CAPGEMINI INDIA P.LTD,BHIWANDI vs. DCIT CIR 10(2), MUMBAI

This appeal is filed by Capgemini Technology Services India Ltd. (formerly known as Capgemini India Pvt. Ltd.) [ Assessee/ Appellant ] against the order of The Commissioner of Income-tax (Appeals)-55, Mumbai [The Learned CIT(A)] dated 8th February, 2016 for AY 2010-11.

The assessee has raised 12 grounds of appeal which are as under:-

Brief facts of the case shows that assessee is a company being subsidiary of CapGemini US LLC, USA engaged in the business of providing information and technology services.

Assessee in form no. 3CEB reported following ten international transactions:-

The learned Transfer Pricing Officer accepted the arm’s length price of all other transactions except Reimbursement of expenses incurred by various CapGemini Entities on behalf of assessee amounting to

Accordingly, the draft assessment order was passed on 13th March, 2014 where several additions were made and total income was determined at ₹144,06,06,540/-.

Assessee did not file any objection before the learned DRP against the draft assessment order and therefore final assessment order under section 143(3) read with section 144C(13) of the Act was passed on 26th May, 2014. Learned Assessing Officer over and above the transfer pricing adjustment made following additions;

The assessee aggrieved with the above order-preferred appeal before the learned CIT (A), who passed an order on 8 February 2016 allowing the appeal of the assessee partly. Therefore, the assessee is aggrieved with that order and has preferred this appeal raising several grounds as per grounds of appeal.

The learned Authorized Representative submitted a chart covering all the grounds of appeal along with two case laws compilation one containing transfer pricing issue and second containing issue other than transfer pricing. As the transfer pricing study report filed by the assessee before the lower authorities was not available on record,

He alternatively submitted that even if out of pocket expenses incurred by the assessee are treated as part of cost base of the assessee, even then the operating margin earned from software development activity is 19.45%, whereas the arithmetic mean of the margins of the comparables is only 8.69%. Therefore, even otherwise no adjustment on the same is warranted.

Coming to ground no. 6 and 7, which are related to computation of deduction under section 10A of the Act, he submitted that assessee owned and operated 13 software units during the year under consideration. Assessee claimed deduction with respect to several units however it did not claim deduction u/s 10 A for certain units. The deduction was not claimed u/s 10 A in respect of Chennai units as there was a loss incurred of ₹ 64,594,565/–. The loss of that unit was set of against the normal taxable

Coming to ground no. 8 and 9 which are with respect to the computation of deduction under section 10A of the Act, where the Revenue authorities have held that data line cost[ Tele communication expenditure] amounting to ₹146124486/- should be reduced from the export turnover of eligible units. He submitted that the above issue is covered in favour of the assessee by the decision of Hon'ble Bombay High Court in assessee’s own case vide its order dated 9th July 2014 for Assessment Year 2005-06.

Coming to ground no. 13, which is without prejudice to the exclusion of data line cost, assessee pressed that if the data line cost is excluded from export turnover same

Coming to ground no. 10 and 11, the learned Authorized Representative submitted that the expenditure in foreign exchange have been reduced from the export turnover of the eligible units amounting to ₹97,70,36,684/- despite the issue is squarely covered in favour of the assessee by the decision of the co-ordinate bench in assessee’s own case for Assessment Year 2008-09 and 2009-10.

Coming to ground no. 12, he submitted that the lower authorities have confirmed the addition of ₹24,46,601/- on the basis of difference in form no. 26AS. He referred to several pages of the AIR statement, which are placed before us. He further referred to the letter dated 11 March 2014 submitted during the course of assessment proceedings as well as the letter submitted to Axis Bank. He submitted that assessee has not at all entered into any of those transactions, which have been shown in the form No. 26AS. He submitted that the credit card holders was assessee’s employees till March, 2010 and the payment made to the hotel are also not made by the assessee, the addition cannot be made in the hands of the assessee.

Coming to the ground No. 14 he submitted that the expenditure amounting to ₹97,70,36,684/- incurred in

The learned CIT departmental representative, countering argument of the learned Authorized Representative on ground no. 1 to 5 of the appeal on transfer pricing issues, the learned CIT Departmental Representative heavily supported the orders of the lower authorities. He referred to page nos. 106 to 110 of the paper book filed by the assessee where the service agreement is placed. She referred to article 1 and article 2 of that agreement, and submitted that assessee should have charged 112% of its cost. The expenditure incurred by the assessee should also have been included for working out the markup on such services. She submitted that there is no difference between the cost incurred by the assessee for its Associated Enterprises and cost incurred by assessee on its own. With respect to the argument of the learned Authorized Representative that there is no value addition or additional function performed by the assessee for reimbursement of expenditure, she submitted that there is no requirement of any value added cost to be included as there is no distinction in the agreement and only cost is mentioned. He further referred to paragraph no. 2.4 of

With respect to other grounds of appeal, she relied upon the order of the lower authorities. In rejoinder of the learned Authorized Representative once again reiterated the arguments advanced earlier.

We have carefully considered the rival contentions and perused the order of the lower authorities. We have also considered and perused the paper book filed by the assessee containing 271 pages as well as chart of the issues. The assessee has also relied on two case laws compilation [1] related to transfer pricing and [2] related to non-transfer pricing issues. We have also considered them.

The ground no. 1 to 5 of the appeal is with respect to the transfer pricing adjustment with respect to reimbursement of out of pocket expenses incurred by the assessee amounting to ₹170,82,85,067/- where the ld TPO has included in cost base of the assessee and made an adjustment of 12 % thereof. Facts shows that assessee has entered into a Master Service Agreement with 71 Associated Enterprises on 1 April 2008.

Ground number 8 and 9 are with respect to the question whether the telecommunication expenses of eligible units amounting to Rs 1,46,12,448/- should be reduced from the export turnover of the eligible unit. The assessee has claimed that the above issue is also covered in favour of the assessee by the decision of the honourable Bombay

Therefore, in view of the above decision of the honourable Supreme Court we direct the learned assessing officer to give the treatment to the expenditure while computing export turnover and the total turnover of the eligible unit. Accordingly, ground number 10, 11 and ground number 14 of the appeal are allowed.

Ground number 12 of the appeal is with respect to the addition of ₹ 2,446,601/– made by the learned assessing officer for the reason that during the course of the assessment proceeding the assessee was provided by the AIR/CIB details and asked to reconcile the same with the entries in the books of accounts. The AO found that there is credit card payment of ₹ 2,401,929/– to access bank Ltd. The assessee has denied having entered into any such transaction stating that the credit cardholder appearing in the AR report Mr. Basu was assessee’s employee and can’t any does not have any credit card issued by that bank. Another payment of ₹ 44,672/– was

In the result, Appeal of assessee is allowed.