ACIT, CIR- 14(1)(2), MUMBAI V. WNS GLOBAL SERVICES PVT. LTD., MUMBAI

ITA 2474/MUM/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1013 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 16-08-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 27-12-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Rule of consistency; Valuation report; Rule 8D; Set aside
• Section: 263; 92C; 143(3); 10AA; 14A; 37(1); 113

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI BEFORE SHRI VIKAS AWASTHY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA No. 2473 & 2474/MUM/2021 (A.Ys. 2014-15 & 2013-14) ACIT – 14(1)(2) Room No. 455, 4th Floor Aayakar Bhavan, M.K. Road Mumbai - 400020 v. WNS Global Services Pvt. Ltd., PL-10, Godrej & Boyce Complex Pirojshanagar, L.B.S. Marg Eastern Express Highway Vikhroli (W), Mumbai - 400079 PAN: AAACW2598L Appellant Respondent ITA No. 2438/MUM/2021 (A.Y. 2014-15) WNS Global Services Pvt. Ltd., Plant No. 10, Godrej & Boyce Complex Pirojshanagar, L.B.S. Marg Eastern Express Highway Vikhroli (W), Mumbai - 400079 PAN: AAACW2598L v. DCIT – 14(1)(2) Room No. 455, 4th Floor Aayakar Bhavan, M.K. Road Mumbai - 400020 Appellant Respondent Assessee Represented by : Shri Porus Kaka & Shri Manish Kanth Revenue Represented by : Ms. Vatsalaa Jha Date of Hearing : 17.08.2022 Date of pronouncement : 12.10.2022 2 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., O R D E R PER S. RIFAUR RAHMAN (AM) 1. These appeals are filed by the Revenue against different orders of Learned Commissioner of Income Tax (Appeals)-58, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 08.07.2021 for the A.Y. 2013-14 and 2014-15. ITA.No. 2438/Mum/2021 is filed by the assessee for the A.Y. 2013-14. 2. Since the issues raised in all the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA.No. 2474/MUM/2021 for Assessment Year 2013-14 as a lead appeal. 3. We observe from the records that the revenue as well as assessee has filed these appeals with delay of 113 days and 108 days respectively. Since these appeals are filed by them as well as orders are passed Ld.CIT(A) during pandemic period, therefore, this delay in filing the appeals are condoned. ITA No. 2474/MUM/2021 (A.Y. 2013-14) 4. Revenue has raised following grounds in its appeal: - “1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) had erred in deleting the disallowance made u/s 14A on the ground that the AO had failed to record his 3 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., satisfaction whereas the AO had clearly in para 8.1 of assessment order indicated that he is not satisfied with the working of disallowance made by the assessee." 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the depreciation on the customer contract rights without appreciating the fact that the customer contract rights do not represent intangible assets as contemplated u/s 32(1) of the Act," 3. Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) was justified in deleting the transfer pricing adjustment of Rs. 32,23,72,589/- on account of depreciation claimed by assessee on the value of business and commercial rights purchased by the appellant from its associated enterprise and capitalised during the AY 2011-12. 4. Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in holding that the adjustment was result of change in the arm's length price of amount paid for acquiring the business right (a capital asset), which resulted change in WDV (written down value) and consequently adjustment/disallowance in depreciation of the capital asset. 5. Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) was correct in ignoring the fact that before the purchase of business right, which is depreciable asset, assessee was getting 85% of the revenue and 15% revenues were going to the Mauritius AE, & therefore, to compute ALP of this transaction, the incremental revenue of this contract (i.e. what more profits will the assessee company earn after entering into the "Novation and Amendment Agreement"), is important rather than the valuation report submitted by the Valuer. 6. Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) was ignoring the fact that against the actual revenue values available, the projected figures provided in the valuation are highly inflated and therefore, the entire valuation report is vitiated because of the wrong projected revenue provided by assessee and thus the benchmarking based on valuation report is also not correct. 7. Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A), erred in not considering that the fact of the case is different and assesse was earning 85% of revenue before the contract was assigned, and the valuation based on projections will not hold good when the assessee company has actual results, and therefore benchmarking considering CUP as 4 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., Most appropriate method, where valuation report considered on estimated basis is not acceptable in this case. 8. Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in relying on the ITAT order for AY 2011-12 which held that transaction entered between WICL and Aviva in 2008 may be taken as valid CUP for benchmarking, ignoring the specific fact that assesse company was already getting 85% revenue out of contract and thus, the unamortised value of USD 106.83 million for remaining number of months being the payment to Aviva Singapore shall not be valid CUP benchmarking to determine arm's length price of the transaction. 9. Whether on the facts and circumstances of the case and in law, the order of the Ld. CIT (A) is not bad in law in not appreciating that merely by not mentioning the methodology by the TPO would simply not vitiate the entire order and even if it is considered a defect, it is curable u/s 292B? 10. Whether in the facts and circumstances of the case and in law, the Ld. CIT (A) is correct in overlooking the import of sections 92F(ii) and 92F(v) and Base erosion to India? 11. Without prejudice to the above grounds, whether the Ld. CIT (A) is correct in not considering the method adopted by the TPO as Other Method in view of the following: a. While section 92(1) mentions the word 'shall' when it says, "Any income arising from an international transaction shall be computed having regard to the arm's length price', 'shall' need not always be mandatory and could. also be read as 'may', as perlaw laid down by the Hon'ble Supreme Court in the case of Director of Inspection of Income Tax (Investigation) v. Pooran Mal & Sons (96 ITR 390) and in the case of Sainik Motors v. State of Rajasthan (AIR 1961 SC 1480) and Hon'ble Gujarat High Court in the case of CIT v. Gujarat Oil & Allied Industries (201 ITR 325). b. Considering 'shall' as 'may', Hon'ble ITAT Chennai in the case of Ascendas India Private Limited vs DCIT, ITA No. 1736/Mds/2011, ITAT Chennaifor AY 2007-08, held that 'shall' need not always be considered mandatory and could also be read as 'may' a rule laid down by the Hon'ble Gujarat High Court in the case of CIT v. Gujarat Oil & Allied Industries (201 ITR 325)and further held that while section 92C(1) uses the term 'shall' in relation to determination of arm's length price of an international transaction through the prescribed methodologies, which 5 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., makes it appear as though the prescribed methods are mandatory, a watertight interpretation of prescribed methods would defeat the very purpose of enactment of transfer pricing rules and regulations and detrimentally affect the effective and fair administration of an international tax regime. c. Procedural issues should not come in the way of substantive justice and as held by Hon'ble ITAT Delhi in the case of Toll Global Forwarding India Pvt Ltd. vs DCIT, I.T.A. No.: 5025/Del/ 10 for AY 2006-07, transfer pricing. is an anti-abuse measure in character and all it does is to ensure that the transactions are not so artificially priced, with the benefit of inter se relationship between associated enterprises, so as to deprive a tax jurisdiction of its due share of taxes. Our transfer pricing legislation as also transfer pricing jurisprudence duly recognize this fundamental fact and ensure that such pedantic and unresolved procedural issues, as have arisen in this case due to limitations of the prescribed methods of ascertaining arm's length price, are not allowed to come in the way of substantive justice..." d. Where methodology had not been explicitly mentioned by assessee or TPO, it was considered to be 'Other Method', even for years when 'Other Method' as prescribed by the Board as per Rule 10AB had not yet come into effect as in the case of (i) Toll Global Forwarding India Pvt Ltd. vs DCIT, I.T.A. No.: 5025/Del/ 10 for AY 2006-07where Hon'ble ITAT Delhi held that Rule 10AB was infact, retrospectively effective from 1.04.2002 and (ii) in the case of Global One Private Limited vs ACIT (2014) 31 ITR 0722 (Delhi), where Hon'ble ITAT observed that Rule 10AB was introduced with the purpose and objective to remove practical difficulties by allowing use of methods not specifically listed, and when a new method is allowed, with the objective of enabling determination of proper ALP, then such a provision operates retrospectively, and can be used to determine ALP in earlier assessment years also, and therefore, without prejudice, if CUP could not be considered as methodology adopted by TPO, whether 'Other Method' should not have been considered as the methodology adopted by TPO. 12. The Appellant prays that the order of the CIT(Appeals) on the above ground be set aside and that of the AO be restored. 6 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., 13. The Appellant craves leave to amend or alter any ground or to submit additional new ground, which may be necessary.” 5. We shall deal with the issues ground wise for adjudication. 6. At the time of hearing, with regard to Ground No. 1 which is in respect of disallowance u/s. 14A of the Act, Ld. AR of the assessee brought to our notice that similar issue in appeal has been considered by the Coordinate Bench of this tribunal in assessee’s own case for the A.Ys.2011-12 and 2012-13 and decided the issue in favour of the assessee. Copy of the order is placed on record. Ld. AR of the assessee prayed that the same may be adopted for the year under consideration. 7. On the other hand, Ld.DR fairly accepted the submissions of the Ld.AR and he relied on the order of the Ld.CIT(A). 8. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee in ITA.No. 2257/Mum/2017 and ITA.No. 1955/Mum/2016 dated 19.03.2020 for the A.Y.2012-13 and 2011-12 respectively. While holding so the Coordinate Bench held as under: - “53. After hearing the rival parties and on perusal of record, we observe that the Assessing Officer has only noted in the assessment order that disallowance of Rs 7,53,750/- is not correct as the same is not in accordance with the provisions of section 7 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., 14A rule 8D. A reading of the said order reveals 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 in the Tax Audit Report in Form 3CB in terms of section 44A of the Act is wrong having regard to the book of accounts. In our view, recording of satisfaction is a pre-requisite under the provisions of section 14A(2) before invoking the provisions 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 Hon’ble Court has held that satisfaction of the Assessing Officer has to be objectively arrived at after considering all relevant facts and circumstances and books of accounts of the assessee. In the case of Maxopp Investment Ltd. & Ors. vs. CIT (supra), Hon’ble Delhi High Court has held that provisions of section 14A Rule 8D would 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 by the Hon’ble Apex Court in 91 taxmann.com 154 (2018). We, therefore, respectfully following the ratio laid down by the Apex 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 with the other contentions of the assessee, as we have already allowed the ground on first plea.” 9. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee’s own case for the A.Y. 2011-12 and 2012-13, we dismiss the ground raised by the revenue. Ground No.1 raised by the revenue is dismissed. 10. With regard to Ground No. 2 and 3 which are in respect of disallowance of depreciation on intangibles representing acquisition of business contracts, Ld. AR of the assessee brought to our notice that similar issue in appeal has been considered by the Coordinate Bench of 8 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., this tribunal in assessee’s own case for the A.Ys. 2005-06, 2007-08, 2009-10, 2011-12 & 2012-13 and decided the issue in favour of the assessee. Copy of the order is placed on record. Ld. AR of the assessee prayed that the same may be adopted for the year under consideration. 11. On the other hand, Ld.DR fairly accepted the submissions of the Ld.AR and he relied on the order of the Ld.CIT(A). 12. Considered the submissions and material placed on record, we observe from the record that Coordinate Bench in the immediately preceding Assessment year i.e. A.Y. 2012-13 in assessee’s own case in ITA.No. 2257/Mum/2017 and ITA.No. 1955/Mum/2016 dated 19.03.2020 for the A.Y.2012-13 and 2011-12 respectively, following the decision in assessee’s own case for the A.Y. 2005-06 and 2008-09 decided the issue in favour of the assessee, while holding so the Coordinate Bench held as under: - 35. “The issue in ground no. 7 relates to disallowance 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 definition of intangible assets u/s. 32(1) of the Act. We find that co-ordinate Bench of the Tribunal has decided identical issue in favour of the assessee in its own 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 perused materials on record. Insofar as factual aspect of the issue is concerned, there is no dispute that by virtue of 9 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., acquisition of M/s. Town and Country Assistance Ltd., various contracts executed by the said concern with third party clients were assigned to the assessee. It is also a fact that such acquisition took place by virtue of an agreement executed on 13th January 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 @ 25%. Notably, the Assessing Officer while completing assessment under section 143(3) of the Act also allowed assessee’s claim of depreciation. However, learned Commissioner of Income Tax revised the assessment order under section 263 of the Act. Subsequently, while deciding assessee’s appeal against the said 29 WNS Global Services Pvt. Ltd. order the Tribunal quashed the order passed under section 263 of the Act and restored the assessment order. Thus, in effect, assessee’s claim of depreciation in respect of intangible asset became final. In any case of the matter, there is no dispute that by acquiring M/s. Town and Country Assistance Ltd. the assessee has also acquired contractual rights which, no doubt, is a valuable commercial right. Therefore, it comes within the meaning of intangible asset as per section 32(1)(ii) r/w Explanation 3(b) of the Act. Hence, depreciation claimed by the assessee is allowable. The decisions relied upon by the learned Sr. Counsel for the assessee also supports our aforesaid view. Accordingly, we uphold the decision of the learned Commissioner (Appeals) by dismissing the grounds raised.” Respectfully, following the said order, we set aside the order of the DRP and allow the ground raised by the assessee.” 13. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee’s own case for the A.Y. 2011-12 and 2012-13, we dismiss the ground raised by the revenue. Ground No. 2 & 3 are raised by the revenue are dismissed. 10 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., 14. With regard to Ground No. 4 to 11 which are in respect of consequential depreciation adjustment on purchase of business rights, Ld.AR of the assessee brought to our notice that similar issue in appeal has been considered by the Coordinate Bench of this tribunal in assessee’s own case for the case for the A.Ys. 2011-12 and 2012-13 and decided the issue in favour of the assessee. He specifically brought to our notice Para Nos. 10, 20 to 26 of the Tribunal order. Copy of the order is placed on record. Ld. AR of the assessee prayed that the same may be adopted for the year under consideration. 15. On the other hand, Ld.DR fairly accepted the submissions of the Ld.AR and he relied on the order of the Ld.CIT(A). 16. Considered the submissions and material placed on record, we observe from the record that Coordinate Bench in the immediately preceding Assessment year i.e. A.Y. 2012-13 in assessee’s own case in ITA.No. 2257/Mum/2017 and ITA.No. 1955/Mum/2016 for the A.Y.2012-13 and 2011-12 respectively, dated 19.03.2020, decided the issue in favour of the assessee, while holding so the Coordinate Bench held as under: - “10. The learned AR also submitted before the Bench that for securing this contract of MSA WCIL had paid Aviva Singapore an 11 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., incentive 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 submitted that such type of incentive payments to the customer are fairly common in the IT/BPO industry, especially in the context of large, multi-year outsourcing contracts. The learned AR submitted that given the upfront fees by WCIL to Aviva 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 payment which is akin to cost incurred by WCIL to acquire the customer contract with Aviva at first place and remains attributable over the unexpired period of the MSA which works out to USD 106.83 million. The learned AR also filed before the Bench the calculation of the value of the unamortized portion of the MSA incentive payment, which is reproduced below: Particulars Amount /Months MSA incentive Payment in July 2008 (GBP million) 80 USD/GBP exchange ratio (based on exchange rate in July 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 (USD million) 106.83 The learned AR submitted that the amortized value (USD 106.83 million) of the incentive payment for remaining number of months being the payment made to Aviva (the third party customer) ought to be a valid CUP benchmark to determine the ALP of the transaction and, accordingly, the consideration of USD 110 million paid by the assessee to WCIL should be considered as the ALP and no adjustment to the value of the international transaction be made in the present case. The learned AR relied on the decision of the Tribunal in the case of DCIT vs. Calance Software (P.) Ltd. (ITA 5023/Del/2012). ......... ..... Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in 12 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., assessee’s own case for the A.Y. 2011-12 and 2012-13, we dismiss the ground raised by the revenue. Ground No. 2 & 3 are raised by the revenue are dismissed. 20. We have heard the rival parties and perused the material on record as placed before us including the written submissions filed by both the sides. We note that in this case the TPO has determined arm’s length price on incremental benefit approach and none of the transfer pricing methods as prescribed u/s. 92C of the IT Act has been followed. Whereas, the assessee has followed in its transfer pricing study as the CUP method as the most appropriate method by determining the value of the MSA on the basis of valuation report given by the independent valuer. Section 92C(1) of the Act provides that the international transaction between the assessee and AE has to be on the basis of any of the method being the most appropriate method having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe. Thus, it has been specifically provided in the provisions of section 92C(1) that TPO is duty bound to determine the arm’s length price of the international 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 curable defect and goes to the root of the matter. Under these circumstances, we are of the considered view that the addition made by the TPO cannot be sustained. We further note that the DRP has also erred in not following any of the prescribed method 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 (supra). 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 the 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 same time, the payment of custom duty and countervailing duty are considered as value of cost. ..." "The learned counsel in the course of arguments relied on the decision of the coordinate bench of IT A T, Mumbai in 13 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., the case of Ballast Nedam Dredging (supra) to submit that in the absence of any contrary certificate, the certificate relied upon by Assessee 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 difference in the ALP. On those facts, it was held that "if proper analysis was 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 the third party quotations which are considered as internal CUP and the VG Bomv Certificates as external CUP. Under both the workings Assessee is able to justify the price paid and on this reason also, we have to accept Assessee 's contentions. "Similarly, in the case under consideration, Assessee justified the price paid by way of a certificate which can be considered as external CUP. Since TPO/DRP did not rely on any other certificate and in the absence of any contrary information, price paid by Assessee, which was lesser than the value mentioned in the certificate 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 depreciation as claimed. Grounds pertaining to this issue are allowed. " In the case of Social Media India Ltd. vs. ACIT (supra), the Hon’ble 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 DRP 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 unable to understand from where the said price was taken up by the TPO/DRP. Be that as it may, the assessee has paid only the cost price to its 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 assessee. In the absence of any counter report by the TPO/DRP or separate valuation done by the TPO, the assessee 's valuation has to be accepted as it was supported by an independent valuer, who determined the cost price on the actual expenditure incurred by the AE. Considering the totality of the facts of the case, we are of the opinion that the website purchased by the assessee has to be considered at Arm's length. " 14 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., In the case of Firmenich Armatics India (P) Ltd. vs. DCIT [2018] 96 Taxmann.com 649, the Co-ordinate Bench has held that TPO is duty bound to determine arm’s length price of international transaction 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 arm’s length price on estimate basis, that too, by entertaining doubts with regard to business expediency of payment and in process stepping into shoes of the AO for making disallowance u/s. 37(1) of the Act. The Hon’ble Delhi High Court in the case of Li & Fung India (P) LTd. vs. CIT [2014] 361 ITR 85, has held that section 92C(1) states 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” having regard to the nature of transactions or class of transaction or class of associated persons or functions performed by such persons or such other relevant facts which may be prescribed by the Board...” The Hon’ble 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 transactions 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 10B(1)(e) does not enable consideration or imputation of cost incurred by third parties or unrelated enterprises to compute the 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 associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise ..." (emphasis supplied). It thus contemplates a determination of ALP with reference to the relevant factors (cost, assets, sales etc.) of the enterprise 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 goods, 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 15 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., (TNMM) to be the most appropriate method, the only rules and norms prescribed in that regard could have been applied to determine whether the exercise indicated by the assessee yielded 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 export made by unrelated party vendors. " Having considered the facts of the case in the light 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 arm’s length price on the basis of valuation report from the independent valuer, we find that the 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 determine the price payable by WNS India to WCIL and, therefore, the TPO/DRP cannot resort to their own estimate in determining the arm’s length price. The case of the assessee is supported by the decision of the Hon’ble Supreme Court in the case of G L Sultania & Anr. Vs. SEBI & Ors. (AIR 2005 SC 2172), wherein the Apex Court while 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 Court to act as an expert itself. This, we are forbidden from doing. Unless 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 basis or that the valuer adopted a demonstrably wrong approach or a fundamental error going to the root of the matter, this court would not 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 independent valuer, they ought to have desisted from their own exercise of adhoc valuation without having appointed a valuation expert to determine the value of the MSA. The case of the assessee is supported by 16 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., Tecumseh Products India (P.) Ltd. (supra), wherein the Bench has held 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 the 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 assessee while at the same time, the payment of custom duty and countervailing duty are considered as value of cost. ..." "The learned counsel in the course of arguments relied on the decision of the coordinate bench of IT AT, Mumbai in the case of Ballast Nedam Dredging (supra) to submit that in the absence of any contrary certificate, the certificate relied upon by Assessee 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 difference in the ALP. On those facts, it was held that "if proper analysis was 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 the third party quotations which are considered as internal CUP and the VG Bouv Certificates as external CUP. Under both the workings Assessee is able to justify the price paid and on this reason also, we have to accept Assessee 's contentions. "Similarly, in the case under consideration, Assessee justified the price paid by way of a certificate which can be considered as external CUP. Since TPO/DRP did not rely on any other certificate and in the absence of any contrary information, price paid by Assessee, which was lesser than the value mentioned in the certificate 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 depreciation as claimed. Grounds pertaining to this issue are allowed. " In view of these facts, we are not able to subscribe to the conclusion reached by the learned DRP/TPO. 24. We further note that WCIL had paid Aviva Singapore an incentive payment of GBP 80 million for securing contract with Aviva Singapore 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 payment as on the date of purchase of MSA by the assessee was USD 106.83 17 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., million and the assessee was to be benefitted by the higher hourly charge outs agreed with Aviva Singapore. This payment is akin to the cost incurred by the assessee 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 in 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 arm’s length price of the transaction. On this score, USD 110 million paid by the assessee to WCIL is at arm’s length standard and consequently, no adjustment to the value of international transaction is required to be made. 25. On the issue of projections not to be substituted by actual and hindsight ought not to affect the valuation report as submitted 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 point of time of valuation. Thus, any future happening/occurrence based to the date of valuation canoe be foreseen and, therefore, the argument of the assessee merits consideration that whatever price has been determined in the valuation report needs no further adjustment as that events were not foreseeable on the date of valuation. The case of the assessee is supported by the decision of the Tribunal in the case of DQ (International) Ltd. vs. ACIT , wherein it has held as under: “ - 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 the 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 organization. No doubt, 'IP' was sold to 'AE'. The method adopted should be consistent and should be documented to review in the future. The review does not mean replacing the projection with actuals. It is the rational of adopting the values for making decision at the point of time of making decision. When the values are replaced subsequently, it is not valuation but evaluation, i.e., moving the post of result determined out of projections. The revenue is doubting the valuation because the actual revenues were favourable. In rational decision making the actual results are irrelevant. In the present case, the valuation was done by two independent valuers not by the assessee. The other issue with this are 18 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., that the revenue adopted the actuals of AE without considering whether they were revenues generated out of the 'IP' or not. They simply adopted the revenues ofAE without giving proper findings that the revenues ofAE were all generated only out of this 'IP' (Jungle Book). 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 valuation cannot be reviewed with actuals after 3 or 4 years down the line. Accordingly, the grounds raised by assessee are allowed.” 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 renewal/extension of contract apart from the MSA incentive payment for the unamortized 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 signed the extension of MSA in November 2014 as against the renewal in November 2016 and the contract was renewed up to March 2022. In our opinion, this hindsight post the valuation date has to be considered if the TPO/DRP has determined the arm’s length price on actual results. On this issue also we do not find the 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 customer relationship along with other incremental benefits/actual of profits are considered. We note that the incremental benefit in respect of customer relationship 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 contradictory and cannot be sustained. 27. In view of the above facts and circumstances, we are inclined to set aside the order of DRP and direct the AO to delete the adjustment made to the cost of MSA. The ground raised by the assessee is allowed.” 17. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Ys. 2011-12 and 19 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., 2012-13 is respectfully followed, accordingly, ground raised by the Revenue is dismissed. 18. In the result, appeal filed by the revenue is dismissed. 