9911796707
TMI Blog2013 (11) TMI 1311X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, this is the 3rd year of operation. Assessee filed the return of income declaring the total income of Rs 23,65,024/-. The same was scrutinized u/s 143(3) after making TP reference u/s 92CA(1) of the Act. Assessment was completed determining the assessed income at Rs.6,35,08,666/-. Reasons for the said increase is due to (i) denial of deduction of Rs 4.14 cr (rounded off) in respect of the Chennai Unit on the ground that it is formed out of split or reconstruction of the existing unit at Hyderabad; (ii) exclusion adjustment to the Export Turnover on account of communication charges amounting to Rs 2.39-Cr (rounded off) and insurance of Rs 16.80 lakhs (rounded off) and reimbursement of expense of Rs 33.96 lakhs (rounded off); (iii) adjustments of Rs 6.81 crores (rounded off) to the total turnover; and finally, the adjustments to the profits of the undertaking invoking the provisions of sections 40A(7) and 43B of the Act. For denial of exemption u/s 10A of the Act, the assessing officer mentioned various reasons and they include that both Hyderabad and Chennai units render services to the same clients; total sales are made to the group/related companies, commonness of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over. * The reimbursement of expenses from associated enterprises should not be added total turnover, and * The amount of statutory disallowances should be considered as business profits eligible for deduction under S.10A of the Act. Thus, the CIT(A) granted reliefs to the assessee on some counts, and thus partly allowed the appeal of the assessee. 5. Aggrieved with the above order of the CIT(A), both the revenue as well as the assessee have preferred the present cross-appeals before us. We shall take up the assessee's appeal first for adjudication. Assessee's Appeal: ITA No.268/Hyd/2011 6. The effective grounds of the assessee read as follows- "On the facts and in the circumstances of the case, the Learned Commissioner of Income-tax(Appeals) IV, Hyderabad (CIT(A)) 1. Erred in law and on facts in disallowing the deduction under S.10A of the Income-tax Act, 1961('the Act' ) for the Chennai unit by upholding that the Chennai unit is established by splitting up/reconstruction of the Hyderabad unit of the Appellant. 2. Erred in law and on facts in disallowing the deduction under section 10A of the Act for the Chennai unit on the ground that the Appellant has not demonstrated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder S.10A on the combined profits of both the units. The issues raised in grounds No.7 and 8 are independent issues. Finally ground 9 is general and consequential in nature and it does not call for specific adjudication. Issuewise adjudication is given in the succeeding paragraphs. 7. The first issue in this appeal, covered by grounds No.1 to 6 above, relates to denial of exemption under S.10A of the Act to the assessee. During the proceedings before us, the learned counsel brought to our notice the factual as well as the legal permutations, which are narrated in the succeeding paras. So far as the factual submissions are concerned, the learned counsel mentioned that registrations of both the units under STPI are separate and distinctly made both in respect of jurisdiction and the STPI as well as customs ad bonding authorities. Assessee invested on fixed assets of Chennai Unit to the tune of Rs.5.19 crores as on March, 2006. Employees in Chennai unit grew from 44 in March, 2004 to 1035 in March, 2008, as against growth of employee strength at Hyderabad Unit from 1048 in March 2004 to 1637 in March, 2008. The business processes of Chennai Unit and Hyderabad Unit are different. Whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e absorption and loss of identity with the old business, they were not to be treated as being formed by reconstruction of the existing business. - Even when there is substantial expansion of business, but with establishment of new unit, new capital the same cannot be said to be reconstruction of the old business, merely because the new unit is producing the same commodity as produced by the old unit. - Manufacture or production of articles yielding additional profit attributable to the new outlay of capital in a separate and distinct unit is the crux of the matter to get exemption." Further, the learned counsel mentioned that there is a need for material to demonstrate that either some assets of existing business are diverted or that both the businesses are the same, and the new unit is integral part of earlier one (DSM Soft Pvt. Ltd. (115 ITD 1)-ITAT (Chennai). Relying on another decision of the Chennai Bench of the Tribunal in the case of Servion Global Solutions Ltd. (115 ITD 95), learned counsel mentioned that exemption cannot be denied, even when there is commonness in the product between the old one and the new one or there are some old employees or common customers workin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the Hyderabad unit services the projects requiring business process management and enterprise process management services and the Chennai unit services the projects requiring data ware house services." 10. Further, the learned counsel also has given a detailed write up against each of the objections of the assessing officer as well as the CIT(A), meeting the criticism made by them, while denying the claim of the assessee for exemption under S.10A of the Act. The learned counsel summed up by stating that it is enough if the intention of the assessee was to set up a new unit at Chennai to claim the extended tax holiday for additional year. The said setting up of Chennai Unit is driven by the business and commercial considerations and not merely to claim the tax holiday as alleged by the Revenue authorities. Therefore, the learned counsel was critical of the inference drawn by the lower authorities that the Chennai unit is formed by split up and reconstruction of the Hyderabad unit only for availing relief under S.10A of the Act. 11. Per contra, the Learned Departmental Representative for the Revenue relied on the orders of the Revenue authorities and maintained that the customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 44 in number in March, 2004 to 1035 in March 2008, and thus the growth of number of employees is phenomenal by the end of March, 2008. There is no relocation of transfer of plant and machinery in any form from Hyderabad Unit to Chennai Unit. So, this being the strength of the new unit, so far as the infrastructural matters are concerned, we also examined the other areas of business activity of the assessee, to find out if the Chennai Unit cut into the business of the Hyderabad unit. In this regard, we have perused the business activities of the assessee both of Chennai Unit and Hyderabad Unit and find that the nature of services rendered by the assessee through both these units are classified into three categories, (1) BPM, (2)ECM and (3) Data warehousing. So far as the data warehousing/business intelligence is concerned, the Chennai Unit alone renders this service. This data warehousing/intelligence provides an eco system to transform raw data into actionable information, thus facilitating strategic and technological and operational decision making. The Chennai Unit addresses to these challenges by offering holistic, business and result oriented approach of the customer. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not formed by the transfer of plant or machinery previously used for any purpose to a new business. There is no issue about the transfer of the Plant or Machinery from Hyderabad to Chennai Unit and therefore, this limb of the provisions is unquestioned by the revenue. The objections of the revenue revolve around existence of similar agreements/similar services and migration of some of the employees to the Chennai unit. These issues have been already attended to by us in the preceding paragraphs and described how these objections in this case are not sustainable by us. It is not the case of the revenue that the Database Warehousing related services rendered by the assessee to the Principle/clients are not different from those services rendered by the Hyderabad Unit. In the light of the above discussion, we hold that the Revenue authorities are not justified in denying the benefit under S.10A of the Act to the assessee, treating the Chennai Unit as having been created merely by splitting up, or reconstruction of the Hyderabad unit of the assessee. Accordingly, grounds No.1 to 4 of the assessee in this appeal are allowed. 18. In view of our decision on grounds No.1 to 4 of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain expenses like travel, etc. amounting to Rs.33,96,032 on behalf of the assessee and these expenses were recharged to the assessee at actual cost without any mark up. These transactions were reviewed and assessed by the assessing officer to be within the arm's length, whereas the CIT(A) held that the reimbursement of expenses to associated enterprises has to be exclude from export turnover, as the assessee has not been able to prove that the expense do not form part of 'other expenses' incurred for rendering t4echncial services outside India. However, it is claimed that as these expenses are in the nature of reimbursement, no profit element is embedded therein and hence, the reimbursement of expenses has to be reduced from the export turnover and total turnover. While disputing the action of the CIT(A) in upholding reduction of the charges in question from the export turnover, he supported the CIT(A) in directing the reduction of the same from total turnover as well on principles of parity. 22. In support of the above submissions on the disputes involved in these two grounds, the learned counsel for the assessee took us through the definition of the term 'export turnover' i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in the case of California Sotware Co. Ltd. V/s. ACIT (supra) and other case law on the points, which may be brought to his notice during the course of further proceedings before him. The assessing officer shall reconsider the entire issue in accordance with law, duly bearing in mind the principle of parity, after giving reasonable opportunity of hearing to the assessee, by passing a speaking order on all the aspects relevant to the points in dispute. These grounds are accordingly allowed for statistical purposes. 25. In the result, assessee's appeal is partly allowed. Revenue's Appeal : ITA 482/Hyd/2011: 26. Effective grounds of the Revenue in this appeal are as follows- "(i) ..... (ii) The CIT(A) has erred in holding that if the (i) communication charges of Rs.2,39,47,853/- and (ii)Insurance Charges of Rs.16,80,632/- were excluded from the export turnover, the same have to be excluded from the total turnover also, when such an adjustment to the 'total turnover' is not contemplated in the provisions laid down below sec.10A. (iii) The CIT(A) erred in holding that having not considered the (i) reimbursement of expenses at Rs.33,96,032/- and (ii) reimbursement of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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