TaxTMI 
TaxTMI 
2020 (8) TMI 196
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.... Income-tax Act, 1961 ('Act'), by the learned Assistant Commissioner of Income-tax, Circle - 4(1)(2), Bangalore ('ACIT'), be struck down as invalid, as the order is bad in law and on facts. 2. Reliance on the Draft Assessment Order ('DAO') of AY 2009-10 for making adjustments for AY 2013-14 2.1. The learned ACIT and the Hon'ble Dispute Resolution Panel ('DRP') have erred in law and on facts by placing reliance on the DAO of AY 2009-10. Specifically, the learned ACIT and Hon'ble DRP have erred: a) In not following the settled legal principle of res judicata not applying to incometax proceedings; b) In not appreciating the fact that the order on which the learned ACIT had placed reliance was a draft assessment order; C) In not appreciating the fact that the erstwhile DAO passed by the erstwhile Assessing Officer has been quashed by the Hon'ble Karnataka High Court vide its order dated July 18, 2016. ; and d) In placing reliance on the DAO of AY 2009-10 without application of mind and without taking cognizance of the submissions/ arguments put forth during the assessment proceedings of AY....
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....39;) even though the Appellant has not submitted any ICA with the learned ACIT during the course of the assessment proceedings for the subject AY. 3.9. The Hon'ble DRP has erred in fact by concluding that the Appellant failed to match the accounting invoices with the SOFTEX forms without taking cognizance of the submissions made by the Appellant during the assessment proceedings for the subject AY. 3.10. The Hon'ble DRP has erred in fact by concluding that the Appellant failed to produce invoices for verification without taking cognizance of the submissions made by the Appellant during the assessment proceedings for the subject AY. 4. Disallowance of amounts under section 37(1) which have been disallowed suo moto by the Appellant under section 40(a) of the Act 4.1. The learned ACIT has erred in facts and in law in holding that a sum of INR 3,456,564,364 disallowed by the Appellant under section 40(a) of the Act should be disallowed under section 37(1) of the Act 4.2. The learned ACIT has erred in law and on facts by not appreciating that the basis of year-end provisions, as furnished by the Appellant, demonstrate that the same ar....
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.... 5.1. The learned ACIT and the Hon'ble DRP have erred in law and on facts in disallowing payments made by the Appellant to non-residents amounting to INR 981,37,37,374 under section 40(a) of the Act as follows: 5.1.1. INR 460,49,70,453 made to IBM Singapore Pte Ltd by treating the sum as 'royalty' 5.1.2. INR 520,87,66,921 made to other non-residents by concluding that the certificates issued by the Chartered Accountant ('CA') are not reliable 5.2. The learned ACIT has erred in facts in disallowing the foreign payments made during the year on which tax is not deducted by not considering the evidence submitted by the Appellant. 5.3. The learned ACIT has erred in fact and in law in not appreciating that certain sums are mere reimbursements and hence cannot be considered as "income". 5.4. The learned ACIT has erred in law and on facts in placing reliance on the sworn statement which does not pertain to the current year, in holding that the certificates issued by the CA are not reliable and disallowing the amount for the current year. 5.5. The learned ACIT and the Hon'ble DRP have erred in law in disallowing t....
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....in law and on facts in disallowing expenditure amounting to INR 78,54,075 without appreciating that the Appellant has not earned any exempt income during the year. 8.2. The learned ACIT has erred in law and on facts, by not discharging the onus of establishing the incurrence of some expenditure in relation to earning exempt income, before invoking the provisions of Rule 8D read with section 14A of the Act. 8.3. The learned ACIT and the Hon'ble DRP have erred in law and on facts in not considering the evidence on record and by not following the judicial precedents. 9. Restriction of depreciation on computer software from 60 per cent to 25 per cent 9.1. The learned ACIT and the Hon'ble DRP have erred in law and on facts in restricting depreciation claim to a lower rate of 25% as against the Appellant's claim for depreciation on computer software at 60% under section 32 of the Act, resulting in disallowance of INR 24,44,33,932. 9.2. The learned ACIT and the Hon'ble DRP have erred in law in concluding that only software purchased along with the computer is eligible for depreciation at the rate of 60%. 9.3. The learne....
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....tted that Ground No.1 raised by assessee is general in nature and therefore do not require any adjudication. 4. Ground No.2 raised by assessee, challenges reliance of Ld.AO/DRP on draft assessment order for assessment year 2009- 10, which is set aside by Hon'ble Karnataka High Court in assessee's own case, by order dated 18/07/2016. Ld.Counsel submitted that, authorities below failed to appreciate settled legal principles of res judicata, not applying to income tax proceedings, and that claim should be analysed, having regards to evidences filed by assessee for year under consideration. Before DRP, assessee raised preliminary issue in respect of validity of draft assessment order dated 29/12/2016 passed by Ld.AO. 4.1 Before DRP, similar arguments were raised by assessee. It was submitted that, said order was set-aside, since it was passed without application of mind, and without taking cognizance of submissions/arguments put forth during assessment proceedings for year under consideration. 4.2 DRP, while dealing with this issue, observed that, similar objection was raised by assessee before DRP for assessment years 2010-11 2011-12 and 2012-13 which was rejected by obser....
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.... same has been denied by concerned assessing officers on account of one or more violations. We noted that, assessee was called upon to establish its claim for year under consideration. Assessee was also called upon to furnish evidences for export of computer software and evidences in support of eligible profit claimed u/s 10AA in computation of income. 4.4.3 In fact, Ld.CIT.DR submitted that, all issues should be restored to Ld.AO, since details filed by assessee pursuant to show cause notice issued during the year has not been carefully verified. 4.4.4 We note that, this Tribunal considered this preliminary objection while considering similar issue for assessment years 2006-07. This Tribunal set aside claim u/s.10AA to Ld.AO for fresh decision, following its order for AY:2008-09 in IBM India (P) Ltd vs JCIT reported in (2014) 46 Taxmann.com 129. It is noted that, for asst. year 2008-09, this Tribunal dismissed various objections raised by Ld. AO to deny claim u/s.10AA and directed Ld.AO to verify, whether convertible foreign exchange was brought into India and that, they represented consideration received for export of computer software. 4.4.5 We note that, this Tribunal ....
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....nder section 10AA are identical, even for year under consideration. Ld.AO after reproducing submissions and statements recorded during assessment for assessment year 2009-10 under section 131 of Sh.T Ravindra CA, came to following conclusion for year under consideration: • MSA (Master Service Agreement) submitted with SEZ/STPI Authority was entered on 01/01/2004 between assessee and IBM related companies, which does not reveal any specific details regarding the software development activity carried on by assessee. • That, DOU (Document of Understanding) was not registered with SEZ Authority, and hence, it was not verifiable whether the software activity developed was carried out from eligible units. • Ld.AO was of the opinion that the MSA and ICA (Inter Company Agreements) revealed fact that undertaking commenced its activity after 2004-05 and were not new undertaking that began to manufacture or produce computer software and rather all such undertakings have continued the business, already in existence, which was in violation of section 10A(2). • Ld.AO was also of the opinion that assessee did not submit invoices corresponding to....
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....pecial provisions in respect of newly established Units in Special Economic Zones. 10AA. (1) Subject to the provisions of this section, in computing the total income of an assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005, from his Unit, who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, but before the first day of April, 2021, the following deduction shall be allowed- (i) hundred per cent of profits and gains derived from the export, of such articles or things or from services for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services, as the case may be, and fifty per cent of such profits and gains for further five assessment years and thereafter; (ii) for the next five consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account ....
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....ediately following the period of three years specified in sub-clause (i) of clause (a) of sub-section (2), and shall be charged to tax accordingly : Provided that where in computing the total income of the Unit for any assessment year, its profits and gains had not been included by application of the provisions of sub-section (7B) of section 10A, the undertaking, being the Unit shall be entitled to deduction referred to in this sub-section only for the unexpired period of ten consecutive assessment years and thereafter it shall be eligible for deduction from income as provided in clause (ii) of sub-section (1). Explanation.-For the removal of doubts, it is hereby declared that an undertaking, being the Unit, which had already availed, before the commencement of the Special Economic Zones Act, 2005, the deductions referred to in section 10A for ten consecutive assessment years, such Unit shall not be eligible for deduction from income under this section : Provided further that where a Unit initially located in any free trade zone or export processing zone is subsequently located in a Special Economic Zone by reason of conversion of such free trade zone or ....
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....n which the amalgamation or the demerger takes place; and (b) the provisions of this section shall, as they would have applied to the amalgamating or the demerged Unit being the company as if the amalgamation or demerger had not taken place. (6) Loss referred to in sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, being the Unit shall be allowed to be carried forward or set off. (7) For the purposes of sub-section (1), the profits derived from the export of articles or things or services (including computer software) shall be the amount which bears to the profits of the business of the undertaking, being the Unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on by the undertaking : Provided that the provisions of this sub-section [as amended by section 6 of the Finance (No. 2) Act, 2009 (33 of 2009)] shall have effect for the assessment year beginning on the 1st day of April, 2006 and subsequent assessment years. (8) The provisions of sub-se....
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....) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. 5.3.2 It has been submitted by Ld.Counsel that, on similar facts and circumstances, deduction under section 10A/AA was denied by authorities below in preceding assessment years, by raising identical objections. He submitted that, most of the objections have been addressed by coordinate bench of this Tribunal in assessee's own case for assessment year 2008-09 reported in IBM India (P) Ltd vs JCIT reported in (2014) 46 Taxmann.com 129. Ld.Counsel, submitted that, eligibility criteria are to be tested in the 1st year of claim. In support, he placed reliance upon decision of Hon'ble Karnataka High Court in case of CIT vs Nippon Electronics (India) (P) Ltd reported in (1990) 51 Taxman 187, and decision of Hon'ble Delhi High Court in case of CIT vs Tata Communications Internet services Ltd., reported in (2012) 17 Taxmann.com 241. 5.3.3 At the outset Ld.Counsel submitted that, authorities below also referred to section 10A of the Act, as the term 'computer software' for purposes of section 10 AA, has been defined in Explanation 2 to Section 10A(8). He submitted tha....
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....ave one or more transaction documents (such as invoice project, project, into company agreement, work item, statement of work, supplement or document of understanding), that determine nature of services rendered by assessee. It was submitted by Ld.Counsel that, these documents are to be referred in conjunction with MSA, to determine scope of work performed by assessee, for its related AE's globally. Ld.Counsel submitted that assessee cannot be denied exemption for the reason that separate scope of work contract was not filed with STPI/SEZ authority. A.3. On the contrary, Ld.Standing Counsel for revenue submitted that, SOW is not registered with SEZ authority, and therefore, contentions of assessee have been rightly rejected by authorities below. He submitted that MSA dated 01/01/2004 available on record does not reveal any specific detail about nature and scope of work. Ld.Standing Counsel emphasised that, none of the DOU's/ICA's were registered with STPI/SEZ authority admittedly. Referring to Circular No.1 dated 17/01/2013 he submitted that issues relating to export of computer software have been clarified by CBDT in this circular, wherein particular attention was drawn to the ....
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....tice prevalent in the software development industry, generally two types of agreement entered into between the Indian software developer and the foreign client. Master Service Agreement (MSA) is an initial general agreement between a foreign client and the Indian software developers setting out the broad and general terms and conditions of business under the umbrella of which specific an individual Statement of Work (SOW) are formed. These SOW, is in fact, enumerate the specific scope and nature of the particular task or project that has to be rendered by a particular unit under the overall ambit of the MSA. Clarification has been sought whether more than one SOW can be executed under the ambit of a particular MSA and whether SOW should be given preceded and over MSA. The matter has been examined. It is clarified that the tax benefit under section 10 AA, 10 AA and 10 B would not be denied merely on the ground that a separate and specific MSA does not exist for each SOW. The SOW would normally prevail over MSA in determining the eligibility for tax benefits unless the assessing officer is able to establish that there has been splitting up or reconstruction of an existing bu....
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....: B.1. Ld.Counsel submitted that, authorities below erred in concluding that, assessee did not transmit or export computer software outside India from its SEZ units. He submitted that, various details were filed before authorities below to prove, manner in which data was transmitted/exported. Ld.Counsel relied on, copies of royalty agreement, export contract and communication with foreign customers, placed in paper book Volume 2 at page 416-696 & 697-834, filed with authorities below, vide submissions dated 7/12/2016. He submitted that, assessee works on various technical platforms to transmit software from its various unit, and that, one such platform is, world wide IP-based wide area network, referred to as "Power 9", provided by AT&T to assessee globally. B.2. He submitted that, strategic network designed by AT&T meets assessee's data communication requirement globally. He submitted that, these network are cost-effective architecture and flexible as per assessee's needs, as it is built on a global Multi-Protocol Switched Shared Backbone, that provides foundation for the logical, any to any IP connectivity, among all IBM sites, that are connected to the Mighty Protocol Swit....
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....on 10 AA of the Act, this alleged deficiency pointed out by Ld.AO is not of any relevance. B.6. Ld.Standing Counsel for revenue, placed reliance on, observations authorities below. B.7. We have perused submissions advanced by both sides in light of records placed before us. It is observed that, coordinate bench of this Tribunal for assessment year 2008-09 (supra) has already taken a view that declaration on STPI forms should be held to be sufficient in this regard. Further, we agree with Ld.Counsel that, for purpose of eligibility of claim under section 10AA of the Act, this objection does not have any relevance. Therefore, respectfully following the same, this objection raised by authorities below is rejected at the thrushold. C. Non submission of accounting invoices to STPI/SEZ authorities, Non approval of units by SEZ authority: C.1. Ld.Counsel submitted that accounting invoices raised on associated enterprises and SOFTEX invoices are submitted to STPI/SEZ authorities. It has been submitted that the work contract received from group entities, are executed through STPI unit's and finished work are exported there from, as evidenced in SOFTEX Forms. Referring to p....
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....tion costing principle for India is agreed and finalised on an annual basis. He submitted that the rate card contains details of hourly, employee band wise charge out rates and this so is from the Project and Accounts Controlled Table for purpose of invoice generation. • Finally, he submitted that, the System Service Costing Ledger Bridge, calculates labour cost, based on input from, labour hours and rate card of employees in India from project and Accounts Controlled Tables. Other cost elements also flow into the System Service Costing Ledger, which are in the nature of employee reimbursements and project specific expenses. The data from System Costing Ledger then feeds into common intercompany accounting system that generates invoices. C.3. Ld.Counsel submitted that, such common intercompany accounting system/accounting invoices, are for specific country and is composite in nature, which means that it may contain multiple Account IDs and billing referred for multiple STPI/SEZ. He submitted that accounting invoices may contain revenue of different STPI/SEZ locations, and revenues for both offshore and on-site services. It is also submitted that, such invoice would ....
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.... ITR 1, it has been emphasised that, it was not open for authorities below to assume any violation under SEZ Act, 2005 so long as the certificates of approval/renewal of a unit is not withdrawn by a process known to law. C.8. We have perused submissions advanced by both sides in light of records placed before us. C.8.1. Upon a query being raised by the bench regarding producing invoices for verification before authorities below, Ld.Counsel on instructions, submitted that, these are huge voluminous documents, which are difficult to compile. However he submitted that, assessee would be in a position to file documents as far as possible to co-relate invoices with SOFTEX forms. C.8.2. Ld.Standing Counsel for revenue placed reliance upon decision of Hon'ble Supreme Court in case of DCIT vs ACE Multi Axis systems Ltd., reported in (2017) 88 Taxmann.com 69. Ld.Standing Counsel by relying on this decision, proposed that, eligibility/satisfaction under the section 10A/10AA has to be established every year by assessee for claiming deduction. On perusal of the decision, it is noted that the ratio laid down by Hon'ble Supreme Court is in the context of section 80 IB, which is a separa....
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....for bank account maintained outside India with regard to export earnings not obtained: D.1. At the outset, Ld.Counsel vehemently urged that, this condition is not a requisite to claim deduction under section 10AA of the Act, and therefore deduction cannot be denied on this basis. Be that as it may, referring to submissions dated 07/09/2015 filed before Ld.AO during assessment proceedings under section 144C (1), Ld.Counsel submitted that, section 10A(3), allow assessee to either; (i) directly receive export proceeds in India, or (ii) bring export proceeds to India after the same is received outside India. D.2. Ld.Counsel submitted that, as per Explanation 2 to Section 10A(3), sale proceeds referred to therein, shall be deemed to have been received to India, where such sale proceeds are credited to a separate account maintained for the purpose, by assessee, with any bank outside India, with approval of RBI. D.3. It has been submitted that, even otherwise, an unapproved bank account maintained by assessee outside India, in which export sale proceeds are deposited, still assessee would be entitled to benefits of section 10A, to the extent that, it is brought into I....