19. Coming to the appeal of the revenue in ITA.No. 2473/Mum/2021 relating to A.Y.2014-15, since facts and grounds in this appeal is mutatis mutandis, therefore the decision taken in A.Y. 2013-14 is applicable to this assessment year also. Accordingly, this appeal is also dismissed. ITA.No. 2438/Mum/2021 (2014-15) – Assessee Appeal 20. Assessee has raised following ground in its appeal: - “1. On the fact and in circumstances of the case and in law, the Hon'ble CIT(A) has erred in adjudicating the ground on notional foreign exchange loss from option contract to be as part of the profits for deduction under Section 10AA of the Act without appreciating the fact that the Learned Assessing Officer had not made any adjustment in the assessment order passed under Section 143(3) read with Section 144C(3) of the Act relating to notional foreign exchange loss from option contract.” 21. At the time of hearing, Ld. AR brought to our notice that similar ground has been considered by the Coordinate Bench of this tribunal in assessee’s own case for the case for the A.Ys. 2011-12 and 2012-13 and decided the issue in favour of the assessee. He brought to our notice Para Nos. 40 and 41 of the Tribunal order. Copy of the order is placed on 20 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., record. Ld. AR of the assessee prayed that the same may be adopted for the year under consideration. 22. On the other hand, Ld.DR fairly accepted the submissions of the Ld.AR and he relied on the order of the Ld.CIT(A). 23. Considered the submissions and material placed on record, we observe from the record that Coordinate Bench in the immediately preceding Assessment year i.e. A.Y. 2012-13 in assessee’s own case in ITA.No. 2257/Mum/2017 and ITA.No. 1955/Mum/2016 dated 19.03.2020 for the A.Y.2012-13 and 2011-12 respectively, decided the issue in favour of the assessee, while holding so the Coordinate Bench held as under: - “40. We have heard both the parties and perused the material available on record. We observe that during the year the assessee has made net foreign exchange gain of ₹.63,50,36,264/- on settlement of derivative contracts, which were entered into by the assessee. We find that the AO for A.Y. 2009-10, 2010-11 and 2012-13, in the assessee’s own case, has treated profit/loss from 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 gain 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 words, while computing deduction u/s. 10A, the AO did not treat the said gain as part of the export activity for the purpose of deduction u/s. 10A of the Act. Apparently, there being no change in the facts and circumstances during the year, we are quiet 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 export activity and deduction should be allowed u/s. 10A of the Act. The case of the assessee is supported by the decision of the Apex court in the case of 21 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., Radhasoami Satsang vs. CIT (supra), wherein the Hon’ble Court has held that while dealing with the principle of consistency and principle of res judicata, unless there is a material change justifying to take a different view in the matter, shall not be appropriate for the Revenue to take a contrary view. Similarly, Hon’ble Bombay High Court in the case of CIT vs. Darius Pandole (supra), has held as under: "The Tribunal, while deciding the appeal for the assessment year 2003-04 has observed that there was no change in the set of facts and circumstances as they obtained for the assessment years 1997-98 and 2002-03. The Tribunal was correct in holding that there was due application of mind by the Assessing Officer to the very same issue during the course of the earlier two assessment years and that the assessments were finalized after considering the reply filed by the assesses specifically to the query raised by the Assessing Officer. In the circumstances, the Tribunal was, in our view, justified in following the decision of the Supreme Court in Radhasoami Satsang v. CIT [1992] 193ITR 321 (SC). While the principle of resjudicata could not as an abstract principle apply to assessment proceedings since each year of assessment has to be considered separately, yet when a fundamental aspect was duly considered after a query was raised by the Assessing Officer and was answered by the assessee on the same facts, a change in view, was evidently not warranted for the assessment year in question. So construed, we do not find that the decision of the Tribunal will give rise to any substantial question of law.” 41 In view of the aforesaid facts and the ratio laid down by the Hon’ble 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 export activity and eligible for deduction u/s. 10A. Besides, Hon’ble Bombay High Court has held in a series of decisions referred to by learned counsel for the assessee namely 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.” 22 ITA No. 2438, 2473 & 2474/MUM/2021 WNS Global Services Pvt. Ltd., 24. Since the issue is exactly similar as well as the facts are also identical, respectfully following the above decision in assessee’s own case for the A.Y. 2011-12 and 2012-13, we allow the ground raised by the assessee. Ground raised by the assessee is allowed. 25. In the result, appeal filed by the assessee is allowed. 26. To sum-up, appeals filed by the revenue are dismissed and appeal filed by the assessee is allowed. Order pronounced in the open court on 12 th October, 2022. Sd/- Sd/- (VIKAS AWASTHY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 12/10/2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum