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Deputy Commissioner of Income Tax And Others Versus M/s. Hinduja Global Solutions Ltd. And Others

2015 (8) TMI 84 - ITAT MUMBAI

Disallowance made on account of claim of deduction u/s 10A for unit no. II and unit no. III - Held that:- The necessary documents were examined by the ld. AO as well as by the ld. DRP and found that the assessee sought for approval of expansion of old unit no.I and never sought approval to set up of a new units and further STPI granted approval for expansion of unit no.I. Before the AO/DRP, the assessee placed reliance upon the decision of Patni Computers Ltd., which was upheld by Hon'ble jurisd .....

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the file of AO to examine the claim of the assessee and after providing due opportunity of being heard will decide in accordance with law. - Decided in favour of assessee for statistical purposes.

Reallocation of head office expenses - Held that:- The crux of argument advanced on behalf of the assessee is that certain common expenses, amongst all the units, may be made on reasonable basis. On the other hand, the ld. DR, Shri Srivastava, defended the conclusion arrived at in the impug .....

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se of the assessee in the light of the decision from Hon'ble jurisdictional High Court pronouncing in Godrej & Boyce Mfg. Co. Ltd. vs DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT ] and also by duly considering the decision of Hon'ble Supreme Court in the case of Rajendra Prasad Moody (1978 (10) TMI 133 - SUPREME Court ) - Decided in favour of assessee for statistical purposes.

Disallowance of club expenses - Held that:- The assessee paid the membership fee of the club by way of admission .....

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received on loans given to AE - TPO adjustment - Held that:- As decided in assessee's own case [2013 (6) TMI 420 - ITAT MUMBAI ] LIBOR rate has to be adopted in the instant case, since the interest charged by the assessee from its AE is higher than the LIBOR rate, no transfer pricing adjustment in that regard is warranted, therefore, this ground of the assessee is allowed. - Decided in favour of assessee - ITA No. 1107/Mum/2014, ITA No. 1114/Mum/2014 - Dated:- 4-3-2015 - Joginder Singh, JM And .....

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ure, requires no deliberation; therefore, the same is dismissed as not pressed. 2. The next ground pertains to disallowing the disallowance made on account of claim of deduction u/s 10A of the Income Tax Act, 1961 (hereinafter the Act) for unit no. II and unit no. III (collectively referred to as units) of ₹ 44,46,49,552/- and ₹ 8,85,74,133/- respectively. 2.1. The ld. counsel for the assessee, Shri Sunil M. Lala along with Shri Harsh Shah and Pratik Poddar, claimed that the impugned .....

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.2. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion, we are reproducing hereunder the relevant factual finding recorded by the ld. DRP for ready reference:- "The assessee has 5 units all engaged in providing ITeS services and they are having income as under: Sl. No. Unit No. Net Profits/(Loss) in Rs. Remarks 1 I (5339669) 2. II 44,46,49,552 Claimed as deduction u/s 10A 3. III 8,85,74,133 Claimed as deduction u/s 10A 4. I .....

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uot; 2.3. The assessee has submitted that unit 2 and unit 3 are set up as new units and not as expansion of old unit 1. Unit 2 is engaged in insurance claims processing services from FY 2000-01, whereas unit 3 is engaged in providing call Centre services and it was formed in FY 2001-02. It is submitted that unit 1 is into software development business, which is totally different from the business of unit 2 and unit 3. The new units were setup using fresh investments and new plant and machinery. .....

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, including the applications made and the approvals granted, demonstrate without any ambiguity that the assessee sought approval for expansion of old unit 1 and it never sought approval to setup a new units. STPI has granted approval also for expansion of the unit 1. The assessee has relied upon the order of ITAT, Pune, in case of Patni Computers Ltd, which has been upheld by Bombay High Court, and has argued that deduction under section 10A cannot be disallowed for the reasons that STPI has gra .....

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s prescribed under section 10A(2) of the Act. The 3 units were separate and' independent units and cannot be treated as mere expansion of existing units and up held the order for the reasons that it is a finding of fact and no question of law is involved. Therefore, this is a decision on facts in that case and cannot be held to a decision of general application. 2.4.1 We have considered the order of the AD and the submissions of the assessee. Although assessee has made various submissions in .....

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not been able to comprehensively establish its point. In this respect, we find that the provisions of Sec. 10A cannot be looked into isolation and approvals / sanctions by other designated authorities namely, Director STPI in this case is also equally critical. Thus, the conditions of the allowability under the LT. Act have to be examined along with conditions laid down by other rules and regulations specially framed for setting up STPI units. This is an exemption available in the I.T. Act with .....

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rmine the allowability of deduction under section 10A. As long as the new units are independent units, deduction under Section 10A is admissible if other eligibility conditions are fulfilled. 2.4.3 The AD has recorded a finding of fact in order for A. Y. 2005-06 under section 143(3)/254 dated 28.03. 2013 that through the audit report had mentioned that units 2 and unit 3 are registered with STPI Banglore, but there exists no such separate registration of unit 2 went 3 and these 2 units are set u .....

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ctivities carried out in this location is are included as additional or expanded locations. Therefore, these locations cannot be treated or held as the new units, but they are mere expansion of the old units. 2.4.4 In this light, we find that the AD has rightly held that in the absence of separate STP registrations being obtained for setting up Unit II and Unit III, it is not entitled to deduction under Section 10A of the Act and as these units are only expansion of existing undertaking, the sai .....

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ector of STPI, 8angalore, show that the assessee never sought fresh registration for establishing a new undertaking for claiming deduction u/s.10A. This is a pre-requirement even as per Foreign Trade Policy of the Government of light of the above discussion, we uphold the addition made by the AO." 2.3. If the observation made in the assessment order, conclusion drawn in the impugned order, material available on record and the assertions made by the ld respective counsel, if kept in juxtapos .....

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upon the approval of STPI, which was granted to the assessee, not for setting up of a new unit but it was merely a expansion of unit no. I, whereas, the claim of the assessee is that unit no. II and III were set up as new units but not the expansion of old unit no. I and further the new units were set up using fresh investment/new plant and machinery. It was also claimed that customers of unit no.III are different/unrelated, thus, the units are new and independent. Unit no.II and III were claim .....

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eliance upon the decision of the Pune Bench of the Tribunal in Patni Computers Ltd., which was upheld by Hon'ble jurisdictional High Court. However, we find that the Hon'ble High Court decide the issue with respect to section 10A on the ground that the Tribunal recorded a finding that the new units, set up by the assessee, had fulfilled all the condition prescribed u/s 10A(2) of the Act. Assessee has not demonstrated before us that the finding recorded by the ld. DRP is perverse or contr .....

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s by making fresh investment in plant and machinery. The ld. Assessing Officer is also to examine whether unit no. II and III/other units are merely expansion of unit no.I or it was merely a change of nomenclature by the assessee. The AO is directed to examine the issue afresh, uninfluenced by any other order, whether the assessee has fulfilled the conditions stipulated in the Act and more specifically within the parameter of section 10A of the Act. The assessee is directed to furnish necessary .....

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the above ground, therefore, this ground is also remanded back to the file of the ld. Assessing Officer, consequently, The ld. Assessing Officer is directed to look into the allocation part/the claimed expenses and after examination, decide afresh, thus, this ground is also allowed for statistical purposes. 4. The next ground pertains to disallowance made u/s 14A of the Act. After hearing the rival submissions, we find that the assessee made investment in mutual funds and the group companies an .....

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& Boyce Mfg. Co. Ltd. vs DCIT and also by duly considering the decision of Hon'ble Supreme Court in the case of Rajendra Prasad Moody (115 ITR 519) . This ground is also allowed for statistical purposes. 5. The next ground pertains to disallowance of club expenses of ₹ 20 lakh. The crux of argument on behalf of the assessee is that these expenses were incurred towards entrance fee of Karnataka Golf Association/wholly and exclusively for the purposes of business. On the other hand, .....

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012) Civil Appeal No.6447 of 2012, CIT vs Nestle India Ltd. (2008) 296 ITR 682 (Del.), CIT vs Engineers India Ltd. (239 ITR 237) (Del.)and Gujarat Estate Export Corporation v/s CIT 80 taxman 568 (Guj.). The Hon'ble Delhi High Court in CIT vs Engineer India Ltd. (supra) held that initial admission fee paid to become a member of organization is allowable, likewise, Hon'ble Madras High Court in Sundaram Industries Ltd. (240 ITR 335) (Mad.) held that subscriptions paid by the company to club .....

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y employee of the assessee company. This ground of the assessee is therefore, allowed. 6. The next ground i.e. no. 6 is connected to the above ground, therefore, automatically disposed off. 7. The next ground i.e. no. 7 pertains to addition of ₹ 56,53.867/- that the ld. TPO erred in recommending in adjustment and the ld. DRP erred in not deleting the said adjustment on account of interest received on loans given to AE. We find that this issue is covered by the decision of the Tribunal in t .....

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pective. It is not in dispute that the loan has been denominated in US dollars. Though the learned D.R., for the first time, raised a contention that the assessee might have taken loan in the earlier year to advance the same to its AE in the earlier year, in fact neither the TPO nor the DRP has considered the aspect from that angle and the assessee consistently prayed before the tax authorities that the assessee has not incurred any interest cost on funds given to the AE as the source of fund is .....

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