Genpact Services LLC (India Branch), Delhi V. ADIT, New Delhi

ITA 6035/DEL/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69697 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 18-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 04-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: ANISHA RILAL
• Keywords: Transfer pricing; Rectification of order; International transaction
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER AND SHRI C. M. GARG, JUDICIAL MEMBER I.T.A .NO.-6035/DEL/2012 (ASSESSMENT YEAR-2008-09) GENPACT SERVICES LLC (INDIA BRANCH) VS. ADIT DMRC, DELHI INFORMATION TECHNOLOGY CIRCLE-1(2) PARK, METRO STATION, G.T. ROAD, SHASTRI ROOM NO.41 0 NEW DELHI. 110053 NEW DELHI. PAN: AACCG3353P (APPELLANT) (RESPONDENT) ASSESSEE BY:-SH. ROHIT TIWARI, CA. & MS. ANISHA RILAL, CA. REVENUE BY:-SH. PEEYUSH JAIN, CIT. DR ORDER PER R. S. SYAL, AM. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER PURSUANT TO THE DIR ECTION BY THE I.T.A .NO.-6035/DEL/2012 2 DISPUTE RESOLUTION PANEL (DRP) IN RELATION TO THE A SSESSMENT YEAR 2008-09. 2. THE FIRST ISSUE AGITATED BY THE LD. AR IS AGAINS T THE CALCULATION OF WORKING CAPITAL ADJUSTMENT BY THE TR ANSFER PRICING OFFICER (TPO) IN THE ORIGINAL ORDER DATED 25.10.201 1 AS WELL AS SUBSEQUENT TWO RECTIFICATION ORDERS PASSED U/S 154 ON 4.3.2013 (HEREINAFTER CALLED THE FIRST RECTIFICATION ORDER) AND 30.10.2013 (HEREINAFTER CALLED THE SECOND RECTIFICATION ORDER) RESPECTIVELY. 3. BRIEFLY STATED THE FACTS OF THIS ISSUE AR E THAT THE ASSESSEE IS AN INDIAN BRANCH OF GENPACT SERVICES LLC, A US CORP ORATION. DURING THE YEAR, THE ASSESSEE WAS ENGAGED IN PROVID ING COLLECTIONS/CALL CENTRE SERVICES AND RELATED BACK O FFICE SUPPORT SERVICES. CERTAIN INTERNATIONAL TRANSACTIONS WERE E NTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES (AES) WHIC H WERE DULY REPORTED. FOR THE PURPOSES OF THE PRESENT APPEAL, WE ARE CONCERNED ONLY WITH THE CORRECTNESS OF WORKING CAPITAL ADJUST MENT. WHILE GIVING EFFECT TO THE ASSESSEES CONTENTION FOR THE WORKING CAPITAL ADJUSTMENT, THE TPO IN THE ORIGINAL ORDER, ADOPTED FIGURE OF TRADE RECEIVABLE AT RS.NIL AND DETERMINED THE AMOUNT OF W ORKING CAPITAL ADJUSTMENT. THE ASSESSEE, VIDE ITS FIRST RECTIFICAT ION APPLICATION BEFORE THE DEPUTY DIRECTOR OF INCOME TAX, CIRCLE-2( 1) FILED ON 23.11.2012, INTER ALIA AGITATED THAT THE WORKING CAPITAL ADJUSTMENT I.T.A .NO.-6035/DEL/2012 3 WAS NOT PROPERLY CALCULATED. THE TPO PARTLY ACCEPTE D THE ASSESSEES CONTENTION ON WORKING CAPITAL ADJUSTMENT VIDE THE FIRST RECTIFICATION ORDER BUT TOOK THE FIGURE OF `TRADE R ECEIVABLES AT RS.12,11,14,111/- AS AGAINST THE NIL FIGURE IN THE ORIGINAL ORDER. THIS DID NOT SATISFY THE ASSESSEE. THE ASSESSEE FIL ED SECOND RECTIFICATION APPLICATION DT. 11.4.2013 BEFORE THE ADDITIONAL COMMISSIONER OF INCOME TAX CONTENDING THAT