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2018 (3) TMI 540

Enterprises (AEs) - Held that:- Similar issue of charging of interest on delayed recoveries of debtors from AEs arose before the Tribunal in assessee’s own case for assessment years 2005-06 to 2009-10 [2016 (6) TMI 1286 - ITAT PUNE] as held that the transactions of interest due on amounts outstanding from its AEs is to be benchmarked at LIBOR plus 300 basis point. The AO/TPO was directed to determine the adjustment, if any, to be made in the hands of the assessee on account of interest chargeable on the amounts due from its AEs beyond the credit period of 25 days after allowing the benefit of interest recovered by the assessee form its AEs. The ground of appeal No.1 raised by the assessee is thus, allowed for statistical purpose. - Denial of deduction u/s. 10A - Held that:- The only new undertaking which has been established in the current year is at Hyderabad. Following the parity of reasoning as in the earlier years, we direct the Assessing Officer to allow the deduction u/s. 10A of the Act in respect of various undertakings established by the assessee from year to year, except new undertaking at Hyderabad which we shall decide separately. As per the undertakings claimed as T .....

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sion of Pune unit for the remaining period, as eligible to the Pune unit. - Disallowance made u/s. 40(a)(ia) of the Act in respect of datalink charges - Held that:- The year under appeal before us is assessment year 2010-11 and the Tribunal in the appeal against the order passed u/s. 201(1)/201(1A) of the Act while deciding the stand of the Revenue that the assessee has defaulted in not deducting tax at source out of datalink charges paid, had held that the payments made for utilizing such services was not in the nature of technical services governed by section 194J of the Act. Once, the same have been held to be not in the nature of technical services, then there is no requirement for deduction of tax at source. Hence, the assessee is not liable for any disallowance u/s. 40(a)(ia) of the Act. - Disallowance made u/s. 40(a)(i) in respect of overseas payment for purchase of software and related payments - Held that:- As decided in assessee's own case the assessee was not liable to deduct tax at source on such payments. Once, the assessee had been held not to deduct tax at source there is no merit in making any disallowance u/s. 40(a)(ia) of the Act. - Disallowance u/s .....

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Hon’ble Bombay High Court in assessee’s own case, which had been followed by the Tribunal in assessment year 2005-06. - ITA No. 216/PUN/2015, ITA No. 360/PUN/2015 - Dated:- 25-1-2018 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM Assessee by : Shri C.H. Naniwadekar Revenue by : Shri Rajeev Kumar, CIT ORDER Sushma Chowla, JM: The cross appeals filed by the assessee and the Revenue are against the order of DCIT (IT)-11, Pune, dated 31.01.2015 relating to assessment year 2010-11 passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (in short the Act ). 2. The cross appeals filed by the assessee and the Revenue were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. First, we shall take up the appeal of assessee in ITA No.216/PUN/2015. The assessee has raised the following grounds of appeal :- In the facts and circumstances of the case and in law, the Learned Assessing Officer erred in making various additions / disallowances as under and further the Dispute Resolution Panel erred in conforming the said additions / disallowances and observations relating thereto made by the Assessing Officer 1. In making addition .....

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thereby not allowing deduction u/s 10A/10AA in respect of such eligible undertakings. f. In holding and concluding that new unit at Hyderabad is not exception to the stand taken by the Department and is clearly formed by the splitting up and the reconstruction of the existing business as provided in Section 10A(4)(ii) of the Act on the basis that some of the employees have been transferred to this unit and new unit is also carrying on the same business of software development / I T enabled services. Alternatively, not considering the Hyderabad unit as expansion of Pune unit which is also entitled to deduction u/s. 10A. 3. In not considering the new unit at TTC BPO as a separate and independent undertaking for the purpose of section 10A and holding that the unit at TTC BPO is formed by splitting up and reconstruction of the existing BPO business of the assessee which is being carried on at NDA 58 unit and thereby including the profits of the TTC BPO business in the profits of the NDA 58 unit for the purpose of allowing deduction u/s. 10A. 4. In making disallowance of ₹ 11,92,04,968 u/s 40(a)(ia) in respect of datalink charges. 5. In making disallowance of ₹ 72,10,172 u/ .....

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contract was passed on to the assessee for execution. The details of international transactions entered into by the assessee during the year are tabulated at pages 2 and 3 of the TPO s order. The total turnover of the assessee was 1734.80 crores, which included other income of ₹ 117.34 crores. The sales to AEs were ₹ 606.49 crores, which were about 34.95% of total sales. The assessee had benchmarked the international transactions by doing an analysis at segmental level. The assessee has applied the Transactional Net Margin Method (TNMM) and PLI of the assessee in software development services was at 31.34% (OP/OC) and in BPO Segment it was 25.22%(OP/OC). The TPO noted from details filed by the assessee that there existed substantial delay in realization of amounts due from its AEs and further it had not recovered any interest on delayed payments from its AEs during the year though, the assessee was recovering the interest on account of delayed payments from AEs during the assessment years 2003-04 to 2005-06. The assessee was thus show caused to explain as to why adjustment be not made in respect of delayed realization from AEs, taking interest at average six months LIB .....

