TaxTMI 
TaxTMI 
2010 (3) TMI 1107
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....er and, therefore, for the sake of convenience, a common order is passed. ITA No.4540/M/08 : By Revenue in (ASPL) 2. This appeal is filed by the revenue against the order of CIT(A) - XXVII, passed on 25.04.2008 for the AY 2002-03. 3. Ground No.1 is against the action of the CIT(A) in deleting disallowance of Rs. 1,29,16,425/- being expenses incurred by the assessee in respect of M/s Accenture Organisation International Services Agreement (SA). 4. Briefly the facts of the case are that the assessee company incorporated under the Indian Companies Act, 1956, is engaged in providing a range of software development and information technology enabled services. The assessee also engaged in the business of providing coordinated consulting business to its clients operating on a global basis. During the assessment proceedings, the AO noticed that the assessee had debited Rs. 1,29,16,425/- on account of payments made for technical services obtained from M/s Accenture Participation BV, Amsterdam. (In short 'APBV). M/s APBV belonged to the parent company of the whole accenture group of companies. It was explained by the assessee to the AO that during the year services were obtai....
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....nclusions, I agree with the appellant's contention that the order of the TPO should be followed as regards the payments made by the appellant under the above mentioned agreements. 2.21 The income of the foreign recipient entities under the same agreement has been offered to tax in India by the foreign recipient entity. Further, the appellant has itself offered to tax in India the amounts received by the appellant under the agreement. Thus, the transaction appears to be a fair business transaction and since the receipts under the transaction have been appropriately offered to tax in India, I do not see any reason why the expenditure incurred under the arrangement should be disallowed. 2.22 Further, I have analysed the case of Arthur Anderson on which reliance has been placed by the appellant. The facts of ASPL's case are similar to AA's and the nature of the services obtained by ASPL and the manner of remuneration for the same under the ISA is similar to the services rendered to AA under the member firm inter-firm agreement and the remuneration for the same paid by AA. Given this, I am of the opinion that the expenditure incurred by ASPL under the ISA s....
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....oner of Income-tax 261 ITR 390(Ker) 6. The learned AR, on the other hand, relied upon the order of CIT(A) and submitted that the assessee has claimed deduction in respect of amounts paid under ISA u/s 37(1) of the Act, being laid out or expended wholly and exclusively for the purpose of business. The learned AR further submitted that the expenditure cannot be disallowed as a deduction to the assessee on the basis that the expenditure incurred was not commercially expedient and reasonable from the subjective standard of the revenue authorities. The expenditure claimed by the assessee is not in the nature described under section 30 to 36 of the Act. The expenditure is also not in the nature of capital expenditure and the same was not personal expenses. The expenditure incurred was wholly and exclusively for the purpose of business. The learned AR submitted that the Accenture group entities have recognized the need to enter into a Cost Contribution Account in order to provide seamless and uniform high quality service to their multinational clients. It is further submitted that as a result of entering into the CCA, the Accenture Group entities including the assessee (ASPL) have agre....
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....V. Raman and Raman Ltd. [1966] 71 ITR 345 (Mad.) 11. Newtone Studios Ltd. v. CIT [1955] 28 ITR 378 12. CIT V. Hindustan Motors Ltd. [1989] 175 ITR 411 (Cal.) 13. CIT vs. Development Trust Pvt. Ltd., [1992] 198 ITR 766 (All.) 14. Amarjothi Pictures V. CIT [1968] 69 ITR 755 (Mad.) 15. CIT V. Shriram Prayagdas and Mahadeo Prasad [1983] 144 ITR 883 (MP) 16. CIT vs. Gobald Motor Service (P) Ltd. [1975] 100 ITR 240 (Mad.) 17. CIT vs. Kamal and Co. [1993] 203 ITR 1038 (Raj.) 18. CIT V. Tirrihannah Co. Ltd. [1992] 195 ITR 393 (Cal.) 19. CIT V. Jay Engineering Works [1988] 172 ITR 341 (Del.) 20. CIT V. Arthur Anderson and Co., 94 TTJ 736 (Mum.) = (2005-TII-02-ITAT-MUM-INTL) 6.1 The learned AR submitted that the facts in the case of CIT vs. Aruthur Anderson and Co., 94 TTJ 736 (Mum.) = (2005-TII-02-ITAT-MUM-INTL) are identical to the facts of the case under consideration. The learned AR submitted that the CIT(A) has allowed the expenditure on the basis that the amounts offered under the ISA has been offered to tax in India by the foreign entities and the transactions were fair business transactions. ....
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....annot be said that the assessee has paid the prices under the said transaction without obtaining any services. The contention of the revenue is baseless and under the facts and circumstances of the case, the expenditure is incurred for the purpose of business. Therefore, we are of the view that the CIT(A) has rightly allowed the claim of the assessee. Thus, ground no.1 of the revenue is dismissed. 8. Ground No.2 is against the action of the CIT(A) in deleting the disallowance of expenses of Rs. 10,42,394/- paid to M/s Little and Co. towards professional fees for rebranding exercise and review of leave and license agreement u/s 35 of the Act. 9. During the course of assessment proceedings, the AO noticed that the assessee has paid Rs. 10,42,394/- to M/s Little and co. on account of professional fees for rebranding exercise and review of leave and license arrangement. The AO noted that the assessee did not submit any break-up fees paid separately for rebranding exercise and review of leave and license agreement as per the provisions of section 35B. The AO disallowed a sum of Rs. 8,33,915/- being 4/5th of the expenses of Rs. 10,42,394/-. The CIT(A) deleted the said disallowance ....
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.... 14. Ground No.4 is against the action of the CIT(A) in deleting the disallowance of Rs. 5,09,958/- made by the AO on account of customs duty as revenue expenditure. 15. The AO disallowed the amount of Rs. 5,09,958/- being clearance charges for import duty paid on servers by treating the same as capital in nature. The CIT(A) after considering the submissions of the assessee, deleted the said disallowance by observing as under:- "7.10 After going through the submission of the appellant and facts on records of the case, I am of the view that amount incurred on account of import duty which is paid on certain computer spare parts, miscellaneous expenses, reimbursement of conveyance expenses can not be capital in nature. Since the spare parts purchased are allowed as revenue expenditure, contention of the AO to treat such expenses as capital is not valid. Accordingly such expenditure incurred in respect of customs duty clearance charges should be allowed as deduction under the Act. 7.11 Regarding the customs duty/customs clearance charges paid to Exel India Pvt. Ltd. (Rs.338,287) pertains to customs duty paid on the import of computer servers which are not asset o....
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.... price of the shares of Accenture Ltd and the exercise price of such shares by the employees of AIPL and not the entire share price of the shares allotted. Further, such shares have not been issued out of the share capital of the appellant and hence cannot be said to be a capital expenditure. I have analysed the decision of SSI Ltd. relied on by the appellant and am of the view that the same is applicable to the appellant's case. As argued by the appellant, such expense is a qualified business expenditure and should be allowable in computing the taxable income of the appellant. This aspect has been upheld in various judicial precedents. Based on the above, I am of the opinion that such expenses qualify as business expenses of the appellant and the appellant should accordingly be given a deduction on this account. Accordingly I hereby delete the addition made by the AO on ground No.9." 19. We have heard the learned representatives of the parties and perused the record. The CIT(A) has given a categorical finding after examining the relevant material and submission of the assessee that shares were allotted to its employees and not to the employees of the parent company. The exp....
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....u/s 10A of reimbursement of expenses of Rs. 19,81,27,943/- made by the AO. 26. During the assessment proceedings, the AO noticed that the assessee has claimed deduction u/s 10A of the Act amounting to Rs. 39,94,62,356/-. The AO noticed that the assessee did not furnish any details regarding receipts from reimbursable expenses. The AO was of the view that the assessee had not been able to prove the reimbursable expenses are derived from export of software and IT enables services and, therefore, cannot be considered as export turnover. The AO, accordingly, disallowed deduction u/s 10A on the total amount of Rs. 19,81,27,943/-. The CIT(A) directed the AO to compute deduction u/s 10A of the Mumbai undertaking of the assessee by leaving the profits of the undertaking as reported by the assessee in its return of income untouched but reducing only the reimbursement of telecommunication charges of Rs. 18,382,911/- from the export turnover as well as the total turnover of the Mumbai undertaking observing as under:- "I have gone through the facts, material on record and submission made by the appellant and am of the following view: 1.28 I am of the opinion that the appel....
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.... through the decisions cited by the appellant in support of its contention that where certain items are excluded from the export turnover of the Mumbai undertaking, the same should also be reduced from the total turnover of the undertaking on the principles of parity for the purpose of computation of section 10A deduction. I agree with the appellant's contention on this issue. 1.34 Based on the above, I hereby direct the AO to compute the section 10A deduction of the Mumbai undertaking of the Appellant by leaving the profits of the undertaking as reported by the appellant in its return of income mentioned and reducing the reimbursement of telecommunication charges of Rs. 18,382,911/- from the export turnover as well as the total turnover of the Mumbai undertaking." 27. The revenue is in appeal against the order of CIT(A) in directing AO to allow claim of the assessee u/s 10A in respect of reimbursement of expenses of Rs. 17,81,27,943 (19,81,27,943- 1,83,82,911) by allowing the said receipts to be included in the export turnover. The assessee vide ground Nos. 1 to 3 in C.O. against the findings of the CIT(A) that reimbursement of expenses on account of telecommunicat....
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....bled services undertaken by the Mumbai undertaking of assessee. The learned AR submitted that for the purposes of computation of deduction u/s 10A of the Act, the assessee has included the receipts in respect of the reimbursable expenses in the profits of the business of the Mumbai undertaking as well as the export turnover and the total turnover of this undertaking. The learned AR submitted that the AO has wrongly taxed the gross amount of the reimbursable expenses relating to the Mumbai undertaking on the basis that such receipts are not derived from the eligible business of the assessee. The learned AR has relied upon the following decisions and submitted that the assessee is entitled for deduction u/s 10A in respect of reimbursable expenses: 1. CIT vs. Alfa Laval India Ltd., 295 ITR 451 (SC) 2. Indian Communication Network Ltd. V. Inspecting Assistant Commissioner, 50 ITD 411 (Delhi SB) 3. Samtex Fashions Ltd. ACIT, 92 ITD 535 (Delhi ITAT) 4. ITAT Mumbai decision in the case of Best Exports Centre Pvt. Ltd., ITA No.5753/Mum/03. 5. Sony India, 114 ITD 448 (Delhi ITAT) = (2008-TII-08-ITAT-DEL-TP) 6. Bangalore ITAT in the case ....
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.... above submitted that if it is considered that the said reimbursable expenses should not form part of the export turnover of the Mumbai undertaking eligible to take deduction u/s 10A of the Act. The learned AR in support of his contention relied upon the Special Bench decision of ITAT, Chennai in the case of ITO V. Sak Soft Ltd., 313 ITR 353 (Chennai) (SB). The learned AR has also relied upon the following judgments:- 1. Mphasis Ltd. V. ACIT, ITA No.524/Bang/2008 2. Foursoft Pvt. Ltd. vs. ACIT, ITA Nos. 1049/Hyd/05, 1125/Hyd/04 and 1179/Hyd/06. 3. Nous Infosystems Pvt. Ltd. vs. ACIT, ITA Nos. 589 and 666/Bang/08. 4. Tata Elexi Ltd. (ITA No.315/Bang/2006 5. ACIT V. Khoday India Ltd. 6. CIT V Sudarshan Chemical Industries Ltd., 245 ITR 769(Bom) 7. CIT V. I Gate Global Solutions Ltd., Bangalore ITAT 8. CIT vs. Abad Fisheries [2002] 258 ITR 641 (Ker.) 9. CIT V. Kantilal Chhotalal 246 ITR 439 (Bom) 10. CIT vs. Bharat Earth Movers Ltd., 268 ITR 232 (Kar] and 11. Chloride India Ld. vs. DCIT, 53 ITD 180 (Cal.) 28.4 The learned AR submitted that the decisions mentioned above from Sl. No.7 t....