THE FIGU RE OF `TRADE RECEIVABLES WAS NOT REQUIRED TO BE ALTERED FROM TH E ORIGINAL ORDER. THE TPO PASSED SECOND RECTIFICATION ORDER BY NOTING IN PARA 2 OF HIS ORDER AS UNDER: 2. ASSESSEE HAS GIVEN COMPUTATION OF WORKING CAPITAL ADJUSTMENT WHERE IN MEAN MARGINS OF THE COMPARABLES IS REVISED TO (7.67%) FROM 25.89% AFTER ALLOWING WORKING CAPITAL ADJUSTMENT. THAT MEANS A DIFFERENCE OF 33.56%. BY NO STRETCH OF IMAGINATION, THIS ADJUSTMENT CLAIM OF 33.56% CAN BE CALLED REASONABLE AND RELIABLE ADJUSTMENT, WHEN THE RESULT IS CONVERSION OF MEAN MARGIN OF COMPARABLES FROM A PROFIT OF 25.89% TO A LOSS OF 7.67%. 4. THE CLAIM OF THE LD. AR BEFORE US IS THAT THE TPO WENT WRONG IN NOT GIVING EFFECT TO THE CORRECT FIGURE OF `TRADE RECEIVABLES WHILE CALCULATING THE FIGURE OF WORKIN G CAPITAL ADJUSTMENT. I.T.A .NO.-6035/DEL/2012 4 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ABOUT THE F ACT THAT THE TPO VIDE ITS ORIGINAL ORDER CALCULATED THE WORKING CAPI TAL ADJUSTMENT, BY MEANS OF ANNEXURE-1 TO HIS ORDER, A COPY OF WHIC H IS AVAILABLE ON PAGE 12 OF THE SYNOPSIS. IT IMPLIES THAT IN PRI NCIPLE HE WAS SATISFIED ABOUT THE AVAILABILITY OF SUCH WORKING CA PITAL ADJUSTMENT IN THE GIVEN CIRCUMSTANCES. FROM THE WORKING GIVEN IN THE ORIGINAL ORDER, IT CAN BE SEEN THAT THE FIGURE OF `TRADE RE CEIVABLES HAS BEEN TAKEN AT NIL AND THE MEAN OF COMPARABLES BY GIVING EFFECT TO THIS WORKING CAPITAL ADJUSTMENT HAS BEEN CALCULATED BY 3 2.53%. WHEN THE ASSESSEE CHALLENGED THE COMPUTATION OF WORKING CAPITAL ADJUSTMENT BEFORE THE TPO, HE ACCEPTED THE OTHER CO NTENTIONS BUT IN DOING SO, CHANGED THE FIGURE OF `TRADE RECEIVABL ES FROM NIL IN THE ORIGINAL ORDER TO RS.12,11,14,111/- IN THE FIRS T RECTIFICATION ORDER. THIS RESULTED IN LOWERING THE CUSHION AND WI DENING THE GAP BETWEEN THE ASSESSEES PROFIT RATE AND THAT OF THE COMPARABLES. WHEN AGAIN THE ASSESSEE APPLIED FOR RECTIFICATION B Y CONTENDING THAT THE FIGURE OF `TRADE RECEIVABLES SHOULD BE T AKEN AT NIL, HE SIMPLY REJECTED THIS CONTENTION BY NOTICING THAT IF THE ASSESSEES CALCULATION OF WORKING CAPITAL ADJUSTMENT IS CONSID ERED, THE MEAN MARGIN OF COMPARABLES WOULD COME TO MINUS (7.67%) A S AGAINST THE ORIGINAL MEAN OF POSITIVE 25.89%. NO REASON HAS BEEN ADDUCED IN THIS ORDER, AS TO HOW THE NIL FIGURE OF `TRADE RECEIVABLES IN I.T.A .NO.-6035/DEL/2012 5 THE ORIGINAL ORDER GOT CONVERTED IN TO A POSITIVE F IGURE IN THE FIRST RECTIFICATION ORDER. WE HAVE PERUSED THE ASSESSEES BALANCE SHEET AS AT THE END OF THE YEAR IN QUESTION, A COPY OF WH ICH IS AVAILABLE IN THE PAPER BOOK. EX FACIE, IT APPEARS THAT THE AMOU NT OF `TRADER RECEIVABLES IS NIL. THE LD. DR CONTENDED THAT T HE TPO SEEMS TO HAVE TAKEN SOME FIGURE FROM LOANS AND ADVANCES A PPEARING IN THE BALANCE SHEET. WE HAVE PERUSED SCHEDULE OF LOAN S AND ADVANCES AND ALSO THE CURRENT ASSET, WHICH IS AVAIL ABLE IN THE PAPER BOOK. A FIRST LOOK AT SUCH SCHEDULE PRIMA FACIE SHOWS THAT THERE IS NO FIGURE OF `TRADER RECEIVABLES UNDER THE CURRENT ASSETS BUT THERE ARE CERTAIN LOANS AND ADVANCES RECEIVABLE IN CASH T O THE TUNE OF RS.61169228/-. A NOTE IS APPENDED TO THIS SCHEDULE STATING THAT THIS AMOUNT IS DUE FROM GENPACT INDIA, A COMPANY UN DER THE SAME MANAGEMENT. THE CONTENTION OF THE LD. AR IS THAT TH IS AMOUNT WAS GIVEN AS A `LOAN TO ITS SISTER CONCERN AND THE SAM E IS NOT IN THE NATURE OF `TRADE RECEIVABLE. THE CRUX OF THE ARG UMENTS BY BOTH THE SIDES IS LIMITED ONLY TO THE FIGURE OF `TRADE R ECEIVABLES. WHEREAS THE TPO IN THE FIRST RECTIFICATION ORDER AD OPTED A POSITIVE FIGURE OF `TRADE RECEIVABLES AS AGAINST NIL IS T HE ORIGINAL ORDER AND STUCK TO IT IN THE SECOND RECTIFICATION ORDER, THE ASSESSEE IS HARPING ON THE CONTENTION THAT THE AMOUNT OF `TRADE RECEIVABLES IS NIL AND THE SAME SHOULD BE ADOPTED. THE LD. AR ST RENUOUSLY ARGUED THAT TPO HAS KEPT THE CALCULATION OF SUCH A POSITIVE FIGURE I.T.A .NO.-6035/DEL/2012 6 CLOSE TO HIS HEART AND HAS NOT REVEALED ITS WORKING DESPITE REPEATED REQUESTS BY THE ASSESSEE. IN OUR CONSIDERED OPINION THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THE IMPUGNED ORDER ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE AO/TPO. WE ORDER ACCORDINGLY AND DIRECT THE AO/TPO TO FIRST LY LET THE ASSESSEE KNOW AS TO HOW THE AMOUNT OF `TRADE RECEIV ABLES IN THE FIRST/SECOND RECTIFICATION ORDERS HAS BEEN COMPUTED AT POSITIVE AND THEREAFTER COMPUTE THE WORKING CAPITAL ADJUSTMENT A FRESH AFTER DISPOSING OF THE ASSESSEES OBJECTIONS, IF ANY, TO SUCH WORKING AND THE CONSEQUENTIAL TRANSFER PRICING ADJUSTMENT, IF C ALLED FOR. 6. THE LD. AR CONTENDED THAT HE WOULD BE SAT ISFIED IF THE DIRECTION FOR THE CORRECT COMPUTATION OF WORKING CA PITAL ADJUSTMENT IS GIVEN BY THE TRIBUNAL, IN WHICH CASE HE WILL NOT BE PRESSING ANY OTHER GROUND OF APPEAL. IN VIEW OF OUR ABOVE DECISI ON ON THE WORKING CAPITAL ADJUSTMENT AND THE LD. ARS CONCESS ION FOR NOT PRESSING OTHER GROUNDS IN SUCH AN EVENTUALITY, WE P ARTLY SET ASIDE THE ORDER OF AO / TPO AND REMIT THE MATTER TO THEM FOR THIS LIMITED PURPOSES AS INDICATED ABOVE. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. I.T.A .NO.-6035/DEL/2012 7 ORDER PRONOUNCED IN THE OPEN COURT ON 19/12/2013. SD/- SD/- ( C. M. GARG ) (R. S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19/12/2013 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR DATE INITIAL 1. DRAFT DICTATED ON 18-12- 2013 PS 2. DRAFT PLACED BEFORE AUTHOR 19-12- 2013 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 19-12- 2013 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 19-12- 2013 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 19-12- 2013 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. I.T.A .NO.-6035/DEL/2012 8 *