ACT SHOULD BE ALLOWED, AF TER SETTING OFF THE WNS GLOBAL SERVICES PRIVATE LIMITED 3 LOSSES OF CERTAIN STP/ SEZ UNITS AGAINST THE PROFIT S OF THE STP/ SEZ UNITS OF THE APPELLANT. 7. THE LEARNED AO/HON'BLE DRP ERRED IN DISALLOWING DEPRECIATION AMOUNTING TO RS 61,14,212 ON INTANGIBLE ASSETS ACQU IRED BY THE APPELLANT CONTENTING THAT THE RIGHTS ACQUIRED BY THE APPELLAN T ON ACQUISITION OF CUSTOMER CONTRACTS DO NOT FALL UNDER THE DEFINITION OF INTANGIBLE ASSETS UNDER SECTION 32(1) OF THE ACT. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND W ITHOUT PREJUDICE TO THE POSITION ADOPTED BY THE APPELLANT IN THE TAX RETURN, THE LEARNED AO/HON'BLE DRP ERRED IN FOLLOWING INCONSISTENT APPR OACH AND HOLDING THAT THE PROFITS DERIVED BY ELIGIBLE STP UNITS (UNDER SE CTION 10A OF THE ACT) SHOULD BE COMPUTED WITHOUT CONSIDERING THE GAIN FRO M FOREX DERIVATIVE CONTRACTS. 9. THE LEARNED AO ERRED IN NOT SETTING OFF BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION PERTAINING TO EA RLIER YEARS TO THE TUNE OF RS. 189,06,58,168 (AS PER THE RETURN OF INCOME) AGAINST THE ASSESSED TOTAL INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDER ATION AND CARRY FORWARD OF THE BALANCE BUSINESS LOSS AND UNABSORBED DEPRECIATION TO FUTURE YEARS AS PER THE PROVISIONS OF THE ACT. 10. THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 3. THE FACTS IN BRIEF ARE THAT THAT ASSESSEE I.E. W NS GLOBAL SERVICES PRIVATE LIMITED, HEREINAFTER REFERRED TO AS WNS INDIA. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.11.2011 DECLARING TOTAL INCOME AT RS N IL, WHICH WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELE CTED FOR SCRUTINY AND STATUTORY NOTICES WERE DULY ISSUED AND SERVED UPON THE ASSESS EE. IT IS ENGAGED IN THE BUSINESS OF PROVIDING INFORMATION TECHNOLOGY ENABLE D BUSINESS PROCESS OUTSOURCING SERVICING, INCLUDING DATA PROCESSING AND TRANSMISSI ON OF DATA. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CARRIED OUT THE S AID BUSINESS ACTIVITIES THROUGH VARIOUS UNITS REGISTERED WITH SOFTWARE TECHNOLOGY P ARK OF INDIA (STP)/ SPECIAL ECONOMIC ZONE OF INDIA (SEZ). 4. GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. 5. THE ISSUE RAISED IN GROUND NOS. 3 AND 4 RELATES TO TRANSFER PRICING ADJUSTMENT. THE ASSESSING OFFICER ON VERIFICATION OF AUDIT REPORT FILED BY THE WNS GLOBAL SERVICES PRIVATE LIMITED 4 ASSESSEE IN FORM NO.3CEB NOTICED THAT DURING THE YE AR THE ASSESSEE HAD TRANSACTIONS WITH ITS ASSOCIATE CONCERNS AND ACCORD INGLY, REFERENCE WAS MADE U/S. 92CA(1) OF THE ACT TO THE TPO FOR COMPUTATION OF TH E ARMS LENGTH PRICE (ALP) IN RELATION TO THE INTERNATIONAL TRANSACTIONS DETAILED IN THE AUDIT REPORT IN FORM 3CEB. THE FACTS IN BRIEF ARE THAT WNS CAPITAL INVESTMENT PRIVATE LIMITED (WCIL), A WNS GROUP ENTITY ENTERED INTO A MASTERS SERVICES AGREEM ENT (MSA) WITH AVIVA GLOBAL SERVICES (MANAGEMENT SERVICE PRIVATE LIMITED (AVIVA SINGAPORE) ON 11.07.2008 TO PROVIDE BPO SERVICES AS MENTIONED IN THE MSA TO AVI VA SINGAPORE AND AVIVA GROUP ENTITIES. AS PER THE MSA, WCIL WAS REQUIRED TO PRO VIDE SERVICES TO AVIVA ENTITIES ACROSS THE WORLD FOR A PERIOD OF EIGHT YEARS AND FO UR MONTHS. HOWEVER, IN MAR 2011, WITH FIVE YEARS AND EIGHT MONTHS OF MSA REMAI NING, WNS INDIA PURCHASED ALL RIGHTS AND OBLIGATIONS IN RESPECT OF THE SAID MSA F ROM WCIL FOR A CONSIDERATION OF USD 110 MILLION (I.E. RS 4,916,175,000). THE PURCH ASE OF THE MSA WAS UNDERTAKEN WITH THE APPROVAL OF AVIVA SINGAPORE, AS EVIDENCED BY THE NOVATION AND AMENDMENT OF AGREEMENT (MSA AMENDMENT) DATED 24.03. 2011. THE ASSESSEE DETERMINED CONSIDERATION OF USD 110 MILLION (RS 4,9 16,175,000) BASED ON THE VALUATION REPORT OBTAINED FROM THIRD PARTY VALUATIO N EXPERT, WHO UNDERTOOK THE VALUATION BASED ON EXPECTED EARNINGS FROM THE MSA F OR THE BALANCE UNEXPIRED PERIOD OF THE MSA AND THE EXPECTED GROWTH IN THE RE VENUES FROM AVIVA SINGAPORE OVER A PERIOD OF TIME. PRIOR TO ENTERING INTO AGRE EMENT WITH THE ASSESSEE WITH REGARD TO THE PURCHASE OF BUSINESS AND COMMERCIAL R IGHTS, WCIL HAD OUTSOURCED THE WORK UNDER THE MSA TO VARIOUS LEGAL ENTITIES WITHIN THE GROUP ACROSS INDIA AND SRI LANKA ON A NON-EXCLUSIVE BASIS UNDER A REVENUE SHAR ING ARRANGEMENT IN THE RATIO OF 15:85 IN FAVOUR OF THE LEGAL ENTITIES IN INDIA AND SRI LANKA. IN THE YEAR 2009, AS A PART OF RESTRUCTURING EXERCISE CARRIED OUT BY WNS, ALL INDIAN LEGAL ENTITIES SERVICING AVIVA UNDER THE MSA WERE MERGED INTO THE ASSESSEE U NDER THE SCHEME OF AMALGAMATION SANCTIONED BY THE HONBLE BOMBAY HIGH COURT VIDE ITS ORDER DATED 11.08.2009. WITH THE MERGER OF VARIOUS WNS GROUP I NDIAN LEGAL ENTITIES SERVICING AVIVA HAVING MERGED INTO ONE ENTITY, ASSESSEE BECAM E THE PRIMARY ENTITY SERVICING THE MSA IN INDIA. THE ASSESSEE ALSO BECAME LIABLE F OR ENTIRE SERVICE DELIVERIES NOT ONLY IN INDIA BUT ALSO IN SRI LANKA AND THEREBY RES PONSIBLE FOR ALL THE ECONOMIC PROFITS DERIVED FROM THE SRI LANKAN OPERATIONS OF T HE MSA. FURTHER PURSUANT TO THE PURCHASE OF MSA, THE 15:85 ARRANGEMENT BETWEEN WCIL AND WNS SRI LANKA WAS WNS GLOBAL SERVICES PRIVATE LIMITED 5 TERMINATED AND NEW AGREEMENT WAS ENTERED INTO BY TH E ASSESSEE WITH WNS SRI LANKA UNDER WHICH WNS SRI LANKA OPERATED ON A COST PLUS MARK-UP BASIS. 6. THE LEARNED TPO DETERMINED THE ALP BASED ON INCR EMENTAL BENEFIT APPROACH. HE DETERMINED THE ALP BY CONSIDERING ONLY INCREMENT AL VALUE EARNED BY WNS INDIA BY REPLACING ACTUAL BILLINGS FOR THE PERIOD 1.4.201 1 TO 31.03.2014. ACCORDINGLY, BY PASSING AN ORDER U/S. 92CA(3) OF THE ACT ON 30.01.2 015 MADE AN ADJUSTMENT OF RS 171,93,20,475/- TO THE ALP ON ACCOUNT OF PURCHASE O F BUSINESS RIGHTS (MSA FOR RS 4,91,61,75,000/- BY THE ASSESSEE. DURING THE YEAR THE ASSESSING OFFICER NOTED THAT THE PAYMENT WAS MADE BY THE ASSESSEE COMPANY TO THE AE ON ACCOUNT OF CAPITAL EXPENDITURE TO BUY BUSINESS RIGHTS AND THE PAYMENT IS CAPITALIZED IN THE FINANCIAL YEAR 2011-12 RELEVANT TO A.Y. 2012-13 AND THE DEPRE CIATION HAS BEEN CLAIMED IN THE YEAR 2012-13. ACCORDINGLY, NO TRANSFER PRICING ADJ USTMENT IS TO BE MADE TO THE INCOME OF THE ASSESSEE WHILE COMPUTING THE ASSESSED INCOME DURING THE YEAR. BEING AGGRIEVED BY THE ORDER OF THE TPO ASSESSEE FI LED APPEAL BEFORE THE LEARNED DRP. 7. THE LEARNED DRP AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE AS MADE DURING THE APPELLATE PROCEEDINGS, DISMISSED THE SAM E AND AGREED WITH THE INCREMENTAL APPROACH ADOPTED BY THE TPO ON CERTAIN ADJUSTMENTS VIZ A VIZ ACTUAL SHOULD BE USED UP TO 2014-15 AND FOR THE SUBSEQUENT YEARS AVERAGE OF THE VARIATION OF THE PERIOD A Y 2012-13 TO A.Y. 2014-15 OUGHT TO BE USED TO DEFLATE THE REVENUE FIGURES BY OBSERVING AS UNDER: 8.18 AS PER THE VALUATION REPORT, THE FORECAST OF REVENUE FROM THE MSA WAS PROVIDED BY THE MANAGEMENT. THE DRP HAS NOT ED THAT THE ASSESSEE COMPANY HAS SUBSTANTIALLY OVERVALUED THE P ROJECTED REVENUES TO BE RECEIVED AS PER MSA FOR THE FUTURE YEARS, TO JUS TIFY THE PAYMENT OF USD 110 MILLION TO THE AE. THE ACTUAL FIGURES OF TH E REVENUE GENERATED WAS AVAILABLE FOR 3 FINANCIAL YEARS LE. F.Y. 2011-1 2.F.Y. 2012-13 & F.Y. 2013-14, WHICH HAVE BEEN REFERRED TO BY THE TPO IN HIS ORDER. A COMPARISON OF THE ACTUALS WITH THE PROJECTED REVENU ES IS REVEALING AND HENCE TABULATED BELOW: - WNS GLOBAL SERVICES PRIVATE LIMITED 6 S.NO. FINANCIAL YEAR PROJECTED REVENUES (IN MILLION USD) ACTUAL REVENUES (IN MILLION USD) DIFFERENCE (IN MILLION USD) % OVERVALUATION WITH PROJECTED REVENUES AS BASE 1 2011 - 12 88.3 81.18 7.12 8.06 2 2012 - 13 100.3 76.67 23.63 23.55 3 2013 - 14 113.7 75.87 37.83 33.27 TOTAL 302.3 233.72 68.58 22.68 8.19. THE DRP IS CONSTRAINED TO NOTE THAT THE REVE NUES ARE OVER- PROJECTED BY MORE THAN 33.27% FOR THE F.Y. 2013-14, IF THE PROJECTED REVENUE IS USED AS A BASE. IT IS ALSO PERTINENT TO NOTE THAT JUST FOR 3 YEARS THE REVENUES HAVE BEEN OVER-VALUED BY AN AMOUNT OF USD 68.58 MILLION. IN THESE CIRCUMSTANCES, THE DRP HAS COME TO A CONCL USION THAT THE PROJECTED FIGURES PROVIDE BY THE ASSESSES COMPANDOR THE VALUATION ARE HIGHLY INFLATED. THUS, THE ENTIRE VALUATION REPORT IS VITIATED BECAUSE OF THE WRONG PROJECTED REVENUES PROVIDED BY THE ASSESS ES COMPANY. 8.20 IT IS ALSO NOTED BY THE DRP THAT THE REVENUES ARE OVER-PROJECTED BY MORE THAN 49.86% FOR THE F.Y, 2013-14, IF THE PR OJECTED REVENUE IS USED AS A BASE. THE RELEVANT CALCULATION FOR THE VA RIOUS YEARS IS TABULATED BELOW:- S.NO. FINANCIAL YEAR PROJECTED REVENUES (IN MILLION USD) ACTUAL REVENUES (IN MILLION USD) DIFFERENCE (IN MILLION USD) % OVERVALUATION WITH ACTUALS AS BASE 1 2011 - 12 88.3 81.18 7.12 8.77 2 2012 - 13 100.3 76.67 23.63 30.82 3 2013 - 14 113.7 75.87 37.83 49.86 TOTAL 302.3 233.72 68.58 29.34 8.21 SIMILAR OVERVALUATION OF REVENUES IS ALSO S EEN FOR THE EARNINGS / REVENUE ATTRIBUTABLE TO SRILANKA. A COMPARISON OF T HE ACTUALS WITH THE PROJECTED REVENUES IS REVEALING AND THUS IS TABULAT ED BELOW:- S.NO. FINANCIAL YEAR PROJECTED REVENUES (IN MILLION USD) ACTUAL REVENUES (IN MILLION USD) DIFFERENCE (IN MILLION USD) % OVERVALUATION WITH ACTUALS AS BASE % OVERVALUATION WITH PROJECTED REVENUES AS WNS GLOBAL SERVICES PRIVATE LIMITED 7 8.22 THE DRP HAS NOTED THAT THE REVENUES OF SRILANK A ARE OVER-PROJECTED BY MORE THAN 49% FOR THE F.Y. 2013-14, IF THE ACTUA L REVENUE EARNED IS USED AS A BASE. 8.23 IT IS ALSO A MATTER OF RECORD THAT BEFORE ENTE RING INTO THE TRIPARTITE AGREEMENT, THE SERVICES WERE PROVIDED TO AVIVA GROU P BY THE ASSESSEE COMPANY AND THE REVENUES WERE BEING SHARED BETWEEN THE INDIAN COMPANY AND THE MAURITIUS AE IN THE RATIO OF 85:15. THUS, TO COMPUTE THE ALP OF THIS TRANSACTION, THE APPROPRIATE APPROA CH WILL BE TO COMPUTE THE INCREMENTAL REVENUE OF THIS CONTRACT LE. WHAT M ORE PROFITS WILL THE ASSESSEE COMPANY EARN AFTER ENTERING INTO THE 'NOVA TION AND AMENDMENT AGREEMENT' 8.24. BEFORE THE DRP, THE ASSESSEE COMPANY HAS CONT ENDED THAT IT HAS SUCCESSFULLY SIGNED AN 'EXTENSION OF THE DEAL FOR 6 MORE YEARS WITHOUT PAYING ANY UPFRONT FEES, THEREFORE, THE INCREMENTAL REVENUES FOR THESE 6 YEARS SHOULD ALSO BE TAKEN INTO ACCOUNT IN THIS REG ARD, THE DRP HAS NOTED THAT THE INITIAL MSA WAS ONLY FOR 100 MONTHS, OUT OF WHICH 33 MONTHS HAVE ALREADY ELAPSED. THUS, AFTER ENTERING I NTO THE 'NOVATION AND AMENDMENT AGREEMENT', THE ASSESSEE COMPANY HAS GOT THE CONTRACT FOR THE BALANCE 67 MONTHS ONLY. NEITHER, THE MSA DATED 11.7.2008 NOR THE 'NOVATION AND AMENDMENT AGREEMENT DATED 24.3.2011 TALKS OF ANY EXTENSION OF THE PROVISION OF SERVICES BEYOND THE P ERIOD OF 8 YEARS AND 4 MONTHS. IN ANY CASE, THE PRICE PAID BY THE ASSESSEE COMPANY TO WCIL IS FOR THE REMAINING PERIOD OF 67 MONTHS AND NOT FOR T HE EXTENSION OF THE AGREEMENT BEYOND THE STIPULATED PERIOD OF 100 MONTH S. 8.25 FOR THE PURPOSE OF DETERMINING THE ALP, THE DR P IS OF THE VIEW THAT ACTUAL FIGURES OF REVENUE AVAILABLE ON RECORD SHOUL D BE USED, AS THE FIGURES OF PROJECTED REVENUE OF THE ASSESSEE COMPAN Y ARE HIGHLY UNRELIABLE. FURTHER, FOR THE NEXT TWO YEARS FOR WHI CH THE ACTUALS ARE NOT AVAILABLE, THE AO/ TPO ARE DIRECTED TO GET THE ACTU ALS FOR F.Y. 2014-15 FROM THE ASSESSEE COMPANY AND IF THE ASSESSEE COMPA NY PROVIDES THE ACTUAL FIGURE FOR F.Y. 2014-15, THE SAME SHOULD BE USED. 8.26 HOWEVER, FOR THE YEARS FOR WHICH THE FIGURES O F ACTUAL REVENUE ARE NOT ON RECORD, THE PROJECTED REVENUE FIGURE SHOULD BE DEFLATED, ACCORDINGLY BY USING THE AVERAGE PERCENTAGE OF 22.6 8%. IT IS TO BE BASE 1 2011 - 12 13.25 12.18 1.07 8.78 8.07 2 2012 - 13 15.05 11.5 3.55 30.86 23.58 3 2013 - 14 17.06 11.38 5.68 49.91 33.29 TOTAL 45.36 35.06 10.3 29.37 22.70 WNS GLOBAL SERVICES PRIVATE LIMITED 8 NOTED THAT THE PROJECTED REVENUES FOR SRILANKA ALSO NEEDS TO BE DEFLATED BY 22.70%. SUCH DEFLATION IS REQUIRED, AS THE ASSE SSEE COMPANY HAS OVER-PROJECTED THE REVENUES IN A SUBSTANTIAL MANNER . ACCORDINGLY, THE ASSESSING OFFICER/TPO IS DIRECTED TO RE-COMPUTE THE ALP OF THE INTERNATIONAL TRANSACTION AND THE TP ADJUSTMENT ON THIS ACCOUNT. AGGRIEVED BY THE ORDER OF THE DRP, THE ASSESSEE PRE FERRED APPEAL BEFORE US. 8. DURING THE COURSE OF HEARING, LEARNED SENIOR COU NSEL FOR THE ASSESSEE SHRI PORUS KAKA VEHEMENTLY ARGUED THAT NEITHER THE TPO N OR THE DRP HAS FOLLOWED ANY OF THE TRANSFER PRICING METHOD AS SPECIFIED IN SECT ION 92C OF THE ACT TO DETERMINE THE ALP FOR THE PURCHASE OF MSA FROM THE ASSOCIATE CONCERN VIZ. WCIL. THE LEARNED AR SUBMITTED THAT THE ASSESSEE IN ITS TRANSFER PRIC ING STUDY HAS FOLLOWED COMPARABLE UNCONTROLLED PRICE (CUP) AS THE