9911796707
TMI Blog2010 (3) TMI 1107X X X X Extracts X X X X X X X X Extracts X X X X ..... nience, a common order is passed. ITA No.4540/M/08 : By Revenue in (ASPL) 2. This appeal is filed by the revenue against the order of CIT(A) - XXVII, passed on 25.04.2008 for the AY 2002-03. 3. Ground No.1 is against the action of the CIT(A) in deleting disallowance of Rs. 1,29,16,425/- being expenses incurred by the assessee in respect of M/s Accenture Organisation International Services Agreement (SA). 4. Briefly the facts of the case are that the assessee company incorporated under the Indian Companies Act, 1956, is engaged in providing a range of software development and information technology enabled services. The assessee also engaged in the business of providing coordinated consulting business to its clients operating on a global basis. During the assessment proceedings, the AO noticed that the assessee had debited Rs. 1,29,16,425/- on account of payments made for technical services obtained from M/s Accenture Participation BV, Amsterdam. (In short 'APBV). M/s APBV belonged to the parent company of the whole accenture group of companies. It was explained by the assessee to the AO that during the year services were obtained from various group companies across the worl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the TPO should be followed as regards the payments made by the appellant under the above mentioned agreements. 2.21 The income of the foreign recipient entities under the same agreement has been offered to tax in India by the foreign recipient entity. Further, the appellant has itself offered to tax in India the amounts received by the appellant under the agreement. Thus, the transaction appears to be a fair business transaction and since the receipts under the transaction have been appropriately offered to tax in India, I do not see any reason why the expenditure incurred under the arrangement should be disallowed. 2.22 Further, I have analysed the case of Arthur Anderson on which reliance has been placed by the appellant. The facts of ASPL's case are similar to AA's and the nature of the services obtained by ASPL and the manner of remuneration for the same under the ISA is similar to the services rendered to AA under the member firm inter-firm agreement and the remuneration for the same paid by AA. Given this, I am of the opinion that the expenditure incurred by ASPL under the ISA should be allowed as a deduction to ASPL under the provisions of section 37(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has claimed deduction in respect of amounts paid under ISA u/s 37(1) of the Act, being laid out or expended wholly and exclusively for the purpose of business. The learned AR further submitted that the expenditure cannot be disallowed as a deduction to the assessee on the basis that the expenditure incurred was not commercially expedient and reasonable from the subjective standard of the revenue authorities. The expenditure claimed by the assessee is not in the nature described under section 30 to 36 of the Act. The expenditure is also not in the nature of capital expenditure and the same was not personal expenses. The expenditure incurred was wholly and exclusively for the purpose of business. The learned AR submitted that the Accenture group entities have recognized the need to enter into a Cost Contribution Account in order to provide seamless and uniform high quality service to their multinational clients. It is further submitted that as a result of entering into the CCA, the Accenture Group entities including the assessee (ASPL) have agreed to mutually share in the benefits arising from this pooling. Anticipated benefits accruing to the participating entities including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92] 198 ITR 766 (All.) 14. Amarjothi Pictures V. CIT [1968] 69 ITR 755 (Mad.) 15. CIT V. Shriram Prayagdas and Mahadeo Prasad [1983] 144 ITR 883 (MP) 16. CIT vs. Gobald Motor Service (P) Ltd. [1975] 100 ITR 240 (Mad.) 17. CIT vs. Kamal and Co. [1993] 203 ITR 1038 (Raj.) 18. CIT V. Tirrihannah Co. Ltd. [1992] 195 ITR 393 (Cal.) 19. CIT V. Jay Engineering Works [1988] 172 ITR 341 (Del.) 20. CIT V. Arthur Anderson and Co., 94 TTJ 736 (Mum.) = (2005-TII-02-ITAT-MUM-INTL) 6.1 The learned AR submitted that the facts in the case of CIT vs. Aruthur Anderson and Co., 94 TTJ 736 (Mum.) = (2005-TII-02-ITAT-MUM-INTL) are identical to the facts of the case under consideration. The learned AR submitted that the CIT(A) has allowed the expenditure on the basis that the amounts offered under the ISA has been offered to tax in India by the foreign entities and the transactions were fair business transactions. The learned AR further submitted that the TPO in his order held that the transactions entered into by the assessee under the ISA are at arm's length price. The learned AR submitted that the revenue did not place any material or record to rebut the TPO's conclusion and aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ightly allowed the claim of the assessee. Thus, ground no.1 of the revenue is dismissed. 