TaxTMI 
TaxTMI 
2024 (5) TMI 215
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....thin the ambit of "export turnover" as defined in Explanation 2 (iv) to section 10A of the Income Tax Act: (a) Freight & Telecommunication expenses Rs 6,20,38,757/- (b) Recovery of expenses in respect of migration/ on-the-job-training services Rs 42,61,89,516/- 2. That on facts and in law the CIT(A) erred in upholding that while computing deduction u/s 10AA of the Act following receipts are to be excluded within the ambit of "export turnover" as defined in Explanation 1 (i) to section 10AA of the Income Tax Act: (a) Freight & Telecommunication expenses Rs 3,24,95,309/- (b) Recovery of expenses in respect of migration/ on-the-job-training services Rs 60,25,09,242/- 3. That on facts and in law the CIT(A) erred in not appreciating that recovery of expenses in respect of migration/on-the-job-training services and freight and telecommunication expenses were not included in the figure of "export turnover" considered by the appellant while computing deduction u/s 10A and 10AA of the Act. 4. That on facts and in law the CIT(A) erred in upholding that recoveries from group companies to the extent of Rs. 3,84,746/- (i.e 5% of Rs. 76 ,94,926/....
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.... facts and circumstances of the case & in law, the Ld. CIT(A) erred in allowing the 95% of cost recoveries of Rs. 76,94,926/- to be set off against the expenses & 5% of Rs. 76,94,926/- taken as a non-10A profit. 8. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the provision for customer discount of Rs. 28,04,22,899/- ignoring the facts that the expenses were not crystallized during the year under consideration. 9. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 39,89,616/- made by the AO on account of excess depreciation on computer peripherals. 10. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing." 2.2. Assessee has also raised additional ground before us on 24.02.2020 stating that assessee declared and paid dividend of Rs. 5,68,34,000/- to its parent share-holders Genpact India Investments. The assessee paid dividend distribution tax (DDT) of Rs. 94,39,416/- @ 16.6087% u/s 115-O of the Income-tax Act, 1961 (hereinafter referred to as the "Act"). Genpact India Investments w....
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.... 5 & 6 of Revenue's appeal] 5.1 We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of providing Information Technology Enabled Services such as data entry, data processing services, data conversion, business support and billing services to its customers. During the year under consideration, the assessee company had claimed deduction u/s 10A/10AA of the Act amounting to Rs. 378,22,79,469/-. During the year under consideration, the assessee incurred telecommunication expenses in foreign currency amounting to Rs. 23,19,55,704/-. Out of this, the amount pertaining to undertakings eligible for claiming deduction under Section 10A and 10AA of the Act was Rs. 6,20,38,757/- and Rs. 3,24,95,309/- respectively. The above amount included expenses paid to various service providers for landline, mobile connectivity, dial com connectivity, payments made for mail server and various other charges. During the year under consideration, assessee has been reimbursed a sum of Rs 42,61,89,516/- and Rs 60,25,09,242/- on account of migration / on-the-job-training activities relating to undertakings claiming deduction under Section ....
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....ght to be excluded from export turnover need to be excluded from total turnover also in order to bring parity. Respectfully following the said decision, ground nos. 1 to 3 raised by the assessee are allowed and ground nos. 5 and 6 raised by the Revenue are dismissed. 6. Next issue to be decided is 95% of cost recovered of shared costs to be set off against the expenses of 5% of recovery to be taken as non-eligible profit.[Ground no. 4 of assessee's appeal & ground no. 7 in Revenue's appeal] 6.1 We have heard rival submissions and perused the material available on record. During the year under consideration, the assessee recovered a sum of Rs. 76,94,926/- towards reimbursement of expenses borne by the assessee for its sister concerns. The ld. AO held that amount of Rs. 76,94,926/- is income of the assessee not eligible for deduction under section 10A of the Act. In this regard, it is submitted that the above amount represents pure cost recovery which only reduces the relevant costs incurred by the assessee and there is no income element involved therein, or any income earning activity carried on by the assessee in this respect. The recoveries are inter-alia made towards travel....
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....diture incurred for the same. The A.O states that whether or not the recoveries are pure reimbursement is not borne out by any documentary evidence. That the assessee has not produced any agreement to show that the exact amounts of expenditure are recovered by way of reimbursement. That the basis of recovery has not been explained except stating that it is a recovery from a related concern. That the details of the places and expenses for which recovery had been made has not been submitted. In short the claim that the receipts were only full recoveries, is unproved The A.O states that the major part of the recovery is on account of rent. which is netted off from the individual account of expenditure. Since it has received the approval of STPI for all its units and offices, and in the absence of details and agreements, the assessee's contention that it had given space on rent to related parties on full recovery basis is said to be unacceptable and unverifiable The AO states that there is no provision under the Act to net off ecerpts against expenses That receipts of the assessee are to be treated as s income and the outgoings are to be treated as expenditure. Th....
