2019 (8) TMI 1046 - AT - Income Tax

Tribunal rules in favor of assessee on various grounds, dismissing Revenue's appeal

The Tribunal dismissed the Revenue's appeal on various grounds, including the allowance of deduction under section 10AA for three undertakings, deletion ... Deduction u/s 10AA - undertakings established by splitting up and / or re-constructing of existing business - HELD THAT:- One undertaking was established in assessment year 2009-10 and the second undertaking was established in assessment year 2011-12. The Tribunal while deciding the issue in the case of assessee in assessment year 2011-12 has allowed the plea of assessee and held that the said undertakings were not established by splitting up and / or re-constructing of existing business and had allowed the claim of assessee under section 10AA of the Act. Coming to third undertaking i.e. new undertaking which was established in the current year at Magarpatta, Pune SEZ. The assessee has placed the list of employees who were transferred from old unit. As per the said list, 38% of employees have been so transferred. The CBDT in this regard has issued circular, under which it is said that where an undertaking is established by transfer of employees from existing undertaking upto 50% of employee strength, then it cannot be said the case of splitting up or reconstruction of existing business. We have applied the said principle in earlier years and while deciding the issue of establishment of new undertaking at Hyderabad in assessment year 2011-12 has held that since the employees transferred from existing unit were less than 50%, then it cannot be said to be case of splitting up and re-constructing of existing business and has also allowed the claim of deduction under section 10AA of the Act holding it to be new undertaking. Following the same parity of reasoning, we allow the claim of assessee in respect of new undertaking established during the year at Magarpatta, Pune SEZ. The ground of appeal No.1 raised by Revenue is thus, dismissed. Disallowance u/s 10AA(9) r.w.s. 80IA(10) - HELD THAT:- The case of Revenue was that the profit margins shown by assessee were higher than the mean margins of comparables selected for benchmarking international transactions, hence provisions of section 10AA(9) r.w.s. 80IA(10) of the Act were invoked. The Tribunal in earlier year have deleted the aforesaid disallowance made by the Assessing Officer. Following the same parity of reasoning, we hold that this issue also stands covered in favour of assessee in line with orders of earlier years and in the absence of Assessing Officer failing to demonstrate that any arrangement existed between the assessee and comparable companies selected which enabled the assessee to earn more profits. The ground of appeal No.2 raised by Revenue is thus, dismissed. Disallowance made under section 14A - HELD THAT:- Assessing Officer had invoked the provisions of section 14A of the Act, however, had not recorded proper satisfaction before invoking the aforesaid provisions as to why suo motu disallowance made by assessee was not sufficient. In the absence of satisfaction in earlier years also, the Tribunal has held that there is no merit in making the said disallowance made under section 14A read with Rule 8D of the Rules. The Tribunal has decided this issue in assessment year 2011-12 wherein deleted the addition. Addition on account of ESOP cost - HELD THAT:- The said issue has been remitted back to the file of Assessing Officer with directions by the Tribunal in assessment year 2009-10 and even in succeeding years. Following the same parity of reasoning, we remit this issue also back to the file of Assessing Officer to decide the same in line with earlier directions of Tribunal in assessment year 2009-10. The ground of appeal No.4 raised by Revenue is thus, allowed for statistical purposes. Disallowance u/s 40(a)(i) - foreign remittances made to software and other services where TDS was not deducted - HELD THAT:- Since the nature of payments are same as in earlier year and JOHN DEERE INDIA PVT. LTD.[2019 (3) TMI 458 - ITAT PUNE] following the same parity of reasoning, we hold that no tax is to be deducted out of such overseas payments and consequently, no disallowance is warranted for non deduction of tax under section 40(a)(i) of the Act Disallowance of FBT paid in Australia - HELD THAT:- The Tribunal in assessment year 2011-12 has also considered the said issue and have held that FBT paid in Australia is to be allowed as business expenditure. Following the same parity of reasoning, we uphold the order of CIT(A) and dismiss the ground of revenue. Issues:1. Allowance of deduction under section 10AA of the Act for three undertakings.2. Deletion of disallowance under section 10AA(9) r.w.s. 80IA(10) of the Act.3. Deletion of disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962.4. Deletion of addition on account of ESOP cost.5. Disallowance under section 40(a)(i) of the Act for foreign remittances.6. Disallowance of FBT paid in Australia.Analysis:1. Allowance of Deduction under Section 10AA:The Revenue challenged the allowance of deduction under section 10AA of the Act for three undertakings, arguing they were not eligible due to being formed by splitting up and reconstructing existing business. However, the Tribunal ruled in favor of the assessee, citing precedents and circulars to show that the undertakings were new and not formed by splitting up or reconstruction. The appeal on this ground was dismissed.2. Deletion of Disallowance under Section 10AA(9) r.w.s. 80IA(10) of the Act:The Revenue contested the deletion of disallowance made under section 10AA(9) r.w.s. 80IA(10) of the Act. The Tribunal upheld the deletion, following earlier decisions where it was held that the profit margins of the assessee did not warrant the disallowance. The appeal on this ground was dismissed.3. Deletion of Disallowance under Section 14A of the Act:The Revenue challenged the deletion of disallowance under section 14A of the Act read with Rule 8D. The Tribunal noted that proper satisfaction was lacking for invoking the provisions and ruled in favor of the assessee based on earlier decisions. The appeal on this ground was dismissed.4. Deletion of Addition on Account of ESOP Cost:The Revenue appealed against the deletion of addition on account of ESOP cost. The Tribunal remitted this issue back to the Assessing Officer for further consideration in line with earlier directions. The appeal on this ground was allowed for statistical purposes.5. Disallowance under Section 40(a)(i) for Foreign Remittances:The Revenue raised an issue regarding disallowance under section 40(a)(i) for foreign remittances where TDS was not deducted. The Tribunal, following precedents and similar cases, ruled that no tax deduction was required for such payments, leading to the dismissal of the appeal on this ground.6. Disallowance of FBT Paid in Australia:The Revenue contested the deletion of disallowance of FBT paid in Australia. The Tribunal upheld the decision that FBT paid in Australia is a business expenditure, aligning with earlier rulings. The appeal on this ground was dismissed.In conclusion, the appeal of the Revenue was partly allowed, with various issues being decided in favor of the assessee based on legal precedents, circulars, and earlier tribunal decisions.