Income Tax Appellate Tribunal - Bangalore
Sasken Technologies Limited, ... vs Assistant Commissioner Of Income Tax, ... on 16 May, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCHES "B", BANGALORE
Before Shri George George K, JM & Shri Laxmi Prasad Sahu, AM
IT(TP)A No.150/Bang/2023 : Asst.Year 2010-2011
M/s.Sasken Technologies Limited The Assistant Commissioner
#139/25, Amarjyothi Layout v. of Income-tax, Circle 6(1)(1)
Ring Road, Domlur Bangalore.
Bangalore - 560 071.
PAN : AAECS6424R..
(Appellant) (Respondent)
Appellant by : Sri.Padam Chand Kincha, CA
Respondent by : Sri.Sunil Kumar Singh, CIT-DR
Date of
Date of Hearing : 03.05.2023 Pronouncement : 16.05.2023
ORDER
Per George George K, JM :
This appeal at the instance of the assessee is directed against final assessment order dated 25.01.2023 passed u/s 143(3) r.w.s. 144C(13) r.w.s. 263 of the Income-tax Act, 1961 ("the Act" for short). The relevant assessment year is 2010- 2011.
2. The brief facts of the case are as follows:
The assessee is a company engaged in the business of providing telecommunication, software services and solutions to various entities. For the assessment year 2010-2011, the return of income was filed on 11.10.2010 declaring total income of Rs.42,59,22,566 and book profit of Rs.66,46,62,271. The assessment was selected for scrutiny and mandatory notices u/s 143(2) and 142(1) of the Act were 2 IT(TP)A No.150/Bang/2023.
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issued and served on the assessee. The final assessment order u/s 143(3) r.w.s. 144C(13) of the Act was passed on 29.01.2015 assessing the total income of Rs.62,98,27,338. In the said final assessment order, following additions / disallowances were made:-
(i) Excess deduction u/s 10A / 10AA Rs.16,43,07,338
(ii) Disallowance u/s 14A Rs. 1,28,29,387
(iii) Transfer pricing adjustment Rs. 2,67,68,300
3. Aggrieved by the final assessment order, the assessee as well as the Revenue filed appeals before the Tribunal. The Tribunal vide order dated 02.10.2016 in IT(TP)A Nos.397 and 376/Bang/2015, had set aside the issues to the files of the AO/TPO. The directions issued by the Tribunal for redoing the assessment are as follows:-
a) Transfer pricing adjustment: The ITAT directed to decide the issue afresh in light of the decisions in the case of Sami Labs Ltd and Indegene Lifesystems P Ltd.
b) Disallowance under section 14A: The ITAT directed the AO to decide the issue afresh.
c) Disallowance under section 10A/10AA: Eligibility of Royalty Income for deduction under section
10A/10AA: The ITAT directed the AO to decide afresh on the basis of Jurisdictional High Court Cases in Wipro and Motorola India Electronics P Ltd Non-reduction of foreign expenses from export turnover: The ITAT directed the AO to decide afresh on the basis of Jurisdictional High Court decisions in Motor Industries Co. Ltd and Mphasis Ltd.
d) Allowance of Short Credit of TDS: The ITAT directed to verify and grant TDS credit as claimed in the return of income.3
IT(TP)A No.150/Bang/2023.
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4. Pursuant to the remand by the Tribunal, the A.O. passed order on 13.11.2017, providing substantial relief to the assessee.
5. In the meanwhile, the Revenue filed appeal before the Hon'ble High Court u/s 260A of the Act against the Tribunal order in IT(TP)A No.397 & 396/Bang/2015 dated 21.10.2016. As against the assessee's appeal in IT(TP) A No. 397/Bang/2015 before the Tribunal, the revenue filed an appeal to Karnataka High Court which was numbered as ITA No. 264 of 2017. The substantial questions of law raised in this appeal was as under:-
"(i) Whether on the facts and in the circumstances of the case, the Tribunal is right in law giving relief to assessee in respect of computation of deduction under section 10A by relying upon the decision of this Hon'ble Court in case of CIT v Tata Elxsi when said judgment has been challenged before Apex Court?
(ii) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the addition of Rs. 16,43,07,085 treated as royalty income by the assessee while computing the deduction under section 10A/10AA by following the decisions in the case of Wipro Ltd and Motorola India Electronics Pvt. Ltd even when the assessing authority rightly held that the same is not derived by the export business of the industrial undertakings and ingredients of sections 10A/10AA are not satisfied to claim such deduction?
(iii) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the re-
computation of reduction in respect of 10A/10AA claim of the assessee with respect to telecommunication charges, insurance charges and foreign currency expenses by following the decisions of this Hon'ble High Court in the case of Emphasis Ltd, Motor Industries Company Limited and Kshema Technologies Ltd even though the said decisions have not reached finality and assessing authority had rightly 4 IT(TP)A No.150/Bang/2023.
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recomputed the deduction in accordance with the provisions of the Act"?"
6. The Hon'ble High Court of Karnataka vide order dated 5.11.2018 in ITA No 264 of 2017 dismissed the appeal for the reason that the first substantial question of law is covered by the judgment of the Hon'ble Supreme Court in the case of CIT v HCL Technologies Ltd [2018] 93 taxmann.com 33 and the second and third substantial question of law is covered by the judgement of Karnataka High Court in the case of CIT v Motorola India Electronics (P) Ltd [2014] 46 taxmann.com 167 (Karnataka). As against the dismissal of revenue's appeal in IT(TP) A No. 376/Bang/2015 before the Tribunal, the revenue filed an appeal to Karnataka High Court which was numbered as ITA No. 263 of 2017. The substantial questions of law in this appeal were similar to the substantial questions of law in ITA No. 264/2017. The Hon'ble Karnataka High Court vide order dated 13.12.2017 dismissed the appeal for the reason that the question no. 1 is answered against the revenue in CIT v TATA Elxsi Ltd 349 ITR 98 and question no 2 & 3 are kept open to be considered in ITA No. 264/2017. The question no 2 & 3 of the revenue's appeal in ITA No. 264/2017 was dismissed by the Hon'ble Karnataka High Court vide order dated 5.11.2018. Aggrieved by the order of the Karnataka High Court in ITA No. 264/2017 dated 5.11.2018, the revenue filed a special leave petition before the Hon'ble Supreme Court. The Supreme Court vide order dated 20.03.2023 disposed of the petition by granting liberty to the revenue to 5 IT(TP)A No.150/Bang/2023.
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file appropriate application before the High Court to seek restoration of the appeal and reconsideration of the case. Copy of the decision of the Hon'ble Supreme Court is placed on record.
7. In the meantime, when the SLP was pending before the Supreme Court, the Pr. Commissioner of the income Tax, Bengaluru-1, Bengaluru passed order under section 263 of the IT Act dated 19.03.2021 and set aside the AO's OGE dated 13.11.2017 stating that the same was erroneous and prejudicial to the interest of the revenue as it did not follow the directions of the ITAT. Further, the AO was directed to pass a fresh assessment order in accordance with section 254 r.w.s 143(3) of the Act.
8. Aggrieved by the order under section 263, the Assessee filed an appeal before the ITAT on 31.03.2021. The ITAT passed the order in ITA No. 147/Bang/2021 dated 03.12.2021 dismissing the assessee's appeal and stated that the Tribunal do not find any infirmity in the impugned revision order passed by the PCIT. However, the Tribunal gave a specific finding that that while giving effect to the revision order passed u/s 263 of the Act by the PCIT, the AO is duty bound to follow the binding decision rendered by the Hon'ble Jurisdictional Karnataka High Court in the Assessee's own case for A.Y 2010-11.
9. Consequent to the order passed under section 263, the AO issued notice under section 142(1) of the Act calling for 6 IT(TP)A No.150/Bang/2023.
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details regarding the disallowance under section 14A, 10A/10AA, royalty income, telecommunication and insurance expenses and other expenses incurred in foreign currency. The assessee filed the details called for vide its letter dated 21.03.2022. The AO thereafter passed the draft assessment order under section 143(3) read with section 263 dated 29.03.2022 proposing to make the following adjustments:
a) Transfer Pricing Adjustment: Based on the order of the TPO under section 92CA(3) dated 15.09.2017 the transfer pricing adjustment is made at Rs. 1,90,949.
b) Disallowance under section 14A: The AO reduced the disallowance under section 14A to Rs.44,71,240.
c) Disallowance under section 10A/10AA: The AO did not accept the contentions of the assessee. The A.O. held that the view of the Hon'ble High Court in assessees own case has not been accepted by the department and that it has filed a SLP before the Hon'ble Apex Court. Accordingly, the AO recomputed the deduction under section 10A/10AA by reducing (i) foreign currency expenses of Rs. 75,83,99,367 from both export turnover and total turnover; (ii) royalty income of Rs. 13,15,59,000 from the profits of STPI and SEZ units. In view of the above variations, deduction allowable under section 10A/10AA was computed at Rs. 29,97,95,613 as against the claim of Rs.
43,38,85,545 as per return of income. The AO accordingly made an addition of Rs. 13,40,89,032 [ 43,38,85,545 - 29,97,95,613] to the returned income.
10. The AO disallowed foreign tax credit totally amounting to Rs. 86,77,874. Foreign tax credit in respect of withholding of tax by Sasken Mexico amounting to Rs. 22,29,594 has been 7 IT(TP)A No.150/Bang/2023.
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disallowed for the reason that interest income from Sasken Mexico amounted to Rs. 21,81,000 and hence FTC at 10% should have been only Rs. 2,18,100 and not Rs. 24,47,694 as claimed. Further, it is stated in the draft order that (i) taxes have been paid on profits disclosed by branch Permanent Establishments of the company in various countries; (ii) The taxes have been paid as per the local laws at varying rates; (iii) In India the tax rate on branch profits has been computed at 30% of the profits; (iv) It is seen that the effective tax rate in India is 13.25% however the assessee has calculated FTC more. (v) Hence, the FTC credit wrongly allowed in OGE. The FTC credit of Rs. 22,83,342 is only allowable. Thereby, in totality FTC of Rs. 86,77,874 [Rs. 1,09,61,216- Rs. 22,83,342] was disallowed by the AO.
11. On receipt of draft assessment order, the assessee filed its objections before the Dispute Resolution Panel ('DRP') on 25.04.2022 vide Form 35A. The DRP disposed the objections of the assessee vide order dated 05.12.2022 by adjudicating as follows:
a) Eligibility of royalty income for deduction under section 10A - This was held against the Appellant by the Hon'ble DRP.
b) Transfer Pricing Adjustment amounting to Rs.1,90,949
- This addition was upheld by the Hon'ble DRP.
c) Exclusion of foreign currency expenses while computing deduction under section 10A - This was held against the Appellant by the Hon'ble DRP.8
IT(TP)A No.150/Bang/2023.
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d) Disallowance under section 14A amounting to Rs. 44,71,240 - This addition was upheld by the Hon'ble DRP.
e) Foreign Tax Credit - AO was directed to verify the submissions of the Appellant and decide accordingly.
12. The A.O. on receipt of DRP's directions passed the impugned final assessment u/s 143(3) r.w.s. 144C(13) and 254 on 25.01-2023 arriving at an assessed income of Rs.56,46,74,147. The additions were on account of the following:
a) Transfer Pricing Adjustment: Rs.1,90,949
b) Disallowance u/s 14A: Rs.44,71,240
c) Excess deduction u/s 10A: Rs.13,40,89,392
d) Short Credit of foreign taxes paid amounting to Rs.64,30,180
13. Aggrieved by the aforesaid final assessment order dated 25.01.2023, the assessee has preferred this appeal before the Tribunal. The assessee has filed 13 grounds. Grounds 1 and 13 are general in nature and no specific adjudication is called for, hence, grounds 1 & 13 are dismissed. Grounds 10, 11 & 12 are regarding levy of interest u/s 234B, 234D and 220(2) of the Act. The levy of interest u/s 234B, 234D and 220(2) of the Act are consequential in nature, hence, grounds 10, 11 & 12 are dismissed. The surviving grounds Nos.2 to 9 read as follows:-9
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"2. Exclusion of royalty income from profits eligible for deduction under section 10A and 10AA 2.1. The learned AO has erred in excluding royalty income amounting to Rs. 13,15,59,000/- from the profits eligible for deduction under section 10A / 10AA without appreciating the fact that the royalty income constitutes profits of the business of the STPI units 1 SEZ units and consequently the same is eligible for deduction under section 10A and 10AA.
2.2. The learned AO /DRP have erred in not following the directions of the ITAT in appellant's own case for A Y 2010-11 and the decisions of IT A T and Karnataka High Court in appellant's own case allowing deduction under section 10Afl0AA in respect of royalty income.
2.3. The learned AO has erred in relying on the decision of the Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd vs. CIT [2021] 125 taxmann.com 42 (St,'), to conclude that royalty income cannot be said to accrue to any specific undertaking.
2.4. In any case and without prejudice, the learned AO further erred in allocating the royalty income on the basis of turnover of all units although such royalty income was pertaining only to Bangalore - SEZ, Pune - STPI, Chennai -
STPI and Bangalore - STPI units.
2.5. Further, the learned AO has erred in calculating deduction under section 10A / 10AA on combined basis for all the eligible units rather than each undertaking wise.
2.6. On the facts and circumstances of the case and in law, royalty income should be included in profits of business of 10A/I0AA units and deduction should be allowed accordingly.
3. Expenses incurred in foreign currency reduced from export turnover in computing deduction under section 10A 3.1 The learned AO and the DRP erred in:
(a) Reducing the expenses incurred in foreign currency amounting to Rs. 75,83,99,367 from the export turnover in computing deduction under section 10A / 10AA of the Act.
(b) Not following the decisions of ITAT in appellant's own 10 IT(TP)A No.150/Bang/2023.
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case and the Karnataka High Court decisions holding that expenses incurred in foreign currency should not be reduced from export turnover while computing deduction under section 10A.
(c) Not appreciating that the for the purposes of section 10AA, the assessee had already reduced foreign currency expenses of Rs. 18,06,62,633 from the export turnover and hence nothing more should be reduced from the export turnover under section 10AA.
(d) On facts and circumstances of the case and law applicable, expenses incurred in foreign currency amounting to Rs. 75,83,99,367 should not be reduced from export turnover in computing deduction under section 10A.
4. TP adjustment on Interest received from Sasken Inc, USA and Sasken Mexico 4.1. The learned TPO erred in making an adjustment of Rs.1,90,949 for interest received from Sasken Inc, USA and Sasken Communication Technologies S.A.DE.CV, Mexico under section 92CA of the Act and the learned DRP has erred in confirming the same.
4.2. The learned TPO erred in concluding that the ALP for the interest received on loan from AE should be computed at LIBOR+3%, which is against the directions of the ITAT in appellant's own case for the AY 2010-11.
4.3. The learned TPO erred in not appreciating that the ITAT in appellant's own case for the A Y 2010-11 directed the TPO to examine the issue afresh in the light of decisions in Sami Labs Ltd v DCIT IT(TP)A No 1358/Bang/2011 dt. 4.12.2015 and Indegene Lifesystems P Ltd v ACIT 2015 60 taxmann.com 28, which held that ALP of interest on loans to AE should be computed at LIBOR.
4.4. The learned TPO erred in applying 300 basis points on account of country and foreign exchange risk in line with the RBI Master Circular No. 8/2010-11 dated 01.07.2010. The same is inapplicable in the present case and hence is liable to be deleted.
4.5. The learned TPO erred in not following the binding decisions of the ITAT Bangalore and High courts.
11IT(TP)A No.150/Bang/2023.
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4.6. On the facts and circumstances of the case and in law, the addition of Rs.1,90,949 representing the shortfall in interest received on loan is against the settled judicial principles and accordingly the same should be deleted in its entirety.
5. Disallowance under section 14A 5.1. The learned AO has erred in disallowing an 'additional' sum of Rs. 44,71,240/- under section 14A read with rule 8D(2)(iii) of the Income Tax Rules, 1962 without demonstrating as to how the claim of the Assessee regarding attribution of expenses relatable to income not chargeable to tax is incorrect.
5.2. The learned AOIDRP have erred in not appreciating that the Appellant did not incur any expenditure towards earning the exempt income other than amount disallowed in the return of income.
5.3. Without prejudice, while computing the disallowance under section 14A the learned AO has erred in considering the value of investment in joint ventures and domestic subsidiaries without appreciating that there is no income from such investment nor any related costs were incurred and hence are out of purview of section 14A.
5.4. Without prejudice, no disallowance under section 14A can be made in view of amended / substituted rule 8D.
5.5. On facts and in the circumstances of the case and law applicable, disallowance made under section 14A of the Act read with rule 8D(2)(iii) of the Income-tax Rules, 1962 (''the Rules") amounting to Rs.44,71,240/- should be fully deleted.
6. Disallowance of Foreign tax credit 6.1. The learned AO erred in disallowing the Foreign Tax Credit ('FTC') to the extent of Rs.64,30,180 under section 90 of the Act.
6.2. The AO erred in exceeding jurisdiction by adjudicating on matters not forming part of the remand direction of the (i) Hon'ble ITAT in appellant's own case for AY 2010-11 (ii) PCIT as per order passed under section 263 or any other proceedings.
6.3. Further, the learned AO had not provided for the basis on which he computed average rate of tax and also not provided 12 IT(TP)A No.150/Bang/2023.
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any opportunity to the appellant to justify their claim of foreign tax credit claimed in return of income and which was duly allowed in the first assessment order.
6.4. On the facts and circumstances of the case and in law the disallowance of foreign tax credit of Rs. 64,30,180 should be deleted.
7. Non-grant of credit for tax deducted at source 7.1. The learned AO has erred in not giving credit for tax deducted at source to the extent of Rs.14,03,105/-, although it is claimed in the return of income and is clearly visible in Form 26AS.
7.2. On the facts and in the circumstances of the case, credit for tax deducted at source should be given to the assessee.
8. Non-grant of credit for advance tax paid 8.1. The learned AO has erred in not giving credit for the advance tax paid of Rs. 15,00,000/-, although the same is claimed -in the return of income and is visible in Form 26AS.
8.2. On the facts and in the circumstances of the case, credit for advance tax paid should be given to the assessee.
9. Consideration of incorrect refunds issued and regular taxes paid 9.1. The learned AO has erred in considering incorrect refunds issued and regular taxes paid while computing the tax liability.
9.2. The learned AO has erred in considering the refunds issued by the International taxation wing of Rs. 23,28,528/- in relating to the TDS on computer software royalty. 9.3 The learned AO has erred in considering the taxes paid under protect of Rs.13,77,828/- in relation to the TDSX on computer software royalty.
9.4 On the facts and in the circumstances of the case, the incorrect adjustment of refunds issued and regular taxes paid should be deleted. The net impact comes to Rs.9,50,700/-.
14. We shall adjudicate the above grounds as under.
13IT(TP)A No.150/Bang/2023.
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Ground No. 2.1 to 2.4 - Ground with respect to exclusion of royalty income while computing deduction under section 10A/10AA
15. During the year, the Assessee had earned royalty income of Rs.13,15,59,000. The said amount represents consideration towards use of software products developed by the assessee. The assessee accordingly included the same as part of the profits and gains of the business eligible for exemption under section 10A / 10AA. It is pertinent to note that the assessee does not have non-STPI or non-SEZ units.
15.1 In the first round of appellate proceedings the ITAT remanded the matter with a direction to verify the claim of the assessee in light of the ratio laid down by Hon'ble Karnataka High Court in case of CIT vs. Wipro Ltd in ITA Nos. 503 and 507 of 2002. During the remand proceedings before the AO, the Assessee submitted the details of export invoices raised during the financial year 2009-10 relating to royalty issued from the STPI and SEZ units, justifying that the royalty income belonged to STPI/SEZ units.
15.2 The AO did not accept the claim of the assessee for the reason that fresh position of law had emerged considering the judgment of the Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd vs. CIT [2021] 125 taxmann.com 42 (SC). Relying on the said decision, the AO held that ownership of software for which royalty had been received, vested with the corporate entity and not with the specific 14 IT(TP)A No.150/Bang/2023.
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SEZ/STPI undertaking. For this reason, the royalty income was reduced from profits while computing deduction under section 10A/10AA.
15.3 The DRP concurred with the views of the AO by stating that the decision of the Karnataka High Court in assessee's own case for AY 2010-11 is taken in appeal before the Supreme Court and thus the issue has not attained finality.
15.4 We have heard rival submissions and perused the material on record. We notice that the Hon'ble Karnataka High Court in assessee's own case for AY 2009-10 (ITA No. 55/2021 dated 03.09.2021) held that royalty income constitutes profits and gains of business and eligible for deduction under section 10A. The relevant finding of the Hon'ble High Court reads as follows:-
" This appeal is filed by the revenue under section 260A of the Income Tax Act, 1961 assailing the order of the Income Tax Appellate Tribunal, "C"
Bench, Bangalore (Tribunal' for short), dated 16.10.2019 passed in ITA No.1731/Bang/2018 relating to the assessment year 2009-10, raising following substantial questions of law:-
"1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law confirming the order passed by CIT(A) holding that Royalty Income has to be treated as Income from business even when Royalty Income was not derived from business carried by assessee but was only attributable to business of the assessee?
2. Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in confirming the order passed by CIT(A) holding that Royalty Income has to be treated as Income from business even when Royalty Income was not derived from business carried by assessee but was only attributable to business?"
2. At the outset, the learned counsel for the assessee placing reliance on the judgment of the co-ordinate bench of this Court passed in the case of very same assessee in ITA No.264/2017 dated 05.11.2018 would contend 15 IT(TP)A No.150/Bang/2023.
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that the very identical substantial questions of law raised by the revenue were considered and answered by this Court. This Court, recording that the substantial questions of law raised being covered by the judgment of this Court in the case of Commissioner of Income tax, Central Circle vs. Motorola India Electronics (P) Ltd., reported in (2014) 46 taxmann.com 167 (Karnataka) was pleased to dismiss the appeal. Hence, the substantial questions of law raised herein, being identical, the appeal deserves to be dismissed answering the substantial questions of law raised, against the revenue and in favour of the assessee.
3. Learned counsel for the revenue made an endeavor to distinguish the judgments of the co-ordinate bench decision in the very same assessee's case referred to supra, referring to the following judgments:-
1) Commissioner of Income-tax vs. Meghalaya Steels Ltd., [(2016) 67 taxmann.com 158 (SC)];
2) Commissioner of Income-tax vs. Sasken Communication Technologies Ltd., [(2014) 50 taxmann.com 134 (Karnataka)];
3) Commissioner of Income-tax vs. Yokogawa India Ltd., [(2017) 77 taxmann.com 41 (SC)];
4) Commissioner of Income-tax, Central Circle vs. Motorola India Electronics (P.) Ltd., [(2014) 46 taxmann.com 167 (Karnataka)];
5) Commissioner of Income-tax - VII, New Delhi vs. Punjab Stainless Steel Industries [(2014) 46 taxmann.com 68 (SC)];
6) Commissioner of Income-tax vs. Hewlett Packard Global Soft Ltd., [(2017) 87 taxmann.com 182 (Karnataka) (FB)];
7) Commissioner of Income tax, Central Circle - III vs. HCL Technologies Ltd., [(2018) 93 taxmann.com 33 (SC)];
8) M/s. Tata Elxsi Limited vs. The Assistant Commissioner of Income Tax, Bangalore (ILR 2015 KAR 1739).
4. It is not in dispute that the judgment of this Court in ITA No.264/2017 dated 05.11.2018 has been carried by the revenue in appeal before the Hon'ble Apex Court in SLP No.21055/ 2019 which is pending consideration. In view of the aforesaid, we are not inclined to either differ from the judgment of the co-ordinate bench or venture to sit in judgment over the said decision to adjudicate upon the issues fully covered and decided, referring to the judgments now cited by the revenue. Accordingly, answering the substantial questions of law raised herein, against the revenue and in favour of the assessee, we dismiss the appeal."
15.5 The Hon'ble High Court in the aforesaid case followed its judgement in assessee's case for AY 2010-11 (ITA No. 264/2017 dated 05.11.2018) which was carried by the revenue in appeal before the Hon'ble Supreme Court (SLP No.21055/ 2019). The Hon'ble Supreme Court vide order dated 20.03.2023 dismissed the aforesaid SLP by granting 16 IT(TP)A No.150/Bang/2023.
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liberty to the revenue to file appropriate application before the High Court to seek restoration of the appeal and reconsideration of the case. It is to be noted that the Supreme Court has not set aside or reversed the decision of the High Court for AY 2010-11. Hence, the decision of the Hon'ble High Court for AY 2010-11 is applicable as there is no change in the facts and circumstances. The co-ordinate bench of this Tribunal in assessee's own case for AY 2011-12 in IT(TP)A No. 788/Bang/2022 vide order dated 11.11.2022 followed the decision of the Hon'ble High Court for AY 2009-10 and held that royalty income is eligible for deduction under section 10A. The relevant extract of the decision is as given below:
"23. The fact that royalty income was out of licensing of software products developed by the STPI /SEZ units has been accepted by the revenue in the earlier years and for the year under consideration the AO and the DRP have not disputed the fact that the royalty income was out of software products developed from the STPI and SEZ units. It is submitted by the ld AR that the nexus with the STPI/SEZ units has been established by submitting the details of royalty income, invoices, annual performance report etc. and that the revenue has not brought any contrary evidence on record to justify the exclusion of royalty income from business profits. We also see merit in the argument of the ld AR that the assessee does not have a non-STPI or non-SEZ units and by submitting the relevant documents, the nexus of royalty income with the STPI/SEZ units are established. Given that there is no change in facts in the year under consideration as compared to earlier years, in our view the decision of the Hon'ble High Court in assessee's own case is applicable for the year under consideration. Therefore respectfully following the same and considering the ratio laid down in other judicial pronouncements discussed herein above, we hold that the royalty income from licensing of software products should be considered as profits of business of eligible units for the purposes of providing deduction under section 10A and 10AA of the Act."
15.6 The reasoning of the assessing officer in making the disallowance for both AY 2010-11 and AY 2011-12 are also identical. In view of the above judicial precedents in assessee's 17 IT(TP)A No.150/Bang/2023.
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own case, we hold that the royalty income is eligible for deduction under sections 10A and 10AA of the Act. It is ordered accordingly.
Ground No. 3.1 - Ground relating to exclusion of expenses incurred in foreign currency while computing deduction under section 10A of the Act.
16. During the course of assessment, the AO excluded the expenses incurred in foreign currency from the export turnover of the 10A units amounting to Rs. 7,584 lakhs. This amount had been arrived at by reducing Rs 1,806.62 lakhs from the total foreign currency expenses of Rs 9,390.62 lakhs. The figure of Rs 1,806.62 lakhs represents amount of foreign currency expenditure attributable to units eligible for 10AA exemption.
16.1 In the first round of appellate proceedings the ITAT remanded the matter with a direction to examine the issue afresh by following the decisions of Karnataka High Court in Motor Industries Co Ltd, Mphasis Ltd, Kshema Technologies Ltd and other cases. In the order giving effect to the ITAT order dated 13.11.2017, the AO deleted the variation originally made of Rs. 7,584 lakhs.
16.2 During the set aside proceedings before the AO, the assessee relied on the decisions of the Karnataka High Court in Motor Industries Co Ltd, Mphasis Ltd, Kshema Technologies Ltd to contend that foreign currency expenses 18 IT(TP)A No.150/Bang/2023.
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should not be reduced while computing the deduction under section 10A. In the draft assessment order passed dated 29.03.2022, the AO did not accept the contentions of the Assessee and reduced foreign currency expenses of Rs. 75,83,99,367 from both export turnover and total turnover. The DRP denied relief to the Assessee citing a technical ground that the decision of the Karnataka High Court in CIT v Tata Elxsi LTd (2012) 349 ITR 98 was disputed before the Supreme Court.
16.3 We have heard rival submissions and perused the material on record. We notice that the co-ordinate bench in assessee's own case for AY 2011-12 in IT(TP)A No. 788/Bang/2022 vide order dated 11.11.2022 held that the assessee is not engaged in providing technical services and thus expenditure incurred in foreign currency should not be reduced from export turnover and total turnover while computing deduction under section 10A. The relevant finding of the Tribunal reads as follows:-
"31. We further notice that the coordinate bench in assessee's own case has held that the Assessee is engaged in development and export of computer software and not into technical services. Considering the facts of the case in the light of the decision of the Hon'ble High Court and the decision of the coordinate bench in assessee's own case, in our considered view the assessee is not into technical services and going by the definition of 'export turnover' in section 10A, we hold that the expenses incurred in foreign currency should not be reduced from export turnover while computing deduction under section 10A.
32. We notice that the assessee has already reduced a sum of Rs.2,20,66,228 towards expenses incurred in foreign currency for 19 IT(TP)A No.150/Bang/2023.
M/s.Sasken Technologies Limited.
the purpose of deduction u/s.10AA. However the AO while reducing the expenses incurred in foreign currency has done it for the SEZ units also. In view of the fact that the expenses incurred in foreign currency being already reduced, in our considered view reducing the expenses based on the breakup in notes to accounts would amount to double reduction and not warranted. It is further noticed that the AO has made the similar reduction from the total turnover also while computing the deduction u/s.10A and 10AA (Refer para 4.3.2 page 13 of AO's final order). We therefore direct the AO to delete the deduction of Rs.7329.94 lakhs made in the export turnover and total turnover. It is ordered accordingly."
16.4 The reasoning of the A.O. in making the disallowance for both AY 2010-11 and AY 2011-12 are also identical. In view of the above, we direct the AO to delete the reduction of Rs.7,584 lakh made from the export turnover and total turnover while computing the deduction u/s 10A.
Ground No. 4.1 to 4.6 - Ground relating to TP adjustment on Interest received from Sasken Inc, USA and Sasken Mexico
17. During the relevant previous year, the assessee had advanced loan to its overseas subsidiaries viz., Sasken Inc and Sasken Mexico. The assessee charged interest at the rate of 3.24% per annum and 4.61% per annum from Sasken Inc and Sasken Mexico respectively. In the audit report under 92E in Form No. 3CEB, the assessee adopted the Comparable Uncontrolled Price Method (hereinafter referred as "CUP Method" for short) to justify the interest charged.
17.1 As the loan was denominated in US dollars, the assessee adopted prevailing USD prime lending rate in 20 IT(TP)A No.150/Bang/2023.
M/s.Sasken Technologies Limited.
computation of arm's length rate. During the financial year 2009-10, the average USD - LIBOR (6 months) was 0.79% p.a. Since the rate of interest charged by the assessee (3.24% p.a and 4.61% p.a) was more than the average USD - LIBOR the income by way of interest from the associated enterprise was considered by the assessee to be at arm's length price.
17.2 The TPO in its order passed under section 92CA dated 30.01.2014 rejected the assessee's contention. The TPO considered the annualized average yield from BBB grade corporate bond (investment grade bond) for 5-year period during the FY 2009-10 at 14.74% (after factoring spread of 120% of 12.38%) as the uncontrolled interest rate to arrive at the arm's length price. The arm's length price of interest was computed at Rs. 2,67,68,300/- The interest received from the associated enterprise during the year amounted to Rs. 21,67,323/- Accordingly the TP Adjustment was determined at Rs. 2,46,00,977.
17.3 In the first round of appellate proceedings, the ITAT had directed the AO/TPO to examine afresh the issue of interest received on AE loans in the light of decisions of ITAT Bangalore in the case of Indegene Lifesystems (P.) Ltd. vs. ACIT [2015] 60 taxmann.com 28 (Bangalore - Trib.) and Sami Labs Ltd. vs. DCIT [2016] 66 taxmann.com 55 (Bangalore - Trib.).
21IT(TP)A No.150/Bang/2023.
M/s.Sasken Technologies Limited.
17.4 In pursuance of the above order, the TPO passed an order under section 92CA(3) dated 15.09.2017. In the said order the TPO considered LIBOR at the base rate for computation of ALP of interest on the loan advanced to AE. A 300-basis point increase as per RBI Master circular No. 8/2010-11 dated 01.07.2010 was added to the LIBOR. In line with the above, the ALP of the transaction was computed at Rs.23,58,272 as against the income received by the Assessee of Rs. 21,67,323. Hence, the shortfall of Rs. 1,90,949 was brought to tax.
17.5 We have heard rival submissions and perused the material on record. The Tribunal in the first round of litigation had directed the A.O. to examine the issue of interest receivable on AE loans. Pursuant to the Tribunal order, the AO/TPO passed order u/s 92CA(3) of the Act dated 15.09.2017. In the said order, the TPO considered LIBOR at the base rate for computation of the ALP of interest on the loan advanced to AE. The TPO also added 300 basis point increase to the LIBOR as per RBI Master Circular No.8/2010- 11 dated 01.07.2010. Accordingly, the ALP of the transaction was computed at 23,58,272 as against the income received by the assessee of Rs.21,67,323. Therefore, the shortfall of Rs.1,90,949 was brought to tax as a TP adjustment. The above TP adjustment on interest on outstanding receivables made in the TPO's order dated 15.09.2017 were never the subject matter of appeal and the same had attained finality. In the second round, pursuant to the remand by the CIT u/s 22 IT(TP)A No.150/Bang/2023.
M/s.Sasken Technologies Limited.
263 of the Act, the A.O. restricted the TP adjustment on interest receivables to the same figure as it was done in the order dated 15.09.2017 amounting to Rs.1,90,949. The figure of adjustment made in the order giving effect to the ITAT's order in the first round of litigation and in this proceeding being the same, we are of the view that the issue raised in grounds 4.1 to 4.6 is only academic and we dismiss the same. It is ordered accordingly.
Ground No. 5.1 to 5.5 - Ground relating to disallowance under section 14A of the Act.
18. The assessee, during the year under consideration, earned dividend of Rs 3,90,24,858 which was claimed as exempt under section 10(34) of the Act. The assessee made a disallowance of Rs.1,16,773 being expenses attributable to income not chargeable to tax. The said figure represented 25% of the salary paid to an employee of the assessee working as a senior executive treasury, involved in the activity giving rise to tax free income.
18.1 In the first round of appellate proceedings, the ITAT had directed the AO to examine the issue afresh. The AO deleted the disallowance under section 14A while giving effect to the directions of the ITAT vide order dated 13.11.2017. The said order was thereafter set aside by the Commissioner of Income Tax under section 263 of the Act.
23IT(TP)A No.150/Bang/2023.
M/s.Sasken Technologies Limited.
18.2 During the course of set aside proceedings, the Assessee contended that the AO must be satisfied that the disallowance made by the Assessee is not justified having regard to the accounts of the Assessee. Without prejudice, assessee prepared and submitted the computation of disallowance under section 14A by excluding investments (including investments in joint ventures and domestic companies) which had not yielded any dividend income for the year under consideration.
18.3 While passing the draft assessment passed under section 144C dated 29.03.2022, the AO computed disallowance under section 14A read with rule 8D by excluding only such investments which had yielded taxable income. The investments in joint ventures and domestic subsidiaries which had not yielded dividend income were not excluded. In the final assessment order, the quantum of disallowance under section 14A read with rule 8D(2)(iii) is Rs. 44,71,240. The voluntary disallowance made by the Assessee of Rs. 1,16,773 was treated as expenditure incurred directly to earn exempt income under rule 8D(2)(i). In aggregate, the AO disallowed Rs. 45,88,013 [Rs 44,71,240 + Rs 1,16,773] under section 14A read with rule 8D.
18.4 We have heard rival submissions and perused the material on record. We direct the A.O. to verify whether the investment in joint ventures and domestic companies which had not yielded any dividend income for the year under 24 IT(TP)A No.150/Bang/2023.
M/s.Sasken Technologies Limited.
consideration and exclude the same for the purpose of computation of average value of investments under section 14A and for computation of disallowance under section 14A read with rule 8D in accordance with the decision of the Special bench of ITAT in the case of ACIT v Vireet Investment P Ltd [2017] 82 taxmann.com 415 (Delhi - SB). It is ordered accordingly.
Ground No. 6.1 to 6.3 - Ground relating to disallowance of foreign tax credit
19. We have heard rival submissions and perused the material on record. We agree with the contention of the learned AR that the AO has exceeded jurisdiction by considering the impugned issue which was not a subject matter of appeal before the Tribunal during the first round of proceedings. The Tribunal in its order dated 21.10.2016 had only set aside the issues of TP addition, disallowance under section 14A, excessive deduction under section 10A/10AA to the file of the AO. The claim of foreign tax credit (FTC) of Rs. 1,09,61,216 was allowed by the AO while passing the order giving effect (OGE) to the directions of the Tribunal dated 13.11.2017. Subsequently, the Pr. CIT set aside the said OGE order for the reason that the AO had erred in granting full relief to the aforementioned corporate additions without conducting proper enquiries.
19.1 From the facts stated above, it is evident that the Tribunal did not examine any issue relating to the claim of 25 IT(TP)A No.150/Bang/2023.
M/s.Sasken Technologies Limited.
FTC. Also, the order of Pr. CIT passed under section 263 was passed on issues other than FTC. Hence, the claim of FTC attained finality. The AO cannot sit in judgment of an issue that has already been decided in the favour of the assessee by Appellate Authorities. The decisions relied on by the learned AR in CIT v Hindusthan Coconut Oil Mill (2002) 255 ITR 428 (Cal) and S.P. Kochhar v ITO (1983) 145 ITR 255 (All.) are applicable in the present case.
19.2 In view of the above, the impugned disallowance of FTC is hereby deleted.
Ground No. 7.1 and 7.2 - Ground relating to tax-deduction at source (TDS)
20. The AO is directed to verify the Form 26AS for the year under consideration and other relevant details and accordingly decide the allowability of TDS amounting to Rs. 14,03,105.
Ground No. 8.1 and 8.2 - Ground relating to advance tax
21. The AO is directed to verify the Form 26AS for the year under consideration and accordingly allow the credit for advance tax paid of Rs. 15,00,000.
Ground No. 9.1 to 9.4 - Ground relating to incorrect computation of tax liability
22. The AO is directed to verify the submissions of the assessee and accordingly compute the tax liability.
26IT(TP)A No.150/Bang/2023.
M/s.Sasken Technologies Limited.
23. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced on this 16th day of May, 2023.
Sd/- Sd/-
(Laxmi Prasad Sahu) (George George K)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Bangalore; Dated : 16th May, 2023.
Devadas G*
Copy to :
1. The Appellant.
2. The Respondent.
3. The DRP-2, Bengaluru.
4. The Pr.CIT, Bengaluru.
5. The DR, ITAT, Bengaluru.
6. Guard File.
Asst.Registrar/ITAT, Bangalore