2014 (10) TMI 356 - AT - Income Tax

Denial of deduction on revised return u/s 10A setting up of new unit - separate and independent undertaking - revised return - The argument put forth was that the assessee had 13 mother licenses and the applications made for setting up new units were permitted by the STP Authorities who instead of issuing separate licenses granted permission on the existing 13 mother licenses accordingly it was contended that as per the revised claim the 31 undertakings registered with STPI were eligible for deduction u/s 10A. - Revenue contended that only the assessee knows whether it was expansion or a new undertaking and having led the department to accept that it is an expansion it cannot now be allowed to insist that it should now be treated as a fresh undertaking having been set up 7 or 10 years ago as this would be a travesty of justice. Held that - The assessee has attempted to seek exclusion of the units which were loss making units as a result of which the assessee has now sought to claim deduction of 275.56 crore odd instead of 257.24 crore odd which was originally claimed - having separate locations for the unit does not mean these separate expanded locations become separate undertaking as an undertaking in the STPI Zone even for expansion purpose can expand only if permission is granted by the STPI authorities which has been granted over the years and the assessee over the years has treated these expanded locations as expansions and only now in some cases after a lapse of five years or seven years and even in the last year would now want the department to re-look at the entire facts right from the first year of these expanded centres in order to ascertain whether five years or seven years ago or for that matter 10 years ago the expanded locations were capable of being called independent stand alone units as envisaged in Textiles Machineries case and other such decisions and orders. Relying on the findings recorded in the assessment order upheld by the DRP it has been contended that such an inquiry is difficult to make after so many years and even when enquired into it may not be possible to conclusively decided the same after so many years - The reasoning cannot be faulted with - the need and necessity for the same does not arise since it is the assessee who is the best judge of its internal affairs and it is the assessee who has consistently taken a decision as per facts exclusively available to it in its personal domain on the basis of which the assessee has chosen to treat the expanded units as part of the 13 units and we agree that referring to legal precedents will not change these accepted and settled facts. The authorities below have come to a correct conclusion as the claim now put forth by way of a revised return which have been rendered on facts peculiar to their own cannot be said to lay down a legally binding precedent that the same lay down a precedent based on which the assessee can resile from its stated position - The stated position being referred to herein does not refer to the filing of returns in one of two years but at times for 10 years; and 7 years and 5 years or so Decided against assesse. Expenses incurred on earning of income Income from other sources or not - Held that - The DRP was of the view that outrightly the claim of the assessee could not be accepted being of the view that the said expenditure had only been culled out from the P&L A/c for separately claiming it as a deduction against the income from other sources the expenditure would have already been debited in some head under the P&L A/c thus, unless the assessee showed that the said expenditure had not already been claimed under some other head of income the claim could not be allowed there is no need to interfere in the order of the DRP Decided against assesse.

Issues Involved:
1. Validity of the revised return and the corresponding claim of deduction under Section 10A.
2. Calculation of deduction under Section 10A by excluding expenses incurred in foreign currency from "export turnover."
3. Reduction of "data link charges" from "export turnover" without corresponding adjustment from "total turnover."
4. Disallowance under Section 14A read with Rule 8D.
5. Depreciation rate applicable to electrical installations.
6. Deduction of expenses incurred for earning income under the head "other sources."

Issue-wise Analysis:

1. Validity of the Revised Return and Corresponding Claim of Deduction under Section 10A:
The assessee filed a revised return claiming deduction under Section 10A for 31 units instead of the originally claimed 13 units. The Assessing Officer (AO) rejected this revised claim, stating that the additional units were formed by splitting the existing 13 units and were not separate undertakings. The AO emphasized that the revised claim extended the tax holiday period and increased the deduction amount. The Dispute Resolution Panel (DRP) upheld the AO's decision, stating that the additional units were mere extensions of the original undertakings. The Tribunal agreed, noting that the assessee had consistently treated these units as part of the original undertakings and had not provided necessary documentation to prove otherwise. The Tribunal concluded that the revised claim was an attempt to extend the statutory period of deduction and increase the deduction amount, which was not permissible.

2. Calculation of Deduction under Section 10A by Excluding Expenses Incurred in Foreign Currency from "Export Turnover":
The AO reduced the expenses incurred in foreign currency for providing technical services from the "export turnover" while calculating the deduction under Section 10A. The DRP upheld this decision. The Tribunal noted that this issue had been decided in favor of the assessee in the previous assessment year, and the departmental appeal against the Tribunal's order had been rejected by the Hon'ble Delhi High Court. Therefore, the Tribunal directed the AO to grant necessary relief following the earlier Tribunal's order.

3. Reduction of "Data Link Charges" from "Export Turnover" Without Corresponding Adjustment from "Total Turnover":
The AO reduced the "data link charges" incurred for delivery of computer software outside India from the "export turnover" without making a corresponding adjustment from the "total turnover." The DRP upheld this decision. The Tribunal noted that this issue had also been decided in favor of the assessee in the previous assessment year. Therefore, the Tribunal directed the AO to grant necessary relief following the earlier Tribunal's order.

4. Disallowance under Section 14A Read with Rule 8D:
The AO disallowed an amount of Rs. 1,05,07,741 under Section 14A read with Rule 8D, holding that the disallowance made by the assessee (Rs. 44,55,082) was not sufficient. The Tribunal noted that sub-sections (2) and (3) of Section 14A and Rule 8D operate prospectively from the 2007-08 assessment year, and the year under consideration was 2005-06. Therefore, the Tribunal restored the issue to the AO to re-determine in light of the Jurisdictional High Court's directions in the case of Maxopp Investment vs CIT.

5. Depreciation Rate Applicable to Electrical Installations:
The AO allowed depreciation at 15% instead of 25% on various items of electrical installation, treating them as eligible for depreciation applicable to plant and machinery. The DRP directed the AO to allow the claim after verifying whether the items of electrical installation were part of the plant and machinery. The Tribunal restored the issue to the AO to decide in accordance with the law after giving the assessee a reasonable opportunity of being heard.

6. Deduction of Expenses Incurred for Earning Income Under the Head "Other Sources":
The AO did not allow the deduction of Rs. 6,20,012 claimed by the assessee in the revised return as expenses incurred for earning income under the head "other sources." The DRP directed the AO to grant an opportunity to the assessee to show that the expenditure was not claimed against income under any other head. The AO found that the assessee could not substantiate its claim. The Tribunal found no merit in the assessee's arguments and dismissed the ground.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, upholding the AO's and DRP's decisions on most issues while directing relief on issues previously decided in favor of the assessee by the Tribunal and the High Court.

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