Deputy Commissioner of Income tax, V. M/s. I-Gate Global Solution Ltd, Pune

ITA 120/PUN/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8128 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 27-03-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 16-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S B PRASAD
• Keywords: Transfer pricing; Business expenditure; International transaction; TDS; Rule 8D
• Section: 143(3); 10AA; 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 1 20 /P U N/20 1 7 / ASSESSMENT YEAR : 20 1 2 - 1 3 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 11, PUNE . / APPELLANT VS. M/S. I - GATE GLOBAL SOLUTION LTD., (IN THE MATTER OF ERSTWHILE IGATE COMPUTER SYSTEMS LTD. - SIN CE AMALGAMATION) PLOT NO.14, RAJIV GANDHI INFOTECH, PARK, HINJEWADI, PHASE - III, MIDC - SEZ, VILLAGE MAN, TALUKA MULSHI, HINJEWADI, PUNE 411057 . / RESPONDENT PAN: AABCM4573E ASSESSEE BY : S HRI C.H. NANIWADEKAR REVENUE BY : SHRI S. B. PRASAD , CIT / DATE OF HEARING : 2 7 . 0 3 . 201 9 / DATE OF PRONOUNCEMENT: 15 . 0 4 .201 9 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY REVENUE IS AGAINST THE ORDER OF CIT(A) - 1, PUNE, DATED 14.10.2016 RELATI NG TO ASSESSMENT YEAR 20 1 2 - 1 3 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . ITA NO. 1 20 /P U N/20 1 7 IGATE GLOBAL SOLUTIONS LTD. 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LD. CIT(A) HAS ERRED IN ALLOWING ASSESSEE'S CLAIM OF DEDUCTION OF RS.59,81,81,987/ - U/S 10AA OF THE ACT IN RESPECT OF THREE UNDERTAKINGS WITHOUT APPRECIATING THE FACT THAT THE THESE UNITS WERE FORMED BY SPLITTING UP AND RECONSTRUCTING OF THE EXISTING BUSINESS AS PROVIDED IN SECTION 10AA(4)(II) OF THE I.T.ACT, 1961. 2. THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE U/S 10AA(9) R.W.S. 80IA(10) OF THE I.T. ACT, 1961 WHEN IN FACT THE ASSESSEE HAS EARNED SUBSTANTIAL EXCESSIVE PROFITS AS DISCUSSED BY THE A.O. IN HIS ASSESSMENT ORDER. 3 . THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE U/S 14A R.W. RULE. 8D EVEN THOUGH THE ASSESSEE HAS EARNED SUBSTANTIAL AMOUNT OF TAX FREE DIVIDEND AND HAS DISALLOWED MEAGER AMOUNT U/S 14A ON ESTIMATED BASIS. 4. THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ESOP COST ON THE BASIS OF THE SPECIAL BENCH OF ITAT BANGALORE DECISION IN THE CASE OF BIOCON LIMITED EVEN THOUGH THE ISSUE HAS NOT BEEN REACHED TO THE FINALITY AND BEING NOTIONAL. 5. THE L D. CIT(A) ERRED IS ALLOWING ASSESSE'S CLAIM U/S 40A(I) IN RESPECT OF DISALLOWANCE MADE IN CONNECTION WITH FOREIGN REMITTANCE MADE TOWARDS SOFTWARE AND OTHER SERVICES WHERE TDS WAS NOT DEDUCTED. 6. THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICE R TO DELETE DISALLOWANCE OF FBT PAID IN AUSTRALIA NOT TREATING IT AS INCOME TAX. 3. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT ALL THE ISSUES RAISED IN THE PRESENT APPEAL FILED BY REVENUE ARE SQUARELY COVERED BY LATEST ORDER OF TRIBUNAL RELATING TO ASSESSMENT YEAR 2011 - 12. HE PLACED COPY OF THE SAID ORDER ON RECORD. 4. THE FIRST ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST ALLOWANCE OF DEDUCTION UNDER SECTION 10AA OF THE ACT IN RESPECT OF THREE UNDERTAKINGS. T HE CASE OF REVENUE WAS THAT SINCE THE SAID UNDERTAKINGS WERE FORMED BY SPLITTING UP AND RE - CONSTRUCTING OF THE EXISTING BUSINESS, HENCE THE SAME WAS NOT ENTITLED TO CLAIM DEDUCTION UNDER SECTION 10AA OF THE ACT, IN VIEW OF PROVISIONS OF SECTION 10AA(4)(II) OF THE ACT. ITA NO. 1 20 /P U N/20 1 7 IGATE GLOBAL SOLUTIONS LTD. 3 5. THE ISSUE IN THE PRESENT APPEAL IS IN RESPECT OF THREE ELIGIBLE UNDERTAKINGS. OUT OF THREE UNDERTAKINGS, ONE UNDERTAKING WAS ESTABLISHED IN ASSESSMENT YEAR 2009 - 10 AND THE SECOND UNDERTAKING WAS ESTABLISHED IN ASSESSMENT YEAR 2011 - 12. TH E TRIBUNAL WHILE DECIDING THE ISSUE IN THE CASE OF ASSESSEE IN ASSESSMENT YEAR 2011 - 12 IN ITA NO.74/PUN/2016 AND CROSS APPEAL IN ITA NO.299/PUN/2016, RELATING TO ASSESSMENT YEAR 2011 - 12, ORDER DATED 18.03.2019 HAS ALLOWED THE PLEA OF ASSESSEE AND HELD THAT THE SAID UNDERTAKINGS WERE NOT ESTABLISHED BY SPLITTING UP AND / OR RE - CONSTRUCTING OF EXISTING BUSINESS AND HAD ALLOWED THE CLAIM OF ASSESSEE UNDER SECTION 10AA OF THE ACT. 6. NOW, COMING TO THIRD UNDERTAKING I.E. NEW UNDERTAKING WHICH WAS ESTABLISHED IN THE CURRENT YEAR AT MAGARPATTA, PUNE SEZ. THE ASSESSEE HAS PLACED THE LIST OF EMPLOYEES WHO WERE TRANSFERRED FROM OLD UNIT, AT PAGES 27 TO 29 OF PAPER BOOK. AS PER THE SAID LIST, 38% OF EMPLOYEES HAVE BEEN SO TRANSFERRED. THE CBDT IN THIS REGARD HAS ISSUED CIRCULAR , UNDER WHICH IT IS SAID THAT WHERE AN UNDERTAKING IS ESTABLISHED BY TRANSFER OF EMPLOYEES FROM EXISTING UNDERTAKING UPTO 50% OF EMPLOYEE STRENGTH, THEN IT CANNOT BE SAID THE CASE OF SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS. WE HAVE APPLIED THE SAID PRINCIPLE IN EARLIER YEARS AND WHILE DECIDING THE ISSUE OF ESTABLISHMENT OF NEW UNDERTAKING AT HYDERABAD IN ASSESSMENT YEAR 2011 - 12 HAS HELD THAT SINCE THE EMPLOYEES TRANSFERRED FROM EXISTING UNIT WERE LESS THAN 50%, THEN IT CANNOT BE SAID TO BE CASE OF SPLITTING UP AND RE - CONSTRUCTING OF EXISTING BUSINESS AND HAS ALSO ALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 10A A OF THE ACT HOLDING IT TO BE NEW UNDERTAKING. FOLLOWING THE SAME PARITY OF REASONING, WE ALLOW THE ITA NO. 1 20 /P U N/20 1 7 IGATE GLOBAL SOLUTIONS LTD. 4 CLAIM OF ASSESSEE IN RESPECT OF NEW UNDERTAKING ESTABLISHED DURING THE YEAR AT MAGARPATTA, PUNE SEZ. THE GROUND OF APPEAL NO.1 RAISED BY REVENUE IS THUS, DISMISSED. 7. THE NEXT ISSUE RAISED VIDE GROUND OF APPEAL NO.2 IS AGAINST ORDER OF CIT(A) IN DELETING THE DISALLOWANCE UN DER SECTION 10AA(9) R.W.S. 80IA(10) OF THE ACT MADE BY THE ASSESSING OFFICER. 8. THE SAID ISSUE ALSO AROSE IN EARLIER YEAR AND THE TRIBUNAL VIDE PARAS 21 TO 24 AT PAGES 11 TO 13 HAS DECIDED SIMILAR ISSUE IN FAVOUR OF ASSESSEE. THE CASE OF REVENUE WAS T HAT THE PROFIT MARGINS SHOWN BY ASSESSEE WERE HIGHER THAN THE MEAN MARGINS OF COMPARABLES SELECTED FOR BENCHMARKING INTERNATIONAL TRANSACTIONS, HENCE PROVISIONS OF SECTION 10AA(9) R.W.S. 80IA(10) OF THE ACT WERE INVOKED. THE TRIBUNAL IN EARLIER YEAR HA VE DELETED THE AFORESAID DISALLOWANCE MADE BY THE ASSESSING OFFICER. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THIS ISSUE ALSO STANDS COVERED IN FAVOUR OF ASSESSEE IN LINE WITH ORDERS OF EARLIER YEARS AND IN THE ABSENCE OF ASSESSING OFFICER FAILIN G TO DEMONSTRATE THAT ANY ARRANGEMENT EXISTED BETWEEN THE ASSESSEE AND COMPARABLE COMPANIES SELECTED WHICH ENABLED THE ASSESSEE TO EARN MORE PROFITS. THE GROUND OF APPEAL NO.2 RAISED BY REVENUE IS THUS, DISMISSED. 9. THE NEXT ISSUE RAISED VIDE GROUND OF APPEAL NO.3 IS AGAINST DELETION OF DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES). THE ASSESSING OFFICER HAD INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT, HOWEVER, HAD NOT RECORDED PROPER SATISFACTION BEFORE INVOKING THE AFORESAID PROVISIONS AS TO WHY SUO MOTU ITA NO. 1 20 /P U N/20 1 7 IGATE GLOBAL SOLUTIONS LTD. 5 DISALLOWANCE MADE BY ASSESSEE WAS NOT SUFFICIENT. IN THE ABSENCE OF SATISFACTION IN EARLIER YEARS ALSO, THE TRIBUNAL HAS HELD THAT THERE IS NO MERIT IN MAKING THE SAID DISALL OWANCE MADE UNDER SECTION 14A READ WITH RULE 8D OF THE RULES. THE TRIBUNAL HAS DECIDED THIS ISSUE IN ASSESSMENT YEAR 2011 - 12 AT PAGES 8 TO 11 VIDE PARAS 15 TO 18 OF THE ORDER (SUPRA) . THE CIT(A) RELYING ON THE ORDER OF DRP IN ASSESSMENT YEAR 2011 - 12 HAD DELETED THE ADDITION. FOLLOWING THE SAME PARITY OF REASONING AS NOTED BY TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2011 - 12, WE DISMISS THE GROUND OF APPEAL NO.3 RAISED BY REVENUE. 10. NOW, COMING TO GROUND OF APPEAL NO.4 I.E. AGAINST DELETION OF ADDITION ON ACCOUNT OF ESOP COST. THE SAID DISALLOWANCE WAS MADE IN THE HANDS OF ASSESSEE AS SIMILAR DISALLOWANCE WAS MADE IN EARLIER YEARS. THE SAID ISSUE HAS BEEN REMITTED BACK TO THE FILE OF ASSESSING OFFICER WITH DIRECTIONS BY THE TRIBUNAL IN ASSESS MENT YEAR 2009 - 10 AND EVEN IN SUCCEEDING YEARS. FOLLOWING THE SAME PARITY OF REASONING, WE REMIT THIS ISSUE ALSO BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THE SAME IN LINE WITH EARLIER DIRECTIONS OF TRIBUNAL IN ASSESSMENT YEAR 2009 - 10. THE GROUND O F APPEAL NO.4 RAISED BY REVENUE IS THUS, ALLOWED FOR STATISTICAL PURPOSES. 11. NOW, COMING TO THE NEXT ISSUE RAISED VIDE GROUND OF APPEAL NO.5 IN RESPECT OF DISALLOWANCE UNDER SECTION 40 ( A ) (I) OF THE ACT IN RESPECT OF FOREIGN REMITTANCES MADE TO SOFTWARE AND OTHER SERVICES WHERE TDS WAS NOT DEDUCTED. 12. THE ASSESSING OFFICER HAD MADE THE AFORESAID DISALLOWANCE UNDER SECTION 40 ( A ) (I) OF THE ACT IN RESPECT OF VARIOUS PAYMENTS MADE BY THE ITA NO. 1 20 /P U N/20 1 7 IGATE GLOBAL SOLUTIONS LTD. 6 ASSESSEE I.E. IN RESPECT OF PURCHASE OF SOFTWARE LICENSE AND PAYMENT FOR LICENSE FEES OF 6.82 CRORES, AMC CHARGES OF 16,76,325/ - , PROFESSIONAL FEES OF 2,95,940/ - , ACCOUNTING SUPPORT FEES OUTSIDE INDIA PAID OF 88,580/ - AND TRAINING FEES OF 4,76,567/ - , TOTALING 7,07,54,906/ - . THE CIT(A) ALLOWED THE PLEA OF ASSESSEE IN TURN, RELYING ON THE ORDER OF TRIBUNAL FOR ASSESSMENT YEARS 2008 - 09 TO 2010 - 11. 13. WE FIND THAT THE TRIBUNAL IN ASSESSMENT YEAR 2011 - 12 VIDE PARAS 33 TO 38 (SUPRA) HAS ALLOWED SIMILAR PAYMENTS IN THE HANDS OF ASSESSEE IN TURN, RELYING ON THE ORDER OF TRIBUNAL IN EAR LIER YEARS AND ALSO IN THE CASE OF JOHN DEERE INDIA PVT. LTD. VS DDIT (INTERNATIONAL TAXATION) IN ITA NOS.905 TO 908/PUN/2015, RELATING TO ASSESSMENT YEARS 2007 - 08 AND 2008 - 09, ORDER DATED 23.01.2019. SINCE THE NATURE OF PAYMENTS ARE SAME AS IN EARLIER YE AR, FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT NO TAX IS TO BE DEDUCTED OUT OF SUCH OVERSEAS PAYMENTS AND CONSEQUENTLY, NO DISALLOWANCE IS WARRANTED FOR NON DEDUCTION OF TAX UNDER SECTION 40(A)(I) OF THE ACT . THE GROUND OF APPEAL NO.5 RAISED BY REVENUE IS THUS, DISMISSED. 14. THE LAST ISSUE RAISED VIDE GROUND OF APPEAL NO.6 IS AGAINST DELETION OF DISALLOWANCE OF FBT PAID IN AUSTRALIA. 15. THE TRIBUNAL IN ASSESSMENT YEAR 2011 - 12 HAS ALSO CONSIDERED THE SAID ISSUE AND AT PAGES 13 TO 15 VIDE PARAS 25 TO 32 (SUPRA) HAVE HELD THAT FBT PAID IN AUSTRALIA IS TO BE ALLOWED AS BUSINESS EXPENDITURE. FOLLOWING THE SAME PARITY OF REASONING, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS T HE GROUND OF ITA NO. 1 20 /P U N/20 1 7 IGATE GLOBAL SOLUTIONS LTD. 7 APPEAL NO.6 RAISED BY REVENUE. THE GROUNDS OF APPEAL RAISED BY REVENUE ARE THUS, PARTLY ALLOWED. 16 . IN THE RESULT, THE APPE AL OF REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 1 5 TH DAY OF APRIL , 201 9 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 15 TH APRIL , 201 9 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - 1, PUNE ; 4. THE PR.CIT - 1, PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE