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Facts
The assessee company engaged in providing information technology enabled services filed its return claiming deduction under Section 10A of the Act. The Assessing Officer (AO) made certain disallowances, including for depreciation and Section 10A claims for various units. The dispute involves transfer pricing adjustments and the denial of Section 10A deductions for units acquired through slump sales.
Held
The Tribunal held that the exclusion of Eclerx Services Ltd. and Infosys BPO Ltd. as comparables was justified due to functional dissimilarity and high brand value, respectively. The Tribunal also allowed deductions under Section 10A for units acquired through slump sale, following earlier precedents and CBDT circulars, and remitted the issue of Titanium STPI Unit's deduction to the AO for fresh examination.
Key Issues
The main issues were the exclusion of comparables in transfer pricing, the denial of Section 10A deduction for units acquired through slump sale, and the disallowance of depreciation on software purchases.
Sections Cited
10A, 143(3), 32, 40(a)(i), 40(a)(ia), 92CA, 194J, 195, 234B, 234D, 144C
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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SHRI GIRISH AGRAWAL
Per Smt. Beena Pillai, JM: Present appeals filed by assessee as well as revenue arises out of final assessment order dated 29/01/2025 passed u/s 143(3)
1. I.T.A. No. 542/Bang/2015 General 1. That the order of the learned Deputy Commissioner of Income-tax, (learned Assessing Officer' or learned AO'), which is in conformity with the directions of the Dispute Resolution Panel, Bangalore ('learned DRP' or 'learned Panel') to the extent prejudicial to the Appellant, is bad in law, contrary to the facts and circumstances of the case and liable to be quashed. Transfer Pricing Related 2. The learned AO/DRP erred on facts and in law in not appreciating the fact that the Appellant had prepared the Transfer Pricing ("TP') documentation bona fide and in good faith in compliance with the Income- tax Act, 1961 ('the Act) and Income-tax Rules, 1962 ('the Rules) and in upholding the rejection of the TP documentation by the learned Additional Commissioner of Income-tax (Transfer Pricing) -III, Bangalore (TPO).
The learned AO/DRP erred in law and on facts in (i) disregarding application of multiple year/ prior year data as used by the Appellant in the TP documentation, that was available as on the date of preparing the TP documentation and (i) holding that only current year (i.e. financial year 2009-10) data for comparable companies should be used.
4. The learned AO/DRP erred on facts and in law in upholding the act of the learned TPO in relation to Information Technology enabled Services ('ITeS'): (a) in conducting a fresh benchmarking analysis using current year data and substituting the Appellant's analysis with fresh benchmarking analysis based on his own conjectures and assumptions (b) in rejecting the comparability analysis of the Appellant in the TP documentation and in submissions provided during the assessment proceedings, and confirming the comparability analysis as adopted by the learned TPO in the TP order, which is based on inappropriate application of filters, modification of filters considered by the Appellant and application of inconsistent comparability criteria. (c) in rejecting comparables considered by the Appellant in its TP study but including fresh comparables based on fresh search despite reliance on various judicial precedents that support exclusion of such comparables considered by the TPO.
5. The learned AO/DRP erred in law and on facts in ignoring the risk free profile of the Appellant as detailed in the TP documentation and in upholding the conclusion of the learned TPO by not allowing appropriate adjustments under Rule 10B of the Rules to account for differences in risk profile between the Appellant and comparable companies, even when full- fledged entrepreneurial companies are selected as comparables. Other than Transfer Pricing Related 6. a) That on the facts and circumstances of the case, the learned AO and the learned Panel erred in denying deduction under section 10A of the Act in respect of UB Plaza Software Technology Parks of India (‘STPI’) Unit. b) That the learned AO failed to appreciate that no new undertaking was formed and the Company was continuing the business of the existing undertaking already eligible to claim deduction under section 10A of the Act. c) That the learned Assessing Officer has erred in considering that the Company has commenced a ‘new business’ from UB Plaza Unit. d) That the learned AO erred in holding that the unit was formed by acquisition of previously used assets and thereby the Unit does not fulfill the conditions for claiming deduction under section 10A(2) of the Act. e) That the learned Assessing Officer failed to appreciate the fact that deduction under section 10A of the Act is undertaking specific and not assessee specific. f) That the learned Assessing Officer erred in applying the provisions of sub-section 7A to section 10A of the Act in the Company’s case. g) That the learned Assessing Officer erred in holding that continuance of tax holiday under section 10A is only restricted to a case of amalgamation or a demerger. h) That the learned AO and the learned Panel has not appreciated the fact that for UB Plaza Unit, the first year of claim for deduction under section 10A of the Act by TRISPL post acquisition of business was AY 2006-07 and the said deduction was duly allowed to the Company for the said year. i) That the learned Assessing Officer and the learned DRP erred in not relying on Circular No. 1, dated January 17, 2013 which has clarified that slump sale would not result into any splitting or reconstruction of existing business and the claim for deduction under section 10A of the Act cannot be denied on a mere ground of change in ownership. 7. a) That on the facts and circumstances of the case, the learned AO and the learned Panel erred in denying deduction under section 10A of the Act in respect of Titanium STPI Unit. b) That the learned AO and the learned Panel failed to appreciate that Titanium unit is a newly established undertaking and has received STPI approval and hence is eligible for deduction under section 10A of the Act. c) That the learned AO and the learned Panel erred in holding that since the Titanium unit is an extension of UB Plaza unit no deduction could be allowed under section 10A of the Act to Titanium unit as UB Plaza unit itself is not eligible for deduction under section 10A of the Act. d) That the learned AO and the learned Panel failed to appreciate the fact that Titanium unit is a new unit in its entirety and fulfills all the conditions prescribed for claiming deduction under section 10A of the Act. e) That the learned AO and the learned Panel failed to appreciate the fact that deduction under section 10A of the Act is undertaking specific and not assessee specific. f) Without prejudice to the above, the learned AO and the learned Panel erred in not relying on Circular No. 1, dated January 17, 2013 which has clarified that slump sale would not result into any splitting or reconstruction of existing business and the claim for deduction under section 10A of the Act cannot be denied on a mere ground of change in ownership. 8. a) That on the facts and circumstances of the case, the learned AO and the learned Panel erred in denying deduction under section 10A of the Act in respect of unit acquired from Reuters India Private Limited (RIPL). b) That the learned AO and the learned Panel erred in holding that the since the Appellant has acquired only the STP unit from RIPL under slump sale basis, it does not fulfill the conditions for claiming deduction under clause (ii) to section 10A(2) of the Act. c) That the learned AO and the learned Panel erred in not relying on Circular No. 1, dated January 17, 2013 which has clarified that slump sale would not result into any splitting or reconstruction of existing business and the claim for deduction under section 10A of the Act cannot be denied on a mere ground of change in ownership.
a) That on the facts and circumstances of the case, the learned AO and the learned Panel erred in denying the claim for depreciation on goodwill under section 32 of the Act in respect of undertaking acquired from Thomson Business Information India Private Limited (TBI) and RIPL. b) That the learned AO failed to appreciate that as the time limit for filing the revised return of income for AY 2010-11 had elapsed post the order of the Hon’ble Supreme Court in the case of CIT vs Smifs Securities Ltd (348 ITR 302)(SC), the claim was made during the course of assessment proceedings. 10. a) That on the facts and circumstances of the case, the learned AO erred in denying the claim for depreciation on software purchases on account of non-deduction of tax at source under section 40(a)(i) / 40(a)(ia) of the Act. b) That the learned AO failed to appreciate that the provisions of section 40(a)(i) / 40(a)(ia) of the Act are applicable only in respect of outgoing expenditure and such provision cannot be stretched to deny the claim for depreciation. c) That the learned Panel has passed the directions on this ground on an incorrect understanding of the fact. d) That the learned AO failed to appreciate that the learned Panel in the Appellant’s own case during AY 2009-10 held that the provisions of section 40(a)(ia) is not applicable to depreciation expenditure. e) Without prejudice to the above, the learned AO is not justified in holding that the payment made for the purchase of software is towards the use of copyrighted article and not for use of copyright. f) That the learned AO also failed to appreciate that a retrospective amendment cannot be made applicable to disallow the claim for depreciation under section 40(a)(i) / 40(a)(ia) of the Act. g) Without prejudice to the above, the learned AO further erred in not allowing deduction under section 10A of the Act for disallowance considered under section 40(a)(i) / 40(a)(ia) of the Act.
