TaxTMI 
TaxTMI 
2016 (3) TMI 1126
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.... of adjustment to the arm's length price with respect to software development service transaction entered into by the Appellant with its associated enterprises. b) The AO/TPO erred in law and on facts as he failed to establish that the Appellant shifted profits outside India. 2 Comparability analysis adopted by the TPO for determination of arm's length price a) The AO/ TPO grossly erred on facts and in law in rejecting the filters and search process adopted by the Appellant in the Transfer Pricing Study. Further, the AO/TPO also erred on facts and in law by conducting a fresh benchmarking analysis in respect of captive software services provided by the Appellant and wrongly comparing the Appellant's activities with companies operating as full-fledged entrepreneurs without considering the differences in functions performed, assets employed and risks assumed by the Appellant vis-à-vis comparable companies. b) The AO/TPO erred in law in applying arbitrary filters 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 was not available, (ii) companies with softw....
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....ome-tax Act, 1961 a) On the facts and in the circumstances of the case, the learned AO has erred in reducing the travel expenses incurred in foreign currency amounting to Rs. 6,669,249 from the export turnover while computing the deduction under section 10A of the Act irrespective of the fact that the Appellant is engaged in software development activity and not rendering technical services outside India. b) On the facts and in the circumstances of the case, the learned AO has erred in reducing the telecommunication expenses of Rs. 2,983,358 from the export turnover irrespective of the fact that entire expenses cannot be attributable to the delivery of computer software outside India. c) On the facts and in the circumstances of the case, the learned AO has erred in treating the insurance expenses of Rs. 9,763,523 as incurred for delivery of computer software outside India. d) Without prejudice to the above, on the facts and in the circumstances of the case, the learned AO has erred in erroneously considering Telecommunication charges as Rs. 2,983,358 as against Rs. 9,763,523 and Insurance charges as Rs. 9,763,523 as against Rs. 359,738. e) Without prejudice to the above,....
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....le DRP The Honorable DRP has erred in law and on facts in not taking congnizance of the objections filed by the Appellant in relation to the draft assessment order issued by the AO/ TP order and confirming the draft order of the AO. 13 Interest under section 234B of the Act The learned AO has erred in levying interest under section 234B of the Act amounting to Rs. 1,173,089. 14 Penalty under section 271(1)(c) The learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act. Relief a) The Appellant prays that directions be given to grant all such relief arising from the above grounds and also all relief consequential thereto. b) The Appellant craves leave to add to or alter, by deletion, substitution, modification or otherwise, the above grounds of appeal, either before or during the hearing of the appeal. Further, the Appellant prays that the adjustment in relation to transfer pricing matters made by the learned AO/TPO and upheld by Honorable DRP is bad in law and liable to be deleted." 3. Ground No.1 is general in nature and does not require any specific adjudication. 4. Ground Nos.2 to 5 are regarding Transfer Pricing Adjustment m....
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....espect of software development services segment of the assessee apart from other non- T.P. issues. The assessee selected 17 comparables to bench mark its international transaction of software development services as under : SI.No. Name of the Company NCP 2005-06 (%) NCP 2006-07 (%) NCP 2007-08 (%) Weighted Average (%) 1. Akshay Software Technologies Ltd. 4.02 4.49 NA 4.27 2. Birla Technologies Ltd. 11.10 -3.55 1.84 3.40 3. Computech International Ltd. 4.52 5.88 NA 5.37 4. Helios & Matheson Information Technology Ltd. 33.42 36.88 32.82 34.36 5. Indium Software (India) Ltd. 27.59 2.04 NA 12.00 6. Kaashyap Technologies Ltd. NA 57.68 16.04 17.16 7. Lanco Global Systems Ltd. 6.00 16.01 21.96 17.64 8. Neilsoft Ltd. 14.71 9.67 NA 11.59 9. PSI Data Systems Ltd. 1.64 6.52 6.75 5.48 10. Persistent Systems Pvt. Ltd. 21.05 19.50 NA 20.14 11. Powersoft Global Solutions Ltd. 16.19 13.19 14.30 14.40 12. Quintegra Solutions Ltd. 14.22 15.95 31.27 23.14 13. RS Software (India) Ltd. 14.81 12.62 10.00 12.63 14. R Systems International Ltd. 22.35 7.35 16.87 14.72 15. Sagarsoft (India) Ltd. -11.62 23.08 6.17 ....
