Assistant Commissioner of Income Tax,Circle-2(1)(2), Bangalore V. M/s. EIT Services India Private Limited (formerly known as Hewlett Packard Global Soft Private Limited), Bangalore

ITTPA 209/BANG/2014

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 9413 (ITAT-BANGALORE)
• Duration Of Justice: 7 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 19-09-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 26-03-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PADAMCHAND KHINCHA
• Keywords: Depreciation
• Section: 32; 56; 143(3); 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B. R. BASKARAN, ACCOUNTANT MEMBER IT(TP)A No.209/Bang/2015 Assessment Year: 2009-10 The Assistant Commissioner of Income Tax, Circle -11(4), Bengaluru. Vs. M/s. EIT Services India Pvt. Ltd., (formerly known as Hewlett Packard Globalsoft Private Limited) No.39/40, Electronic City, Phase – II, Hosur Road, Bengaluru – 560 100. PAN : AAACD4078 L APPELLANT RESPONDENT Appellant by :Shri. Padam Chand Khincha, Advocate Respondent by :Ms. Neera Malhotra, CIT(DR)(ITAT), Bengaluru Date of hearing :08.09.2021 Date of Pronouncement:20.09.2021 O R D E R Per N. V. Vasudevan, Vice President: This is an appeal by the Revenue against the final Order of Assessment dated 30.01.2014 passed by the DCIT, Circle-11(4), Bengaluru, passed under section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter called ‘the Act’), in relation to Assessment Year 2009-10. The grounds of appeal raised by the Revenue in this appeal reads as follows: 1.The order of the Dispute Resolution Panel is opposed to law and the facts and circumstances of the case. 2.The DRP erred in directing the AO to follow the ratio laid down by the Hon'ble Court in the case of Tata Elxsi Limited 349 ITR 98 and exclude telecommunication expenses of Rs. IT(TP)A No.209/Bang/2015 Page 2 of 6 10,75,42,793/- from the total turnover also while computing the deduction u/s 10A of the I.T. Act, without appreciating the fact that there is no provision in section 10A that such expenses should be reduced from the total turnover also, as clause (iv) of the explanation to section 10A provides that such expenses are to be reduced only from the export turnover. 3.The DRP erred in not appreciating the fact that the jurisdictional High Court's decision in the case of Tata Elxsi Limited 349 ITR 98 has not been accepted by the department and an appeal has been filed before the Hon'ble Supreme Court. 4.The DRP erred in agreeing with the assessee and directing that deduction Section 57(iii) should be allowed in respect of the sub-lease income from renting out of Surya Park without appreciating the fact that Section 57(iii) deals with expenditures which are laid out or expended wholly and exclusively while depreciation is not an expenditure which is either laid out or expended wholly and it is a case of sub letting where the assessee is not the owner. 5.For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the DRP be reversed. 6.The appellate craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the appeal. 2. Ground Nos. 1, 5 and 6 are general in nature and calls for no specific adjudication. 3. As far as ground Nos.2 and 3 raised by the Revenue is concerned, the issue is as to whether the CIT(A) was justified in directing the AO to exclude telecommunication expenditure of Rs.10,75,42,793/- both from the export turnover as well as from the total turnover. The assessee is a IT(TP)A No.209/Bang/2015 Page 3 of 6 company engaged in the business rendering software development services and IteS. The assessee was entitled to claim deduction under section 10A of the Act. While computing communication expenses from export turnover but did not exclude the same from the total turnover while applying the formula given in section 10A(4) of the Act for allowing deduction. Consequently, the deduction under section 10A of the Act was allowed at a lesser sum than what was claimed by the assessee. Against the aforesaid draft Order of Assessment, the assessee filed objections before the Dispute Resolution Panel (DRP) and the DRP vide its directions dated 30.12.2013 following the decision of the Hon’ble Karnataka High Court in the case of Tata Elxsi Ltd., 349 ITR 98 directed the AO to exclude the telecommunication expenses and expenses incurred in foreign exchange should be reduced both from the export turnover and the total turnover while computing deduction under section 10A of the Act. The grievance of the Revenue as projected in ground Nos.2 and 3 is that the decision of the Hon’ble Karnataka High Court has not attained finality and an appeal has been filed before the Hon’ble Supreme Court. At the tiem of hearing, it was brought to our notice that the Hon’ble Supreme Court in the case of CIT v. HCL Technologies Ltd. in Civil Appeal No.8489-98490 of 2013 & Ors. dated 24.04.2018 has upheld the view taken by the Hon’ble Karnataka High Court in the case of Tata Elxsi Ltd., (supra). In view of he above, we are of the view that there is no merit in ground Nos.2 and 3 raised by the Revenue. 4. As far as ground No.4 raised by the Revenue is concerned, the facts are that the assessee was a lessee of premises at Surya Park. The assessee sublet a portion of the premises that it had taken on lease. The assessee had sublet the premises after installing depreciable assets which were also given IT(TP)A No.209/Bang/2015 Page 4 of 6 on sublease. The amount incurred on account of depreciable assets were capitalized in books of accounts and depreciation was claimed on the same. The computation of income from subletting as given by the assessee was as follows: Statement showing computation of Income from other sources Particulars Amount (Rs) Net sub-lease rental income from Surya Park property Less: Deduction allowable under section 57(ii) read with section 32 of the Act in respect of the above property 10,772,407 5,232,278 Income from other source 5,540,129 5. The assessee’s claim was depreciation on depreciable assets given on sublease was rejected by the AO. The AO did not allow the claim of the assessee for depreciation. On objections, the DRP allowed the claim of the assessee observing as follows: 2.2 Ground of Objection 5.51 The Ld AO has erred, in law and on facts, in denying the deduction of Rs 5,232,278, claimed by the Appellant under section 57 of the Act, from the sub-lease rental income offered to tax under section 56 of the Act, in its return of income for the AY 2009-10. 5.52 The Ld AO has erred, in law and on facts, in disregarding the provisions of section 57(iii) of the Act, as per which, deduction in accordance with provisions of section 32 of the Act shall be provided in respect of the income offered to tax under section 56 of the Act. IT(TP)A No.209/Bang/2015 Page 5 of 6 22.1 We have considered the views of the assessee and find ourselves in agreement over the claim that deduction u/s 57 (iii) should be allowable to the assessee and we direct accordingly. 6. Aggrieved by the order of the AO incorporating the directions of the DRP, the Revenue has raised ground No.4 before the Tribunal. From perusal of the ground No.4, it is clear that the Revenue does not dispute the fact that the depreciable assets given by the assessee on sublease were capitalized in the books of accounts of the assessee. The assessee is claiming only depreciation on the capitalized value of the assets. The plea of the Revenue is that depreciation cannot be considered as expenditure wholly and exclusively laid out and expended for the purpose of earning rental income from subletting. We are of the view that the scope of deduction under section 57(iii) is broad and therefore it would include claim for depreciation also. Since the items given on sublease were depreciable assets along with the building, the assessee was entitled to deduction under section 57(iii) of the Act. We therefore uphold the order of DRP and find no merits in ground No.4 raised by the Revenue. 7. In the result, appeal by the Revenue is dismissed. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (B. R. BASKARAN)(N. V. VASUDEVAN) ACCOUNTANT MEMBERVICE PRESIDENT Bangalore, Dated : 20.09.2021. /NS/* IT(TP)A No.209/Bang/2015 Page 6 of 6 Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.