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....e in full corresponding to the receipt of income would neutralize the said receipt leaving no surplus to be taxed under any head of income 3.3(a) I nave considered tre submissions of the appellant, the findings, of the A.O and the facts on record As regards the narration of factual details on the matter of recovery at para 5 to 5 5 of the assessment order, there were contradictions in the narration itself, in so far as at para 5.1, the AO. notes that from out of a gross recovery of Rs 27,31,23,488/-, an amount of Rs 3,43,86 505/- was on account of rent (or in other words 12.5%), whereas at para 5.3 it has been stated that the major part of recovery is on account of rent In fact a broad detail of cost sharing with sister concerns including the auditor's certificate with regard to reimbursement of expenses to the appellant had been provided to the AO in course of the assessment proceedings vide letter dated 15.3.2005 Since the details of other recoveries (other than rent) amounting to Rs. 23,87,36,983/- have not been examined in course of assessment proceedings, that recourse to presumption was taken in order to hold that receipt of rent was the only substantial entry of....
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....672 2927618 14 Salaries bonus & other allowances - - - 7186826 - 3930079 13307588 3305311 27729804 15 Interest & depreciation Recovery - - - - 500209 1414388 - - 1914597 16 Other expenses - - - 998552 - - - - 998552 Total 54868 47031 133795 12271925 7556940 18660327 229788552 3909405 27242284 It has also provided letters confirming an understanding between the appellant and I process Pvt. Ltd. for sharing certain common facilities and costs thereof. Vide letter dated 31.8 2007, the appellant required I process Pvt. Ltd. to confirm the reimbursement of expenses for F.Y. 01-02, in respect of expenses such as rent, traveling, conveyance, communication expenses and the facilities cost etc amounting to Rs 22.97 crores (approx). I process Pvt Ltd vide letter dated 31 8 2007 has confirmed to the appellant that in terms of understanding between the appellant and I process Pvt. Ltd. for sharing certain common facilities, I Process Pvt. Ltd has reimbursed to the appellant on actual basis certain expenses incurred by the appellant on behalf of ....
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....sioner of Income tax alludes to the conditions in Rule 46-A Accordingly it has been stated that in the absence of any cogent reason to explain as to what prevented the assessee from submitting the evidences in course of assessment proceedings such evidences should not be accepted since violative of Rule 46-A 3.3(d) The evidences forwarded to the AO for his report thereon (including letters of understanding between the appellant and S.B.I.CPSF GECBPMSL, GEMFS and GECSI with regard to sharing of cost and common facilities, copies of audited accounts for AY 02-03 in the case of SBICPSF GE Capital Business Process Management Services Pvt. Ltd. GE. Capital Services India, copies of scrutiny assessment orders for A.Y. 02- 03 in cases of G E. Capital Services India, SBI Card Payment Service Pvt. Ltd, and I Process Pvt. Ltd) was pursuant to an enquiry conducted u/s 250(4) of the Act. According to the provision contained in Sec. 250(4), the C.L.T.(A) aw appeal n her enquiry as he thinks fit or may direct the A.O to make further enquiry and to report the result of the same Rule 46- A(4) contranly clarifies that nothing contained in Rule 46-A shall affect the CIT(A)'s power to di....
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....as the gross expense debited under that head is Rs 5 19 crores(or in other words 23% of the gross expenses) g) In respect of management meeting expenses, reimbursement is of Rs 2 04 lacs, whereas the gross expense debited under that head is Rs 4.78 crores (or in other words 04% of the gross expenses) h) In respect of legal and professional charges, reimbursement is of Rs 57,599/- whereas the gross expense debited under that head is Rs 21 54 crores or in other words 0.02% of the gross expense) i) In respect of lease rental and fire chargers reimbursement is of Rs 15:774/- whereas the gross expense debited under that head is Rs 4 10 crores, or in other words 35% of the gross expenses) j) In respect of communication expenses, reimbursement is of Rsatorore whereas the gross expense debited under that head is Rs 103.64 crores( or in other words 6.1% of the gross expenses) k) In respect of postage and courier charges, reimbursement is of Rs 89 791/- whereas the gross expense debited under that head is Rs. 58.55 lacs (or in other words 1 3% of the gross expense) l) In respect of recruitment and training expenses, reimbursement is of Rs....
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....unt of reimbursement of Rs 22,97 88 552/- by I Process Pvt. Ltd. to the appellant As per P & L a/c of! Process Pvt Ltd for A.Y. 02-03, net profit as per account is Rs 33,54,47,306/- This company is engaged in the business of providing IT. enabled services to the G. E. group Companies. I. Process Pvt. Ltd. is otherwise entitled to deduction u/s 10B of the Act. A scrutiny assessment u/s 143(3) in this case as per order dated 28.02.05 by DCIT Cir.- 11(1) reveals that this company was allowed deduction u/s 10B of an amount of Rs. 34,54,08,057/- on the basis of its export turnover of Rs. 80,74,78,473/- against a total turnover of Rs 94,81,10,040/- In the scrutiny assessment order in the case of I Process Pvt. Ltd for A.Y. 02-03, neither the provisions of section 40A(2) or section 37 have been invoked in order to disallow any part of the expenditure either directly paid or reimbursed to the appellant. Meaning thereby that the amounts reimbursed to the appellant have not been found excessive or unreasonable in the context of the business needs of the I. Process Pvt Ltd. and the fair market value of the goods and services and (acility towards which reimbursement has been made by I....
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....on u/s 10A etc. and the other not so entitled The case of the appellant and I. Process Pvt Ltd is different in so far as both the concerns are entitled to deduction u/s 10A/108 In that view, what has been arranged by way of cost sharing arrangement between 1. Process Pvt Ltd and the appellant both eligible concerns entitled to deduction u/s 10A 10B does not have an element of tax avoidance in such arrangement Considering the evidences on record including the results of the enquiry conducted u/s 250(4) of the Act the audited accounts of the appellant and I Process Pvt. Ltd including the audit note on reimbursement of expenses in both cases, relevant for AY 02-03, the finding of the AO in the case of I. Process Pvt. Ltd. for AY 02-03, I hold that there is no factual basis for treating the entire recoveries made by the appellant from I. Process Pvt. Ltd. as income not eligible to deduction u/s 10A of the Act. The AO in the case of I. Process Pvt Ltd has not found the payments to the appellant by I.Process Pvt. Ltd. for services rendered by the appellant as excessive or unreasonable vis-à-vis the fair market value of the goods and services and facilities provided by the....
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....yments to the appellant under repair and maintenance, salaries and other allowances, staff welfare expenses, traveling and conveyance etc. comprising a total amount of Rs. 1,22,71,925/- as excessive or unreasonable with regard to the fair market value of the services rendered or the business needs of the concerned assessee. In line with the decision to consider 5% of the reimbursement as profits of the appellant in the case of I Process Pvt. Ltd. I hold that profits of the appellant at 5% of the reimbursement from SBIC.PSL and GECSI amounting to Rs. 9,91,443/- is not entitled to any deduction u/s 10-A of the Act 3.3(i) In so far as reimbursement of expenses and user fees for facilities etc received by the appellant from other sister concerns namely GECTFS (Rs 54868/- ) GEIOC (Rs 47 031/-), GEII (Rs. 133795/-), GECBMPSL (Rs 18660327/-) & Countryande (Rs 3909405/-), no authoritative evidence or tending of any statutory authority has been submitted in the course of appellate proceedings and also in terms of the enquiry u/s 250(4) to supstantiate the claim that the payment received from the sister concerns are pure recoveries without an element of income embedded therein. In a....
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....ormerly known as 'GE Capital International Services) AY 2011-12 assessee has sought to claim higher deduction u/s 10a for an income which was not derived by the undertaking in the STP area. These receipts are liable to be taxed as non-10A income and only those expenditure which are wholly and exclusively incurred for earning this income are to be excluded. Perusal of P&L A/c does not show any such expense. Therefore, these receipts of Rs. 7,694,926/- are excluded from 10A business profits and taxed as other income. Since, I am satisfied that the assessee has furnished inaccurate particulars of its income, penalty proceedings under section 271(1)(c) are being initiated separately." ) 6.4 The ld. CIT(A) by following the orders passed by his predecessors pointed out that 5% of cost recovery to be not eligible for deduction u/s 10A of the Act and remaining 95% to be eligible for deduction u/s 10A of the Act. Aggrieved by this, both the assessee as well as the Revenue, are in appeal before us. 6.5 The ld. CIT(DR) before us vehemently submitted that order of the ld. CIT(A) in A.Y. 2002-03 is perverse inasmuch as ld. CIT(A) had not given adequate opportunity to the ld. AO. Ld. C....
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.... which is the year under consideration before us. If that be the case, then entire order of ld. CIT(A) for A.Y. 2011-12 also would become perverse, according to the ld. CIT(DR), which situation cannot be entertained by this Tribunal. It would also be relevant to note that both assessee as well as the revenue are in appeal before us against the very same order of the ld. CIT(A). In fact on perusal of the details of ld. CIT(A) for A.Y. 2002-03, reproduced supra, we find that wherever details were filed by the assessee, the ld. CIT(A) had resorted to estimate 5% of the cost recovery as not attributable to Section 10A unit and consequently denied deduction u/s 10A thereon. Wherever details were not filed, no relief has been granted by the ld. CIT(A) for A.Y. 2002-03. While this is so, how the order of ld. CIT(A) could be termed as perverse for A.Y. 2002-03. In this regard, it would be relevant to ascertain, whether details of cost recoveries in the sum of Rs. 76,94,926/- were filed by the assessee before the ld. AO or not for the year under consideration. The ld. AR rightly drew our attention to the letter dated 23.03.2015 which are enclosed in pages 161-164 of the factual paper book. ....
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....mployees Rs. 5,27,926/- Rs. 2,36,282/- Interest on Fixed Deposit Rs. 7,88,79,143/- Rs. 45,71,778/- Interest on inter corporate loans Rs. 1,65,52,116/- Rs. 85,65,919/- 7.2. The ld. AO held that the above items of income are not eligible for claiming benefit of deduction u/s 10A & 10AA of the Act as the same are not derived or attributable to the export activity of the assessee company. According to ld. AO, these incomes have only incidental nexus with the export activity of the assessee and they do not have first degree nexus with the export activity which is eligible for deduction u/s 10A & 10AA of the Act. 7.3 The ld. CIT(A) granted relief to the assessee by placing reliance on the decision of the Hon'ble Karnataka High Court in the case of Motorola India Electronics Pvt. Ltd. reported in 225 Taxman 11 (Kar) and the provisions of Section 10A(4)/ 10B(4) of the Act. 7.4 The ld. CIT(DR) before us vehemently argued that there is no business compulsion for the assessee to deploy funds in the deposits as well as by giving loans to employees and earn interest income thereon. He argued that the entities to whom funds are advanced by the assessee are having....
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....Gain (net) Rs 45,24,43,455/- Out of the above, the exchange gain (net) relating to the undertaking claiming deduction u/s 10A and 10AA is as under:- Particulars Undertaking eligible for deduction u/s 10A Undertaking eligible for deduction u/s 10AA Foreign Exchange and Forward Contract Gain Rs 14,48,82,149/- Rs 7,47,10,681/- AS-11 restatement Rs (99,61,476)/- Rs (51,36,786)/- Exchange Gain (net) Rs 13,49,20,673/- Rs 6,95,73,895/- 8.2 Ld. AO had held that foreign exchange and forward contract gain of Rs. 14.48 crores and Rs. 7.44 crores were derived by the assessee due to hedging activity and the same is not derived by the specified business activity of the undertaking in the Software Technology Park (STP) or Special Economic Zone (SEZ). With these observations, the ld. AO denied deduction u/s 10A & 10AA of the Act to the assessee on the said foreign exchange and forward contract gain. 8.3 The ld. CIT(A) granted relief to the assessee by placing reliance on various decisions and giving a categorical finding that foreign exchange gain is directly relatable to the export of services and sale proceeds thereof and consequently would be elig....
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....ed from the customer, directly or through bank under a forward contract, the exchange rate may be different. Thus the impact of the difference of the two rates is recorded in the books separately as an exchange gain/ (loss). Hence the nature of receipt has been completely explained by the assessee. The ld. AR submitted that forward contract outstanding at the end of the year exceeding export receivables at the end of the year is of no consequence or relevance as to that extent, the sales would happen in next year. We find that the Hon'ble Madras High Court in the case of Commissioner of Income Tax v. Pentasoft Technologies Ltd. reported in 347 ITR 578 (Mad) had categorically held that gains arising out of foreign exchange fluctuations are having direct nexus over the export sales of the assessee and would be eligible for deduction u/s 10A of the Act. 8.7. Similar view was taken by the Hon'ble Bombay High Court in the case of Commissioner of Income Tax v. Gem Plus Jewellery India Ltd. Reported in 330 ITR 175 (Bom). 8.8. In view of the aforesaid observations and respectfully following the judicial precedence relied upon hereinabove, ground no. 4 raised by the Revenue is dismiss....
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....ich are related parties to the assessee and thereby assessee is deliberately shifting its profits to its group companies. The ld. CIT(DR) also argued that the discounts have been provided by the assessee in ad hoc manner and that the basis of determination of discount has not been provided by the assessee. Ld. CIT(DR) argued that the entire provision made herein is nothing but provision made for unascertained liabilities and hence the ratio laid down by the Hon'ble Supreme Court in the aforesaid cases, relied upon by the ld. CIT(A) in his order, would not be applicable herein. 9.5 We find that the ld. AO in page 2 para 3 of the assessment order has stated that the ld. TPO had accepted the entire export price of the assessee to be at Arm's Length Price (ALP) and had not suggested any adjustments thereon. Hence, the entire revenue shown by the assessee (which comprises gross revenue minus discount of Rs. 28,04,22,899/-) has been accepted to at arm's length. Further, the ld. CIT(A) in A.Y. 2007-08 vide his order dated 16.04.2014 has categorically held that a provision for customer discount has been made by the assessee on a scientific basis and as per the prevailing industry practi....