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.... RBI and requested for ratification to maintain the FCA for the period 2002-2011. Aug 2012 and Jan 2013 RBI grants approval to hold and maintain the FGA for one year. Further,RBI condoned the lapse on part of IBM India in not obtaining the renewal of RBI approval to maintain FCA at regular intervals after the last renewal given in November 2001 (copy of letters enclosed as Annexure 12). April 2013 RBI requested additional information following notices issued/ enquiries conducted by the erstwhile Assessing Officer. 8 May 2013 RBI revoked the approval granted vide letters in August 2012 and January 2013 (copy enclosed as Annexure 13). 23/26 August 2013 Deutsche Bank ('DB) received a letter (copy enclosed as Annexure 14) from RBI instructing it to conduct a transactional audit of export transactions undertaken by IBM India by the DB officers or by an external statutory auditor. Pursuant to this, DB appointed Deloitte Haskins and Sells ('DHS') as the independent auditor to perform the transactional audit, the scope of which was us follows: a. Transactional audit highlighting transparently the trail of each and every export transaction pertaining to th....
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....A(3), as, it is alleged by authorities below that, bank account outside India in which sale proceeds were deposited was not approved by RBI. As rightly submitted by Ld.Counsel, this would be material only for claiming benefit of Explanation 2 to Section 10A(3) of the Act. At the outset we also note that this is not a requirement to be fulfilled under section 10AA of the Act. Even otherwise, considering this objection, assessee is anyways not barred from claiming deduction under main provisions of section10A(3) of the Act, whereby, it can satisfy Ld.AO regarding receipt of sale proceeds out of India being brought into India in convertible foreign exchange within the period stipulated in the provisions of the Act. D.9.2. At this juncture, we understand the apprehension of revenue regarding the question as to whether, foreign exchange remittances were in relation to export of computer software outside India. Assessee has placed on record SOFTEX forms at pages 536 of volume 2. Category mentioned in Column 9 in the form indicates that proceeds have been received for software exported under. However, from the reasoning by authorities below, it is noted that it has not verified, as ....
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.... out of India were deposited This would be material only for taking the benefit of Explanation to section 10A(3) of the Act The assessee is not barred from claiming deduction under the main provisions of section 10A(3) of the Act, whereby it can satisfy the AO about the receipt of sale proceeds of computer software exported out of India being brought into India in convertible foreign exchange within the period stipulated in the provisions u/s 10A(3) of the Act. As rightly submitted on behalf of the assesses, deduction u/s. 10/10AA of the Act cannot be totally denied. The fact that the assessee has exported computer software out of India and brought convertible foreign exchange into the country is not disputed. The quantum has lo be arrived at on the deduction which the assessee is entitled to has to be allowed. 3.87 We are therefore of the view that it would be just and appropriate to set aside the order of the DRP and remand the issue to the DRP for fresh consideration and direct the DRP to examine the claim of the assessee on the basis of evidence that the assessee may lead to prove the receipt of sale proceeds of computer software exported out of India being brought int....
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....d that, statements of CA's recorded therein establish that, assessee could not demonstrate the basis of unit wise expenses allocation between SEZ and non-SEZ units. Ld.Standing Counsel for Revenue submitted that, by relying on observations of his predecessor for assessment year 2009-10 reproduced in assessment order, Ld.AO projected his grievance that, assessee could not establish any system of allocation of expenses. He thus submitted that unit wise P&L account cannot be relied for allowing the claim. E.4. We have perused submissions advanced by both sides and observations of authorities below on record. E.4.1. In this connection, we refer to and rely upon findings of coordinate bench of this (Tribunal) in assessee's own case for assessment year 2008-09 (supra) wherein, Hon'ble Bench after analysing various rulings of Hon'ble Supreme Court in case of CWT vs Kripashankar Dayashankar Worah reported in (1971) 81 ITR 763, Philip John Plasket Thomas vs CIT reported in (1963) 49 ITR 97 and Smt. Tarulata Shyam vs CIT reported in (1977) 108 ITR 345, Hon'ble Karnataka High Court in case of CIT vs Fusion Software Engineering Pvt. Ltd., reported in (2012) 18 Taxmann.com 57 observed as ....
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....m for deduction under section 10A of the act, if otherwise the conditions laid down in the said section are fulfilled by an assessee. Besides the above, the CA has given a detailed explanation as to how profitability of various STP units have been arrived at. The AO has also referred to the fact that audited financial statements of statutory auditors was relied upon by Krishnaswamy and Co., While certifying form 53F of the act. We have already explained the various documents filed by assessee before the AO on the method of maintaining books of account. There is neither a discussion not errors pointed out by the AO or the DRP on the claim of the assessee that the documents maintained by it sufficiently enables determination of profits of each of the STPI units" E.4.3. Admittedly, facts and circumstances for year under consideration is identical and similar to assessment year 2008-09. We refer to page 835 of paper book volume 3, wherein, assessee filed unit wise profit and loss account and cost identification/allocation methodology between exports and domestic operation. It is apparent that Hon'ble Bench for asst. year 2008-09 also noted that, view taken by coordinate bench of thi....
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....date operations of IBM India Ltd into IGS w.e.f. 01/04/2002 and therefore an approval of Hon'able Karnataka High Court was obtained for amalgamation vide order dated 25/09/2004. Pursuant to this amalgamation, IBM India Ltd stood dissolved and IGS was left as surviving entity. Subsequently, IGS was renamed as IBM India Private Limited. 10.41. Therefore, there has been no splitting or reconstruction of the business of IGSI (now IBM India) which continues to render software development services." F.3. Ld.Counsel also submitted that DRP during proceedings for assessment year 2010-11, examined this issue and accepted assessee's view that, issue of splitting and reconstruction of business can be examined only in 1st year of commencement of undertaking. F.4. On the contrary, Ld.Standing Counsel for revenue submitted that, as per section 10AA of the Act, an enterprise, referred in clause (j) of Section 2 of SEZ Act 2005, is, who begins to manufacture or produce articles or things or provide any services during previous year relevant to any assessment year commencing on our after 01/04/2006, shall be entitled for deduction of their profit. He submitted that in the present cas....
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....annot claim the incentive. No doubt, certain qualifications are required only in the initial assessment year, e.g. requirements of initial constitution of the undertaking. Clause 2 limits eligibility only to those undertakings as are not formed by splitting up of existing business, transfer to a new business of machinery or plant previously used. Certain other qualifications have to continue to exist for claiming the incentive such as employment of particular number of workers as per sub-clause 4(i) of Clause 2 in an assessment year. For industrial undertakings other than small scale industrial undertakings, not manufacturing or producing an article or things specified in 8th Schedule is a requirement of continuing nature." Hon'ble Supreme Court, categorically observed in above referred paragraph that, condition regarding formation are required to be established in the initial year alone. On the basis of above discussions, that the satisfaction of conditions in section 10AA(4) are required to be satisfied in the year of formation, we hold, this objection raised by Ld.AO does not hold good for the year under consideration. G. Conclusion: Based upon arguments advanced by ....
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.... brought in does not represent sale proceeds of computer software exported out of India. As mentioned in para 3.56 of this order, the assessee should produce before the AO all documents referred to in the letter dated 12.07.2012 of Deutsche Bank to RBI. We give liberty to the assesses to file such documents as may be necessary to establish its claim for deduction u/s. 10A/10AA of the Act Thus, ground Nos. 3 1 to 3.4 raised by the assessee are treated as allowed for statistical purposes" G.1. Assessee is thus directed to file all relevant documents to substantiate the exports proceeds, brought into India, claimed as deduction under section 10AA. Assessee is directed to file all requsite information, as far as possible, mentioned in paragraph D..6.9.4, hereinabove. Ld.AO is directed to verify these documents and allow deduction to assessee relatable to sale proceeds from export of software development services. Accordingly this ground raised by assessee stands allowed for statistical purposes as indicated hereinabove. 6. Ground no.3.1: Brief facts to be considered for this ground are as under: The case was selected for scrutiny and notice under section 143 (2) was issu....
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....evelopment services. It may be mentioned at the outset that, in present appeal, we are only concerned with IT services rendered by assessee to its AE, which was also subject matter of transfer pricing adjustment proposed by Ld.TPO by order dated 14/10/2016. Ld.AO while passing draft assessment order observed that assessee originally claimed deduction under section 10AA amounting to Rs. 303,16,58,824, (page 322 of paper book) in respect of profits earned from following SEZ units: • SEZ-Bangalore - Rs. 120,13,50,087/- • SEZ-Chennai - Rs. 48,55,84,345/- • SEZ-Hydrabad - Rs. 31,23,49,065/- • SEZ-Pune - Rs. 82,85,97,835/- • SEZ-Kolkata - Rs. 12,62,33,445/- • SEZ-Gurgaon - Rs. 5,24,69,048/- • SEZ-Mumbai - Rs. 2,50,74,999/- 6.5. Subsequently, due to increase of export income in the hands of assessee due to APA dated 29/12/2016, claim under section 10AA was revised by sum of Rs. 459,81,15,229 (page 329 of paper book), details of which are as under: • SEZ-Bangalore - Rs. 1,84,27,60,543/- • SEZ-Chennai - Rs. 72,97,71,716/- • SEZ-Hydrabad - Rs. 46,44,58,38....
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....udes year under consideration. It is submitted that assessee in transfer pricing study computed its margin at 10% and OP/OC as PLI for SWD & ITES segment. In consonance with APA, assessee filed its modified return for year under consideration with 16% operating profit margin and raised further invoices amounting to Rs. 774,21,28,914/- that gave rise to incremental profits amounting to Rs. 1,5664,56,405/-. Assessee filed revised return on 2/03/2017. 6.10. It is brought to our notice that, coordinate bench of Pune Tribunal in Dal Al Handasah consultants (Shair & partners) India Pvt Ltd vs DCIT in ITA No.1413/Pun/2019 for assessment year 2010-11 by order dated 02/12/2019, addressed identical issue. He placed rrliance on following paragraphs: "4. The foundation of the action of the authorities below for the denial of deduction is premised on the understanding that the modified return cannot breach the mandate of the APA, which, in turn, restricts its scope only to the determination of the ALP and nothing more than that. 5. In order to appreciate the rival contentions, it would be apposite to have a glance at the relevant provisions in this regard. Section 92CC with....
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....n going through the prescription of sub-sections (3) and (4) of section 92CD, it becomes explicitly clear once an assessee has filed modified returns under subsection (1) of section 92CD, the AO is obliged to make/complete the already completed or pending assessments u/s.92CD itself afresh having regard to or in accordance with the terms of the APA. Not only that, subsection (5) of section 92CD also enshrines period of limitation for making/completing such assessments. It, therefore, follows that the Act contains a separate designated procedure for dealing with the assessments pursuant to the APA, which also contains distinct time limits in this regard. 7. Having taken an overview of the relevant provisions of the APA, which are germane to the issue under consideration, let us proceed to examine the question as to whether the assessee, in the given facts and circumstances and as per law, is entitled to deduction u/s 10A in assessment u/s 92CD of the Act on the additional income offered in the modified return? The precise answer to the question can be found out by answering the following three sub-questions:- i. Whether proviso to 92C(4) debars deduction u/s 10A on....
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....eduction u/s.10A on enhanced income applies only where the computation of income is made under the sub-section (4) of sections 92C/92CA, which talks of making some transfer pricing addition by the AO. If the computation of income is neither u/s.92C nor 92CA, namely, no transfer pricing addition is made by the AO, then it is obvious that the proviso shall have no application and the fortiori is that there will not be any denial of deduction under the sections given in the proviso. 9. We have noted above the scheme of assessment u/s 92CD pursuant to the APA, under which the assessee is mandated to file modified returns in consonance with the APA. Thereafter, the assessment is made by the AO u/s. 92CD(3)/(4) in accordance with the APA. As the incremental income is offered by the assessee itself in the modified return in accordance with the APA, it cannot be equated with the computation of income u/ss. 92C/92CA of the Act, as the later provisions talks of making some transfer pricing addition by the AO. The suo motu offering of additional income by the assessee pursuant to the APA is of the same nature as the assessee itself offering some transfer pricing adjustment in the ori....
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....PA, all other provisions of this Act shall apply accordingly. In other words, if an assessee is otherwise eligible for deduction under any other appropriate provision in respect of the income offered in the modified return, there cannot be any embargo on granting deduction under such relevant provision. The saving clause contained in sub-section (2), making all other provisions of the Act applicable in the assessment of the modified return, ostensibly includes the applicability of section 10A as well, of course, subject to the fulfillment of others conditions as set out in the section. It, therefore, follows that if an assessee is otherwise entitled to deduction u/s.10A, or for that matter under any other provision of the Act, in respect of the income offered in the modified return, the same cannot be denied. As such, the view of the authorities below that in the absence of any specific provision in section 92CD for granting of deduction u/s.10A, no deduction can be allowed, is sans merit. Such stipulation is contained in subsection (2) of 92CD itself. It is, ergo, held that the assessment u/s 92CD provides for granting deduction u/s 10A of the Act. iii. Whether t....
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....n of sub-sections (1) and (2) of section 92CD is that if the APA contains a clause departing from the normal provisions, it is such clause which shall prevail upon the normal provision. 16. We have gone through the APA entered between the assessee and the CBDT. Clause 7 of the APA discusses the "Critical assumptions". It provides that: `the critical assumptions (as referred to in the Rules) shall, for the purposes of this Agreement, be as specified in Appendix II.' Clause 5 of the Appendix II deals with 'Invoicing and Credit terms'. The material part of such a clause, which is relevant for the year under consideration, states that: `... the Applicant shall show the difference between the invoiced amount for the previous year/rollback years and the ALP as agreed, as tax adjustment in the modified tax returns for Assessment year 2010-11 to Assessment year 2014-15 and will also raise an invoice (and realise it) for the equivalent amount in the month following the month in which the Agreement is signed'. On going through the relevant parts of clause 5 of the Appendix II, it clearly emerges that the CBDT provided for raising the invoice for the additional amount and also 'reali....
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....isfied the condition of deduction u/s 10A(3) read with section 92CD(2) of the Act. 18. To sum up, we hold that the proviso to section 92C(4) does not debar deduction u/s 10A on additional income in assessment u/s 92CD; assessment u/s 92CD provides for granting deduction u/s 10A; and the assessee has satisfied the requirement of section 10A(3) read with section 92CD(2), thereby entitling it to deduction u/s.10A on the additional amount of Rs. 20,36,023/-. The impugned order is overturned and deduction is granted." 6.11. As observed in detail by coordinate bench of Pune Tribunal, following ratio laid down therein, we hold that assessee is eligible to claim deduction under section 10AA, on incremental income arisen pursuant to APA dated 29/12/2016. We direct DRP to grant deduction under section 10AA of the Act, to the extent of sale proceeds received from export of software services, brought into India in convertible foreign exchange within stipulated period. Accordingly, this issue is set aside to DRP for verification verify and to allow claim of assessee as directed hereinabove, r.w., our observations in para D.9.4 hereinabove. At the outset, both sides submitted t....
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....urns, which is filed in respect of quarters in which tax was deducted. 7.4. Assessee submitted that, reversal in subsequent year had no bearing on income of that year(2014-15), as reversal of provision appears on credit side of profit and loss account to take care of expenses related to that year, being charged to profit and loss account. 7.5. Ld.AO relying on observation recorded by assessing officer in draft assessment year 2009-10, was of the opinion that, assessee reversed provision created on 1st April of next year, and that, expenditure disallowed does not pertain to year under consideration, and therefore, does not qualify to be claimed as deduction under Section 37 of the Act. And once expenditure goes out of ambit of Section 37 of the Act, provisions of Section 40(a)(ia) of the Act, would not apply. Ld.AO, thus rejected assessee's contention of reversal of provision, and disallowed sum of Rs. 345,65,64,364/-. 7.6. Aggrieved by proposed addition in draft assessment order, assessee raised objection before DRP. 7.6.1. DRP after considering submissions advanced by assessee and observations by Ld.AO, was of opinion that, Ld.AO did not examine in detail, so as to mak....