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similar issue of charging of interest on delayed recoveries of debtors from AEs arose before the Tribunal in assessee s own case. The Tribunal while disposing of the consolidated appeals for assessment years 2005-06 to 2009-10 with lead order in ITA No.1338/PN/2010 relating to assessment year 2006-07, order dated 06.06.2016 held that the transactions of interest due on amounts outstanding from its AEs is to be benchmarked at LIBOR plus 300 basis point. The AO/TPO was directed to determine the adjustment, if any, to be made in the hands of the assessee on account of interest chargeable on the amounts due from its AEs beyond the credit period of 25 days after allowing the benefit of interest recovered by the assessee form its AEs. The said issue was decided by the Tribunal in assessee s own case relating to assessment year 2005-06 and the Tribunal while deciding the appeal of assessee in ITA No.1338/PN/2010 relating to assessment year 2006-07, applied the said ratio and directed the AO/TPO to re-compute the addition. The relevant findings of the Tribunal are in paras 31 and 32 of the order dated 06.06.2016. Reference is being made to the findings of Tribunal, however, the same are no .....

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nsion of assessee s existing unit at Pune and deduction u/s. 10A of the Act be allowed for remaining period. 14. The ld. DR placed reliance on the orders of authorities below. 15. We have heard the rival contentions and perused the record. The issue raised in ground of appeal No. 2 is against the claim of deduction u/s. 10A/10AA of the Act in respect of various eligible undertakings established by the assessee from assessment year 2005-06 onwards. The case of the Revenue was that new units/undertakings were formed by splitting up of the business already in existence and hence, not eligible for claiming the aforesaid deduction. The assessee is also aggrieved by the order of Assessing Officer in denying the said deduction to such eligible undertaking which have been allowed the deduction by the Tribunal in earlier years. The assessee has claimed that it has 12 eligible undertakings in the current year and there is no dispute in respect of the BPO undertaking. Out of balance 11 undertaking, 2 undertakings established in assessment year 2005-06, and 5 undertakings were established up to assessment year 2004-05; one undertaking established in assessment year 2007-08, one undertaking est .....

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erred from the existing undertaking; but as per the Act there was no such condition imposed. He further stated that the Circular was not mandatory. However, we find that in all the earlier years the case of the assessee was that it had fulfilled the condition of transfer of employees laid down as prescribed by the CBDT and consequently it was entitled to claim the deduction u/s. 10A of the Act as the new undertaking established by it was not an extension of the existing unit. A perusal of the consolidated order of Tribunal for earlier years would show that the claim of the assessee in respect of new undertaking established from year to year, on which the assessee had claimed the deduction u/s. 10A of the Act, had been allowed on the basis of said CBDT Circular. Accordingly, we find no merit in the plea of the assessee in this regard. The assessee had referred to the provisions of section 10A(2)(ii) of the Act and proviso therein. Section 10A(2)(ii) states that this section applies to any undertaking which fulfills the condition that it was not formed by the splitting up, or the reconstruction, of a business already in existence. The proviso laid down that this condition shall not a .....

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616/PN/2013 relating to assessment years 2007-08 to 2010-11 against order passed u/s. 201(1)/201(1A) of the Act. 20. We find that the Tribunal in ITA Nos. 1301 to 1303 & 1616/PN/2013 while deciding the appeals relating to assessment years 2007-08 to 2010-11 after deliberating upon the issue and relying on the various decisions of the different High Courts and Apex Court vide paras 15 to 25 adjudicated the issue and held as under : 25. Now coming to the facts and circumstances of the present case, the assessee had furnished the explanation before the Assessing Officer and also filed written submissions before the CIT(A) vide letter dated 01.04.2013 along with Flow chart / Diagram of how the DATA links works which is placed at pages 24 to 26 of the Paper Book. The assessee also placed on record the sample copies of purchase orders at pages 27 onwards under which, it was explained that the perusal of the bills would reflect the basis of charges, rates, etc. which were fixed / agreed upon and finally billed by the DATA link providers and it was vehemently stated that the same does in no way indicate involvement or otherwise of human intervention in the DATA link process. In view th .....

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e for any disallowance u/s. 40(a)(ia) of the Act. Thus, we delete the disallowance made by the Assessing Officer in this regard and the ground of appeal No. 4 raised by the assessee is allowed. 22. Now, coming to the ground of appeal No. 5 which is against the disallowance made u/s. 40(a)(i) of the Act in respect of overseas payment for purchase of software and related payments. We find that the Revenue had filed an appeal relating to assessment years 2008-09 to 2010-11 being ITA Nos. 1172 to 1174/PN/2013 against the order passed u/s. 201(1)/201(1A) of the Act in respect of the payment made for transfer of user rights of software and availing other services such as maintenance of software training etc. The Tribunal vide order dated 10.04.2015 after taking note of the various payments made, held that the assessee was not liable to deduct tax at source on such payments. Once, the assessee had been held not to deduct tax at source there is no merit in making any disallowance u/s. 40(a)(ia) of the Act. Accordingly, we delete the disallowance made by the Assessing Officer in this regard. The ground of appeal No. 5 raised by the assessee in appeal is thus, allowed. 23. Now, coming to the .....

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the case of M/s. Honeywell Automation India Ltd. Vs. DCIT in ITA No.18/PN/2011, relating to assessment year 2006-07, order dated 21.02.2015 restored the issue back to the file of Assessing Officer with direction to verify the records and if under identical circumstances, the DRP has decided the issue in favour of assessee for assessment years 2010-11 and 2011-12, then the same be decided in the light of said directions. 26. In the facts relating to the year under consideration, the Assessing Officer observed that the applicability of provisions of section 10A(7) of the Act for claiming deduction on more than ordinary profits is relevant. The Assessing Officer noted the net profit margin of the assessee was at 31.34%. However, the mean margin of comparables selected for benchmarking the international transactions worked to 12.40%. The Assessing Officer was of the view that disallowance under section 10A(7) r.w.s. 80IA(10) of the Act is warranted in the case. The case of assessee was that there must be an arrangement between the assessee and other person and also the assessee must make more than ordinary profits out of such arrangements in order to invoke the applicability of sectio .....

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ee before us has pointed out that the issue is covered and following the same parity of reasoning, we remit this issue back to the file of Assessing Officer to follow the directions of Tribunal in assessment year 2009-10 and decide the issue accordingly. The ground of appeal No.2 raised by the Revenue is thus, dismissed. 30. The ground of appeal No.3 raised by the Revenue is against deletion of additional disallowance under section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 (in short the Rules ). 31. Brief facts relating to the issue are that the assessee for the year under consideration had earned dividend income of ₹ 54,11,33,097/-. The said dividend income was claimed as exempt. The assessee had made investment in shares of overseas subsidiary companies, bonds and mutual funds. The dividend from foreign subsidiaries was taxable in India and also interest earned on bonds. The assessee had not made any investment in shares of Indian companies. The assessee claims that it had made investments in other than equity oriented mutual fund scheme. Thus, the capital gain on redemption of such mutual fund units was taxable either as long term or short term capital .....

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esentative for the Revenue placed reliance on the order of the Hon ble High Court of Delhi in Indiabulls Financial Services Ltd. Vs. DCIT (2016) 76 taxmann.com 268 (Del). 33. The learned Authorized Representative for the assessee on the other hand, pointed out that the assessee before the Assessing Officer has filed detailed note, copy of which is placed at page 67 of the Paper Book. However, there was no rebuttal to the working of disallowance. He stressed that the satisfaction as referred by the learned Departmental Representative for the Revenue was not satisfaction at all. 34. We have heard the rival contentions and perused the record. The Assessing Officer while passing the assessment order in para 10 had observed that the assessee had earned significant amount of tax free dividends and in the computation of income, the assessee has disallowed sum of ₹ 50 lakhs under section 14A of the Act. Then, reference is made to the Note filed by the assessee on expenditure disallowable under section 14A of the Act. The Assessing Officer thereafter, takes note of the contents of said explanation and observed as under:- I have gone through the submissions made by the assessee. It is .....

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uisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of section 14A(2) and (3) read with rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. (underline provided by us for emphasis) 36. The ratio laid down by the Hon ble High Court of Delhi in Indiabulls Financial Services Ltd. Vs. DCIT (supra) is thus, not applicable. The ground of appeal No.3 raised by the Revenue is thus, dismissed. 37. The next ground of appeal is in respect of setting off of losses of 10A undertakings against other business income. The said issue as per the assessee is squarely covered by the order of Tribunal and the Hon ble Bombay High Court in assessee s own case in earlier years. Reliance was placed on the order of Tribunal for assessment years 2006-07 to 2009-10, dated 06.06.2016. 38. We find that similar issue arose before the Tribunal in assessee s own case and while deciding the appeal for assessment year 2006-07, the Tribunal held that the said issue stands covered by the decision of Hon ble Bombay High Court in assessee s own case, which had been followed by the Tribunal in assessme .....

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