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....ncurred such reimbursable expenses and accounted for in profit and loss account the eligible profit was reduced as total expenses including reimbursement part of expenses were debited to profit and loss account. At that time if profit is not increased then the same cannot be reduced when the amount of expenditure is reimbursed. The CIT (A) has appreciated the accounting method followed by the assessee and deleted disallowance of claim made by the AO except in respect of Reimbursement of telecommunication charges (amounting to Rs. 18,382,911).The CIT(A) invoked Explanation 2(iv) to section 10A of the Act in respect of Reimbursement of telecommunication charges. In principle we agree with finding of the CIT (A) in respect of reimbursement of expenses. We also find force in alternate submission of the learned AR that if it is held that the receipts for the reimbursable expenses are not eligible for deduction u/s 10A of the Act, only profits, if any, relating to such reimbursable expenses should be considered as being not eligible for deduction u/s 10A of the Act. Further, same should not part of total turnover and export turnover. 29.1 The CIT (A) has decided the issue related to R....
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....turnover' as provided in clause (iv) of the Explanation 2 to section 10A, we notice that for the purpose of not including in the consideration received in or brought into India in convertible foreign exchange there are two types of expenditures. The first type of expenditure is freight, telecommunication charges, or insurance attributable to the delivery of article or thing or computer software out of India. The second type of expenditure is expenditure, if any, incurred in foreign exchange in providing technical services outside India. The basic idea or intention for deducting the first type of expenditure, i.e., freight, telecommunication charges, or insurance charges is that delivery of goods should be Free on Board (FoB). The C.B.D.T. vide its Circular No.564, dated 5-7-1990 (184 ITR (St.) 137 clarified this aspect in respect of deduction under section 80HHC, the relevant portion of the circular is reproduced as below: "The term "export turnover" under the existing provisions, means the sale proceeds (excluding freight and insurance), receivable by the assessee in convertible foreign exchange. In other words, FoB value of exports. The Finance Act, 1990 has restrict....
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....Circular No.564, dated 5-7-1990 quoted above that the delivery of the goods should be Free on Board (FoB). Both the situations can be explained by a simple example. Mr. X exported goods out of India and received consideration Rs. 1,000 in convertible foreign exchange which is only in respect of goods. Mr. Y in a similar type of transaction charged Rs. 1,000 for goods and Rs. 100 for such expenses. Total convertible foreign exchange received in case of X is Rs. 1,000 and in case of Y is Rs. 1,100. In case of Mr. Y Rs. 100 is required to be deducted from consideration received as he is getting Rs. 100 attributable to delivery of the goods. In case of X no deduction is required from consideration received in convertible foreign exchange. Thus by reduction of Rs. 100 in case of Y the goods exported is FoB. The goods exported at FoB is important in the sense that deduction under section 10A is permissible only in respect of consideration received against goods and not for the consideration received against freight etc. All the assessees should get deduction under section 10A on consideration received against supply of goods at FoB. Therefore, the condition of delivery of goods at FoB ha....
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....business operations of the Mumbai undertaking. The CIT(A) was of the view that foreign exchange fluctuation gain should be included in the profits of the Mumbai undertaking and should be eligible for deduction u/s 10A of the Act. However, the CIT(A) confirmed the order of AO in respect of income on short term deposits of Rs. 23,788/- and miscellaneous income of Rs. 20,000/- with the business operations of the Mumbai undertaking. 33. We have heard the learned representatives of the parties and perused the record. After considering the facts of the case, we find that ITAT Delhi Bench in the case of Sujata Grover 74 TTJ 347(Del.) held that 'basic character of the receipt of foreign currency remains the same i.e. it remains attributable to the export effected by the assessee.' Following the said decision of ITAT, the Mumbai bench of ITAT in the case of Renaissance Jewellery Pvt. Ltd. V. ITO [2005] 4 SOT 50 held that 'exchange gain arising on account of change in exchange rate after the end of accounting year constitutes part of export turnover eligible for deduction u/s 10A.' We find that the issue under consideration is covered by the decisions of ITAT mentioned abo....
