DCIT, New Delhi V. M/s. Mc Kinsey Knowledge Centre India Pvt. Ltd., New Delhi

ITA 2913/DEL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3356 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 27-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: POURAS KAKA
• Keywords: Business income; Rule of consistency
• Section: 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SMT. BEENA PILLAI , JM ITA NO. 2913/DEL/2014 : ASSTT. YEAR : 2008 - 09 D CIT, CIRCLE - 6 (1), NEW DELHI VS MC KINSEY KNO WLEDGE CENTRE INDIA PVT. LTD., F - 40, NDSE PART - 1, SOUTH EXTENSION NEW DELHI - 110049 (APPELLANT) (RESPONDENT) PAN NO. A A CCM2356G ASSESSEE BY : SH. POURAS KAKA, SR. ADV. REVENUE BY : MS. RACHNA SINGH, CIT DR DATE OF HEAR ING : 27 .04 .201 7 DATE OF PRONOUNCEMENT : 27 . 04 .201 7 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE DEPARTME NT AGAINST THE ORDER DATED 18.02.2014 OF LD. CIT(A) - XX , NEW DELHI . 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPE AL: 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT (A) ERRED IN ALLOWING THE CLAIM OF DEDUCTION U/S 10A, AMOUNTING TO RS. 33,73,01,072/ - TO THE ASSESSEE WITHOUT APPRECIATING THE DETAILED REASONS GIVEN BY THE ASSESSING OFFICER? 2. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 3. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. ITA NO. 2913 /DEL /201 4 MC KINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. 2 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER; AMEND OR FORGO ANY GROUND (S) OF THE APPEAL RA ISED ABOVE AT THE TIME OF THE HEARING. 3. FROM THE AFORESAID GROUND IT WOULD BE CLEAR THAT ONLY GRIEVANCE OF THE DEPARTMENT IN THIS APPEAL RELATES TO THE DEDUCTION U/S 10A OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) AMOUNTING TO RS .33,73,01,072/ - DIRECTED TO BE ALLOWED BY THE LD. CIT(A). 4. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 28.09.2016 OF THIS BENCH O F THE TRIBUNAL IN ITA NO. 2151/DEL/2014 FOR THE ASSESSMENT YEAR 2007 - 08 IN ASSESSEE S OWN CASE. IT WAS POINTED OUT THAT THE AO WHILE DENYING THE CLAIM OF THE ASSESSEE FOLLOWED THE EARLIER DECISION FOR THE ASSES SMENT YEARS 2006 - 07 AND 2007 - 08, HOWEVER, ON T HE SIMILAR ISSUE FOR THE ASSESSMENT YEAR 2006 - 07, THE CLAIM OF THE ASSESSEE WAS ALLOWED BY THE ITAT VIDE ORDER DATED 13.09.2013 IN ITA NO. 2195/DEL/2011 AND THE SAID ORDER HAS BEEN AFFIRMED BY THE HON BLE DELHI HIGH COURT IN ITA NO. 217/2014 VIDE ORDER DAT ED 27.03.2015 AND THAT FOR THE ASSESSMENT YEAR 2007 - 08 VIDE ORDER DATED 28.09.2016 THIS BENCH OF THE ITAT IN ITA NO. 2151/DEL/2014 BY FOLLOWING THE AFORESAID ORDER CONFIRMED ITA NO. 2913 /DEL /201 4 MC KINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. 3 THE ORDER OF THE LD. CIT(A) WHO DIRECTED THE AO TO ALL OW THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 10A OF THE ACT (COPY OF THE AFORESAID ORDER S WERE FURNISHED WHICH ARE PLACED ON RECORD). 5 . IN HER RIVAL SUBMISSIONS THE LD. CIT DR ALTHOUGH SUPPORTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUN SEL FOR THE ASSESSEE. 