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TMI Blog2022 (7) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... ncontroverted by the Revenue. If that be so, without bringing on record any adverse material, the accounting standard followed by the assessee for apportionment of expenses between different units cannot be faulted. We do not find any substance in the written submission filed by the DR in support of the apportionment of expenses in proportion of the revenue earned by 10A units and non 10A units done by the Ld. AO in both the AYs. Accordingly, we endorse the findings of the Ld. CIT(A) that the allocation of expenses between 10A units and non 10A units made by the assessee cannot be disturbed and therefore, the disallowance of deduction in AY 2007-08 and AY 2008-09 respectively under section 10A of the Act has rightly been deleted by the Ld. CIT(A). The grounds taken by the Revenue in this regard in both the AYs are rejected. - Decided in favour of assessee. - ITA No. 6365/Del/2016 And ITA No. 3272/Del/2016 - - - Dated:- 20-7-2022 - Shri Anil Chaturvedi, Accountant Member And Ms. Astha Chandra, Judicial Member For the Assessee : Shri S.K. Aggarwal, CA For the Department : Shri Ishtiyanque Ahmed, CIT(DR) ORDER PER ASTHA CHANDRA These appeals by the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed under section 10A of the Act in both the AY 2007-08 and AY 2008-09. The Ld. CIT(A) deleted the impugned disallowance made by the Ld. AO in both the assessment years by observing in almost identical words in the concluding para as under :- In view of the discussion made above, it is held that Assessing Officer was not justified in allocating the royalty expenses, management fee expenses paid by the non-10A units to the Hewitt Affiliates LLC to the 10A units in proportion to the revenue earned by the units. The Assessing Officer was also not justified in further allocating the legal and professional expenses to 10A units over and above the expenses already incurred by such units. As discussed above, the royalty is paid to the Hewitt Affiliates LLC as per the clause 3 of the license agreement for the revenue derived from third parties for rendering services. Similarly, the management fee is also paid to Hewitt Affiliates LLC by the consulting division and human resource outsourcing division for utilizing services of various group entities based on their revenue contribution, therefore, these expenses cannot be apportioned to the 10A units which are captive service provider t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd parties and then the same work used to be outsourced to 10A eligible units. On receipt of deliverables of outsourced work from captive units, the non 10A eligible units delivered the services to its clients. 6.3 The Ld. DR further stated that BPO (10A eligible unit) was engaged into providing exactly similar set of services which were being provided by non 10A units to its clients. In substance, the services got delivered by 10A eligible back office units to non 10A eligible units which in turn got delivered to third parties. 6.4 According to Ld. DR, why for delivery of similar set of services, 10A eligible units do not require such corporate services and such management services. There is no justification that the corporate overhead charges and management charges ought to be allocated only to non 10A units whereas the service agreement per se does not make any such distinction. The agreement talks of the nature of services which are relevant for both 10A eligible units and non 10A eligible units as both are engaged in exactly same set of services. The hard fact is that the services to third parties get delivered only after outsourcing the same to 10A eligible units. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts as well as 10A units. 7.2 According to the Ld. AR as per the License Agreements between the assessee and Hewitt Associates LLC, the assessee has been given non exclusive, perpetual, worldwide, non-assignable license and right to use the intellectual property as set-forth in the said Licence Agreements. As per clause 3 thereof, in consideration for grant of licence, the assessee will pay a flat royalty fee based upon gross revenue of the assessee derived from third parties. Since non 10A units earn revenue from third parties, as per the terms of agreement, a royalty as a percentage of net revenue derived from third parties has been paid by non 10A units to Hewitt Associates LLC during both the years. In respect to 10A units, since these 10A units are captive units and render services to Hewitt group entities only, royalty was neither paid nor payable by these captive units to Hewitt Associates LLC. Accordingly, royalty of Rs. 10,85,750/- and Rs. 2,60,64,000/- based on non-10A unit s revenue has been duly accounted for in consulting and human resource outsourcing division s P L Account in AY 2007-08 and AY 2008-09 respectively. 7.3 Regarding management fee, it is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n consulting and human resource divisions P L Account for the AY 2007-08 and AY 2008-09 respectively. 7.4 Regarding legal and professional expense, the Ld. AR submitted that these expenses are accounted on actual basis. Out of total expenditure of Rs. 6,99,85,598/- and Rs. 8,89,18,330/- under the head legal and professional services, Rs. 5,39,14,583/- and Rs. 4,22,88,729/- have been debited to 10A units which is 77.04% and 47.56% of total expenditure in AY 2007-08 and AY 2008-09 respectively. 7.4.1 In so far as legal and professional expenses for non 10A units are concerned, it is submitted that the assessee engages independent consultants having experience in human resource field on project to project basis. They were hired to deliver client project as and when required. They performed on client projects which are not related to captive units of the assessee and accordingly invoices were raised by the independent consultants for various consultancy/human resources projects (i.e. non 10A units). 7.4.2 It is contended by the Ld. AR that legal and professional fee has been duly accounted for in consulting and human resource outsourcing divisions P L Accounts (i.e. non 10A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As to Seminar and Meeting expense, it is submitted that these expenses are directly related to non 10A units i.e. consulting division and human resource outsourcing division. Accordingly, the same are duly accounted for in consulting division s (i.e. non 10A units) P L Account and no disallowance is called for in AY 2008-09. 8. We have carefully considered the rival submissions of the parties, perused the orders of the Ld. AO/CIT(A) and the material available in the records. We have observed that the assessee has five units in India out of which two units are non 10A units and the remaining three are set up in the area where section 10A deductions are admissible. 8.1 On being asked about the basis of allocation of expenses by the Ld. AO, the assessee submitted details of expenses incurred on 10A units and non 10A units in both the AYs. Perusal thereof made the Ld. AO to conclude that the assessee is reducing income in the units where no deduction under section 10A is admissible by debiting expenses under the head Royalty, Management Fee and Legal and Professional Expenses in AY 2007-08 and by debiting expenses under the head Royalty, Management Fee and Corporate Overhead C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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