2015 (8) TMI 84 - AT - Income Tax

Disallowance made on account of claim of deduction u/s 10A for unit no. II and unit no. III - Held that - The necessary documents were examined by the ld. AO as well as by the ld. DRP and found that the assessee sought for approval of expansion of old unit no.I and never sought approval to set up of a new units and further STPI granted approval for expansion of unit no.I. Before the AO/DRP, the assessee placed reliance upon the decision of Patni Computers Ltd., which was upheld by Hon ble jurisdictional High Court 2013 (10) TMI 293 - BOMBAY HIGH COURT . However, we find that the Hon ble High Court decide the issue with respect to section 10A on the ground that the Tribunal recorded a finding that the new units, set up by the assessee, had fulfilled all the condition prescribed u/s 10A(2) of the Act. Assessee has not demonstrated before us that the finding recorded by the ld. DRP is perverse or contrary to facts. However, to safeguard the interest of both sides, we remand this issue to the file of AO to examine the claim of the assessee and after providing due opportunity of being heard will decide in accordance with law. - Decided in favour of assessee for statistical purposes. Reallocation of head office expenses - Held that - The crux of argument advanced on behalf of the assessee is that certain common expenses, amongst all the units, may be made on reasonable basis. On the other hand, the ld. DR, Shri Srivastava, defended the conclusion arrived at in the impugned order. Since, this ground is interconnected with the above ground, therefore, this ground is also remanded back to the file of the ld. Assessing Officer, consequently, The ld. Assessing Officer is directed to look into the allocation part/the claimed expenses and after examination, decide afresh - Decided in favour of assessee for statistical purposes. Disallowance made u/s 14A - Held that - Without going into much deliberation, we direct the ld. Assessing Officer to decide the case of the assessee in the light of the decision from Hon ble jurisdictional High Court pronouncing in Godrej & Boyce Mfg. Co. Ltd. vs DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT and also by duly considering the decision of Hon ble Supreme Court in the case of Rajendra Prasad Moody (1978 (10) TMI 133 - SUPREME Court ) - Decided in favour of assessee for statistical purposes. Disallowance of club expenses - Held that - The assessee paid the membership fee of the club by way of admission fee/corporate membership fee wholly and exclusively in the interest of the business, thus, it has to be allowed as business expenditure. Identical ratio was laid down in CIT vs Samtel Color Ltd. (2009 (1) TMI 26 - DELHI HIGH COURT) . The assessee is directed to ensure that such benefit is only available to the Director/Senior Executive of the assessee company and not to each and every employee of the assessee company. - Decided in favour of assessee Adjustment on account of interest received on loans given to AE - TPO adjustment - Held that - As decided in assessee s own case 2013 (6) TMI 420 - ITAT MUMBAI LIBOR rate has to be adopted in the instant case, since the interest charged by the assessee from its AE is higher than the LIBOR rate, no transfer pricing adjustment in that regard is warranted, therefore, this ground of the assessee is allowed. - Decided in favour of assessee

Issues Involved:
1. Disallowance of deduction under Section 10A of the Income Tax Act for Unit II and Unit III.
2. Reallocation of head office expenses.
3. Disallowance under Section 14A of the Income Tax Act.
4. Disallowance of club expenses.
5. Adjustment on account of interest received on loans given to Associated Enterprises (AE).
6. Levy of interest under Sections 234B and 234D of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction Under Section 10A:
The assessee claimed deductions under Section 10A for Unit II and Unit III, which were disallowed by the Assessing Officer (AO) on the grounds that these units were expansions of Unit I and not new units. The AO's decision was based on approvals from the Software Technology Parks of India (STPI), which were for expansion rather than setting up new units. The assessee argued that Units II and III were new, engaged in different services, and had new clients and employees. However, the Dispute Resolution Panel (DRP) upheld the AO's decision, noting that the assessee had not sought fresh STPI registration for new units. The Tribunal remanded the issue back to the AO for a fresh examination, directing the AO to verify if Units II and III were indeed new units or expansions of Unit I, and to consider all relevant documentary evidence.

2. Reallocation of Head Office Expenses:
The assessee argued for a reasonable basis for reallocating common head office expenses among all units. The Tribunal remanded this issue back to the AO, directing a fresh examination of the allocation of expenses in connection with the findings on the first issue.

3. Disallowance Under Section 14A:
The AO disallowed Rs. 3,21,109 under Section 14A read with Rule 8D, on the grounds that the assessee incurred expenses to earn dividend income. The assessee claimed that the investments were made from its own funds and no expenses were incurred for earning the dividend. The Tribunal directed the AO to re-examine the disallowance in light of the jurisdictional High Court's decision in Godrej & Boyce Mfg. Co. Ltd. vs DCIT and the Supreme Court's decision in Rajendra Prasad Moody.

4. Disallowance of Club Expenses:
The AO disallowed Rs. 20 lakh incurred towards club membership fees, which the assessee argued were for business purposes. The Tribunal found that such expenses were allowable as business expenditure, citing various High Court and Supreme Court decisions, including CIT vs United Glass Mfg. Co. Ltd. and CIT vs Engineers India Ltd. The Tribunal allowed this ground, directing that the benefit should be limited to directors and key personnel.

5. Adjustment on Account of Interest Received on Loans to AE:
The AO made an adjustment on account of interest received on loans given to AE, which the assessee contested by arguing that the interest charged was higher than the LIBOR rate. The Tribunal cited its own decision in the assessee's case and the ITAT Delhi Bench's decision in Cotton Naturals (I) P. Ltd., holding that the LIBOR rate should be adopted. Since the interest charged was higher than the LIBOR rate, no transfer pricing adjustment was warranted. This ground was allowed.

6. Levy of Interest Under Sections 234B and 234D:
The Tribunal noted that the levy of interest under Sections 234B and 234D was consequential and required no separate adjudication.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, and the appeal of the Revenue was dismissed. The Tribunal remanded certain issues back to the AO for fresh examination and directed the AO to consider all relevant evidence and legal precedents. The order was pronounced in the open court on 4.3.2015.

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