11. That the learned AO erred in consequently levying interest under section 234B of the Act.
That the learned AO erred levying interest under section 234D of the Act.
13. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify, the grounds hereinabove or produce further documents before or at the time of hearing of this Appeal.”
The DRP has erred in rejecting the following comparables as per the table given below although they are functionally similar and pass through the filters applied by the TPO:
No. Name of the comparable case PLI (%) 1 Accentia Technologies Ltd 43.06 2 ICRA Online Ltd 43.39 3 Acropetal Technologies Ltd 22.27 4 Jeevan Scientific Technologies Ltd 19.20
2. On the facts and in the circumstances of the case, the Dispute Resolution Panel erred in law in directing the Assessing Officer to reduce the telecommunication expenses and other expenses, incurred in foreign currency both from the Export Turnover and as well as Total Turnover for the purpose of computation of deduction u/s 10A of the IT Act without appreciating the fact that the statute allows exclusion of such expenditure only from the ETO by way of specific definition of export turnover defined in the Act. On the other hand, there is no specific provision in section 10A warranting exclusion of above expenses from the total turnover also. The DRP also erred in placing the reliance on the decision of the Hon’ble High Court of Karnataka in the case of M/s Tata Elxsi Ltd., which has not become final since the same has been not accepted by the Department and SLPs are pending before the Hon’ble Supreme Court.
“1. The directions of the DRP are opposed to law and facts of the case.
2. The DRP erred in allowing the depreciation on the software purchases even though the assessee failed to deduct the tax at source on them.
3. The DRP erred in not appreciating the fact that the payment towards purchase of computer software is treated as Royalty in accordance with explanation 2 to clause (vi) of subsection (1) of Section 9 of the Act and the disallowance under provisions of section 40(a)(i)/40(a)(ia) are attracted if TDS is not made in accordance with the provisions of section 194J/195 of the Act.
The DRP erred in not appreciating the fact that the disallowance u/s 40(a)(i)/ 40(a)(ia) of the Act is called for even if the claim is made under the head depreciation u/s 32 of the Act as Section 40 reads as "notwithstanding anything contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "business and profession".
5. The appellant craves leave to add, to alter or to delete any of the grounds that may be urged at the time of hearing of the appeal.”
Brief facts of the case are as under:-
Assessee is a company engaged in providing information technology enabled services to its associated enterprises. For the year under consideration, assessee filed its return of income 06/10/2010 declaring total income of Rs. 29,58,97,290/- after claiming deduction u/s 10A of the Act. The return was processed u/s 143(1) of the Act and the case was selected for scrutiny. Subsequently, notice u/s 143(2) and 142(1) of the Act were issued, in response to which, the representative of the assessee appeared before Ld.AO and filed a requisite details as called for. The Ld.AO observed that the assessee had international transactions with its AE during the year that exceeded Rs. 15,00,00,000/- as per Form 3CEB report. Accordingly, reference was made to the Transfer Pricing Officer (Ld.TPO) u/s 92CA of the Act.
2.1. The Ld.TPO upon receipt of the reference called for economic details of the international transactions entered into by the assessee with its AE. From the details so filed assessee, the Ld.TPO observed that assessee is engaged in contract IT enabled services in area of data analysis, compilation and transmission of customized software and contract software development services. It was noted by the Ld.TPO that, the assessee entered into service agreement with Thomson Financial Inc. US, for undertaking activities of rendering remote data processing in the field of financial database and contract software development.
2.2. In respect of the AE Group company (Thomson Corporation), Ld.TPO noted that the Thomson Group is a global e-information and solutions company, which comprises of four global market groups, namely, legal and regulatory, financial, learning and scientific and healthcare. It was noted that, Thomson Financial provides information to the financial services industry which includes asset managers, investment banks and brokers/dealers worldwide.
2.3. From the Transfer Pricing Study Report (TPSR), Ld.TPO noted that, following were the international transactions entered into by assessee with its associated enterprise:-
Description Amount Paid (Rs.) Amount Received (Rs.) Receipt for Software Development Service 218,80,45,874 Receipt for IT Enabled Service 637,58,21,752 Reimbursement of expenses 8,86,63,388 Sale of Assets 33,45,328 Recovery of Expenses 64,62,153 2.4. The Ld.TPO noted that, assessee earned margin of 15% in ITeS by adopting operating profit/operating cost (OP/OC) as the profit level indicator (PLI), the Ld.TPO noted that, assessee benchmarked the transactions of providing information technology enabled services (ITeS) to its AE by using Transactional Net Margin Method (TNMM) by selecting following 15 comparables:-
S. No. Name of the Company Average PLI (%) 1 A O K In-House B P O Services Ltd. 13% 2 Aditya Birla Minacs Worldwide Ltd. 8% 3 Cameo Corporate Services Ltd. 10% 4 Cosmic Global Ltd. 34% 5 Delta Services (I) Pvt. Ltd. 7% 6 Informed Technologies India Ltd. 12% 7 Infosys B P O Ltd. 24% 8 K N M Services Pvt. Ltd. 14% 9 Optimus Global Services Ltd. -2% 10 Sparsh B P O Services Ltd. 6% 11 Crossdomain Solutions Pvt. Ltd. 28% 12 Omega Healthcare Management 9% Services Pvt. Ltd. 13 B N R Udyog Ltd. 38% 14 In House Productions Ltd. 4% 15 Timex Group India Ltd. 8%
Mean 14% Median 10% Upper 19% Quartile Lower 7% Quartile As the comparables had mean margin of 14%, the assessee treated the ITeS segment to be at arms length. In respect of SWD Segment, the assessee earned 15% margins by adopting OP/OC as PLI under TNMM. The assessee selected 16 comparables with average mean of 11%. The assessee thus held the services rendered by assessee under SWD segment to be at arms length.
3.2. The Ld.TPO was dissatisfied with the comparables selected by assessee under both segments. By applying various filters, Ld.TPO rejected 12 comparables and introduced seven new comparables in ITeS segment resulting into total of following 10 comparables in the final list as under:-
Sl. No. Name PLI (%) 1 Accentia Technologies Ltd 43.06% 2 Acropetal Technologies Ltd (Seg.) 22.27% 3 E-Clerx Services Ltd 55.97% 4 Fortune Infotech Ltd 22.80% 5 ICRA Online Ltd (Seg.) 43.39% 6 Informed Technologies India Ltd 26.15% 7 Infosys BPO 31.23% 8 Cosmic Global Ltd 14.97% 9 Sundaram Business Services Ltd -12.31% 10 Jeevan Scientific Technology Ltd (Seg.) 21.05% AVERAGE 26.86% 3.3.1. For SWD segment, the Ld.TPO selected final set of 11 comparables with average mean of 22.71%. The Ld.TPO thus proposed adjustment being shortfall amounting to Rs. 11,92,96,066/-.
On receipt of the transfer pricing order, Ld.AO pass to the draft assessment order on 28/03/2014, by further denying:-
• deduction u/s 10A in respect of making disallowance u/s 10A in respect of STPI unit hired from Reuters India Private Limited amounting to Rs. 65,13,27,497/- • making disallowance u/s 10A in respect of Titanium STPI unit amount to Rs. 34,64,35,220/-. • Denying claim of depreciation on goodwill in respect of the undertaking acquired by slum sale amounting to Rs.9,01,44,504/- • Disallowance of depreciation of software items u/s 40(a)(ia) amounting to Rs. 82,25,200/-. 4.1. The Ld. AO, thus, passed draft assessment order incorporating the proposed TP adjustment along with above disallowances.
On receipt of the draft assessment order, assessee filed objections before the DRP.
5.1. The DRP after considering various submissions of the assessee excluded four comparables in the ITeS segment. In respect of SWD 5.2. In respect of the corporate tax issues, the DRP upheld the disallowance made by Ld.AO. Upon receipt of the DRP directions, Ld.AO, passed the impugned order by computing total income in the hands of assessee at Rs.165,29,29,413/-.
Aggrieved by the order of Ld.AO, assessee as well as revenue are in appeal before this Tribunal.
It is submitted that in the revenue’s appeal in the Ld.DR is seeking inclusion of the four comparables that were excluded by the DRP.
6.1. In respect of the assessee’s appeal, assessee is seeking exclusion of two comparables in the ITeS segment being e-Clerk Services Ltd. and Infosys BPO Ltd.. Assessee also raised issue of non-granting of risk adjustment which has been submitted to be not pressed in the chart filed before this Tribunal.
6.1.1. In respect of corporate tax disallowance made by the Ld.AO, assessee is seeking relief in respect of denial of deduction u/s 10A in respect of UB Plaza Software, Titanium STPI Unit, Reuters India Pvt. Ltd..
6.1.2. Assessee has also raised an issue against the denial of claim of depreciation on goodwill u/s 32 of the Act in respect of undertaking that was acquired from slum sale.
The Ld.AR submitted that, in Ground No. 10, assessee raised the issue regarding disallowance of depreciation of software u/s 40(a)(ia) of the Act on account of non-deduction of TDS u/s 194J of the Act. The Ld.AR submitted that, this issue becomes infructuous by virtue of order passed u/s 154 of the Act by DRP rectifying this mistake apparent on record. In the appeal filed by IT(TP)234/Bang/2015, department is seeking inclusion of certain comparables under both the segments as well as the manner in which computation of deduction u/s 10A is to be made.
6.2. The Ld. AR as well as the Ld.DR submitted that, the revenue has filed the appeal against rectification by the Ld.DRP in IT(TP)A No. 843/Bang/2015.
6.3. The Ld.AR submitted that, all the issues these appeals by assessee as well as revenue, are covered by various decisions of Co- ordinate Bench of this Tribunal in assessee’s own case for preceding as well as subsequent assessment years.
Before we undertake the comparability analysis, it is sine qua non to understand the functions performed, assets owned and risk assumed by assessee in providing ITeS Services to its associated enterprise. In the paperbook, the TP study report placed at page 41 to 100 reveals the FAR under taken by assessee, which is reproduced herein below:-
7.1. From the above it is clear that assessee has been categorized as a contract serviced provider under both SWD and IT enabled service who assumes less than normal risk associated with carrying out business in India.
Assessee is seeking exclusion of following two comparables:-
A. Eclerx Services Ltd. :- The Ld. AR submitted that, this comparable is functionally different with that of assessee which is clear from page 712 of the annual report placed in the paperbook. The Ld.AR emphasized that this company is known as Knowledge Process Outsourcing company (KPO) providing data analytics to the data management and process improvement solutions to Global Enterprises clients. It is further submitted that, this company provides sales and marketing services to leading global manufacturing, retail, travel and leisure companies. From the audited annual reports placed at page 739, the Ld.AR submitted that it does not have segmental details in respect of the various sources of income and, therefore, cannot be considered to be a comparable company with the assessee.
A.1. He also placed reliance on following decisions that rejected this comparable on account of it being engaged as a KPO:- “CIT vs. GE India Business Services (P.) Ltd [2023] 152 taxmann.com 517 (Delhi HC) - AY 2010 -11 Tech Mahindra Business Services Ltd vs. ACIT - [2024] 162 taxmann.com 643 (Mumbai - Trib.) - AY 2010-11 UL India (P.) Ltd vs. DCIT - [2022] 135 taxmann.com 320 (Bangalore - Trib.) - AY 2010-11 Franklin Templeton International Services (India) Private Limited & Ors (Mumbai - Trib.) - AY 2007-08 & Ors A.2. The Ld.AR also submitted that the said comparable stood excluded in case of assessee for AY 2009-10 in IT(TP)A No. 231 & 266/Bang/2014 vide order dated 25/02/2025.
A.3. On the contrary, the Ld.DR though supported the orders passed by authorities below, could not controvert the submissions made by Ld.AR.
We have perused the submissions advance by both the sides in light of the records placed before us.
A.4. It is noted that, Co-ordinate Bench of this Tribunal excluded this comparable by observing as under:-
***This space is left blank intentionally, P.T.O.*** A.5. Further it is also noted that, this comparable has been categorized as a KPO. It also does not have segmental details in respect of the income earned by it under various heads. Under such circumstances, we do not find this company to be comparable with that of assessee which is a contract service provider to its AEs. Accordingly, we direct the Ld.AO/TPO to exclude Eclerx Services Limited from the final list.
B. Infosys BPO Ltd. :- The Ld.AR submitted that this company is a giant company having turnover of Rs. 1126 Crores and is engaged in providing high end integrated services, business process management services to organizations that outsource their business processes. It is submitted that, this company has a high brand value and operates on an economic upscale. The Ld.AR submitted that, this company has incurred significant selling and marketing expenses (including brand promotion expenses).
B.1. He placed reliance on page 664 to 670 of the annual report of this company filed in the paperbook. The Ld.AR submitted that this comparable has been excluded by Co-ordinate Bench of this Tribunal in assessee’s own case for AY 2009-10 (supra). He thus prayed for exclusion of this comparable from the final list.
B.2. On the contrary, the Ld.DR though supported the orders passed by authorities below, could not controvert the submissions made by Ld.AR.
We have perused the submissions advance by both the sides in light of the records placed before us.
B.3. It is noted that this comparable was excluded in assessee’s own case for AY 2009-10 by Co-ordinate Bench of this Tribunal by observing as under:-
***This space is left blank intentionally, P.T.O.*** B.4. The assesse also placed reliance on following decisions wherein this comparable stood excluded.
“a) CIT vs. GE India Business Services (P.) Ltd [2023] 152 taxmann.com 517 (Delhi HC) - AY 2010-11 b) Tech Mahindra Business Services Ltd vs. ACT - [2024] 162 taxmann.com 643 (Mumbai - Trib.) - AY 2010-11 c) UL India (P.) Ltd vs. DCIT - [2022] 135 taxmann.com 320 (Bangalore - Trib.) - AY 2010-11 d) ICICI Bank Limited 643 (Mumbai - Trib.) - AY 2008-09” B.5. Based on the above discussions, we are of the opinion that this company cannot be compared with a contract service provider like assessee, due to the functional dissimilarities noted hereinabove. Accordingly, this company is directed to be excluded from the final list.
The Ld.AR submitted that, Ground Nos. 2, 3 & 5 are not pressed by assessee.
Accordingly, these grounds stand dismissed as not pressed.
Ground No. 6, 7 & 8 are in respect of denial of deduction u/s 10A in respect of UB Plaza, STPI Unit, Titanium STPI Unit and STPI Unit acquired from Reuters India Private Limited.
