Hewitt Associates (India) Private Limited Vs ACIT (ITAT Delhi)
Setoff of unabsorbed depreciation should be allowed against income from other source.
Facts-
The assessee, Hewitt Associates (India) Private Limited, engaged in providing support services to its associated enterprises (“AEs”). The services are software development support services and Business Process Outsourcing (BPO) services. The assessee had entered into international transactions with its AEs in respect of provision of software development services and BPO/ITeS with its AEs.
TPO proposed an adjustment of Rs. 22,11,60,596/- in respect of BPO services/ ITeS segment and Rs. 19,08,53,709/- in respect of the software development support services segment totalling Rs. 41,20,14,305/-.
The Hon’ble Dispute Resolution Panel vide its order dated 20.9.2011 confirmed the transfer pricing adjustment of Rs. 41,20,14,305/-supporting the order of the Ld. TPO. Aggrieved, the assessee filed an appeal before the Tribunal.
Assessee has also alleged that AO has erred in not adjusting available unabsorbed depreciation against income from other source.
Conclusion-
Held that relying on the decision of Kaplan India Pvt. Ltd. (supra) and in view of the DRP’s directions, we set aside this company to the file of the Ld. AO/ TPO. The Ld. AO/ TPO is directed to verify the objection of the assessee and decide afresh on inclusion/ exclusion of this comparable based on the outcome of his verification after giving reasonable opportunity to the assessee.
With regard to setoff of unabsorbed depreciation it is held that we find merit in the contention of the assessee. Accordingly, setoff of unabsorbed depreciation should be allowed against income from other source.
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeal of the assessee is preferred against the order of Ld. Asstt. Commissioner of Income Tax, Circle-12(1), New Delhi (“AO”) dated 31.10.2011 pertaining to assessment year (“AY”) 2007-08.
2. The assessee, Hewitt Associates (India) Private Limited (now known as Aon Consulting Private Limited, successor entity of Aon Services India Private Limited) is primarily engaged in providing support services to its associated enterprises (“AEs”). The services are in the nature of – (1) software development support services; and (2) Business Process Outsourcing (BPO) services (also referred to as ITeS).
2.1 During AY 2007-08 the assessee had entered into international transactions with its AEs in respect of provision of software development services and BPO/ITeS with its AEs. The assessee’s case was thus referred to the Ld. Transfer Pricing Officer (“TPO”). Vide order dated 29.10.2010 the Ld. TPO proposed an adjustment of Rs. 22,11,60,596/- in respect of BPO services/ ITeS segment and Rs. 19,08,53,709/- in respect of software development support services segment totalling to Rs. 41,20,14,305/-.
Software support services segment
3. During the A.Y 2007-08, the assessee entered into international transactions related to software support services of Rs. 2,16,32,36,787/-. The assessee used transactional net margin method (“TNMM”) and Operating Profit/Total Cost or Net Cost Plus (“OP/TC or “NCP”) as the profit level indicator (“PLI”). The assessee arrived at a set of 55 comparables with an average weighted average margin of 14.64% using multiple year data. The assessee’s own margin worked out at 14.94%. This is how the assessee demonstrated that its international transaction with its AE under this segment is in compliance with the transfer pricing regulations.
3.1 During the transfer pricing proceeding, the Ld. TPO after analysing the data bases, annual reports, application of filters and considering objections raised by the assessee, modified the search to arrive at the following final set of 26 comparable companies with arithmetical mean of 25% and arm’s length price (“ALP”) pertaining to provision of software development support services segment (page 142 to 144 and page 170 of the Paper Book):
