TaxTMI 
TaxTMI 
2013 (12) TMI 1539
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....rounds. 3. Ground No.3 challenges the order of the AO/DRP denying the claim of the assessee for relief u/s. 10A/10AA of the Act. These grounds read as follows: "3. Relief tinder section 10A and under section 10AA of the Act 3.1 The Learned AO and the Hon'ble DRP have erred in law and on facts in placing reliance on the assessment orders of AY 2005-06 and AY 2007-08, in finalizing the assessment order for the AY 2008-09. 3.2 The learned AO and the Hon'ble DRP have erred in law and on facts in disallowing the relief claimed by the Appellant under section 10A and section 10AA of the Act amounting to Rs. 5,400,537,759 and Rs. 128,296,962. 3.3 The learned AO and the Honourable DRP have erred in law and on facts in denying the claim of relief under section 10A and section 10AA of the Act on the basis of non-maintenance of separate books and holding that the profits of the units as not being quantifiable in a correct, certain and exact manner. 3.4 The learned AO and the Hon'ble DRP have erred in law and on facts in denying the entire relief under section 10A of the Act on the basis of not having approval to operate an overseas ba....
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...., shall be allowed from the total income of the assessee....." 3.4 Sec.10A(3) of the Act imposes a condition for gelling the benefit of deduction u/s.10A(1) of the Act, that the sale proceeds of computer software exported out of India should be received in, or brought into, India by the Assesses in convertible foreign exchange. The said provisions read thus: '(3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation 1 : For the purposes of this sub-section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Explanation 2 : The sale proceeds referred to In this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account....
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.... dealer or the RBI. The approval was also valid only for a certain period. The assessee pointed out that by oversight, the required audit statements were not filed with RBI nor was any renewal sought for. The assessee, however, took a stand that as per Circular AP(DIR series) No.54 dated 29.06.2002 of the RBI Exchange Control Department, grants permission to open foreign currency accounts with banks outside India, into which export proceeds can be credited through overseas bank account and amounts repatriated to India and the assessee believes that the above Circular will apply to its case and would be equivalent to the compliance of the provisions of section 10A(3) Explanation-2. The assessee also pointed out that by way of abundant caution, it had sought approval of RBI for renewal of the approval for maintaining and operating overseas bank account with HSBC Bank, New York and that the assessee's request is under active consideration with the RBI. 3.8 The AO was however of the view that in the absence of RBI's approval as contemplated u/s. 10A(3) of the Act, the claim of the assessee for deduction u/s. 10A of the Act cannot be entertained. The AO also sought certain cl....
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....om the activity. If the answer is in the affirmative, such records meet the test of separate books. 3.11 The AO, however, was of the view that in assessee's own case as well as in the case of Digital Equipment India Ltd. (supra), the emphasis has been laid by the Tribunal on the aspect whether the books maintained by the assesses enabled computation of profits from the activity. According to the AO, what the Tribunal really meant was if the books of account of various units are combined with other activities, the assessee should be able to separate entries pertaining to the unit, maintain and produce records and statements separating the results. According to the AO, the assesses in the present case in the present assessment year has not been able to establish allocation of revenues and expenses unit-wise 3.12 According to the AO, books of account are always written on the basis of the primary documents like bills and vouchers in respect of incomes and expenses. When these documents are not maintained separately (unit-wise), and it is not possible to identify and track expenses or income relating to a unit of the business, and therefore the profits declared for such units....
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....ty of its STPI and domestic units 3. Excel work sheets containing the basis of allocation of expenditure 4. Excel work sheet containing the unit-wise split of revenue 5. Trial Balance of IBM for the year ended 31st March, 2007 6. Process documentation for determining revenue of STPI units 7. Bank statements for realization of export revenue (HSBC & Deutsche Bank) 8. Basis of allocation of expenses to STPI units. Further, it was also mentioned that "in auditing the accounts of the company for the purpose of claiming deduction u/s 10A, we have extensively relied on the audited Financial Statements since these provide us a high degree of reliance. We have further relied on the above mentioned documents examined by us for validating the unit-wise Profit and Loss statement on which basis the claim of Section 10A is made."' 3.15 According to the AO, the above basis of allocation by the auditors of revenue and expenses unit-wise was not reliable and there is no system that has been followed by the assessee to allocate such revenues and expenses. He held that the assessee has failed to demonstrate a proper system of trac....
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.... assessee has not maintained primary documents like bills and vouchers in respect of income and expenses separately for each unit. (iv) The company's accounting system is the only basis facilitated identification of expenses and incomes of individual units, (v) The assessee has neither maintained the primary documents like bills and vouchers unit-wise nor the books of account so as to arrive at profit in respect of each unit, (vi) No separate bank account was maintained in respect of the amounts brought into India. (vii) No separate bank accounts have been maintained in respect of export and domestic businesses. 2.5 The fundamental documents on which books are written are the primary documents like bills and vouchers in respect of incomes and expenses. When these documents are not maintained separately, there is no way for accounting entries to have an Identifiable method of tracking an expense or Income relating to a unit of business. The fundamental accounting rule require that the primary documents determine the type or identification of the accounting entry. In the absence of such identifiable primary documents of accounting, wha....
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....gning reasons to turn down the claim remain as such and have not been addressed by the taxpayer before the Panel during the current proceeding also. To conclude the order of the AO for elaborate reasons in the foregoing does not call for any interference. Accordingly this ground is rejected.'' 3.19 Aggrieved by the order of the DRP, the assesses has raised ground No.3 before the Tribunal. We have heard the submissions of the ld. counsel for the assesses and the ld. DR. 3.20 The ld. counsel for the assessee drew our attention to the order of the Tribunal in assessee's own case for the AY. 2000-01. On an identical issue, the Tribunal in ITA No.3454/Bang/2004 by its order dated 31.10.07 considered the question, whether the books of account maintained by the assessee was sufficient to determine the profits of various STPI units. The main argument of the assessee before the Tribunal was that u/s. 10A of the Act, there was no requirement to maintain separate books of account for the various units. The Tribunal on the above submissions made on behalf of the assessee held that there was no requirement u/s. 10A of the Act to maintain separate books of account and that the ....
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....w.e.f.1.4.2001 is correct. However, his further observation that law has moved to 'undertaking' specific deduction, which indicates that the books of account should be maintained unit-wise, is without any legal basis. Section 10A tax holiday provisions were always 'undertaking' specific (even pro-amended provisions up to 2001). Sub-section (1) of Section 10A (prior to the amendment by Finance Act, 2000 was an exemption provision which also clearly refers to the profits of the undertaking. Hence, the Commissioner of Income-tax(A) has misunderstood that the provisions were not 'undertaking' specific. The pre-amended provisions cited by the Revenue was never codified as the taw, (as it was overwritten by the subsequent amendment) (See A. N. Iyer's 'IT Laws, 2001'). Therefore, the Revenue is incorrect to cite that pre-amended provisions did not require separate books of account as there was no reference to 'undertaking', but the post-amended section does. In this connection, it is most appropriate to recall the finding of the earlier Bench in an identical issue in the assessee's own case for the immediately preceding assessment year [i....
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....od of arriving at the expenses." Further, we venture to quote the ruling of the Hon'ble Supreme Court in the case of Smt. Tarulata Shyam v. CIT reported in 108 ITR 345 (SC) wherein it has been made implicitly clear that - "To us, there appears no justification to depart from the normal rule of construction according to which the intention of the Legislature is primarily to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt J. In Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64 (KB) at page 71, that: "...... In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax: There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." II. In view of the fact that the maintenance of separate books of account for STP Units is not a condition laid down in the provisions of s 10A of the Act and also in conformity with the rulings of the Hon'ble Supreme Court referred supra and the finding of the Hon'ble Bench in the assessee's own case for ....
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....11.6 crore. The assessee on non-STP & non-SEZ units which rendered services to unrelated third parties, in such transactions there was no cost plus 10% mark-up basis. These transactions resulted in a loss of Rs. 71.3 crore from domestic operations. The assessee thus pointed out that the overall profits of the assessee were only at Rs. 440.3 crore (511.6 crore minus 71.3 crore) (ii) The assessee also clarified as to why some expenses were not allocated to export units. The assessee pointed out that the items of expenses pointed out by the AO were bad debts written off provision for doubtful debts and doubtful loans & advances written off. These debts specifically related to non-export units and therefore were allocated to the non-export units. Similarly, diminution in value of investments did not pertain to export units and therefore were not allocated to the export units. (iii) The assessee also gave the following reconciliation:- ♦ Reconciliation of the revenue of each of the STPI unit with the bank statements. ♦ Reconciliation of the expenses pertaining to the STP units with the bank statements. ♦ Reconcil....
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....rpose of section 10A with the approval of RBI. In this regard, the ld. counsel for the assessees firstly submitted that the AO does not dispute the satisfaction of the conditions laid down in section 10A (1) & (2) of the Act. It was his submission that the AO did not dispute the fact that the assessee derived profits from the export of computer software. The export turnover in respect of such business was also not disputed. The profits of such business as arrived at by the assesses for all the 8 STP units have also not been disputed by the AO. According to him, the revenue cannot reject the claim of the assesses in full for deduction u/s, 10A of the Act and has to determine the profits on which deduction u/s. 10A can be allowed. He drew our attention to the fact that even below the AO, the assessee had In its letter dated 20.10.2011 submitted as follows:- "In addition to what we have submitted earlier and without prejudice to the same, we also wish to submit that section 10A(3) of the Act allows an assesses to either (i) directly receive the export proceeds in India or (ii) bring the export proceeds to India after the same is received outside India. Explanation 2 to sectio....
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....RBI has granted its approval with retrospective effect from 10.11.2002 till 03.08.2012 and also further approval for maintaining bank account with HSBC, New York from 24.08.2012 for a period of one year. The said Jeter of RBI is Enclosed as ANNEXURE-II to this order. The ld. counsel sought to file the aforesaid letter as additional evidence. Another letter dated 3.10.2011 by STPI, which is a show-cause notice issued u/s. 13 r.w.s. 11 of Foreign Trade (D&R) Act and the assessee's response lo aforesaid show-cause notice dated 21.10.2011, were also sought to be filed as additional evidence Finally, a letter dated 21.10.2011 by STPI informing the assessee that the assessee Has a well laid standard operational procedure to keep appropriate check and accounting system for differentiation between various business units and therefore the show-cause notice and the proceedings against the assessee were being dropped is also sought to be filed as additional evidence. It is relevant to point out here that the show-cause notice was issued by She STPI on the complaint of AO that the assessee did not maintain separate books of account for STP and non-STP units and that the sane was a violatio....
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....d by GS Technical services Inc on the Company 6 90-92 6. Copy of order dated 25 January, 2005 under section 195(2) of the Act, with respect to Employee Stock Option payments to IBM USA 6 93-94 3.33 In the application for admitting the aforesaid documents as additional evidence, it is stated that the documents mentioned in Serial Nos 1, 2 and 5 were not available with the Company during proceedings before the Assessing Officer/the Dispute Resolution Panel or at the time of earlier hearings before the Hon'ble Members of the Tribunal The remaining documents pertain to submissions made by the Company on which directions were given by the Dispute Resolution Panel to the Assessing Officer to examine based on details and for which sufficient opportunity was not given to Company to submit before passing the order under section 143(3), read with section 144C of the Act. It is claimed that the above documents are necessary for the effective disposal of the captioned appeal as mentioned above. We may clarify that as far as Gr. No. 3 is concerned, the relevant documents sought to be filed as additional evidence is only document at Sl.Nos.1 and 2. The other do....
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.... credited, then the assessee would not be disentitled for exemption. 3.37 The ld. DR submitted before us that the assesses did not have approval of RBI in respect of bank account maintained outside India, where sale proceeds were credited and therefore the assessee cannot take benefit of Explanation-2 to section 10A(3) of the Act. 3.38 The ld DR submitted that the deduction u/s. 10A/10AA was rejected by the revenue authorities for two reasons viz,, (a) there was no approval of the bank account maintained outside India into which the export proceeds were deposited by the assessee; and (b) the assesses did not maintain separate books of account for the various STP units tor which deduction u/s 10A/10AA was claimed. On the issue with regard to the absence of approval of RBI in the bank account maintained by the assessee outside India where sale proceeds of exports were credited, the ld. DR submitted that there was no valid approval in science at any point of time and therefore deduction u/s. 10AA was rightly rejected by the revenue authorities. 3.39 With regard to the absence of separate books of accounts for various STP units, the ld. DR submitted that the assessee has prima....
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....re realized or deposited. It was his submission that the above aspects were not considered by the Tribunal in its earlier order. (d) He also brought to our notice that on 22.1.1998, the assesses got permission of the RBI to maintain bank account outside the country viz., with HSBC Midland, USA He brought to our notice that (the said approval clearly mentions that the bank account will have credit of only payments for software contracts executed abroad. The letter also mandates that the assessees should give every quarter contract-wise receipts and expenditure. 3.40 At this juncture, the ld. DR sought to place before us applications for admitting additional evidence. In an application dated Nil filed on 22.08.2013, the ld. DR has sought to file the following documents as additional evidence:- Sl. No. Particulars Pages Nos. 1. FIRCs (both the sides) belonging to remittance from HSBC, New York and other banks that were NOT endorsed/realized as per FEMA guidelines but the company claimed the same us software export proceeds. 24-34 2. FIRCs (both sides) that were endorsed/realized belatedly after filing return of income and after completion of she ass....
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....such units evidenced by softex certified by the STPI/SEZ authorities, cannot be allowed to make the provisions of Section 10A/10AA to be treated as the Foreign Exchange Remittance (Immunity) Scheme of 1991. It is the claim of the AO that the FIRCs now obtained from Deutsche Bank (at Page 63-213 of PB-4 filed on 13.08 2013) show that the foreign remittances (received in Indian account only) far exceed the export invoices raised and certified by (he STPI/SEZ authorities through softex forms. It is further claimed by the AO that analysis of the FIRCS representing the foreign Inward remittances ONLY to the assessee's Deutsche Bank (to the exclusion of foreign exchange retained at unauthorized HSBC, NY a/c in USA) would show that about US S 1106.68 million ($ 1083.66 million + US 5 26 million) or about Ra.4400 crore of receipts of the assesses in FY 2007-08 (AY 2008-09) is unrelated to any business of the assessee, let alone the business of STP/SEZ units (details given in Annex-3 and 2 to the application for admission of additional evidence), These receipts have till date not been accounted for by any of the STPI/SEZ authorities or the RBI as export proceeds, and is Illegal money br....
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....ice provider, and Letter of DC Cochin (Bangalore SEZ) dated 4.9.2013 regarding data-com service provider - VSNL/Tata Coram. 3 3-5 4 Calling for information u/s 133(6) of IT Act from VSNL/TATA Communications Ltd dated 12.8.2013 & reply from VSNL/Tata Communication dated 23.8.2013 4 6-9 5 Reply of VSNL/TATA Commn. dated 16.9.2013 confirming no connections/connectivity have been provided in Bangalore STPI-2, Noida STPI and Kolkata STPI, and Assessing Officer's letter dated 28.08.2013 5 10-11 6 Letter of AT & T (India) dated 11.9.2013 confirming that no connections/connectivity was provided outside India 6 12-13 7 RBI letter dated 26.8.2013 appointing Deutsche Bank to conduct transactional audit highlighting the trail of each and every export transaction and to match contract-wise repatriation of 30% onsite revenue pertaining to IBM India Pvt Ltd from 2001-2012. 7 14 8 Form 26-AS For AY 2008-09 (first and last page copy) - TDS credit 8 15-16 9 Notice u/s 154 dated 26.10.2012 issued to IBM India Pvt Ltd proposing to restrict die TDS credit to Rs. 126.22,29,214/- for AY 2008-09 9 17-18 10 Modus operan....
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.... dated 14.5.2012 & 17.9.2012 15 112-116 16 Summons dated 27.11.2012 16 117-118 17 IBM Master service agreement with related companies 17 119-123 18 Reply dated 7.12.2012 (AY 09-10) 18 124-126 19 Notice dated 12.12.2012 (AY 09-10) 19 127-134 20 CBDT circular dated 17.1.2013 20 135-138 22 Notice dated 20.11.2007 and 23.10.2007 22 139-150 23 IBM Reply dated 20.11.2007 23 151 24 IBM Reply dated 18.12.2012 (AY 09-10) 24 152-167 25 Sample document of understandings (DoU) 25 5 in No. 26 Sample Softex [AC286127] forms and invoices of STPI Bangalore-II 26 168-176 27 Sample invoices of SEZ Hyderabad 27 177-180 28 Sample invoices of STPI Bangalore-II raised against IBM, Israel 28 181-184 29 Sample Softex Forms [AC356126] and invoices of STP Bangalore-II, Unit 29 185-191 30 Sample invoices of STPI Bangalore-II raised against IBM, Taiwan 30 192-195 31 Sample invoices of STPI Bangalore 11 raised against IBM Canada - Hardware charges 31 196-208 32 Reply dated 6.3.2013 32 209-224 33 Show cause not....
