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TMI Blog2018 (2) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to the issue are discussed in brief. The assessee claimed interest expenditure of Rs. 100.10 lakhs. The AO noticed that the assessee has made following fresh investments:- Customer Assets India P Ltd Rs.99,95,23,000/- Series F of convertible preferred stock of First Ring Inc. US Rs.61,72,19,000/- The AO took the view that the assessee has diverted interest bearing loans for making above said investments, which did not yield any income. Accordingly, he computed disallowance of proportionate amount of interest relatable to the above said investments, which worked out to Rs. 61,71,318/- and disallowed the same. The Ld CIT(A) deleted this disallowance and hence the revenue is aggrieved. 5. We notice that the assessee has demonstrated before ld CIT(A) that the own funds available with it is more than the value of investments made in subsidiaries. The assessee held own funds of Rs. 13000 lakhs and Rs. 23580 lakhs as on 31.3.2003 and 31.3.2004 respectively. The amount of investment made in subsidiaries stood at Rs. 9595.23 lakhs and 15767.42 lakhs respectively as on 31.3.2003 and 31.3.2004. Hence, as per the decision rendered by Hon'ble jurisdictional High Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealt with the same in the rectification order passed u/s 154 of the Act and he has decided the same against the assessee. Hence this ground also becomes infructuous, as the Ld CIT(A) has adjudicated the same in the rectification order. 11. The third part of the ground relates to the disallowance of interest on delayed payment of P.F. The Ld A.R did not press this ground and hence this ground is dismissed as not pressed. 12. The second ground relates to the disallowance made u/s 40A(2)(b) of the Act. This ground also consists of two parts. The first part relates to the payments made to M/s ICICI Bank and the second part relates to the rental payments made to M/s Customer Assets India P Ltd. 13. The assessee made following payments to M/s ICICI Bank Ltd:- Common Corporate Expenses Rs.47,50,000/- Software and Professional Fees Rs. 6,00,000/- Repairs and Maintenance Rs. 9,43,245/- The assessee submitted that it had utilized the infrastructure facilities belonging to M/s ICICI Bank Ltd, a group company, and hence the proportionate cost has been recovered by its group company. The AO noticed that these two entities did not have any written agreement for sharing of facilities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster concern named M/s Customer Asia India P Ltd. Since the assessee did not show that the rent was paid at market rates, the AO disallowed 20% of the rental expenses, referred above. The Ld CIT(A) also confirmed the same. 17. We heard the parties on this issue. The Ld A.R submitted that M/s Customer Asia India P Ltd had entered into a rental agreement with original lessor. Since the assessee was in need of premises, it entered into an agreement with M/s Customer Asia India P Ltd. The Ld A.R submitted that the assessee has paid same rent, as was payable by M/s Customer Asia India to the original lessor and hence there is no excess payment of rent. Accordingly he submitted that the rent was paid at market rates and hence no disallowance u/s 40A(2)(a) is called for. 18. We heard Ld D.R on this issue and perused the record. The main contention of the assessee is that it has paid rent at the same rate at which it is payable by M/s Customer Asia India to the original lessor. The Ld A.R submitted that the assessee has submitted both the agreements before the AO, but the AO has made the disallowance without verifying the assessee's claim. We find force in the arguments of the Ld A.R. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) CIT Vs. United Motors (India) Ltd (181 ITR 347)(Bom) (c) Rotork Controls India (P) Ltd Vs. CIT (180 Taxman 422)(SC) (d) CIT Vs. Nokia Siemens Networks India (14 taxmann.com 84)(Kar) 21. The Ld D.R, on the contrary, submitted that the assessee has not shown that the liability in respect of above said expenses has accrued during the year under consideration. 22. We heard the parties on this issue and perused the record. There should not be any dispute that the accounting principles mandates that all known provisions have to be provided for, even if the exact amount of liability is not known. A reliable estimate is required to be made for making such provisions. It is the case of the assessee that these provisions relate to expenses of routine nature and such kind of provisions are made year after year. The actual payments made against these provisions are usually debited to the concerned Provision account and the balance, if any, shall be transferred to the Profit and Loss account. 23. Even though the AO has observed that the assessee did not furnish relevant details, yet it is the contention of the assessee that all the relevant details were furnished to him, vide let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred in respect of Canteen, food, staff medical benefit. Further a sum of Rs. 19.95 lakhs has been described as "Others". Accordingly, the AO took the view that it cannot be verified that these expenses have been incurred wholly and exclusively for the purpose of business. Hence he disallowed 20% thereof. The Ld CIT(A) confirmed the disallowance, but he accepted the alternative prayer of the assessee that the amount so disallowed shall be eligible for deduction u/s 10A of the Act. 27. We heard the parties on this issue. We notice that the assessee has given details of expenses except for a sum of Rs. 19.95 lakhs. Hence, we are of the view that the disallowance, if any, should be restricted to that portion for which no detail was given. Accordingly we are of the view that no disallowance is called for from out of expenses for which details were given. We are also of the view that the disallowance @ 20% is also on the higher side. Accordingly we modify the order passed by Ld CIT(A) on this issue and direct the AO to restrict disallowance to 10% of Rs. 19.95 lakhs, for which details were not given. However, this disallowance shall be eligible for deduction u/s 10A of 10 the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n u/s 10A. The Ld CIT(A) also confirmed the same. 32. We heard the parties on this issue. This issue has since been decided in favour of the assessee by Hon'ble Bombay High Court in the case of CIT Vs Black & Veatch Consulting P Ltd (348 ITR 72) and by Hon'ble Supreme Court in the case of CIT Vs. Yokogawa India Ltd (391 ITR 274). Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction u/s 10A of the Act without setting off of loss from non-STP units. 33. In Ground No.8, the assessee contends that the Ld CIT(A) should have directed the AO to allow deduction u/s 10A as claimed by the assessee. This ground, being general in nature, does not require any adjudication. 34. Ground No.9 relates to set off of brought forward losses of earlier assessment years. The Ld CIT(A) did not adjudicate the same in his original order, but dealt with the same in the rectification order passed u/s 154 of the Act. Hence this ground of the assessee shall become infructuous. 35. The assessee has urged two additional grounds. The first additional ground relates to the alternative prayer of the assessee in respect of disallowance relating to "Provision fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 36.93 lakhs, out of aggregate interest expenses of Rs. 100.10 lakhs, as interest relatable to STP units. We notice that the AO has not given any basis for arriving at the figure of Rs. 36.93 lakhs. Since the relevant borrowed funds are known, it is possible to be ascertain the user of borrowed funds. If the borrowed funds were used for STP units, then the concerned interest expenditure is required to be charged to STP units only. We notice that neither the assessee has furnished the details of user of borrowed funds nor the tax authorities have examined the same. 41. Before us, the Ld A.R argued that the Ld CIT(A) has exceeded his jurisdiction u/s 154 of the Act in invoking provisions of sec. 14A of the Act in the rectification proceedings. In the alternative, it was contended that the disallowance u/s 14A is not warranted, when the assessee has not earned any exempt income. 42. We heard Ld D.R on this issue and perused the record. In our view, the Ld CIT(A) has misdirected himself by referring to the provisions of sec. 14A of the Act in order to confirm the interest expenditure allocated to STP units. First of all, the AO did not disallow the impugned amount of Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO for carrying out verification of facts. Accordingly we uphold his view and accordingly, the irregularity, if any stands rectified by our action of confirming the restoration of issues. 46. We shall now take up the appeal filed by the assessee for AY 2005-06 in ITA No.2658/M/2011. The first issue relates to the allocation of expenses to STP units. The AO noticed that the assessee has declared aggregate income of Rs. 297.49 lakhs from non-STP unit. The nature of income so declared is Gains/loss on sale of investment, interest income, Foreign exchange difference etc. Thus the AO noticed that the assessee has carried on business activities like Training and processing, income from call centre etc., in its STP units and no such business activities have been carried on non-STP unit. However the assessee had claimed a sum of Rs. 550.50 lakhs as expenditure in non-STP unit. Hence the AO took the view that the above said expenses are relatable to STP units and accordingly did not allow the same against non-STP unit. The Ld CIT(A) also confirmed the same. 47. We heard the parties on this issue. We notice that the AO has drawn inferences while deciding this issue, i.e., the AO has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowed the above said amount proportionately between 10A and 10B STP units. The AO further noticed that the assessee has incurred a sum of Rs. 6,20,650/- towards L & P Charges. However the assessee did not furnish the purpose for which these payments were made. Hence the AO disallowed the same. The Ld CIT(A) also confirmed both the disallowances. 50. We have heard the parties on this issue. Before us also, the assessee did not furnish any detail relating to these expenses. Hence we have no other option but to confirm the disallowance of Rs. 22.40 lakhs referred above. 51. The next issue relates to the adhoc disallowance made out of Staff welfare expenses. The assessee claimed a sum of Rs. 575.41 lakhs as Staff welfare expenses. The AO made adhoc disallowance of 20% of the expenses by observing that it is difficult to verify that these expenses have been incurred for business purposes. The Ld CIT(A) also confirmed the same. 52. We have heard the parties on this issue. In AY 2004-05, we have examined an identical issue and held that the disallowance is not called for on adhoc basis when the assessee has furnished the details. In that year we had restricted the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue relates to the adjustment of profit of STP unit against loss from non-STP units. We heard the parties on this issue. This issue has since been decided in favour of the assessee by Hon'ble Bombay High Court in the case of CIT Vs Black & Veatch Consulting P Ltd (348 ITR 72) and by Hon'ble Supreme Court in the case of CIT Vs. Yokogawa India Ltd (391 ITR 274). Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction u/s 10A of the Act without setting off of loss from non-STP units. 59. The next issue relates to the claim of the assessee to allow deduction u/s 10A of the Act qua unit-wise. This issue has been decided in favour of the assessee by Hon'ble Bombay High Court in the case of Hindustan Unilever Ltd Vs. DCIT (325 ITR 102) and by the Hon'ble Supreme Court in the case of CIT Vs. Yokogawa India Ltd (391 ITR 274). Accordingly we direct the AO to compute deduction u/s 10A qua unit-wise. 60. The last issue relates to the setting off unabsorbed depreciation pertaining to previous years from the positive income of the units eligible for deduction u/s 10A. This issue has been decided in favour of the assessee by Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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