Income Tax Appellate Tribunal - Mumbai
Capgemini India P.Ltd, Mumbai vs Asst Cit Rg 10(2), Mumbai on 7 September, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL"K" BENCH, MUMBAI
BEFORE SHRI B. R. BASKARAN, AM AND SHRI AMARJIT SINGH, JM
I.T.A. No.7861/M/2011
Assessment Year: 2007-08
Capgemini India Private Vs. The ACIT Range-10(2),
Limited Room No.432, 4 t h Floor
Sep 2, B 3, Godrej Industries Aayakar Bhavan, M.K. Road,
Complex, Eastern Express Mumbai-400020.
Highway, Vikhroli, Mumbai-
400079.
स्थायीले खासं ./जीआइआरसं ./PAN/GIR No. : AAACK2632B
(Appellant) .. (Respondent)
Assessee by: Shri M.P. Lohia & Nikhil
Tiwari
Department by: Ms. Kiran Unavekar (DR)
Date of Hearing: 06.08.2018
Date of Pronouncement: 07.09.2018
ORDER
PER AMARJIT SINGH, JM:
This is in appeal against the order dated 14.10.2011passed by the Assessing Officer in pursuance of direction of DRP u/s 144C (5) of the I.T. Act, 1961. In fact, the appeal against this order has been adjudicated by the Hon'ble ITAT in ITA. No.7861/M/2011 in which the issue no.13 to 21 were not adjudicated, therefore, the miscellaneous application bearing no.93.M/2017 was moved which ITA. No. 7861/M/11 A.Y. 2007-08 has been decided by the Hon'ble ITAT by virtue of order dated 05.01.2018 in which the ground no. 13 to 21 have been ordered to be recalled.
2. Since the brief facts has already been narrated by Hon'ble ITAT while passing the order dated 28.02.2013 in ITA. No.7861/M/2011 adjudicated on 28.02.2013, therefore, there is no need to repeat the same. The issue raised from serial no. 1 to 12 has already been adjudicated, therefore, the issue no. 13 to 21 which required adjudication are hereby mentioned below.: -
"13 The Ld. AO/DRP erred by not considering that the adjustment to the arm's length price, if any, should be limited to the lower end of the 5 percent range as the appellant has the right to exercise this option under the proviso to section 92C of the I.T. Act, 1961.
Deduction u/s 10A
14. The Ld. AO/DRP erred in reworking the deduction u/s10A at Rs.348,578,085/- as against Rs.357,437,940/-computed by the appellant.
15. The Ld. AO/DRP erred in deducting foreign currency expenses amounting to Rs.114,299,979/- from the Export Turnover for the purpose of computing deduction u/s 10A.
16. The Ld. AO/DRP erred deducting Insurance expenses amounting to Rs.3,452,624 from the exportturnoverfor the purpose of computing deduction u/s 10A.
17. The Ld. AO/DRP erred in deducting telecommunication and satellite link charges amounting to Rs.25.372,166 from the export turnover for the purpose of computing deduction u/s 10A.
18. Without prejudice to the above three grounds, the Ld. AO/DRP erred by not appreciating the fact that if the above expenses should be excluded from the export turnover then the same should be excluded from the total turnover also.2
ITA. No. 7861/M/11 A.Y. 2007-08 Disallowance on account of write off advances provided to employee
19. The Ld. AO/DRP erred in not allowing a deduction of Rs.2,720,457 with respect to write off of advances provided to employees in the course of business. Interest u/s 234B and 234C of the Act
20. The Ld. AO erred in levying interest u/s 234B and 234C of the Act.
Initiation of penalty u/s 271(1)(c) of the Act
21. The Ld. AO erred in initiating penalty proceedings u/s 271(1)(c) of the Act."
ISSUE NO.13:-
3. This issue is consequential in nature in view of the decision of the issue raised in ground no. 1 to 12 which has already been decided while deciding in ITA. No.7861/M/2011, therefore, in the said circumstances, there is no need to decide this issue. Moreover, this issue has wrongly been recalled because the same has already been adjudicated in pursuance of the decision of the issues bearing nos. 1 to 12 ITA. No.7861/M/2011. ISSUE NO.14:-
4. Under this issue the assessee has challenged the re-working of the deduction u/s 10A at Rs.348,578,085/- as against Rs.357,437,940/- computed by the appellant. This issue is general in nature which has cumulative effect of the issue bearing no. 15, 16, & 17 in which the amount has been discussed separately. Under this issue no. 15, the Ld. Representative of the assessee has contended that the AO/DRP has 3 ITA. No. 7861/M/11 A.Y. 2007-08 erred in deducting the foreign currency amounting to Rs.114,299,979/- from the Export turnover for the purpose of computing deduction u/s 10A of the Act. At the very outset, the Ld. Representative of the assessee has argued that this issue has already been covered in favour of the assessee in the assessee's own case decided by Hon'ble ITAT for the A.Y. 2008-09 in ITA. No.7099/M/2012 dated 10.12.2015 and for the A.Y. 2009-10 in (IT(TP) A 540/M/2014 dated 21.11.2014. Before going further, we deemed it necessary to advert the relevant finding of the Hon'ble ITAT in ITA. No.7099/M/2012 dated 10.12.2015. The relevant finding has been given in para no. 30 and 31 as under: -
"30. In ground no. 13, the assessee has challenged that, the DRP haserred in reducing the expenditure incurred in foreign currency aggregatingto Rs. 94,54,13,470/- from the export turnover of the units eligible, whilecomputing deduction under Section 10A of the Act. The facts in impugnedissue are that, assessee is engaged in development and export ofcomputer software and not in providing technical services outside India.Assessee submitted copies of Audit Report under section 56F in respectof each of the eligible unit, wherein the Chartered Accountants had certified that CG India eligible unit was engaged in the development andexport of computer software. Before the AO the assessee submitted thatwordings & quot attributable to the delivery of computer software outside India quot;are not present in the second limb of the definition regarding the expensesincurred in foreign exchange. Therefore, CG India submitted that thesecond exclusion in respect of expenses incurred in foreign exchangewould not be applicable in respect of export turnover from delivery ofcomputer software outside India. Since, the assessee is engaged indevelopment and export of computer software and not in provision oftechnical services outside India, the second exclusion would not beapplicable in CG India facts at all.4
ITA. No. 7861/M/11 A.Y. 2007-08
31. Ld. Counsel submitted that this issue is covered by the decision ofTribunal in assessee's own case for the assessment year 2009- 10wherein it is held it is similar to issue of telecommunication expenses andaccordingly, decision of Bombay High Court will be followed. Thus,respectfully following the order of the Hon'ble Bombay High Court and theITAT decision for AY 2009-10 we set aside the orders of the revenueauthorities and direct the AO to delete the disallowance and compute theexemption as per law."
5. The said decision has been taken by the Hon'ble ITAT in view of the decision of the ITAT in the assessee's own case for the A.Y. 2009-10 in ITA. No.540/M/2014 dated 21.11.2014. The relevant finding has been given at para no. 50 to 56 of the said decision which are hereby reproduced as under: -
"50. Ground no. 20 pertains to exclusion of telephone expenses from thecomputation of exemption under section 10A.
51. The AO/TPO disallowed the expense and the DRP observed, "The dispute in objection number 16 to 18 pertains to reduction oftelecommunications expenses from export turnover of the unitseligible for deduction under section 10A. Similarly, now 19 and 20pertain to reduction of expenditure incurred in foreign currency fromthe export turnover of the units eligible for deduction under section10A 11.1 The submissions have been considered carefully. The assesseehas not explained or demonstrated before us the reasons and purpose ofthe telecommunication expenses and expenses incurred in foreigncurrency. Nothing has been bought on record this year to demonstratethat the telecommunication expenses were not attributable to the deliveryof computer software in India and had been incurred in the business ofsoftware development at the software units of the assessee in India.
Thus the decision of the honourable ITAT in assessment year 2006-07 isnot applicable to the facts of this year. As regards the foreign currencyexpenditure, it may be stated 5 ITA. No. 7861/M/11 A.Y. 2007-08 that these expenses are nothing but theexpenses incurred overseas for providing the software developmentservices which are technical services. Be it as it may, these are theexpenses incurred in foreign currency and, therefore, to be excludedwhile determining the export turnover as per express provision in theAct. We find that similar finding was also given by DRP in AY 2008-09also. We, therefore, reject these objections"
52. The AR pointed out that the issue became the subject matter forconsideration before the Hon'ble Bombay High Court in the case of the assesseein ITA No. 2501 of 2001 wherein the Hon'ble Court held, "The dispute was regarding deduction of data line costs from exportturnover. The assessee incurred the data line costs and which havebeen worked out before the Assessing Officer. The figures arementioned in paragraph 3 of the order of the Tribunal. The Assessingofficer asked the assessee to explain why its expenditure should not bededucted from the export turnover in view of the above explanation ofsection 10A. The assessee explained that it was incurred in the businessof development and export of computer software. The softwaredevelopment work was carried out in India at its development centers inIndia and also in some cases on sites. The assessee was not engaged inany technical services outside India. It did not incur any freight expenses.It explained that the telecommunication charges were incurred in thebusiness of software development at the software undertakings of theassessee in India. The alternate argument was that the exercise that the assessee had undertaken was justified in the light of the law laid downby the Tribunal and particularly the Special Bench in the case of IncomeTax Officer v/s Sak Soft Ltd, reported in 313 ITR (AT)
353. Reliance wasalso placed upon a judgment of this Court in the case of Commissionerof Income Tax v/s Gem Plus Jewellery India Ltd, reported in (2011) 330ITR 175 (Bom). The Tribunal may have discussed the alternatecontention but what it has expressed on primary contention, according tous, does not raise any substantial question of law. The primarycontention was that the expenses which the Assessing Officer desired to 6 ITA. No. 7861/M/11 A.Y. 2007-08 pick were not incurred in relation to export and, therefore, cannot betermed as deduction permissible from export turnover. These expenseshave been incurred for the purposes of the business of softwaredevelopment at the software units in India. It is that finding which theAssessing Officer was unable to controvert or unable to bring anycontrary material to disprove the same. It is in that light that the Tribunalfound that the Assessing Officer could not have insisted on thededuction. It is that exercise undertaken by the Assessing Officer whichhas not been upheld but rather disapproved by the Tribunal. This is afinding purely on the facts and pertaining to the business of theassessee. The facts pertaining to the assessee's business of softwaredevelopment, the charges and which are claimed to have incurred, are inrelation to the business of software development within India. They couldnot be said to be costs deductible from export turnover for the purposesof Section 10A of the Act. In such circumstances, we are of the opinion that any wider controversy or larger question does not require anyanswer. We can leave that aspect open for the decision in an appropriatecase. In the facts and circumstances of the present case and in relationto the business of the assessee before us, it is not necessary to go intothe other contentions raised before us by the revenue".
53. Respectfully, following the order of Hon'ble Bombay High Court, we setaside the orders of the revenue authorities and direct the AO to delete thedisallowance and compute the exemption as per law and keeping in view thedecision of the Hon'ble Bombay High Court in the case of the assessee.
54. Ground no. 20 is allowed.
55. Ground no. 21 pertains to disallowance of foreign exchange expenditurefor the computation of exemption under section 10A.
56. The decision on this issue is akin to ground no. 20.
57. We, therefore, set aside the orders of the revenue authorities and directthe AO to compute the exemption as per law, keeping in view the decision ofHon'ble Bombay High Court, in the case of the assessee and other decisionscited by the AR, which are Robert Boch Engineering & Business Solutions Ltd vsDCIT, in ITA No. 412/Bang/2011 and Infosys Technologies Ltd vs DCIT reportedin 109 TTJ 6731 (Bang.)
58. Ground no. 21 is allowed."
7ITA. No. 7861/M/11 A.Y. 2007-08
6. Since this issue has squarely covered by decision of the Hon'ble ITAT in the above mentioned cases, therefore, by honoring the observation made by the Hon'ble ITAT in the assessee's own case in ITA. Nos. 7099/M/2012 &(IT(TP) A 540/M/2014. We decide this issue in favour of the assessee against the revenue.
ISSUE NO.16:-
7. Under this issue the assessee has challenged the confirmation of deduction of Insurance expenses amounting to Rs.3,452,624/- from the Export turnover for the purpose of computing deduction u/s 10A of the Act. The Ld. Representative of the assessee has also argued that this issue has already been adjudicated by Hon'ble Bombay high court in the assessee's own case for the A.Y. 2006-07 in ITA. No.2501 of 2011 dated 30.04.2014, therefore, in the said circumstances, the claim of the assessee is liable to be allowed. Before going further, we deemed it necessary to advert the finding of the Hon'ble Bombay High Court which has been given at para no.7 reproduced as under: -
"7 Upon perusal of paragraphs 3 and 4 of the order under challenge, we find much substance in the argument of Mr. Jasani. The dispute/was regarding deduction of data line costs from export turnover., The, assessee incurred the data line costs and which have been Worked out before the Assessing Officer. The figures are mentioned in paragraph 3 of the order of the Tribunal. The Assessing Officer asked the assessee to explain why its expenditure should not be deducted from the export turnover in view of the above explanation of Section 10A. The assessee explained that it was incurred in the business of development and export of 8 ITA. No. 7861/M/11 A.Y. 2007-08 computer software. The software development work was carried out in India at its development centers in India and also in some cases on sites. The assessee was not engaged in any technical services outside India. It did not incur any freight expenses. It explained that telecommunication charges were incurred in the business of software'' development at the software undertakings of the assessee in India. The alternate argument was that the exercise that the assessee had undertaken was justified in the light of the law laid down by the Tribunal and particularly the Special Bench in the case of Income Tax Officer v/s Sak Soft Ltd,, reported in 313 ITR CAT) 353. Reliance was also placed upon a judgment of this Court in the case of Commissioner of income tax v/s Gem Plus Jewellery India Ltd., reported in (2011) 330 ITR 175 (Bom.)- The Tribunal may have discussed the alternate contention but what it has expressed on primary contention, according to us, does not raise any substantial "'law. The primary contention was that the expenses Assessing officer desired to pick were not incurred in relation to export and, therefore, cannot be termed as deductions permissible from export turnover These expenses have been incurred for the purposes of the business of software development at the software units in India. It is that finding which the Assessing officer was unable to controvert or unable to bring any contrary material to disprove the same. It is in that light that the Tribunal found that the Assessing Officer could not have insisted on the deduction- It is that exercise undertaken by the Assessing Officer. which has not been upheld but rather disapproved by the Tribunal This is a finding purely on the facts and pertaining to the assessee. The facts pertaining to the assessee's business of software development, the charges and which are claimed to have incurred, are in relation to the business of software development within India. They could not be said to be costs deductible from export turnover for the purposes of Section IDA of the Act, in such circumstances, we are of the opinion that any wider controversy or larger question does not' require any answer. We can leave that aspect open/for the decision in an appropriate case. In the facts and circumstances of the present case and in relation to the business of assessee before us, it is not necessary to go into the other Contentions raised before us by the revenue."9
ITA. No. 7861/M/11 A.Y. 2007-08
8. Since this issue has squarely covered by decision of the Hon'ble Bombay High Court in the above mentioned case, therefore, by honoring the observation made by the Hon'ble Bombay High Court in the assessee's own case in ITA. No.2501 of 2011 dated 30.04.2014. We decide this issue in favour of the assessee against the revenue.
ISSUE NO.17:-
9. Under this issue the assessee has challenged the confirmation of deduction of tele-communication and satellite link charges amounting to Rs.25,372,166/- from Export turnover for the purpose of computing deduction u/s 10A of the Act. The Ld. Representative of the assessee has argued that this issue has already been covered by the Hon'ble ITAT in the assessee's own case for the A.Y. 2006-07 in ITA.
No.7729/M/2010 dated 25.05.2011 and for the A.Y. 2008-09 in ITA. No.7099/M/2012 dated 10.12.2015 and in the A.Y. 2009-10 in (IT(TP)A 540/M/2014) dated 21.11.2014. Before going further, we deemed it necessary to advert the finding of the Hon'ble ITAT in the assessee's own case for the A.Y.2006-07 in ITA. No.7729/M/2010 dated 25.05.2011. The relevant para is 3.2 which is hereby reproduced below.: -
"3.2 We have perused the records and considered the matter carefully. The dispute is regarding exclusion of data line cost incurred by the assessee from the export turnover. Under the provisions of Explanation 2(iv) of section 10A, expenses on freight, 10 ITA. No. 7861/M/11 A.Y. 2007-08 telecommunication charges and insurance attributable to the delivery of article or things or computer software outside India or expenses incurred in foreign exchange in providing technical services outside India are required to be excluded from the export turnover. In this case the data line cost being the telecommunication expenses have been excluded by the AO from the export turnover. The case of the assessee is that the telecommunication expenses had been incurred in the business of software development at the software undertakings of the assessee in India. This claim has not been contraverted by the AO by placing any material on record. The expenses incurred on development of software in India cannot be considered as expenses attributable to the delivery of computer software outside India. Therefore in our view such expenses cannot be excluded from the export turnover and in case these are excluded, these have to be excluded from total turnover also following the judgment of Hon'ble High Court of Mumbai in case of CIT Vs Gem Plus Jewellery India Ltd. (supra) and decision of the tribunal in case of ITO Vs Sak Soft Ltd. (supra). In any case since we have held that these expenses have been incurred in the business of software development in India, these could not be considered as expenditure attributable to delivery of computer software outside India. We therefore set aside the order of AO on this point and hold that these expenses are not to be excluded from the export turnover.
10. Thereafter, the said issue has raised before the Bombay High Court in the assessee's own case for the A.Y. 2006-07 and the finding of the Hon'ble ITAT has been upheld on the basis of the decision of the ITAT for the A.Y. 2006-07 in ITA. No.7729/M/2010 dated 25.05.2011. The Hon'ble ITAT has also decided the issue in favour of the assessee for the A.Y. 2008-09 in ITA. No.799/M/2012 and for the A.Y. 2009-10 in (IT(TP)A 540/M/2014) dated 21.11.2014. Since this issue has squarely covered by decision of the Hon'ble ITAT in the assesse's own case mentioned above (supra). Therefore, this issue is being decided in favour of the assessee against the revenue.11
ITA. No. 7861/M/11 A.Y. 2007-08 ISSUE NO.18:-
11. This issue has been taken by the assessee in alternate ground raised before us. Since ground no 14 to 17 have been adjudicated in favour of the assessee, therefore, there is no need to decide this issue being academic in nature.
ISSUE NO.19:-
12. Under this issue the assessee has decided the confirmation of the disallowance of Rs.27,20,457/- with respect to the write off of advances provided to employees in the course of business. It is argued by Ld. Representative of the assessee that the advances were given to employee (who left the organization) and the advances were not recovered, therefore, the same is revenue in nature and hence the expenses are liable to be allowed u/s 37(1) of the Act. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. As per the contention of the assessee, the assessee has claimed the advances not recoverable given to the employee who left the organization as revenue in nature because the same was not recoverable. The expenses were incurred during the course of business which could not be bifurcated on account of any one and other reasonable if this expenses have been incurred during the course of business, therefore, no doubt, the same is revenue in nature hence the same is allowable, hence, we allowed accordingly. However, the 12 ITA. No. 7861/M/11 A.Y. 2007-08 assessee has also took the plea that the expenses incurred upon the employees who left the organization which was not recoverable from them to the tune of Rs.23,55,957/- pertains to Section 10A of the Act eligible unit no. 2 and 3, therefore, the benefit u/s 10A of the Act is liable to be given. No doubt, the alternate argued is also liable to be considered in accordance with law but we have already treated said expenses as revenue in nature, therefore, there is no need to go to decide the alternate plea being academic in nature, therefore, in the said circumstances, we allowed the claim of the assessee u/s37(1) of the Act and decide this issue in favour of the assessee against the revenue.
ISSUE Nos. 20 & 21:-
13. These issues are consequential in nature and nowhere need any adjudication. Accordingly, these issues are decided in favour of the assessee against the revenue.
14 This order shall be the part and parcel of the order passed by the Hon'ble ITAT in ITA. No. 7861/M/2011 for the A.Y. 2007-08 dated 28.02.2013. Accordingly, these issues have decided in favour of the assessee against the revenue.13
ITA. No. 7861/M/11 A.Y. 2007-08
15. In the result, the appeals filed by the assessee is hereby ordered to be allowed.
Order pronounced in the open court on 07.09. 2018.
Sd/- Sd/-
(B. R. BASKARAN) (AMARJIT SINGH)
लेखासदस्य / ACCOUNTANT MEMBER न्याययकसदस्य/JUDICIAL MEMBER
मंबई Mumbai; यदनां कDated : 07.09. 2018.
vijay
आदे शकीप्रतितितिअग्रेतिि/Copy of the Order forwarded to :
1. अपीलाथी/ The Appellant
2. प्रत्यथी/ The Respondent.
3. आयकरआयक्त(अपील)/ The CIT(A)-
4. आयकरआयक्त/ CIT
5. यिभागीयप्रयियनयि,आयकरअपीलीयअयिकरण, मंबई/ DR, ITAT, Mumbai
6. गार्ड फाईल /Guard file.
आदे शानुसार/ BY ORDER, सत्यायपिप्रयि //True Copy// उि/सहायकिंजीकार (Dy./Asstt.Registrar) आयकरअिीिीयअतिकरण, मंबई / ITAT, Mumbai 14