ACCENTURE SOLUTIONS P LTD (ASOL),MUMBAI vs. ADDL/JT/ DY/CIT/ASSTT/ITO, NATIONAL FACELESS ASSESSMENT CENTRE, DELHI & THE DY CIT,CIRCLE-14(1)(1), MUMBAI

P a g e | Accenture Solutions Private Limited Vs. Add/Joint/Deputy/ACIT/ITO A Transfer Pricing grounds 2 Erred in making a reference of the Appellant's case to the learned TPO under Section 92CA(1) of the Act, without satisfying any of the conditions laid down in clauses (a) to (d) of Section 92C(3) of the Act based on the information/documents available with him; 3. Erred in law and facts, by passing the transfer pricing (TP) order on 01 November 2019, which is beyond the time limit for completion of proceedings under Section 92CA(3A) of the Act. thus making the TP order invalid and unsustainable in law. Further, the learned AO has erred in passing a draft assessment order incorporating an invalid adjustment proposed in the TP order. Separate segmental margins 4. Erred in law and facts, in upholding that the international transactions of the Appellant of rendering IT and BPO services under the Delivery Centre Agreement (DCA) are two distinct transactions (i.e rendering of IT services and rendering of BPO services) which should be benchmarked separately. Provision of IT services 5. Without prejudice to Ground No. 4 above, the learned TPO has erred in determining the arm's length range to be 20.61% (35 percentile) to 24.07% (65 percentile) with a median of 22.34% for the IT services provided under the DCA. Economic Analysis 6. Erred, in law and facts, in not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules for determination of arm's length price for rendering of IT services under DCA and making modifications to this analysts in a subjective arbitrary and inconsistent manner. Accept Reject criteria adopted while selecting comparables companies 7. Erred in applying the accept reject criteria/ filters in an arbitrary, subjective, inconsistent and erroneous manner for the purpose of selection of comparables.

Erred in applying a filter of rejecting companies having turnover of less than 35 times & more 9 than 35 times of ASOL's turnover in the IT services segment.

Erred in applying a threshold of 75% for the export earnings filter as against a threshold of 25% of revenues applied by the Appellant.

Erred in modifying the method for computing related party transactions filter for selection of comparables for the IT services segment. Rejection of comparable companies 12. Erred in accepting Infosys Limited as comparable for benchmarking the IT services transaction disregarding the fact that the company is functionally different from Appellant, as it owns significant intangibles, diversified nature of activities, presence of the Infosys' brand etc.

Erred in accepting Mindtree Limited as comparable for benchmarking the IT services transaction disregarding the fact that the company is functionally different from Appellant as it in engaged in varied activities like agile, analytics and information management, business process management, infrastructure management, product engineering, etc, and does not report separate segmental information for software development services in its the financial statements and company has significant R&D expenses.

Erred in accepting Persistent Systems as comparable for benchmarking the IT services transaction disregarding the fact the company has significant related party transactions, is functionally different as it is engaged in development and sale of software products and does not provide separate segmental information for software development services. Adjustment required to be made to arm's length margin 16. Erred in not allowing Appellant the benefit of working capital adjustment which is required to be undertaken to account for the difference in working capital levels between the comparable companies and the Appellant.

Erred in not allowing Appellant the benefit of the risk adjustment to account for the difference between the risks taken on by the Appellant and the risks taken on by the comparable companies. Transactions of royalty payment 18. Erred in rejecting the economic analysis undertaken by the Appellant using CUP method for benchmarking the royalty payment to AE, and instead determining the arm's length price to be 1% of revenues on an ad hoc basis without using any of the methods prescribed under Section 92C of the Act read with Rule 1088 of the Income Tax Rules, 1962.

Erred in allowing royalty payment at an ad hoc rate of 1% only for use of brand name and trademark, disregarding the fact that the royalty paid by Appellant is for the entire portfolio of IP which also includes tools, technology, methodology, etc.

Erred in rejecting all the external royalty agreements that were identified by the Appellant as comparables to determine the arm's length price under the CUP method, by giving ad hoc and arbitrary reasons.

Without prejudice to the Ground 18 and 19 and 20 above, cred in not accepting the alternate comparable agreement submitted by the Appellant (on a without prejudice bases) which was only for Licensing of trademark and brand' with an average royalty rate of 5%.

Without prejudice to the contention that CUP method is the most appropriate method for benchmarking the royalty transaction, erred in rejecting the alternate analysis using TNMM that was submitted by the Appellant for benchmarking the royalty transaction. Proportionate adjustment P a g e | Accenture Solutions Private Limited Vs. Add/Joint/Deputy/ACIT/ITO 23. Without prejudice to the contention that the royalty transaction was found to be at arm's length even under the alternate TNMM analysis, even if an adjustment is to be made using the TNMM, the adjustment should be restricted to the proportion of the international transaction (e. royalty) to the total costs of the segment. B. Non-Transfer Pricing grounds Non-grant of deduction of education cess paid on income tax liability 24. Erred in rejecting the additional claim filed for claiming deduction of education cess paid on the income tax liability for the subject AY.

Erred in not allowing deduction of education cess paid by the Appellant on its income tax lability for the subject AY while computing the assessed income.

Erred in not following the decision of the Hon'ble Jurisdictional Bombay High Court which has held that education cess paid on income tax liability should be allowed as deduction; and thereby grossly violating the judicial discipline. Now-grant of refund of excess Dividend Distribution Tax (DDT) paid 27. Erred in rejecting the additional claim filed for DDT refund claim of Rs.294,84,70,521 towards excess DDT paid by the Appellant.

Erred in not appreciating that dividend paid by the Appellant to its Mauritius and Dutch shareholders, is liable to tax as per the beneficial tax rate of 5% and 10% under Article 10(2) of the India-Mauritius Tax Treaty and India- Netherlands tax treaty respectively, and thereby. rejecting the refund claim of Rs.294,84,70,521 made by the Appellant with respect to the DDT paid in excess of the beneficial tax rates under the treaties. Non-grant of tax credits pertaining to Accenture Services Private Limited (ASPL), which merged into the Appellant with an appointed date of 1 April 2015 ASPL merged into the Appellant with an appointed date of 1 April 2015. Revised return was filed pursuant to merger of ASPL into the Appellant wherein all income and corresponding TDS, advance tax, MAT credit, DDT pertaining to ASPL was reported by the Appellant. The said merger was also noted by the AO in the draft assessment order dated 26 December 2019. However, still the learned ΛΟ: 29. Erred in not granting credit of taxes deducted at source of Rs.198,94,21,730 claimed by the Appellant in its return of income, appearing under the PAN of ASPL 30. Erred in not granting credit of advance tax of Rs.484,00,00,000 claimed by the Appellant in its return of income, appearing in PAN of ASPL.

Erred in not granting credit of MAT of Rs.21,45,86,424 claimed by the Appellant in its return of income, appearing in PAN of ASPL.

The AO has also noticed that assessee company has claimed deduction u/s 10AA of the Act amounting to Rs.12,32,20,76,337/- in its return of income in respect of its SEZ units located at Banglore, Chennai, Gurgaon, Hyderabad, Kolkata, Mumbai, Noida & Pune. The assessing officer has issued the draft assessment order dated 26.12.2019 proposing adjustment of Rs.18,08,53,57,719/- made to the returned income of the assesse.

Vide application dated 24.01.2020 the assessee filed its objections against the draft assessment order before the DRP and thereafter filed additional ground of objections vide letter dated 14.07.2020. The assesse has also filed objections before the DRP that the order dated 01.11.2019 passed u/s 92CA(3A) by the Transfer Pricing Officer (TPO) was passed beyond the timeline for completion of proceedings u/s 92CA(3A) of the Act therefore, the TPO order is invalid and unsustainable in law. The DRP vide direction u/s 144C(5) of the Act dated 18.03.2021 has dismissed the objection filed by the assesse on the objection that the order passed u/s 92CA(3A) by the TPO was time barred as 60 days prior to date of which the period of limitation referred to in Sec. 153 of the Act 1961 ended on 30.10.2019 whereas the TPO has passed the order on 01.11.2019. The DRP has partly allowed the other objections filed by the assessee.

During the course of appellate proceeding before us, at the outset the ld. Counsel contested the ground no. 3 of appeal of the assesse that P a g e | Accenture Solutions Private Limited Vs. Add/Joint/Deputy/ACIT/ITO the transfer pricing order passed u/s 92CA(3A) of the Act on 01.11.2019 was time barred. In this regard, the ld. Counsel has placed reliance on the decision of Hon’ble Madras High Court in the case of Pfizer Healthcare India (P) Ltd. Vs. JCIT (433 ITR 028) (Mad), Dow Agroscience Pvt. Ltd. (ITA No. 1234/Mum/2021 and assesse’s own case for A.Y. 2015-16 (ITA No. 8008/Mum/2019) wherein it has been held that the order passed by the TPO on 1st November 2019 is barred by the period of limitation provided under section 93CA (3A) of the Act.

Heard both the side and perused the material on record with regard to the limited issue of validity of order passed by the TPO u/s 92CA(3) of the Act and the subsequent proceedings arises therefrom. During the course of appellate proceedings the ld. Counsel has filed computation of period of limitation as under:

Further the decision of division bench of the Hon’ble Madras High Court in the case of DCIT Vs. Saint Gobain India P. Ltd. referred by the ld. Counsel is reproduced as under: “28. The word "date" in section 92CA(3A) would indicate 31-12-2019. But the preceding words "prior to" would indicate that for the purpose of calculating the 60 days, 31-12-2019 must be excluded. The usage of the word "prior" is not without significance. It is not open to this court to just consider the word "to" by ignoring "prior". The word "prior" in the present context, not only denotes the flow of direction, but also actual date from which the period of 60 days is to be calculated. It is settled law that while interpreting a statute, it is not for the courts to treat any word(s) as redundant or superfluous and ignore the same. In this connection, it is pertinent to note the judgment of the Apex Court in Grasim Industries Ltd. v. Collector of Customs 2002 taxmann.com 1803, wherein, it was held as follows : "10. No words or expressions used in any statute can be said to be redundant or superfluous. In matters of interpretation one should not concentrate too much on one word and pay too little attention to other words. No provision in the statute and no word in any section can be construed in isolation. Every provision and every word must be looked at generally and in the context in which it is used. It is said that every statute is an edict of the legislature. The elementary principle of interpreting any word while considering a statute is to gather the mens or sententia legis of the legislature. Where the words are clear and there is no obscurity, and there is no ambiguity and the intention of the legislature is clearly conveyed, there is no scope for the court to take upon itself the task of amending or alternating (sic altering) the statutory provisions. Wherever the language is clear the intention of the legislature is to be gathered from the language used. While doing so, what has been said in the statute as also what has not been said has to be noted. The construction which requires for its support addition or substitution of words or which results in rejection of words has to be avoided. As stated by the Privy Council in Crawford v. Spooner [(1846) 6 Moore PC 1 : 4 MIA 179] "we cannot aid the legislature's defective phrasing of an Act, we cannot add or mend and, by construction make up deficiencies which are left there". In case of an ordinary word there should be no attempt to substitute or paraphrase of general application. Attention should be confined to what is necessary for deciding the particular case. This principle is too well settled and reference to a few decisions of this Court would suffice. (See : Gwalior Rayons Silk Mfg. (Wvg.) Co. Ltd. v. Custodian of Vested Forests [1990 Supp SCC 785 : AIR 1990 SC 1747] , Union of India v. Deoki Nandan Aggarwal [1992 Supp (1) SCC 323 : 1992 SCC (L&S) 248 : (1992) 19 ATC 219 : AIR 1992 SC 96] , Institute of Chartered Accountants of India v. Price Waterhouse [(1997) 6 SCC 312] P a g e | Accenture Solutions Private Limited Vs. Add/Joint/Deputy/ACIT/ITO and Harbhajan Singh v. Press Council of India [(2002) 3 SCC 722 : JT (2002) 3 SC 21] .)”

The language employed is simple. 31-12-2019 is the last date for the assessing officer to pass his order under section 153. The TPO has to pass order before 60 days prior to the last date. The 60 days is to be calculated excluding the last date because of the use of the words "prior to" and the TPO has to pass order before the 60th day. In the present case, the word "before" used before "60 days" would indicate that an order has to be passed before 1-11-2019 i.e on or before 31-10-2019 as rightly held by the Learned Judge.

Even considering for the purpose of alternate interpretation, the scope of section 9 of the General Clauses Act, it is to be noted that an inverted calculation of the period of limitation takes place here. If the last date is taken to be the first date from which the period of 60 days is to be calculated, reading down the provision with the use of the word "from", which denotes the starting point or period of direction in general parlance, would mean that 60 days "from the last date". Even going by section 9 of the General Clauses Act, when the word "from" is used, then, that date is to be excluded, implying here that 31-12-2019 must be excluded. After excluding 31- 12-2019, if the period of 60 days is calculated, the 60th day would fall on 1-11-2019 and the TPO must have passed the order on or before 31-10-2019 as orders are to be passed before the 60th day. Therefore, either way the contention of the Revenue is a fallacy and has no legs to stand. Mandatory or Directory 31. The next contention that has been raised by the learned senior standing counsel for the appellants is that the usage of the word "may" in section 92CA (3A) indicates that the time fixed is only directory, a guideline, not mandatory and is for the sake of internal proceedings.

Let us now examine the relevant procedures relating to Transfer Pricing. After an international transaction is noticed subject to satisfaction of section 92B, a reference is made to the TPO under sub-section (1) of section 92CA of the Act. The TPO after considering the documents submitted by the assessee is to pass an order under section 92CA (3) of the Act. As per section 92CA(3A), the order has to be passed before the expiry of 60 days prior to the date on which the period of limitation under section 153 expires. As per 92CA(4), the assessing officer has to pass an order in conformity with the order of the TPO. After receipt of the order from the TPO determining ALP, the assessing officer is to forward a draft assessment order to the assessee, who has an option either to file his acceptance of the variation of the assessment or file his objection to any such variation with the Dispute Resolution Panel and also the Assessing Officer. Sub- section (5) of section 144C of the Act provides that if any objections are raised by the assessee before the Dispute Resolution Panel, the Panel is empowered to issue such direction as it thinks fit for the guidance of the Assessing Officer after considering various details provided in Clauses (A) to (G) thereof. Sub- section (13) of section 144C of the Act provides that upon receipt of directions issued under sub-section (5) of section 144C of the Act, the Assessing Officer shall in conformity with the directions complete the assessment proceedings. It goes without saying that if no objections are filed by the Assessee either before the DRP or the assessing officer to the determination by the TPO, section 92CA(4) would come into operation. Therefore, it is very clear that once a P a g e | Accenture Solutions Private Limited Vs. Add/Joint/Deputy/ACIT/ITO reference is made, it would have an impact on the assessment unless a decision on merits is taken by DRP rejecting or varying the determination by the TPO.

It would only be apropos to note that as per proviso to section 92CA (3A), if the time limit for the TPO to pass an order is less than 60 days, then the remaining period shall be extended to 60 days. This implies that not only is the time frame mandatory, but also that the TPO has to pass an order within 60 days.

Further, the extension in the proviso referred above, also automatically extends the period of assessment to 60 days as per the second proviso to section 153.

Also, but for the reference to the TPO, the time limit for completing the assessment would only be 21 months from the end of the assessment year. It is only if a reference is pending, the department gets another 12 months. Once reference is made and after availing the benefit of the extended period to pass orders, the department cannot claim that the time limits are not mandatory. Hence, the contention raised in this regard is rejected.

As rightly pointed out by Mr. Ajay Vohra, learned senior counsel for the respondents in WA. Nos.1148 and 1149/2021, the word "may" has to be sometimes read as "shall" and vice versa depending upon the context in which it is used, the consequences of the performance or failure on the overall scheme and object of the provisions would have to be considered while determining whether it is mandatory or directory.

At this juncture, it is noteworthy to mention the commentary of Justice G.P.Singh on the interpretation of statutes, Principles of Statutory Interpretation (1st Edn., Lexis Nexis 2015), which is quoted below for ready reference: ' The intention of the legislature thus assimilates two aspects: In one aspect it carries the concept of "meaning" i.e. what the words mean and in another aspect, it conveys the concept of "purpose and object" or the "reason and spirit" pervading through the statute. The process of construction, therefore, combines both literal and purposive approaches. In other words the legislative intention i.e. the true or legal meaning of an enactment is derived by considering the meaning of the words used in the enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed. This formulation later received the approval of the Supreme Court and was called the "cardinal principle of construction".' 38. In case of assessments involving transfer pricing, fixing of time limits at various stages sets forth that the object of the provisions is to facilitate faster assessment involving such determination. In the present case, as rightly held by the learned Judge in paragraphs 22 to 29 of the order dated 7-9-2020, the order of the TPO or the failure to pass an order before 60 days will have an impact in the order to be passed by the Assessing Officer, for which an outer time limit has been prescribed under sections 144C and 153 and is hence mandatory. What is also not to be forgotten, considering the scheme of the Act, the inter-relatability and inter-dependency of the provisions to conclude the assessment, is the consequence or the effect that follows, if an order is not passed in time. When an order is passed in time, the procedures under 144C and 92CA(4) are to be followed. When the determination is not in time, it cannot P a g e | Accenture Solutions Private Limited Vs. Add/Joint/Deputy/ACIT/ITO be relied upon by the assessing officer while concluding the assessment proceedings.

Upon consideration of the judgments and the scheme of the Act, we are of the opinion that the word "may" used therein has to be construed as "shall" and the time period fixed therein has to be scrupulously followed. The word "may" is used there to imply that an order can be passed any day before 60 days and it is not that the order must be made on the day before the 60th day. The impact of the proviso to the subsection clarifies the mandatory nature of the time schedule. The word "may" cannot be interpreted to say that the legislature never wanted the authority to pass an order within 60 days and it gave a discretion. Therefore, the learned Judge rightly held the orders impugned in the writ petitions as barred by limitation, as the Board, in the Central Action Plan, has specified 31-10-2019 as the date on which orders are to be passed by the TPO, reiterating the time limit to be mandatory.” After taking into consideration the material placed on record it is undisputed fact that transfer pricing officer has passed order u/s 92CA(3) on 01.11.2019 whereas the limitation for passing the said order u/s 92CA(3) expires on 31.10.2019 Therefore, taking into consideration the provision of the Act and decision of Hon’ble Madras High Court in the cases referred supra the order u/s 92CA(3) of the Act is time barred by 1 day. Further the ld. Counsel has mentioned the provisions of Sec. 144C(15) of the Act pertaining to the eligible assesse the same is reproduced as under: “(b) “eligible assessee” means – (i) Any person in whose case the variation referred to in sub- section(1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) (ii) any non-resident not being a company, or any foreign company.” After referring the aforesaid provisions the ld. Counsel contended that since the order of the TPO was barred by limitation, therefore, there was no eligible assessee in the case of the assessee in terms of provisions of subsection (15) to Sec. 144C of the Act.

In this regard, we find that coordinate bench of the ITAT on the similar issue on identical facts in the cases i.e (i) Strides Shasum Limited Vs. DCIT, Circle 15(3)(2) vide dated P a g e | Accenture Solutions Private Limited Vs. Add/Joint/Deputy/ACIT/ITO 28.02.2023 (ii) M/s Mondelez India Foods Private Limited Vs. Ad. CIT, Range 5(1) vide 1576 & 2340/Mum/2015 dated 14.11.2022 and (iii) M/s Tubacex Prakash India Pvt. Ltd. Vs. The ACIT/JCIT/DCIT/ACIT-national E-assessment Centre, Delhi and DCIT, circle 14(1)(2), dated 24.03.2023 held that the order of the TPO and draft assessment order are barred by limitation, therefore, resulting in assessee not being a eligible assessee u/s 144C(15)(b)(i) of the Act. Consequently, the final assessment was also bad in law. Therefore, since the issue on hand being squarely covered on similar fact and circumstances, therefore, ground no. 3 is allowed. Ground No. 2 & 4 to 23: 9. The ld. Counsel vide letter dated 22.05.2023 had submitted that these ground of appeal

Heard both the sides and perused the material on record. In view of the amendment made by Finance Act 2022 as referred supra we don’t find any merit in the ground of appeal