6 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS H AS ALREADY BEEN DECIDED BY THIS BENCH OF THE ITAT IN ASSESSEE S OWN CASE IN ITA NO. 2151/DEL/2014 FOR THE ASSESSMENT YEAR 2007 - 08 VIDE ORDER DATED 28.09.2016 WHEREIN THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 5 & 6 WHICH READ AS UNDER: 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL O N RECORD. WE FIND THAT HON BLE DELHI HIGH COURT IN THE CASE OF ASSESSEE VIDE ORDER DATED 27.03.2015 FOR ASSESSMENT YEAR 2006 - 07 IN ITA 217/2014 DECIDED THE ISSUE WITH FOLLOWING OBSERVATIONS: 8. A PERUSAL OF THE ABOVE PROVISION AND THE EXPLANATION IMPLIES THAT THE TWO CONDITIONS SO MENTIONED MUST BE CUMULATIVELY SATISFIED IN ORDER ITA NO. 2913 /DEL /201 4 MC KINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. 4 TO BE ELIGIBLE FOR THE DEDUCTION. WHILE THE ASSESSEE CLAIMS ITSELF TO BE COVERED UNDER THE BROADER DEFINITION OF COMPUTER SOFTWARE AND MORE PARTICULARLY UNDER CLAUSE (B) OF EXP LANATION 2 UNDER SERVICES OF SIMILAR NATURE , THE ASSESSMENT ORDER WAS BASED ON THE DECISIONS IN S. GOPAL REDDY V. STATE OF ANDHRA PRADESH, K. P. VARGHESE V. ITO AND INDIAN HOTELS CO. LTD. V. INCOME TAX OFFICER AND RELYING UPON THE PURPOSIVE APPROACH TO INTERPRET THE ACT REFLECTS THAT THE SERVICES ARE BEING PERFORMED IN INDIA AND THE END PRODUCT, WHICH IS NOT SOFTWARE WITHIN THE MEANING OF SECTION 10A IS BEING EXPORTED OUTSIDE INDIA AND THUS NOT MAKING SERVICES OF A SIMILAR NATURE AS SUCH SERVICES CAN ON LY BE RENDERED ON REAL TIME BASIS ELECTRONICALLY TO QUALIFY FOR THE PURPOSE OF SECTION 10A. ALSO, THE TPO, BY HIS ORDER OF 92CA(3) DATED 09.10.2009 ADVISED THE CONCERNED OFFICER T O MAKE AN UPWARD ADJUSTMENT OF RS.59,09,890/ - TO THE TOTAL INCOME DECLARED AN D THE AO ALLOWED THE ADJUSTMENT. APART FROM HOLDING THAT THE ASSESSEE COMPANY HAS FURNISHED INACCURATE PARTICULARS (THE REPORT OF THE AUDITOR CONSIDERED NONEST WITH A VIEW TO EVADE THE TAX, THE AO ALSO INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1) (E) OF THE I.T. ACT, 1961 FOR FILING INACCURATE PARTICULARS AND CONCEALMENT OF INCOME. 9. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE APPEALED AGAINST THAT TO THE CIT (A) WHO THEREBY HELD THAT BY MAKING THE DISALLOWANCE, THE AO ERRONEOUSLY CONCLUDED THA T THE APPELLANT IS ENGAGED IN THE BUSINESS OF ANALYSIS OF FINANCIAL AND BUSINESS INFORMATION AND NOT IN THE BUSINESS ITA NO. 2913 /DEL /201 4 MC KINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. 5 OF DATA PROCESSING. CIT (A) IN ITS FINDINGS, NOTES THAT IT IS EVIDENT THAT THE APPELLANT IS CUSTOMIZING DATA, WHAT IS ACCESSED BY THE APPEL LANT IN THE DATABASES AND WHAT IS DELIVERED TO ITS PARENT COMPANY ARE TWO DIFFERENT PRODUCTS, I.E. DATA IS CUSTOMIZED TO SUIT THE NEEDS OF THE REQUESTER AND THEREAFTER EXPORTED OUT OF INDIA. 10. THIS COURT, WHILE CONSIDERING THE QUESTION INVOLVED IN THE APPLICABILITY OF DEDUCTION UNDER SECTION 10A NOTES THAT IN CIT V. M.L. OUTSOURCING SERVICES (P) LIMITED6 THE ASSESSEE S CONTENTION OF ENTITLEMENT TO CLAIM DEDUCTION U/S 10A OF THE IT ACT, 1961 READ WITH NOTIFICATION NO. BEARING SO 890 (E) DATED 26TH SEPTEM BER, 2000 WAS UPHELD. IN THE ABOVE MENTIONED CASE, IT WAS OBSERVED THAT, THE BOARD HAS ISSUED A NOTIFICATION AS PER THE MANDATE AND EMPOWERMENT UNDER SECTION 10A AND THIS IS NOT A CASE OF ISSUE OF CIRCULAR UNDER SECTION 119, WHICH ARE ISSUED FOR DIFFERE NT PURPOSES AND HAVE ANOTHER PURPORT. NOTIFICATION IS A PIECE OF DELEGATED LEGISLATION AND TO THAT EXTENT CANNOT BE CONTRARY TO THE PRINCIPAL ENACTMENT NOR CAN IT WHITTLE DOWN THE EFFECT OF THE SAME. ALBEIT, CLAUSE (B) OF EXPLANATION 2 TO SECTION 10A HAS B EEN WORDED IN A MANNER WHICH ENFORCES THE VIEW AND THE OPINION THAT LEGISLATURE, IN THEIR WISDOM, HAS LEFT IT TO THE BOARD TO DECIDE WHICH PRODUCT OR SERVICES OF SIMILAR NATURE WOULD QUALIFY AND SHOULD BE TREATED AS FALLING UNDER CLAUSE (B), IN ADDITION TO CUSTOMISED DATA PROCESSING. THE INTENTION OF THE LEGISLATURE WAS NOT TO CONSTRAIN OR RESTRICT BUT TO ENABLE THE BOARD TO INCLUDE SEVERAL SERVICES OR ITA NO. 2913 /DEL /201 4 MC KINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. 6 PRODUCTS OF SIMILAR NATURE IN THE AMBIT OF THE PROVISION. THIS IS WHAT PRECISELY THE BOARD HAS DONE WHEN I T USED THE EXPRESSION, INFO RMATION TECHNOLOGY ENABLED PRODUCTS OR SERVICES IN THE NOTIFICATION. 11. THE COURT RELIED ON THE CIRCULAR ISSUED BY THE CBDT EXPLAINING THE PROVISIONS OF THE FINANCE ACT, 2000, AND HELD THAT THE INTERPRETATION OF THE TERM 'MANUFACTURE OR PRODUCE OF AN ARTICLE OR THING OR COMPUTER SOFTWARE' BY THE TAX AUTHORITIES SHOULD BE GUIDED BY THE INTENTION OF THE LEGISLATURE (INCLUDING THE PRONOUNCEMENTS OF THE CENTRAL GOVERNMENT WHILE NOTIFYING THE STP SCHEME) AND THE DIRECTIONS/NOTIFICATIONS OF THE CBDT. FURTHER MORE, THE DEDUCTIONS ON THE SAME GROUNDS WERE DISALLOWED BY THE AO AND LATER PERMITTED BY THE CIT (A) AND UPHELD BY THE ITAT FOR THE AY 2002 - 2003 AND SUBSEQUENTLY EXAMINED AND ALLOWED IN THE PRECEDING AYS 2003 - 04, 2004 - 05 AND 2005 - 06 BY THE AO HIMSELF AND SINCE THERE HAS BEEN NO CHANGE EITHER IN THE FACTS OR THE CIRCUMSTANCES OF THE CASE OF THE APPELLANT ACCORDINGLY, IN VIEW OF THE FOREGOING THE APPELLANT IS ELIGIBLE TO CLAIM THE DEDUCTION UNDER SECTION 10A OF THE ACT BEING THE SIXTH YEAR OF CLAIM. THEREFOR E, THE CIT (A) WAS OF THE OPINION THAT THE CLAIM OF THE ASSESSEE THAT ALL OF ITS BUSINESS INCOME OR PROFITS FROM BUSINESS OR PROFESSION ARE EXEMPT UNDER SECTION 10A OF THE ACT IS CORRECT AND THE ASSESSEE IS ENTITLED TO EXEMPTION AND THEREBY REVERSED THE FI NDING OF THE AO AND DIRECTED HIM TO ALLOW THE EXEMPTION TO THE WHOLE OF ASSESSEE S PROFIT AS COMPUTED UNDER THE SAID HEAD 'PROFIT AND ITA NO. 2913 /DEL /201 4 MC KINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. 7 GAINS OF BUSINESS. IN THE PRESENT CASE, THE ITAT HELD THAT, THERE IS NO DISPUTE ON THE SERVICES PROVIDED BY ASSESSEE. THE MODUS OPERANDI OF ASSESSEE, AS NOTED EARLIER WHILE CONSIDERING THE SUBMISSIONS MADE BEFORE LD. CIT(A), MAKES IT VERY CLEAR THAT THE ASSESSEE WAS ACTING AS A BACK OFFICE OF ITS PARENT COMPANY BY PROVIDING CUSTOMIZED ELECTRONIC DATA AS PER REQUEST RECEIV ED BY IT FROM PARENT COMPANY. IT IS CLEAR FROM THE MODUS OPERANDI THAT WHAT WAS ACCESSED BY THE ASSESSEE AT THE STP UNIT AND WHAT WAS DELIVERED TO MCKINSEY (PARENT COMPANY) AFTER THE CONVERSION TOOK PLACE WERE TWO DIFFERENT PRODUCTS/SERVICES WHICH IS DESCR IBED AS CUSTOMIZATION OF DATA/DATA PROCESSING. THE STP UNIT UNDERTOOK THE SERIES OF OPERATIONS ON THE DATA RECEIVED FROM VARIOUS DATA BASES BEFORE IT WAS FINALLY DELIVERED TO THE CUSTOMER. THUS, THERE WAS VALUE ADDITION MADE BY THE STP UNIT ON THE DATA. WE , THEREFORE, ARE NOT IN AGREEMENT WITH THE FINDINGS OF AO THAT THERE WAS NO VALUE OF ADDITION ON THE DATA OBTAINED FROM VARIOUS DATA BASE FROM PARENT COMPANY. THE ASSESSEE ACTED AS A BACK OFFICE OF THE PARENT COMPANY AND PROVIDED SUPPORT SERVICES TO ITS PA RENT COMPANY. THEREFORE, ID. CIT (A) RIGHTLY HELD THAT THE ACTIVITIES OF THE ASSESSEE SQUARELY FALL WITHIN THE EXPANDED DEFINITION OF 'COMPUTER SOFTWARE. THE ITAT ALSO RELIED ON THE PRINCIPLE OF CONSISTENCY (REF ASSISTANT COMMISSIONER OF INCOME - TAX V. NGC NETWORK (INDIA) (P) LTD., LENOVO (INDIA) P. LTD V. ASSISTANT COMMISSIONER ITA NO. 2913 /DEL /201 4 MC KINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. 8 OF INCOME - TAX, DEPUTY COMMISSIONER OF INCOME - TAX V. CHEIL COMMUNICATION. INDIA P. LTD. ETC.) 12. THE CBDT CIRCULAR RELIED UPON BY THE ASSESSEE IN THE PRESENT CASE, READS AS FO LLOWS: 'S.O.890(E) - IN EXERCISE OF THE POWERS CONFERRED BY CLAUSE (B) OF ITEM (L) OF EXPLANATION 2 OF SECTION 10A. CLAUSE (B) OF ITEM (L) OF EXPLANATION 2 TO SECTION 10B AND CLAUSE (B) TO EXPLANATION TO SECTION 80HHC OF THE INCOME - TAX ACT, 1961 (43 OF 19 61), THE CENTRAL BOARD OF DIRECT TAXES HEREBY SPECIFIES THE FOLLOWING INFORMATION TECHNOLOGY ENABLED PRODUCTS OR SERVICES AS THE CASE MAY BE FOR THE PURPOSE OF SAID CLAUSES NAMELY: - (L) BACK - OFFICE OPERATIONS (II) CALL CENTRES (III) CONTENT DEVELOPMENT OR ANIMATION (IV) DATA PROCESSING (V) ENGINEERING AND DESIGN (VI) GEOGRAPHIC INFORMATION SYSTEM SERVICES (VII) HUMAN RESOURCES SERVICES (VIII) INSURANCE CLAIM PROCESSING (IX) LEGAL DATABASES (X) MEDICAL TRANSCRIPTION (XL) PAYROLL (XII) REMOTE MAI NTENANCE (XIII) REVENUE ACCOUNTING (XIV) SUPPORT CENTRES AND (XV) WEB - SITE SERVICES. THERE IS NO DISPUTE WITH RESPECT TO THE FINDINGS ARRIVED AT BY THE LOWER AUTHORITIES. THE ASSESSEE IS INVOLVED IN PROVIDING BACK OFFICE SUPPORT AND THEREBY ENTITLED TO THE BENEFIT UNDER THE DEFINITION OF THE TERM COMPUTER SOFTWARE . ITS ACTIVITIES ARE IN THE NATURE ITA NO. 2913 /DEL /201 4 MC KINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. 9 OF DATA PROCESSING, CUSTOMIZATION OF DATA, ACTING AS THE BACK OFFICE OF THE PARENT COMPANY AND ACTING AS SUPPORT CENTER TO THE PARENT COMPANY. CLEARLY IT COULD NOT HAVE BEEN DEPRIVED OF THE BENEFIT OF SECTION 10A, AS IS ARGUED BY THE REVENUE. THIS CONTENTION IS ACCORDINGLY REJECTED AS UNMERITED. 6. SINCE THE ISSUE IN DISPUTE HAS ALREADY BEEN DECIDED BY THE HON BLE HIGH COURT, RESPECTFULLY FOLLOWING THE A BOVE DECISION OF THE HON BLE HIGH COURT, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ON THE ISSUE OF ALLOWING THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT. THE GROUND NO. 1 OF THE APPEAL IS DISMISSED. 7 . SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 28.09.2016 IN ASSESSEE S OWN CASE IN ITA NO. 2151/DEL/2014 FOR THE ASSESSMENT YEAR 2007 - 08, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 8 . IN THE RESULT, APPEAL OF THE DEPARTMENT I S DISMISSED. ( ORDER PRON OUNCED IN THE COURT ON 27 /04/2017 ) S D/ - SD/ - (BEENA PILLAI ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DAT ED: 27 /04/2017 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR