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TMI Blog2018 (3) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... t Hyderabad. Following the parity of reasoning as in the earlier years, we direct the Assessing Officer to allow the deduction u/s. 10A of the Act in respect of various undertakings established by the assessee from year to year, except new undertaking at Hyderabad which we shall decide separately. As per the undertakings claimed as TTC (BPO) the same was established in assessment year 2009-10 and the Tribunal has in ITA No. 282/PN/2014 vide paras 90 and 91 held that since, the assessee satisfies the employee condition as per the CBDT Circular No. 14/2004 dated 08.10.2014 held that there was no justification in denial of deduction u/s. 10A of the Act. The assessee has raised the issue of denial of deduction u/s. 10A in respect of TTC (BPO) by way of ground of appeal No. 3 and hence, the same is allowed. Claim the deduction u/s. 10A - applicability of provisions of section 33B - Held that:- Section 10A(2)(ii) states that this section applies to any undertaking which fulfills the condition that it was not formed by the splitting up, or the reconstruction, of a business already in existence. The proviso laid down that this condition shall not apply in respect of any undertaking whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for purchase of software and related payments - Held that:- As decided in assessee's own case the assessee was not liable to deduct tax at source on such payments. Once, the assessee had been held not to deduct tax at source there is no merit in making any disallowance u/s. 40(a)(ia) of the Act. Disallowance u/s 10A(7) r.w.s 80IA(10) - the assessee has earned substantial excessive profits - Held that:- We find that the issue is squarely covered by the order of Tribunal in the case of M/s. Honeywell Automation India Ltd. Vs. DCIT (supra) and also in the case of assessee. The Assessing Officer has invoked the provisions of section 10A(7) of the Act while comparing margins shown by the assessee with mean margins of comparables. Admittedly, there is no arrangement of earning more than ordinary profits pointed out by the Assessing Officer and in the absence of such arrangement, the provisions of section 10A(7) of the Act, are not attracted. We find no merit in ground of appeal raised by the Revenue in this regard. We uphold the order of DRP in directing the Assessing Officer to delete the disallowance made under section 10A(7) r.w.s. 80IA(10) of the Act though on protective basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing grounds of appeal :- In the facts and circumstances of the case and in law, the Learned Assessing Officer erred in making various additions / disallowances as under and further the Dispute Resolution Panel erred in conforming the said additions / disallowances and observations relating thereto made by the Assessing Officer 1. In making addition of ₹ 59,76,025/- to the total income, on account of interest chargeable on delayed receipts from the associated enterprises following adjustment made in the transfer pricing order u/s 92CA(3) of the Income-tax Act. The learned transfer pricing assessing officer erred: a. In concluding that the sum of ₹ 59,76,025/- is to be the arm's length compensation receivable by the assessee on account of interest chargeable on the amounts due from the associate entities beyond the credit period stipulated under the contract. b. In not appreciating the facts obtained in the case and proposing adjustment without applying any specified method. c. In not appreciating that on the basis of CUP method, no interest is recoverable from AE's since no interest is charged / recovered on delayed recoveries from Non-AEs also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up and reconstruction of the existing BPO business of the assessee which is being carried on at NDA 58 unit and thereby including the profits of the TTC BPO business in the profits of the NDA 58 unit for the purpose of allowing deduction u/s. 10A. 4. In making disallowance of ₹ 11,92,04,968 u/s 40(a)(ia) in respect of datalink charges. 5. In making disallowance of ₹ 72,10,172 u/s 40(a)(i) in respect of overseas payment for purchase of software and related payments. 6. The assessee craves leave to add to, withdraw or modify any of the grounds of appeal at the time of hearing. 4. The ld. AR for the assessee at the outset pointed out that the issue raised in the present set of appeals filed by the assessee and the Revenue are covered by different orders of the Tribunal in assessee s own case. We proceed to take up the issues ground wise. 5. The first issue raised in the assessee s appeal is against the adjustment made under the transfer pricing provision on account of interest on delayed recoveries of debtors balances from Associated Enterprises (AEs). 6. Briefly, in the facts of the case, the assessee for the year under consideration had furnished th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts due from its AEs and further it had not recovered any interest on delayed payments from its AEs during the year though, the assessee was recovering the interest on account of delayed payments from AEs during the assessment years 2003-04 to 2005-06. The assessee was thus show caused to explain as to why adjustment be not made in respect of delayed realization from AEs, taking interest at average six months LIBOR plus 300 basis point plus 200 basis point as guarantee commission. The assessee explained that it had filed an appeal before the Tribunal in respect of the adjustment proposed, which had allowed the claim of assessee, however, due to retrospective amendment in the definition of international transactions. The appeal filed by the Revenue before the Hon ble Bombay High Court was set aside to the Tribunal. The assessee further explained that during the year there was no interest cost on borrowings. It also explained the status of interest charged to the profit and loss account. The assessee also pointed out that it had not charged any interest on delayed recoveries and thus there was no price which applied in a transaction between persons other than AEs, in uncontrolled cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in assessee s own case relating to assessment year 2005-06 and the Tribunal while deciding the appeal of assessee in ITA No.1338/PN/2010 relating to assessment year 2006-07, applied the said ratio and directed the AO/TPO to re-compute the addition. The relevant findings of the Tribunal are in paras 31 and 32 of the order dated 06.06.2016. Reference is being made to the findings of Tribunal, however, the same are not being reproduced for the sake of brevity. The AO/TPO is thus, directed to re-compute the adjustment, if any, on account of interest chargeable on the amounts due from AEs as per the directions of Tribunal in the earlier years. The ground of appeal No.1 raised by the assessee is thus, allowed for statistical purpose. 11. The second issue raised by the assessee is with regard to the denial of deduction u/s. 10A of the Act. 12. The brief facts relating to the issue are that the assessee had claimed deduction u/s. 10A of the Act in respect of 12 undertakings wherein one was a BPO and the deduction claimed was allowed u/s. 10A of the Act. Out of balance 11 undertakings, the deduction u/s. 10A was allowed in respect of 10 undertakings, however, no such deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which have been allowed the deduction by the Tribunal in earlier years. The assessee has claimed that it has 12 eligible undertakings in the current year and there is no dispute in respect of the BPO undertaking. Out of balance 11 undertaking, 2 undertakings established in assessment year 2005-06, and 5 undertakings were established up to assessment year 2004-05; one undertaking established in assessment year 2007-08, one undertaking established in assessment year 2009-10 and TTC (BPO) undertaking established in assessment year 2009-10. The Tribunal in assessee s own case vide consolidated order dated 06.06.2016, in ITA No. 1338/PN/2010 relating to assessment year 2006-07, ITA No. 1451/PN/2011 relating to assessment year 2007-08, ITA No. 2507/PN/2012 relating to assessment year 2008-09 and ITA No. 282/PN/2014 relating to assessment year 2009-10 had individually considered the various undertakings established by the assessee from year to year and had also relied upon the order of Tribunal in assessment year 2005-06 and directed the Assessing Officer to allow the deduction u/s. 10A of the Act to the said eligible units. The only new undertaking which has been established in the curr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking established from year to year, on which the assessee had claimed the deduction u/s. 10A of the Act, had been allowed on the basis of said CBDT Circular. Accordingly, we find no merit in the plea of the assessee in this regard. The assessee had referred to the provisions of section 10A(2)(ii) of the Act and proviso therein. Section 10A(2)(ii) states that this section applies to any undertaking which fulfills the condition that it was not formed by the splitting up, or the reconstruction, of a business already in existence. The proviso laid down that this condition shall not apply in respect of any undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section. Section 33B of the Act talks of a business of any industrial undertaking carried on in India was discontinued in any previous year by reason of extensive damage to, or destruction of, any building, machinery, plant or furniture owned by the assessee because of natural calamities i.e. riot, civil disturbance, accidental fire, explosi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions before the CIT(A) vide letter dated 01.04.2013 along with Flow chart / Diagram of how the DATA links works which is placed at pages 24 to 26 of the Paper Book. The assessee also placed on record the sample copies of purchase orders at pages 27 onwards under which, it was explained that the perusal of the bills would reflect the basis of charges, rates, etc. which were fixed / agreed upon and finally billed by the DATA link providers and it was vehemently stated that the same does in no way indicate involvement or otherwise of human intervention in the DATA link process. In view thereof, in the absence of any human intervention between the assessee and the services provided by the DATA link provider, it cannot be said that the payment made by the assessee was for technical services. Merely because for maintenance purpose certain human intervention was provided, cannot lead to the surmise that the DATA link charges paid to various telecom service providers, were in the nature of technical services governed by the provisions of section 194J of the Act. The DATA link charges were paid for utilizing the standard facilities which were provided by the individual service provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de for transfer of user rights of software and availing other services such as maintenance of software training etc. The Tribunal vide order dated 10.04.2015 after taking note of the various payments made, held that the assessee was not liable to deduct tax at source on such payments. Once, the assessee had been held not to deduct tax at source there is no merit in making any disallowance u/s. 40(a)(ia) of the Act. Accordingly, we delete the disallowance made by the Assessing Officer in this regard. The ground of appeal No. 5 raised by the assessee in appeal is thus, allowed. 