MOST APP ROPRIATE METHOD WITH THE VALUE DETERMINED UNDER THE VALUATION REPORT GIVEN B Y AN INDEPENDENT VALUER AS A VALID CUP. IN DEFENCE OF THIS ARGUMENTS, THE LEARN ED AR RELIED ON THE FOLLOWING DECISIONS: I) TECUMSEH PRODUCTS INDIA (P) LTD. VS. ACIT ITA 16 86/HYD/2010 AND II) SOCIAL MEDIA INDIA LTD. VS. ACIT 28 ITR (T) 212 THE LEARNED AR FURTHER SUBMITTED THAT TPO IS DUTY B OUND TO DETERMINE THE ALP OF INTERNATIONAL TRANSACTIONS BY ADOPTING ONE OF THE M ETHODS PRESCRIBED UNDER THE ACT AND CANNOT DEVIATE THEREFROM. HE FURTHER ARGUED TH AT NO PROVISION UNDER THE ACT EMPOWER THE TPO TO DETERMINE THE ALP ON ESTIMATE BA SIS THAT TOO BY ENTERTAINING DOUBTS WITH REGARD TO BUSINESS EXPEDIENCY OF PAYMEN T AND IN PROCESS STEPPING INTO THE SHOES OF THE AO FOR MAKING DISALLOWANCE U/S. 37 (1). HE FURTHER RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF LI & FUNG INDIA (P) LTD. V. CIT [2014] 361 ITR 85, WHEREIN IT HAS BEEN HELD THAT SE CTION 92C(1) STATES THAT ALP IN RELATION TO AN INTERNATIONAL TRANSACTION COULD BE D ETERMINED BY ANY OF THE METHODS PROVIDED IN THE SAID SUB-SECTION WHICH IS MOST APPR OPRIATE HAVING REGARD TO THE NATURE OF TRANSACTIONS OR CLASS OF TRANSACTION OR C LASS OF ASSOCIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER R ELEVANT FACTORS WHICH MAY BE PRESCRIBED BY THE BOARD WNS GLOBAL SERVICES PRIVATE LIMITED 9 9. THE LEARNED AR FURTHER SUBMITTED THAT WHILE SERV ICING OF THE MSA, WCIL SUBCONTRACTED THE WORK UNDER THE MSA TO VARIOUS LEG AL ENTITIES THAT WERE PART OF THE WNS GROUP ACROSS INDIA AND SRI LANKA ON A NON-EXCLU SIVE BASIS. ACCORDINGLY, THE CONTRACT FOR MSA WAS VALUED BY AN INDEPENDENT VALUA TION EXPERT, WHO VALUED THE MSA AT A PRICE THAT A THIRD PARTY SERVICE PROVIDER WOULD BE WILLING TO PAY FOR THE PURCHASE OF MSA FROM WCIL. THE LEARNED AR FURTHER SUBMITTED THAT THE INDEPENDENT VALUATION REPORT OBTAINED BY THE ASSESS EE TO PRICE THE CUSTOMER SHOULD BE CONSIDERED AS THE ALP FOR THE FOLLOWING REASONS: I. SINCE THE VALUATION WAS BASED ON EXPECTED E ARNINGS FROM THE MSA FOR THE BALANCE UNEXPIRED PERIOD OF THE MSA AND FAC TORING SUITABLY THE EXPECTED GROWTH IN REVENUES FROM AVIVA SINGAPORE OV ER A PERIOD OF TIME, MUTLI PERIOD EXCESS EARNING METHOD ('MEEM') WAS SEL ECTED AS THE BEST METHOD FOR THE VALUATION II. MEEM DETERMINES THE FAIR VALUE I.E. THE PRI CE AT WHICH AN ASSET / LIABILITY IS TO BE TRANSFERRED BETWEEN MARKET PARTI CIPANTS AS ON THE DATE OF TRANSFER. MARKET PARTICIPANTS ARE BUYERS AND SELLER S IN THE PRINCIPAL (OR MOST ADVANTAGEOUS) MARKET WHO ARE: (I) INDEPENDENT OF EACH OTHER; (II) KNOWLEDGEABLE ABOUT THE ASSET OR LIABILITY; AND (II I) ABLE AND WILLING TO/ENTER INTO A TRANSACTION FOR THE ASSET OR LIABIL ITY. III. FAIR VALUE IS A MARKET-BASED MEASUREMENT, NOT AN ENTITY-SPECIFIC MEASUREMENT. FOR EXAMPLE, SYNERGIES AVAILABLE TO A SPECIFIC BUYER ARE NOT CONSIDERED IN THE VALUATION OF AN ASSET. THE LEARNED AR FURTHER PLACED BEFORE THE BENCH THE DETAILED METHODOLOGY AND STEPS UNDERTAKEN BY THE VALUER TO ARRIVE AT THE VALUATION . HE SUBMITTED THAT SINCE THE TPO & THE DRP HAVE FOUND NO FAULT IN STEPS/METHODOL OGY ADOPTED BY THE INDEPENDENT VALUER TO ARRIVE AT THE VALUATION, THE SAME SHOULD BE ACCEPTED AS THE ALP. THE LEARNED AR ALSO REFERRED AND RELIED UPON THE NOTE FROM DUFF & PHELPS INDIA PRIVATE LIMITED (EARLIER KNOWN AS AMERICAN AP PRAISAL INDIA PRIVATE LIMITED) WHICH CLEARLY EXPLAINS THE RATIONALE OF UNDERTAKING THE VALUATION FROM A MARKET PARTICIPANT APPROACH I.E. DETERMINATION OF FAIR VAL UE OF A MARKET BASED MEASUREMENT IS NOT AN ENTITY SPECIFIC MEASUREMENT. ACCORDINGLY, THE LEARNED AR CONTENDED THE PROJECTED REVENUE AND PROJECTED OPERA TING EBIT FROM UNEXPIRED PERIOD OF THE MSA WAS CONSIDERED TO DETERMINE THE P RICE PAYABLE BY WNS INDIA TO WCL. THE LEARNED AR ALSO REFERRED AND RELIED ON TH E DECISION OF HONBLE APEX COURT IN THE CASE OF G L SULTANIA AND ANR. VS. SEBI & ORS (AIR 2007 SC 2172), WHEREIN WNS GLOBAL SERVICES PRIVATE LIMITED 10 THE APEX COURT WHILE DEALING WITH OBJECTIONS RELATE D TO THE ISSUE ON VALUATION HAS CLEARLY HELD THAT UNLESS IT IS SHOWN THAT SOME WELL ACCEPTED PRINCIP LE OF VALUATION HAS BEEN DEPARTMENT FROM WITHOUT ANY REASON, OR THA T THE APPROACH ADOPTED IS PATENTLY ERRONEOUS OR RELEVANT FACTORS HAVE NOT BEE N CONSIDERED BY THE VALUER OR THAT THE VALUATION WAS MADE ON A FUNDAMENTALLY ERRO NEOUS BASIS OR THAT THE VALUER ADOPTED A DEMONSTRABLE WRONG APPROACH OR A FUNDAMEN TAL ERROR GOING TO THE ROOT OF THE MATTER, THIS COURT WOULD NOT INTERFERE WITH THE VALUATION OF AN EXPERT. THE LEARNED AR THEREFORE SUBMITTED THAT VALUATION OF IN TANGIBLE REQUIRES EXPERTISE AND KNOWLEDGE IN THE DOMAIN OF VALUATION PRINCIPLES, MA RKETS AND BUSINESS NICETIES. HE FURTHER CONTENDED THAT EVEN IF THE TPO/DRP WERE NOT IN AGREEMENT WITH THE VARIABLES ASSUMED/VALUATION UNDERTAKEN BY THE INDEP ENDENT THIRD PARTY VALUERS, THEY OUGHT TO HAVE DONE THEIR OWN EXERCISE OF ADHOC VALUATION WITHOUT HAVING APPOINTED A VALUATION EXPERT TO DETERMINE THE VALUE OF THE MSA. IN DEFENCE OF HIS ARGUMENTS, LEARNED AR PLACE RELIANCE ON THE FOLLOWI NG DECISIONS: TECUMSEH PRODUCS INDIA (P.) LTD. VS. ACIT (ITA 1686 /HYD/2010) GLOBAL PAYMENTS ASIA PACIFIC (INDIA) (P.) LTD. VS. DY. CIT SOCIAL MEDIA INDIA LTD. VS. ACIT (28 ITR (T) 212) 10. THE LEARNED AR ALSO SUBMITTED BEFORE THE BENCH THAT FOR SECURING THIS CONTRACT OF MSA WCIL HAD PAID AVIVA SINGAPORE AN IN CENTIVE PAYMENT OF GBP 80 MILLION WITH A MINIMUM BUSINESS OF 3,000 FULL TIME EMPLOYEES FOR THE ENTIRE CONTRACT PERIOD OF 8 YEARS AND 4 MONTHS. THE LEARNED AR SUB MITTED THAT SUCH TYPE OF INCENTIVE PAYMENTS TO THE CUSTOMER ARE FAIRLY COMMO N IN THE IT/BPO INDUSTRY, ESPECIALLY IN THE CONTEXT OF LARGE, MULTI-YEAR OUTS OURCING CONTRACTS. THE LEARNED AR SUBMITTED THAT GIVEN THE UPFRONT FEES BY WCIL TO AV IVA SINGAPORE, IT MAY BE APPRECIATED THAT THE MINIMUM AMOUNT THAT ANY SELLER WOULD EXPECT TO RECOVER FROM THE SALE OF MSA IS THE PORTION OF THE INCENTIVE PAY MENT WHICH IS AKIN TO COST INCURRED BY WCIL TO ACQUIRE THE CUSTOMER CONTRACT W ITH AVIVA AT FIRST PLACE AND REMAINS ATTRIBUTABLE OVER THE UNEXPIRED PERIOD OF T HE MSA WHICH WORKS OUT TO USD 106.83 MILLION. THE LEARNED AR ALSO FILED BEFORE T HE BENCH THE CALCULATION OF THE VALUE OF THE UNAMORTIZED PORTION OF THE MSA INCENTI VE PAYMENT, WHICH IS REPRODUCED BELOW: WNS GLOBAL SERVICES PRIVATE LIMITED 11 PARTICULARS AMOUNT/MONTHS MSA INCENTIVE PAYMENT IN JULY 2008 (GBP MILLION) 80 USD/GBP EXCHANGE RATIO (BASED ON EXCHANGE RATE IN J ULY 2008) 1.99 MSA INCENTIVE PAYMENT (USD MILLION) 159.45 TOTAL TERM OF MSA (NUMBER OF MONTHS) 100 EXPIRED PORTION OF MSA AS ON 31 MARCH 2011 (NUMBER OF MONTHS) 33 UNEXPIRED PORTION OF MSA (NUMBER OF MOTHS) 67 UNAMORTIZED PORTION OF THE MSA INCENTIVE PAYMENT (U SD MILLION) 106.83 THE LEARNED AR SUBMITTED THAT THE AMORTIZED VALUE ( USD 106.83 MILLION) OF THE INCENTIVE PAYMENT FOR REMAINING NUMBER OF MONTHS BE ING THE PAYMENT MADE TO AVIVA (THE THIRD PARTY CUSTOMER) OUGHT TO BE A VALI D CUP BENCHMARK TO DETERMINE THE ALP OF THE TRANSACTION AND, ACCORDINGLY, THE CO NSIDERATION OF USD 110 MILLION PAID BY THE ASSESSEE TO WCIL SHOULD BE CONSIDERED A S THE ALP AND NO ADJUSTMENT TO THE VALUE OF THE INTERNATIONAL TRANSACTION BE MA DE IN THE PRESENT CASE. THE LEARNED AR RELIED ON THE DECISION OF THE TRIBUNAL I N THE CASE OF DCIT VS. CALANCE SOFTWARE (P.) LTD. (ITA 5023/DEL/2012). 11. THE LEARNED AR ALSO CONTENDED THAT THE PROJECTI ONS CANNOT BE SUBSTITUTED BY ACTUALS AND HINDSIGHT OUGHT NOT TO AFFECT A VALUATI ON REPORT. THE LEARNED AR SUBMITTED THAT THE VALUE DETERMINED AS OF A SPECIFI C POINT OF TIME IS A FUNCTION OF FACTS THAT EXISTED AND EVENTS ANTICIPATED AS AT THA T POINT OF TIME OF UNDERTAKING THE VALUATION. BECAUSE FACTUAL EVIDENCE FROM SUBSEQUEN T EVENTS THAT OCCURRED WOULD NOT HAVE BEEN AVAILABLE TO A WILLING BUYER AND WILL ING SELLER AT A EFFECTIVE VALUATION DATE, IT IS ONLY WHAT WOULD HAVE BEEN REASONABLE AN TICIPATED VIZ A VIZ THE FUTURE, WHICH IS PRESUMED BY THE PARTIES AT THAT POINT OF T IME. THE LEARNED AR SUBMITTED AS A HINDSIGHT IS NOT AVAILABLE TO A BUYER AND SELLER IN THE OPEN MARKET TRANSACTION, IT SHOULD BE ADMISSIBLE IN REACHING A VALUATION CONCLU SION IN NOTIONAL MARKET TRANSACTIONS. ACCORDINGLY, WHERE THE VALUATION HAS BEEN CARRIED OUT BASED ON MANAGEMENTS PROJECTIONS, THE SAME SHOULD BE CONSID ERED AS REASONABLE. THE LEARNED AR PLACED HIS RELIANCE ON THE DECISION OF T HE TRIBUNAL IN THE CASE OF DQ (INTERNATIONAL) LTD. VS. ACIT (TA 151/HYD/2015). WNS GLOBAL SERVICES PRIVATE LIMITED 12 12. THE LEARNED AR ALSO SUBMITTED THAT THE ASSESSEE HAS SIGNED AN EXTENSION OF THE MSA IN NOVEMBER 2014 WELL IN ADVANCE OF THE DAT E ON WHICH THE MSA WOULD HAVE COME UP FOR RENEWAL IN NOVEMBER 2016. GIVEN T HIS, AS AN ALTERNATIVE, THE TOTAL EXPECTED EARNINGS FROM THE EXTENDED PERIOD OF THE CONTRACT FROM NOVEMBER 2016 TO MARCH 2022 ( WHICH HAS ALREADY BEEN SIGHED UP IN NOVEMBER 2014) SHOULD BE CONSIDERED AS AN INCREMENTAL BENEFIT ACCRUING TO THE ASSESSEE FROM THE ACTUAL WORKING OF THE CONTRACT. HE FURTHER CONTENDED THAT THE TOTAL INCREMENTAL BENEFITS ONLY IN RESPECT OF THE EXTENSION OF THE CONTRACT WI TH AVIVA SINGAPORE AMOUNTS TO USD 57.61 MILLION. THE LEARNED AR CONTENDED THAT B Y IGNORING THE SAID FACTORS, THE TPO HAS COMPUTED THE VALUE OF THE CONTRACT ON AN AP PROACH, WHICH IS CONTRADICTORY, ERRONEOUS AND DESERVES TO BE SET ASIDE. 13. THE LEARNED AR SUBMITTED THAT DRP HAS MADE AN A DHOC ESTIMATE BY REDUCING THE PROJECTIONS BY AN AVERAGE OF 22.68%, WHICH IS A RBITRARY AND AGAINST THE PROVISIONS OF LAW. THE ADHOC ESTIMATE IS NOT BASED ON VALUATION PRINCIPLE/METHOD OF TRANSFER PRICING. THE LEARNED AR REFERRED AND RELI ED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. LEVER INDI A EXPORTS LTD. [2017] 292 CTR 393 AND THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PCIT VS. SABIC INNOVATIVE PLASTIC INDIA (P.) LTD ITA NO.S 231 AND 248 DT. 31.07.2018, WHEREIN THE HONBLE COURT HAS UPHELD THE ORDER OF TRIBUNAL AND QUASHED THE ORDER OF THE TPO, WHICH WAS MERELY BASED ON PERCEPTIONS AND WITHOUT A NY COGENT MATERIAL. THE LEARNED AR ALSO RELIED ON THE DECISION OF MUMBAI BE NCH OF THE TRIBUNAL IN THE CASE OF FIRMENICH ARMATICS INDIA (P) LTD. VS. DCIT [2018 ] 96 TAXMANN.COM 649 WHEREIN IT HAS BEEN HELD THAT THERE IS NO PROVISION UNDER A CT EMPOWERING TPO TO DETERMINE ALP ON ESTIMATE BASIS. 14. THE LEARNED AR STATED THAT ASSESSEE HAS PURCHAS ED THE BUSINESS AND COMMERCIAL RIGHTS FROM WCIL IN MARCH 2011 ON THE BA SIS OF A VALUATION UNDERTAKEN BY AN INDEPENDENT VALUER, WHO VALUED THE RIGHTS FRO M SERVICING OF THE MSA ENTERED INTO BETWEEN WCIL AND AVIVA SINGAPORE ON 11 TH JULY 2008. HE SUBMITTED THAT PRIOR TO RESTRUCTURING UNDERTAKEN IN 2009, THE DELIVERY C ENTRES IN INDIA AND SRI LANKA RECEIVED 85% OF THE REVENUES COLLECTED BY WCIL FROM AVIVA SINGAPORE WHILE 15% OF THE REVENUE WAS RETAINED BY WCIL. PURSUANT TO T HE PURCHASE OF MSA, THE ASSESSEE BECAME THE PRIMARY ENTITY SERVICING THE CO NTRACT AND, ACCORDINGLY, 100% WNS GLOBAL SERVICES PRIVATE LIMITED 13 OF THE REVENUES IN RESPECT OF THIS MSA ACCRUED TO T HE ASSESSEE FROM AVIVA SINGAPORE. GIVEN THE ABOVE SCENARIO, THE LEARNED A R SUBMITTED THAT IT IS QUITE EVIDENT THAT 15% OF THE TOTAL BILLINGS TO AVIVA SIN GAPORE WHICH WOULD HAVE OTHERWISE BEEN RETAINED BY WCIL SHOULD ALSO NOW ADD ITIONALLY BE CONSIDERED AS THE INCREMENTAL EARNINGS FOR THE ASSESSEE, WHICH ARE DI RECTLY RESULTING FROM THE PURCHASE OF THE MSA. THE TOTAL INCREMENTAL EARNING S ON THIS ACCOUNT AMOUNTS TO USD 61.39 MILLION (CALCULATION THEREOF IS PLACED AT PAGE 802 OF THE PAPER-BOOK). 