Mastek Ltd.,, Ahmedabad v. The Dy.CIT., Circle-4,, Ahmedabad

ITA 3373/AHD/2009 | 2005-2006
Pronouncement Date: 11-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 337320514 RSA 2009
Bench Ahmedabad
Appeal Number ITA 3373/AHD/2009
Duration Of Justice 3 year(s) 9 month(s) 18 day(s)
Appellant Mastek Ltd.,, Ahmedabad
Respondent The Dy.CIT., Circle-4,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 11-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 11-10-2013
Date Of Final Hearing 25-09-2013
Next Hearing Date 25-09-2013
Assessment Year 2005-2006
Appeal Filed On 23-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SRI D.K TYAGI JUDICIAL MEMBER AND SHRI T.R. MEENA ACCOUNTANT MEM BER MASTED LTD. 804-05 PRESIDENT HOUSE OPP. C.N. VIDYALAY AMBAWADI AHMEDABAD- 380015 PAN: AACM9908 Q (APPELLANT) VS THE DCIT (OSD)-I CIRCLE-4 AHMEDABAD. NAVJIVAN TRUST BLLDG OFF. ASHRAM ROAD AHEMEDABAD (RESPONDENT) THE DCIT (OSD)-I CIRCLE-4 AHMEDABAD. NAVJIVAN TRUST BLDG OFF. ASHRAM ROAD AHEMEDABAD (APPELLANT) VS MASTED LTD. 804-05 PRESIDENT HOUSE OPP. C.N. VIDYALAY AMBAWADI AHMEDABAD-380015 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 : 11-10-20 13 / ORDER ITA NO. 3373/AHD/2009 ASSESSMENT YEAR 2005-06 ITA NO. 291/AHD/2010 ASSESSMENT YEAR 2005-06 ITA NOS. 3373/AHD/2009 & 291/AHD/2010 A.Y. 2005-0 6 PAGE NO MASTEK LTD VS. DCIT & DCIT VS. MASTEK LTD. 2 PER : D.K. TYAGI JUDICIAL MEMBER:- THESE ARE CROSS APPEALS AGAINST THE ORDER OF LD CI T(A)-VIII DATED 30/09/2009. FIRST WE WILL TAKE UP REVENUES APPEAL IN ITA NO. 2 91/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 U NIT 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 T O 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 OFFE RED 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 PA RT OF P&L A/C. OF THE ASSESSEE COMPANY AND IT WAS DEBITED IN THE I NDIAN P&L A/C. ONCE AN AMOUNT FORMED PART OF THE P&L A/C. OF THE L OCAL COMPANY AND ITS INCLUSION IMPACTED PROFITS OF THE RESIDENT COMPANY IT COULD NOT ITA NOS. 3373/AHD/2009 & 291/AHD/2010 A.Y. 2005-0 6 PAGE NO MASTEK LTD VS. DCIT & DCIT VS. MASTEK LTD. 3 BE SAID THAT IT WAS NOT LIABLE TO DEDUCT TDS ON PAY MENT MADE BY IT. HENCE THE LD. CIT(A) ERRED IN DELETING THE DISALLOW ANCE. 8. THE LD. CIT(A) HAS ERRED IN LAW AND ON F ACTS IN DELETING THE DISALLOWANCE OF 20% OF THE RECRUITMENT AND TRAI NING EXPENSES AMOUNTING TO RS. 51 90 41 0/- 9. THE ASSESSEE COMPANY HAS INCURRED RECRUITMENT AN D 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 REI MBURSEMENT 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 FACT S IN DELETING THE ADDITION MADE BY TPO AMOUNTING TO RS.7.47 CRORES BE ING THE AMOUNT DETERMINED AS PAYABLE FOR H R M FUNCTIONS OF THE AS SESSEE 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 COMPAN Y. THUS A DISTINCT BENEFIT IS BEING PASSED ON TO THE AES WHIC H 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 TOW ARDS INTEREST NOT CHARGED BY THE ASSESSEE ON ADVANCES GIVEN TO EMPLOY EES 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 ASSE SSEE 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 DISALLO WANCE 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. 2005-0 6 PAGE NO MASTEK LTD VS. DCIT & DCIT VS. MASTEK LTD. 4 4. AT THE TIME OF HEARING BOTH THE PARTIES AGREED T HAT THE ISSUE INVOLVED IN THESE GROUNDS STAND COVERED IN FAVOUR OF ASSESSE E VIDE PARA 25 TO 27 OF TRIBUNALS DECISION IN ASSESSEES OWN CASE IN ITA N O. 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 T HAT ISSUE INVOLVED IN THIS GROUND WAS SET ASIDE BY TRIBUNAL TO THE FILE O F AO VIDE PARA 27-29 IN ASSESSEES 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 TH AT 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 THEREF ORE AO BE DIRECTED TO TAKE INTO CONSIDERATION THESE CASE LAWS ALSO WHILE DECIDING THE ISSUE IN THE SET ASIDE PROCEEDINGS. THIS SUBMISSION OF THE ASSE SSEE 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 DISALLOWAN CE OF RS. 21 92 745/- OF DEPRECIATION ON LEASED ASSETS. 8. THOUGH THIS ISSUE IS ALSO COVERED AGAINST THE AS SESSEE BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE BUT IT WAS SUBMI TTED BY THE LEARNED COUNSEL OF THE ASSESSEE THAT THERE IS SOME CHANGE I N FACTS AS THIS YEAR ASSETS ITA NOS. 3373/AHD/2009 & 291/AHD/2010 A.Y. 2005-0 6 PAGE NO MASTEK LTD VS. DCIT & DCIT VS. MASTEK LTD. 5 HAVE COME BACK TO THE ASSESSEE AND ASSESSEE IS USIN G THESE ASSETS FOR ITS BUSINESS PURPOSES AND THEREFORE DEPRECIATION ON TH ESE ASSETS IS ALLOWABLE. HOWEVER WE FEEL THAT THIS CONTENTION OF THE ASSESSE E 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 O F REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 9. GROUND NO. 6 AND 7 RELATE TO DELETING OF DISALLO WANCE 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 ASS ESSEE AND AGAINST THE REVENUE VIDE PARA 35 TO 36 OF TRIBUNALS DECISION I N ASSESSEES OWN CASE FOR ASST. YEAR. 2006-07 IN ITA 3120/AHD2010 THEREFORE THESE GROUNDS OF REVENUES APPEAL ARE ALSO DISMISSED. 11. GROUND NO. 8 AND 9 RELATE TO DELETING OF DISALL OWANCE 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 REVEN UE VIDE PARA NO. 37 & 38 OF TRIBUNALS DECISION IN ASSESSEE OWN CASE FOR A. Y. 2006-07 IN ITA NO. 3120/AHD/2010. THESE GROUNDS OF REVENUES APPEAL A RE 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. 2005-0 6 PAGE NO MASTEK LTD VS. DCIT & DCIT VS. MASTEK LTD. 6 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 ASSESSEES OWN CASE ITA NO. 1883/ AHD/2005 AND ITA NO. 3120/AHD/2010 FOR ASSESSMENT YEAR 2006-07 THEREFOR E THIS GROUND OF REVENUE IS ALSO DISMISSED. 15. GROUND NO. 11 RELATES TO DELETING THE ADJUSTMEN T 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 REVEN UE VIDE ITS PARA 80 TO 88 IN ASSESSEES OWN CASE IN ITA NO. 1883/AHD/2005 FOR ASSESSMENT YEAR 20002-03 THEREFORE THIS GROUND OF THE REVENUE IS A LLOWED. 17. GROUND NO. 12 RELATES TO DELETING OF CHARGING O F INTEREST OF RS. 20 29 828/- FOR EXCESS CREDIT PERIOD ALLOWED BY ASS ESSEE TO ITS AES. 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 TRIBUNALS DECISION IN ASSESSEES OWN CASE IN ITA NO. 3120/AHD/2010 FOR A.Y. AND PARA 109 OF TRIBUNALS D ECISION IN ASSESSEES 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 REQ UIRE ANY ADJUDICATION ON OUR PART. ITA NOS. 3373/AHD/2009 & 291/AHD/2010 A.Y. 2005-0 6 PAGE NO MASTEK LTD VS. DCIT & DCIT VS. MASTEK LTD. 7 20. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSE. NOW COMING TO ASSESSEES 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 C ONFIRMING DISALLOWANCE OF RS.18 45 144 MADE BY THE LEARNED AD DITIONAL 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 TH E RULES CREATES A DEPARTURE FROM SETTLED PRINCIPLES AND GOES BEYOND T HE OBJECT AND SCOPE OF SECTION 14A(1) OF THE ACT. ACCORDINGLY RU LE 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 TH E 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 INTERE ST 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 APPREC IATED THE FACT THAT THE APPELLANT HAS NOT INCURRED ANY INTEREST CO ST ON BORROWED FUND AND BANK CHARGES AND INTEREST ON VEHICLE LEASE CANN OT BE CONSIDERED AS INTEREST INDIRECTLY ATTRIBUTABLE TO EXEMPT INCOM E. 3. GROUND NO. 3 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS BY DISMISSING APPELLANT'S PLEA THAT THE DISALLOWANCE UNDER SECTIO N 40(A)(I) OF THE ACT SHALL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10A O F THE ACT. 4. GROUND NO. 4 ITA NOS. 3373/AHD/2009 & 291/AHD/2010 A.Y. 2005-0 6 PAGE NO MASTEK LTD VS. DCIT & DCIT VS. MASTEK LTD. 8 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS BY DISMISSING APPELLANT'S PLEA THAT THE DISALLOWANCE OF RECRUITME NT AND TRAINING EXPENSES SHALL BE ELIGIBLE FOR DEDUCTION UNDER SECT ION 10A OF THE ACT. 5. GROUND NO. 5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE TREATMENT ACC ORDED BY THE LEARNED AO / TRANSFER PRICING OFFICER (TPO ) IN ALLEGING THE EXPENSES INCURRED ON TRAVELING OF EMPLOYEES SECONDE D TO THE ASSOCIATED ENTERPRISES TO BE AN INTERNATIONAL TRAN SACTION ON THE CONTENTION THAT THE SAID TRAVELING EXPENSES CONSTIT UTES COSTS RECOVERABLE BY YOUR APPELLANT FROM ITS ASSOCIATED E NTERPRISES AS IT RELATES ENTIRELY TO THE ASSOCIATED ENTERPRISES' BUS INESS. THE AMOUNT OF ADDITION TO THE INCOME UPHELD IS RS. 51 91 031. 22. GROUND NO. 1 AND 2 RELATES TO CONFIRMING DISALL OWANCE 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 COMPU TATION OF DISALLOWANCE U/S. 14A IN VIEW OF DECISION OF THE TRIBUNAL IN ASS ESSEES OWN CASE IN ITA 1883/AHD/2005 FOR A.Y. 2002-03 AND 3120/AHD/2010 FO R 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 REVENUES APP EAL AND IN VIEW OF OUR DECISION IN REVENUES APPEAL THESE GROUNDS HAVE BE COME 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. 2005-0 6 PAGE NO MASTEK LTD VS. DCIT & DCIT VS. MASTEK LTD. 9 26. AT THE TIME OF HEARING BOTH THE PARTIES AGREED THAT NOW THE ISSUE IS COVERED AGAINST THE ASSESSEE AND IN FAOVUR OF REVEN UE VIDE PARA 10 TO 19 IN ASSESSEES OWN CASE FOR A.Y. 2002-03 IN ITA NO. 182 1/AHD/200 THEREFORE THIS GROUND OF ASSESSEE IS DISMISSED. 27. IN THE COMBINED RESULT REVENUES APPEAL IS PART LY ALLOWED FOR STATISTICAL PURPOSE AND ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (T.R. MEENA) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 11/10/2013 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER/ /