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....ith and without TDS 33- 168 (d) PB-4 containing pages 1 to 248 comprises of following documents:- Sl. No. Particulars Pages nos. of the PB 1 Show cause notices issued by AO dated 18-7-2011 and 22-9-2011 calling for the unit-wise details 1-15 2 Reply of assessee company dated 14-12-2011 without any particulars of FIRC copies 16-17 3 Unsigned reply of the AR filed on 23-12-2011 i.e. after passing the assessment order 18-21 4 Letter of RBI dated 8-5-2013 issued to IBM India (P) Limited 22 where the permission granted earlier to maintain and operate a bank account outside the country has been withdrawn. 22 5 Letter of RBI dated 17-6-2013 issued to O/o JCIT (LTU) Where 23 the request of the company has been rejected by RBL 23 6 FIRCS (both the sides) belonging to remittance from HSRC, New York and other banks that were NOT endowed/realized as per FEMA guidelines but the company claimed the name as software export proceeds 24-34 7 FIRCs (both sides) that were endorsed/realized belatedly after filing return of income and after completion of the assessment proceedings (obtained from AD on 18-7-2013) ....
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....f VSNL dated 22.8.2013 confirming that only 3 connections to IBM India Pvt Ltd was provided outside India i.e. in Colombo (Sri Lanka) in the year 2012 12 54-109 13 Letter of DC SEZ Chennai dated 26.4 2013 with two softex forms 13 110-122 14 IBM India reply dated 6.9.2013 regarding data transmission/export 14 123 15 Statemetn of Sri Jayant Mazumdar recorded u/s 131 on 26.9.2013 in the O/o JCIT (LTU) 15 124-115 16 Statement of Sri T. Ravindra recorded u/s 131 on 5.4.2013 in the O/o JCIT (LTU) 16 136-146 17 Letter dated 20.09.2013 of Deutsche Bank (AD) with details of softex 17 147-161 18 Sample Softex actually endorsed to FIRCS of FY 2007-08 (sample) 18 162-216 3.44 The ld. counsel for the assesses pointed out that the AO completed the assessment on 28.10.2012, therefore any document that has come into existence after 29.10 2012 cannot, be said to be the part of the record of assessment. According to him, the ld. DR therefore cannot rely on those documents, except in the circumstances set out in Rule 2.9 of the ITAT Rules. He also submitted that the certificate of the ld. DR that contents of PB....
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....er enquiry. The present appeal by the assessee being an appeal against the order of the AO incorporating the directions of the DRP which is conclusive as far as revenue is concerned, the AO cannot be permitted to improve his case by letting in any additional evidence. According to him, under the provisions of section 144C of the Act as it existed prior to 1.7.2012 the AO cannot invoke the provisions of Rule 29 of the ITAT Rules and the Tribunal cannot look into any material that may be relied upon by the AO by invoking Rule 29 of the ITAT Rules. 3.46 The second reason cited by the ld. counsel for the assessee why the additional evidence sought to be filed by the AO, should not be admitted is that white completing the assessment, the AO denied the claim of the assessee for deduction u/s. 10A/10AA of the Act for two reasons viz., absence of an approved bank account In which the export proceeds were deposited and for the reason that the assessee did not maintain separate books of account. In his regard, the ld. counsel pointed out that in para 3.1 of the order of the AO, the complaint of the AO was that the allocation of revenue and expenses unit-wise is not reliable and that there....
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.... additional evidence in an appeal before it, But the power is strictly limited by r. 29 of the ITAT Rules, 1946. That rule provides that: "The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or if the ITO has decided the case without giving a sufficient opportunity to the assessee to adduce evidence either on points specified by him or not specified by him, the Tribunal may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced." 13. It is clear from this rule that the admissibility of additional evidence under this rule depends upon whether or not the Tribunal requires the evidence to enable it to pass orders or for any other substantial cause, or If the ITO has decided the case without giving a sufficient opportunity to the assessee to adduce evidence on points specified by him or not specified by him. The rule does not enable the assessee o....
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....te that in the reply which the assessee filed opposing the Department's application under s. 66(1) (page 27 of the paper- book), the assessee has said that when during the hearing of the appeal the Tribunal questioned him about the statement given by him before the ITO, he replied that it had been obtained under duress and threat and influence and was not voluntary and, therefore, the Tribunal examined him at length and asked him to file an affidavit which he did. It is thus dear that the Tribunal allowed the assesses to raise a new point and make out an altogether new case and directed him to file an affidavit to support it. It was within the assessee's knowledge whether or not a deposit of Rs. 50.000 was in fact made in the bank on 24th March, 1954, and his failure to state before the ITO that no such deposit was ever made in the bank and that the bank made fictitious credit and debit entries just to help him to get the solvency certificate and to produce evidence to establish it was entirely due to his own fault or negligence. Even if the assessee forgot this very material fact before the ITO, he could have raised it at least before the AAC. But that was not done. On the....
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....e CIT(Appeals) has no duty to examine an aspect which was accepted by the AO which may turn out to be prejudicial to the assesses. in other words, the power of enhancement is only optional and the fact that the CIT(Appeals) has not invoked such powers, of enhancement cannot be challenged in an appeal by the revenue. (d) CIT v. Jagadhri Electric Supply [1983] 140 ITR 490/[1981] 7 Taxman 56 (Punj. & Har.) and CIT v. LF. D'Silva [1991] 192 ITR 547/[1992] 62 Taxman 161 (Kar): The ratio laid down in the aforesaid two decisions is trial when there is no right of appeal to revenue against an order, the approach that the revenue should adopt is to rely on the findings in the order appealed against. The revenue cannot urge the appellate forum to find any other reason for sustaining the orders passed by the revenue authorities. These decisions were rendered in the context of an appeal against the order u/s. 263 of the Act, where there is no right of appeal to the revenue against the order passed u/s. 263 of the Act. The learned counsel for the Assessee submitted that there was no right of appeal against the directions of the DRP which are Incorporated in the order passed by the ....
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....rt took the view that, on issues of technical matters where there is no basis emanating from the records either by the revenue or the assesses, the appropriate course would be to require the Tribunal to take further evidence and draw up a supplemental statement of facts. Further reference was also made to the decision of Hon'ble Allahabad High Court in the case of CIT v. Simbholi Sugars Ltd. [2004] 136 Taxman 415 wherein the Hon'ble High Court directed further evidence to be taken on the question whether machinery for which the assessee claimed higher rate of depreciation satisfied the conditions for claiming higher rate of depreciation. According to the ld. DR, facts have to be ascertained and the claim of the assessee that sale proceeds were on account of export of computer software needs to be looked into. 3.49 On the merits of ground No.3 raised by the assesses, the ld. DR relied on the order of the DRP and further submitted that for allowing deduction u/s. 10A of the Act, the undertaking or unit which is entitled to such relief has to be treated on a stand-alone basis. It was therefore incumbent upon the assessee to maintain the books of account of the various secti....
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.... of the grounds on which deduction u/s 10A/10AA of the Act was disallowed by the AO was for the reason that the Assessee did not maintain separate books of account and bank account for each of the STP units. He laid emphasis on para 3.11 of the AO's order where the reasons given by the AO in this regard wherein the AO has projected his grievance that the Assesses could not establish any system whatsoever on the basis at which the expenses were allocated unit-wise between STP and non-STP units. in para 3.3 of the AO's order, emphasis has been laid on the fact that the ITAT in its earlier decision has held that books maintained by the Assessee if it enables computation of profits from the activity, then that would be sufficient compliance For allowing deduction u/s. 10A of the Act. The AO thereafter had only said that the Assessee maintains combined books of account in respect of STP units and non-STP units and that the Assessee was not able to separate entries pertaining to the unit and maintain and produce records and statements separating the results The AO's case is that the Assessee has not been able to demonstrate the allocation of revenues and expenses unit-wise in....
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....Account with HSBC, New York has been condoned with retrospective effect from 2001. This would mean that the Assesses can get the benefit of Expln.-2 to Sec. 10A(3) of the Act and sale proceeds would be deemed to have been brought into India in convertible foreign exchange if deposited in the said account. This letter is necessary for adjudicating the issue before the Tribunal and is therefore admitted as additional evidence. For the very same reason the letter dated 8.5.2013 of RBI withdrawing the letter dated 4.1.2013 sought to be filed by the Revenue as additional evidence is also admitted as additional evidence. 3.56 As far as. the application of the Assessee dated 15.7.2013 for admitting letter dated 12.7.2013 by the Assesses to Deutsche Bank AG, Bangalore and letter dated 12.7.2013 by Deutsche Bank AG, Bangalore to RBI are concerned, the same are relevant for adjudication of the claim for deduction u/s. 10A/10AA of the Act i.e., to prove that sale proceeds of export of computer software were brought into India in convertible foreign exchange. As we have already seen the claim of the Assessee that even in the absence of an approved bank account under Expln.2 to Sec. 10A(3) o....
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....erned, the first application is dated Nil filed on 22.03.2013 before the Tribunal. Sl.No.6 to 8 in the list of documents sought to be filed as additional evidence relates to FIRCs which were obtained by the AO after conclusion of the assessment proceedings. The FIRCs at pages 24 to 34 is stated to be relating to remittances from HSBC, New York and other banks that were not endorsed/realized as per FEMA guidelines but claimed as software export proceeds by the assessee. The FIRCs at pages 35-62 are claimed to be belated realizations after filing of the return of income and after completion of the assessment proceedings. The FIRCs at pages 63 to 213 are claimed to be FIRCs which do not show that they were realization of export proceeds. The documents at Sl.No. 10 at pages 224-24B of the list of documents are claimed to be Inter-Company Agreement (ICA) between the group companies of IBM, in which the description of the service is stated to be "Miscellaneous Services" and not software development and export thereof, The claim of the Revenue is that the above documents throw doubts as to the exact nature of services rendered by the Assessees for which remittances were received from abro....
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....ssessee's request is under active consideration with the RBI. 3.61 The assesses had in its letter dated 20.10.2011 before the AO prior to the conclusion of the draft assessment order submitted that section 10A(3) of the Act allows an assesses to either (i) directly receive the export proceeds in India or (ii) bring the export proceeds to India after the same is received outside India Explanation 2 to section 10A(3) provides that export proceeds shall be deemed to be received in India (with reference to (i) above) if the same is credited to a separate bank account maintained outside India with approval from RBI. The Assessee had specifically put forth a contention that export proceeds were received and credited to the overseas bank account with adequate approvals and that the export proceeds were substantially repatriated/brought into India and credited to the Indian bank accounts of IBM India, at regular intervals. Therefore, the requirement in section 10A(3) of the Act were satisfied on bringing the export proceeds into India. 3.62 The Assesses also furnished HSBC New York Bank a/c. where sale proceeds of computer software were received and the Deutsche Bank A/C, in Indi....
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....ddressed by the directions which we may ultimately give while deciding ground No.3 on merits in para 3.87 of this order. 3.63.2 The Revenue through its application to admit documents mentioned in Paper book-4 filed by it in our view, would not be seeking to raise a new plea for denying deduction u/s.10A of the Act. As we have already observed, the AO did not have any occasion to express any doubts with regard to remittances of foreign exchange being towards sale proceeds of export of computer software. The decisions relied upon by the learned counsel for the Assessee in this, regard referred to in the earlier part of this order lay down the proposition that the additional evidence sought to be filed before the Tribunal should not put forth totally new case in the appellate proceedings, more so, in proceedings in which it has no right of appeal Those decisions, in our view, would not be applicable on the facts and circumstances of the present case, where the assessee had not produced material before the AO to show that foreign exchange remittances were on account of sale proceeds of computer software out to India. We are of the view that in case the revenue is of the belief that ....
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.... match contract-wise repatriation of 30% onsite revenue pertaining to IBM India Pvt. Ltd. (the assesses) from 2001-2012. We are of the view that this document is not relevant to the present issue before us at this stage in the event of any outcome to the audit which has a bearing on the total income of the assesses, the AO is at liberty to use that material in accordance with law. 3.67 Sl. Nos. 8 & 9 of PB-5 of the revenue are documents relating to giving of credit for TDS. While deciding ground No. 8 raised by the assessee we have already sent back the issue for fresh consideration. We are of the view that the document sought to be filed as additional evidence is not considered relevant at this stage. The AO is, however, at liberty to consider this evidence in the set aside proceedings. 3.68 Sl.No. 10 of PB-5 is the document giving the modus operandi of routing money to HSBC as given by the assessee, explained in its letter dated 28.03.2013. This letter, in our opinion is again not relevant for the present proceedings, as it relates to A.Y. 2003-10. 3.69 Sl.Nos 11 & 12 of PB-5 of revenue are letters by VSNL, telecom service provider. As already stated, these documents rai....
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....A/10AA of the Act. As we have already seen, the AO in the order of assessment denied the deduction to the assesses u/s. I0A/10AA of the Act for two reasons:- (a) The STP units did not maintain separate books of account and bank accounts. (b) The sale proceeds of export of computer software were not deposited in a bank account outside India approved by the RBI for the said purpose. 3.76 We shall first deal with the objection of thy revenue with regard to the maintenance of separate books of account for the various STP units. In this regard, we find that there is no legal requirement of maintaining separate books of account for the various STP units. In this regard, we find that the CBDT has very recently clarified in its Circular No.01/2013 dated 17.01.2013 as follows:- "(v) Whether it is necessary to maintain separate books of account for an assessee In respect of its eligible units claiming tax benefits under sections 10A and 10B. Since there is no requirement in law to maintain separate books of account, the same cannot be insisted upon. However, since the deductions under these sections are available only to the eligible units, the Assessing O....
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....has also relied upon the order of CIT u/s. 293 of the Act for the A.Y. 2005-06, whereby in exercise of the powers u/s. 263 of the Act, the CIT revised the order of the AO accepting the profits of the various STP units without insisting on separate books of accounts. The observations of the AO in this regard are contained in paras 3.5 & 3.6 of his order. These observations, in our view, have lost its significance because the aforesaid order of the CIT u/s. 263 of the Act had been quashed by the Tribunal in ITA No.588/Bang/2011 by its order dated 05.07.2013. 3.81 Another basis given by the AO in para 3.4 or his order is that there is no system of identifying expenses and revenues and that hooks of account are written without primary documents being in existence. On the various books of account maintained by the assessee, we have already elaborated as to how the assessee has explained before the AO its method of maintaining books of account and arriving at the profits of the various STP units. The order of assessment as well as order of the DRP is absolutely silent on the plea put forth by the assessee in this regard. We have to therefore proceed on the basis that the revenue has f....
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....ank account in which the export proceeds were deposited outside the country, than under Exptanation-2 to -section 10A(3) of the Act the assessee would satisfy the requirements of section 10A(3) of the Act viz., bringing into India the sale proceeds of computer software exported out of India In convertible foreign exchange. 3.85 We have also seen that even before the AO, the assessees put forth a claim that even in the absence of a RBJ approved bank account maintained by the assessee outside India in which the sale proceeds of computer software exported out of India are deposited, still the assessee would be entitled to benefits of section 10A deduction to the extent it brings into India the sale proceeds in convertible foreign exchange. We have also seen that the assessee in this regard has filed details before the AO. These are detailed in the earlier part of this order in which the submission of the ld counsel for the assessee with regard to the various documents filed by the assessee before the AO are discussed. We have also admitted as additional evidence the letter dated 12.07.2013 addressed by the Deutsche Bank to the RBI, certifying the inward remittances received by the ....
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....l purposes 4. Gr.No.4 raised by the Assessee reads as follows: "4.Provision for warranty: 4.1 The ld. AO has erred in law and on facts in exceeding his jurisdiction and disallowing an amount of Rs. 277.467,000/- representing provision for warranty and in not following the directions of the DRP (which arc binding) that actual utilization amount of provision for warranty amounting to Rs. 282,596,000/- should be allowed as a. deduction. 4.2 The ld. AO has erred on facts in concluding that, the provision for warranty has not been created on a scientific basin although the ld. AO had in the draft assessment order accepted the fact that the provision was created on a scientific basis which was also accepted by the DRP. 1.3 The ld. AO has erred in law and on facts and misinterpreted the decision of the Supreme Court in case of Rotork Centrals India Pvt. Ltd. v CIT (314 ITR 62) to deny the claim of deduction in respect of provision for warranty." 4.1 On a perusal of CIause-23(a) in Schedule 18 (Notes on accounts) to the Balance sheet, the AO noticed that the Assessee had created a provision of Rs. 27,74,67,000/- during the previous year and the clo....
