2014 (6) TMI 434 - AT - Income Tax

Allowability of service charges Services rendered by holding company Held that - Following Sonata Information Technology Ltd. Versus Deputy Commissioner of Income-tax 2012 (9) TMI 335 - ITAT MUMBAI - CIT (A) identified some of the expenditure on electricity, rent advertisements etc., so as to state that most of the expenditure was allocated to increase the profits in the case of SSL which was claiming deduction u/s 10A the examination by the CIT (A) on few items is selective and not appropriate according to the facts there is no reason to doubt that assessee has not incurred the expenditure and the other company has not provided any services - assessee is a 100% subsidiary of the principle company SSL and there is exchange of personnel depending on the field of operation and the agreement clearly provided for distribution of service charges on the basis of turnover - The requirement of training is an on-going exercise in the changed scenario of technological up-gradation in the software industry thus, there is no reason to interfere in the order of the CIT(A) Decided against Revenue. Allowability of deputation charges - Personal deputed by Sonata Software Ltd. Reimbursement of various expenses - Held that - Following Sonata Information Technology Ltd. Versus Deputy Commissioner of Income-tax 2012 (9) TMI 335 - ITAT MUMBAI - SSL agreed to render some common services in the areas of Finance, Accounts, Taxation, Legal, Administration, HRD, education, Training, Research etc. - the expenses covered by that agreement cannot and do not relate to expenditure incurred on deputing employees to work on specific projects of the Assessee - the expenses on account of deputation charges as well as other expenses are not covered under the agreement Decided against revenue.

Summary

Issues:
1. Allowance of service charges incurred for services by holding company.
2. Allowance of deputation charges for personnel deputed by holding company.
3. Allowance of reimbursement of expenses to holding company.

Issue 1 - Service Charges:
The Revenue appealed against the order allowing service charges incurred for services by the holding company. The Tribunal found that the issue was similar to a previous year's case and upheld the CIT(A)'s decision based on detailed examination. The Tribunal noted that the holding company provided services and the expenditure allocation was legitimate. The Tribunal rejected the Revenue's argument of tax avoidance and upheld the expenditure allocation, directing the AO to allow the expenditure. The Tribunal dismissed the Revenue's appeal on this ground.

Issue 2 - Deputation Charges:
The Tribunal also addressed the issue of deputation charges for personnel deputed by the holding company. The Tribunal observed that the expenses were not covered under the agreement between the parties for common services. The Tribunal found merit in the assessee's arguments and allowed the appeal on this ground as well. The Tribunal upheld the CIT(A)'s decision regarding deputation charges and dismissed the Revenue's appeal.

Issue 3 - Reimbursement of Expenses:
Regarding the reimbursement of expenses to the holding company, the Tribunal again upheld the CIT(A)'s decision based on similar reasoning as in the previous issues. The Tribunal found that the expenses were not covered under the agreement and allowed the appeal on this ground too. The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s orders.

In conclusion, the Tribunal dismissed the Revenue's appeal against the CIT(A)'s order regarding the allowance of service charges, deputation charges, and reimbursement of expenses to the holding company. The Tribunal found that the issues were similar to previous cases and upheld the decisions based on detailed examination and merit in the assessee's arguments.