Convergys India Services Pvt. Ltd. vs. DCIT: Appeal on Assessment Order – ITA 782/DEL/2021

Convergys India Services Pvt. Ltd. vs. DCIT: Appeal on Assessment Order – ITA 782/DEL/2021

Case Number: ITA 782/DEL/2021

Appellant: Convergys India Services Pvt. Ltd., New Delhi

Respondent: DCIT, Circle-4(2), New Delhi

Assessment Year: 2016-17

Case Filed on: 2021-06-23

Order Type: Final Tribunal Order

Date of Order: 2022-08-01

Pronounced on: 2022-08-01

Background

This case involves Convergys India Services Pvt. Ltd., a company based in New Delhi, and the Deputy Commissioner of Income Tax (DCIT), Circle-4(2), New Delhi. The appellant filed an appeal against the assessment order passed under Sections 143(3), 144C(13), and related provisions of the Income Tax Act, 1961, for the assessment year 2016-17.

The appellant was represented by Sh. K. M. Gupta, Advocate, and Ms. Shruti Khimta, AR, while the respondent was represented by Sh. Mahesh Shah, CIT DR, and Sh. Mrinal Kumar Das, Sr. DR.

Grounds of Appeal

The grounds of appeal as presented by the appellant were as follows:

• The order dated March 30, 2021, framed under Section 144C(13) read with Sections 143(3), 143(3A), and 143(3B) of the Income Tax Act, 1961, passed by the AO, pursuant to the directions of the Dispute Resolution Panel (DRP), is bad in law and void ab initio.
• The AO/DRP erred in making an upward adjustment of INR 16,24,323 to the total income of the appellant pertaining to the international transaction of notional interest on outstanding receivables.
• The AO/DRP erred by treating outstanding receivables from Associated Enterprises (AEs) as a separate international transaction, re-characterizing outstanding receivables as a deemed loan advanced to AE, applying a mark-up of 400 basis points on LIBOR on an ad-hoc basis, and disregarding the 90 days credit period mentioned in the inter-company agreement.
• The AO/DRP erred in disallowing the deduction under Section 43B of the Act amounting to INR 1,49,07,493 in relation to discharge of liabilities taken over by the appellant from Convergys Stream Private Limited and Convergys Infowavz Private Limited pursuant to their amalgamation with the appellant.
• The AO/DRP erred in disallowing the claim of credit under section 115JAA of the Act (MAT Credit) amounting to INR 99,61,130 taken over by the appellant from Convergys Infowavz pursuant to its amalgamation with the appellant.
• The AO/DRP erred in disregarding the valuation report issued by an independent chartered accountant and making an addition of INR 31,00,122 under section 56(2)(viia) of the Act in relation to the purchase of equity shares of Digital Think (India) Private Limited.
• The AO/DRP erred in not granting the deduction of ‘education cess’ and ‘secondary and higher education cess’ paid while computing the appellant’s income under the head ‘Profits and Gains from Business and Profession’ for the year under consideration.
• The AO erred in considering the assessed total income of the appellant as INR 239,89,56,360 instead of INR 160,34,72,468 while computing the tax liability of the appellant and thereby, raising an incorrect demand of INR 49,31,51,710 on the appellant.
• The AO erred in not granting TDS and Advance tax credit of INR 18,55,717 and INR 18,65,74,000 respectively pertaining to Convergys Stream and Convergys Infowavz, which were taken over by the appellant pursuant to their amalgamation with the appellant.
• The AO erred in computing and levying interest under Section 234A of the Act amounting to INR 60,74,452.
• The AO erred in computing and levying interest under Section 234B of the Act amounting to INR 18,22,33,560 which is consequential in nature.
• The AO erred in computing and levying interest under Section 234C of the Act amounting to INR 11,21,037.
• The AO erred in initiating penalty proceedings under 271(1)(c) of the Act mechanically and without appreciating that the appellant has neither concealed any income nor has it furnished inaccurate particulars relating to any income.

Tribunal Proceedings

The tribunal comprising Sh. Saktijit Dey, Judicial Member, and Dr. B. R. R. Kumar, Accountant Member, heard the case on July 20, 2022, and pronounced the order on August 1, 2022.

During the proceedings, the tribunal condoned the delay of 25 days in filing the appeal owing to reasonable cause (COVID-19). The appellant, Convergys India, a wholly-owned subsidiary of Concentrix CVG Customer Management Group Inc., USA, is engaged in providing IT-enabled customer care back-office support services. Ground Nos. 7, 8, 10, and 11 were not pressed by the appellant.

Notional Interest on Outstanding Receivables

The DRP directed to allow the credit of 60 days, resulting in an addition of Rs. 16.24 lakhs on account of interest on outstanding receivables by taking 6 months LIBOR + 400 basis points. The tribunal noted that in a similar issue in the appellant’s own case for the A.Y. 2015-16, it was held that there is no need to benchmark the interest on receivables where the interest has not been charged from either party. The appeal on this ground was allowed.

Deduction under Section 43B

The appellant claimed deduction amounting to Rs. 1,49,07,493/- under section 43B of the Act in its return of income in respect to discharge of liabilities taken over from Convergys Stream and Convergys Infowavz pursuant to their amalgamation with the appellant. The AO disallowed the claim, but the tribunal held that the appellant is eligible to claim the deduction under section 43B of the Act for such liabilities.

Credit under Section 115JAA

The appellant claimed MAT credit amounting to Rs. 99,61,130/- taken over from Convergys Infowavz pursuant to the amalgamation while computing its tax liability. The tribunal allowed the appeal on this ground, holding that the MAT credit being an asset of the earlier company would be available to the appellant for utilization.

Applicability of Section 56(2)(viia)

The appellant acquired the entire shareholding of Digital Think for INR 9,41,43,377 for 3,88,974 shares. The AO proposed an addition of Rs. 31,00,122/- under section 56(2)(viia) of the Act. The tribunal, however, held that the valuation report provided by the independent chartered accountant was in accordance with prescribed rules and deleted the addition.

Granting of TDS and Advance Tax Credit

The tribunal directed that the credit for TDS and advance tax pertaining to Convergys Stream and Convergys Infowavz, which were taken over by the appellant, be allowed.

Conclusion

In conclusion, the tribunal allowed the appeal and dismissed the Stay Application as infructuous. The order emphasized the proper application of tax laws and procedures, providing relief to the appellant on multiple grounds.

Order pronounced in the open Court on 01/08/2022

Signed:
Saktijit Dey, Judicial Member
Dr. B. R. R. Kumar, Accountant Member

Assistant Registrar, ITAT, New Delhi

Convergys India Services Pvt. Ltd. vs. DCIT: Appeal on Assessment Order – ITA 782/DEL/2021