8. Ground No.2 is against the action of the CIT(A) in deleting the disallowance of expenses of Rs. 10,42,394/- paid to M/s Little and Co. towards professional fees for rebranding exercise and review of leave and license agreement u/s 35 of the Act. 9. During the course of assessment proceedings, the AO noticed that the assessee has paid Rs. 10,42,394/- to M/s Little and co. on account of professional fees for rebranding exercise and review of leave and license arrangement. The AO noted that the assessee did not submit any break-up fees paid separately for rebranding exercise and review of leave and license agreement as per the provisions of section 35B. The AO disallowed a sum of Rs. 8,33,915/- being 4/5th of the expenses of Rs. 10,42,394/-. The CIT(A) deleted the said disallowance by observing as under:- "I have gone through the submission. On the perusal of the facts and material on record, it appears that AO has treated the whole expenditure as preliminary expenses irrespective of the fact that such expenditure are not in the nature of the expenses incurred prior to the commencement of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the submissions of the assessee, deleted the said disallowance by observing as under:- "7.10 After going through the submission of the appellant and facts on records of the case, I am of the view that amount incurred on account of import duty which is paid on certain computer spare parts, miscellaneous expenses, reimbursement of conveyance expenses can not be capital in nature. Since the spare parts purchased are allowed as revenue expenditure, contention of the AO to treat such expenses as capital is not valid. Accordingly such expenditure incurred in respect of customs duty clearance charges should be allowed as deduction under the Act. 7.11 Regarding the customs duty/customs clearance charges paid to Exel India Pvt. Ltd. (Rs.338,287) pertains to customs duty paid on the import of computer servers which are not asset of the ASPL. The servers are imported for the purpose of a particular project which is again re exported and hence cannot be treated as an asset of the ASPL. The AO's contention to treat the amount of Rs. 60,645/- incurred towards routine customs examination charges, handling charges and documentation charges for the Cenvat Certificate as capital in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that the same is applicable to the appellant's case. As argued by the appellant, such expense is a qualified business expenditure and should be allowable in computing the taxable income of the appellant. This aspect has been upheld in various judicial precedents. Based on the above, I am of the opinion that such expenses qualify as business expenses of the appellant and the appellant should accordingly be given a deduction on this account. Accordingly I hereby delete the addition made by the AO on ground No.9." 19. We have heard the learned representatives of the parties and perused the record. The CIT(A) has given a categorical finding after examining the relevant material and submission of the assessee that shares were allotted to its employees and not to the employees of the parent company. The expenses incurred by the assessee to motivate and award its employees for their hard work, which amounts salary cost of the assessee company. The expenditure incurred by the assessee for the purpose of business on employees is allowable expenses. The CIT(A) has examined the entire scheme and found that such expenses are business expenses and should be allowable as deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to prove the reimbursable expenses are derived from export of software and IT enables services and, therefore, cannot be considered as export turnover. The AO, accordingly, disallowed deduction u/s 10A on the total amount of Rs. 19,81,27,943/-. The CIT(A) directed the AO to compute deduction u/s 10A of the Mumbai undertaking of the assessee by leaving the profits of the undertaking as reported by the assessee in its return of income untouched but reducing only the reimbursement of telecommunication charges of Rs. 18,382,911/- from the export turnover as well as the total turnover of the Mumbai undertaking observing as under:- "I have gone through the facts, material on record and submission made by the appellant and am of the following view: 1.28 I am of the opinion that the appellant is correct in contending that the receipts from reimbursable expenses amounting to Rs. 198,127,943/- relate to the business of the Mumbai undertaking which is eligible for the deduction under section 10A. It cannot be said that the receipts from the reimbursable expenses do not relate to the business of development and export of computer software when the STP unit of the appellant which has in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compute the section 10A deduction of the Mumbai undertaking of the Appellant by leaving the profits of the undertaking as reported by the appellant in its return of income mentioned and reducing the reimbursement of telecommunication charges of Rs. 18,382,911/- from the export turnover as well as the total turnover of the Mumbai undertaking." 27. The revenue is in appeal against the order of CIT(A) in directing AO to allow claim of the assessee u/s 10A in respect of reimbursement of expenses of Rs. 17,81,27,943 (19,81,27,943- 1,83,82,911) by allowing the said receipts to be included in the export turnover. The assessee vide ground Nos. 1 to 3 in C.O. against the findings of the CIT(A) that reimbursement of expenses on account of telecommunication charges Rs. 1,83,82,911/- are held to be not eligible for deduction u/s 10A. In Ground No.2 is against the directions of the CIT(A) to AO to reduce the reimbursement telecommunication expenses of from export turnover and total turnover and in Ground No.3 without prejudiced to the ground No.1 and 2, the reimbursement of expenses should be excluded from the export turnover and total turnover. 28. The learned DR relied upon the order of AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Mumbai undertaking on the basis that such receipts are not derived from the eligible business of the assessee. The learned AR has relied upon the following decisions and submitted that the assessee is entitled for deduction u/s 10A in respect of reimbursable expenses: 1. CIT vs. Alfa Laval India Ltd., 295 ITR 451 (SC) 2. Indian Communication Network Ltd. V. Inspecting Assistant Commissioner, 50 ITD 411 (Delhi SB) 3. Samtex Fashions Ltd. ACIT, 92 ITD 535 (Delhi ITAT) 4. ITAT Mumbai decision in the case of Best Exports Centre Pvt. Ltd., ITA No.5753/Mum/03. 5. Sony India, 114 ITD 448 (Delhi ITAT) = (2008-TII-08-ITAT-DEL-TP) 6. Bangalore ITAT in the case of ACIT V. Motorola India Electronics Pvt. Ltd., 295 ITR 376 7. Ahmedabad ITAT in the case of Priyanka Gems vs. ACIT, 94 TTJ 557 8. JCIT V. Suditi Industries Ltd., ITA No.3490/Mum/2000 (Mum ITAT) 9. M/s Padhrod V. ITO, ITA No.4191/M/2004 (Mum ITAT) 10. CIT V. Eltek SGS (P) Ld., 215 CTR 279 (Del) 11. Shah Originals V. ACIT, 112 TTJ 754 (Mum ITAT) 28.2 The learned AR submitted that without prejudice to the above submissions, submitted that if it is held that the receipts for the reimbursable expenses are not eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89 and 666/Bang/08. 4. Tata Elexi Ltd. (ITA No.315/Bang/2006 5. ACIT V. Khoday India Ltd. 6. CIT V Sudarshan Chemical Industries Ltd., 245 ITR 769(Bom) 7. CIT V. I Gate Global Solutions Ltd., Bangalore ITAT 8. CIT vs. Abad Fisheries [2002] 258 ITR 641 (Ker.) 9. CIT V. Kantilal Chhotalal 246 ITR 439 (Bom) 10. CIT vs. Bharat Earth Movers Ltd., 268 ITR 232 (Kar] and 11. Chloride India Ld. vs. DCIT, 53 ITD 180 (Cal.) 28.4 The learned AR submitted that the decisions mentioned above from Sl. No.7 to 11 are in respect of section 80 HHC of the Act, the principles enunciated in these decisions should also be applied equally and consistently while computing the deduction u/s 10A of the Act. 29. We have heard the learned representatives of the parties and perused the record. The controversy in the case under consideration is in respect of method of accounting followed by the assessee in respect of reimbursement of expenses. In simple words the issue is that whether amount of reimbursement of expenses to be included in eligible business profit as well as in export turnover in the year of receipt of such amount for the purpose of computation of deduction under section 10A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee with finding of the CIT (A) in respect of reimbursement of expenses. We also find force in alternate submission of the learned AR that if it is held that the receipts for the reimbursable expenses are not eligible for deduction u/s 10A of the Act, only profits, if any, relating to such reimbursable expenses should be considered as being not eligible for deduction u/s 10A of the Act. Further, same should not part of total turnover and export turnover. 