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...., based on invoices received by assessee during the year under consideration, TDS was deducted in respect of such payments. It was submitted that, assessee claimed it as expenditure for year under consideration, to the extent payment was made and TDS been deducted and deposited in relevant quarters. 7.8.2. Ld.AO noted that similar disallowance u/s.40(a) in AY:2012- 13. Ld.AO observed that, assessee had filed objections with DRP against draft assessment order for assessment year 2012-13 and DRP was yet to give direction in respect of the same. Similarly, Ld.AO was of the view that, as the amount was disallowed under section 37 for assessment year 2012-13, assessee was not eligible to claim the same as deduction under section 40(a) of the Act, for year under consideration. Ld.AO thus disallowed the claim of Rs. 429,89,38,034, made under section 40(a) of the Act. 7.9. Aggrieved by proposed addition in draft assessment order, assessee raised objection before DRP. 7.9.1. DRP directed Ld.AO to examine, whether TDS was effected on these payments, and if so, assessee was to be allowed relief in respect of the amount. 7.10. Before us, Ld.Counsel submitted that assessee filed vol....
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.... the professional and consultancy charges ledger providing details of TDS compliance and supporting documents for amounts on which taxes have not been deducted at source Copies of invoices substantiating that the expenses in 23 December 2016 (Exhibit 5) 4. Extract of ledgers with summary of TDS compliance (along with sample invoices on which taxes have not been deducted) accompanied with details of tax deducted and deposited at source: • Recruitment 23 December 2016 5. Details of mapping to subsequent receipt of invoices and tax deducted and deposited (where applicable) on the amounts disallowed in AY 2013-14 along with sample copies of invoices to substantiate that the expenses incurred are genuine in nature. 26 December 2016 7.11.3. In respect of issue raised in Ground 6, we note that assessee filed following details before authorities below: SI. No Supporting Evidence / Details submitted Date of Filing 6. Reliance was place on the following submissions in support of the claim in the current year's return of income • Details of mapping of tax deducted and deposited (where applicable) on the amounts disallowed....
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.... followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination of an employee's service either due to retirement, death or termination of service - the exact time of occurrence of the latter two events being not determinable with exactitude before hand. Therein, Hon'ble Court laid down following principles: (i) For an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid; (ii) Just as receipts, though not actual receipts but accrued due are brought in for the income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfilment of which may result in the r....
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.... not make any difference if the future date on which the liability shall have to be discharged is not certain." 7.12.3. From the above views expressed by Hon'ble Supreme Court, it is clear that, a business liability should be allowed as expenditure, although it may have to be quantified and discharged at a future date. It is also a settled principle that in mercantile system of accounting, as income accrued to assessee is brought to tax, expenditure/liability accrued also has to be considered. 7.13. Assessee follows mercantile system of accounting, and, it is to account for liabilities on accrual basis. It is submitted that since assessee does not know actual liability, it estimates liability accrued, on a scientific basis, depending on instruction received form respective administrative HR head for purpose of creating provisions. 7.13.1. It has been submitted that, at the time of making year-end provisions, the same was being suo moto disallowed by assessee in the computation and suffered tax, in the preceeding year (year in which the disallowance was made). It was under these circumstances, Ld.AO converted disallowance from section 40(a) to section 37 (1) thereby doubtin....
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.... in paragraph 6.1, set-aside the issue for fresh consideration to DRP, by observing that, DRP does not have power to set aside any proposed variation or issue with a direction under section 144C(5) of the Act, for further enquiry and passing of assessment order. 7.14.4. In the present facts for year under consideration, we note that, DRP while considering disallowance under section 40 (a) of the Act (issue raised in ground 4& 6), directed Ld.AO to verify the claim of assessee. 7.14.5. We direct assessee to provide for the following: I. assessee shall provide opening balance of provision accounts, and entries made relating to transactions during the year and closing balances. II. Assessee is directed to submit year wise details of rental charges professional charges contract amount and other payments that has been considered for year-end provisions, disallowed under section 40 (a) of the Act, during AY:2012-13. III. Assessee is directed to provide for details of payment made in year under consideration and the details of tax deducted at source on such payment along with proof of deposit of such TDS into government account IV. Reconciliation ....
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.....1. Ld.AO observed that, assessee made payments to associated enterprises and non associated enterprises during the year under consideration. It was submitted that, these payments included, purchase of finished goods, purchase of capital goods payments for availing services etc. Assessee was called upon vide notice dated 21/11/2016 by Ld.AO to furnish details of TDS compliances with respect to various payments to AE& non AE. 8.2. Assessee, vide letter dated 07/12/2016 filed various submissions. Ld.AO upon verification, observed that, assessee did not deduct TDS:- • on payments made to non-resident 3rd parties being insurance payments amounting to Rs. 155,05,88,065; • on payment of Rs. 5,208,766,921 made to other AE's and non- AE's, on the basis of certificate issued by chartered accountants; and • on payment of Rs. 4,604,970,453 to IBM Singapore Pte.Ltd., a foreign company, for purchase of software, which was in the nature of distributed software. Ld.AO noted that software purchased from IBM Singapore Pte., was under distribution software agreement namely, 'Software Remarket Agreement', between assessee and IBM Singapore, on which no TDS wa....
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....d payment made to IBM Singapore under Software Free-market Agreement, constituted royalty, both under section 9(1)(vi) of the Act, and under DTAA between India and Singapore. Ld.Counsel submitted that, identical issue arose for assessment year 2008-09 in assessee's own case (supra), and Hon'ble Bench in para 6.12, remanded the issue to DRP, for fresh consideration and decision, after affording due and proper opportunity to assessee. Ld.Counsel also submitted that Ld.AO relying on order passed under section 201(1) and (1A) disallowed the amount paid by assessee to IBM Singapore. 8.6. On the contrary, Ld.Standing Counsel for revenue submitted that, this issue requires detailed verification in regards to nature of payments made by assessee in order to ascertain applicability of TDS provisions. He has requested this issue to be set-aside the entity to Ld.AO. 8.7. We have perused submissions advanced by both sides in light of records placed before us. 8.7.1. Admittedly, assessee made certain payments to foreign entities, amongst which certain payments were subjected to TDS provisions and certain payments were not subjected to TDS. Details of which, as submitted by assessee in p....
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....er the claim of assessee in light of evidences filed, after affording opportunity of being heard in accordance with law. Assessee is directed to file invoices raised in support of payments made by assessee to relevant parties. Assessee is at liberty to file all relevant details/evidences to substantiate its claim. DRP is then directed to verify nature of payment in the light of invoices filed by assessee. DRP is also directed to analyse payment made to nonresidents on which tax has not been deducted at source in light of Explanation 2 to section 195. DRP shall grant proper opportunity of being heard to assessee. Accordingly this ground raised by assessee stands allowed for statistical purposes. 9. Ground No.7 is in respect of disallowance of depreciation on leased assets. 9.1. Ld.AO observed that, assessee claimed depreciation on assets given on financial lease to the tune of Rs. 327,02,87,758/-. In view of the claim, assessee was called upon to furnish details. Assessee vide letter dated 28/11/2016, furnished written submission. Assessee submitted that, it is engaged in the business of lease of hardware products and same was treated as financial lease for accounting purpo....
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....60,33,070/- in the hands of assessee. 9.5. Aggrieved by proposed addition in draft assessment order, assessee raised objection before DRP. 9.5.1. DRP, followed its own decision for assessment year 2011-12 and 2012-13, wherein, alternative claim of assessee was directed to be considered by Ld.AO, in the event assessee furnishes details of lease rentals on the assets reflected in depreciation schedule. 9.6. Before us, both sides submitted as under: Ld.Counsel submitted that, Ld.AO disallowed depreciation on leased assets being (net of lease rental and interest) amounting to Rs. 24,60,33,070/-, by holding that assessee is not the legal owner of assets leased to customers. 9.6.1. Ld.Counsel submitted that, assessee is also engaged in business of lease of hardware products. The assets leased to lessee's, are treated as financial lease for accounting purposes. It has been submitted that, assessee is the legal owner of such assets leased to customers, and has accounted for leased assets in accordance with AS-19, prescribed by Institute of chartered accountants of India which is as follows: • assets are not capitalised and they are reflected as debtor receivable....
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....assessee for year under consideration is similar to assessment year 2009-10. He submitted that, Ld.AO, vide notice dated 26/07/2012 called for details and description of assets that was leased out, invoices raised, value of assets leased out, which were not submitted. He submitted that, under such circumstances the claim has been rightly denied by Ld.AO. 9.8. We have perused submissions advanced by both sides in light of records placed before us. 9.8.1. Ld.Counsel submitted that, Ld.AO erred in mentioning that nothing was filed before him, during final stage of assessment order. Ld.Counsel took us through documents placed at page 353 volume 2 of paper book being details of leased assets. We note that Ld.AO did not verify details filed by assessee. We note that this being a recurring issue a consistent approach has to be taken in this regard. Admittedly assessee has capitalised these assets. On one hand, Ld.AO accepts lease rentals received by assessee to be business income, and on the other hand disallowed depreciation. In our view, assessee is eligible for depreciation on leased assets, however the same has to be computed in accordance with law having regard to schedule of a....
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.... be interpreted as expanding the scope of the word 'computers', to bring within its ambit computer software. 11.1.2. On verification of the same, Ld.AO observed that software purchased by assessee was 'licence to use software'. Ld.AO, accordingly restricted depreciation at 25% by placing reliance on DRP restricted depreciation claimed to a lower rate of 25% by concluding that only software purchased along with the computer is eligible for depreciation at the rate of 60%. 11.2. Before us both sides submitted as under: 11.2.1. Ld.Counsel submitted that, authorities below have erred in restricting depreciation to lower rate of 25%, as against claim of assessee at 60% on computer software under, section 32 of the Act, thereby resulting in net disallowance of Rs. 24,44,33,932/-. 11.2.2. Ld.Counsel submitted that, as per Appendix 1 to Income Tax Rules for year under consideration, 60% depreciation is allowable on computer, including computer software. He submitted that, computer software has been defined to mean any computer program recorded on any disk, tape, related media or other information storage devices. It has been submitted that said definition does not make a distin....
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....n respect of know-how, patents, copy rights, trademarks, licenses, franchises or any other business or commercial right of similar nature, being intangible assets, acquired on or after 1.4.1998. In the case of Amway India Enterprises Vs. DCIT (2008) 111 ITD 112 (SB) (Delhi), it was held that 'computer software' is eligible for depreciation @ 60% This decision of the ITAT, Delhi (SB) in the case of Amway India Enterprises (supra) has been upheld by the Hon'ble High Court of Delhi. In DCIT Vs. Datacraft India Ltd. (2010) 133 TTJ 377 (Mum) (SB) wherein it was held that when a device is used as part of the computer in its functions, like routers, switches, etc., they are eligible for depreciation @ 60%. In the light of the discussion above, we hold that if the software expenses are treated as capital expenditure by the Assessing Officer, then depreciation is to be allowed thereon at 60%. Needless to add, the assessee be afforded opportunity of being heard. Consequently, Ground No.3.2 of the assessee's appeal is allowed for statistical purposes." 11.4.2. Based on above discussions and respectfully following decision of coordinate bench in case of Infosys Ltd. vs ACIT(supra), ....
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....nce tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax Explanation 1.-In this section, "assessed tax" means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of,- (i) any tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total ....
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....s the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment aforesaid. (4) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and- (i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly; (ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded. (5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years. 13.4. Assessee does not dispute....