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TMI Blog2010 (11) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... n declaring total income of Rs.3,13,88,932/-. During the course of assessment proceeding it was observed by the Assessing Officer that the assessee has claimed expenditure of Rs.13,02,42,275/- on account of service charges to M/s. Sonata Software Ltd. (SSL). This expenditure was claimed in accordance with an agreement dated 28.9.2000 entered into by the assessee with SSL which has been revised on 9.7.2002 and 16.8.2004. As per the said agreement the assessee was to pay service charges to SSL for rendering the following services( extracted from para 4.1 of the assessment order): "(a) Advice and assistance to SITL relating to compliance of various laws, Orders, Regulations and legal requirements of the Central, State, other governmental and local authorities concerning the conduct of the business and affairs of SITL. (b) Training employees of SITL in the above areas; (c) Assist and liaise with various government departments as and when required by SITL. (d) Overseeing the compliance requirements in regard to Companies Act, including matters related to Board of Directors and shareholders, contractual matters, advice and assistance in maintenance of statutory records, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture claimed of 10A activity of SSL. The net implication of this is that the profits of the 10A activity of SSL have increased and on which no tax has been paid. Whereas in fact, these receipts are clearly pertaining to the non 10A activity of SSL and therefore such receipts should have been offered for tax. (iii) The assessee has contended that the said agreement has been executed in the best interest of the business between two independent corporate entities. It has also been contended that the same has been incurred out of commercial expediency. It has further been submitted that it is prerogative of the businessman as to how to run its business and the Department should not be prescribed the quantum of expenditure etc. These contentions of the assessee would have been acceptable if this agreement was entered into between two independent entities not under the common management and control. In the instant case, the assessee is a 100% subsidiary of SSL. The implication of this agreement is that the taxable profits of the assessee have been reduced and at the same time increasing the nontaxable profits of its holding company - SSL". The Assessing Officer for the reasons as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SL to the assessee, therefore, the ld. CIT(A) was not justified in deleting the disallowance made by the Assessing Officer. He further submits that in the interest of justice the issue may be set aside to the file of the Assessing Officer. 6. On the other hand the ld. Counsel for the assessee submits that the disallowance was made by the Assessing Officer for the reasons recorded in para 4.3.3 of the assessment order wherein there is no such finding that the assessee has failed to furnish necessary documentary evidence in respect of services rendered by SSL to the assessee, therefore, the new plea taken by the ld. DR is not maintainable. He further submits that the issue is directly covered in favour of the assessee by the orders of the Tribunal in assessee's own case for the assessment years 2001-02 to 2004-05 and also by the order of the Tribunal in the case of SSL for the Assessment Years 2002-03 and 2003-04. He also placed on record the copy of the said orders of the Tribunal alongwith chart showing the Assessment Year wise reference of the impugned issue, appearing at page 1 to 42 of the assessee's paper book. He, therefore, submits that the order passed by the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is actual expenses, number of employees and ratio of fixed assets, floor area and turnover ratio. Thus, on the basis of above five criteria, expenditure has been allocated to the three heads. Further, it is noticed that the total expenditure allocated under third head i.e. support services, has been again allocated under two heads - 1) STP units entitled to deduction u/s.10A and non STP which is not entitled for deduction u/s.10A on the basis of turnover ratio. In our considered opinion, the allocation of expenditure contained in the paper book at page 27 to 31 appears to be appropriate. As per details contained in pages 27 to 31, it can be seen that the appellant company has only allocated expenses of Support Service Division between 10A and non 10A activities in the ratio of turnover has been called for by the Assessing Officer by his letter dated 20.01.2000 appearing at page 35 of the paper book. Further, direct expenses relating to 10A and non 10A activity has been directly charged against the profits of these activities and do not call for any interference." The above observations of the Tribunal resolve the controversy before us. Admittedly, prior to incorporation of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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