29.1 The CIT (A) has decided the issue related to Reimbursement of telecommunication charges against assessee. To examine this issue we would like to refer Explanation 2 of section 10A which defines certain terms for the purpose of section 10A. "Export Turnover" has been defined in the said Explanation 2 to section 10A under clause (iv) which reads as under: "(iv) "export turnover" means the consideration in respect of export (by the undertaking) of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be Free on Board (FoB). The C.B.D.T. vide its Circular No.564, dated 5-7-1990 (184 ITR (St.) 137 clarified this aspect in respect of deduction under section 80HHC, the relevant portion of the circular is reproduced as below: "The term "export turnover" under the existing provisions, means the sale proceeds (excluding freight and insurance), receivable by the assessee in convertible foreign exchange. In other words, FoB value of exports. The Finance Act, 1990 has restricted the def inition of the term "Export turnover" to mean FoB sale proceeds actually received by the assessee in convertible foreign exchange within six months of the end of the previous year or within such further period as the Chief Commissioner/Commissioner may allow in this regard." 29.5 On the basis of the above material and discussion, it can be said that only those freight, telecommunication charges or insurance attributable to delivery of goods out of India are to be considered while reducing from consideration received in convertible foreign exchange. Thus if such expenses are not attributable to delivery of goods outside India, such expenses are not required to be deducted from the consideration. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertible foreign exchange. Thus by reduction of Rs. 100 in case of Y the goods exported is FoB. The goods exported at FoB is important in the sense that deduction under section 10A is permissible only in respect of consideration received against goods and not for the consideration received against freight etc. All the assessees should get deduction under section 10A on consideration received against supply of goods at FoB. Therefore, the condition of delivery of goods at FoB has been put and the definition of export turnover as provided in clause (iv) of Explanation 2 to section 10A is required to be interpreted accordingly. 29.6 The definition of 'export turnover' can be summarized in the following formula: Particulars Amount The consideration in respect of export (by undertaking) of articles or thing or computer software received in or brought in to India by the assessee in convertible foreign exchange in accordance with sub-section (3). xxxxxxxxx Less : (1) Following expenses attributable to the Delivery of articles or things or Computer software outside India (if same are included in above consideration) &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, the Mumbai bench of ITAT in the case of Renaissance Jewellery Pvt. Ltd. V. ITO [2005] 4 SOT 50 held that 'exchange gain arising on account of change in exchange rate after the end of accounting year constitutes part of export turnover eligible for deduction u/s 10A.' We find that the issue under consideration is covered by the decisions of ITAT mentioned above and the order of CIT(A) is in consonance with those decisions of ITAT, therefore, we do not find any infirmity in the order of CIT(A) and the same is hereby confirmed on the issue. 34. Ground No.3 is against the deletion of disallowance of expenses of Rs. 4,00,40,832/- on account of cost pool expenses. 35. The learned AR submitted that this issue is similar to the AY 2002-03 vide Ground No.1. 36. After hearing the learned DR, we find that since the issue is identical to that of AY 2002-03 vide Ground No.1, we respectfully follow the conclusions in Ground No.1 for AY 2002-03 in ITA No.4540/M/08 (supra) and in the light of that we confirm the order of CIT(A) on this issue. 37. Ground No.4 is against the deletion of disallowance of Rs. 68,61,271/- on account of employee share purchase plan. 38. The learned AR sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judicial precedents quoted by the assessee and also agreed with the contention of the assessee that the method of accounting consistently followed by the assessee should be accepted. The CIT(A) also observed that the same method of accounting for revenues and expenses has been accepted by the department in earlier year as well as in subsequent years. 43. We have heard the learned representatives of the parties and perused the record. We are of the considered view that it is a settled position of law that the method of accounting followed by the assessee and the same has been accepted by the department is being continuously followed by the assessee. In the light of this fact, we do not find any infirmity in the order of CIT(A). 44. Ground Nos. 2 and 3 are against the action of the CIT(A) in deleting the disallowance of an amount of Rs. 10,49,86,974/- being expenses incurred by the assessee in respect of M/s Accenture Organisation International Services Agreement (ISA) and Rs. 96,96,416/- on account of employees share purchase plan. 45. The learned representatives of the parties submitted that similar issues are decided in AY 2002-03 in ITA No.4540/M/08 cited supra. Following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irrecoverable and he also held that the debts written off by the assessee in its books of account had been written off without valid reasons and proper basis and accordingly these debts which had been written off were still realizable. Before the CIT(A), the assessee contended that all conditions as mentioned in section 36(1)(vii) and section 36(2) to claim a deduction in respect of bad debts written off have been satisfied and accordingly, the assessee is eligible to claim the bad debts written off as a deduction in computing its taxable income from business. The CIT(A) after considering the submissions of the assessee, deleting the disallowance of deduction on bad debts by observing as under:- "I have gone through the submission of the appellant and material on record in this regard and I am of the following view: 4.10 The provisions of section 36(1)9vii) as amended with effect from April 1, 1989, requires the assessee to write off the debts in the accounts of the assessee for the previous year as it becomes bad and irrecoverable. The only condition required for claiming a deduction for such write off is that the income pertaining to the same should have been taken into accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05 since these debts had become irrecoverable. 3. Out of the total debts written off amounting to Rs. 11,215,803/- for AY 2003-04, only an amount of Rs. 49,370/- had been paid up by the clients as at March 31, 2006 (ie the date of completion of assessment proceedings for AY 2003-04) and this amount of Rs. 49,370/- has been offered to tax by Assessee in its return of income for the subsequent years. 4. The above bad debts have been taken into account in computing the income of assessee in either the year ended March 31, 2003/march 31, 2004 or in earlier years. 56. In view of the above reasons, the learned AR submitted that all conditions to claim a deduction in respect of bad debts written off have been satisfied and accordingly, the assessee is eligible to claim the bad debts written off as a deduction in computing its taxable income from business. In support of his submissions, the learned AR relied upon various judgments including judgments of jurisdictional High Court in the case of DCIT vs. Oman International Bank SAOG, 313 ITR 128 = (2009-TII-12-HC-MUM-INTL) and CIT V. Star Chemicals, 313 ITR 126 (Bom). 57. We have heard the learned representatives of the parties and per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia in the hands of the Accenture group entities as the trainings have been imparted to the employees of assessee outside India and ii) the assessee has reimbursed only the actual expenses incurred by the Accenture group entities in imparting such trainings to the employees of assessee and hence, in the absence of any markup/profit on such reimbursements, the payments made to the Accenture group entities for such training expenses are not taxable in India. In support of his submissions, the learned AR has placed reliance on the following judgments:- 1. Industrial Engg. Project Pvt. Ltd., 202 ITR 1014 = (2003-TII-35-HC-DEL-INTL) 2. Clifford Chance (82 ITD 106) = (2003-TII-53-ITAT-MUM-INTL) 3. Sedco Forex International Drilling Inc., 72 ITD 415 = (2003-TII-70-ITAT-DEL-INTL) 4. Rolls Royce India Ltd., 25 ITD 136 5. S G Pgnatale, 124 ITR 391 = (2003-TII-83-HC-AHM-INTL) 6. Mannesmann Demag Lauchhammer, 26 ITD 198 7. Dunlop Rubber Co. Ltd., 142 ITR 493 8. Styles vs. New York Life Insurance Co. 2 TC 460 (HL) 9. Merchant Navy, 96 ITR 261 10. Bankipur Club Ltd., 226 ITR 97 11. DECTA, 237 ITR 190 = (2002-TII-11-ARA-INTL) 62. The learned AR further submitted that for A ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