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....mpanies cannot be considered as comparables with the software development services as provided by the assessee. He has also invited our attention to various decisions of this Tribunal wherein these companies were rejected as comparables of software development services provider. Apart from these 12 companies selected by TPO the ld. AR is also seeking exclusion of M/s Bodhtree Consulting Ltd from the list of comparables in the additional ground raised by the assessee on the ground that in case of M/s Mindtech (India) Ltd V/s DCIT in IT(TP) No.70/Ban/2014 (AY-2009-10) dated 21.8.2014 this Tribunal has held that M/s Bodhtree Ltd cannot be considered as comparables. Thus, the ld. AR has submitted that after excluding these 13 companies from the list of comparables the mean margin of remaining companies selected by the TPO comes to 13.72 % and after adjustment of working capital it comes to 13.50 % in comparison the operating martin of the assessee at 11.30% which is within the range of +/- 5% and therefore no adjustment is called for. 6. On the other hand, the ld. DR submitted that TPO took segmental data in case of M/s KALS Information Systems Ltd (Seg.), M/s Tata Elxsi Ltd (Seg.) an....
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..../s 92CA, despite that the company is functionally not comparable to the business of the Appellant." The learned Authorised Representative has however pointed out that out of these 13 comparables sought to be excluded by the assessee 2 comparable companies namely Persistent Systems Limited and Quintegra Solutions Ltd. were also part of the T.P. Analysis of the assessee. The learned Authorised Representative has submitted that the functional comparability of these companies have been examined by this Tribunal in the series of decisions and therefore the assessee has filed a petition for admission of the additional grounds along with the grounds seeking the exclusion of these two companies from the set of comparables. He has pointed out that this issue was also considered by the co-ordinate bench of this Tribunal in the case of Kodiak Network India Pvt. Ltd. (supra) and by following the decision of the Special Bench of the Tribunal in the case of DCIT Vs. Quark Systems Pvt. Ltd. 38 SOT 307. This Tribunal directed to exclude the companies which are not functionally comparable. Thus when these companies are not found functionally comparable with software development services provider t....
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....bunal has considered the comparability of these companies in paras 7 to 19.3 of the order which have been reproduced below: "7.0 Avani Cincom Technologies Ltd. 7.1 This company was selected by the TPO as a comparable. The assessee objects to the inclusion of this company as a comparable on the ground that this company is not functionally comparable to the assessee as it is into software products whereas the assessee offers software development services to its AEs. The TPO had rejected the objections of the assessee on the ground that this comparable company has categorized itself as a pure software developer, just like the assessee, and hence selected this company as a comparable. For this purpose, the TPO had relied on information submitted by this company in response to enquiries carried out under section 133(6) of the Act for collecting information about the company directly. 7.2 Before us, the learned Authorised Representative reiterated the assessee's objections for the inclusion of this company from the list of comparable companies on the ground that this company is not functionally comparable to the assessee as it is into software products. It is also submitted th....
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....e to decide on the comparability in the case on hand also. This alone, however, will not suffice for the following reasons :- (i) The assessee needs to demonstrate that the FAR analysis and other relevant facts of the Triology case are equally applicable to the facts of the assessee's case also. Unless the facts and the FAR analysis of Triology case is comparable to that of the assessee in the case on hand, comparison between the two is not tenable. (ii) After demonstrating the similarity and the comparability between the assessee and the Triology case, the assessee also needs to demonstrate that the facts applicable to the Assessment Year 2007-08, the year for which the decision in case of Triology E-Business Software India Pvt. Ltd. (supra) was rendered are also applicable to the year under consideration i.e. Assessment Year 2008-09. 9.5.3 It is a well settled principle that the assessee is required to perform FAR analysis for each year and it is quite possible that the FAR analysis can be different for each of the years. That being so, the principle applicable to one particular year cannot be extrapolated automatically and made applicable to subsequent years. To do that,....
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....dinate benches of the Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) and in other cases like Triology E-Business Software India Pvt. Ltd. (supra) are applicable to the year under consideration as well. 7.5 Per contra, the learned Departmental Representative supported the order of the TPO / DRP for inclusion of this company Avani Cincom Technologies Ltd. in the final set of comparables. 7.6.1 We have heard both parties and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the final set of comparables only on the basis of information obtained under section 133(6) of the Act. In these circumstances, it was the duty of the TPO to have necessarily furnished the information so gathered to the assessee and taken its submissions thereon into consideration before deciding to include this company in its final list of comparables. Nonfurnishing the information obtained under section 133(6) of the Act to the assessee has vitiated the selection of this company as a comparable. 7.6.2 We also find substantial merit in the contention of the learned Authorised Representative that this comp....
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....rowth of 67% in terms of revenue and 41% in terms of profits over the immediately preceding year which can be attributed to the development of a software application, MIDAS (Multi Industry Data Anomaly) which was made available for customers as SaaS (Software as a Service). 8.3 Per contra, the learned Departmental Representative opposed the exclusion of this company from the list of comparable companies. The learned Departmental Representative contended that since the assessee had accepted the TPO's proposal for inclusion of this company in the set of comparables and had not objected to its inclusion even before the DRP, the objections raised by the assessee in this regard, at this stage, ought to be rejected. 8.4.1 We have heard both parties and perused and carefully considered the material on record. Admittedly, there is no disputing the fact that the assessee had never objected to the inclusion of this company in the set of comparbales in earlier proceedings before the TPO and the DRP. It is also seen that even in the grounds of appeal raised before us, the assessee has not raised any grounds challenging the inclusion of this ompany in the list of comparbales. In fact in the....
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....rved about this company that - " ..... As explained earlier, it is a diversified company and therefore cannot be considered as comparable functionally with the assessee. There has been no attempt to identify, 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 adjustments,the TPO has rendered this company as not qualifying for comparability. We therefore accept the plea of the assessee in this regard." (iv) The rejection / exclusion of this company as a comparable for Assessment Year 2007-08 for software service providers has been upheld by the co-ordinate benches of this Tribunal in the cases of LG Soft India Pvt. Ltd. in ITA No.112/Bang/2011, CSR India Pvt. Ltd. in IT(TP)A No.1119/Bang/2011 and by the ITAT, Delhi Bench in the case of Transwitch India Pvt. Ltd. in ITA No.6083/Del/2010. (v) The facts pertaining to this company has not changed from Assessment Year 2007- 08 to Assessment Year 2008-09 and therefore this company cannot be considered for the purpose of comparability in the instant case and hence ought to be rejected. In support of this contention, the....
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....co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 and Triology E-Business Software India Pvt. Ltd. in ITA No.1054/Bang/2011, we hold that this company ought to be omitted form the list of comparables. The A.O./TPO are accordingly directed. 10. KALS Information Systems Ltd. 10.1 This is a comparable selected by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the set of comparables on grounds of functional differences and that the segmental details have not been provided in the Annual Report of the company with respect to software services revenue and software products revenue. The TPO, however, rejected the objections of the assessee observing that the software products and training constitutes only 4.24% of total revenues and the revenue from software development services constitutes more than 75% of the total operating revenues for the F.Y. 2007-08 and qualifies as a comparable by the service income filter. 10.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee and ought to be rejected /excluded ....
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....t from the details culled out from the Annual Report and quoted above (supra). 10.4 We have heard both parties and perused and carefully considered the material on record. We find from the record that the TPO has drawn conclusions as to the comparability of this company to the assessee based on information obtained u/s.133(6) of the Act. This information which was not in the public domain ought not to have been used by the TPO, more so when the same is contrary to the Annual Report of the company, as pointed out by the learned Authorised Representative. We also find that the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) and in the case of Triology E-Business Software India Pvt. Ltd. (supra) have held that this company was developing software products and was not purely or mainly a software service provider. Apart from relying of the above cited decisions of coordinate benches of the Tribunal (supra), the assessee has also brought on record evidence from various portions of the company's Annual Report to establish that this company is IT(TP)A 1380/Bang/2012 Page 9 of 34 functionally dis-similar and different form the assess....
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....tive service providers assuming limited risk ; (iii) the company has generated several inventions and filed for many patents in India and USA ; (iv) the company has substantial revenues from software products and the break up of such revenues is not available ; (v) the company has incurred huge expenditure for research and development; (vi) the company has made arrangements towards acquisition of IPRs in 'AUTOLAY', a commercial application product used in designing high performance structural systems. In view of the above reasons, the learned Authorised Representative pleaded that, this company i.e. Infosys Technologies Ltd., be excluded form the list of comparable companies. 11.3 Per contra, opposing the contentions of the assessee, the learned Departmental Representative submitted that comparability cannot be decided merely on the basis of scale of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. 11.4 We have heard the rival submissions and perused and carefully consid....
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....ged in both software development and product development services. No information is available on the segmental bifurcation of revenue from sale of products and software services. (vi) the TPO has adopted consolidated financial statements for comparability purposes and for computing the margins, which is in contradiction to the TPO's own filter of rejecting companies with consolidated financial statements. 12.3 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 12.4.1 We have heard both parties and carefully perused and considered the material on record. We find merit in the contentions of the assessee for exclusion of this company from the set of comparables. It is seen that this company is engaged both in software development and product development services. There is no information on the segmental bifurcation of revenue from sale of product and software services. The TPO appears to have adopted this company as a comparable without demonstrating how the company satisfies the software development sales 75% of the total revenue filter adopted by him. Another major flaw in the comparability....
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....ee in the case on hand. (iii) Tata Elxsi Ltd . is predominantly engaged in product designing services and is not purely a software development service provider. In the Annual Report of this company the description of the segment ' software development services' relates to design services and are not to software services provided by the assessee. (iv) Tata Elxsi Ltd . invests substantial funds in research and development activities which has resulted in the 'Embedded Product Design Services Segment' of the company to create a portfolio of reusable software components, ready to deploy frameworks, licensable IPs and products. The learned Authorised Representative pleads that in view of the above reasons, Tata Elxsi Ltd . is clearly functionally different/dis-similar from the assessee and therefore ought to be omitted form the list of comparables. 13.3 Per contra, the learned Departmental Representative supported the stand of the TPO in including this company in the list of comparables. 13.4 We have heard both parties and carefully perused and considered the material on record. From the details on record, we find that this company is predominantly engaged in pro....
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....mitted by the learned Authorised Representative that this company is engaged in 'e-Business Consulting Services', consisting of Web Strategy Services, I T design services and in Technology Consulting Services including product development consulting services. These services, the learned Authorised Representative contends, are high end ITES normally categorised as knowledge process Outsourcing ('KPO') services. It is further submitted that this company has not provided segmental data in its Annual Report. The learned Authorised Representative submits that since the Annual Report of the company does not contain detailed descriptive information on the business of the company, the assessee places reliance on the details available on the company's website which should be considered while evaluating the company's functional profile. It is also submitted by the learned Authorised Representative that KPO services are not comparable to software development services and therefore companies rendering KPO services ought not to be considered as comparable to software development companies and relied on the decision of the ordinate bench in the case of Capital IQ Informat....
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....ale of licences and subscription. It has been pointed out from the Annual Report that the company has not provided any separate segmental profit and loss account for software development services and product development services. (ii) In the case of E-Gain Communications (P.) Ltd. v. ITO [2009] 118 ITD 243/[2008] 23 SOT 385 (Pune), the Tribunal has directed that this company be omitted as a comparable for software service providers, as its income includes income from sale of licences which has increased the margins of the company. The learned A.R. prayed that in the light of the above facts and in view of the afore cited decision of the Tribunal (supra), this company ought to be omitted from the list of comparables. 15.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 15.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the material on record that the company is engaged in product development and earns revenue from sale of licenses and subscription. However, the segmental profit and loss accounts for software development ....
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.... the assessee's own case for Assessment Year 2007-08 and other cases cited above, it is clear that this company being into product development cannot be considered as a comparable to the assessee in the case on hand who is a software service provider and therefore this company i.e.Lucid software Ltd., ought to be omitted from the list of comparables. 16.2 per contra, the learned Departmental Representative supported the action and finding of the TPO in including this company in the list of comparables. 16.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that the company i.e. Lucid software Ltd., is engaged in the development of software products whereas the assessee, in the case on hand, is in the business of providing software development services. We also find that, co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2007-08 (IT(TP)A No.845/Bang/2011), LG Soft India (P.) Ltd. (supra), CSR India (P.) Ltd. (supra); the ITAT, Mumbai Bench in the case of Telcordia Technologies India (P.) Ltd (supra) and the Delhi ITAT in the case of Transwitch India (P.) ....
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....vendors and enterprises. (iii) Website extracts indicate that this company is in the business of product design services. (iv) The ITAT, Mumbai Bench in the case of Telcordia Technologies India (P.) Ltd. (supra) while discussing the comparability of another company, namely Lucid Software Ltd. had rendered a finding that in the absence of segmental information, a company be taken into account for comparability analysis. This principle is squarely applicable to the company presently under consideration, which is into product development and product design services and for which the segmental data is not available. The learned Authorised Representative prays that in view of the above, this company i.e. Persistent Systems Ltd. be omitted from the list of comparables. 17.2 Per contra, the learned Departmental Representative support the action of the TPO in including this company in the list of comparables. 17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a s....
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.... the Annual Report of the company for the period under consideration, which is as under : "Quintegra has taken various measures to preserve its intelectual property. Accordingly, some of the products developed by the company ............... have been covered by the patent rights. The company has also applied for trade mark registration for one of its products, viz. Investor Protection Index Fund (IPIF). These measures will help the company enhance its products value and also mitigate risks." (iv) The TPO has applied the filter of excluding companies having peculiar economic circumstances. Quintegra fails the TPO's own filter since there have been acquisitions in this case, as is evidenced from the company's Annual Report for F.Y. 2007-08, the period under consideration. The learned Authorised Representative prays that in view of the submissions made above, it is clear that inter alia, this company i.e. Quintegra Solution Ltd. being functionally different and possessing its own intangibles/IPRs, it cannot be considered as a comparable to the assessee in the case on hand and therefore ought to be excluded from the list of comparables for the period under consideration. ....
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....e as the assessee was also a provider of software development services. Before us, in addition to the plea that the company was functionally different, the assessee submitted that this company was excluded from the list of comparables by the order of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 (ITA No. 845/Bang./2011) on the ground that the 'Related Party Transactions ('RPT') is in excess of 15%. The learned Authorised Representative submitted that for the current period under consideration, the RPT is 18.3% and therefore this company requires to be omitted from the list of comparables. 19.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables as this company was a pure software development service provider like the assessee. 19.3 We have heard both parties and perused and carefully considered the material on record. We find that the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 has excluded this company from the set of comparables for the reason that RPT is i....
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....the additional grounds raised by the assessee, the co-ordinate bench of the Tribunal also dealt with an identical issue in para 24 (supra) and therefore when the functional comparability of these two companies have been examined by the Tribunal and it was found that these companies are not comparable with the software development services provider because of different activities as well as engaged in the software products, R&D activities and resulting in creation of Intellectual Property Rights (IPRs) then, even if these companies are selected by the assessee in its T.P. Analysis the same shall be excluded from the comparables. The comparability of these companies was already tested by this Tribunal, then the same cannot be included in the list of comparables. Accordingly, by following the earlier order of the Tribunal as well as Special Bench decision in the case of Quark Systems Pvt. Ltd. (supra). We admit the additional grounds raised by the assessee. In view of the findings of the co-ordinate bench of the Tribunal in the case of Kodiak Network India Pvt. Ltd. (supra), we hold that 12 companies out of 13 sought by the assessee are required to be excluded from the list of compara....
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....nominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10A is a beneficial section which intends to provide incentives to promote exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of section 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in section 10-A, the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. To the extent of export turnover, there would be a commonality between the numerator and the denominator of the formula. If the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnove....
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....ave been acquired by utilizing the borrowed fund. Thus the Assessing Officer is not justified in disallowing the proportionate interest on account of purchase of fixed asset. He has further submitted that the assessee has an equity capital of Rs. 4,94,170 and reserves and surpluses of Rs. 2,48,84,256. Therefore these reserves were sufficient to cover the funds for acquisition of fixed asset. Alternatively, the learned Authorised Representative has submitted that the disallowance if any on account of purchase of fixed asset should be restricted only in respect of the fixed assets acquired after issue of convertible debentures as there is no scope of utilizing the borrowed fund prior to the issue of convertible debenture. Thus the learned Authorised Representative has submitted that the disallowance if any on account of interest expenditure to be made only in respect of the fixed assets added after the issuance of convertible debentures. 15. On the other hand, the learned Departmental Representative has submitted that the assessee has failed to produce the relevant evidence and details to show that the assessee has not utilized the borrowed fund prior to acquisition of fixed assets.....
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.... on the appellate authorities. 18.2 On the other hand, the learned Departmental Representative has relied upon the orders of authorities below. 19. Having considered the rival submissions as well as the relevant material on record, we note that the DRP has rejected this objection of the assessee in para 22.4 as under : "22.4 The Panel has examined the issue and has also taken on record the arguments made by the assessee in the course of assessment proceedings as also in the course of DRP proceedings. The Panel also notes that the assessee places strong reliance in the ratio upheld by the Hon'ble Karnataka High Court in its order dt.27.2.2012 in the case of M/s. Prakash Leasing Ltd. (ITA No.301, 302 & 491 of 2007) as also Hon'ble Delhi High Court decision dt.7.2.2012 in Virtual Soft System Ltd. (ITA Nos.216, 398, 403, 404 & 680 of 2011) both are holding the allowability of such a claim. It is in this context the Panel notes that the Department has not accepted the decision of the Hon'ble High Court of Karnataka and is agitating the issue by way of an appeal before the Hon'ble Supreme Court and hence the Panel confirms to such a stand and holds that the view taken....
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....ed with. In view of the same the Panel therefore deems it appropriate to direct the Assessing Officer to afford a final opportunity in the interest of justice and come to a conclusion thereon relating to the disallowance of impugned amount. This ground is disposed off subject to the above direction." Thus when the DRP has already directed the Assessing Officer to afford an opportunity to the assessee to present its case and relevant evidence, then we do not find any reason to interfere with the finding of the DRP. The learned Authorised Representative has submitted that the Assessing Officer has not given effect to the directions of the DRP. Accordingly, we direct the Assessing Officer to reconsider this issue after giving an opportunity of hearing to the assessee. 22. Ground No.10 is regarding disallowance of the ratio adopted by the assessee for apportionment of the common expenses. The assessee has allocated the common expenses on the basis of head count to both STPI and non-STPI units. Based on the head counts for STPI and non-STPI the assessee has adopted apportionment of common expenses in the ratio of 222 and 42 respectively. The Assessing Officer did not accept the ratio....
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....bsorbed depreciation of earlier year for computation of deduction under Section 10A. 26.2 We have heard the rival submissions as well as considered the relevant material on record. At the outset, we note that this issue is now covered by the judgment of Hon'ble jurisdictional High Court in the case of CIT vs. Yokogawa India Ltd. & others (341 ITR 385). The co-ordinate bench of this Tribunal in the case of Flextronics Technologics India Pvt. Ltd. Vs. DCIT in IT(TP)A No.1219/Bang/2011 Dt.23.11.2015 has considered an identical issue inparas 10.1 to 10.5 as under : " 10.1 The learned AR of the assessee has relied upon the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Yokogawa India Ltd. & others (341 ITR 385) as well as the decision in the case of CIT vs. M/s.Auringene Discovery Technologies Ltd. in ITA No.549/2013 dated 05/09/2014 and submitted that the Hon'ble High Court has reiterated the view taken in the case of Yokogawa India Ltd.(supra). He has also relied upon the decision of this Tribunal dated 30/4/2014 in the case of CIT vs. M/s.Biocon Ltd. in ITA Nos.248, 368 to 371 & 1206/2010. 10.2 On the other hand, learned Departmental Representat....
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....er VII deals with the incomes forming part of the total income on which no income-tax is payable. These are the incomes which are exempted from charge, but are included in the total income of the assessee. The Parliament despite being conversant with the implications of this chapter, has consciously chosen to retain s. 10A in Chapter III. 17. If s. 10A is to be given effect to as a deduction from the total income as defined in s. 2(45), it would mean that s. 10A is to be considered after Chapter VI-A deductions have been exhausted. The deductions under Chapter VI-A are to be given from out of the gross total income. The term "gross total income" is defined in s. 80B(5) to mean the total income computed in accordance with the provisions of this Act, before making any deduction under this chapter. As per the definition of gross total income, the other provisions of the Act will have to be first given effect to. There is no reason why reference to the provisions of the Act should not include s. 10A. In other words, the gross total income would be arrived at after considering s. 10A deduction also. Therefore, it would be inappropriate to conclude that s. 10A deduction is to be given ....
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.... 10A and 10B are applicable. The Finance Act, 2003, amended this sub-section with retrospective effect from 1st April, 2001 by lifting the embargo in the aforesaid clauses in respect of depreciation and business loss relating to the asst. yr. 2001-02 onwards. The amendment indicates the legislative intention of providing the benefit of carry forward of depreciation and business loss relating to any year of the tax holiday period to be set off against income of any year post tax holiday. This is supported by Circular No. 7 of 2003 [(2003) 184 CTR (St) 33] wherein the board has stated that the purpose of amendment is to entitle an assessee to the benefit of carry forward of depreciation and loss suffered during the tax holiday period. The circular dt. 5th Sept., 2003 reads as under : "20. Providing for carry forward of business losses and unabsorbed depreciation to units in Special Economic Zones and 100 per cent export oriented units. 20.1 Under the existing provisions of ss. 10A and 10B, the undertakings operating in a Special Economic Zone (under s. 10A) and 100 per cent export oriented units (under s. 10B) are not permitted to carry forward their business losses and unabsorbed ....
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.... units which were entitled to claim deduction u/s. 10B of the Act viz., CMZ Unit, SAP Unit, RHI Unit and IFP Unit. The assessee had claimed deduction u/s. 10B of the Act in respect of the aforesaid units totaling Rs. 157,22,33,066 which is the sum total of deduction u/s. 10B for the four units as follows:- (1) CMZ Unit : 6,87,70,229 (2) SAP Unit : 76,60,29,880 (3) RHI Unit : 52,42,56,278 (4) IFP Unit : 21,31,76,679 Total 157,22,33,066 The assessee had non-10B units as well. In those non-10B units, there was a loss of Rs. 105,92,19,172. In the return of income filed by the assessee, the assessee sought to carry forward the loss of non-10B units for set off against the profits of non-10B units in the subsequent assessment years. The AO firstly noticed that there was income from other sources to the extent of Rs. 4,71,15,896 and such had to be set off against the loss of the non-10B units. Accordingly, the AO held that the loss of the non-10B units that had to be considered for carry forward would be Rs. 101,21,03,280. Thereafter, the AO was of the view that income of the 10B units had to be set off against the loss of the non-10B units and ....
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....e order of the Assessing Officer. Against the order of the CIT(A), the Assessee was in appeal before the Tribunal. 25. This Tribunal dealt with the issue in the following words : 63. We have given a careful consideration to the rival submissions. The issue as to whether the provisions of Sec.10B of the Act are deduction provisions or exemption provisions will assume great importance. The reason is that if the provisions are considered as exemption provisions then they will not enter the computation of total income and therefore the loss of the eligible unit cannot be set off against the profits of the non-eligible unit. This issue has already been settled by the Hon'ble Karnataka High Court in the case of Yokogawa India Ltd. (supra). The Hon'ble Karnataka High Court in the case of Yokogawa (supra) had to deal with two substantial question of law. The first substantial question of law was on the right of set off of loss of non-eligible unit against the profit of the eligible unit on which deduction u/s.10B was to be allowed. The Hon'ble Court in para 10 to 20 of its judgment dealt with the issue. The Hon'ble Court noticed that Sec.10-A(1) of the Act (which is in pari materia wit....
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....s. 10A/10B) unit brought forward from earlier years have to be set off against the profits before computing exempt profits. The assessee in that case set up a 100% EOU in AY 1988-89. For want of profits it did not claim benefits u/s 10B in AYs 1988-89 to 1990-91. From AY 1992-93 it claimed the said benefits for a connective period of 5 years. In AY 1994-95, the assessee computed the profits of the EOU without adjusting the brought forward unabsorbed depreciation of AY 1988-89. It claimed that as s. 10B conferred "exemption" for the profits of the EOU, the said brought forward depreciation could not be set-off from the profits of the EOU but was available to be setoff against income from other sources. It was also claimed that the profits had to be computed on a "commercial" basis. The AO accepted the claim though the CIT revised his order u/s 263 and directed that the exemption be computed after set-off. On appeal by the assessee, the Tribunal reversed the order of the CIT. On appeal by the department, the High Court in CIT Vs. Himatasingike Seide Ltd. 286 ITR 255 (Kar) reversed the order of the Tribunal and held that the brought forward depreciation had to be adjusted against the ....