TMI Blog2015 (9) TMI 897X X X X Extracts X X X X X X X X Extracts X X X X ..... linked with the business of the assessee. - Decided in favour of the assessee. Reducing from the profits of the business eligible for deduction under Section 10A/10B an amount in respect of recovery of Global Recruitment Cell(GRC)cost - Held that:- Identical issue is decided in favour of the assessee by the order of the Tribunal for the AY.2002- 03 - Decided in favour of the assessee. Applicability of provisions of section 10A(7) - Held that:- It was agreed by the Representatives of both the sides that the tribunal had decided the issue in favour of the assessee,while adjudicating the appeal filed by the assessee for the AY.02-03 as held that the CIT(A) has also found that the assessee’s main business is export and depreciation etc. has been claimed very less and it is considered that the profit can be more than in comparing with the average profits of other industries.In view of the above facts and circumstances of the case, we hold that the provisions of sec.10A(7) are not applicable on the facts of the present case. Accordingly, this ground of the assessee is also allowed. Not considering the claim that the interest income derived from the industrial undertaking - not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nother issue, which also was dismissed - Decided in favour of assessee. Deduction on delayed payment of employer and employee's contribution to P. F - Held that:- FAA found that the assessee had made payments within the grace period.In our opinion,there is no legal infirmity in the order of the FAA.Therefore, confirming his order,we decide ground no.2 against the AO. - Decided in favour of assessee. Disallowance u/s 14A - Held that:- We find that the assessee earned dividend income of ₹ 13,870/-,that the FAA made a disallowance of ₹ 54.49 lakhs,that the AY.under appeal is prior to AY.2008-09.In pursuance of the judgment of Hon’ble Bombay High Court,we hold that provisions of Rule 8D of the Income tax Rules,1962 are applicable from AY.2008-09 only.Therefore,in our opinion the calculation made by the AO adopting the formula suggested by Rule 8D cannot be endorsed.Respectfully,following the judgment of the Hon’ble Delhi High Court delivered in the case of Joint Investment Pvt. Ltd. (2015 (3) TMI 155 - DELHI HIGH COURT ) we hold that the disallowance should not exceed exempt income.- Decided in favour of assessee. - ITA No.3413/Mum/2007, ITA No.3340/Mum/2007, ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that no disallowance under Section 10A/10B of the Act was warranted by invoking the provisions of Section 10A(7) of the Act. IV 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in not considering and disregarding the additional ground of appeal raised during the course of appellate proceedings which reads as follows: The learned A.O. has erred in not considering the claim that the interest income aggregating to ₹ 5,40,69,769 derived by the Appellant Company is derived from the industrial undertaking and not allowing deduction u/s 10A/10B of the Act in respect of the said interest income. 2. The Appellant prays that the learned CIT(A) be directed to consider and deal with the said additional ground of appeal raised during the course of proceedings before CIT(A). V 1. On facts and in the circumstances of the case, the learned CIT(A) erred in not directing the JCIT to follow a consistent view in respect of treatment of exchange loss amounting to ₹ 6,51,30,323 for computing export profit eligible for deduction u/s 10A/10B of the Act. 2.The Appellant prays that the JCIT be directed that in the event of final r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of recoveries of under utilized human resources of ₹ 16,90,05,755 as income without allowing corresponding expenses as deduction. 2. The Appellant prays that the Addl.CIT be directed to allow deduction of expenses from recoveries of under utilized human resources of ₹ 16,90,05,755. III 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the action of the Addl.CIT in reducing from the profits of the business eligible for deduction under section 10A/ 10B/ 180HHE of the Act an amount of ₹ 5,68,902 out of ₹ 5,84,67,872 in respect of recovery of Global Recruitment Cell (GRC) cost. 2. The Appellant prays that the Addl.CIT be directed not to reduce from the profits of the business eligible for deduction under section 10A/ 10B/80HHE the amount of Rs, 5,68,902 out of ₹ 5,84,67,872 in respect of recovery of GRC cost. IVI 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the action of the Addl.CIT in disallowing deduction under section.10A/10B/80HHE of the Act in respect of interest on income-tax refund of ₹ 49, 19,769/-, interest on security deposit w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing ₹ 10,07,15,209/- as profits eligible for deduction u/s.10A 10B though the same were not derived from export of computer software without appreciating the facts of the case. 2. On the facts and in the circumstances of the case and in law, theCIT(A) erred in not appreciating the ratio of the judgement of the Hon'ble Apex Court in the case of Liberty India Limited vs. CIT 317ITR 218, wherein it is held that certain income may constitute profit from business under section 28,but it cannot be construed as profits derived from Industrial Undertaking and the decision of the Hon'ble ITA T, 'E' Bench, Mumbai in the case of Tricom India Limited vs. ACIT 36 SOT 302, wherein it is held that interest income is not eligible for deduction u/s.10A 10B. The Appellant prays that the order of the CIT(A) on the above ground be set aside and that of the ITO/ ACIT /DCIT be restored. The Appellant craves leave to amend or alter any grounds or add a new ground which may be necessary. ITA No.6589/Mum/2011,AY.2007-08(Assessee s appeal): 1. On the facts and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is held that interest income is not eligible for deduction u/s.10A 10B. The Appellant prays that the order of the CIT(A) on the above ground be set aside and that of the ITO/ ACIT /DCIT be restored. The Appellant craves leave to amend or alter any grounds or add a new ground which may be necessary. ITA/6885/Mum/2012.AY.,2008-09(AO s Appeal) 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing interest income of ₹ 14,2819,778/- as profits eligible for deduction u/s.10A 10B though the same were not derived from export of computer software without appreciating the facts of the case. 2.On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the ratio of the judgement of the Hon'ble Apex Court in the case of Liberty India Limited vs. CIT 317ITR 218, wherein it is held that certain income may constitute profit from business under section 28, but it cannot be construed as profits derived from Industrial Undertaking and the decision of the Hon'ble ITA T, 'E' Bench, Mumbai in the case of Tricom India Limited vs. ACIT 36 SOT 302, wherein it is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.7.2009. 2.1. We find that the Tribunal had,while adjudicating the issue in the AY.2002-03,decided the matter as under: 11 We have heard the rival submissions and considered them carefully.After considering the submissions and perusing the relevant material on record,we find that the claim of the assessee is allowable.The AO disallowed the claim of the assessee on the reasons that receipt of ₹ 18, 91, 72,279/- are of revenue in nature and they are not entitled for exemption u/s 10A of the Act because these receipts were not derived by the undertaking from the export of computer software. It has been mentioned by the AO that in other words, the revenue of ₹ 18.91 crores should have direct nexus to the export of computer software. In our considered view, these observations of the AO are without any basis. The assessee entered into an agreement with Syntel Inc and M/ s Syntel Europe and as per the clauses of the agreement, certain expenses and other establishment expenses are to be reimbursed by these companies. Accordingly, they were reimbursed. The reimbursements were only on account of export of computer software. The AO has stated that these receipts do not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the Syntel Inc. /Syntel Europe as per clauses of the agreement. 12.1 Similar view has been taken by the Mumbai Tribunal In the case of Zuari Agro Chemicals and various other decisions relied upon by the assessee before the CIT(A). The ratio of some of the decisions have been discussed by the CIT(A) and also reproduced somewhere above in this order are in support of the case of the assessee. The assessee has not availed any double benefit once by way of incurring expenses and once by way of getting exemption u/s. 10A. Whatever the expenses were incurred by the assessee,part of which was reimbursed as per agreement.On account of reimbursement the expense burden of the assessee has been reduced,which resulted increase in profit. The increased profit on account of reimbursement of expenses is nothing but profit derived out of the business of the assessee company; therefore, the assessee company is eligible for exemption. 13 In view of the above facts and circumstances and without going into details further, we hold that the assessee is eligible for exemption u/s.10A/10B on the receipts of ₹ 18.91 crores as claimed. Accordingly, this ground of the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit or gain of other players in the same industry, such comaprison cannot be made with average profit margin of the same industry. This is because, the average would necessarily be depressed by taking into account the lower profits made by some of the other players. In the case of appellant AR has given various reasons as to how and why its profit margins are better than the industry average. Appellant is having 100% export turnover and it has no interest cost. AR has also stated that its depreciation cost is also low as the appellant company has set up the unit as back as in 1995. AR/appellant has also justified its better margin of profit by making comparison to some of the companies in the same field who are 100% exporters. In view of above discussion, I am of the opinion that while a general observation cannot be made with regard to the profit margins shown by the appellant, it may be said that this issue does not survive in view of the fact that I have already upheld the addition of ₹ 18,91,93,126/-and ₹ 9,73,398/- out of ₹ 3,11,20,944/-.In view of above discussion, however, since addition of ₹ 3,01,47,546/-(Rs.3,11,20,944 ₹ 9,73,398)has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /10B deduction,before the Hon ble High Court,has been dismissed-we decide the issue in favour of the assessee. 6. Last ground of appeal is about foreign exchange loss on sales/debtors, balance in EFFC account and its treatment while computing deduction u/s. 10A of the Act. 6.1. During the assessment proceedings the AO found that the assessee had computed business profit for the year under appeal after debiting exchange loss of about ₹ 6.51 crores in the P L account and after reducing the export turnover amount by ₹ 6,51,30,323/-. In the earlier year the AO had not accepted the similar position when there was gain because of exchange rate.The assessee, before the FAA stated that the issue for the earlier years was pending for adjudication, that the AO should be directed to modify the order after the issue was adjudicated by higher authorities. The FAA was of the opinion that the assessee should not have any grievance,that the AO had accepted the figure shown in the return by the assessee itself, that it was open to the AO to take a consistent view on the issue as and when the issue was decide by higher appellate authorities. 6.2. Before us,the AR contended th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has no direct nexus with the assessee export activity and it being an independent concern of the assessee following the principles laid down by the Hon'ble Supreme Court in the case of Liberty India 317 ITR 218 (SC) the amount cannot be considered as derived from the export activity for the purpose of section 10A/10B. It was further submitted that receipts are not part of the export activity and received by way of reimbursement of expenditure incurred for sister concern, which is not the main activity of the assessee. He referred to the agreement with the group concern and submitted that the amount cannot be allowed as deduction as the profit generated out of the cost cutting also should be considered as having no first degree nexus with the cost of purchase and accordingly the same cannot be considered for deduction under section 10A following the same principles established by the Hon ble Supreme Court in the above referred case. 4.The learned counsel in reply, however, submitted that the issue is not that of independent concern or claim of 10A. He referred to the order of the A.O. and also to the order of the CIT(A), particularly para 3.6 to submit that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p on the aforesaid recoveries and, therefore, same cannot be treated as income. As regards other cost reimbursements, my predecessor has also observed that the same represents amount spent for and on behalf of M/s. Syntel Inc. and other entities. These expenses are under various heads. The cost incurred on behalf of M/s. Syntel Inc. and other entities are tracked separately and recovered at the end of the month from the respective entities on actual basis without any markup. In view of the detailed examination of facts, my predecessor had decided this ground in favour of the appellant for A.Y. 2002-03. During the course of appellate proceedings, the appellant has also filed the copy of the order of ITAT, E-bench in ITA No. 3534/Mum/06 dated 06.01.2009 for A.Y. 2002-03 in appellant s own case. While deciding the issue, the Hon'ble ITAT, Mumbai rejected the Departmental appeal and confirmed the order of my predecessor as aforesaid. Facts and circumstances being the same and identical, following the decision of my predecessor and confirmed by the Hon'ble ITAT, Mumbai, I delete the addition made by the AO in respect of other cost reimbursements and sharing of executive cost ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by the AO. ITA No.1069/Mum/2008, AY.-2004-05: 10. Following our order on the issues of under-utilised dedicated human resources,GRC cost and the eligibility of interest income for claiming deduction u/s.10A/10B of the Act,for the AY. 2003 -04,we decide grounds no.1-3,raised by the assessee for the year under appeal,in its favour.Last ground of appeal is allowed for statistical purposes,following our order for the AY.2003-04. ITA No.2263/Mum/2008, AY.-2004-05: 11.First two grounds of appeal are about disallowance to be calculated for deduction u/s.10A/ 10B/80HHE of the Act.While deciding the first ground of appeal of the appeal filed by the AO for the AY.2003-04,we have followed the order of the Tribunal on the identical issue decided by it for the AY.2005-06 and have decided ground no.1 against the AO.Following our order for the AY.2003-04(at paragraph no. 7 to 7.2)we dismiss both the grounds raised by the AO for the year under appeal. 12. Last ground raised by the AO is about calculation of interest income for deduction u/s.10A/ 10B of the Act.We find that while deciding the issue of eligibility of interest income for the earlier year and in the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Joint Investment Pvt.Ltd. (ITA 117of 2015,dated 25.02.2015),of Hon ble Delhi High Court.DR left the issue to the discretion of the Bench. 15.3. We have heard the rival submissions and perused the material before us.We find that the assessee earned dividend income of ₹ 13,870/-,that the FAA made a disallowance of ₹ 54.49 lakhs,that the AY.under appeal is prior to AY.2008-09.In pursuance of the judgment of Hon ble Bombay High Court,we hold that provisions of Rule 8D of the Income tax Rules,1962 are applicable from AY.2008-09 only.Therefore,in our opinion the calculation made by the AO adopting the formula suggested by Rule 8D cannot be endorsed.Respectfully,following the judgment of the Hon ble Delhi High Court delivered in the case of Joint Investment Pvt. Ltd. (supra) we hold that the disallowance should not exceed exempt income.Considering the above, we decide grounds no.1 3 in favour of the assessee. 16. Second ground of appeal deals with deduction under Section 10A/10B of the Act.Before us, the AR stated that the ground was of consequential nature.Hence,we allow it for statistical purposes. ITA/6742/Mum/2011.AY.-2007-08: 17. Effective g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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