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....warranty liability has been held to be a deductible expenditure. It was argued that the principle which emerges from the aforesaid decision is that if the historical trend indicates large number of sophisticated goods were being manufactured in the past and in the past if the facts established show that defects existed in some of the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipts u/s 37 of the IT Act. It would all depend on the data systematically maintained by the assessee. The Assessee also pointed out that although the amount of provision created far warranty during the year was Rs,27,74,67,000- the total amount of warranty claims actually met by the Assessee during the previous year was Rs. 28,25,96,000/- , However, based on the accrual system of accounting and the practice followed during earlier AYs, the Assessee was claiming only the amount of Rs,27,74,67,00/- as deductible while computing its taxable income for the subject assessment year. 4.3 The AO did not agree with the submissions made by the Assessee, He found that the assessee has created prov....
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....he Dispute Resolution Panel (DRP) to the proposed variation to the total income in the draft assessment order, the Assessee submitted that the actual utilisation of Rs. 282,598,000/- for the year was more than the amount of Rs. 277.407,000/- debited to the profit &. toss account during the year In respect of provision for warranty The Assessee provided the details of warranty provision created during the last 3 years (Including AY: 2000-09) which reflects that the total utilisation exceeds the provision created for the last 3 years (including AY: 2008-09) According to the Assessee the above fact would clearly show mat there was no excess provision created for the relevant years Particulars Assessment year 2007-08 2006-07 Total for 3 years Opening balance 203,064 271,409 432,194 Provision during the year 277,467 261,435 238,265 777,167 Utilised during the year (282,596) (329,780) (399,050) (1,011,426) Closing Balance 197,935 203,064 203,064 4.6 It was submitted that since the warranty for products sold by the Assessee was continuous, the same would occur throughout the year. Since t....
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....s utilised during the year. This may be out of the opening balance only on the fact that the fresh provisions are being made at the year-end. Prima facie no evidence on record to verify the actual claim/utilisation. Had this been the case, no reversal out of Rs. 43,21,94,000/- offered to tax as per the observation/findings of Hon'ble Apex Court in the case of Rotork Control India Pvt. Ltd.. 2. The Hon'ble Supreme Court, while considering this issue in the case of Rotork Controls India Pvt. Ltd. v. CIT (314 ITR 62) has clearly held that the provision for warranty would be allowable as deduction only when the assesses-company maintains necessary records for verification of the AO about the amount of actual utilisation of the warranty provision created in the earlier year, reversal of the excess provision in the subsequent year, the evidences for the same and the basis/working of further provision 3. In the present case the assessee-company has simply submitted a running account without having any such evidence to verify the utilisation of warranty provisions during the year and reversal of unutilised portion of the provision of warranty in the subsequent yea....
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....or provision on anticipated future warranty The AO opined that provision for future contingency liability cannot be equated on par with present liability whether to be made in future or otherwise The Appellate Tribunal affirmed view of appellate commissioner to the effect that assessee was entitled to claim deduction for having provided for future warranty Claims that could possibly arise during the years where warranty's continues to be in force in respect of products sold by assessee during accounting period. On further appeal by the Revenue, the Hon'ble Karnataka High Court held that expenditure is deductible u/s 37 of the Act when actually incurred or laid out in the present and not future contingent expenditure which may arise or may not The Hon'ble Court further held that since assessee failed lo place any material to indicate that method of providing for future warranty claims was based on past experience and past actual expenditure incurred due to claims that assessee had received., same not allowable as deduction u/s. 37 of the Act The Court further opined that the Method as placed before authorities was not a method, which fetches approval on touchstone of law....
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....ision created each year, which will clearly indicate that there is no un utilized provision for warranty created in the books of the Assessee. In other words It was his submission that the actual liability of the Assessee on account of warranty claims was much more than what was claimed and allowed as deduction as Provision for warranty. According to him this by itself is an indication that the method of making provision for warranty Stability followed by the Assessee is scientific and not arbitrary. 4.14 It was new submitted by him that the Assessee claimed a sum of Rs. 27,74,67,000 as provision for warranty liability as deduction in the profit and loss account. The AO however disallowed the sum at Rs. 18,79.35,000 which is the closing balance In the Provision for Warranty liability account in the draft assessment order. After the order of the DRP the AO disallowed the claim for deduction of a sum of Rs. 27,74,67,000 in his fair assessment order, the AO without any basis came to a conclusion that the provision for warranty liability created by the Assessee was not scientific, He pointed out that the predecessor AG had accepted in the draft assessment order that the Assessee mad....
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....Assessee. 4.17 It was next submitted by him that the DRP in its directions on the issue in para 3 5 has only remitted the issue back to the AO. In this regard it was submitted by him that the DRP exceeded its jurisdiction in not deciding the issue before it and in remitting the issue to the AO for fresh consideration, in this regard our attention was to the provisions of Sec.144C of the Act which provided for a Dispute Resolution Panel (DRP) in the case of "eligible Assessee" "Eligible assessee" means, - (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA and (ii) any foreign company. He pointed out that Sec.144C of the Act was introduced as it was considered by the legislature that dispute resolution mechanism In place (till 30th Sept. 2009) was time consuming and finality in high demand cases is attained only after a long drawn litigation till Supreme Court, Flow of foreign investment was extremely sensitive to prolonged uncertainty in tax related matter. Therefore, to provide to an alternate dispute resolution mechanism which will facilitate ....
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....d to be collected by, it; and (g) Result of any enquiry made by, or caused to be mode by it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5), - (a) Make such further enquiry, as it thinks fit or (b) Cause any further enquiry to be made by any Income-tax authority and report the result of the same to it (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. (9) Every direction issued by the Dispute Resolution Panel shall be binding or the Assessing Officer, 4.18 He drew our attention to the provisions of Sec 144C(13) of the Act which provides that the AO upon receipt of the directions issued under sub-section (5) of Sec. 144C of the Act, shall, in conformity will the directions complete, the assessment without providing any further opportunity of being heard to the assessee. His submission was that the directions of the DRP, remanding the issue to the AO, are con....
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.... eligible assessee." 4.22 It is clear from the aforesaid provision that the DRP has no power to set aside any proposed variation or issue any direction under Sec. 144C(5) of the Act for further enquiry and passing of the assessment order. The DRP in our view has therefore exceeded its jurisdiction in setting aside the issue to the AO for fresh consideration. We therefore set aside the directions of the DRP in this regard and remand the issue to the DRP for fresh consideration after affording due and proper opportunity to the Assessee. Consequently the enter of the AO making impugned addition is also set aside and the issue is remanded to the DRP for fresh consideration. Grounds 4.1 to 4.3 am treated as allowed for statistical purposes 5. Gr. No. 5 raised by the Assessee reads as follows:- "5. The ld. A.O and the Hon'ble DRP have erred in law and on facts in disallowing an amount of Rs. 9,406,677 in respect of expenses on ,membership/subscription to clubs. 5.1 The AO noticed from clause 17(d) of the Audit report in Form No.3CD in which details of expenditure incurred at clubs was given The details given in Appendix-IV to the report was as under:-  ....
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.... as capital expenditure. He also held that the membership fee is paid for a 'right' or a 'title' which entitles the nominated officials of a company to enter the club and enjoy certain benefits and privileges. In his opinion 'rights' or 'titles' are unarguably, capital assets just in the same manner as in a ease of plant & machinery or any other capital assets. He held that the expenditure on membership fees is not a routine expenditure. Instead, it is fairly important investment decision, in the nature of 'capital' for the company. Therefore, the amount of Rs. 94,06,677 out of the expenses claimed was disallowed holding the amount as capital in nature. The amount was disallowed and added back to the total income of the Assessee in the draft assessment order passed by the AO. 5.4 In its objection to the DRP to the draft assessment order of the AO making the aforesaid addition, the assessee reiterated submissions as made before AO. The DRP however confirmed the order of the AO. The DRP upheld the view of the AO that the expenditure brought in 'enduring benefits'. 5.5 The learned counsel for the Assessee submitted that the impugne....
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.... the issue of disallowance u/s 40(a) of the Act, which is in excess of the jurisdiction given to the DRP as per sec 144C(8) of the Act. Consequently, the assessment order passed by the ld. AO also lacks jurisdiction on this aspect. 6.2. The ld. AO has erred in law and on facts in disallowing an amount of Rs. 2,038,683,792 u/s 40(a)(i)/40(a)(ia) of the Act (in the draft assessment order) and an additional amount of Rs. 5,588,017,094 while passing the final assessment order, although there was no direction from the DRP for enhancement of income. 6.3 The ld.AO has erred in law and on facts in taxing the amount of Rs. 5,588,017,094 twice, since the same has already been considered in arriving at the initial disallowance of Rs. 2,038,683,792." 6.1 To verify whether the assesses has deducted tax at source on all the expenses claimed as per the provisions of Chapter XVII B of the IT AO and with reference to Sec. 40(a)(i) and 40(a)(ia), the AO called upon the assessee to give details the reconcillation of expenses claimed in the P&L account and expenses on which tax has been deducted at source. The assessee submitted the details by letter dated 09-12-2011. The assessee....
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....,68,0,248 2244,72,43,894 Less" Expense disallowed u/s 40(a)(i)(ia) in the computation of income (as per tax audit report) 406,52,14,832 Balance amount liable to be disallowed u/s 40(a)(ia)/40(a)(i) 203,86,83,792 6.3 Therefore, the AO held that the assessee has failed to deduct tax at source on the amount of Rs. 203,86,83,792/- and has, to that extent, violated the provisions Chapter XVIIB of the Income-tax Act The AO also held that the Assessee has failed to give expenditure-wise details of deduction of tax at source in spite of specifically insisting on such expenditure wise details during the assessment proceedings by letter dated 25.10.2011. The AO accordingly disallowed a sum of Rs. 203.86,83,792/. u/s 40(a)(ia)/40(a)(i) of the IT Act, 1961 and added the said sum to the total income of the Assessee in his draft assessment order. 6.4 In its objections to the DRP on the aforesaid addition proposed by the AO in the draft assessment order, the Assessee submitted that the TDS reconciliation submitted on Dec. 9, 2011 was a prima facie reconciliation provided by the assessee and there were certain payments on which TDS is not required....
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....ons are not applicable 326,916,269 Total 6,130,897,346 6.7 The Assesses submitted that the aforesaid detailed reconciliation could not be furnished by it during the assessment proceedings for want of time. The Assessee sought leave of the DRP to kindly allow the revised reconciliation as additional evidence as the same is critical in arriving at the disallowance u/s 40(a)(i)/(ia) of the Act. A request was made to consider the revised reconciliation as application under Rule 4(3)(b) of the Income-tax (DRP) Rules, 2009. 6.8 In his remand report on the submissions made by the Assessee, the AO had requested to enhance the disallowance to be made u/s 40(a)(ia) of the Act. The Assessee put forth its objection to the same. 6.9 The Panel observed that this issue has facets and details which have either not been addressed or reconciled to the satisfaction of the AO of the taxpayers own accord the sum of Rs. 613,08,97,346/-should be considered in the exercise to reconcile to find the liable transactions which would attract the sections 40(a)(ia)/(ia) The DRP noticed that the taxpayer has at this stage furnished further details in various categories, transactions w....
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.... is also incorrect. 6.11 We raised a query as to whether the directions of the DRP setting aside the issue to the AO can be sustained in the light of the provisions of Sec. 144C(8) of the Act. It was submitted that the issue ought to have been decided by the DRP as it had no power to set aside and remand issue to the AO for fresh consideration and the decision if any rendered on Gr.No.4 would equally apply to this ground also. It was however prayed that the assessee should be permitted to put forth all contentions open to it in law challenging the impugned disallowance. 6.12 We have considered the rival contentions. The discussion and decision rendered by us while deciding Gr No.4 of the assessee will equally apply to these grounds also. As already held, it is clear from the provisions of Sec 144C(8) of the Act, that the DRP has no power to set aside any proposed variation or issue any direction under Sec.144C(5) of the Act for further enquiry and passing of the assessment order. The DRP in our view has therefore exceeded its jurisdiction in setting aside the issue to the AO for fresh consideration. We therefore set aside the directions of the DRP in this regard and remand th....
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....event of Sec. 10A/10AA relief being not allowed the income in question would get doubly taxed and the tax credit claimed by the assessee it liable to be allowed in full. 7.4 The DRP decided the issue in para 12.4 of its order as follows. "12.4 The AO is directed to examine this as per law". 7.5 The AO while passing the final assessment order pursuant to directions of the DRP held as follows: "The assesses-company has sought for relief of foreign taxes paid. In the absence of any evidence it could not be examined. As per the provisions of sec.144C(13) the AO shall complete the assessment without providing any further opportunity of being heard to the one month from the end of the month in which such direction is received. Further this ground is premature on the fact that the assessee-company has not accepted the order of the AO on denial of exemption claimed u/s 10A and 10AA of the Act. Accordingly, this ground of appeal is also not acceptable and the credit could not be given in the absence of any evidence. All the remaining additional grounds of appeal raised by the assesses-company by are rejected by DRP at paragraph-12". 7.6 Aggrieved by the o....
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....he NSDL/AST. The assessee is aggrieved by the order of the AO in not giving credit for TDS as claimed by it and as evidenced by TDS certificates given to it by the person deducting tax at source. Hence, Gr Nos.8 to 8.3 by the assessee before the Tribunal. 8.3 In Court of its own motion v. CIT [2013] 352 ITR 273/214 Taxman 335/31 taxmann.com 31 (Delhi), the Hon'ble Delhi High Court took cognizance of Faulty processing of the Income Tax Returns and TDS deducted at source consequent to computerisation and Central Processing of Income Tax Returns highlighted in a Letter written by FCA„ which was treated as PIL. On the issue of giving proper credit for TDS, the Court found that the said problem can be divided into two categories; cases where the deductors fail to upload the correct and true particulars of the TDS, which has been deducted and paid as a result of which the assessee does not get credit of the tax paid, and the second set of cases where there is a mismatch between the details uploaded by the deductor and the details furnished by the assessee in the income tax return. The Hon'ble Court observed on the problems as follows: "As regards the first, the ....
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.... or inability of the Revenue to ask the deductor to rectify and correct. Once payment has been received by the Revenue, credit should be given to the assessee. Board will issue such suitable directions in this regard. (Para 42) Denying benefit of TDS to a taxpayer because of the fault of the deductor which is not attributable to the deductee, causes unwarranted harassment and inconvenience. The deductee feels cheated. The Revenue cannot be a silence spectator, wash their hands and pretend helplessness. It is unfortunate that the Board did not take immediate steps after even noticing lacuna and waited till Finance Act, 2012, when Section 234E was enacted. Mere writing of a letter by the Assessing Officer to the deductor by no stretch can be treated as sufficient action on the part of the respondents. Even this, it appears, was done in a few cases as the respondents in the counter-affidavit have stated that they have written 20119 communications to the tax deductors, where TDS credit claimed by the taxpayers did not match with the details loaded by the deductors. The Act empowers and authorises the Assessing Officer to verify the contents of the return and not....
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....follows:- "Section 205: Bar against direct demand on assessee. Where tax is deductible at the source under the foregoing provisions of this Chapter the assessee shall not be called upon to pay tax himself to the extent to which tax has been deducted from that income." 8.8 Our attention was also drawn to the decision of the Hon'ble Bombay High Court in the case of Yashpal Sahni v. Asstt. CIT [2007] 293 ITR 539/165 Taxman 144 wherein the Hon'ble Bombay High Court held as follows: 'From the language of s. 205, it is clear that once the tax is deducted at source, the same cannot be levied once again on the assessee who has suffered the deduction. Once it is established that the tax has been deducted at source from the salary of the employee, the bar under s. 205 comes into operation and it is immaterial as to whether the TDS has been paid to the Central Government or not, because elaborate provisions are made under the Act for recovery of TDS from the person who has deducted such tax. In the present case, the petitioner assessee has furnished monthly pay slips and bank statements to show that from his salary tax was deducted at source by the em....
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....le to the petitioner assessee for want or TDS certificate, the fact that the tax has been deducted at source from salary income of the petitioner would be sufficient to hold that as per s. 305, the Revenue cannot recover the TDS amount with interest from the petitioner once again. Accordingly, the Revenue is directed to refund to the petitioner within 8 weeks from today the amount of Rs. 17,89,587 with interest @ 6 per cent from the date of recovery till the date of payment. Though the credit of the TDS is not available to the petitioner, since the said liability is not recoverable from the petitioner, the Revenue is directed to earmark the said TDS liability as "not recoverable" from the petitioner, Asstt. CIT & Ors. v. Om Prakash Gattani (2000) 161 CTR (Gau) 85 : (2000) 242 ITR 638 (Gau) railed on.' 8.9 It was submission of the learned counsel for the assessee that in any event the revenue cannot enforce recovery of taxes deducted at source. 8.10 The learned DR reiterated the stand of the revenue as reflected in the order of the AO. It was his submission that the issue needs a fresh approach in the light of the subsequent Instruction of CBDT on the issue relied upon by ....
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....as criterion for rejection of companies identified by the appellant in the Transfer Pricing Study such as (i) companies whose data for financial year (FY) 2007-08 as not available (ii) companies with software development service revenue less than 75% of total operating revenue (iii) companies with software development service revenue less than INR 1 crore (iv) companies with export sales leas that 25% of total revenue (v) companies with related party transactions greater than 25% of operating revenue (vi) companies with employee cost is less than 25% of total revenues (vii) companies with different financial year ending (i.e. other than 31 March, 2008) (viii) companies having diminishing revenues/persistent losses during financial year 2007-08 and (ix) companies whose onsite income is greater than 75% of export revenues. (c) The AO/TPO also erred on facts and in law in excluding the foreign exchange gain or loss while calculating the net margins of the comparable companies. (d) The AO/TPO erred in considering a set of 'secret data' i.e. data which was not available in public domain and not allowing the appellant an opportunity to cross-examine the....
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....s headquarter for the IBM Group which Includes all associated entities of IBM India (the Assessee), with whom the later has International transactions The Assessee predominantly functions as a provider of information technology (IT) products and services, inter alia undertaking export of software services and trading activities. The Assessee's primary business segments consist of export services, trading and leasing of company's products. The export services comprise of Global Business Services are) Application Management Services The trading segment offers a broad range of products from entry level, mid-range to high-end servers and main frames, presenting the best technology and practices to support e-business infrastructure requirements. The IBM Global Financing (IGF) segment providers flexible and attractive financing and leasing programmes to fund the IT requirement of India customers. 9.2 Business Profile of the Assessee: The Assessee's business activities for the financial year 2007-08 broadly consist of : - Export of software services Under this segment, the Assesses renders software development services to its overseas affiliates on a cost plus basis. ....
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....ion of arm's length price (ALP) of Export of Software Services tot which the Assessee received a sum of Rs. 5618.25,87.236 front t1s Associated Enterprises (AE) As we have seen in the earlier paragraph, in the TP study the Assessee considered operating income from rendering software services to its AE at Rs. 5618,25,87,236. The Assessee did not include a sum of Rs. 164,13,39,074 which was received from the AE towards reimbursement of expenses in nature of staff welfare, employee expenses, travelling and conveyance etc. The TPO to whom the determination of the ALP was referred to try the AO under the provisions of Sec.92C of the Act was of the view that regarding reimbursement of expenses (.received) to the extent of Rs. 8,152.088.786/- no details were given in the TP report. In its letter dated 31-10-2011. the Assessee gave the break-up of these expenses as rotating to travel expenses, advertising marking. communication etc. The TPO held that as has been done in the order for AY: 2007-08 these reimbursements of expenses (received) of Rs. 6,152,086,7fla'- have to be added to the operating revenues as well as the operating costs for the purpose of aggregation of transactions ....
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....unctionally different from that of taxpayer . 9.9 Acceptance comparable of the taxpayer : Out of the comparable selected by the taxpayer, the following 5 comparables were found to be suitable for comparison by the TPO: Sl. No. Name of the comparable company Operating margin to cost (FY 2007-08) 1 LGS Global Ltd. 27.52 2 Mindtee Ltd. (Seg) 16.41 3 Persistent Systems Ltd. 20.31 4 Quintegra Solutions Ltd. 21.74 5 R. Systems International (seg.) 15.30 9.10 On an Analysis of comparables chosen In its TP report by the taxpayer, the following companies were not considered as comparable by the TPO:- Sl. No. Name of the comparable Remark* 1 Birla Technologies Ltd. Company has export sales equal to zero and hence, fails the filter of exports less than 25% of the sales not selected as comparable. 2 Computech International Ltd. It fails the compensation to employees 25% of total turnover filter applied by the TPO. Thus, it not considered as a comparable. 3 Helios St Matheson Inf. Tech. Ltd. The company fails employee cost 25% of sales filter applied by the TPO. Thus, it is not to be consid....
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.... Ltd , 21.74 13 R Systems Internatinal (seg) 15.30 14 II S Software !lndu»j Ltd,. 7.41 15 Sasken Communciation Tech. Ltd. (seg) 7.58 16 Tata Elxsi Ltd. (seg) 18.97 17 Thirdware Solutions Ltd., 19.35 18 Wipro Ltd (seg) 28.45 19 Softsol India Ltd. 17.89 20 Lucid Software Ltd., 16.50 Average 23.65 The TPO allowed the working capital adjustment at 1 .95%, while working out the working capital adjustment The TPO applied the Prime Lending Rate (PLR) adopted by SBI for working out the working capital adjustment The Assessee had also asked for other risk adjustment while determining ALP. The TPO however did not allow any adjustment on account of risk factors. Finally, the AO computed ALP as follows: Computation of Arms Length Price:- The arithmetic mean of the PL1 from the final list of comparable chosen by TPO was taken as the Arm's length margin. Based on this, the arm's length price of the software services rendered by the taxpayer to its AE(s) was computed as under Arithmetic mean PLI 23.65% Less: Working capital adjustment (Annexure-C) 1.....
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.... deviating from the uncontrolled party transaction definition as per Rule 10A of the IT Rules and arbitrarily applying a 25% related party criteria m accepting/rejecting comparables (f) The TPO grossly erred on facts to arbitrarily rejecting companies having software development revenue less than 75% of total operating revenue and applying inconsistently such filter, without considering the specific segmental results. (g) The TPO erred on facts in arbitrarily rejecting companies having export revenues less than 25% of total sale. (h) The TPO erred on facts in arbitrarily rejecting companies having onsite revenue more than 75% of the export revenue. (i) The TPO also erred on facts and in law in arbitrarily rejecting companies with different year ending (i.e other than 31 March, 2008) (j) The TPO erred on facts and in law in considering a net of secret data i.e data which was not available in public domain, in arriving at a fresh set of companies using his power under section 133(6) of the Act, which is grossly unjustified.Erroneous data is used by the TPO (k) TPO has erred in law in using data, which was not contemporaneous and which was not available in the public....
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....oresaid companies as not comparable to a company providing software development service. The following were the relevant observations of the Tribunal in the case of Loigca (P.) Ltd. (supra) '12. The next aspect which was highlighted by the Id. counsel for the assessee was that out of the 26 comparables, comparables at SI.Nos. 1, 2, 3 & 12 have to be rejected as they were held to be functionally not similar to a software services provider as held by this Tribunal In the case of Trilogy E-business Software India Pvt. Ltd., IT No,1054/Bang/2011. The relevant paragraphs 39 to 50 of the aforesaid order of the Tribunal are as follows;- "(b) Avani Cincom Technologies Ltd. 39. As far as this company is concerned, the plea of the Assessee has been that this company is functionally different from the assessee. Based on the information available in the company's website, which reveals that this company has developed a software product by name "DXchange", it was submitted that this company would have revenue from software product sales apart from rendering of software services and therefore is functionally different from the assessee It was further submitted ....
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....company as comparable are found to be acceptable The decision of ITAT (Mumbai) in the case of Telcordia Technologies Pvt Ltd. v. ACIT (supra) also supports the plca of the assessee. We therefore accept the ples of the Awsesaec to reject this company as a comparable. (c) Celestial Lab Ltd. 42. As far as this company is concerned, the stand of the assessee is that It is absolutely a research & development company. In this regard, the following submissions were made:- ♦ In the Director's Report (page 20 of FB-II), it is stated that "the company has applied for Income Tax concession for in-house R&D centre expenditure at Hyderabad under section 35(2AD) of the Income tax Act. ♦ As per the Notes to Accounts Schedule 15, under "Deferred Revenue Expenditure" (page 31 of PB-II), it is mentioned that, "Expenditure incurred on research and development of new products has been treated as deferred revenue expenditure and the same has been written off In 10 years equally yearly instalments from the year in which it s incurred. ♦ An amount of Rs. 11,692,020/- has been debited to the Profit and Loss Account as Deferred Revenu....
