Cable and Wireless (India) Limited Vs DCIT (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has ruled in favour of Cable and Wireless (India) Limited (CWIL), holding that the allocation of common employee costs from an associated enterprise based on headcount is an acceptable method. The Tribunal set aside the Assessing Officer’s (A.O.) order, which had disallowed a portion of such expenses for two consecutive assessment years, 2013-14 and 2014-15.
The case pertains to expenses that CWIL reimbursed to its associated enterprise, Cable and Wireless Networks India Private Limited (CWNIPL). CWNIPL incurred costs for employees providing shared services in finance, administration, human resources, and managerial functions. These costs were cross-charged to CWIL on a cost-to-cost basis, using the average number of employees (headcount) as the key for allocation.
During the scrutiny assessment for A.Y. 2013-14, the A.O. disputed this allocation method. While the Transfer Pricing Officer (TPO) had found no need for adjustment to the arm’s length price of the company’s international transactions, the A.O. held that the headcount basis was not appropriate for all categories of shared costs.
The A.O. accepted the headcount method for administrative and HR expenses but insisted on using the turnover ratio of the two companies for allocating finance and managerial remuneration costs. By applying this different allocation key, the A.O. recalculated the expenses attributable to CWIL, scaling them down from Rs. 2.72 crore to Rs. 1.48 crore. This led to a disallowance of Rs. 1.24 crore, which was added back to CWIL’s income.