23. Now, coming to the appeal filed by the Revenue. The Revenue in ITA No.360/PUN/2015 has raised the following grounds of appeal:- 1 The Ld. DRP has erred in directing the Assessing Officer to delete disallowance u/s 10A(7) r.w.s 80IA(10) when in fact the assessee has earned substantial excessive profits as discussed in Assessment Order. 2 The Ld. DRP erred in directing the Assessing Officer to delete the ESOP cost on the basis of the special Bench of ITAT Bangalore decision in the case of Biocon Limited even though the issue has not reached finality and being notional. 3 The Ld. DRP erred in dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act for claiming deduction on more than ordinary profits is relevant. The Assessing Officer noted the net profit margin of the assessee was at 31.34%. However, the mean margin of comparables selected for benchmarking the international transactions worked to 12.40%. The Assessing Officer was of the view that disallowance under section 10A(7) r.w.s. 80IA(10) of the Act is warranted in the case. The case of assessee was that there must be an arrangement between the assessee and other person and also the assessee must make more than ordinary profits out of such arrangements in order to invoke the applicability of section 10A(7) r.w.s. 80IA(10) of the Act. The Assessing Officer however, rejecting the plea of assessee recomputed the profits of BPO business and worked out the disallowance under section 10A(7) of the Act on protective basis at ₹ 83,09,16,123/-. The disallowance under section 10A of the Act in respect of BPO business was worked out at ₹ 85,95,207/-. The DRP deleted the disallowance made under section 10A(7) r.w.s. 80IA(10) of the Act, against which the Revenue is in appeal before us. 27. We find that the issue is squarely covered by the order of Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue are that the assessee for the year under consideration had earned dividend income of ₹ 54,11,33,097/-. The said dividend income was claimed as exempt. The assessee had made investment in shares of overseas subsidiary companies, bonds and mutual funds. The dividend from foreign subsidiaries was taxable in India and also interest earned on bonds. The assessee had not made any investment in shares of Indian companies. The assessee claims that it had made investments in other than equity oriented mutual fund scheme. Thus, the capital gain on redemption of such mutual fund units was taxable either as long term or short term capital gain. In the case of growth scheme, the assessee claimed not to be entitled to receive any dividend. The assessee further pointed out that the dividend was received / reinvested only in case of dividend option schemes of mutual funds. However, in such case also, capital gains were taxable. The assessee had disallowed sum of ₹ 50 lakhs being expenditure incurred relating to exempt income earned as per provisions of section 14A of the Act. The assessee explained that no part of interest was attributable to earning of exempt income except intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue was not satisfaction at all. 34. We have heard the rival contentions and perused the record. The Assessing Officer while passing the assessment order in para 10 had observed that the assessee had earned significant amount of tax free dividends and in the computation of income, the assessee has disallowed sum of ₹ 50 lakhs under section 14A of the Act. Then, reference is made to the Note filed by the assessee on expenditure disallowable under section 14A of the Act. The Assessing Officer thereafter, takes note of the contents of said explanation and observed as under:- I have gone through the submissions made by the assessee. It is observed that apart from investments in the overseas subsidiaries (where there is no tax-free income since the dividend is also taxable) the investments made by the assessee are in mutual funds. The entire investment in mutual fund is in non-equity scheme. In respect of investment in mutual funds, except for growth funds, the company receives tax free dividend. The amount of dividend received by the company is substantial. This is a clear case for application of Rule 8D. Hence, the contention of the assessee cannot be accepted. The disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is in respect of setting off of losses of 10A undertakings against other business income. The said issue as per the assessee is squarely covered by the order of Tribunal and the Hon ble Bombay High Court in assessee s own case in earlier years. Reliance was placed on the order of Tribunal for assessment years 2006-07 to 2009-10, dated 06.06.2016. 38. We find that similar issue arose before the Tribunal in assessee s own case and while deciding the appeal for assessment year 2006-07, the Tribunal held that the said issue stands covered by the decision of Hon ble Bombay High Court in assessee s own case, which had been followed by the Tribunal in assessment year 2005-06. The Tribunal also observed that no SLP was filed by the Revenue before the Hon'ble Supreme Court. The relevant findings of the Tribunal are in paras 46, 47 and 48. We are making reference to the said findings but the same are not being reproduced for the sake of brevity. We find that the Revenue in an appeal filed before the Hon ble Bombay High Court in ITA No.1148 of 2012, relating to assessment year 2002-03 had raised the issue in respect of set off of losses against business profits including specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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