Income Tax Appellate Tribunal - Ahmedabad
Mastek Ltd.,, Ahmedabad vs Department Of Income Tax on 25 September, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "C" BENCH
Before: Sri D.K Tyagi, Judicial Member
and Shri T.R. Meena, Accountant Member
ITA No. 3373/Ahd/2009
Assessment Year 2005-06
Masted Ltd. The DCIT, (OSD)-I,
804-05, President House, Circle-4, Ahmedabad.
Opp. C.N. Vidyalay, Vs Navjivan Trust Blldg,
Ambawadi, Ahmedabad- Off. Ashram Road,
380015 Ahemedabad
PAN: AACM9908 Q (Respondent)
(Appellant)
ITA No. 291/Ahd/2010
Assessment Year 2005-06
The DCIT, (OSD)-I, Masted Ltd.
Circle-4, Ahmedabad. 804-05, President
Navjivan Trust Bldg, Off. Vs House, Opp. C.N.
Ashram Road, Vidyalay, Ambawadi,
Ahemedabad Ahmedabad-380015
(Appellant) PAN: AACM9908 Q
(Respondent)
Revenue by: Sri J.P. Jhangid, Sr.D.R.
Assessee by: Sri S.N. Soparkar, A.R.
Date of hearing : 25-09-2013
Date of pronouncement : 11-10-2013
आदे श/ORDER
ITA Nos. 3373/Ahd/2009 & 291/Ahd/2010 A.Y. 2005-06 Page No 2
Mastek Ltd vs. DCIT & DCIT vs. Mastek Ltd.
PER : D.K. TYAGI, JUDICIAL MEMBER:-
These are cross appeals against the order of Ld CIT(A)-VIII dated 30/09/2009.
First we will take up revenue's appeal in ITA No. 291/Ahd/2010
2. Revenue has taken following grounds of appeal:-
"1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance made U/s. 10A of the Act in respect of Unit No. 107 amounting to Rs. 1,94,71, 219/-.
2. In this case, the A.O. has already brought on record that the second unit had been on extention of the existing Unit No. 106 and hence the assessee was not eligible for deduction U/s. 10A.
3. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of deduction U/s. 10A on the income earned on account of foreign exchange fluctuation amounting to Rs. 42,59,916/-.
4. The Ld CIT(A) has erred in law and on facts in deleting the, disallowance of depreciation on leased assets amounting to Rs. 21,92,745/-
5. The Ld. CIT(A) has erred in law and on facts in not taking the cognizance of the fact that the assets in question have been given on lease to a sister concern and the assessee has offered lease income for tax.
6. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 2,48,65,361/- U/s. 40(a)(i) of the Act.
7. The basic fact remains that the amount formed part of P&L A/c. of the assessee company and it was debited in the Indian P&L A/c. Once an amount formed part of the P&L A/c. of the local company and its inclusion impacted profits of the resident company, it could not ITA Nos. 3373/Ahd/2009 & 291/Ahd/2010 A.Y. 2005-06 Page No 3 Mastek Ltd vs. DCIT & DCIT vs. Mastek Ltd.
be said that it was not liable to deduct TDS on payment made by it. Hence the Ld. CIT(A) erred in deleting the disallowance.
8. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of 20% of the recruitment and training expenses amounting to Rs. 51,90,41 0/-
9. The assessee company has incurred recruitment and training expenses amounting to Rs. 2.59 acres. The assessee company has incurred the above expenditure on the employees and the employees so trained by the assessee company are seconded to the associate enterprises of the assessee company without any reimbursement of expenditure. Therefore the Ld CIT(A) has erred in deleting the disallowance made by the A.O.
10. The Ld. CIT(A) has erred in law and on facts in deleting the addition made by TPO amounting to Rs.7.47 crores being the amount determined as payable for H R M functions of the assessee for its associates enterprise. The decision of the Ld C1T(A) is not acceptable as the assessee company spending substantial amount on these employees and these employees are employed with AEs without any consideration being received by the assessee company. Thus, a distinct benefit is being passed on to the AEs which results in deduction in profitability of the assessee company.
11. The Ld C1T(A) has erred in law and on facts in deleting the adjustment of Rs 3,81,111/- proposed by the TPO towards interest not charged by the assessee on advances given to employees seconded to AEs.
12. The CIT(A) has erred in law and on facts in deleting charging of interest amounting to Rs. 20,29,828/- on account of excess credit period allowed by the assessee to its AEs. The assessee company has paid huge interest on its borrowings and hence its plea that it has not charged/paid interest on services rendered does not appear correct."
3. Ground No. 1 and 2 relate to deleting of disallowance of Rs. 1,94,71,290/- made u/s. 10A in respect of unit No. 107.
ITA Nos. 3373/Ahd/2009 & 291/Ahd/2010 A.Y. 2005-06 Page No 4Mastek Ltd vs. DCIT & DCIT vs. Mastek Ltd.
4. At the time of hearing both the parties agreed that the issue involved in these grounds stand covered in favour of assessee vide para 25 to 27 of Tribunal's decision in assessee's own case in ITA No. 1883/Ahd/2005 A.Y. 2002-03, therefore these grounds are dismissed.
5. Ground No. 3 relates to deleting of disallowance of Rs. 42,59,916/- of foreign exchange fluctuation u/s. 10A of the Act.
6. At the time of hearing both the parties agreed that issue involved in this ground was set aside by Tribunal to the file of AO vide para 27-29 in assessee's own case in ITA No. 1883/Ahd/2005 which was subsequently followed in ITA No. 3120/Ahd2010 for A.Y. 2006-07. However it was submitted by the learned counsel of the assessee that since this issue was set aside by ITAT to the file of AO for the first time, various decisions of high courts and Tribunals have come on the issue, therefore AO be directed to take into consideration these case laws also while deciding the issue in the set aside proceedings. This submission of the assessee is quite reasonable, and therefore the issue involved in this ground is set aside to the file of AO for fresh adjudication in the light of latest case laws on the issue relied by the assessee.
7. Ground No. 4 and 5 relate of deleting disallowance of Rs. 21,92,745/- of depreciation on leased assets.
8. Though this issue is also covered against the assessee by the decision of Tribunal in assessee's own case but it was submitted by the learned counsel of the assessee that there is some change in facts as this year assets ITA Nos. 3373/Ahd/2009 & 291/Ahd/2010 A.Y. 2005-06 Page No 5 Mastek Ltd vs. DCIT & DCIT vs. Mastek Ltd.
have come back to the assessee and assessee is using these assets for its business purposes, and therefore depreciation on these assets is allowable. However we feel that this contention of the assessee requires verification at the end of AO, therefore this issue is set aside to the file of AO for fresh adjudication in accordance with law. This ground of revenue's appeal is allowed for statistical purpose.
9. Ground No. 6 and 7 relate to deleting of disallowance of Rs. 2,48,65,361/- made u/s. 40(a)(i) of the Act.
10. At the time of hearing both the parties agreed that the issue involved in these grounds stand covered in favour of the assessee and against the revenue vide para 35 to 36 of Tribunal's decision in assessee's own case for Asst. Year. 2006-07 in ITA 3120/Ahd2010, therefore these grounds of revenue's appeal are also dismissed.
11. Ground No. 8 and 9 relate to deleting of disallowance of recruitment and training expenses amounting to Rs. 51,90,410/- of Rs. 2.49 crore.
12. At the time of hearing both the parties agreed that this issue is also covered in favour of assessee and against the revenue vide para no. 37 & 38 of Tribunal's decision in assessee own case for A.Y. 2006-07 in ITA No. 3120/Ahd/2010. These grounds of revenue's appeal are dismissed.
13. Ground no. 10 relates to deleting the addition made by TPO of Rs. 7.47 crores payable from HRM functions of AE.
ITA Nos. 3373/Ahd/2009 & 291/Ahd/2010 A.Y. 2005-06 Page No 6Mastek Ltd vs. DCIT & DCIT vs. Mastek Ltd.
14. At the time of hearing both the parties agreed that this ground is covered in favour of the assessee and against the revenue vide its para 80- 81 in decision in assessee's own case ITA No. 1883/Ahd/2005 and ITA No. 3120/Ahd/2010 for assessment year 2006-07, therefore this ground of revenue is also dismissed.
15. Ground No. 11 relates to deleting the adjustment of Rs. 3,81,111/- proposed by TPO towards interest not charged by the assessee on advances given to employee seconded to AEs.
16. At the time of hearing both the parties agreed that this ground is covered against the assessee and in favour of revenue vide its para 80 to 88 in assessee's own case in ITA No. 1883/Ahd/2005 for assessment year 20002-03, therefore this ground of the revenue is allowed.
17. Ground No. 12 relates to deleting of charging of interest of Rs. 20,29,828/- for excess credit period allowed by assessee to its AE's.
18. At the time of hearing both the parties agreed that this issue involved in this appeal is covered in favour of assessee and against the revenue vide para 28-30 of Tribunal's decision in assessee's own case in ITA No. 3120/Ahd/2010 for A.Y. and para 109 of Tribunal's decision in assessee's own case in ITA No. 2541/Ahd/2007 for A.Y. 2004-05. This ground of the revenue is also dismissed.
19. Ground No. 13 and 14 are general and do not require any adjudication on our part.
ITA Nos. 3373/Ahd/2009 & 291/Ahd/2010 A.Y. 2005-06 Page No 7Mastek Ltd vs. DCIT & DCIT vs. Mastek Ltd.
20. In the result, revenue's appeal is partly allowed for statistical purpose.
Now coming to Assessee's appeal in ITA No. 3373/Ahd/2009
21. Assessee has taken following grounds of appeal:-
"1. GOUNRD NO.1 The learned Commissioner of Income Tax (Appeals) - VIII ['the learned CIT(A)'] has erred in law and on facts in confirming disallowance of Rs.18,45,144 made by the learned Additional Commissioner of Income Tax, Range - 4, Ahmedabad ('the learned AO') under section 14A of the Income Tax Act, 1961 ('the Act') read with Rule 8D of the Income Tax Rules ('the Rules'). The learned CIT(A) ought to have appreciated that Rule 8D of the Rules creates a departure from settled principles and goes beyond the object and scope of section 14A(1) of the Act. Accordingly, Rule 8D cannot be interpreted as being retrospective in operation.2. GROUND NO. 2
Without prejudice to Ground No. 1, the learned CIT(A) has erred in law and on facts by accepting the calculation by the learned AO of disallowance under section 14A read with Rule RD of the Rules in respect of bank charges of Rs 14.41 lacs and interest on vehicle lease of Rs 6.19 lacs, which were erroneously considered as interest expenses while calculating the proportionate amount of interest to be disallowed. The learned CIT(A) ought to have appreciated the fact that the appellant has not incurred any interest cost on borrowed fund and bank charges and interest on vehicle lease cannot be considered as interest indirectly attributable to exempt income.3. GROUND NO. 3
The learned CIT(A) has erred in law and on facts by dismissing appellant's plea that the disallowance under section 40(a)(i) of the Act shall be eligible for deduction under section 10A of the Act.4. GROUND NO. 4 ITA Nos. 3373/Ahd/2009 & 291/Ahd/2010 A.Y. 2005-06 Page No 8
Mastek Ltd vs. DCIT & DCIT vs. Mastek Ltd.
The learned CIT(A) has erred in law and on facts by dismissing appellant's plea that the disallowance of recruitment and training expenses shall be eligible for deduction under section 10A of the Act.5. GROUND NO. 5
On the facts and in the circumstances of the case and in law the learned CIT(A) erred in upholding the treatment accorded by the learned AO / Transfer Pricing Officer ('TPO') in alleging the expenses incurred on traveling of employees seconded to the associated enterprises, to be an international transaction on the contention that the said traveling expenses constitutes costs recoverable by your appellant from its associated enterprises as it relates entirely to the associated enterprises' business. The amount of addition to the income upheld is Rs. 51,91,031."
22. Ground No. 1 and 2 relates to confirming disallowance u/s. 14A read with rule 8D of income tax act rules.
23. At time of hearing both the parties agreed that issue involved in these grounds be set aside to file of AO to re-work computation of disallowance u/s. 14A in view of decision of the Tribunal in assessee's own case in ITA 1883/Ahd/2005 for A.Y. 2002-03 and 3120/Ahd/2010 for A.Y. 2006-07. So these grounds are allowed for statistical purpose.
24. Ground no. 3 and 4 relate to deduction u/s. 10A of the Act and are consequential to ground no. 6 to 8 of revenue's appeal and in view of our decision in revenue's appeal, these grounds have become infructuous and are dismissed as infructuous.
25. Ground no. 5 relates to upholding addition of traveling expenses of Rs. 51,91,031/-.
ITA Nos. 3373/Ahd/2009 & 291/Ahd/2010 A.Y. 2005-06 Page No 9Mastek Ltd vs. DCIT & DCIT vs. Mastek Ltd.
26. At the time of hearing both the parties agreed that now the issue is covered against the assessee and in faovur of revenue vide para 10 to 19 in assessee's own case for A.Y. 2002-03 in ITA No. 1821/Ahd/200, therefore this ground of assessee is dismissed.
27. In the combined result revenue's appeal is partly allowed for statistical purpose and assessee's appeal is partly allowed.
Order pronounced in open court on the date mentioned hereinabove at caption page Sd/- Sd/-
(T.R. MEENA) ( D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 11/10/2013 ak
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद