Tax Management India. Com
                        Law and Practice: A Digital eBook ...

Category of Documents

TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Manuals SMS News Articles
Highlights
D. Forum
What's New

Share:      

        Home        
 

TMI Blog

Home List
← Previous Next →

2020 (3) TMI 338

..... see - assessee is performing only development services relating to software, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Bigger sized company is in the position to undertake more risks in the business as compared to the smaller size companies - Companies with huge difference of turnover with the assessee need to be deselected. Telecommunication Expenses u/s.10A & 10AA - HELD THAT:- Any amount reduced from ‘Export turnover’ should also be reduced from the amount of ‘Total turnover’ in the computation of deduction u/s.10A of the Act. Following the same, we allow the assessee’s ground and dismiss that of the Revenue. Exclusion of expenditure on providing technical services abroad from the turnover while computing deduction u/s.10A/10AA - HELD THAT:- AR fairly agreed that the full amount of foreign currency expenses has been rightly held to be excludible from the amount of ‘Export turnover’. It was, however, prayed that the same amount may also be excluded from the amount of ‘Total turnover’ - we hold that the amount of Foreign currency expenses to the tune of ₹ 107.6 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... he matter to the file of the AO/TPO for proper verification and adjudication after complying with the principles of natural justice. Thus, Ground of the assessee’s appeal is allowed for statistical purposes. - ITA No. 1166/PUN/2015, ITA No. 1341/PUN/2015 - 5-3-2020 - Shri R.S. Syal, VP And Shri Partha Sarathi Chaudhury, JM For the Assessee : Shri C.H. Naniwadekar For the Revenue : Shri T.V. Bhaskar Reddy, CIT ORDER PER PARTHA SARATHI CHAUDHURY, JM : These cross appeals preferred by the assessee and Revenue emanates from the common order of the Ld. CIT(Appeals)-13, Pune dated 15.07.2015 for the assessment year 2010-11 as per the grounds of appeal on record. 2. At the very outset, the Ld. Counsel for the assessee submitted that in the first ground, the assessee wants KALs Information System Ltd. to be excluded from the final list of comparable and the Revenue in its appeal wants Infosys Technologies Ltd. to be included in the final list of comparables. First, we would adjudicate the exclusion of KALs Information System Ltd. from final list of comparables in assessee s appeal. EXCLUSTION OF KALS IFNORMATION SYSTEM LTD FROM FINAL LIST OF COMPARABLES (A) KALs Information System Lt .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... es could not have been applied. 5.2 The Ld. Counsel for the assessee further relied on the decision of the Co ordinate Bench of the Tribunal. Bombay in the case of Accenture Services Pvt. Ltd. Vs. ACIT, IT (TP)A No.7686/Mum/2012 for assessment year 2008 09 wherein the Tribunal has held as follows: KALs Information System Ltd. From the audited Annual Account of this company placed in the paper book it is evident that the company is also engaged in the development and sale of products. In fact, the learned DRP has also accepted this fact while dealing with the objections of the assessee. However, the DRP has ultimately held that the sale of products do not constitute a major portion of the company's revenue. We are unable to understand on what basis the DRP has given such a finding considering the fact that segmental details as regards sale of products Accenture Services Pvt. Ltd. and services are not available in the Annual Report. That being the case, there can be possibilities of revenue from products sale being included in application software segment. The Transfer Pricing Officer while rejecting the objections of the assessee has simply stated that the company is in the busi .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... records and analyzed the judicial pronouncements placed before us. We observe that a particular finding is consistently being arrived at by the Co-ordinate Bench of the Tribunal stating that TPO is not justified in selecting this company i.e. KALs Information System Ltd. as comparable. We, therefore, respectfully following our decisions in earlier years, direct the AO/TPO to exclude KALs Information System Ltd. from the final list of comparables. 7. The grievance of the Revenue in appeal is with regard to exclusion of Infosys Technologies Ltd. wherein the prayer of the Revenue is that this company should be included in the final list of comparable with that of the assessee. (B) Infosys Technologies Ltd:- 8. The TPO has given his findings on this issue at Page 15 onwards of his order and has held that the objection of the assessee on Infosys Technologies Ltd. is not comparable because it is providing services to some other segment is not acceptable and it was included in the final set of comparable companies. 9. The Ld. CIT(Appeals) at Page 30 of his order Para 2.2.6.1 starts his observation and the assessee also filed written submission which has been reproduced and finally at Par .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... e of turnover wherein Infosys Technologies Ltd. turnover is ₹ 22,742 crore, the assessee turnover is ₹ 805 Crore and therefore, it is obvious that bigger sized company is in the position to undertake more risks in the business as compared to the smaller size companies. Therefore, we do not find any infirmity with the findings of the Ld. CIT(Appeals) and relief provided to the assessee is hereby sustained. Thus, this ground of appeal raised by the Revenue is dismissed. 11. Ground No.2 of the assessee s appeal and Ground No.2 of the Revenue s appeal pertains to Telecommunication expenses u/s.10A and 10AA of the Act . Telecommunication Expenses u/s.10A & 10AA of the Act : 12. The Assessing Officer stated that the assessee company has incurred certain telecommunication expenses with respect to the delivery of software abroad. According to the provisions of section 10A and section 10AA, telecommunication expenses should be reduced from the assessee s export turnover. The Assessing Officer reduced the telecom charges of ₹ 5,31,46,894/- and internet usage expenses of ₹ 3,51,30,538/- totaling ₹ 8,82,77,432/- from the export turnover while working out the d .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... case wherein vide Para 43 and 44, the Tribunal on the issue has held as follows: 43. Ground No.5 of the assessee s appeal is against reducing telecommunication charges and internet usage charges totalling ₹ 9,82,28,337/- from only the Export turnover in computing deduction u/s.10A. Ground No.1 of the Revenue s appeal is against the direction of the ld. CIT(A) that link charges and internet usage charges be reduced from Export turnover and also from Total turnover . 44. This issue also came up for consideration before the Tribunal in relation to the A.Y 2007-08. Vide its order dated 05-08-2019 in IT(TP)A. No.286/Bang/2013, the Tribunal has held that any amount reduced from Export turnover should also be reduced from the amount of Total turnover in the computation of deduction u/s.10A of the Act. Following the same, we allow the assessee s ground and dismiss that of the Revenue. Respectfully following the decision mentioned herein above, we allow ground No.2 raised by the assessee and dismiss ground No.2 of appeal of the Revenue on this count. 15. Ground No.3 of the assessee s appeal and Ground No.3 of the Revenue s appeal pertains to exclusion of expenditure on providing techn .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... Profits of the business X export turnover Total turnover ₹ 1,553,181,990 X ₹ 7,715,860,596 9,074,259,586 =13,22,935,443 17. The Ld. CIT(Appeals) discussed this issue at Page 35, Para 2.4.3 to 2.4.6 and held that the amount of ₹ 106,66,63,964/- should be reduced from the total turnover by observing as follows: 2.4.3 I have carefully considered the facts, arguments of the appellant and legal provision. I find that this issue has been decided against the Appellant by the honourable Karnataka High Court, in the case of CIT vs. Infosys Technology Ltd (2012) 349 ITR 588 (Kar). The honourable High Court has held that the amount spent in foreign currency towards the provision of the technical services rendered outside India, in connection with the development and production of software, should be reduced from the export turnover. 2.4.4 The Appellant has argued that the decision in the case of Infosys is not applicable to the facts of its case, as in the case of Infosys, the honourable High Court held that the certificate issued by the CA showed that the said amounts was received for providing technical services whereas the Appellant does not render technical services. In .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... deduction u/s.10A. The ld. AR fairly agreed that the full amount of foreign currency expenses has been rightly held to be excludible from the amount of Export turnover . It was, however, prayed that the same amount may also be excluded from the amount of Total turnover . Following similar view taken by us in relation to Ground No.5 of the assessee s appeal and Ground No.1 of the Revenue s appeal above, we hold that the amount of Foreign currency expenses to the tune of ₹ 107.63 crore be excluded from the Export turnover as well as Total turnover . Respectfully following the decision mentioned herein above, we allow ground No.3 raised by the assessee and dismiss ground No.3 of appeal of the Revenue on this count. 19. That apart, the Revenue in Ground No.4 of appeal has raised an issue pertaining to disallowance u/s.14A r.w.r.8D of the Income Tax Rules, 1962 . Disallowance u/s.14A r.w.r.8D of the I T Rules: 20. The Assessing Officer discussed this issue at page 8 onwards of his order and given his finding at Page 8.1 wherein the disallowance worked out at ₹ 13,759,414/- u/s.14A read with rule 8D. Out of this amount ₹ 3,20,508/- was already disallowed by the assessee .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... s of the case are that the assessee claimed dividend income amounting to ₹ 8,74,13,850/- earned on mutual funds as exempt from tax. The Assessing Officer (AO) observed that no disallowance was offered by the assessee u/s.14A of the Act. On being called upon to explain the reasons for not offering the disallowance, the assessee submitted that a suo motu disallowance of ₹ 3,13,492/- was offered. The AO, not satisfied, computed the disallowance u/s.14A r.w. Rule 8D at ₹ 80,93,070/-. The ld. CIT(A) echoed the assessment order on this point. 37. We have heard both the sides and gone through the relevant material on record. The assessment year under consideration is 2008-09. Unlike earlier years, Rule 8D is applicable for the purpose of making disallowance u/s.14A. The disallowance made by theAO is in two parts, viz., ₹ 5,49,818/- under Rule 8D(2)(ii) and ₹ 75,43,252/- under Rule 8D(2)(iii). In so far as the disallowance of ₹ 5,49,8198/- is concerned, it is seen from the assessee s Balance sheet, whose copy has been placed in the paper book, that as against Investments of ₹ 176.57 crore, the assessee s Shareholders fund stands at ₹ 509.29 c .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... lating the average value of investments, which have yielded exempt income during the year. The assessee will be allowed hearing opportunity in the fresh proceedings. 