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....t have not been completed and finally billed. The AO has also noted that the assessee would have raised advance/interim bills against these jobs, 50% of the expenses incurred towards such jobs have been taken to be recovered/billed. The AO was of the view that 50% of the expenses incurred on such jobs have not been recovered or billed by the assessee. After the said discussion, the AO held that 25% of the total expenses incurred in the last 3 months are towards jobs in progress and hence determined an amount of Rs. 5,40,15,935/- as jobs-inprocess charges. The CIT(A) after considering the assessee's submission held that the assessee is correct in contending that the method of accounting consistently followed by the assessee in reporting its revenues and expenses should not be disturbed. The CIT(A) also agreed with the submission and the judicial precedents quoted by the assessee and also agreed with the contention of the assessee that the method of accounting consistently followed by the assessee should be accepted. The CIT(A) also observed that the same method of accounting for revenues and expenses has been accepted by the department in earlier year as well as in subsequent ye....
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....s incurred by the assessee in respect of M/s Accenture Organisation International Services Agreement (ISA), ii) disallowance of Rs. 6,44,26,977/- under IEA, IAA, and BSA agreement and, iii) deleting the amount of Rs. 3,05,41,483/- on account of employee share purchase plan. 53. The learned representatives of the parties submitted that similar issues are decided in AY 2002-03 in ITA No.4540/M/08 cited supra. Respectfully following the discussion and conclusions drawn therein, we confirm the orders of CIT(A) on these issues in both the Assessment Years AY 2003-04 and 2004-05 under consideration. 54. 4th common ground is in respect of disallowance of deduction on bad debts. 55. The AO disallowed the bad debts claim of the assessee on the ground that the assessee had not demonstrated that the bad debts written off during the subject assessment year had become irrecoverable and he also held that the debts written off by the assessee in its books of account had been written off without valid reasons and proper basis and accordingly these debts which had been written off were still realizable. Before the CIT(A), the assessee contended that all conditions as mentioned in section 3....
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....perusal of the submission made by the assessee in this regard, I am of the opinion that appellant has satisfied all the conditions for claiming the deduction under section 36(1)(vii) and hence deduction in respect of bad debts claimed by AIPL should be allowed." 4.14 Based on the above, I here by delete the addition made by the AO on ground No.4" 55.1 The learned DR has relied upon the order of AO whereas the learned AR has relied upon the order of CIT(A) and submitted that the bad debts written off are eligible for deduction u/s 36(1)(vii) for the following reasons:- 1. Assessee has written off bad debts in its books of account for AY 2003-04 and AY 2004-05 and claimed a deduction in respect of the same in its return of income for the respective years. 2. Further, the assessee has given up its claim in respect of these debts which have been written off as bad debts during AY 2003-04/AY 2004-05 since these debts had become irrecoverable. 3. Out of the total debts written off amounting to Rs. 11,215,803/- for AY 2003-04, only an amount of Rs. 49,370/- had been paid up by the clients as at March 31, 2006 (ie the date of completion of assessment ....
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.... connection with the reimbursement of training expenses to Accenture Group entities. 60. The AO held that reimbursement of training expenses to the Accenture group entity to APBV were in the nature of fees for technical services which were taxable in India in the hands of APBV under the provisions of double tax avoidance agreement between Indian and Netherlands (India-Netherlands Treaty), thus, the assessee is required to withhold tax at appropriate rates on such training expenses paid by the assessee to APBV. The CIT(A) deleted the disallowance by following his decision in AY 2001-02. 61. The learned DR has relied upon the order of the AO and the learned AR has relied upon the order of the CIT(A) and submitted that the assessee has not deducted taxes at source on the reimbursement of training expense for AYs 2003-04 and 2004-05 to the Accenture Group entities on the basis that i) reimbursement of training expenses to Accenture group entities is not taxable in India in the hands of the Accenture group entities as the trainings have been imparted to the employees of assessee outside India and ii) the assessee has reimbursed only the actual expenses incurred by the Accenture gr....