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TMI Blog2013 (9) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... audit report and audited balance sheet declaring total income at a sum of Rs. 9,99,81,560/-. 3. With the above background of activities of assessee, we firstly take appeal of assessee being ITA No. 4089/M/2011 for our consideration. 4. In ground No. 1 of appeal, assessee has disputed order of Ld. CIT(A) in confirming action of AO to disallow deduction claimed by assessee u/s. 10A of I.T. Act in respect of Unit No.II amounting to Rs. 12,41,79,095/- and Unit No. III amounting to Rs. 38,32,05,319/-. 5. The relevant facts giving rise to above ground are that assessee claimed deduction u/s. 10A for Unit No. II and Unit No. III. The assessee has four units engaged in the business of Information Technology (IT) and IT enabled services (ITES). In respect of income of Unit-I and Unit IV, assessee did not claim any deduction u/s. 10A of the Act. 6. In respect of Unit-II, assessee claimed that it is engaged in IT enabled business of insurance claim processing and Unit III is engaged in the business of call center. 7. The Assessing Officer has stated that assessee filed audit report for both these units i.e. Unit No. II and Unit No. III and relevant facts as reported in the audit report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the STP scheme on 22.7.1992." The AO has stated that assessee was not in the business of Information & Technology from the beginning. Initially, assessee's name was Hinduja Finance Corporation Ltd. Later on changed its name into Hinduja TMP Ltd and presently known as Hinduja Ventures Ltd. The assessee has demerged its IT business to HTMT Global solutions Ltd. with effect from 1.10.2006. There was an associated company with the name Ashok Leyland Information Technology Ltd. (herein after known as ALIT). That this company was amalgamated with Hinduja Finance Corpn. Ltd w.e.f. 1st July,1999. The AO has stated that claim of assessee is that Unit No. II and Unit No.III have begun the production of computer software in June, 2000 and November, 2001 respectively. The AO stated that letter dt. 25.11.2008 was addressed to the Director, Software Technology Parks of India, Bangalore (hereafter known as STPI). The Director of STPI furnished various details and documents relevant to deduction u/s. 10A vide letter dt. 10.12.2008. It was stated that initially STPI accorded permission in the name of AL Information Tech Ltd. vide approval number 15(63)/92SDA dt. 22.7.1992. On the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of private bonded warehouse was for undertaking located at Electronic city unit, Bangalore and the same was renewed subsequently. The letters of Director, STPI dt. 17.7.2002 and 12.10.2007 stipulated terms and conditions mentioned in the licence dt. 22.4.1993 which remained same. In view of above, AO has stated that after amalgamation of ALIT, the assessee has only one undertaking which is located at Electronics city, Bangalore. Subsequently, assessee has expanded the existing STPI facility located at Electronics city Bangalore to a building known as HTMT House, 614, Bommanahalli, Vajapyee Nagar, Bangalore. That assessee had expanded the existing undertaking and did not establish separate units/undertakings which are entitled for deduction u/s. 10A of I.T. Act. AO referred the correspondences and letters at pages 7,8 & 9 of assessment order and has stated that nowhere in the said letters STPI has accorded approval for new unit/undertaking. The AO further stated in para 3.10 the facts reported by auditor that Unit No. II is located at 1st and 2nd Floor, HTMT House, 614, Vajpayee Nagar, Bommanahalli, Hosur Road, Bangalore are not correct. As a matter of fact, no separate undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h set of employees and not connected with existing employees of assessee-company. It was also contended that period from whom work had been carried out by two units were not related or connected in any way and the two units have two new source of income. That technology required for the two units are completely different from each other. It was contended that AO failed to appreciate these fact. It was also contended that separate unit-wise registration for the units set up in the same state is not a mandatory requirement. It was contended that in the previous years, assessee- Company was eligible for claiming deduction u/s. 10A in respect of Unit No. II and Unit No. III and AO allowed the same. Hence AO was not justified in disallowing claims in the assessment year under consideration. The assessee also placed reliance on the decision if ITAT Bangalore Bench in the case of Wipro Ltd./T106/136 to substantiate its claim 10. Ld. CIT(A) after considering submission of assessee and order of AO held that assessee has merely added capital, machinery and man power which will not be sufficient to make it a new undertaking eligible for deduction u/s. 10A. Ld. CIT(A) stated that in fact it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ld. Representatives of the parties. We find substance in the submission of Ld. AR that AO has not examined as to whether Unit Nos. II & III set up by assessee are independent units or expansion of existing undertaking of assessee. We observe that AO has considered the correspondence and documents of assessee with STPI and also information sought by AO from Director STPI and has held that both these units are merely an expansion of existing unit and not independent undertakings. Therefore, we consider it prudent to set aside the orders of authorities below and restore the matter to file of AO for the limited purpose to re-examine as to whether Unit Nos. II & III set up by assessee are independent units to the existing undertaking or merely an expansion of the existing undertaking in the light of principles laid down by Co-ordinate Bench decision in the case of Patni Computers Ltd. (supra) and also in the light of letters including letter dt. 10.12.2008 issued by Director STPI and also on the basis of such evidences as may be filed by assessee after giving due opportunity of hearing. With these directions, the matter stands restored to AO and accordingly ground No. 1 of appeal ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to 12% as Arm's. Length Price instead of 15% as claimed by assessee." 19. During the year, assessee company earned an amount of Rs. 12,23,54,478/- being Long Term Capital Gains before indexation. Further Short Term Capital Gain is shown at Rs. 4,85,259/- after setting off of brought forward losses to the extent of Rs. 95,146/-. The Assessing Officer ascertained from assessee as to why share trading activity should not be treated as business activity and not as investment activity. In reply thereto, assessee stated that it earned 81.83% of its revenue from ITES business. It invested its surplus funds in Long Term investment with a view to earn dividend and Long Term appreciation of its surplus funds. It was contended that assessee maintained a separate portfolio in the books of account which demonstrate intention of assessee to hold securities either as investment or stock-in-trade. It was contended that security in question were held as investment as distinct from stock in trade which are exhibited separately. That assessee's volume of transaction in securities is very low post transformation from Financial Company to ITES business company. However, AO did not accept the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal, the department has disputed orders of Ld. CIT(A) in deleting addition of Rs. 1,49,16,166/- made by AO on account of Transfer Pricing adjustment made u/s. 92CA(3) of the I.T. Act. 25. The relevant facts giving rise to these grounds of appeals are that assessee furnished Audit report in respect its international transactions with associated enterprises. Reference was made by AO to Transfer Pricing Officer (TP)) u/s. 92CA(1) of the Act for computation of Arm's Length Price. The TPO has stated that assessee paid Rs. 7,25,32,310/- to its associated enterprises (AEs) in USA. They provided marketing services in USA to assessee company on an exclusive basis. TPO has stated that during financial year 2001-02, commission was paid @ 12% which was accepted at arm's length. During financial year 2002-03, this commission raised to 20% and it was not accepted as at Arm's Length and proportionate adjustments were made. TPO has stated that during the current year the AE of assessee is providing two business to assessee as under: Name of client Nature of business Bill amount Commission to AE Aetna Insurance claim processing 497,205,546 15% First Notice - Do - 4,197,284 12% 26. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accordingly adjustment suggested by TPO is not justified. 30. We have carefully considered the submissions of Ld. Representatives of parties and orders of authorities below. We have also considered order of TPO. We observe that TPO suggested to make an adjustment of Rs. 1,49,16,166/- only for the reason that he compared the case of 'First Notice' where the rate of commission paid was 12% as against commission paid to AETNA @ 15%. However, relevant facts submitted by assessee that the assessee generated total business of Rs. 50,14,02,800/- from HTMT Inc., AE and out of which business pertaining to AETNA was more than 99% of total business and only 1% was with First Notice to whom the commission @ 12% was paid as against payment of commission of 15% to AETNA. Further it is also not in dispute that First Notice, is also an Associated Enterprises of assessee. It is also not in dispute that assessee determined its profit by following TNMM method and the same has not been disturbed by TPO. No comparable has also been stated to establish that payment of commission by assessee to AETNA is excessive and is not at Arm's Length Price. We consider it prudent to state that Section 92 of I.T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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