15. THE LEARNED AR FURTHER SUBMITTED THAT WCIL WAS ALSO SUB CONTRACTING SOME PORTION OF THE WORK UNDER THE MSA TO DELIVERY CENTE RS IN SRI LANKA UNDER THE 15:85 REVENUE SHARING ARRANGEMENTS. THUS, PRIOR TO PURCH ASE OF THE MSSA BY THE ASSESSEE FROM WCIL, THE PROFITS FROM THE OPERATIONS OF THE SRI LANKA DELIVERY CENTERS DID NOT ACCRUE TO THE ASSESSEE. BASED ON T HE ABOVE, THE LEARNED AR SUBMITTED THAT 85% OF THE CLIENT BILLINGS FOR THE W ORK DONE BY WNS SRI LANKA AS REDUCED BY THE COST MARK-UP PAID BY THE ASSESSEE TO WNS SRI LANKA IS ANOTHER INCREMENTAL BENEFIT FOR THE ASSESSEE FROM THE PURCH ASE OF THE MSA FROM WCIL. TOTAL INCREMENTAL EARNINGS ON THIS ACCOUNT AMOUNTS TO USD 10.14 MILLION (CALCULATION THEREOF IS PLACED AT PAGE 803 OF THE P APER-BOOK. 16. SUMMARISING THE BENEFITS WHICH WAS CALCULATED A T USD 111.14 MILLION, THE LEARNED AR SUBMITTED THAT THE INCREMENTAL BENEFITS OF USD 111.14 MILLION ON THE BASIS OF ACTUAL IS MORE THAN THE PRICE OF USD 110 M ILLION PAID BY THE ASSESSEE. FURTHER THE INCREMENTAL BENEFITS AS CALCULATED BY T HE ASSESSEE BASED ON PROJECTED REVENUES FROM THE VALUATION REPORT AND THE CUSTOMER RELATIONSHIP AS SUBMITTED BEFORE THE TPO AND THE LEARNED DRP COMES TO USD 125 .19 MILLION, WHICH IS HIGHER THAN THE PRICE PAID BY THE ASSESSEE FOR PURCHASING THE CONTRACT FROM WCIL. THE LEARNED AR ALSO SUBMITTED FOR THE BENCH THAT INCREM ENTAL BENEFIT ARISING FROM THE PURCHASE OF MSA INCLUDING VALUE ATTRIBUTABLE TO EXT ENSION OF CONTRACT WORKS OUT TO USD 129.14 MILLION, WHICH IS ALSO MORE THAN THE PRI CE PAID BY THE ASSESSEE OF USD 110 MILLION FOR THE PURCHASE OF MSA. 17. ON THE ISSUE OF OBSERVATION OF DRP THAT THERE I S NO MENTION OF CONSIDERATION OF USD 110 MILLION IN THE TRIPARTITE NOVATION AND AMENDMENT AGREEMENT AND THE FAILURE ON THE PART OF THE ASSESSEE TO PRODUCE THE AGREEMENT, THE LEARNED AR WNS GLOBAL SERVICES PRIVATE LIMITED 14 SUBMITTED THAT THE ASSESSEE WAS NOT ASKED TO SUBMIT THE REQUIRED DOCUMENTS AND THE TPO HAD NOT DISPUTED THE SAME. HE ALSO DREW OU R ATTENTION TO THE ADDITIONAL EVIDENCE FILED ON 22 ND FEBRUARY 2019, WHICH IS A COPY OF THE AGREEMENT BE TWEEN WNS INDIA AND WCIL IN SUPPORT OF CONSIDERATION OF U SD 110 MILLION. FINALLY, HE SUBMITTED THAT THE ENTIRE TRANSFER PRICING ADJUSTME NTS MAY KINDLY, BE DIRECTED TO BE DELETED. 18. PER CONTRA, THE LEARNED DR AT THE BEGINNING SUB MITTED BEFORE THE BENCH THAT THERE ARE TWO APPEALS PERTAINING TO A.YS. 2011-12 A ND 2012-13. HE REQUESTED TO HEAR THE APPEALS SIMULTANEOUSLY SO THAT THE ORDERS ARE PASSED TOGETHER AS A.Y. 2012-13 HAS A BEARING FOR A.Y. 2011-12. THE LEARNE D DR SUBMITTED THAT FOR A.Y. 2012-13, THE LEARNED DRP HAS HELD THE CORE ISSUE IS WHETHER DEPRECIATION IS ALLOWABLE OR NOR ON THE BUSINESS OR COMMERCIAL RIGH TS PURCHASED BY THE ASSESSEE. ACCORDING TO THE DR, THE PROVISION OF SECTION 32(1) (II) OF THE ACT DEPRECIATION IS INTENDED TO A LIMITED CATEGORY OF INTANGIBLE ASSET. THE CUSTOMER BASE ACQUIRED BY THE ASSESSEE CANNOT BE TERMED AS KNOWHOW, PATENT, C OPYRIGHT OR TRADEMARK OR FRANCHISE AS THESE ARE ENFORCEABLE RIGHTS WHILE IN THE INSTANT CASE IS OF COMMERCIAL RIGHTS NOT HAVING THE SIMILAR NATURE. IT ALSO CANNO T BE CONSIDERED AS LICENSE OR BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE, AS IT DOES NOT RELATE TO ANY INTELLECTUAL PROPERTY, WHEREAS SECTION 32(1 )(II) C ONTEMPLATE DEPRECIATION IN RESPECT OF THOSE LICENSE OR RIGHT WHICH RELATE TO INTELLECT UAL PROPERTY. THE SECTION 32(1)(II) CONTEMPLATES BUSINESS OR COMMERCIAL RIGHT RELATING TO INTELLECTUAL PROPERTY AND NOT TO ALL CATEGORIES OF BUSINESS OR COMMERCIAL RIGHT. THE LEARNED DR WHILE REITERATING THE FACTS BEFORE THE BENCH AS HAS BEEN DONE BY THE LEARNED AR SUBMITTED THAT SO FAR AS CONSIDERATION OF USD 110 MILLIONS PAID BY W NS INDIA TO WCIL FOR ACQUISITION OF CUSTOMER RIGHTS, LEARNED DR SUBMITTED THAT THERE IS NO MERIT IN THE ARGUMENTS OF THE LEARNED AR THAT ANY FAULT OR INFIRMITY HAVE BEE N FOUND BY THE TPO/DRP WITH THE VALUATION AND HE HEAVILY RELIED ON THE ORDER OF THE TPO AND ADJUSTMENT MADE AND THE ORDER OF THE DRP, WHO HAS DEALT WITH THE ISSUE IN A DETAILED MANNER AS IS APPARENT FROM PAGES 3 TO 27 OF THE DRP ORDER. ON T HE ISSUE OF VALUATION COMMERCIAL RIGHTS, THE INDEPENDENT VALUER I.E. AMER ICAN APPRAISAL HAS ESTIMATED THE FAIR VALUE OF MSA FOR ITS REMAINING LIFE AS OF THE VALUATION DATE. THE ASSESSEE HAS STATED THAT IN THE TP STUDY, HE HAS FOLLOWED CUP AS THE MOST APPROPRIATE METHOD WNS GLOBAL SERVICES PRIVATE LIMITED 15 WITH THE VALUE DETERMINED UNDER THE VALUATION REPOR T GIVEN BY AN INDEPENDENT VALUER AS A VALID CUP. THE LEARNED DR STATED THAT T HE ASSESSEE HAS GONE TO EXTENT OF SAYING THAT INDEPENDENT VALUATION REPORT IS A VA LID CUP WHICH IS NOT FACTUALLY CORRECT. THERE ARE ASSUMPTIONS IN THE VALUATION REP ORT WHICH HAS BEEN CONSIDERED BY THE VALUER WHILE DETERMINING THE VALUE. THESE AS SUMPTIONS ARE EMBEDDED WITH ASSUMPTIONS AND PRESUMPTIONS. BY REFERRING TO VARI OUS PAGES OF THE AMERICAL APPRAISAL REPORT, LEARNED DR ALSO REFERRED TO THE T RANSFER PRICING REPORT OF THE ASSESSEE AND POINTED OUT THAT THE ASSESSEE CLEARLY OUTLINED THAT NONE OF THE DIRECT METHODS CAN BE APPLIED TO ESTABLISH ARM'S LENGTH VA LUE OF THE COMPANIES INTERNATIONAL TRANSACTION, DUE TO PAUCITY OF COMPAR ABLES. WHEREAS, SECTION 92C(1) CLEARLY OUTLINES THE METHOD TO BE FOLLOWED IN DETER MINING THE ALP OF THE TRANSACTIONS WITH THE FOREIGN ASSOCIATE ENTERPRISE. HE FURTHER SUBMITTED THAT THE VALUATION REPORT IS BASED ON EXPECTED GROWTH IN REV ENUE OVER A PERIOD OF TIME WHICH IS NOTHING BUT INCREMENTAL BENEFITS WHICH HAS ALSO BEEN CONSIDERED BY THE TPO ON ACTUAL BASIS. BOTH THE DEPARTMENT AND THE AS SESSEE ARE ROUTING FOR THE SAME METHOD TO DETERMINE THE ACTUAL COST, THE ONLY DIFFERENCE BEING IN THE FIRST THE ASSESSEE IS TAKING THE HYPOTHETICAL VALUES WHILE TH E DEPARTMENT IS HARPING ON THE ACTUAL VALUES. THE LEARNED DR SUBMITTED THAT FOR DE TERMINING THE ACTUAL COST OF THE ASSET, ACTUAL FIGURE IS TO BE TAKEN IN TO ACCOUNT I NSTEAD OF ANY PAID FIGURE BY THE ASSESSEE COMPANY. RELIANCE WAS PLACED ON JUDGMENT O F HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS DALMIA DADRI CEMENT LTD [1980] 1 24 ITR 510. THE LEARNED DR ALSO RELIED ON THE ORDER OF THE TRIBUNAL, DATED 04. 11.2016, IN THE CASE OF SANYO BPL PVT. LTD VS. DCIT BEING TA NO. 1395/BANG/2014 FOR A .Y. 2006-07, WHEREIN IT HAS HELD THAT THE ASSESSING OFFICER IS JUSTIFIED IN DEN YING DEPRECIATION CLAIM ON THE INTANGIBLE ASSET OF DISTRIBUTION NETWORK ON THE INF LATED VALUE OF THE ASSET. IT IS AN ATTEMPT BY THE ASSESSEE COMPANY TO CLAIM HIGHER DEP RECIATION AND AVOID PAYMENT OF TAX IN THE HANDS OF THE TRANSFEROR OF THE BUSINE SS BY CLAIMING TO BE A SLUMP SALE TRANSACTION. THIS HAS BEEN DONE BY INVOKING THE PR OVISIONS OF EXPLANATION 3 TO SECTION 43(1) OF THE ACT DEALING WITH ACTUAL COST. THE TRIBUNAL OBSERVED THAT IT IS NOTHING BUT A COLOURFUL DEVICE ADOPTED WITH AN INTE NTION TO AVOID TAX. THE LEARNED DR SUBMITTED THAT DEPRECIATION IS ALLOWABLE AND ADM ISSIBLE ON THE ACTUAL COST AS DEFINED U/S. 143(1) OF THE ACT. WNS GLOBAL SERVICES PRIVATE LIMITED 16 19. THE LEGISLATURE HAS PREFIXED THE WORD 'ACTUAL' TO THE WORD 'COST' IN SECTION 43(1) WHICH SUGGESTS THAT THE INTENTION OF THE LEGI SLATURE WAS TO CURB THE MALPRACTICES AND TENDENCIES TO INFLATE CAPITAL COST S FOR OBTAINING HIGHER DEPRECIATION WHILE NOT BURDENING THE OTHER WITH ANY MATERIAL TAX LIABILITY AND TO EXCLUDE COLLUSIVE, INFLATED AND FICTITIOUS COST. THE LEARNED DR COUNT ERING THE ARGUMENT OF THE LEARNED AR THAT HINDSIGHT HAS BEEN USED. THE PURPOSE OF US ING HINDSIGHT IS THAT IT IS GIVING THE ACTUAL PRICE RATHER THAN CONJECTURING THE PRICE SUBJECT TO CERTAIN ASSUMPTIONS. THE LEARNED DR SUBMITTED THAT IT IS VERY RARE THAT THESE DATA WERE NOT AVAILABLE, MAKES AN ALIBI FOR THE ASSESSEE. HE FURTHER SUBMIT TED THAT SINCE IT WAS LACED WITH TOO MANY ASSUMPTIONS, THEIR LIMITATIONS ARE INHEREN T. NOW WITH THE HINDSIGHT IF THE ACTUALS ARE AVAILABLE, THEN, CONSIDERING ACTUAL COS T ON THE BASIS OF ESTIMATES AND PROJECTIONS DO NOT HOLD GOOD AND MAKE SENSE. THE ME THOD EMPLOYED BY THE ASSESSEE HAS VARIOUS LIMITATIONS AND ON THE TP ADJU STMENT, THE ASSESSEE CAN HAVE REASONS FOR NOT IMPOSING THE PENALTY, IF THE ASSESS EE CAN SHOW THE BONA FIDE OF DATA GIVEN, BUT THE LOGIC THAT TP ADJUSTMENT ITSELF CANN OT BE OPERATED IS NOT A SOUND LOGIC, AS THE PROCESS IS FOR DETERMINING THE ACTUAL COST OF THE ASSET WHICH IS RELEVANT FOR DETERMINING DEPRECIATION IN FUTURE YEARS. THE LEARNED DR RELIED HEAVILY ON THE ORDERS OF THE TP AND THE LEARNED DRP IN SUPPORT OF THE TRANSFER PRICING ADJUSTMENT PROPOSED TO THE INCOME OF THE ASSESSEE AND PRAYED B EFORE THE BENCH THAT THE ORDER OF THE DRP MAY KINDLY BE AFFIRMED SO THAT THE ASSES SEE IS NOT GIVEN THE BENEFIT OF DEPRECIATION IN THE SUBSEQUENT YEARS ON THE COST, W HICH IS HYPOTHETICAL AND UNREASONABLE. 20. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MATERIAL ON RECORD AS PLACED BEFORE US INCLUDING THE WRITTEN SUBMISSIONS FILED B Y BOTH THE SIDES. WE NOTE THAT IN THIS CASE THE TPO HAS DETERMINED ARMS LENGTH PRICE ON INCREMENTAL BENEFIT APPROACH AND NONE OF THE TRANSFER PRICING METHODS A S PRESCRIBED U/S. 92C OF THE IT ACT HAS BEEN FOLLOWED. WHEREAS, THE ASSESSEE HAS F OLLOWED IN ITS TRANSFER PRICING STUDY AS THE CUP METHOD AS THE MOST APPROPRIATE MET HOD BY DETERMINING THE VALUE OF THE MSA ON THE BASIS OF VALUATION REPORT GIVEN B Y THE INDEPENDENT VALUER. SECTION 92C(1) OF THE ACT PROVIDES THAT THE INTERNA TIONAL TRANSACTION BETWEEN THE ASSESSEE AND AE HAS TO BE ON THE BASIS OF ANY OF TH E METHOD BEING THE MOST APPROPRIATE METHOD HAVING REGARD TO THE NATURE OF T RANSACTION OR CLASS OF WNS GLOBAL SERVICES PRIVATE LIMITED 17 TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUNCT IONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS AS THE BOARD MAY PRE SCRIBE. THUS, IT HAS BEEN SPECIFICALLY PROVIDED IN THE PROVISIONS OF SECTION 92C(1) THAT TPO IS DUTY BOUND TO DETERMINE THE ARMS LENGTH PRICE OF THE INTERNATION AL TRANSACTION ONLY BY FOLLOWING ANY ONE OF THE METHOD PRESCRIBED. HOWEVER, IN THE PRESENT CASE THE TPO HAS NOT FOLLOWED ANY OF THOSE METHODS, WHICH IS NOT A CURAB LE DEFECT AND GOES TO THE ROOT OF THE MATTER. UNDER THESE CIRCUMSTANCES, WE ARE O F THE CONSIDERED VIEW THAT THE ADDITION MADE BY THE TPO CANNOT BE SUSTAINED. WE F URTHER NOTE THAT THE DRP HAS ALSO ERRED IN NOT FOLLOWING ANY OF THE PRESCRIBED M ETHOD AND AGREED WITH THE INCREMENTAL BENEFIT APPROACH ADOPTED BY THE TPO BY TAKING THE ACTUAL FIGURES UP TO A.Y. 2014-15 AND FOR SUBSEQUENT YEAR DIRECTING THE TPO TO DEFLATE THE PROJECTED REVENUE FIGURES BY APPLYING AVERAGE RATE OF 22.68%. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF TECUMSEH PRODUCTS INDIA (P) LTD. VS. ACIT ITA (SUPR A). THE RELEVANT PARA IS REPRODUCED AS UNDER: '... THIS BEING SO, THE VALUE PAID BY ASSESSEE DULY SUPPORTED BY VALUATION REPORT CANNOT BE IGNORED. IN CASE OF ANY DOUBT ON THE MATTER, THE BEST WAY IS TO REFER THE MACHINERY TO T HE VALUATION OFFICER UNDER THE IT ACT. WITHOUT DOING SO, THE TPO OR THE DRP HAS NO BASE TO DETERMINE THE VALUE AT NIL AND CONSEQUENTLY DENYING THE DEPRECIATION CLAIM OF THE ASSESSES WHILE AT THE SAM E TIME, THE PAYMENT OF CUSTOM DUTY AND COUNTERVAILING DUTY ARE CONSIDER ED AS VALUE OF COST. ...' 'THE LEARNED COUNSEL IN THE COURSE OF ARGUMENTS REL IED ON THE DECISION OF THE COORDINATE BENCH OF IT A T, MUMBAI IN THE CASE OF BALLAST NEDAM DREDGING (SUPRA) TO SUBMIT THAT IN THE ABSENCE OF ANY CONTRARY CERTIFICATE, THE CERTIFICATE RELIED UPON BY ASSESSE E HAS TO BE ACCEPTED. IN THE SAID CASE, ASSESSEE HAS FILED TWO CERTIFICAT ES AND TPO TWEAKED WITH TWO CERTIFICATES SO AS TO ARRIVE AT TH E SO CALLED DIFFERENCE IN THE ALP. ON THOSE FACTS, IT WAS HELD THAT 'IF PROPE R ANALYSIS WAS MADE THERE WOULD NOT BE ANY DIFFERENCE FROM THE PRICE PA ID TO THE PRICE DETERMINED, AS DEMONSTRATED BEFORE THE TPO BOTH ON THE BASIS OF THE THIRD PARTY QUOTATIONS WHICH ARE CONSIDERED AS INTE RNAL CUP AND THE VG BOMV CERTIFICATES AS EXTERNAL CUP. UNDER BOTH THE W ORKINGS ASSESSEE IS ABLE TO JUSTIFY THE PRICE PAID AND ON THIS REASON A LSO, WE HAVE TO ACCEPT ASSESSEE 'S CONTENTIONS. 'SIMILARLY, IN THE CASE UNDER CONSIDERATION, ASSESSEE JUSTIFIED THE PRICE PAID BY WAY OF A CERTI FICATE WHICH CAN BE CONSIDERED AS EXTERNAL CUP. SINCE TPO/DRP DI D NOT RELY ON ANY OTHER CERTIFICATE AND IN THE ABSENCE OF ANY CONTRARY WNS GLOBAL SERVICES PRIVATE LIMITED 18 INFORMATION, PRICE PAID BY ASSESSEE, WHICH WAS LESS ER THAN THE VALUE MENTIONED IN THE CERTIFICATE CAN BE ACCEPTED AS SUCH. FOR THESE REASONS, WE ALLOW ASSESSEE 'S GROUND AND DIRE CT THE AO/TPO TO ACCEPT ASSESSEE'S VALUATION AND ALLOW DEPRECIATION AS CLAIMED. GROUNDS PERTAINING TO THIS ISSUE ARE ALLOWED. ' IN THE CASE OF SOCIAL MEDIA INDIA LTD. VS. ACIT (SU PRA), THE HONBLE BENCH HAS HELD AS UNDER: 'FURTHER, THE ASSESSEE ALSO FURNISHED THE VALUATION REPORT WHERE THE VALUER ADOPTED THE COST METHOD AND THE ASSESSEE HAS PAID ONLY THE COST INCURRED BY AE.AS SEEN FROM THE ORDER OF DRP, THE D RP STATED THAT VALUER ARRIVED AT THE COST OFWEBSITE AT RS. 5,38,31,832/-, AS AGAINST THE COST VALUED BY THE VALUER AT RS. 3,67,82,863/-. WE ARE U NABLE TO UNDERSTAND FROM WHERE THE SAID PRICE WAS TAKEN UP BY THE TPO/D RP. BE THAT AS IT MAY, THE ASSESSEE HAS PAID ONLY THE COST PRICE TO I TS AE AND JUSTIFIED THE SAME BY PROVIDING A VALUATION REPORT AS EXTERNAL CUP. NOTHING HAS BEEN BROUGHT ON RECORD BY THE TPO OR BY THE DRP TO DETERMINE THE ALP AGAINST THE VALUE SHOWN BY THE AS SESSEE. IN THE ABSENCE OF ANY COUNTER REPORT BY THE TPO/DRP OR SEP ARATE VALUATION DONE BY THE TPO, THE ASSESSEE 'S VALUATION HAS TO B E ACCEPTED AS IT WAS SUPPORTED BY AN INDEPENDENT VALUER, WHO DETERMINED THE COST PRICE ON THE ACTUAL EXPENDITURE INCURRED BY THE AE. CONSIDER ING THE TOTALITY OF THE FACTS OF THE CASE, WE ARE OF THE OPINION THAT THE W EBSITE PURCHASED BY THE ASSESSEE HAS TO BE CONSIDERED AT ARM'S LENGTH. ' IN THE CASE OF FIRMENICH ARMATICS INDIA (P) LTD. VS . DCIT [2018] 96 TAXMANN.COM 649, THE CO-ORDINATE BENCH HAS HELD THA T TPO IS DUTY BOUND TO DETERMINE ARMS LENGTH PRICE OF INTERNATIONAL TRANS ACTION BY ADOPTING ONE OF THE METHODS PRESCRIBED UNDER STATUTE AND CANNOT DEVIATE FROM RESTRICTIONS/CONDITIONS IMPOSED UNDER STATUTE. IT FURTHER HELD THAT THERE IS NO PROVISIONS UNDER THE ACT EMPOWERING TPO TO DETERMINE ARMS LENGTH PRICE ON E STIMATE BASIS, THAT TOO, BY ENTERTAINING DOUBTS WITH REGARD TO BUSINESS EXPEDIE NCY OF PAYMENT AND IN PROCESS STEPPING INTO SHOES OF THE AO FOR MAKING DISALLOWAN CE U/S. 37(1) OF THE ACT. THE HONBLE DELHI HIGH COURT IN THE CASE OF LI & FU NG INDIA (P) LTD. VS. CIT [2014] 361 ITR 85, HAS HELD THAT SECTION 92C(1) STA TES THAT ALP IN RELATION TO AN INTERNATIONAL TRANSACTION COULD BE DETERMINED BY ANY OF THE METHODS PROVIDED IN THE SAID SUB-SECTION WHICH IS MOST APPROPRIATE HA VING REGARD TO THE NATURE OF TRANSACTIONS OR CLASS OF TRANSACTION OR CLASS OF AS SOCIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FA CTS WHICH MAY BE PRESCRIBED BY WNS GLOBAL SERVICES PRIVATE LIMITED 19 THE BOARD... THE HONBLE COURT FURTHER EMPHASIZED THAT REVENUE MUST OPERATE WITHIN THE BOUNDARIES OF LAW, BY OBSERVING AS UNDER : THIS COURT IS OF OPINION THAT TO APPLY THE TNMM, THE ASSESSEE'S NET PROFIT MARGIN REALIZED FROM INTERNATIONAL TRANSACTI ONS HAD TO BE CALCULATED ONLY WITH REFERENCE TO COST INCURRED BY IT, AND NOT BY ANY OTHER ENTITY, EITHER THIRD PARTY VENDORS OR THE AE. TEXTUALLY, AND WITHIN THE BOUNDS OF THE TEXT MUST THE AO/TPO OPERATE, RULE 10 B(1)(E) DOES NOT ENABLE CONSIDERATION OR IMPUTATION OF COST INCURRED BY THIRD PARTIES OR UNRELATED ENTERPRISES TO COMPUTE T HE ASSESSEE'S NET PROFIT MARGIN FOR APPLICATION OF THE TNMM. RULE 10B(1)(E) RECOGNIZES THAT 'THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSO CIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFF ECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE ...' ( EMPHASIS SUPPLIED). IT THUS CONTEMPLATES A DETERMINATION OF ALP WITH REFER ENCE TO THE RELEVANT FACTORS (COST, ASSETS, SALES ETC.) OF THE ENTERPRIS E IN QUESTION, I.E. THE ASSESSEE, AS OPPOSED TO THE AE OR ANY THIRD PARTY. THE TEXTUAL MANDATE, THUS, IS UNAMBIGUOUSLY CLEAR. THE TPO'S REASONING TO ENHANCE THE ASSESSEE'S COST BASE BY CONSIDERING THE COST OF MANUFACTURE AND EXPORT OF FINISHED GOOD S, I.E., READYMADE GARMENTS BY THE THIRD-PARTY VENDORS (WHICH COST IS CERTAINLY NOT THE COST INCURRED BY THE ASSESSEE), IS NOWHERE SUPPORTED BY THE TNMM UNDER RULE 10B(1)(E) OF THE RULES. HAVING DETERMINED THAT (TNMM) TO BE THE MOST APPROPRIATE METHOD, THE ONLY RULES AND NOR MS PRESCRIBED IN THAT REGARD COULD HAVE BEEN APPLIED T O DETERMINE WHETHER THE EXERCISE INDICATED BY THE ASSESSEE YIEL DED AN ALP. THE APPROACH OF THE TPO AND THE TAX AUTHORITIES IN ESSENCE IMPUTES NOTIONAL ADJUSTMENT/INCOME IN THE ASSESSEE'S HANDS ON THE BASIS OF A FIXED PERCENTAGE OF THE FREE ON BOARD VALUE OF EXPO RT MADE BY UNRELATED PARTY VENDORS. ' HAVING CONSIDERED THE FACTS OF THE CASE IN THE LIGH T OF THE RATIO LAID DOWN IN THE ABOVE DECISIONS BY THE DELHI HIGH COURT AND VARIOUS CO-ORDINATE BENCHES OF THE TRIBUNAL, WE ARE OF THE VIEW THAT THE ADJUSTMENT AS MADE BY THE TPO/DRP IS WITHOUT ANY JURISDICTION AND CANNOT BE SUSTAINED. 21. EVEN ON THE ISSUE OF DETERMINING ARMS LENGTH P RICE ON THE BASIS OF VALUATION REPORT FROM THE INDEPENDENT VALUER, WE FIND THAT TH E TPO/DRP HAS NOT FOUND ANY FAULT IN THE REPORT IN WHICH THE PROJECTED REVENUE AND PROJECTED OPERATING FROM THE UNEXPIRED PERIOD OF THE MSA WAS CONSIDERED TO DETER MINE THE PRICE PAYABLE BY WNS INDIA TO WCIL AND, THEREFORE, THE TPO/DRP CANNOT RE SORT TO THEIR OWN ESTIMATE IN WNS GLOBAL SERVICES PRIVATE LIMITED 20 DETERMINING THE ARMS LENGTH PRICE. THE CASE OF TH E ASSESSEE IS SUPPORTED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F G L SULTANIA & ANR. VS. SEBI & ORS. (AIR 2005 SC 2172), WHEREIN THE APEX COURT WHI LE DEALING WITH THE OBJECTION RELATED TO THE ISSUE ON VALUATION HAS CLEARLY HELD AS UNDER: '80.... IT APPEARS TO US THAT THE APPELLANT EXPECTS THIS CO URT TO ACT AS AN EXPERT ITSELF. THIS, WE ARE FORBIDDEN FROM DOING. U NLESS IT IS SHOWN THAT SOME WELL ACCEPTED PRINCIPLE OF VALUATION HAS BEEN DEPARTED FROM WITHOUT ANY REASON, OR THAT THE APPROACH ADOPTED IS PATENTLY ERRONEOUS OR RELEVANT FACTORS HAVE NOT BEEN CONSIDERED BY THE VALUER OR THAT THE VALUATION WAS MADE ON A FUNDAMENTALLY ERRONEOUS BAS IS OR THAT THE VALUER ADOPTED A DEMONSTRABLY WRONG APPROACH OR A F UNDAMENTAL ERROR GOING TO THE ROOT OF THE MATTER, THIS COURT WOULD N OT RE WITH THE VALUATION OF AN EXPERT. ...' 22. WE FIND MERIT IN THE CONTENTION OF THE LEARNED AR THAT VALUATION OF AN INTANGIBLE REQUIRES EXPERTISE AND KNOWLEDGE IN THE DOMAIN OF VALUATION PRINCIPLES, MARKETS AND BUSINESS. EVEN IF THE TPO/DRP WERE NOT IN AGREEMENT WITH THE VARIABLES ASSUMED/VALUATION UNDERTAKEN BY THE INDEP ENDENT VALUER, THEY OUGHT TO HAVE DESISTED FROM THEIR OWN EXERCISE OF ADHOC VALU ATION WITHOUT HAVING APPOINTED A VALUATION EXPERT TO DETERMINE THE VALUE OF THE MS A. THE CASE OF THE ASSESSEE IS SUPPORTED BY TECUMSEH PRODUCTS INDIA (P.) LTD. (SUP RA), WHEREIN THE BENCH HAS HELD AS UNDER: '... THIS BEING SO, THE VALUE PAID BY ASSESSEE DULY SUPP ORTED BY VALUATION REPORT CANNOT BE IGNORED. IN CASE OF ANY DOUBT ON T HE MATTER, THE BEST WAY IS TO REFER THE MACHINERY TO THE VALUATION OFFI CER UNDER THE IT ACT. WITHOUT DOING SO, THE TPO OR THE DRP HAS NO BASE TO DETERMINE THE VALUE AT NIL AND CONSEQUENTLY DENYING THE DEPRECIAT ION CLAIM OF THE ASSESSEE WHILE AT THE SAME TIME, THE PAYMENT OF CUS TOM DUTY AND COUNTERVAILING DUTY ARE CONSIDERED AS VALUE OF COST . ...' 'THE LEARNED COUNSEL IN THE COURSE OF ARGUMENTS REL IED ON THE DECISION OF THE COORDINATE BENCH OF IT AT, MUMBAI IN THE CASE O F BALLAST NEDAM DREDGING (SUPRA) TO SUBMIT THAT IN THE ABSENCE OF A NY CONTRARY CERTIFICATE, THE CERTIFICATE RELIED UPON BY ASSESSE E HAS TO BE ACCEPTED. IN THE SAID CASE, ASSESSEE HAS FILED TWO CERTIFICATES AND TPO TWEAKED WITH TWO CERTIFICATES SO AS TO ARRIVE AT THE SO CALLED D IFFERENCE IN THE ALP. ON THOSE FACTS, IT WAS HELD THAT 'IF PROPER ANALYSIS W AS MADE THERE WOULD NOT BE ANY DIFFERENCE FROM THE PRICE PAID TO THE PRICE DETERMINED, AS DEMONSTRATED BEFORE THE TPO BOTH ON THE BASIS OF TH E THIRD PARTY QUOTATIONS WHICH ARE CONSIDERED AS INTERNAL CUP AND THE VG BOUV CERTIFICATES AS EXTERNAL CUP. UNDER BOTH THE WORKIN GS ASSESSEE IS ABLE TO JUSTIFY THE PRICE PAID AND ON THIS REASON ALSO, WE HAVE TO ACCEPT ASSESSEE WNS GLOBAL SERVICES PRIVATE LIMITED 21 'S CONTENTIONS. 'SIMILARLY, IN THE CASE UNDER CONSI DERATION, ASSESSEE JUSTIFIED THE PRICE PAID BY WAY OF A CERTIFICATE WH ICH CAN BE CONSIDERED AS EXTERNAL CUP. SINCE TPO/DRP DID NOT RELY ON ANY OTH ER CERTIFICATE AND IN THE ABSENCE OF ANY CONTRARY INFORMATION, PRICE PAID BY ASSESSEE, WHICH WAS LESSER THAN THE VALUE MENTIONED IN THE CERTIFIC ATE CAN BE ACCEPTED AS SUCH. FOR THESE REASONS, WE ALLOW ASSESSEE'S GROUND AND DIRECT THE AO/TPO TO ACCEPT ASSESSEE'S VALUATION AND ALLOW DEP RECIATION AS CLAIMED. GROUNDS PERTAINING TO THIS ISSUE ARE ALLOWED. ' 23. IN VIEW OF THESE FACTS, WE ARE NOT ABLE TO SUBS CRIBE TO THE CONCLUSION REACHED BY THE LEARNED DRP/TPO. 24. WE FURTHER NOTE THAT WCIL HAD PAID AVIVA SINGAP ORE AN INCENTIVE PAYMENT OF GBP 80 MILLION FOR SECURING CONTRACT WITH AVIVA SIN GAPORE WITH A MINIMUM BUSINESS OF 3000 FULL TIME EMPLOYEES FOR THE ENTIRE CONTRACT PERIOD OF 8 YEARS AND 4 MONTHS AND THE UNAMORTIZED PORTION OF THE MSA INCENTIVE PA YMENT AS ON THE DATE OF PURCHASE OF MSA BY THE ASSESSEE WAS USD 106.83 MILL ION AND THE ASSESSEE WAS TO BE BENEFITTED BY THE HIGHER HOURLY CHARGE OUTS AGRE ED WITH AVIVA SINGAPORE. THIS PAYMENT IS AKIN TO THE COST INCURRED BY THE ASSESSE E IN ACQUIRING/SECURING CUSTOMER CONTRACT WITH AVIVA AT THE FIRST PLACE AND REMAINS TO BE ATTRIBUTABLE OVER THE UNEXPIRED PERIOD OF THE MSA. THUS, WE FIND MERIT I N THE ARGUMENT OF THE LEARNED AR THAT UNAMORTISED VALUE OF USD 106.83 MILLION FOR REMAINING NUMBER OF MONTHS BEING THE PAYMENT TO AVIVA SINGAPORE OUGHT TO BE A VALID CUP BENCHMARKING TO DETERMINE ARMS LENGTH PRICE OF THE TRANSACTION. O N THIS SCORE, USD 110 MILLION PAID BY THE ASSESSEE TO WCIL IS AT ARMS LENGTH STANDARD AND CONSEQUENTLY, NO ADJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSACTIO N IS REQUIRED TO BE MADE. 25. ON THE ISSUE OF PROJECTIONS NOT TO BE SUBSTITUT ED BY ACTUAL AND HINDSIGHT OUGHT NOT TO AFFECT THE VALUATION REPORT AS SUBMITT ED BY THE LEARNED AR, WE NOTE THAT ON THE SPECIFIC VALUATION DATE, THE VALUATION HAS TO BE DONE ON THE BASIS OF CERTAIN PARAMETERS OR FORECASTS MADE AS AT THE POIN T OF TIME OF VALUATION. THUS, ANY FUTURE HAPPENING/OCCURRENCE BASED TO THE DATE O F VALUATION CANOE BE FORESEEN AND, THEREFORE, THE ARGUMENT OF THE ASSESSEE MERITS CONSIDERATION THAT WHATEVER PRICE HAS BEEN DETERMINED IN THE VALUATION REPORT N EEDS NO FURTHER ADJUSTMENT AS THAT EVENTS WERE NOT FORESEEABLE ON THE DATE OF VAL UATION. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE DECISION OF THE TRIBUN AL IN THE CASE OF DQ (INTERNATIONAL) LTD. VS. ACIT , WHEREIN IT HAS HELD AS UNDER: WNS GLOBAL SERVICES PRIVATE LIMITED 22 - THE VALUATION METHOD ADOPTED FOR DETERMINING THE FUTURE YEARS CANNOT BE REPLACED WITH ACTUALS DOWN THE LINE, THE VALUATION WILL GO EITHER WAY. WHEN IT GOES TO NORTH, THE REVENUE MAY ADOPT T HE SAME TIME, WHEN IT GOES TO SOUTH, THE ASSESSEE MAY ADOPT, THERE WON'T BE ANY CONSISTENCY. WHAT IS IMPORTANT IS THE VALUE AVAILABLE AT THE TIME OF MAKING BUSINESS DECISION. IT SHOULD BE LEFT TO THE WISDOM OF THE BUSINESSMAN, HE KNOWS WHAT IS GOOD FOR THE ORGANIZA TION. NO DOUBT, 'IP' WAS SOLD TO 'AE'. THE METHOD ADOPTED SHOULD BE CONS ISTENT AND SHOULD BE DOCUMENTED TO REVIEW IN THE FUTURE. THE REVIEW DOES NOT MEAN REPLACING THE PROJECTION WITH ACTUALS. IT IS THE RA TIONAL OF ADOPTING THE VALUES FOR MAKING DECISION AT THE POIN T OF TIME OF MAKING DECISION. WHEN THE VALUES ARE REPLACED SUBSE QUENTLY, IT IS NOT VALUATION BUT EVALUATION, I.E., MOVING THE P OST OF RESULT DETERMINED OUT OF PROJECTIONS. THE REVENUE IS DOUBT ING THE VALUATION BECAUSE THE ACTUAL REVENUES WERE FAVOURAB LE. IN RATIONAL DECISION MAKING THE ACTUAL RESULTS ARE IRR ELEVANT. IN THE PRESENT CASE, THE VALUATION WAS DONE BY TWO INDEPEN DENT VALUERS NOT BY THE ASSESSEE. THE OTHER ISSUE WITH THIS ARE THAT THE REVENUE ADOPTED THE ACTUALS OF AE WITHOUT CONSIDERI NG WHETHER THEY WERE REVENUES GENERATED OUT OF THE 'IP' OR NOT. THE Y SIMPLY ADOPTED THE REVENUES OFAE WITHOUT GIVING PROPER FINDINGS THAT T HE REVENUES OFAE WERE ALL GENERATED ONLY OUT OF THIS 'IP' (JUNGLE BO OK). THE ASSESSEE SUBMITTED THAT THESE REVENUES WERE GENERATED BY 'AE ' OUT OF OTHER PROPERTIES (IPS) AS WELL. THE REVENUE CANNOT ADOPT SUCH VALUES WITHOUT PROPER VERIFICATION. FOR VALUATION OF AN INTANGIBLE ASSET, ONLY THE FUTURE PROJECTIONS ALONE CAN BE ADOPTED AND SUCH VA LUATION CANNOT BE REVIEWED WITH ACTUALS AFTER 3 OR 4 YEARS DOWN THE LINE. ACCORDINGLY, THE GROUNDS RAISED BY ASSESSEE ARE ALL OWED. 26. WE ARE ALSO OF THE VIEW THAT IN CASE THE ACTUAL WORKING OF THE CONTRACT/HINDSIGHT IS TO BE TREATED AS GENUINE FOR VALUATION THEN TRANSFER OF CUSTOMER RELATIONSHIP BY WCIL TO THE ASSESSEE AND R ENEWAL/EXTENSION OF CONTRACT APART FROM THE MSA INCENTIVE PAYMENT FOR THE UNAMOR TIZED PERIOD MUST BE TAKEN INTO ACCOUNT FOR DETERMINING THE ALP. IN THIS CASE , WE NOTE THAT THE TOTAL INCREMENTAL BENEFIT IN RESPECT OF EXTENSION OF THE CONTRACT WITH AVIVA SINGAPORE WOULD BE USD 57.61 MILLION. THE ASSESSEE HAS SIGNE D THE EXTENSION OF MSA IN NOVEMBER 2014 AS AGAINST THE RENEWAL IN NOVEMBER 20 16 AND THE CONTRACT WAS RENEWED UP TO MARCH 2022. IN OUR OPINION, THIS HIN DSIGHT POST THE VALUATION DATE HAS TO BE CONSIDERED IF THE TPO/DRP HAS DETERMINED THE ARMS LENGTH PRICE ON ACTUAL RESULTS. ON THIS ISSUE ALSO WE DO NOT FIND T HE APPROACH OF TPO IN DETERMINING THE VALUE OF THE INTERNATIONAL TRANSACTION BASED ON INCREMENTAL BENEFIT FROM PURCHASE OF MSA AS CORRECT UNLESS THE VALUE OF CUST OMER RELATIONSHIP ALONG WITH OTHER INCREMENTAL BENEFITS/ACTUAL OF PROFITS ARE CO NSIDERED. WE NOTE THAT THE WNS GLOBAL SERVICES PRIVATE LIMITED 23 INCREMENTAL BENEFIT IN RESPECT OF CUSTOMER RELATION SHIP WITH AVIVA SINGAPORE WORKS OUT TO USD 39.61 MILLION. IN VIEW OF THESE FACTS, THE VALUE OF CONTRACT BASED ON THE APPROACH AS ADOPTED BY THE TPO IS SELF CONTRADICTOR Y AND CANNOT BE SUSTAINED. 27. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, W E ARE INCLINED TO SET ASIDE THE ORDER OF DRP AND DIRECT THE AO TO DELETE THE ADJUST MENT MADE TO THE COST OF MSA. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 28. THE ISSUE RAISED IN GROUND NO.5 PERTAINS TO DIS ALLOWANCE OF DEDUCTION U/S. 10A OF THE ACT AMOUNT TO RS 30,80,76,458/- IN RESPE CT OF PUNE UNIT II UNDER THE PROVISIONS OF ERSTWHILE SUBSECTION (9) OF SECTION 1 0A OF THE ACT ON ACCOUNT OF CHANGE IN SHAREHOLDING OF THE ASSESSEE DURING A.Y. 2003-04. 29. AT THE OUTSET, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR A.YS 2003-04, 2004-05, 2005-06 AND 2008-09. TH E LEARNED DR, ON THE OTHER HAND, FAIRLY AGREED WITH THE CONTENTION OF THE AR. HE, HOWEVER, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 30. AFTER HEARING BOTH THE PARTIES, WE OBSERVE THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE. THE REL EVANT OPERATIVE PART OF THE ORDER FOR A.Y. 2003-04 IS REPRODUCED AS UNDER: 3.5.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED. THE ISSUE BEFORE US FOR CONSIDERATION AND AD JUDICATION IS WHETHER THE ORDER OF THE AUTHORITIES BELOW WERE CORRECT OR NOT IN DISALLOWING THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 10A OF THE ACT AMOUNTING TO RS.31,89,63,,890/- IN RESPECT OF THE ASSESSEES STP I UNITS IN MUMBAI AND PUNE IN THE LIGHT OF THE ERSTWHILE PROVISIONS OF SU B-SECTION(9) OF SECTION 10A OF THE ACT. 3.5.2 IN THE YEAR UNDER CONSIDERATION WNS(MAURITIUS ) LTD. A WHOLLY OWNED SUBSIDIARY OF WNS HOLDINGS ACQUIRED THE ENTIR E SHARE CAPITAL OF THE ASSESSEE FROM BRITISH AIRWAYS LTD., U.K. IN THE RETURN OF INCOME THE ASSESSEE FOR ASSESSMENT YEAR 2003-04 THE ASSESSEE H AD CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT; SUBMITTING THAT THE AMENDMENT CARRIED OUT BY FINANCE ACT, 2003, WHEREIN SECTION 1 0A(9) OF THE ACT WAS DELETED WAS AN AMENDMENT OF CLARIFICATORY NATURE AN D SUCH DELETION SHOULD BE CONSIDERED TO HAVE BEEN OMITTED RETROSPEC TIVELY. IN ORIGINAL SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 17/3/200 6 ALLOWING THIS CLAIM WNS GLOBAL SERVICES PRIVATE LIMITED 24 AND ACCORDINGLY THE ASSESSEE WAS GRANTED THE DEDUCT ION UNDER SECTION10A OF THE ACT. IN THE ORDER OF RE-ASSESSMEN T FOR ASSESSMENT YEAR 2003-04, PASSED UNDER SECTION 143(3) R.W.S. 263 OF THE ACT VIDE ORDER DATED 23/12/2008, PURSUANT TO REVISIONARY PROCEEDIN GS, THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 10A OF THE ACT WA S DISALLOWED BY APPLYING THE PROVISIONS OF SUB-SECTION (9) OF SECTI ON 10 OF THE ACT. THIS FINDING WAS UPHELD BY THE CIT(A) IN THE IMPUGNED OR DER AND THE MATTER IS BEFORE US FOR CONSIDERATION. 3.5.3 SUB-SECTION (9) OF SECTION 10A OF THE ACT WAS OMITTED FROM THE STATUTE BY FINANCE ACT, 2003,W.E.F. 1/4/2004. PARA 102 OF THE FINANCE MINISTERS SPEECH WHILE PRESENTING THE UNION BUDGET FOR 2003-04 HAS BEEN PERUSED AND WE FIND THAT THE STATEMENT OF INTE NT OF THE LEGISLATURE FOR OMITTING SUB-SECTION (9) OF SECTION 10A OF THE ACT WAS THAT THE CONCESSIONS EXTENDED TO THE IT SECTOR UNDER SECTION S 10A & 10B OF THE ACT ARE TO BE CONTINUED AS ORIGINALLY ENVISAGED. IN THIS CONTEXT, THE PRESENT POSITION AS PER LAW THAT SUCH COMPANIES AS CURRENTLY COVERED BY THESE TAX EXEMPTION LOSE THESE BENEFITS UPON CHANGE IN OWNERSHIP IS NOT LOGICAL, AND THEREFORE, THESE RESTRICTIONS ARE BEIN G REMOVED SO THAT THE BENEFIT OF SUCH TAX EXEMPTIONS WILL REMAIN EVEN IN CASES OF AMALGAMATION OR DEMERGER. IN THIS REGARD, WE REFER TO THE JUDGME NT IN THE CASE OF THE BANGALORE BENCH OF THE ITAT IN THE CASE OF GE THERM OMETRICS INDIA PVT. LTD. IN ITA NOS. 257 & 258/BANG/2008 FOR ASSESSMENT YEARS 2003-04 AND 2005-06, WHICH WE FEEL SQUARELY COVERS THE ISSUE BE FORE US IN FAVOUR OF THE ASSESSEE. IN THIS ORDER (SUPRA) THE BENCH, IN R ESPECT OF THE EFFECT OF DELETION OF SECTION 10B(9) OF THE ACT (WHICH IS PAR I-MATERIA TO SECTION 10A(9) OF THE ACT) AT PARA 11 OF ITS ORDER HAS HELD THAT EVEN THOUGH THE FINANCE ACT, 2003 MENTIONS THAT THE AFORESAID SUB-S ECTION (9) IS OMITTED W.E.F. 1/4/2004; IN VIEW OF THE FACT THAT THE SAID OMISSION IS DIFFERENT FROM REPEAL, THE SAVING CLAUSE PROVIDED IN SECTION 6 OF THE GENERAL CLAUSES ACT IS NOT APPLICABLE, THEREFORE, SECTION 1 0B OF THE ACT IS TO BE READ AS THOUGH IT NEVER HAD SUB-SECTION (9) IN IT A T ALL IN ALL PROCEEDINGS OF THE ACT. 3.5.4 IN COMING TO THIS VIEW WE PLACE RELIANCE AND DRAW SUPPORT ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF GE THERMOMETRICS INDIA PVT. LTD. IN ITA NOS. 876/2008 DATED 25/11/2014 FOR ASSESSMENT YEAR 2003-04 ON REVENUES APPEAL AGA INST THE ORDER OF THE CO-ORDINATE BENCH OF THE ITAT(SUPRA). IN PARA 4 OF THIS ORDER THE SUBSTANTIAL QUESTION OF LAW BEFORE THE HONBLE HIGH COURT WAS: WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING THAT I N VIEW OF THE OMISSION OF SUB-SECTION 9 TO SECTION 10B OF THE ACT , W.E.F. 01.04.2004, IT SHOULD BE UNDERSTOOD THAT THE SAID S ECTION NEVER EXISTED IN THE STATUTE BOOK AND THEREFORE THE BENEF IT CLAIMED BY THE ASSESSEE U/S. 10B SHOULD BE ALLOWED? THEIR LORDSHIPS AT PARA 7 AND 8 OF THEIR ORDER (SUP RA) HAVE ANSWERED THE QUESTION HOLDING AS UNDER:- WNS GLOBAL SERVICES PRIVATE LIMITED 25 7. THE APEX COURT IN THE CASE OF KOLHAPUR CANESUGA R WORKS LTD. VS UNION OF INIDA REPORTED IN AIR 2000 S C 811 DEALING WITH THE EFFECT OF DELETION OF A PROVISION IN THE STATUTE IS HELD AT PARA 38 AS UNDER:- 38. THE POSITION IS WEL L-KNOWN THAT AT COMMON LAW, THE NORMAL EFFECT OF REPEALING A STATUT E OR DELETING A PROVISION IS TO OBLITERATE IT FROM THE STATUTE BO OK AS COMPLETELY AS IF IT HAD NEVER BEEN PASSED, AND THE STATUTE MUS T BE CONSIDERED AS A LAW THAT NEVER EXISTED. TO THIS RUL E, AN EXCEPTION IS ENGRAFTED BY THE PROVISIONS OF SECTION 6(1). IF A PROVISION OF A STATUTE IS UNCONDITIONALLY OMITTED W ITHOUT A SAVING CLAUSE IN FAVOUR OF PENDING PROCEEDINGS, ALL ACTION S MUST STOP WHERE THE OMISSION FINDS THEM, AND IF FINAL RELIEF HAS NOT BEEN GRANTED BEFORE THE OMISSION GOES INTO EFFECT, IT CA NNOT BE GRANTED AFTERWARDS. SAVINGS OF THE NATURE CONTAINED IN SECTION 6 OR IN SPECIAL ACTS MAY MODIFY THE POSITION. THUS TH E OPERATION OF REPEAL OR DELETION AS TO THE FUTURE AND THE PAST LA RGELY DEPENDS ON THE SAVINGS APPLICABLE. IN A CASE WHERE A PARTIC ULAR PROVISION IN A STATUTE IS OMITTED AND IN ITS PLACE ANOTHER PR OVISION IN A STATUTE IS OMITTED AND IN ITS PLACE ANOTHER PROVISI ON DEALING WITH THE SAME CONTINGENCY IS INTRODUCED WITHOUT A SAVING CLAUSE IN FAVOUR OF PENDING PROCEEDINGS THEN IT CAN BE REASON ABLY INFERRED THAT THE INTENTION OF THE LEGISLATURE IS THAT THE P ENDING PROCEEDING FOR THE SAME PURPOSE MAY BE INITIATED UN DER THE NEW PROVISION. 8. ADMITTEDLY, IN THE INSTANT CASE, THERE IS NO SAV ING CLAUSE OR PROVISION INTRODUCED BY WAY OF AN AMENDMENT WHILE OMITTING SU B-SECTION (9) OF SECTION 10B. THEREFORE, ONCE THE AFORESAID SECTION IS OMITTED FROM THE STATUTE BOOK, THE RESULT IS IT HAD NEVER BEEN PASSE D AND BE CONSIDERED AS A LAW THAT NEVER EXISTS AND THEREFORE, WHEN THE ASSESSMENT ORDERS WERE PASSED IN 2006, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TAKING NOTE OF A PROVISION WHICH WAS NOT IN THE STATUTE BO OK AND DENYING BENEFIT TO THE ASSESSEE. THE WHOLE OBJECT OF SUCH O MISSION IS TO EXTEND THE BENEFIT UNDER SECTION 10B OF THE ACT IRRESPECTI VE OF THE FACT WHETHER DURING THE PERIOD TO WHICH THEY ARE ENTITLED TO THE BENEFIT, THE OWNERSHIP CONTINUES WITH THE ORIGINAL ASSESSEE OR I T IS TRANSFERRED TO ANOTHER PERSON. BENEFIT IS TO THE UNDERTAKING AND N OT TO THE PERSON WHO IS RUNNING THE BUSINESS. WE DO NOT SEE ANY MERIT IN THESE APPEALS. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE. ACCORDINGLY, THE APPEALS ARE D ISMISSED. 3.5.5 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AN D TAKING INTO ACCOUNT THE LEGAL PRECEDENTS, WE ARE OF THE CONSIDERED OPIN ION THAT THE AFORESAID FINDING RENDERED BY THE HONBLE KARNATAKA HIGH COUR T IN THE CASE OF GE THERMOMETRICS INDIA PVT. LTD. (SUPRA) SQUARELY APPL IES TO THE CASE OF THE ASSESSEE; SECTION 10B AND 10A OF THE ACT BEING PARI -MATERIA . RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E HONBLE KARNATAKA HIGH COURT IN THE CASE OF GE THERMOMETRICS INDIA PV T. LTD. (SUPRA) WE HOLD THAT THERE BEING NO SAVING CLAUSE OR ANY AMEND MENT WHILE OMITTING WNS GLOBAL SERVICES PRIVATE LIMITED 26 SUB-SECTION (9) OF SECTION 10A OF THE ACT, THE RESU LT IS THAT IT IS TO BE READ AS HAVING NEVER BEEN PASSED AND HAD NEVER EXISTED O N THE STATUTE. IN THIS VIEW OF THE MATTER, WE REVERSE THE ORDER OF TH E CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE ASSES SEES CLAIM FOR DEDUCTION UNDER SECTION 10A OF THE ACT FOR ASSESSME NT YEAR 2003-04. IT IS ACCORDINGLY ORDERED. 3.5.6 BEFORE PARTING, WE RECORD THAT WE HAVE CAREFU LLY PERUSED THE ORDERS OF THE CO-ORDINATE BENCHES OF ITAT IN ITA NO.2566/M UM/2009 FOR ASSESSMENT YEAR 2004-05 AND ITA NO.348/MUM/2008 DAT ED 17/06/2008 CITED BY THE LD. DEPARTMENTAL REPRESENTATIVE. WE FI ND THAT CONTRARY TO THIS AVERMENTS, THESE CO-ORDINATE BENCHES HAVE NOT ADJUDICATED ON THE MERITS OF THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION10A OF THE ACT FOR ASSESSMENT YEAR 2003-04. IN THE TRIBUNALS ORDE R FOR ASSESSMENT YEAR 2004-05, THE BENCH COULD NOT HAVE ADJUDICATED ON TH E MATTER, AS THE PRESENT APPEAL FOR ASSESSMENT YEAR 2003-04 WAS NOT BEFORE IT. IN RESPECT OF THE TRIBUNALS ORDER DATED 17/6/2009 THE CITS O RDER UNDER SECTION 263 OF THE ACT FOR ASSESSMENT YEAR 2003-04(SUPRA), THE BENCH HAS ONLY UPHELD THE CIT(A)S ASSUMPTION OF JURISDICTION UNDE R SECTION 263 AND NOT ADJUDICATED ON THE ASSESSEES CLAIM FOR DEDUCTION U NDER SECTION 10A OF THE ACT. SINCE THE ISSUE IS IDENTICAL TO THE ONE AS DECIDED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE, RESPECTFULLY, FOLLOWING THE SA ID ORDER ALLOW THE GROUND RAISED BY THE ASSESSEE. 31. THE ISSUE RAISED IN GROUND NO.6 IS AGAINST THE DRP IN HOLDING THAT DEDUCTION U/S 10A OF THE ACT AFTER SETTING OFF THE LOSSES OF CERTAIN STP/SEZ UNITS AGAINST THE PROFITS OF THE STP/SEZ UNITS OF THE ASSESSEE. 32. AT THE OUTSET, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR A.YS 2005-06 TO 2008-09, VIDE ORDER DATED 16.01 .2019. THE LEARNED AR THEREFORE, PRAYED THAT THE ISSUE MAY KINDLY BE DECI DED IN FAVOUR OF THE ASSESSEE. HE ALSO POINTED OUT THAT THE DRP HAS ISSUED DIRECTI ONS IN A.Y. 2012-13 FOLLOWING THE CO-ORDINATE BENCH DECISION IN THE CASE OF THE ASSES SEE ITSELF. ON THE OTHER HAND, THE LEARNED DR, RELIED ON THE ORDERS OF THE AUTHORI TIES BELOW. 33. AFTER HEARING BOTH THE PARTIES, WE OBSERVE THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE FOR A.YS 2005-06 TO 2008-09. THE RELEVANT OPERATIVE PART OF THE ORDER FOR A.Y. 2005-06 IS REP RODUCED AS UNDER: WNS GLOBAL SERVICES PRIVATE LIMITED 27 52. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED MATERIALS ON RECORD. IN OUR CONSIDERED OPINION, THE ISSUE DOES N OT REQUIRED DELIBERATION AT LENGTH IN VIEW OF THE RATIO LAID DO WN BY THE HON'BLE SUPREME COURT IN YOKOGAWA INDIA LTD. (SUPRA). IN FA CT, THE DRP FOLLOWING THE AFORESAID DECISION OF THE HON'BLE SUPREME COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEAR 2012 13, VIDE ORDER DATED 26TH DECEMBER 2016. IN VIEW OF THE AFORESAID, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LEARNED COMMISSION ER (APPEALS) ON THE ISSUE. GROUND RAISED IS DISMISSED. 34. FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH , WE SET ASIDE THE ORDER OF THE DRP AND DIRECT THE TPO TO ALLOW THE GROUND RAISED B Y THE ASSESSEE: 35. THE ISSUE IN GROUND NO. 7 RELATES TO DISALLOWAN CE OF DEPRECATION AMOUNTING TO RS 61,14,212/- ON INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE ON ACQUISITION OF CUSTOMER CONTRACTS, WHICH DO NOT FALL UNDER THE DEF INITION OF INTANGIBLE ASSETS U/S. 32(1) OF THE ACT. WE FIND THAT CO-ORDINATE BENCH O F THE TRIBUNAL HAS DECIDED IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN ITS OW N CASE FOR A.YS. 2005-06 AND 2008- 09. THE RELEVANT OPERATIVE PART OF THE ORDER FOR A .Y. 2005-06 IS REPRODUCED AS UNDER: 40. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED MATERIALS ON RECORD. INSOFAR AS FACTUAL ASPECT OF THE ISSUE IS C ONCERNED, THERE IS NO DISPUTE THAT BY VIRTUE OF ACQUISITION OF M/S. TOWN AND COUNTRY ASSISTANCE LTD., VARIOUS CONTRACTS EXECUTED BY THE SAID CONCER N WITH THIRD PARTY CLIENTS WERE ASSIGNED TO THE ASSESSEE. IT IS ALSO A FACT THAT SUCH ACQUISITION TOOK PLACE BY VIRTUE OF AN AGREEMENT EX ECUTED ON 13TH JANUARY 2004. IT IS ALSO A FACT ON RECORD THAT IN A SSESSMENT YEAR 2004 05, THE ASSESSEE FOR THE FIRST TIME CLAIMED DEPRECI ATION BY TREATING THE CAPITALIZED VALUE OF THE AMOUNT PAID TOWARDS ACQUIR ING M/S. TOWN AND COUNTRY ASSISTANCE LTD., AS AN INTANGIBLE ASSET AND CLAIMED DEPRECIATION @ 25%. NOTABLY, THE ASSESSING OFFICER WHILE COMPLET ING ASSESSMENT UNDER SECTION 143(3) OF THE ACT ALSO ALLOWED ASSESS EES CLAIM OF DEPRECIATION. HOWEVER, LEARNED COMMISSIONER OF INCO ME TAX REVISED THE ASSESSMENT ORDER UNDER SECTION 263 OF THE ACT. SUBS EQUENTLY, WHILE DECIDING ASSESSEES APPEAL AGAINST THE SAID 29 WNS GLOBAL SERVICES PVT. LTD. ORDER THE TRIBUNAL QUASHED THE ORDER PASSED UN DER SECTION 263 OF THE ACT AND RESTORED THE ASSESSMENT ORDER. THUS, IN EFFECT, ASSESSEES CLAIM OF DEPRECIATION IN RESPECT OF INTANGIBLE ASSE T BECAME FINAL. IN ANY CASE OF THE MATTER, THERE IS NO DISPUTE THAT BY ACQ UIRING M/S. TOWN AND COUNTRY ASSISTANCE LTD. THE ASSESSEE HAS ALSO ACQUI RED CONTRACTUAL RIGHTS WHICH, NO DOUBT, IS A VALUABLE COMMERCIAL RIGHT. TH EREFORE, IT COMES WITHIN THE MEANING OF INTANGIBLE ASSET AS PER SECTI ON 32(1)(II) R/W EXPLANATION 3(B) OF THE ACT. HENCE, DEPRECIATION CL AIMED BY THE ASSESSEE IS ALLOWABLE. THE DECISIONS RELIED UPON BY THE LEAR NED SR. COUNSEL FOR THE WNS GLOBAL SERVICES PRIVATE LIMITED 28 ASSESSEE ALSO SUPPORTS OUR AFORESAID VIEW. ACCORDIN GLY, WE UPHOLD THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) BY D ISMISSING THE GROUNDS RAISED. RESPECTFULLY, FOLLOWING THE SAID ORDER, WE SET ASID E THE ORDER OF THE DRP AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 36. THE GRIEVANCE OF THE ASSESSEE IN GROUND NO.8 IS WITH REGARD TO THE AO/DRP FOLLOWING INCONSISTENT APPROACH AND HOLDING THAT TH E PROFITS DERIVED BY ELIGIBLE STP UNITS (U/S. 10A OF THE ACT) TO BE COMPUTED WITHOUT CONSIDERING THE GAIN FROM FOREX DERIVATIVE CONTRACTS. 37. THE FACTS IN BRIEF ARE THAT THE ASSESSEE HAS EN TERED INTO FOREIGN EXCHANGE FORWARD AND OPTION CONTRACTS TO COVER THE RISKS ASS OCIATED WITH THE CHANGE IN FOREIGN EXCHANGE RATES ON FORECASTED REVENUE DOMINA TED IN FOREIGN CURRENCIES AND ON REVALUATION OF MONETARY ASSETS AND LIABILITIES. THE PROFIT AND LOSS ARISING OUT OF THE FOREIGN CURRENCY FORWARD AND OPTION CONTRACTS W AS RECOGNIZED IN THE YEAR IN WHICH SETTLEMENT TOOK PLACE. DURING A.Y 2011-12, A N AMOUNT OF RS 63,50,36,264/- REPRESENTING NET REALISED FOREIGN CURRENCY EXCHANGE GAINS ON SETTLEMENT OF DERIVATIVE CONTRACTS WAS OFFERED TO TAX WHILE COMPU TING THE INCOME FROM BUSINESS OR PROFESSION NOT ELIGIBLE FOR DEDUCTION U/S. 10A OF T HE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THAT PROFITS DE RIVED FROM ELIGIBLE UNITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 10A OF THE ACT SHOULD NOT BE COMPUTED AFTER CONSIDERING LOSS/GAIN FROM FOREX DERIVATIVE CONTRAC TS. HOWEVER, THE AO CAME TO THE CONCLUSION THAT LOSS/GAIN FROM FOREX DERIVATIVE CON TRACTS FORMED PART OF EXPORT ACTIVITY. THE AO IN A.Y. 2009-10, 10-11 AND 2012-1 3 HAS HELD THAT LOSS/GAIN FROM FOREX DERIVATIVE CONTRACT FORM PART OF THE EXPORT A CTIVITY. HOWEVER, DURING THE YEAR UNDER CONSIDERATION THE AO HAS NOT APPORTIONED THE FOREIGN CURRENCY EXCHANGE GAIN WHILE COMPUTING DEDUCTION U/S. 10A OF THE ACT IN LI NE WITH THE POSITION ADOPTED BY HIM IN EARLIER YEARS DESPITE THERE BEING NO CHANGE IN FACTS AND LAW. SIMILARLY, THE LEARNED DRP WAS ALSO OF THE VIEW THAT THE FOREIGN E XCHANGE GAIN IS NOT DIRECTLY GENERATED OR DERIVED FROM EXPORT ACTIVITY AND RESUL TS FROM A POST EXPORT ACTIVITY AFTER THE PAYMENT HAS BEEN RECEIVED AND AS SUCH GAI N CANNOT BE CONSIDERED AS PROFIT DERIVED BY THE ASSESSEE FROM EXPORT OF GOODS . THE OBSERVATIONS OF THE DRP ARE AS UNDER: WNS GLOBAL SERVICES PRIVATE LIMITED 29 16.1 ON THIS ISSUE, THE DRP IS OF THE VIEW THAT TH E FOREIGN EXCHANGE GAIN IS NOT DIRECTLY GENERATED OR DERIVED FROM THE EXPOR T ACTIVITY AND RESULTS FROM A POST EXPORT ACTIVITY AFTER THE PAYMENT HAS B EEN RECEIVED. IN THESE FACTS, SUCH GAIN CANNOT BE CONSIDERED AS PROFIT DER IVED BY THE ASSESSES FROM THE EXPORT OF GOODS. RELIANCE IN THIS REGARD, IS PLACED ON THE JUDGMENT OF CIT VS. SHAH ORIGINALS 327 ITR 19 (BOM) , WHEREIN IT WAS HELD THAT EXCHANGE FLUCTUATION IN THE EEFC ACCOUNT AS WELL AS THE INTEREST WHICH HAS ARISEN AS A RESULT OF THE DEPOSITS MAINTA INED IN THE EEFC ACCOUNT, CANNOT BE REGARDED AS BEING PART OF THE PR OFITS DERIVED BY THE ASSESSES FROM THE EXPORT OF GOODS OR MERCHANDISE, T HEREFORE, CANNOT BE INCLUDED IN THE PROFIT OF BUSINESS, WHILE CALCULATI NG DEDUCTION UNDER S. 80HHC, THE RELEVANT PORTION OF THE JUDGMENT IS REPR ODUCED BELOW:- '11, THE ASSESSEE ADMITTEDLY IN THE PRESENT CASE RE CEIVED THE ENTIRE PROCEEDS OF THE EXPORT TRANSACTION. THE RBL HAS GRANTED A FACILITY TO CERTAIN CATEGORIES OF EXPORTERS TO MAIN TAIN A CERTAIN PROPORTION OF THE EXPORT PROCEEDS IN AN EEFC ACCOUN T. THE PROCEEDS OF THE ACCOUNT ARE TO BE UTILIZED FOR BONA FIDE PAYMENTS BY THE ACCOUNT HOLDER SUBJECT TO THE LIMITS AND THE CONDITIONS PRESCRIBED. AN ASSESSES WHO IS AN EXPORTER IS NOT U NDER AN OBLIGATION OF LAW TO MAINTAIN THE EXPORT PROCEEDS I N THE EEFC ACCOUNT BUT, THIS IS A FACILITY WHICH IS MADE AVAIL ABLE BY THE RESERVE BANK. THE TRANSACTION OF EXPORT IS COMPLETE IN ALL RESPECTS UPON THE REPATRIATION OF THE PROCEEDS. IT LIES WITHIN THE DISCRETION OF THE EXPORTER AS TO WHETHER THE EXPORT PROCEEDS SHOULD BE RECEIVED IN A RUPEE EQUIVALENT IN THE ENT IRELY OR WHETHER A PORTION SHOULD BE MAINTAINED IN CONVERTIB LE FOREIGN EXCHANGE IN THE EEFC ACCOUNT. THE EXCHANGE FLUCTUAT ION THAT ARISES, IT MUST BE EMPHASIZED, IS AFTER THE EXPORT TRANSACTION IS COMPLETE AND PAYMENT HAS BEEN RECEIVED BY THE EXPOR TER. UPON THE COMPLETION OF THE EXPORT TRANSACTION, -WHAT THE SELLER DOES WITH THE PROCEEDS, UPON REPATRIATION, IS A MATTER O F HIS OPTION. THE EXCHANGE FLUCTUATION IN THE EEFC ACCOUNT ARISES AFTER THE COMPLETION OF THE EXPORT ACTIVITY AND DOES NOT BEAR A PROXIMATE AND DIRECT NEXUS WITH THE EXPORT TRANSACTION SO AS TO FALL WITHIN THE EXPRESSION 'DERIVED* BY THE ASSESSES IN SUB-S. (1) OF S. 80HHC. BOTH THE AO AND THE CIT(A) HAVE MADE A DISTI NCTION, WHICH MERITS EMPHASIS. THE EXCHANGE FLUCTUATION, AS BOTH THOSE AUTHORITIES NOTED, AROSE SUBSEQUENT TO THE TRANSACT ION OF EXPORT. IN OTHER WORDS, THE EXCHANGE FLUCTUATION WAS NOT ON ACCOUNT OF A DELAYED REALIZATION OF EXPORT PROCEEDS. THE DEPOSIT OF THE RECEIPTS IN THE EEFC ACCOUNT AND THE EXCHANGE FLUCT UATION WHICH HAS ARISEN THEREFROM CANNOT BE REGARDED AS BEING PA RT OF THE PROFITS DERIVED BY THE ASSESSEE FROM THE EXPORT OF GOODS OR MERCHANDISE. WNS GLOBAL SERVICES PRIVATE LIMITED 30 12. THE INTEREST WHICH HAS ARISEN AS A RESULT OF TH E DEPOSITS MAINTAINED IN THE EEFC ACCOUNT CAN SIMILARLY NOT BE REGARDED AS REPRESENTING THE BUSINESS INCOME OF THE ASSESSES. T HE BUSINESS OF THE ASSESSEE CONSISTS OF THE MANUFACTURE AND EXP ORT OF GARMENTS. THE INTEREST INCOME WHICH WAS GENERATED F ROM THE DEPOSITS HELD IN THE EEFC ACCOUNT WOULD NOT FALL FO R CLASSIFICATION AS INCOME UNDER THE HEAD OF BUSINESS AND PROFESSION BUT, WOULD FALL FOR CLASSIFICATION AS INCOME FROM OTHER SOURCE S. UNDOUBTEDLY, AS COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBM ITS, IN DETERMINING UNDER WHICH HEAD INCOME WOULD FALL, THE COURT MUST BE GUIDED BY THE PRINCIPLE LAID DOWN BY THE SUPREME COURT IN NALINIKANT AMBALAL MODY VS. S.A.L. NARAYAN ROW, CIT (1966) 61 JTR 428 (SQ. THE SUPREME COURT HELD THAT 'WHETHER A N INCOME FALLS UNDER ONE HEAD OR ANOTHER HAS TO BE DECIDED A CCORDING TO THE COMMON NOTIONS OF PRACTICAL MAN, FOR THE ACT DO ES NOT PROVIDE ANY GUIDANCE IN THE MATTER'. THE INTEREST W HICH ACCRUED TO THE ASSESSEE ON THE DEPOSITS HELD IN THE EEFC AC COUNT CANNOT BE TREATED AS BUSINESS INCOME, ' 16.2 RELIANCE IN THIS REGARD IS ALSO PLACED, ON THE FOLLOWING JUDGMENTS OF THE HON'BLE SUPREME COURT: - (A) CAMBAY ELECTRIC SUPPLY CO. VS. CIT I 13 ITR 84 (SC) (B) CIT VS. STERLING FOODS [1999] 237 ITR 579 (SC) (C) PANDIAN CHEMICALS LTD. 262 ITR 278 (SC) 16.3 ALSO RELIANCE IS PLACED ON THE JUDGMENT OF HON 'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. EASTERN SEA FOODS EXPO RTS P. LTD. 215 ITR 64 (MAD.) FURTHER, RELIANCE IS ALSO PLACED ON THE JUDG MENT OF HON'BLE MADRAS HIGH COURT IN THE CASE OF INDIA CEMENT INTERNATIONA L VS. ITO [2009], 185 TAXMAN 51 (MAD.)., WHICH HAS BEEN FOLLOWED BY HON'B LE ITAT MUMBAI IN THE CASE OF LARSEN & TUBRO INFOTECH LIMITED VS DCIT (2012) 19 ITR(TRIB) 361 (MUM 'G' BENCH). 16.4 ON THE SAME ISSUE, THE HON'BLE MUMBAI ITAT IN THE CASE OF LIONBRIDGE TECHNOLOGIES P LTD VS ACIT IN ITA NO. 19 52/MUM/ 2010 HAS DECIDED IN FAVOUR OF THE REVENUE. IN VIEW OF THESE FACTS, THE DRP IS OF THE VIEW THAT NO DIRECTION NEEDS TO BE ISSUED ON TH IS ISSUE. 16.5 FURTHER, THE DRP HAS NOTED THAT THE AO HAS NOT MADE ANY VARIATION TO THE RETURNED INCOME ON THIS ISSUE. ON THE CLAIM OF THE ASSESSES COMPANY THAT THE PRINCIPLE OF CONSISTENCY SHOULD HA VE BEEN FOLLOWED BY THE AO, THE DRP HAS NOTED THAT SUCH A CLAIM HAS NOT BEEN ACCEPTED BY THE ASSESSEE COMPANY IN THE EARLIER YEAR AND IS BEI NG CONTESTED. EVEN LEGALLY, IN THE CASE OF GOETZE (INDIA) LTD. (284 IT R 323), THE HON'BLE SUPREME COURT HAS HELD THAT THE ASSESSING OFFICER C ANNOT ENTERTAIN ANY CLAIM FOR ALLOWING DEDUCTION RESULTING IN A REDUCTI ON IN THE TOTAL INCOME RETURNED, WHICH IS NOT CLAIMED IN THE ORIGINAL RETU RN OR A REVISED RETURN. ACCORDINGLY, NO DIRECTIONS ARE GIVEN TO THE AO/ TPO ON THIS ISSUE. WNS GLOBAL SERVICES PRIVATE LIMITED 31 38. THE LEARNED AR VEHEMENTLY SUBMITTED BEFORE TH E BENCH THAT THE AO HAS ERRED IN ADOPTED DIFFERENT POSITIONS WITH REGARD TO THE ISSUE OF WHETHER PROFITS DERIVED FROM ELIGIBLE UNITS SHOULD BE COMPUTED AFTE R CONSIDERING THE LOSS/GAIN FROM FOREX DERIVATIVE CONTRACTS AND SHOULD BE CONSISTED WITH THE POSITION WITH THE POSITION ADOPTED FOR THE EARLIER ASSESSMENT YEARS. IN DEFENCE, THE LEARNED AR RELIED ON THE FOLLOWING DECISIONS: RADHASOAMI SATSANG VS. CIT [1992] 193 ITR 321 (SC); CIT VS. DARIUS PANDOLE [2011] 330 ITR 485 (BOM) THE LEARNED AR SUBMITTED THAT IN VIEW OF THE RATIO LAID DOWN IN THE ABOVE TWO DECISIONS, THE AO WAS REQUIRED TO ADOPT A CONSISTEN T POSITION THAT LOSS/GAIN FROM FOREX DERIVATIVE CONTRACTS FORM PART OF THE EXPORT ACTIVITY OF THE ASSESSEE AND PRAYED BEFORE THE BENCH THAT THE NET FOREIGN EXCHAN GE GAIN OF RS 63,50,36,264/- MAY KINDLY BE DIRECTED TO BE TREATED AS PART OF THE PROFITS OF THE UNDERTAKING TO ARRIVE AT ELIGIBLE PROFIT U/S. 10A OF THE ACT AND S HOULD NOT BE SEPARATELY TAXED AS INCOME FROM BUSINESS AND PROFESSION NOT ELIGIBLE FO R DEDUCTION U/S. 10A OF THE ACT. THE LEARNED AR ALSO CITED FOLLOWING DECISIONS TO DE FEND THE POSITION OF THE ASSESSEE THAT GAIN/LOSS DERIVED FROM FORWARD CONTRACTS ENTER ED INTO BY THE ASSESSEE ENGAGED IN EXPORT ACTIVITY SHOULD BE ELIGIBLE FOR DEDUCTION :- CIT VS. GEM PLUS JEWELLER INDIA LTD. 330 ITR 175 PCIT VS. JINDAL DRUGS LTD. 101 TAXMANN.316 (BOM) CIT VS. SYMANTEE SOFTWARE INDIA (P) LTD. (BOM) IN VIEW OF THE ABOVE, THE LEARNED AR PRAYED THAT TH E AOS APPROACH IN ASSESSEES OWN CASE FOR A.YS. 2009-10, 2010-11 AND 2012-13 AND AS HAS BEEN HELD IN THE ABOVE JUDGMENTS BY THE HONBLE BOMBAY HIGH COURT, T HE AO BE DIRECTED TO FOLLOW CONSISTENCY AND FOREX GAIN ON FORWARD CONTRACTS BE CONSIDERED FOR COMPUTATION OF DEDUCTION U/S. 10A/10AA OF THE ACT. 39. THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E ORDERS OF THE AO AND LEARNED DRP. HE SUBMITTED THAT SINCE SUCH A HUGE G AIN IS DERIVED FROM THE ACTIVITIES WHICH ARE POST EXPORT THEREFORE, THEY SH OULD NOT BE ALLOWED TO FORM PART OF THE PROFIT DERIVED FROM EXPORT ACTIVITY FOR THE PURPOSE OF DEDUCTION U/S. 10A OF WNS GLOBAL SERVICES PRIVATE LIMITED 32 THE ACT. ON THE ISSUE OF CONSISTENCY, THE AO SUBMI TTED THAT YEAR IS DIFFERENT AND THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE IN THE INCOME-TAX PROCEEDINGS. 40. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE OBSERVE THAT DURING THE YEAR THE ASSESSEE HAS MA DE NET FOREIGN EXCHANGE GAIN OF RS 63,50,36,264/- ON SETTLEMENT OF DERIVATIVE CO NTRACTS, WHICH WERE ENTERED INTO BY THE ASSESSEE. WE FIND THAT THE AO FOR A.Y. 2009 -10, 2010-11 AND 2012-13, IN THE ASSESSEES OWN CASE, HAS TREATED PROFIT/LOSS FR OM FOREX DERIVATIVE CONTRACTS AS PART OF THE EXPORT ACTIVITY FOR DEDUCTION U/S. 10A OF THE ACT. HOWEVER, DURING THE YEAR, THE AO TREATED THE SAID GAIN DIFFERENTLY. IN OTHER WORDS, WHILE COMPUTING DEDUCTION U/S. 10A, THE AO DID NOT TREAT THE SAID G AIN AS PART OF THE PROFIT FROM EXPORT ACTIVITY FOR THE PURPOSE OF DEDUCTION U/S. 10A. HOWEVER, DURING THE YEAR THE AO TREATED THE SAID GAIN DIFFERENTLY. IN OTHER WOR DS, WHILE COMPUTING DEDUCTION U/S. 10A, THE AO DID NOT TREAT THE SAID GAIN AS PAR T OF THE EXPORT ACTIVITY FOR THE PURPOSE OF DEDUCTION U/S. 10A OF THE ACT. APPARENT LY, THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES DURING THE YEAR, WE ARE QUI ET IN AGREEMENT WITH CONTENTIONS OF THE LEARNED AR THAT THE PRINCIPLE OF CONSISTENCY SHOULD BE FOLLOWED AND FOREX GAIN SHOULD BE TREATED AS PROFIT FROM EXP ORT ACTIVITY AND DEDUCTION SHOULD BE ALLOWED U/S. 10A OF THE ACT. THE CASE OF THE AS SESSEE IS SUPPORTED BY THE DECISION OF THE APEX COURT IN THE CASE OF RADHASOAM I SATSANG VS. CIT (SUPRA), WHEREIN THE HONBLE COURT HAS HELD THAT WHILE DEALI NG WITH THE PRINCIPLE OF CONSISTENCY AND PRINCIPLE OF RES JUDICATA, UNLESS T HERE IS A MATERIAL CHANGE JUSTIFYING TO TAKE A DIFFERENT VIEW IN THE MATTER, SHALL NOT B E APPROPRIATE FOR THE REVENUE TO TAKE A CONTRARY VIEW. SIMILARLY, HONBLE BOMBAY HI GH COURT IN THE CASE OF CIT VS. DARIUS PANDOLE (SUPRA), HAS HELD AS UNDER: ' THE TRIBUNAL, WHILE DECIDING THE APPEAL FOR THE ASS ESSMENT YEAR 2003-04 HAS OBSERVED THAT THERE WAS NO CHANGE IN THE SET OF FACTS AND CIRCUMSTANCES AS THEY OBTAINED FOR THE ASSESSMENT Y EARS 1997-98 AND 2002-03. THE TRIBUNAL WAS CORRECT IN HOLDING THAT T HERE WAS DUE APPLICATION OF MIND BY THE ASSESSING OFFICER TO THE VERY SAME ISSUE DURING THE COURSE OF THE EARLIER TWO ASSESSMENT YEA RS AND THAT THE ASSESSMENTS WERE FINALIZED AFTER CONSIDERING THE RE PLY FILED BY THE ASSESSES SPECIFICALLY TO THE QUERY RAISED BY THE AS SESSING OFFICER. IN THE CIRCUMSTANCES, THE TRIBUNAL WAS, IN OUR VIEW, JUSTI FIED IN FOLLOWING THE DECISION OF THE SUPREME COURT IN RADHASOAMI SATSANG V. CIT [1992] 193ITR 321 (SC). WHILE THE PRINCIPLE OFRESJUDICATA COULD NOT AS AN WNS GLOBAL SERVICES PRIVATE LIMITED 33 ABSTRACT PRINCIPLE APPLY TO ASSESSMENT PROCEEDINGS SINCE EACH YEAR OF ASSESSMENT HAS TO BE CONSIDERED SEPARATELY, YET WHE N A FUNDAMENTAL ASPECT WAS DULY CONSIDERED AFTER A QUERY WAS RAISED BY THE ASSESSING OFFICER AND WAS ANSWERED BY THE ASSESSEE ON THE SAM E FACTS, A CHANGE IN VIEW, WAS EVIDENTLY NOT WARRANTED FOR THE ASSESS MENT YEAR IN QUESTION. SO CONSTRUED, WE DO NOT FIND THAT THE DECISION OF T HE TRIBUNAL WILL GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. 41. IN VIEW OF THE AFORESAID FACTS AND THE RATIO LA ID DOWN BY THE HONBLE BOMBAY HIGH COURT, WE ARE OF THE VIEW THAT THE FOREX GAIN RESULTING FROM THE SETTLEMENT OF DERIVATIVE CONTRACT IS PART OF THE PROFIT FROM EXPO RT ACTIVITY AND ELIGIBLE FOR DEDUCTION U/S. 10A. BESIDES, HONBLE BOMBAY HIGH COURT HAS H ELD IN A SERIES OF DECISIONS REFERRED TO BY LEARNED COUNSEL FOR THE ASSESSEE NAM ELY CIT VS. GEM PLUS JEWELLERY INDIA LTD., PCIT VS. JINDAL DRUGS LTD. AND CIT VS. SYMANTEC SOFTWARE (P) LTD. , THAT LOSS OR GAIN DERIVED FROM FORWARD CONTRACTS ENTERED INTO BY AN ASSESSEE ENGAGED IN EXPORT ACTIVITY SHOULD BE ELIGIBLE FOR DEDUCTION. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE DRP ON THIS ISSUE AND DIRECT THE AO TO TREAT THE FOREX GAIN AS PART OF THE PROFIT FOR DEDUCTION U/S. 10A OF THE ACT. GROUND RAISED BY THE ASSESSEE IS ALLOWED. 42. THE GRIEVANCE OF THE ASSESSEE IN GROUND NO.9 IS THAT THE AO DID NOT SET OFF BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPR ECIATION PERTAINING TO EARLIER YEARS TO THE TUNE OF RS. 189,06,58,168/- AGAINST TH E ASSESSED TOTAL INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND CARRY FORWA RD OF THE BALANCE BUSINESS LOSS AND UNABSORBED DEPRECIATION TO FUTURE YEARS AS PER THE PROVISIONS OF THE ACT. 43. AFTER HEARING THE PARTIES AND ON PERUSAL OF THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE LEARNED DRP HAS DIRECTED THE ASSES SING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE REGARDING THE BUSINESS AND DEPRECIA TION LOSS AND ALLOW THE SAME TO THE EXTENT AVAILABLE AS PER LAW. HOWEVER, THE ASSE SSING OFFICER HAS NOT GIVEN EFFECT TO THE ORDER OF THE DRP. WE DIRECT THE ASSESSING O FFICER TO GIVE EFFECT TO THE ORDER OF THE DRP AND AFTER VERIFYING THE CLAIM OF THE ASS ESSEE, ALLOW THE SAME TO THE EXTENT AVAILABLE IN TERMS OF THE DIRECTIONS OF DRP. THIS GROUND IS ALLOWED. 44. GROUND NO.10 IS PREMATURE AND, HENCE, DISMISSED . APPEAL IS PARTLY ALLOWED. WNS GLOBAL SERVICES PRIVATE LIMITED 34 45. WE SHALL NOW TAKE UP THE APPEAL IN ITA NO. 2257 /MUM/2017 FOR A.Y. 2012- 13, WHEREIN FOLLOWING GROUNDS HAVE BEEN RAISED: GENERAL GROUND 1. ERRED IN DETERMINING THE TOTAL TAXABLE I NCOME OF THE APPELLANT FOR AY 2012-13 AT RS 216,45,38,415 INSTEAD OF THE INCOM E OFFERED BY THE APPELLANT FOR THE SUBJECT AY IN ITS INCOME-TAX RETU RN OF RS. NIL TRANSFER PRICING GROUNDS 2. ERRED IN NOT PROVIDING ADEQUATE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE PRIOR TO INCORPORATING A DISALLOWANCE OF DEPRECIATION OF RS 42,98,30,119 IN HIS ORDER PASSED FOR THE YEAR UNDER CONSIDERATION. THEREFORE, THE LEARNED HON'BLE DRP/ LEARNED TPO HAS VIOLATED THE PRINCIPLES OF NATURAL JUSTICE AND THE IMPUGNED ORDE R PASSED BY THE LEARNED HON'BLE DRP/ LEARNED TPO SHOULD BE QUASHED. 3. ERRED IN INCORPORATING A DISALLOWANCE OF DEPRECIATION IN HIS ORDER PASSED FOR THE YEAR UNDER CONSIDERATION BASED ON AN ADJUSTMENT PROPOSED TO TH E VALUE OF BUSINESS AND COMMERCIAL RIGHTS PURCHASED BY THE ASSESSEE FRO M ITS ASSOCIATED ENTERPRISE IN AY 2011-12, WHICH HAS BEEN CAPITALIZE D IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 4. ERRED IN PROPOSING A DISALLOWANCE OF DEP RECIATION IN HIS ORDER PASSED FOR THE YEAR UNDER CONSIDERATION WHICH IS A CONSEQUENCE OF THE ADJUSTMENT PROPOSED BY THE LEARNED TPO'S PREDECESSO R TO THE VALUATION OF BUSINESS AND COMMERCIAL RIGHTS PURCHASED BY THE ASSESSEE FROM ITS ASSOCIATED ENTERPRISE IN AY 2011-12 WITHOUT APPRECI ATING THAT DISALLOWANCE OF DEPRECIATION, IF ANY, DOES NOT FALL WITHIN CHAPTER X OF THE ACT. NON TRANSFER PRICING GROUNDS 5. ERRED IN DISALLOWING DEPRECIATION AMOUNT ING TO RS 45,85,659 ON INTANGIBLE ASSETS ACQUIRED FROM WNS GLOBAL SERVICES (UK) LIMITED BY THE APPELLANT CONTENDING THAT THE RIGHTS ACQUIRED BY TH E APPELLANT ON ACQUISITION OF CUSTOMER CONTRACTS DO NOT FALL UNDER THE DEFINITION OF INTANGIBLE ASSETS UNDER SECTION 32(1) OF THE ACT. 6. ERRED IN ENHANCING THE DISALLOWANCE OF DEPRECIAT ION AMOUNTING TO RS 122,90,43,750 ON INTANGIBLE ASSETS ACQUIRED FROM WNS CAPITAL INVESTMENTS PRIVATE LIMITED, MAURITIUS BY THE APPEL LANT CONTENDING THAT THE BUSINESS RIGHTS ACQUIRED BY THE APPELLANT DO NO T FALL UNDER THE DEFINITION OF INTANGIBLE ASSETS UNDER SECTION 32(1) OF THE ACT. 7. (A) THE LEARNED AO/HON'BLE DRP ERRED IN HOLDIN G THAT THE LOSS FROM FOREX DERIVATIVE CONTRACTS FORM PART OF THE EX PORT ACTIVITY OF THE WNS GLOBAL SERVICES PRIVATE LIMITED 35 APPELLANT AND THUS THE PROFITS DERIVED FROM ELIGIBL E UNITS SHOULD BE COMPUTED AFTER CONSIDERING THE LOSS FROM FOREX DERI VATIVE CONTRACTS. (B) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D WITHOUT PREJUDICE TO THE POSITION ADOPTED BY THE APPELLANT IN THE TAX RE TURN, THE LEARNED AO/HON'BLE DRP ERRED IN ADOPTING INCONSISTENT APPRO ACH BY NOT FOLLOWING THEIR RESPECTIVE ORDERS FOR AY 2011-12 WHEREIN IT W AS HELD THAT THE PROFITS DERIVED BY ELIGIBLE STP UNITS (UNDER SECTION 10A OF THE ACT) SHOULD BE COMPUTED WITHOUT CONSIDERING THE GAIN FROM FOREX DE RIVATIVE CONTRACTS. (C) WITHOUT PREJUDICE TO THE POSITION ADOPTED BY TH E APPELLANT IN THE TAX RETURN, THE LEARNED AO/HON'BLE DRP ERRED IN NOT APP ORTIONING THE FOREIGN EXCHANGE LOSS BETWEEN THE STP AND SEZ UNITS OF THE APPELLANT, THOUGH THE FOREIGN EXCHANGE LOSS CAN BE SAID TO BE ATTRIBU TABLE TO EXPORT ACTIVITY CARRIED FROM STP AND SEZ UNITS. 8. (A) THE LEARNED AO/HON'BLE DRP ERRED IN MAKING A DISALLOWANCE OF RS 2,63,20,568 UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. (B) THE LEARNED AO ERRED IN MAKING A DISALLOWANCE UNDER SECTION 14A OF THE ACT WITHOUT GIVING AN OPPORTUNITY OF BEING HEAR D TO THE APPELLANT TO EXPLAIN THE NATURE OF SUO MOTO DISALLOWANCE OF EXPE NSES IN DETAIL, THEREBY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE . (C) WITHOUT PREJUDICE TO THE ABOVE GROUND 8 (B), T HE LEARNED AO/HON'BLE DRP ERRED IN INVOKING THE PROVISIONS OF SECTION 14A (2) READ WITH RULE 8D OF THE RULES, WITHOUT APPRECIATING THE FACT THAT TH E APPELLANT HAS SUO MOTO DISALLOWED RS 7,53,750 UNDER SECTION 14A OF TH E ACT. (D) WITHOUT PREJUDICE TO ALL THE ABOVE GROUNDS, T HE LEARNED AO/HON'BLE DRP ERRED IN IMPUTING DISALLOWANCE UNDER RULE 8D(2) (II) OF THE RULES WITHOUT APPRECIATING THE FACT THAT THE BORROWED FUN DS HAVE BEEN USED FOR SPECIFIC PURPOSES FOR WHICH THEY HAVE BEEN BORROWED AND NOT BEEN UTILISED FOR INVESTMENT IN MUTUAL FUNDS. (E) WITHOUT PREJUDICE TO ALL THE ABOVE GROUNDS, T HE LEARNED AO/HON'BLE DRP HAS ERRED IN ADDING THE AMOUNT OF ALLEGED DISAL LOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE RULES IN THE C OMPUTATION OF'BOOK PROFITS' UNDER SECTION 115JB OF THE ACT. 9. THE LEARNED AO ERRED IN NOT SETTING OFF BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION PERTAINING TO EA RLIER YEARS TO THE TUNE OF RS. 142,46,11,016 (AS PER THE RETURN OF INCOME) AGAINST THE ASSESSED TOTAL INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDER ATION AS PER THE PROVISIONS OF THE ACT. WNS GLOBAL SERVICES PRIVATE LIMITED 36 10. THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT. GROUND NO.1 IS GENERAL IN NATURE AND NEEDS NO ADJU DICATION. ACCORDINGLY, IT IS DISMISSED. 46. GROUND NOS. 2 TO 4 IS WITH REGARD TO THE DISALL OWANCE OF DEPRECIATION OF RS 42,98,30,119/- ON THE ACQUISITION OF MSA FROM FOREI GN AE WCIL. SINCE FOR A.Y. 2011-12 WE HAVE ALREADY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING THAT THE PRICE PAID BY THE ASSESSEE TO FOREIGN AE ON ACC OUNT OF PURCHASE OF MSA IS AT ARMS LENGTH PRICE AND IS A COMMERCIAL RIGHT. SINCE THIS IS A INTANGIBLE ASSETS BEING COMMERCIAL RIGHTS WITHIN THE MEANING OF SECTION 32( 1)(II) OF THE ACT AND ELIGIBLE FOR DEPRECIATION. ACCORDINGLY , WE HOLD THAT DEPRECIATI ON IS TO BE ALLOWED TO ASSESSEE. THE AO IS DIRECTED ACCORDINGLY BY SETTING ASIDE THE ORDER OF DRP ON THIS ISSUE. 47. GROUND NOS. 5 AND 6 PERTAIN TO DISALLOWANCE OF DEPRECIATION ON INTANGIBLE ASSETS AMOUNTING TO RS 1,23,36,29,409/-. DURING TH E YEAR THE ASSESSEE HAS CLAIMED DEPRECIATION ON TWO COMMERCIAL RIGHTS. ONE, THE RIG HTS ACQUIRED BY THE ASSESSEE OF TOWN & COUNTRY ASSISTANCE LIMITED , AN UK BASED COM PANY, FROM WNS GLOBAL SERVICES (UK) PVT LTD [WNS UK] VIDE AGREEMENT DATED 13.01.2004 FOR CONSIDERATION OF GBP 17,50,000. SECONDLY, BUSINESS AND COMMERCIA L RIGHTS WERE ACQUIRED BY WNS INDIA FROM WNS CAPITAL INVESTMENT LIMITED [WCIL] IN RESPECT OF MSA ENTERED INTO BETWEEN WCIL AND AVIVAL GLOBAL SERVICES PRIVATE LIM ITED (AVIVA SINGAPORE). THE ASSESSEE HAS CLAIMED DEPRECIATION @25% ON SAME ON W RITTEN DOWN VALUE BASIS AMOUNTING TO RS 45,85,659/- IN RELATION TO THE COMM ERCIAL RIGHTS ACQUIRED FROM WNS UK AND RS 1,22,90,43,750/- QUA THE COMMERCIAL R IGHTS ACQUIRED FROM WCIL IN TERMS OF SECTION 32(1)(II) OF THE ACT AND ACCORDING LY, ADDED THE SAME TO THE INCOME OF THE ASSESSEE. AT THE OUTSET, THE LEARNED COUNSE L FOR THE ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IN THESE GROUNDS IS COVERED BY T HE ORDER OF THE TRIBUNAL IN ITS OWN CASE FOR A.YS. 2005-06 AND 2008-09. THERE BEIN G NO MATERIAL CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE YEAR UND ER CONSIDERATION, DEPRECIATION MAY KINDLY BE ALLOWED ON BUSINESS/COMMERCIAL RIGHTS . 48. WE HAVE HEARD THE PARTIES AND PERUSED MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ISSUE INVOLVED IN THESE GROUNDS IS COVERED IN FAVOUR OF THE ASSESSEE BY THE WNS GLOBAL SERVICES PRIVATE LIMITED 37 ORDER OF THE TRIBUNAL FOR A.YS. 2005-06 AND 2008-09 , WHEREIN IT HAS BEEN HELD AS UNDER: 'WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED M ATERIALS ON RECORD. INSOFAR AS FACTUAL ASPECT OF THE ISSUE IS CONCERNED , THERE IS NO DISPUTE THAT BY VIRTUE OF ACQUISITION OF M/S. TOWN AND COUN TRY ASSISTANCE LTD., VARIOUS CONTRACTS EXECUTED BY THE SAID CONCERN WITH THIRD PARTY CLIENTS WERE ASSIGNED TO THE ASSESSEE. IT IS ALSO A FACT TH AT SUCH ACQUISITION TOOK PLACE BY VIRTUE OF AN AGREEMENT EXECUTED ON 13TH JA NUARY 2004. IT IS ALSO A FACT ON RECORD THAT IN ASSESSMENT YEAR 2004- 05, THE ASSESSEE FOR THE FIRST TIME CLAIMED DEPRECIATION BY TREATING THE CAPITALIZED VALUE OF THE AMOUNT PAID TOWARDS ACQUIRING M/S. TOWN AND COUNTRY ASSISTANCE LTD., AS AN INTANGIBLE ASSET AND CLAIMED DEPRECIATION @ 2 5%. NOTABLY, THE ASSESSING OFFICER WHILE COMPLETING ASSESSMENT UNDER SECTION 143(3) OF THE ACT ALSO ALLOWED ASSESSEE'S CLAIM OF DEPRECIATI ON. HOWEVER, LEARNED COMMISSIONER OF INCOME TAX REVISED THE ASSESSMENT O RDER UNDER SECTION 263 OF THE ACT. SUBSEQUENTLY, WHILE DECIDING ASSESS EE'S APPEAL AGAINST THE SAID ORDER THE TRIBUNAL QUASHED THE ORDER PASSE D UNDER SECTION 263 OF THE ACT AND RESTORED THE ASSESSMENT ORDER. THUS, IN EFFECT, ASSESSEE'S CLAIM OF DEPRECIATION IN RESPECT OF INTANGIBLE ASSE T BECAME FINAL. IN ANY CASE OF THE MATTER, THERE IS NO DISPUTE THAT BY ACQ UIRING M/S. TOWN AND COUNTRY ASSISTANCE LTD. THE ASSESSEE HAS ALSO ACQUI RED CONTRACTUAL RIGHTS WHICH, NO DOUBT, IS A VALUABLE COMMERCIAL RIGHT. TH EREFORE, IT COMES WITHIN THE MEANING OF INTANGIBLE ASSET AS PER SECTI ON 32(L)(II) R/W EXPLANATION 3(B) OF THE ACT. HENCE, DEPRECIATION CL AIMED BY THE ASSESSEE IS ALLOWABLE. THE DECISIONS RELIED UPON BY THE LEAR NED SR. COUNSEL FOR THE ASSESSEE ALSO SUPPORTS OUR AFORESAID VIEW. ACCORDIN GLY, WE UPHOLD THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) BY DISMISSING THE GROUNDS RAISED.' FROM THE PERUSAL OF THE ABOVE, IT IS CLEAR THAT THE COMMERCIAL RIGHTS ACQUIRED BY THE ASSESSEE ARE IN THE NATURE OF INTANGIBLE ASSET AS P ER SECTION 32(1)(II) READ WITH EXPLANATION 3(B) OF THE ACT AND DEPRECIATION IS ALL OWABLE ON THE SAID RIGHTS. ACCORDINGLY, WE ALLOW THE GROUNDS RAISED BY THE ASS ESSEE. GROUNDS ARE ALLOWED. 49. THE ISSUE IN GROUND NO.7 IS IDENTICAL TO GROUND NO.8 AS DECIDED BY US IN THE APPEAL FOR A.Y. 2011-12 ABOVE. FACTS AND CIRCUMSTA NCES BEING SAME, OUR FINDING THEREIN WILL MUTATIS MUTANDIS APPLY FOR THIS YEAR A S WELL. THE AO IS DIRECTED TO TREAT THE LOSS/GAIN FROM FOREX DERIVATIVE CONTRACTS AS PA RT OF EXPORT ACTIVITY FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S. 10A OF THE ACT. ACCORDINGLY, LOSS INCURRED OF RS 41,64,19,647/- SHALL BE CONSIDERED WHILE COMP UTING DEDUCTION U/S. 10A OF THE ACT. GROUND IS ALLOWED. WNS GLOBAL SERVICES PRIVATE LIMITED 38 50. WITH REGARD TO GROUND NO.8, FACTS IN BRIEF ARE THAT DURING THE YEAR ASSESSEE EARNED DIVIDEND INCOME FROM MUTUAL FUNDS A MOUNTING TO RS 2,09,64,709/- WHICH WAS CLAIMED AS EXEMPT U/S. 10(35) OF THE ACT. THE ASSESSEE INCURRED DIRECT EXPENSES IN RELATION TO THE SAID INCOME AMOUNTING T O RS 7,53,750/- AND THE SAME WAS SUO MOTO DISALLOWED U/S. 14A OF THE ACT. THE S AID DISALLOWANCE WAS MADE IN CONSONANCE WITH THE REPORT OF THE TAX AUDITOR GIVEN IN FORM 3CD IN TERMS OF PROVISIONS OF SECTION 44AB OF THE ACT. THE ASSESS ING OFFICER IN THE DRAFT ASSESSMENT ORDER HAS OBSERVED THAT THE ASSESSEE HAS MADE HUGE INVESTMENT IN F Y 2011-12 AND THE SUO MOTO DISALLOWANCE MADE IS NOT A CCEPTABLE AS IT IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE RULES. THE ASSESSING OFFICER FURTHER HELD THAT DISALLOWANCE U/ S. 14A OF THE ACT SHOULD BE MADE WITHOUT ANY DISCRETION IN ACCORDANCE WITH THE MECHA NISM PROVIDED IN RULE 8D OF THE RULES. THE ORDER OF THE ASSESSING OFFICER WAS AFFIRMED BY THE DRP BY HOLDING THAT THE ASSESSING OFFICER HAS RECORDED HIS SATISFA CTION WITH RESPECT TO THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE AND, THUS, CONFIRMED THE ADDITION. 51. THE LEARNED AR SUBMITTED BEFORE THE BENCH THAT THE ORDER OF THE DRP IS WRONG IN AS MUCH AS HE FAILED TO APPRECIATE THE FAC T THAT THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION WITH RESPECT TO THE I NCORRECTNESS OF THE SUO MOTO DISALLOWANCE HAVING REGARD TO THE BOOKS OF ACCOUNT . HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER IS DUTY BOUND TO RECORD HIS DISSA TISFACTION AS TO HOW THE EXPENSES INCURRED BY THE ASSESSEE. ACCORDINGLY, THE LD COU NSEL SUBMITTED THAT THE DISALLOWANCE SUSTAINED BY THE DRP IS ERRONEOUS AND WRONG. THE LEARNED AR RELIED ON THE FOLLOWING DECISIONS GODREJ & BOYCE MANUFACTURING CO. LTD. [2010] 328 IT R 81 (BOM) MAXOPP INVESTMENT LTD. & ORS. VS. CIT [2011] 347 IT R 272 (DEL), WHICH WAS UPHELD BY THE HONBLE APEX COURT REPORTED IN 91 TAX MANN.COM 154 (SC) [2018] 51.1. WITHOUT PREJUDICE TO THE ARGUMENTS OF THE ASS ESSEE IN RELATION TO INVOKING OF RULE 8D, THE LEARNED AR SUBMITTED THAT INTEREST EXPENDITURE OF RS 55.38 CRORES WERE DIRECTLY ATTRIBUTABLE TO A PARTICULAR I NCOME/RECEIPT. THE LEARNED AR SUBMITTED THAT THE SAID INTEREST COMPRISED:- WNS GLOBAL SERVICES PRIVATE LIMITED 39 I) INTEREST ON COMPULSORILY CONVERTIBLE DEBENTURES OF RS 48.31 CRORES OF INTEREST; PROCEEDS THEREFORE WERE UTILISED FOR THE PURPOSE OF ACQUIRING CUSTOMER CONTRACT. II) BANK INTEREST OF RS 3.84 CRORES, PERTAINING TO PRE- SHIPMENT CREDIT IN FOREIGN CURRENCY FACILITY TAKEN FOR WORKING CAPITAL PURPOSES FROM BNP PARIBAS BANK/CITIBANK NA/OTHER BANKS AND WERE SPECI FICALLY USED FOR THE PURPOSE OF EXPORT BUSINESS AND MEET WORKING CAPITAL REQUIREMENTS. HENCE, THE INTEREST EXPENSES OF RS 3.84 CRORES SHOU LD NOT BE CONSIDERED FOR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER RUL E 8D(2)(II) OF THE RULES. III) INTEREST ON LOAN FROM RELATED PARTY OF RS 3.17 CROR ES: THE ASSESSEE HAD BORROWED FUNDS OF RS 22.55 CR FROM WNS BUSINESS CON SULTING PVT. LTD DURING THE MERGER PROCESS IN 2009 AND, THEREFORE, T HE INTEREST SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF COMPUTING DISALLOW ANCE UNDER RULE 8D(2)(II). IV) OTHER INTEREST OF RS.0.06 CRORES: THIS AMOUNT WAS O N ACCOUNT OF DELAYED PAYMENT OF TDS AND OTHER PAYMENTS AND, THEREFORE, T HEY CANNOT BE ATTRIBUTABLE TO ANY PARTICULAR SOURCE OF INCOME AND ALSO REQUIRED TO BE EXCLUDED WHILE COMPUTING DISALLOWANCE UNDER RULE 8D (2)(II) OF THE RULES. 51.2. FURTHER THE LEARNED AR RELIED ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF REI AGRO LTD. VS. DCIT 160 TTJ 107 (CAL ), WHEREIN THE BENCH HAS HELD THAT IF ANY INTEREST EXPENDITURE, WHICH IS DIRECTLY RELATABLE TO ANY PARTICULAR INCOME OR RECEIPT, SUCH RECEIPT EXPENDITURE IS NOT TO BE C ONSIDERED UNDER RULE 8D(2)(II). HE ALSO SUBMITTED THAT THE ASSESSEES OWN FUNDS WERE F AR MORE THAN THE INVESTMENTS MADE IN THE MUTUAL FUNDS BY REFERRING TO THE AUDITI ON ACCOUNTS, WHEREIN THE OWN FUNDS WERE RS 532.52 CRORES VIS--VIS TOTAL INVEST MENTS WERE RS 134.22 CRORES AS ON 31.03.2012. HE SUBMITTED THAT NO DISALLOWANCE I S CALLED FOR BY RELYING ON A SERIES OF DECISIONS VIZ. CIT VS. RELIANCE UTILITIES & POWER LTD. [2009] 313 ITR 340 (BOM); ULTRATECH CEMENT LTD. VS. ACIT [2017] 186 TT J 547; DAGA GLOBAL CHEMICALS PVT. LTD. VS. ACIT [2017] 46 ITR 70 (MUM) AND GUJAR AT FLUOROCHEMICALS LTD. VS. DCIT [2018] 97 TAXMANN.COM 10 (AHMEDABAD). WITHOUT PREJUDICE TO THE ABOVE WNS GLOBAL SERVICES PRIVATE LIMITED 40 SUBMISSIONS, THE LEARNED AR FURTHER SUBMITTED THAT THE DISALLOWANCE U/S. 14A READ WITH RULE 8D CANNOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE. HE ALSO SUBMITTED THAT THE DISALLOWANCE MADE U/S. 14A CANNO T BE EXTENDED TO THE BOOK PROFIT AS CALCULATED U/S. 115JB OF THE ACT AS IS AP PARENT FROM THE PROVISIONS OF SECTION 14A, WHICH CAN ONLY BE APPLIED FOR THE PURP OSE OF COMPUTING TOTAL INCOME UNDER CHAPTER IV OF THE ACT. THE LEARNED AR FURTH ER SUBMITTED THAT SECTION 115JB BY ITSELF IS A COMPLETE CODE AND NO ADJUSTMEN TS OTHER THAN THOSE PRESCRIBED IN THE SECTION CAN BE MADE TO THE BOOK PROFIT. 52. THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E ORDERS OF THE AUTHORITIES BELOW BY SUBMITTING THAT THE APPLICATION OF SECTION 14A RULE 8D IS MANDATORY FROM A.YS. 2007-08 AND, THUS, THE SAME HAS BEEN RIGHTLY BEEN AFFIRMED BY THE DRP. HE ALSO REFERRED TO THE ASSESSMENT ORDER AND POINTED T HAT THE ASSESSING OFFICER HAS CANDIDLY RECORDED HIS SATISFACTION THAT SUO MOTO DI SALLOWANCE IS INCORRECT AS THE SAME IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SE CTION 14A RULE 8D. 53. AFTER HEARING THE RIVAL PARTIES AND ON PERUSAL OF RECORD, WE OBSERVE THAT THE ASSESSING OFFICER HAS ONLY NOTED IN THE ASSESSM ENT ORDER THAT DISALLOWANCE OF RS 7,53,750/- IS NOT CORRECT AS THE SAME IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14A RULE 8D. A READING OF THE SAID ORDER R EVEALS THAT THE ASSESSING OFFICER HAS FAILED TO RECORD ANY SATISFACTION WITH RESPECT TO SUO MOTO DISALLOWANCE AND HOW THE DISALLOWANCE AS CALCULATED BY THE TAX AUDITOR I N THE TAX AUDIT REPORT IN FORM 3CB IN TERMS OF SECTION 44A OF THE ACT IS WRONG HAV ING REGARD TO THE BOOK OF ACCOUNTS. IN OUR VIEW, RECORDING OF SATISFACTION I S A PRE-REQUISITE UNDER THE PROVISIONS OF SECTION 14A(2) BEFORE INVOKING THE PR OVISIONS OF SECTION 14A RULE 8D, WHICH THE ASSESSING OFFICER HAS FAILED TO DO. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA), WHEREIN THE H ONBLE COURT HAS HELD THAT SATISFACTION OF THE ASSESSING OFFICER HAS TO BE OBJ ECTIVELY ARRIVED AT AFTER CONSIDERING ALL RELEVANT FACTS AND CIRCUMSTANCES AND BOOKS OF A CCOUNTS OF THE ASSESSEE. IN THE CASE OF MAXOPP INVESTMENT LTD. & ORS. VS. CIT (SUPR A), HONBLE DELHI HIGH COURT HAS HELD THAT PROVISIONS OF SECTION 14A RULE 8D WOU LD BE TRIGGERED ONLY IF ASSESSING OFFICER RECORDS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THIS DECISION HAS BEEN FURTHER UPHELD WNS GLOBAL SERVICES PRIVATE LIMITED 41 BY THE HONBLE APEX COURT IN 91 TAXMANN.COM 154 (20 18). WE, THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE A PEX COURT AND BOMBAY HIGH COURT AS DISCUSSED ABOVE , SET ASIDE THE ORDER OF THE DRP AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE. WE ARE NOT DEALING WIT H THE OTHER CONTENTIONS OF THE ASSESSEE, AS WE HAVE ALREADY ALLOWED THE GROUND ON FIRST PLEA. 54. IN RESPECT OF GROUND NO.9, WE NOTE THAT THE ISS UE IN THIS GROUND IS QUA NOT ALLOWING THE SET OFF OF BROUGHT FORWARD BUSINES S LOSSES AND UNABSORBED DEPRECIATION RELATING TO EARLIER YEARS TO THE TUNE OF RS 142,46,11,016 AS PER THE INCOME TAX RETURN FILED AGAINST THE ASSESSED INCOME FOR THE INSTANT ASSESSMENT YEAR AND ALSO ALLOWING THE CARRY FORWARD OF BALANCE UNAB SORBED LOSSES AND DEPRECIATION TO SUBSEQUENT YEAR. WE NOTE THAT THE DRP HAS ALREA DY ISSUED DIRECTIONS TO THE ASSESSING OFFICER TO VERIFY THE LOSS AND UNABSORBED DEPRECIATION AS UNDER: 16.1 THIS GROUND OF OBJECTION RELATES TO SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION. IN THIS REGARD, THE DRP HAS NOTED THAT FACTUAL POSITION REGARDING BROUGHT FORWA RD BUSINESS LOSS AND DEPRECIATION IS NOT ASCERTAINABLE FROM MATERIAL ON ITS RECORD. THUS, THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE CLAIM O F THE ASSESSEE FROM THE ORIGINAL RECORDS IN HIS POSITION, REGARDING THE BUS INESS AND DEPRECIATION LOSS & ALLOW THE SAME TO THE EXTENT AVAILABLE, AS P ER THE PROVISIONS OF THE I.T ACT, 1961 AND THE RULES MADE THERE UNDER. WE WERE INFORMED THE AO HAS NOT GIVEN EFFECT TO THE DIRECTIONS OF THE DRP. THEREFORE, WE, DEEM IT NECESSARY TO DIRECT THE ASSE SSING OFFICER TO FOLLOW THE DIRECTIONS OF THE DRP AND ADJUDICATE THE MATTER ACC ORDINGLY. APPEAL IS PARTLY ALLOWED. 55. IN THE RESULT, THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 9 TH MARCH, 2020. SD/- SD/- (RAM LAL NEGI) (RAJES H KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI, DATED : 19 TH MARCH, 2020 SA WNS GLOBAL SERVICES PRIVATE LIMITED 42 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI