2017 (3) TMI 327 - AT - Income Tax

Exemption u/s 10A - whether the assessee has not justified or explained his claim that the employees had gone to US for training? - assessee company was a registered unit of Software Technology Park of India and had been providing human resources related to ITES services to its holding company in the US and claiming exemption u/s 10A Held that - In order to substantiate the fact that the said services qualify for exemption u/s 1OA of the Income tax Act, the assessee enclosed Notification No. 890E dated 26.09.2000 issued by the CBDT, as per which Human Resources Services under Information Technology Enabled Products are eligible for the said exemption. Hence these facts make it clear that the assessee was entitled to exemption under section 1OA of the Act. It is also established that the assessee company was entitled to exemption u/s 1OA there is very little force left in the AO s position that the assessee company had concealed income derived by its employees on their visit to USA. If the employees had earned any Income during their visit to the holding company in USA, the assessee company could have shown the same and claimed exemption u/s 1OA of the Income Tax Act. Thus, any attempt by the assessee company to under-state its income by resorting to the practices mentioned above defies logic and common sense. CIT(A) has observed that during the course of appellate proceedings, it was revealed that a number of details submitted at the time of assessment proceedings were not acknowledged by the AO in his assessment order. These include note on expenses on travelling and expenditure on foreign training, copies of passports of Directors and some of the employees, addresses and e-mails ids of employees sent abroad, business work flow chart, etc. In addition during the course of appellate proceedings, the assessee submitted some more information which goes to establish the fact that the employees had gone on training rather than for rendering services abroad. This includes a note on the nature of training given, sample copy of training letters of employees selected for training, copy of passport and visa of the employees etc. Assessee also gave necessary documents to substantiate the fact that it is eligible for exemption u/s 1OA of the Income Tax Act. All these documents together with the assessee s submissions establishes the point that the 11 employees of the assessee company had gone for training to its holding company in the US. The assessee has explained the rationale for undertaking such training for its employees. The case law referred by in the case of CIT vs Samsung India Electronics Ltd. (2013 (7) TMI 365 - DELHI HIGH COURT) wherein has specifically held that expenditure incurred on training is allowable for the purpose of assessee s business. Therefore addition in dispute was rightly deleted by the Ld. CIT(A) - Decided against revenue

Summary

Issues:
1. Exemption u/s. 10A of the Income Tax Act for income earned by the assessee from its holding company in the USA.
2. Justification for employees' visit to the US for training.
3. Continuation of employees in service after training.
4. Permission to add, delete, or amend grounds of appeal.

Analysis:
1. The Revenue challenged the acceptance of income earned by the assessee from its USA holding company for exemption u/s. 10A. The CIT(A) found that the employees had undergone training at the holding company's premises in the US, not rendering services. The appellant was entitled to exemption u/s. 10A as a registered unit of Software Technology Park of India providing ITES services to the holding company. The AO's addition of income was deemed unjustified, as the employees' training qualified for exemption under Notification No. 890E. The CIT(A) held the addition unlawful and deleted it, which was upheld by the Tribunal.

2. The Revenue contended that the employees' visit to the US for training was not justified. The CIT(A) reviewed detailed submissions and documentary evidence provided by the appellant. The appellant demonstrated that the employees had indeed undergone training, supported by documents like training letters, passport copies, and visas. The rationale for training was explained, citing a Delhi High Court judgment allowing training expenses for business purposes. The Tribunal found the CIT(A)'s decision to delete the addition appropriate, as the training purpose was substantiated.

3. The Revenue raised concerns about employees not continuing in service after training. The CIT(A) analyzed the appellant's submissions and evidence, concluding that the employees had genuinely attended training sessions at the holding company's US premises. The Tribunal agreed with the CIT(A)'s findings, emphasizing that the training expenses were justifiable for business purposes, as per legal precedent.

4. The Revenue sought permission to modify grounds of appeal. However, the Tribunal dismissed the appeal, upholding the CIT(A)'s decision to delete the addition of income and confirming the appellant's entitlement to exemption u/s. 10A. The Tribunal's decision was based on the substantiated training purpose and the legal validity of the expenses incurred for training.

In conclusion, the Tribunal dismissed the Revenue's appeal, supporting the CIT(A)'s decision to delete the addition of income and recognizing the appellant's entitlement to exemption u/s. 10A for the training expenses incurred at the holding company's US premises.