M/s. Steria India Ltd., Noida V. DCIT, New Delhi

ITA 108/DEL/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4259 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 31-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 07-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Assessee Lawyers: DEEPIKA AGARWAL CAS
• Keywords: Business income; Transfer pricing; Advance ruling
• Section: 143(3); 234B; 115JB; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.108/DEL/2016 ASSESSMENT YEAR : 2011-12 STERIA INDIA LTD. (EARLIER KNOWN AS XANSA (INDIA) LTD.), SEA VIEW SPECIAL ECONOMIC ZONE, BUILDING NO.4, PLOT NO.20 & 21, SECTOR-135, GAUTAM BUDH NAGAR, NOIDA. PAN: AAACX0385L VS. DCIT, CIRCLE-24(2), CR BUILDING, IP ESTATE, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, SR. ADVOCATE, SHRI NEERAJ JAIN, ADVOCATE, MS SHAILY GUPTA, & MS DEEPIKA AGARWAL, CAS DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR DATE OF HEARING : 03.11.2016 DATE OF PRONOUNCEMENT : 04.11.2016 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ASSESSMENT ORDER DATED 30.11.2015 PASSED BY THE ASSESSING OFFI CER (AO) U/S 143(3) ITA NO.108/DEL/2016 2 READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEA R 2011-12. 2. FIRST GROUND IS GENERAL WHICH DOES NOT REQUIRE A NY ADJUDICATION. 3. GROUND NO. 2 ABOUT THE TRANSFER PRICING ADJUSTME NT AMOUNTING TO RS.29.90 CRORE IN THE `SOFTWARE DEVELOPMENT SERVICE SEGMENT AND GROUND NO. 3 ABOUT THE TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.9.30 CRORE IN `I.T. ENABLED SERVICE SEGMENT WERE NOT PR ESSED BY THE LD. AR. THE SAME, THEREFORE, STAND DISMISSED. 4. GROUND NOS. 4 AND 6 ARE AGAINST THE DISALLOWANCE U/S 40(A)(I) OF THE ACT OF EXPENDITURE AMOUNTING TO RS.21,32,49,648/- I NCURRED BY THE ASSESSEE AS MANAGEMENT SERVICES FEES ON THE REASON THAT THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE IN TERMS OF SECTION 195 OF THE ACT. 5. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE THA T THE ASSESSEE INCURRED AN EXPENDITURE OF RS.21.33 CRORE AS REMUNERATION FO R MANAGEMENT SERVICES TO GROUPE STERIA SCA (STERIA FRANCE). NO DEDUCTION OF TAX AT SOURCE WAS MADE BEFORE MAKING THIS PAYMENT. INVOKI NG THE PROVISIONS OF SECTION 40(A)(I) READ WITH SECTION 195 OF THE AC T, THE AO DISALLOWED ITA NO.108/DEL/2016 3 THIS EXPENDITURE. IN DOING SO, HE NOTICED THAT THE ASSESSEES APPLICATION FILED BEFORE THE AUTHORITY FOR ADVANCE RULING (AAR) WAS DISMISSED VIDE RULING DATED 2.5.2014 HOLDING THAT THE PAYMENT MADE BY THE ASSESSEE FOR THE MANAGEMENT SERVICES PROVIDED BY GR OUPE STERIA SCA WILL BE TAXABLE AS FEE FOR TECHNICAL SERVICES AND , ACCORDINGLY, THE ASSESSEE WAS LIABLE TO WITHHOLD TAX AS PER THE PROV ISIONS OF SECTION 195 OF THE ACT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. AR HAS BROUGHT TO OUR N OTICE THAT THE SAID RULING OF THE AAR WAS CHALLENGED BY THE ASSESSEE BE FORE THE HONBLE DELHI HIGH COURT. VIDE ORDER DATED 28.7.2016, THE HONBLE DELHI HIGH COURT HAS HELD ON THE LAST PAGE THAT: (I) THE PAYME NT MADE BY THE ASSESSEE TO STERIA FRANCE FOR THE MANAGEMENT SERVIC ES PROVIDED BY THE LATTER CANNOT BE TAXED AS FEES FOR TECHNICAL SERVI CES; AND (II) THE SAID PAYMENTS ARE NOT LIABLE TO WITHHOLDING OF TAX U/S 1 95 OF THE ACT. BY RENDERING THIS JUDGMENT, A COPY OF WHICH HAS BEEN P LACED ON RECORD, THE HONBLE HIGH COURT HAS VACATED THE RULING OF THE AA R ON THIS SCORE. IN ITA NO.108/DEL/2016 4 THE GIVEN CIRCUMSTANCES, WE ARE OF THE CONSIDERED O PINION THAT THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THE IMPUGNED OR DER ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF AO. WE ORDER ACCORDINGLY AND DIRECT HIM TO DECIDE THIS ISSUE AFR ESH IN CONSONANCE WITH THE JUDGMENT OF THE HONBLE DELHI HIGH COURT PASSED IN THE ASSESSEES OWN CASE. 7. GROUND NO. 5 IS AGAINST REDUCING THE DEDUCTION U /S 10A FROM RS.34,79,66,065/- AS CLAIMED BY THE ASSESSEE TO RS. 20,31,60,680/- INTER ALIA , BY EXCLUDING THE FOLLOWING THREE ITEMS FROM `EXPO RT TURNOVER ALONE:- - TELECOMMUNICATION CHARGES RS. 2,70,431 - SUBSISTENCE FOR ONSITE EMPLOYEES RS.1,43,16,518 - STANDBY AND CALLOUT CHARGES RS.4,87,48,607 TOTAL RS.6,33,35,556 8. SUCCINCTLY, THE FACTS OF THIS ISSUE ARE THAT THE ASSESSEE EARNED INCOME FROM ITS NOIDA UNIT -IV WHICH IS ELIGIBLE FO R DEDUCTION U/S 10A OF THE ACT. IN THE RECOMPUTATION OF DEDUCTION, THE AO EXCLUDED ITA NO.108/DEL/2016 5 TELECOMMUNICATION CHARGES, SUBSISTENCE FOR ONSITE E MPLOYEES AND STANDBY AND CALLOUT CHARGES FROM THE AMBIT OF EXPO RT TURNOVER, IMPLIEDLY, IN LINE WITH THE DEFINITION OF EXPORT T URNOVER GIVEN IN EXPLANATION 2 (IV) AT THE END OF SECTION 10A. HOWE VER, SUCH EXCLUSION WAS NOT MADE FROM THE AMOUNT OF TOTAL TURNOVER, A GAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBVIOUS THAT THE AO COMPU TED DEDUCTION U/S 10A BY REDUCING THE ABOVE REFERRED THREE EXPENSES F ROM THE FIGURE OF `EXPORT TURNOVER WITHOUT CORRESPONDINGLY REDUCING SUCH AMOUNTS FROM THE FIGURE OF TOTAL TURNOVER IN THE FORMULA FOR COMPUTING THE DEDUCTION. THIS APPROACH, IN OUR CONSIDERED OPINION , IS NOT RIGHT. WHEN A PARTICULAR AMOUNT IS EXCLUDED FROM THE NUMERATOR OF `EXPORT TURNOVER, IT HAS, NATURALLY, TO BE EXCLUDED FROM THE DENOMINA TOR OF `TOTAL TURNOVER AS WELL IN THE COMPUTATION OF DEDUCTION U/S 10A. I T IS SO FOR THE REASON THAT `TOTAL TURNOVER ALWAYS INCLUDES `EXPORT TURNO VER AND IF A PARTICULAR ITEM IS NOT A PART OF EXPORT TURNOVER, T HAT CANNOT CONSTITUTE A ITA NO.108/DEL/2016 6 PART OF `TOTAL TURNOVER AS WELL. THE HONBLE BOMB AY HIGH COURT IN CIT VS. GEMPLAST JEWELLERY INDIA LTD. (2011) 330 IT R 175 (BOM) HAS HELD TO THIS EXTENT. SIMILAR VIEW HAS BEEN TAKEN B Y THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 20 09-10, A COPY OF WHICH ORDER IS AVAILABLE ON RECORD. RESPECTFULLY F OLLOWING THE PRECEDENT, WE DIRECT THAT THE TOTAL OF THE ABOVE RE FERRED THREE EXPENSES BE SIMULTANEOUSLY EXCLUDED FROM THE AMOUNT OF TOTAL T URNOVER AS WELL. 10. GROUND NO. 7 IS AGAINST EXCLUDING PROPORTIONATE AMOUNT OF INTEREST INCOME FROM THE TOTAL PROFITS IN THE RE-COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. THE FACTS OF THIS GROUND ARE THAT THE AO IN RECOMPUTING THE AMOUNT OF DEDUCTION U/S 10A OBSERVED THAT THE ASSES SEE EARNED INTEREST INCOME AMOUNTING TO RS.31,49,15,229/- WHICH WAS RIG HTLY OFFERED AS INCOME FROM OTHER SOURCES. OUT OF THIS INTEREST I NCOME, ONLY A SUM OF RS.91,375/- WAS SHOWN AGAINST NOIDA UNIT-IV AND THE BALANCE INTEREST WAS SHOWN AGAINST A UNIT WHICH WAS OTHERWISE INCURR ING LOSSES. THE AO APPORTIONED THE TOTAL INTEREST INCOME OF RS.31.49 C RORE AMONGST DIFFERENT UNITS ON THE BASIS OF THEIR TURNOVERS AND COMPUTED SHARE OF NOIDA UNIT- ITA NO.108/DEL/2016 7 IV STP IN SUCH INTEREST INCOME AT RS.8,03,00,294/-. THE AMOUNT OF `BUSINESS PROFITS ELIGIBLE FOR DEDUCTION U/S 10A W AS RECOMPUTED BY REDUCING, INTER ALIA , SUCH AMOUNT OF INTEREST AT RS.8.03 CRORE. RELEVA NT DISCUSSION HAS BEEN MADE IN SUB-PARAS (VI), (VII) A ND (X) OF PARA 4.2. THE ASSESSEE HAS ASSAILED THE REDUCTION IN THE AMOU NT OF `BUSINESS PROFITS BY INTEREST INCOME ALLOCATED TO NOIDA UNIT -IV AT RS.8.03 CRORE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. AR CANDIDLY ADMITTED TH AT INTEREST INCOME EARNED BY THE ASSESSEE FROM BANKS IS OTHERWISE NOT ELIGIBLE FOR DEDUCTION U/S 10A AND THAT WAS THE REASON FOR THE ASSESSEE SUO MOTU OFFERING THE SAME AS `INCOME FROM OTHER SOURCES. THE CONTROVERS Y IS ABOUT THE FURTHER REDUCTION OF SUCH PROPORTIONATE AMOUNT OF I NTEREST FROM THE `BUSINESS PROFITS OF NOIDA UNIT IV FOR THE PURP OSES OF DEDUCTION U/S 10A. THE ASSESSEES AUDITED FINANCIAL STATEMENTS AR E AVAILABLE ON PAGES 11-37 OF THE PAPER BOOK. ON GOING THROUGH THE PRO FIT & LOSS ACCOUNT OF THE COMPANY, WE FIND THAT `PROFIT BEFORE TAX HA S BEEN COMPUTED AT RS.10,31,918/- (FIGURE IN RS. 000). `OTHER INCOME SHOWN UNDER THE ITA NO.108/DEL/2016 8 HEAD INCOME INCLUDES INTEREST ON BANK DEPOSITS AM OUNTING TO RS.3,15,059/- (FIGURE IN RS.000). THUS, IT IS CLEA R THAT THE AMOUNT OF INTEREST FROM BANK TOTALING TO RS.31.49 CRORE AND O DD FORMS PART OF `PROFIT BEFORE TAX, WHICH IS THE STARTING POINT OF COMPUTATION OF TAXABLE INCOME AT PAGE 3 OF THE PAPER BOOK. IN SUCH A COMP UTATION OF TOTAL INCOME, THE ASSESSEE HAS EXCLUDED TOTAL INTEREST IN COME OF RS.31,49,15,229/- FROM THE AMOUNT OF PROFIT BEFORE TAX AS PER P&L ACCOUNT TO WORK OUT THE INCOME UNDER THE HEAD PROF IT AND GAINS FROM BUSINESS OR PROFESSION AT RS.84,18,14,748. INTERES T INCOME OF RS.31.49 CRORE HAS BEEN SEPARATELY SHOWN UNDER THE HEAD INC OME FROM OTHER SOURCES FOR COMPUTING GROSS TOTAL INCOME OF RS.80. 87 CRORE. THIS SHOWS THAT THE INTEREST INCOME OF RS.31.49 CRORE HA S NOT BEEN CONSIDERED AS PART OF THE BUSINESS INCOME, WHICH ALSO INCLUDES ELIGIBLE INCOME FROM NOIDA UNIT-IV STP. 12. TO BE MORE SPECIFIC, COMPUTATION OF DEDUCTIO N U/S 10A IS AVAILABLE ON PAGES 5 AND 6 OF THE PAPER BOOK. THE ASSESSEE HA S ALSO PLACED BEFORE US UNIT-WISE PROFITS, WHICH IS AN ANNEXURE TO THE C OMPUTATION OF INCOME. ITA NO.108/DEL/2016 9 FROM THIS UNIT-WISE PROFIT & LOSS ACCOUNT, IT CAN B E SEEN THAT THE ASSESSEE COMPUTED PROFIT BEFORE TAX OF NOIDA UNIT IV AT RS.3,15,998 (IN RS.000). IN COMPUTING SUCH PROFIT, THE ASSESSE E INCLUDED INTEREST ON BANK DEPOSITS AT RS.91 (IN RS.000). WHILE COMPUTIN G THE AMOUNT OF DEDUCTION U/S 10A AS PER THE ANNEXURE, THE ASSESSEE STARTED WITH THIS FIGURE OF RS.31,59,98,024/- AS PROFIT BEFORE TAX AS PER THE P&L ACCOUNT. THEREAFTER, INTEREST INCOME OF RS.91,375/- WAS REDU CED AS INCOME TO BE ASSESSED SEPARATELY. AFTER MAKING CERTAIN ADDITION S AND DELETIONS, BEING THE ITEMS INADMISSIBLE AND ADMISSIBLE UNDER THE INC OME-TAX ACT, 1961, THE ASSESSEE COMPUTED INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION RELATABLE TO NOIDA UNIT-IV AT RS.34,79,66,065/-. IT IS THIS FIGURE, WHICH THE AO HAS TAKEN IN PARA 4 .2(X) FROM WHICH INTEREST, AS ALLOCATED BY HIM AT RS.8,03,00,294/- HAS BEEN REDUCED. THUS, IT IS APPARENT THAT THE INTEREST INCOME ALLOC ATED BY THE AO TO NOIDA UNIT-IV IS NOT A PART OF THE PROFITS OF NOIDA UNIT-IV. THE ONLY INTEREST INCOME INCLUDED BY THE ASSESSEE IN SUCH CO MPUTATION AT RS.91,375/- WAS SUO MOTU EXCLUDED IN COMPUTING THE BUSINESS PROFITS FOR THE PURPOSE OF DEDUCTION U/S 10A. WHEN THE INTERES T INCOME ALLOCATED ITA NO.108/DEL/2016 10 BY THE AO AT RS.8.03 CRORE AND ODD DOES NOT FORM PA RT OF THE TOTAL BUSINESS PROFITS AMOUNTING TO RS.34.79 CRORE, THERE CAN BE NO QUESTION OF REDUCING IT FURTHER BY THE AMOUNT OF ALLOCATED INTE REST. 13. THE ASSESSEE FURNISHED A CALCULATION AT THE INSTANCE OF THE AO TO BRING HOME ITS POINT THAT NO FURTHER REDUCTION WAS WARRANTED FROM THE BOOK PROFITS IN THE COMPUTATION OF DEDUCTION U/S 10 A, WHOSE COPY HAS BEEN PLACED IN THE PAPER BOOK. IT CAN BE NOTICED TH AT IN COMPUTING THE INCOME UNDER THE HEAD `PROFIT AND GAINS OF BUSINESS OR PROFESSION (BEFORE/ AFTER APPORTIONMENT OF INTEREST INCOME TO THE NOIDA UNIT-IV), THE ASSESSEE STARTED WITH PROFIT BEFORE TAX AS PER P& L ACCOUNT AT RS.31,59,98,024 / RS.39,62,06,943 INCLUDING INTERES T INCOME OF RS.91375 / RS.80300294. THEREAFTER, SUCH INTEREST I NCOME OF RS.91375 / RS.80300294 HAS BEEN REDUCED TO ARRIVE AT INCOME UN DER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION AT RS .34,79,66,065 / RS.34,79,66,065. IT IS THIS FIGURE OF RS.34,79,66, 065, WHICH HAS BEEN TAKEN BY THE AO BEFORE REDUCING, INTER ALIA, THE AMOUNT OF INTEREST INCOME OF RS.8,03,00,294. ONCE THE INTEREST INCOME OF RS.8,03,00,294 ITA NO.108/DEL/2016 11 DOES NOT FORM PART OF THE BUSINESS PROFITS ELIGIBLE FOR DEDUCTION U/S 10A, THERE CAN BE NO QUESTION OF ONCE AGAIN REDUCING SUC H INTEREST INCOME FROM THE AMOUNT OF ELIGIBLE BUSINESS PROFITS. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER TO THIS EXTENT AND DIRECT THAT THE I NTEREST INCOME APPORTIONED TO THE ELIGIBLE UNIT BE NOT SEPARATELY REDUCED SINCE THE SAME WAS ALREADY EXCLUDED BY THE ASSESSEE FROM THE AMOUN T OF BUSINESS PROFITS ELIGIBLE FOR DEDUCTION U/S 10A. THIS GROUN D IS ALLOWED. 14. GROUND NO. 8 REGARDING COMPUTATION OF BOOK PROF IT U/S 115JB OF THE ACT WAS NOT PRESSED BY THE LD. AR. THE SAME, T HEREFORE, STANDS DISMISSED. 15. GROUND NO. 9 IS AGAINST NOT ALLOWING CREDIT FOR PROPER AMOUNT OF ADVANCE TAX. THE LD. AR CONTENDED THAT THE AO ALLO WED CREDIT OF ADVANCE TAX AT RS.13.80 CRORE INSTEAD OF RS.24,51,6 4,659/-, THEREBY ALLOWING SHORT CREDIT OF RS.10,71,64,659/-. THE AO IS DIRECTED TO VERIFY THE ASSESSEES CONTENTION AND ALLOW PROPER AMOUNT O F CREDIT OF ADVANCE TAX. ITA NO.108/DEL/2016 12 16. GROUND NO. 10 AGAINST THE LEVY OF INTEREST U/SS 234B AND 234C IS CONSEQUENTIAL. 17. GROUND NO. 11 IS AGAINST THE COMPUTATION OF TOT AL TAX LIABILITY BY TAKING INTEREST CHARGEABLE U/S 234B AT RS.18,45,28, 888/- INSTEAD OF RS.1,84,52,888/-. THE AO IS DIRECTED TO VERIFY THE ASSESSEES CONTENTION IN THIS REGARD AND DECIDE ACCORDINGLY. 18. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 04.11.201 6. SD/- SD/- [KULDIP SINGH] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 04 TH NOVEMBER, 2016. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.