CABLE AND WIRELESS (INDIA) LTD,MUMBAI vs. DCIT (IT)CIRCLE- 2(1)(1), MUMBAI

PER RAVISH SOOD, JM

, 6075 & 756/Mum/2017 2 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) “1. That on the facts and circumstances of the case and in law, the Assessing Officer has erred in passing the assessment order dated November 16, 2016 under section 143(3) read with section 1440(13) of the Act, at an assessed income at INR 8,40,79,821, as against returned income of INR 6,71,08,313. Ad-hoc disallowance of expenses allocated: 2. That on the facts and circumstances of the case and in law, the AO has erred in arbitrarily disallowing expenses amounting to INR 70,37,078 being 30% of the expenses reimbursed to the Associated Enterprise (AE") on an ad hoc basis alleging that the Appellant has not been able to substantiate the allocation of the expenses.

3. That on the facts and circumstances of the case and in law, the DRP erred in upholding the ad hoc disallowance of expenses on mere conjectures and surmises questioning the business rationale for incurring such expenses. Recovery of expenses brought to tax as Royalty I FTS: 4. That on the facts and circumstances of the case and in law, the AO / DRIP has erred in holding that the reimbursements I recovery of expenses amounting to INR 25,93,752 was in nature of royalty / FTS paid to Appellant by the AEs under section 9(1)(vi) / 9(1)(vii) and Article 13 of the India -UK Double Taxation Avoidance Agreement ("DTAA").

5. That on the facts and circumstances of the case and in law, the AO I DRIP have erred in making an addition to the income of the Appellant merely based on conjectures that the services have been rendered by the Appellant to its AEs holding the same to be international private leased circuit charges on an incorrect appreciation of facts disregarding the evidence submitted by the Appellant in this regard. Other Grounds: 6. That on the facts and circumstances of the case and in law, the AO has erred in charging surcharge and education cess on alleged royalty income of the Appellant.

7. That on the facts and circumstances of the case and in law, the AO has erred in not providing set-off of brought forward losses amounting to INR 55,07,980 8. That on the facts and circumstances of the case and in law, the AO has erred in charging interest under sections 234A and 234B of the Act.

9. Without prejudice, and on the facts and circumstances of the case and in law, the AO has erred in incorrectly computing the interest under section 234B of the Act. Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The appellant prays for leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal.” Apart therefrom, the assessee has also sought the leave of the Tribunal for raising the following additional grounds of appeal:

“1. That on the facts and circumstances of the case and in law, the assessment order dated March 25, 2016 issued by the Assessing Officer ("AO") is bad in law and void ab initio as the same has been passed in violation of section 144C of the Income-tax Act, 1961 (“Act").

, 6075 & 756/Mum/2017 3 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) 2. That on the facts and circumstances of the case and in law, the AO erred in violating the procedure laid down under section 144C of the Act in finalising the assessment proceedings without passing a draft assessment order as he issued 'Income Tax Computation Form' and initiated penalty proceedings by directing to issue penalty notice under section 274 read with section 271(1)(c) of the Act along with the assessment order dated March 25, 2016.”

common staff which was under the payroll of CWNIPL. On the basis of the aforesaid facts, it was the claim of the assessee that the expenses which were incurred in respect of the aforesaid administrative functions were cross charged to it by CWNIPL on cost to cost basis. As per the details furnished by the assessee, it was noticed by the A.O that the assessee had during the year under consideration claimed to have reimbursed an amount of Rs.2,34,56,929/- to CWNIPL. It was the claim of the assessee that the aforesaid amount of reimbursement was towards support costs consisting of salary, leave encashment and gratuity expenses which were incurred by CWNIPL for and on its behalf on cost to cost basis. In order to fortify its aforesaid claim the assessee had also placed on record sample copies of „debit notes‟. On a perusal of the details furnished in the course of the assessment proceedings, it was noticed by the A.O that the assessee had claimed that the expenses incurred by CWNIPL in respect of rendering of administrative functions were allocated to the assessee by adopting the allocation key of head count basis, as under:

Cross Charge Basis – Details of number of employees April May June July Aug Sep Oct Nov Dec Jan Feb Mar Cable and 443 459 460 468 472 487 496 491 486 492 489 489 wireless (India) Limited India Cable and 98 101 94 104 104 104 104 103 104 103 104 105 Wireless Networks India Private Limited

Actual April May June July Aug Sep Oct Nov Dec Jan Feb Mar Cost Booked Finance 9,91,651 9,91,651 9,91,651 9,45,414 9,45,414 9,45,414 11,49,581 11,49,581 11,49,581 9,41,973 9,41,973 11,94,849 Admin 1,90,247 1,90,247 1,90,247 1,90,247 1,90,247 1,90,247 1,90,247 1,90,247 1,90,247 1,90,247 1,90,247 1,90,247 HR 7,63,849 7,63,849 7,63,849 7,64,849 7,64,849 7,64,849 7,64,849 7,64,849 7,64,849 7,64,849 7,64,849 7,64,849 Total 19,45,747 19,45,747 19,45,747 18,99,509 18,99,509 18,99,509 21,03,676 21,03,676 21,03,676 18,96,069 18,96,069 18,96,069 cost booked Allocati 15,93,282.34 15,94,817 16,15,602 15,54,144 15,56,542 15,65,247 17,39,039 17,32,897 17,32,859 17,32,859 15,63,537 17,69,080 on to CWIL However, the A.O was unable to persuade himself to accept the aforesaid claim of allocation of expenses on head count basis. It was observed by the A.O, that though the number of employees had fluctuated during the year under consideration but the administrative and human resource expenses had remained static at an amount of Rs.1,90,247/- and Rs.7,63,849/-,respectively. In the backdrop of the aforesaid facts, the A.O was of the view that in case the allocation key of head count basis was to be accepted, then the amount of administrative and human resource expenses would not had remained constant throughout the , 6075 & 756/Mum/2017 5 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) year. Accordingly, the A.O backed by his aforesaid conviction was of the view that the logic of adopting the head count basis as the allocation key for the aforesaid expenses could not be accepted and rejected the same. Observing, that as neither any valid methodology for allocation of expenses was submitted by the assessee nor the one submitted was found to be substantiated, therefore, the A.O was of the view that there was no other option but to appropriate on an estimate basis a part of the aforesaid expenses as not covered under Sec. 37(1) of the Act. As such, in the absence of the requisite information the A.O on an ad hoc basis disallowed 30% of such expenses and made a consequential addition/disallowance of Rs. 70,37,078/- under Sec. 37 of the Act.

Cable & Wireless UK 689959 Cable & Wireless Worldwide 1903793 Singapore Pte Ltd. Total 2593752 On being called upon to furnish details with respect to the aforesaid expenses which were claimed to have been incurred for and on behalf of the aforesaid related entities, it was stated by the assessee that it had recovered certain expenses in the form of rental and circuit charges which were incurred by it on behalf of the aforesaid group companies for providing certain facilitation services. However, the A.O declined to accept the aforesaid claim of the assessee. It was observed by the A.O that as per the information available the assessee had procured circuit charges which were akin to connectivity services to provide communication facilities to its group entities, which could not be construed as reimbursement of expenses. On the basis of his aforesaid observations the A.O concluded that the circuit charges received by the assessee for providing support services which were technical in nature were to be treated as royalty/FTS under Sec. 9(1)(vi)/9(1)(vii) and Article 13 of the India-U.K Tax Treaty. Accordingly, the aforesaid amount of Rs.25,93,752/- which was claimed by the assessee as reimbursement of expenses received by it from its group entities was brought to tax in the hands of the assessee. On the basis of his aforesaid deliberations the A.O vide his draft assessment order passed , 6075 & 756/Mum/2017 6 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) under Sec. 144C(1) r.w.s 143(3), dated 25.03.2016 proposed to assess the total income of the assessee at Rs.8,40,79,821/-.

7. The assessee being aggrieved with the order passed by the A.O under Sec. 144C(13) r.w.s. 143(3), dated 22.11.2016 has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee took us through the facts of the case. At the very outset of the hearing of the appeal, the ld. A.R submitted that as instructed the additional grounds of appeal raised by the assessee were not being pressed. In the backdrop of aforesaid concession of the ld. A.R the additional grounds of appeal raised by the assessee are dismissed as not pressed. On merits of the case, the ld. A.R submitted that the lower authorities had gravely erred in failing to appreciate that now when the TPO, vide his order passed under Sec. 92CA(3), dated 25.01.2016 had accepted the allocation key of head count basis for cross charging on cost to cost basis the common pool expenses viz. finance expenses, administrative expenses and human resource expenses to the assessee by CWNIPL, therefore, there was no justifiable reason for the A.O to have rejected the same. In sum and substance, it was the claim of the ld. A.R that now when TPO had accepted the allocation key in respect of the aforementioned expenses, the A.O could not have disturbed the same. It was the claim of the ld. A.R that as the aforesaid expenses were admittedly incurred wholly and exclusively for the purpose of the business of the assessee, therefore, no part of the same could have been disallowed on an ad hoc basis under Sec. 37 of the Act. Apart from that, it was submitted by the ld. A.R that similar reimbursements on the basis of the aforesaid

ITA Nos.6074, 6075 & 756/Mum/2017 7 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) allocation key had been allowed by the A.O in the immediately preceding year as well as in the succeeding years. It was averred by the ld. A.R that the A.O in A.Y. 2011-12, A.Y. 2013-14 and A.Y. 2014-15 had consistently accepted the reimbursement of expenses by the assessee for (i) administration and (ii) human resources functions using the employee head count as the allocation key. As regards the reimbursement of expense by the assessee for finance function, it was submitted by the ld. A.R that the A.O had changed the allocation key to turnover of the assessee vis-à-vis that of CWNIPL. Accordingly, on the basis of the aforesaid facts, it was submitted by the ld. A.R, that in light of the fact that there had been no change in the nature of the transactions during the year under consideration, therefore, the approach adopted by the A.O/DRP for carrying out an ad hoc disallowance of the aforesaid expenses was erroneous and uncalled for. As such, it was the claim of the ld. A.R. that since the facts and nature of reimbursement of expenses had remained exactly similar to those for the preceding and succeeding assessment years, therefore, as per the principle of consistency the inconsistent approach adopted by the A.O/DRP for the year under consideration was liable to be vacated. In support of his aforesaid contention the ld. A.R had relied on the judgment of the Hon‟ble Supreme Court in the case of Radha Soami Satsang Vs. CIT (1992) 193 ITR 321 (SC). As regards the re-characterization of the amount received by the assessee from its group entities by way of reimbursement of their share of expenses, as royalty/FTS by the A.O/DRP, it was submitted by the ld. A.R that a similar view under identical facts taken by the lower authorities had been vacated by the Tribunal in the assesse‟s own case for the immediately preceding year viz. A.Y. 2011-12. It was submitted by the ld. A.R that a similar re-characterisation of receipt of amount by way of reimbursement of expenses by the assessee, as FTS/Royalty by the A.O/DRP, was on appeal restored by the Tribunal to the file of the A.O, vide its order passed in dated 08.06.2016 r.w. order No. M.A. 274/Mum/2016, dated 04.01.2017, with a direction that the same be readjudicated afresh. It was submitted by the ld. A. R that the A.O giving effect to the ITAT order, had vide his order dated 08.03.2017 Page 155 – 159 of the assesses paper book (for short „APB‟) had accepted the claim of the assessee, and therein concluded that the amounts received by the assessee were only in the nature of reimbursement by the third parties on cost to cost basis and not FTS. On the basis of the aforesaid facts, it was submitted by the ld. A.R that in the backdrop of the aforesaid view taken by the A.O the amount received by the assessee as reimbursement of expenses from its , 6075 & 756/Mum/2017 8 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) group entities could not have been brought to tax as royalty/FTS during the year under consideration.

“Normally, in absence of any tangible material to the contrary, such basis of employee cost could not be faulted.” We shall herein deliberate upon the sustainability of the reasons given by the A.O/DRP for rejecting the allocation key that was adopted for allocating the expenses in the hands of the assessee vis-a-vis CWNIPL, as under:

(A)(i). As per the A.O/DRP, though the assessee had adopted the head count as the allocation key for working out its share of common employee costs consisting of salary, leave encashment and gratuity aggregating to Rs. 2,34,56,929/-, that was reimbursed to CWNIPL, but a logical nexus between such employee costs and variation in the number of employees was not discernible from the records. It was observed by the A.O, that though the monthly Administration expenses and the Human resource expenses had remained static throughout the year, but there was a variation in the number of employees. As such, the A.O/DRP held a conviction that in case head count was to be accepted as the allocation key, than the monthly , 6075 & 756/Mum/2017 10 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) variation in the number of employees ought to have witnessed a corresponding fluctuation in the aforesaid monthly employee costs. Also, it was observed by the A.O, that even the finance cost did not have a linear variance to the number of employees. On a perusal of the order of the DRP, we find, that it had while concluding as hereinabove referred to certain observations that were recorded by it in context of the facts pertaining to the immediately preceding year viz. A.Y 2011-12.

(ii). We have given a thoughtful consideration to the aforesaid observations of the A.O/DRP, and are unable to persuade ourselves to subscribe to the view taken by them. As is discernible from the order of the DRP, it was the claim of the assessee that as it did not have a separate Finance, Administrative and Human Resources team of its own, therefore, assistance for providing of such services was sought from its associated enterprise viz. CWNIPL. Insofar the aforesaid claim of sharing by the assessee of common pool expenses incurred by CWNIPL is concerned, we find that the same had not been controverted by the A.O/DRP, and is principally not in dispute. The controversy involved in the present case revolves around the adoption of the head count basis for the purpose of allocating the common pool expenses inter se the assessee and CWNIPL. The A.O/DRP held a conviction that if there would have been a logic in adoption of the number of employees of the assessee vis-a-vis CWNIPL as a basis for allocating the aforesaid common expenses between them, then the expenditure incurred towards Finance, Administration and Human Resource functions would also have witnessed a correlating fluctuation/variance alongwith the change in the number of their respective employees over the months during the year under consideration. We find substantial force in the contention of the ld. A.R, that the common expenses incurred by CWNIPL towards Finance, Administration and Human Resources functions may not vary with every change in number of the employees employed either by the assessee or CWNIPL. Although, the number of employees of the assessee vis-a-vis CWNIPL does give a fair picture and provides a basis for allocating the aforesaid common employee costs between them, however, the same cannot be expected to vary with every change in the number of employees employed by them. As such, the cost incurred towards provision of the aforesaid common services may continue to be the same despite insignificant variation in the number of employees of the assessee or CWNIPL. Accordingly, we are unable to sustain the view taken by the A.O/DRP that as the , 6075 & 756/Mum/2017 11 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) fluctuation/change in the number of employees of the assessee and CWNIPL during the year is not witnessed by a corresponding fluctuation/change in common employee costs, therefore, the allocation of the common expenses on a head count basis cannot be safely adopted for allocating the said expenses between them.

B(i). On a perusal of the order of the DRP, we find that it had referred to an observation that was recorded in the backdrop of the facts involved in the case of the assessee for the immediately preceding year viz. A.Y 2010-11, on the basis of which it was observed that the assessee over and above its share of reimbursed cost of common pool expenses had also debited similar expenses in its accounts in „Schedule 13‟. As such, it was observed by the DRP that as the assessee had its own pay roll of employees, therefore, it could not be comprehended that as why additional cost was reimbursed by it. Rebutting the said observations, it was averred by the ld. A.R that as the assessee did not have separate Finance, Administrative and Human Resources team of its own, therefore, for the said activities it had sought assistance from its associate enterprise viz. CWNIPL, wherein the latter after incurring the said common expenses had cross charged the same to the assessee (its share of expenses) on cost to cost basis. As such, it was submitted before the lower authorities, as well as before us, that the expenses reimbursed by the assessee were towards its share of allocated support costs consisting of salary costs, leave encashment and gratuity expenses in respect of the common staff under the payroll of CWNIPL, that was rendering administrative, human resource and finance services, while for those debited in the accounts of the assessee pertained to the operational staff that was on the pay rolls of the assessee. In fact, we find that as claimed by the ld. A.R, the assessee on being called upon by the DRP on September 6, 2016 to furnish the break-up of its personnel expense of Rs. 38.19 crores between its own personnel expenses and the amount reimbursed to CWNIPL, had furnished such bifurcated details viz. (i). assesse‟s own personnel expenses: Rs. 35.84 crores; and (ii) amount reimbursed to CWNIPL towards shared personnel expenses : Rs. 2.34 crores.

(ii). We have deliberated at length on the aforesaid contention of the ld. A.R, and find substantial force in the same. In our considered view, the amount reimbursed by the assessee was towards its share of expenses that were incurred by CWNIPL in respect of the common staff that was providing administrative, human resource and finance services, while for those , 6075 & 756/Mum/2017 12 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) debited in the accounts of the assessee pertained to the operational staff that was on the pay rolls of the assessee. As such, it can safely be concluded that there was no overlapping or duplication of the expenses debited by the assessee in its books of accounts. Be that as it may, the A.O/DRP had not doubted the fact as regards sharing of the common expenses by the assessee and CWNIPL, but had only assailed the adoption of the head count as a basis for allocating the common pool expenses. As such, the aforesaid doubts raised by the DRP looses their significance in the backdrop of the reasoning, and also the basis, that was adopted for dislodging the assesse‟s claim of allocation of expenses.

(C)(i). Adopting the observations that were arrived at by the DRP while disposing off the objections in the case of the assessee for the immediately preceding year viz. A.Y 2010-11, it was observed by the DRP that the assessee had not produced the copy of accounts of the other group company viz. CWNIPL, which would evidence that the latter was not a loss making company, and the assessee had not attempted tax avoidance in the garb of reimbursement of expenses.

(ii). On a perusal of the records, we find that the aforesaid observations by the DRP do not befit the e factual position for the year under consideration. As is discernible from the objections filed by the assessee with the DRP, we find, that the assessee during the year under consideration viz. A.Y 2012-13, had furnished the acknowledgement of the returns of income filed by CWNIPL for the A.Y 2011-12, A.Y 2012-13 and A.Y 2013-14, which therein established that CWNIPL was a profit making entity, and had paid the taxes at maximum marginal rate during the year under consideration. In fact, the assessee vide its letter dated 23/03/2016 that was filed in the course of the assessment proceedings, had brought to the notice of the A.O that CWNIPL was a profit making entity and had paid taxes as per the normal provisions of the Act. Also, in support of its said claim the assessee had filed the copies of the returns of income of CWNIPL for A.Y 2011-12, A.Y 2012-13 and A.Y 2013-14. (Page 28 – 33) of the assesses „Paper book‟ (for short „APB‟). In the backdrop of the aforesaid facts, we are of the considered view that the assessee had sufficiently substantiated its claim that CWNIPL was a profit making entity not only during the year under consideration, but also, in the immediately preceding and succeeding years. , 6075 & 756/Mum/2017 13 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) D(i). As is discernible from the records, the A.O had in the course of the assessment proceedings made a reference to the Transfer Pricing Officer-1(3)(1), Mumbai (for short „TPO‟) for the purpose of determining the Arm‟s Length Price (ALP) of the international transactions of the assessee as were detailed in its „Audit report‟ in „Form No. 3CEB‟. On the basis of his order passed under Sec. 92CA(3), dated 25.01.2016, the TPO had held the international transactions of the assessee to be at arm‟s length. It has been the claim of the assessee before the lower authorities, and also before us, that once the TPO had held the transaction of reimbursement of expenses to be at arm‟s length, then the A.O as per Sec. 92CA(4) was obligated to pass an order in conformity with the ALP determined by the TPO. As such, it was the claim of the ld. A.R, that after the TPO had held the reimbursement of expense by the assessee to its AE viz. CWNIPL to be at arm‟s length, the A.O was divested of his jurisdiction to relook into the basis of allocation of such expenses, as he as per Sec. 92CA(4) of the Act remained under a statutory obligation to pass the order in conformity with the ALP determined by the TPO.

(ii). We have given a thoughtful consideration to the aforesaid claim of the assessee, and are persuaded to subscribe to the aforesaid contention so advanced by him. Admittedly, the transaction of reimbursement of expenses by the assessee (a branch of a foreign company) to CWNIPL i.e its Indian AE, is an International transaction within the meaning of Sec.92B of the Act. As per Sec. 92CA(4) of the Act, on receipt of order under sub-section (3) of Sec. 92CA, the A.O shall proceed to compute the total income of the assessee under sub-section (4) of Sec. 92C in conformity with the arm‟s length price so determined by the TPO. As is discernible from the order of the DRP, it was the claim of the assessee that now when the Asst. Commissioner of Income-tax (Transfer Pricing)-1(3)(1), Mumbai, had during the course of the TP proceedings accepted the reimbursement of expenses to be at arm‟s length, therefore, as per the provisions of Sec. 92CA(4) of the Act, the A.O was obligated to pass the order and compute the total income of the assessee in conformity with the arm‟s length price so determined by the TPO. Also, in support of his aforesaid claim the assessee had relied on the order of the ITAT, Bangalore in the case of Herbalife International India (P) Ltd. Vs. ACIT (2016) 65 taxmann.com 143 (Bang). In our considered view, now when the TPO on a reference made to him under Sec. 92CA(1) of the Act for benchmarking the international transactions of the assesssee, had accepted the ALP of the reimbursement of expenses by the assessee to its AE viz. CWNIPL, , 6075 & 756/Mum/2017 14 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) thereafter, the A.O as per the mandate of Sec. 92CA(4) of the Act, was statutorily bound to compute the total income of the assessee in conformity with the arm‟s length price so determined by the TPO. Although, the A.O in the course of the assessment proceedings continues to remain vested with the jurisdiction to verify as to whether or not an expense claimed by the assessee as a deduction was incurred wholly and exclusively for the purpose of its business, however, in the garb of exercise of such jurisdiction he is precluded to redetermine the arm‟s length price of an international transaction, in any way. In our considered view, now when the TPO while benchmarking the international transactions of the assessee, had not disturbed the arm‟s length price of the transaction of reimbursement of expenses by the assessee to its AE viz. CWNIPL, therefore, a relooking into the basis of allocation of such expenses inter se the assessee and CWNIPL would clearly militate against the express provisions of Sec. 92CA(4) of the Act. Our aforesaid view, that the A.O as per the mandate of Sec. 92CA(4) is obligated to compute the income of the assessee in conformity with the ALP so determined by the TPO, is fortified by the judgment of the Hon‟ble High Court of Bombay in Vodafone India Service (P) Ltd. Vs. Union of India (2013) 359 ITR 133 (Bom) and that of the Hon‟ble High Court of Delhi in CIT Vs. Oracle India (P) Ltd. (2011) 243 CTR 103 (Del). Also, support is drawn from the order of the ITAT, Delhi in DCIT vs, YKK India Pvt. Ltd. Accordingly, on the basis of our aforesaid observations, we are of a strong conviction that the rejection of the allocation key of reimbursement of expenses by the assessee to its AE viz. CWNIPL after the arm‟s length price of the same had been accepted by the TPO, would clearly be contrary to the mandate of law.

(E)(i). We shall now advert to the sustainability of the ad hoc disallowance of 30% of the expenses reimbursed by the assessee to CWNIPL. As is discernible from the orders of the lower authorities, the A.O after concluding that the assessee had neither submitted any valid methodology for allocation of the expenses, nor the one submitted was substantiated, therefore, vide his draft assessment order passed under Sec. 144C(1) r.w.s 143(3), dated 25/03/2016, had proposed to disallow on an ad hoc basis 30% of such expenses aggregating to Rs. 2,34,56,929/- under Sec. 37(1) of the Act, leading to a consequential addition /disallowance of Rs. 70,37,078/-. On objections filed by the assesseee, the DRP upheld the aforesaid ad hoc disallowance. We find that it has been the case of the assessee before the , 6075 & 756/Mum/2017 15 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) lower authorities, and also before us, that the A.O had failed to bring on record any specific explanation or justification for carrying out an ad-hoc disallowance of 30 percent of expenditure allocated to the assessee. It was averred by the ld. A.R, that as the ad hoc disallowance of the allocated expenses had been made by the A.O/DRP without any basis, therefore, the same cannot be sustained and is liable to be vacated.

(ii). We have given a thoughtful consideration to the aforesaid claim of the ld. A.R, and find substantial force in the same. As observed by us hereinabove, the common employee costs were inter se allocated amongst the assessee and CWNIPL by adopting head count basis as the allocation key. In our considered view, without prejudice to our observations recorded hereinabove as regards the sustainability of the view taken by the A.O as regards the selection of the allocation key for apportionment of common expenses, in case, the A.O was of the view that the same could not have been applied, then it was incumbent upon him to determine the allocation key which in the backdrop of the facts of the case, to his understanding, could have been safely applied. We are of a strong conviction that rejection of the basis of allocation of expenses, and substituting the same by an ad hoc disallowance which is devoid and bereft of any basis, cannot be sustained. In fact, we find that even a simpliciter disallowance of expense on an ad hoc basis had not been approved by various courts/tribunals. In support of our aforesaid view reliance is placed on the judgment of the Hon‟ble High Court of Delhi in National Industrial Corpn. Limited vs. CIT (2002) 124 Taxman 413 (Del). Also, a similar view had been taken by ITAT, Ahmedabad in Mahendra Oil Cake Industries Pvt. Ltd. Vs. ACIT (1996) 55 TTJ 711 (Ahd) and ITAT, Pune in Ador Technologies Ltd. Vs. Dy. CIT (2007) 112 TTJ 24 (Pune). Accordingly, on the basis of our aforesaid observations we are unable to uphold the ad hoc disallowance of 30% of the amount of expenses reimbursed by the assessee to CWNIPL.

(F). Lastly, we may herein observe, that the DRP while disposing off the objections of the assessee for the year under consideration, had observed, that in absence of any tangible material to the contrary, the adoption of head count basis as the allocation key for allocating of employee costs cannot be faulted. Accordingly, it can safely be concluded that the DRP itself had opined that de hors material to the contrary the head count basis can safely be adopted as the allocation key. In fact, we find that the A.O in A.Y. 2011-12 while re-adjudicating the issue pursuant to the „setting aside‟ of the matter to his file by the Tribunal, had accepted, that the , 6075 & 756/Mum/2017 16 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) reimbursement of expenses by the assessee for (i) administration and (ii) human resource functions could safely be allocated by using the average number of employee as the allocation key. As regards the reimbursement of expenses by the assessee for finance function the A.O had changed the allocation key to turnover of the assessee vis-à-vis that of CWNIPL. Now, as the adverse inferences/objections which were drawn by the A.O/DRP for concluding that the head count basis adopted was not a correct basis for allocating the employee costs in the case of the present assessee had been vacated by us, therefore, we are of the considered view that no infirmity could be related to the allocation of the aforesaid common employee costs on head count basis by the assessee during the year under consideration. Accordingly, we „set aside‟ the order passed by the A.O, and direct him to accept the head count basis for the allocation of the aforesaid common expenses viz. (i). administration costs; (ii) human resources costs; and (iii). finance costs, between the assessee and CWNIPL. The Grounds of appeal No. 1 to 3 are allowed in terms of our aforesaid observations.

8. However, we notice that the assessee has not furnished any document after the conclusion of hearing. The main contention of the assessee is that there was a mere arrangement between the telecom companies and the assessee, as per which the bill for rent and circuit charges utilized by the group companies shall be raised upon the assessee. We notice that the above said services have been availed from Tata Telecom and Reliance Telecom, both are reputed public limited companies. Normally the bill shall be raised upon the person who has availed their services and if it is required to be raised upon any other person other than the person availing the services, then the telecom companies shall do it by getting necessary documents in that regard. 9. According to Ld A.R, the nature of services provided by the assessee does not require use of Circuit facilities provided by telecom companies. Accordingly he attempted to substantiate the claim of the assessee that it has acted as pipeline between the telecom companies and group companies. However, the orders passed by tax authorities do not bring out exact nature of services provided by the assessee and hence we are unable to appreciate the above said contentions of the assessee. However, we are of the view that the said contentions of the Ld A.R may require proper examination, as it may bring out the factual aspects relating to this issue. We notice that the factual aspects have not been brought on record by the tax authorities. Accordingly, we are of the view that this issue also requires fresh examination. Accordingly, we set aside the order of Ld CIT(A) and restore the issue to the file of AO/DRP for fresh examination. The assessee is also directed to furnish all the information and explanations that may be called for by the AO/DRP.” As is discernible from the records, the A.O while giving effect to the order of the Tribunal had vide his order dated 08.03.2017 after verifying the copies of back to back invoices as regards the payments for the services rendered to the third parties had accepted the claim of the , 6075 & 756/Mum/2017 18 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) assessee, and had concluded that the amounts received from the third parties was towards reimbursements on cost to cost basis of their share of common pool expenses, and not FTS. As the facts and the issue involved in the year under consideration remains the same as were there before us in the case of the assessee for A.Y. 2011-12, therefore, we respectfully follow the same and direct the A.O to vacate the addition of Rs. 25,93,752/- that was made by him by treating the receipts as FTS/Royalty. The Ground of appeal No. 4 of the assessee is allowed in terms of our aforesaid observations.

A.Y. 2013-14 ITA No. 6074/Mum/2017

1. That on the facts and circumstances of the case and in law, the Assessing Officer has erred in passing the assessment order dated August 11, 2017 under section 143(3) read with section 144C(13) of the Act, at an assessed income at INR 6,71,17,571, as against returned income of INR 6,71,08,313. That on the facts and circumstances of the case and in law, the AOIDRP has 2. erred in arbitrarily disallowing expenses amounting to INR 1,12,89,539 reimbursed to the Associated Enterprise (AE ) alleging that the basis of allocation is not scientific andIor has not been able to substantiate the allocation of the expenses. That on the facts and circumstances of the case and in law, the AO I DRP 3. has erred in not appreciating that expenses were incurred for the purposes of business of the Appellant.

4. That on the facts and circumstances of the case and in law, the AO has erred in charging interest under sections 234B and 234C of the Act. Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant.

, 6075 & 756/Mum/2017 19 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) The appellant prays for leave to add, alter, vary omit, substitute or amend the above grounds of appeal

, at any time before or at, the time of hearing, of the appeal.”

17. Briefly stated, the assessee company had filed its return of income for A.Y. 2013-14 on 29.11.2013, declaring its total income at Rs.5,58,28,031/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. A reference under Sec. 92CA(1) of the Act was made to the Deputy Commissioner of Income tax (Transfer Pricing)-1(3)(1), Mumbai (for short „TPO‟) for computation of arm‟s length price of the international transactions of the assessee detailed in Form No. 3CEB. AS per te order passed by the TPO under Sec. 92CA(3), dated 24.10.2016, no adjustment was made to the arm‟s length price of the international transactions of the assessee. In the course of the assessment proceedings, it was observed by the A.O, that expenses incurred by CWNIPL in respect of the employees which were under its payroll for rendering of administrative functions (consisting of finance, administrative and human resources) and managerial functions were cross charged at cost to cost to the assessee on head count basis. As the A.O was not persuaded to subscribe to the basis of allocation adopted by the assessee company, therefore, he adopted the allocation key of turnover of the assessee vis-à-vis that of CWNIP in respect of finance cost and managerial remuneration expenses and reallocated the same as under :

Actual cost CWIL CWNIPL Remarks Average no. of 534 114 Allocation basis no. of employees or turnover employees Turnover ratio 0.2018083 0.7981917 Turnover 5.58 : 22.07 Finance 80,75,386/- 1629680.10 64,45,706.04 No. of Employees Admin 24,92,205/- 2045559.80 4,39,989.39 No. of Employees HR 1,06,64,834/- 8753516.10 18,82,836.25 No. of Employees Managerial 1,18,38,014/- 23,89,010/- 94,49,004.30 Turnover remuneration 3,30,70,439/- 1,48,17,766/- 1,82,17,536/- Accordingly, the A.O scaled down the allocated expenses claimed by the assessee at Rs. 2,72,29,713/- to Rs. 1,48,17,766/-, and made a consequential disallowance of Rs. 1,24,11,947/- in the hands of the assessee.

ITA Nos.6074, 6075 & 756/Mum/2017 20 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) 18. Aggrieved, the assessee filed objections with the DRP. However, the DRP not finding favour with the contentions advanced by the assessee rejected the objections.

“1. That on the facts and circumstances of the case and in law, the Assessing Officer has erred in passing the assessment order dated August 11, 2017 , 6075 & 756/Mum/2017 21 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) under section 143(3) read with section 144C(13) of the Act, at an assessed income at INR 6,71,17,571, as against returned income of INR 6,71,08,313. That on the facts and circumstances of the case and in law, the AO I DRP 2. has erred in arbitrarily disallowing expense s amounting to INR 1,12,89,539 reimbursed to the Associated Enterprise (“AE") alleging that the basis of allocation is not scientific and / or has not been able to substantiate the allocation of the expenses. That on the facts and circumstances of the case and in law, the AO I DRP 3. has e rred i n n ot a p pre ci atin g tha t e xp e n se s we re inc u rre d for the p u rp os es o f business of the Appellant.

4. That on the facts and circumstances of the case and in law, the AO has erred in charging interest under sections 234B and 234C of the Act. Each of the above grounds is independent and without prejudice to the other grounds of appeal

preferred by the Appellant. The appellant prays for leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal.”

23. Briefly stated, the assessee had filed its return of income for A.Y. 2014-15 on 29.11.2014, declaring its total income at Rs.nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. In the course of the assessment proceedings, it was observed by the A.O that expenses incurred by CWNIPL in respect of the employees which were under its payroll for rendering of administrative functions (consisting of finance, administrative and human resources) and managerial functions were cross charged on cost to cost to the assessee on head count basis. As the A.O was not persuaded to subscribe to the basis of allocation adopted by the assessee company, therefore, he adopted the allocation key of turnover of the assessee vis-à-vis that of CWNIP in respect of finance cost and managerial remuneration expense and reallocated the expense as under: Actual cost CWIL CWNIPL Remarks Average no. of 609 118 Allocation done no. of employees/ turnover employees Turnover ratio 0.233759961 0.766240039 5.58 : 22.07 Finance 80,83,882 18,89,688.00 61,94,194.25 Turnover. Admin 25,30,741 21,18,173.93 4,12,567.32 No. of Employees HR 1,12,01,520 93,75,422.46 18,26,097.88 No. of Employees

Managerial 1,03,72,864 24,24,760.17 79,48,103.33 Turnover remuneration 3,21,89,007 1,58,08,044.56 1,63,80,962.77 , 6075 & 756/Mum/2017 22 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) Accordingly, the A.O scaled down the allocated expenses claimed by the assessee at Rs. 2,68,59,617/- to Rs. 1,58,08,044/-, and instead of restricting the consequential disallowance at Rs. 1,10,46,572/-, therein vide his draft assessment order passed u/s 144C(1) r.w.s 143(3), dated 14/12/2016 proposed to make an disallowance of Rs. 1,24,11,947/-.

ITA Nos.6074, 6075 & 756/Mum/2017 23 A.Ys. 2012-13,2013-14 & 2014-15 Cable and Wirless (India) Limited Vs. The DCIT (I.T.), Circle-2(1)(1) 28. The appeals of the assessee for A.Y. 2012-13 in A.Y. 2013-14 in ITA No. 6074/Mum/2017 and A.Y. 2014-15 in are allowed in terms of our aforesaid observations.

Order pronounced in the open court on 25.02.2020.