40. The ld. AR further contended that a suo motu disallowance of ₹ 3,13,492/- was offered by the assessee under section 14A. The AO is directed to verify this claim and then accordingly compute the amount disallowable u/s.14A r.w. Rule 8D(2)(iii). Respectfully, following our decision mentioned herein above, in respect of disallowance u/s.8D(2)(ii), it is deleted whereas, in respect of disallowance u/s.8D(2)(iii), it is restored to the file of the Assessing Officer with similar directions as mentioned in the order (supra.). Thus, ground No.4 raised in appeal by the Revenue is partly allowed for statistical purposes. 23. The assessee in Ground No.4 has raised an issue pertaining to Deputation of Technical Manpower (DTM) Deputation of Technical Manpower (DTM) :- 24. The Assessing Officer discussed the issue of deputation of Technical Manpower (DTP) vide Para 10.1 onwards and the assessee filed detailed submissions before the Assessing Officer which reads as under: Based on the above facts it can be concluded that th .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... 3.4 crores (34,246,639) as net profit derived from the 100% onsite/DTM project executed. This net profit now offered includes both DTM projects as well as 100% onshore/DTM projects. 10.46 For A.Y 2007-08, similar issue had been taken up with the assessee concern. The assessee had asked to give soft copies of all the SOWs executed for the year. Out of the SOWs and invoices produced, the Assessing Officer had large number of DTM projects and 100 % onshore projects. However, the detection of DTM and 100 % onshore projects was not completed. Considering the same, the Assessing Officer had taken an estimate of DTM projects and 100% onshore projects executed for the year and reduced the deduction available to the assessee u/s. 10A of the Income Tax Act. For A.Y. 2008-09 also, the assessee company had submitted softcopies of all SOWs and invoices. The Assessing officer had identified a large number of DTM and 100 % onshore SOWs executed for the year. Once the DTM and 100 % onshore projects had been put across to the assessee during the course of assessment proceedings, the assessee had given a complete list of all 100%onshore projects which included DTM projects also. The revenue thereon .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... n u/s.10A or 10AA. 2.5.25 Secondly, the learned AO in Para 10.24, 10.24(f), 10.34 and 10.35 of the assessment Order has stated that the Appellant has not even attempted to establish the direct and intimate nexus of the software developed at the client's site with the SEZ unit. It may be mentioned that Circular 01 of 2013 provides additional condition of the establishment of direct and immediate nexus of the SOW executed and SEZ. The learned AO has stated that the invoices raised by the Appellant do not mention the SEZ Unit or STP Unit, from which software is stated to have been developed. On the contrary, the invoice mentions its branch office either in USA or Europe. Further, the learned AO in para 10.35 has stated that the Appellant has failed to link its most of its on-site employees with the particular SEZ or STP Unit. I derive support from the cases of CIT v Motor General Finance Ltd (2002) 254 ITR 449 (Delhi) and CIT v Krshnaveni Ammal (1986) 158 ITR 826, 829 In these cases, the Courts have held that non-production of the documents can lead to drawing of adverse inference u/s 114 of the Evidence Act. Therefore, in the case of the failure to establish the direct and intima .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... xpression profits ... derived ...from .. export of ... computer software' employed in sub-section (1) of section 10A of the Act has been further elaborated in sub-section (4) to mean: the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.' The expression profits of the business of the undertaking' as used in sub-section (4), in fact, gives meaning to the expression derived... from ... export of ... computer software' as used in sub-section (1) and amplifies the scope of the latter by mitigating the rigor and making the provision liberal and more inclusive. There is no gainsaying that profits of the business of the undertaking' are not only the profits derived from the export of computer software but also those which are attributable to the business of undertaking. So long as there exists a direct link between the eligible undertaking and some income, the same is profit of the business of undertaking, even if may not be derived from the export of computer software etc. W .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... he following reasons: Admittedly, the forex gain is on account of foreign branches. In my opinion, the foreign branches cannot be treated as 'non-integral foreign operations' since they are part and parcel of the overall company s operations and cannot be regarded as separate or independent operations. Further, up to last year the company has treated these branches as 'integral operations' and the resulting forex gain/loss was included in the profit and loss account. It is not clear how the position in the current year is any different from last year. Hence, this amount of forex gain ₹ 2,01,99,730/- as taxable in the current year and accordingly, liable to be included in the total income of the current year. Accordingly, addition of ₹ 2,01,99,730/- is made to the total income. 29. The Ld. CIT(Appeals) discussed this issue vide Paras 2.7.1 onwards and after considering the submissions of the assessee, assessment order and facts of the case has given his final finding at Page 55 vide Para 2.7.6 which is extracted as follows: 2.7.6 In this case, the learned AO has not examined as to how much fluctuation gain is on the capital account and how much is on the .....

X X X X X X X

Full Text of the Document

X X X X X X X

 

 

← Previous Next →

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Blog || Site Map - Recent || Site Map ||