TaxTMI 
TaxTMI 
2025 (5) TMI 2294
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.... the Act. 2. Based on the facts and circumstances of the case and in law, the learned CIT(A), erred in holding that the loss of Rs. 2,91,67,677 incurred on write off of investments in a subsidiary company is not in the nature of business loss. 3. Based on the facts and circumstances of the case and in law, the learned CIT(A), erred in not granting deduction for expenditure amounting to Rs.12,71,973 incurred prior to commencement of commercial operations of the new Pune unit located in a Special Economic Zone. 4. Based on the facts and circumstances of the case and in law, the learned CIT(A), erred in not granting deduction for expenditure amounting to Rs. 63,56,129 incurred prior to commencement of commercial operations of the new Hyderabad unit located in a Special Economic Zone. 5. Based on the facts and circumstances of the case and in law, the learned CIT(A) erred in denying deduction for interest income amounting to Rs. 9,66,760 offered to tax in AY 2009-10 but subsequently withdrawn in AY 2011-12 while computing income of the appellant as per the normal provisions of the Act and the Book profits of the appellant. 6. Based on the fa....
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..../- u/s. 115JB of the Act. The return was processed u/s.143(1) of the Act. Subsequently, the assessee revised its return on 25/03/2013 declaring income of Rs. 16,21,39,226/- under the normal provisions of the Act and revised the book profit at Rs. 94,14,21,847 u/s. 115JB of the Act. 3.1 The Ld.AO observed that, in the revised return assessee reduced the claim u/s. 10A due to nonreceipt of export receipts within 12 months. Thus there was increase in the disallowance of Rs. 91,701/-, while computing the book profit u/s. 115JB of the Act. 3.2 The case was selected for scrutiny and notice u/s. 143(2) was issued along with notice u/s.142(1) of the act. In response to statutory notices representative of the assessee appeared before the Ld.AO and filed requisite details as called for. The Ld.AO noted that, assessee declared income u/s.10A from various units the details of which are as under : Profit/ (Loss) before Tax (Rs. In lacs) Kharadi STPI 10A 6,572.18 IT Tower STPI 10A 676.54 Hyderabad STPI 10A 886.19 EON SEZ 10AA (45.52) SEZ Units (expenses prior to commencement of SEZ business) (76.28) Others 424.87 Middle East 195.....
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....,532 4.3. On receipt of the order passed by the Ld. TPO, the Ld.AO passed draft assessment order on 23/02/2015 proposing following disallowance in the hands of the assessee: (1) Disallowance of foreign exchange amounting to Rs. 11,99,697/- towards telecommunication /linked charged (2) Expenditure incurred in relation to buy back of shares was disallowed to amounting to Rs. 88,000/- (3) Disallowance of expenditure towards issue of bonus share amounting to Rs. 70,923/- (4) Disallowance of expenditure towards increased in authorities share capital amounting to Rs. 14,00,000/- (5) Disallowance of depreciation on capital expense Rs. 1039/- and disallowance of brought forward loss and unabsorbed depreciation before giving effect to deduction u/s. 10A. 4.4 On receipt of the draft assessment order the assessee intimated its intention to filed appeal before the Ld. CIT(A). Accordingly the Ld.AO passed the final assessment order on 13/05/2015. Aggrieved by the order of the Ld.AO assessee preferred the appeal before the Ld. CIT(A)-58. 5. The Ld. CIT(A) after considering the submissions of the assessee restricted the disallowance to foll....
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.... operations would thus be the capital in nature. 7.3 The Ld.AR submitted that, assessee's business is already set up during the financial year 2009-10 relevant to assessment year 2010-11 and the assessee already had necessary infrastructure, employees etc. to commence its business. He thus submitted that, assessee thus had already set up its business in the previous year prior to the year under consideration and hence no disallowance could be made in respect of the expenditure incurred by the assessee during the year under consideration in respect of Pune and Hyderabad unit. The Ld.AR thus submitted that, admittedly the expenditures incurred are revenue in nature, but the Ld.AO disallowed the claim of assessee by observing that the provision of section 14A are applicable. 7.4. The Ld.AR in support placed reliance on the decision of coordinate bench of this Tribunal in case of World net work services Put. Ltd. Vs. DCIT in ITA no. 1833/Mum/2003 for A.Y. 1999-2000 vide letter date 25/08/2006. He also placed reliance on details of the expenditure incurred that was subject to disallowance in respect of 2 units at the time of the hearing. The Ld.AR submitted that, from the deta....
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....rt and effect of the amended Section will have to be construed from the language used and not merely from the fact that it has been retained in Chapter III. (The introduction of the word 'deduction' in Section 10A by the amendment, in the absence of any contrary material, and in view of the scope of the deductions contemplated by Section 10A as already discussed, it has to be understood that the Section embodies a clear enunciation of the legislative decision to alter its nature from one providing for exemption to one providing for deductions. 14. The difference between the two expressions 'exemption' and 'deduction', though broadly may appear to be the same i.e. immunity from taxation, the practical effect of it in the light of the specific provisions contained in different parts of the Act would be wholly different. The above implications cannot be more obvious than from the case of Civil Appeal Nos. 8563/2013, 8564/2013 and civil appeal arising out of SLP(C) No. 18157/2015, which have been filed by loss making eligible units and/or by non-eligible assessees seeking the benefit of adjustment of losses against profits made by eligible units. ....
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.... the purposes of sections 10A and 108 shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision." 17. If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No. 794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapte....
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....ct. This in any case is not disputed by the revenue. Accordingly, we direct the Ld.AO to allowed to this expenditure u/s.37(1) for the year under consideration. Accordingly ground no.3-4 raised by the assessee stands allowed. 9. Ground No.5raised by the assessee is in respect of deduction denied towards interest income amounting to Rs. 9,66,760/-. 9.1 The Ld.AR submitted that, during the financial year 2008-09 relevant to assessment year 2009-10, interest of Rs. 18,95,817/- was granted u/s. 244A pertaining to assessment year 2006-07 vide intimation u/s.143(1) dated 29/09/2008. It is submitted that, the receipt of the interest was offered to the tax assessment year 2009-10. 9.1.1. Subsequently, the assessment of 2006-07 was completed, vide order dated 08/10/2010 and interest u/s. 244A was granted at Rs. 9,29,057/- as against Rs. 18,95,817/-, granted for the intimation dated 29/09/2008 issued u/s. 143(1) of the Act. 9.1.2. As the assessment order for A.Y. 2006-07 was passed during the financial year relevant to assessment year 2011-12, the interest amounting to Rs. 9,66,617/- being difference between the interest allowed in the assessment order vis a vis interest allow....
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....009-10 subsequently, upon passing of the assessment order for A.Y 2006-07 interest granted u/s. 244A stood reduced and the said Assessment year was passed during the assessment year 2011-12 being the year under consideration. The assessing officer however, while the passing the assessment order for the year under consideration. The assessing officer for the year under consideration adjusted the said interest by disallowing the same. In our considered opinion computation to the extent become enormous and amount that has been account disallowed of the assessing officer become deeply taxed in the hands of the assessee. As per the submissions of the Ld.AR that appeal for the assessment year 2009-10 is pending before the Ld. CIT(A) if it all any adjustment is to be made is to be during the assessment year 2009-10.We also note that the book profit offered by the assessee for the year under consideration is less then the normal profit and therefore the taxability during the year under consideration will depend based on the normal profit computed under the provisions of the Act. Thus no impact would be dealt for the book profit computed for the year under consideration. We thus direct the ....
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....en therein. He placed reliance on following observation of the Ld. CIT(A) while considering this issues. "Ground No. 9; Adjustment of Rs. 1,70,40,890/- to International Transaction of Recovery of Expenses Background During the course of business and in order to facilitate its operations, Zensar India incurs expenditure on behalf of AEs / it's client. The actual costs incurred such as travelling allowances, travel expenses etc., have been recovered on cost to cost from AEs. These expenses were paid on behalf of AEs and to be borne by the respective AEs and have been recovered from AEs at cost. Since, there is no element of services rendered involved in it, these expenses have been recovered at cost without any mark up. However, in the impugned order, the Transfer Pricing Officer considering such reimbursement to be in the nature of provision of services, imputed 10% mark-up on the total recovery made by the Appellant from the AEs. Judicial Precedents. In appellant's own case for assessment year 2011-12, Hon'ble CIT(Appeals) in para 11.5 based on the similar facts of the case, has decided that for recovery in ....
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.... Model. During the course of business and in order to facilitate its operations, Zensar India incurred expenditure on behalf of AEs and the actual costs incurred such as travelling allowances, travel expenses etc., have been recovered on cost to cost from AEs. The total revenue from software and allied services earned by the Appellant from the AE in FY 2011-12 aggregated to Rs.43,478.66 lacs. The margin earned by the Appellant on the software services provide to the AEs has been accepted by the TPO. The only bone of contention of the TPO is regarding incurrence of cost of Rs. 17.04 crs on behalf of the AEs / its client which as per TPO should be treated as a component of service and involving mark-up of 10%. Without prejudice to the contention that there is no service element in the recovery of expenses, even if it is assumed to be a service, it should be aggregated along with the software services provided to the AE. In such case, the expenses should be included in the operating cost of provision of software and allied services to the AEs and the revenue to be increased correspondingly. The margin of the Appellant would still be significantly higher than....
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.... Pvt Ltd vs Asst. Commissioner of Income-tax (1.T.A. No. 114 & 2100 (Mds)/2011) (attached in case law paper book) has held as under: "6.10 The Transfer Pricing Officer has made a markup of 5 per cent on certain travel cost incurred by the assessee and reimbursed by its associate enterprise and treated as additional income to be taxed as part of transfer pricing adjustment. But the fact was that the reimbursement was made on cost to cost basis and there is no rendering of any service and it does not involve service element. What is incurred is reimbursed. So, therefore, there is no profit element in the reimbursement. In such situation there is no justification in making a markup of 5 per cent. This addition was deleted. This issue is decided in favour of the assessee. ● Reliance is placed in the case of CPA Global Services Private Limited (ITA 266/2017) (attached in case law paper book) wherein the Hon'ble Delhi High Court has held that the reimbursement cost should be excluded while calculating the operating cost for determining the Arm's Length Price on provision of IT enabled services. Adhoc rate applied by the TPO/A0 The AO/TPO ....
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....various methods by which the determination of arm's length price has to be made. It is quite clear that there is no adhocism permissible in the manner of computation of arm's length price of an international transaction, whereas the action of the Transfer Pricing Officer in considering the arm's length price @10% of the expenses recovered is not only adhoc but it also does not confirm to any of the methods prescribed in section 92C(1) of the Act. On this count itself, the action of the TPO is suspect, even if, it is to be understood that the impugned transaction was an international transaction requiring computation of income having regard to its arm's length price." As the above recovery is a third-party pass through cost and there is no element of services, the adhoc 10% markup charged by the AO/ TPO should be deleted. Decision :- This issue is covered by my predecessor's findings in A. Y.2011-12. For ready reference, the relevant portion is reproduced below: 11.4 The submission made by the appellant and the order of the DRP for the preceding year has been examined. Prima facie, if a reimbursement comprises of expenses of ro....
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....for any adjustment. 11.9 It is also seen that the appellant has allowed some of these outstanding amounts to remain with the AEs for considerable time, In the precoding year, a reasonable limit of 150 days has been fixed by the TPO which has been upheld by the DRP in their decision. The TPO is right in concluding that this results in passing off distinct benefit to the AEs and a suitable interest needs to be charged on this amount. The reliance placed by the appellant on various decisions above is not found acceptable. It is seen that the decisions relate to cases where there has been a delay in recovery of outstandings connected with sales. Some of the Tribunals have held that the cost of sale generally includes the cost of delay in recovery and hence, a separate benchmarking of such amounts cannot be done. It is seen that in the present case the facts are different as these do not relate to sales made by the appellant. In addition, even if the outstandings relate to sales, any sale price would include cost of funds only for the credit period allowed to the other party, In this case, the TPO has already granted a credit period of 150 days. Hence, the reliance placed by th....