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....for the Assessee, the discovery is in relation to a software discovery of new drugs. Moreover the company also is owner of the IPR. There is however a reference to development of a molecule to treat cancer using bio-informations tools for which patenting process was also being pursued. As explained earlier it is a diversified company and therefore cannot be considered as comparable functionally with that of the Assessee. There has been a attempt made to identify and eliminate and make adjustment of the profit margins so that the difference in functional comparability can be eliminated. By not resorting to such a process of making adjustment, the TPO has rendered this company as not qualifying for comparability. We therefore accept the plea of the assessee in this regard." 44. It was submitted that the learned DR in the above case vehemently argued that this company is into research in pharmaceutical products. The ITAT concluded that this company is owner of IPR, it has software for discovery of new drugs and has discovery of new drugs and has developed molecule to treat cancer. In the ultimate analysis, the ITAT did not consider this company as a comparable in clinical tri....
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....ification of the TPO. The TPO without any basis has however concluded that the business mentioned in the DRHP are the services or businesses that would be started by utilizing the funds garnered though the Initial Public Offer (IPO) and thus in no way connected with business operations of the company during FY 06-07. We are of the view that in the light of the submissions made by the Assessee and the fact that this company was basically/admittedly in clinical research and manufacture of bioproduction and other products, there is no clear basis on which the TPO concluded that this company was mainly in the business of providing software development services. We therefore accept the plea of the Assessee that this company ought not to have been considered as comparable. (d) KALS Information Systems Ltd. 46. As far as this company is concerned, the contention of the assessee is that the aforesaid company has revenue from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual report, the salary cost debited under the software devel....
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....following the decisions of the Tribunal referred to above, we hold that the aforesaid three companies have to be excluded from the list of comparables chosen by the TPO. 9.21 (4) M/s Infosys Technology Ltd.: As far as this company is concerned, the learned counsel for the assessee submitted before us that a portion of the profit earned by the company is attributable to its brand value. The profit margin of this company after deducting brand related profits from the operating revenue would only be 11.88%. Out attention was drawn to page-723 of the paper book No. 3 filed by the assessee with regard to TP issue. Appendix -2.4 at pages 738 to 742 gives the basis on which the brand value has been evaluated. It was further submitted that this company owns significant intangible and in this regard our attention was drawn to the Annual Report of this company for FY 2007-08 wherein it has been mentioned that during the fiscal 2008 this company had generated over 102 inventions and filed an aggregate of 10 patents in India and US. It is also been mentioned that in all this company had filed 119 patent applications which are pending in India as well as in US. It was also pointed out by the....
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....in the case of Technologies India Private Ltd. in ITA No. 7821/Mum/2011, wherein it was held as under:- "7.2 Lucid Software Limited .... (not relevant in this case) 7.4 Infosys Technologies Ltd." The parameter for identifying comparable entity has to be seen from the angle of functions formed by the company, size of the company in terms of the sale revenue, stage of business cycle and company's growth cycle. In the case of Infosys, there are huge intangible assets which as per the information provided by the learned AR are valued at Rs. 69,522 crores, which comprises of brand value itself at Rs. 22,915 crores. Based on such fund valuation, the profit of Infosys is predominantly due to its premium branding. It is India's No. 2 software service exporter and Third in the World as an IT Service company. It is a giant company which is evident from its revenue fund from the sales which itself is more than Rs. 13145 crores and expenditure on advertisement/sales promotion and expenditure on R&D is at Rs. 69 crores and Rs. 167 crores respectively, whereas in the case of the assessee the revenue is only 10.7 crore with no expenditure on advertisement, sales....
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....d two companies, the Tribunal held as follows:- "7.6 Flextronics Software System Ltd............... (not relevant in this case) 7.7 Tata Elxsi Limited: From the facts and material on record and submissions made by the learned AR, it is seen that the Tata Elxsi is engaged in development of niche product and development services, which in entirely different from the assessee-company. We agree with the contention of the learned AR that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company fit for comparability analysis for determining the arm's length price for the assessee, hence, should be excluded from the list of comparable parties." 15. In view of the above, the ld. counsel for the assessee fairly admitted that comparable company at Sl.No.6 viz., Flextronics Software Systems Pvt. Ltd. should be taken as a comparable, wh....
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....by the assessee in his submissions before us and the reasons given by the Tribunal in the cases referred to above on identical facts and circumstances. Infosys Technology Ltd. (supra). Tata Elxsi and Wipro Ltd. have to be excluded as a comparable white determining ALP in the case of the assessee in the present case. 9.25 The learned counsel for the assessee also submitted that two comparables excluded by the TPO should be included as comparable. 1. M/s Birla Technologies: The reason assigned by the TPO for excluding this company as comparable was that the exports sales were less than 25%. In this regard, the learned counsel for the assessee drew our attention to pages -689 to 698 and page 317 of T.P. Paper book, which is a compilation of the annual reports of various companies filed by the assessee. Perusal of page-698 shows that total income from software services/licence fee of assessee was Rs. 24,12,30,696/-. It is also clear from the Director's report that the entire income were derived from exports. It thus, appears that the reason assigned by the TPO for rejecting this company as comparable which was for the reasons that the company has export sale of less tha....
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....55 Recovery of employee expenses 819,735 Total 6,152,066,785 9.27 It was submitted that the above outlays represent out of pocket expenses incurred at the instance of the assessee's customers and for reasons of administrative convenience the same are first paid by the company on behalf of its customers and are subsequently recovered (i.e. pass through costs). The Assessee submitted that recovery of outlays representing out of pocket expense is an industry commercial practice and the incurrence of such cost is the primary responsibility of the customer. The Assessee submitted that these reimbursements should be dealt with on a stand-alone basis without aggregating the same with the cost of provision of services. The assesses in this context also drew reference to the principles set forth in the organisation for Economic Cooperation and Development (OCED) Guidelines. The OCED Guidelines specifically address the treatment of pass through costs and whether a mark-up should be charged on such costs. The relevant extracts from para-2.83 of the OCED Guidelines referring to the treatment of pass through costs are as follows; "2.93 In applying a cost ba....
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.... pocket expenses at actuals. At no point of time is a third party willing to agree for a mark in respect of incidental/travel expenses. All such cost incurred in relation to the activity of travel expenses in fully marked-up and forms part of the cost base. It is only the cost of travel is recovered on a cost to cost basis. 9.30 The assessee also placed reliance on the Delhi Tribunal decision in the case of Dy. DCIT v. Chief Communication India (P.) Ltd. (ITA No. 712/Del/2010) wherein it was held that pass through costs would not be value adding costs for the taxpayer and would, therefore, not be taken into account for computing net profit margin (operating profit/Total cost) of the taxpayer for applying the Transactional Net Margin Method (TNMM) Relevant extracts o the said decision was as follows: "40.......It is not in dispute that the assessee is engaged in undertaking advertising services for its customer/associate enterprise in the capacity of an agent................we have gone through the invoices and purchase order from third party vendors and find that they contain customer's name and all the terms of advertisement are finalised after taking the approval ....
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....ring of services. A copy of the tender inviting offers for empanelment of advertising agency for campaign by the Directorate of Health Services (DHS) was also filed before us in this regard. The decision rendered by the Hon'ble ITAT Bangalore Bench in the case of LG Soft India Ltd. v. Dy CIT [2013] 35 taxmann.com 202 (Bang. - Trib.) and also Mumbai Bench in the case of M/s Cognizance Tech. [IT Appeal Nos. 114 & 2100 (Mum.)/11 dated 23.01.2013 taking a view that reimbursement of expenses were to be excluded while computing the operating revenues of the assessee while determining the ALP under the TNMM method. Our alternation as also drawn to the fact that the assessee has field rectification application u/s 154 of the IT Act, 1961 to the DRP pointing out that in the ground of objection No. 10 the assessee had taken a specific plea that there was no mark-up on recovery transactions and therefore, reimbursement should be excluded from the operating revenue of the assessee and the fact that the said issue was not considered by the DRP in its order. A copy of the rectification application filed by the assessee dated 15-10-2012 is attached as Annexure-VI to this order. The learned DR....