10.1. At the outset, the Ld.AR submitted that, the issues are covered by various orders of Co-ordinate Bench of this Tribunal as well as Bangalore Tribunal in following cases:- IT (TP) A No. 1206/Bang/2011- Bangalore Tribunal- AY 2007-08 I(TP) A No. 1565/Bang/2012 - Bangalore Tribunal - AY 2008-09 - Mumbai Tribunal - AY 2011-12 ITP)A No. 231/Bang/2014 - Mumbai Tribunal - AY 2009-10 10.2. Ld.AR narrated the facts relating to these units against which deductions were claimed during the year under consideration:-
Ground No. 6: Denial of claim in respect of UB Plaza Unit:-
It is submitted that, assessee had acquired UB Plaza Unit (registered with STPI) from Thomson Business Information (India) Ltd. w.e.f. 01/07/2005 pursuant to agreement dated 15/06/2005. It was submitted that UB Plaza Unit was eligible to claim deduction for its profits from export u/s 10A of the Act from AY 2004-05 onwards and the said deduction was claimed by Thomson Business Information (India) Ltd. till the date of transfer of the said unit to the assessee. The Ld.AR submitted that, the said transfer of UB Plaza Unit was by way of slump sale and thereafter assessee continued to claim deduction for the unexpired period from AY 2005-06 onwards.
11.1. The Ld.AR submitted that, Ld.AO allowed the deduction u/s 10A for AY 2006-07 in the hands of the transferor company. Since AY 2007-08, the said deduction was claimed by the assessee holding that, acquisition of UB Plaza Unit by way of slump sale led to non-fulfillment of conditions prescribed u/s 10A of the Act. Ld.AR submitted that, this deduction was denied in the hands of assessee for AY 2007-08 and the issue travelled to this Tribunal. This Tribunal while deciding this issue held that, deduction u/s 10A of the Act cannot be denied to UB Plaza Unit which is otherwise undisputedly an eligible undertaking merely on the basis that it was acquired by assessee under a slump sale. The Ld.AR submitted that, this Tribunal took cognizance of Circular 1 of 2013 issued by CBDT wherein it was categorically clarified that benefit of Section 10A of the Act cannot be denied because of change in ownership due to slump sale. He referred to the following observations of this Tribunal for AY 2007-08, which reads as under:-
11.2. It is submitted by Ld.AR that, the above observations of this Tribunal attained finality and the revenue did not challenge it before Hon’ble Karnataka High Court.
11.3. The Ld.AR submitted that, the Department still denied the claim on identical reasoning for the subsequent assessment years and this Tribunal by way of orders referred to hereinabove, allowed the claim of assessee. The Ld.AR, thus, prayed for the claim to be allowed for the year under consideration as this Tribunal has allowed the claim of assessee even for the subsequent assessment years as referred to hereinabove.
11.4. On the contra, the Ld.DR placed reliance on the orders passed by authorities below.
We have perused the submissions advance by both the sides in light of the records placed before us.
11.5. It is noted that, the only reason to deny the claim of assessee is because this unit was acquired by assessee by way of a slump sale. The revenue has not been able to bring out any different facts in respect of the UB Plaza Unit. The reasoning to reject the claim of assessee has already been analyzed in great detail by Co-ordinate Bench of this Tribunal for AY 2007-08 which is followed in the subsequent assessment years on identical facts. The CBDT Circular No. 1/2013 dated 17/01/2013 also clarifies that the deduction cannot be denied merely because of change in the ownership due to slump sale. This Tribunal also notes that there is no other violation of condition necessary to claim deduction. As noted in the order for assessment year 2007-08 (supra), this view also stands supported by the decision of Hon’ble Bombay High Court in the case of Sonata Software Ltd. reported in [2012] 21 taxmann.com 23. For the year under consideration also, the revenue denied the claim on identical reasoning.
Based on the above discussions and respectfully following the view taken by Co-ordinate Bench of this Tribunal for AY 2007-08, having supported by the decision of Hon’ble Bombay High Court in case of Sonata Software (supra), we direct the Ld.AO to allow deduction u/s 10A of the Act to assessee in respect of UB Plaza Unit.
Accordingly, Ground No. 6 raised by assessee stands allowed.
12. Ground No. 7 is in against of denial of deduction u/s 10A of Titanium STPI Unit. The Ld.AR at the outset submitted that, assessee had set up new STPI unit, namely, Titanium Unit during AY 2008-09. At the time of assessment proceedings for AY 2008-09, the Ld.AO noted that, it was the first year of claim and assessee had submitted a separate certificate of STPI approval in respect of Titanium Unit. It is submitted that, however the Ld.AO misunderstood the same to be an expansion of UB Plaza Unit whereas the assessee had clarified that the term “expansion” referred to expansion of STPI facility by establishment of a new unit under a separate STPI approval and not an expansion of UB Plaza Unit per se. In the absence of separate fixed asset scheduled for Titanium Unit, Ld.AO disallowed the entire disallowance u/s 10A of the Act on a concerted basis for UB Plaza and Titanium Unit by holding that Titanium Unit to be an expansion of UB Plaza Unit. This view of Ld.AO for AY 2008-09 was followed by Ld.AO for the year under consideration and in all other subsequent years thereafter, as the assessee failed to establish that Titanium Unit is a separate unit. Ld.AO for the year under consideration, also took cognizance of the STPI approval and held that Titanium Unit is an expansion of UB Plaza Unit.
12.1. Ld.AR submitted that, assessee challenged the findings of Ld. AO for AY 2008-09 before this Tribunal in IT(TP) NO. 1565/Bang/2012. This Tribunal vide order dated 28/09/2017 considered this issue by observing as under:-
The Ld.AR submitted that, the above observation was followed for AY 2009-10 wherein this Tribunal followed the observations of AY 2008-09 by this Tribunal and directed the Ld.AO to allow the deduction claimed by assessee u/s 10A with respect to Titanium Unit. The relevant observations of this Tribunal are at paragraphs 59 to 61 of the order filed in the paperbook at pages 40 to 42.
12.3. Similarly, for AY 2011-12, the deduction was granted by following the views adopted by this Tribunal for AY 2008-09. The relevant observations of this Tribunal for AY 2011-12 is at para 8 of the order paced in the paperbook at page 3.
12.4. The Ld.AR submitted that undoubtedly, assessee is eligible for deduction u/s 10A for the UB Plaza Unit. He pointed out that for the year under consideration, the Ld.AO disallowed the deduction by treating UB Plaza Unit and Titanium Unit jointly at Rs.34,64,35,220/-. He also referred to the categorical observation of coordinate bench of this Tribunal for AY 2008-09 wherein this Tribunal recorded that assessee has not been able to establish that, Titanium Unit is a separate unit by furnishing independent asset schedule for this unit. It is noted that, based on this the Tribunal rejected the argument of assessee that Titanium Unit is a separate independent unit. The Ld.AR submitted that, be that as it may, this Tribunal proceeded on the footing that since the Ld.AO treated the Titanium Unit to be an expansion of UB Plaza unit and that deduction for UB Plaza unit cannot be denied as observed by this 12.5. Based on the above reasoning by this Tribunal for assessment year 2008-09, Ld.AR prayed that assessee may be granted deduction u/s 10A since the deduction for UB Plaza unit has not been denied. He also prayed that the doctrine of consistency as well as the principle of ratio descendi applied by this Tribunal for earlier assessment years on materially identical facts requires the deduction to be granted in respect of Titanium Unit for the year under consideration. He also submitted that, claim of deduction for Titanium Unit during the year under consideration is the third year of claim and the rejection of the same would result in violation of principles of consistency established when the deduction is allowed for AY 2011-12 which is the fourth year of claim by the coordinate bench of this Tribunal referred to herein above.
12.6. On the contrary, Ld.DR submitted that, the reasoning adopted by this Tribunal for AY 2008-09 is misplaced, as it does not have any legal legs to stand in the eyes of law. The Ld.DR emphasized that on one hand, the Tribunal for AY 2008-09 rejected the argument of assessee that Titanium Unit is a separate independent unit and on the other hand allowed the claim of deduction by observing that, the Ld.AO treated the Titanium Unit and UB Plaza unit together for the purposes of disallowance. He submitted that, requirements of section 10A to claim deduction was never subjected to verification from the year one in respect of Titanium Unit. The Ld.DR emphasised that, revenue always disallowed the deduction u/s 10A in respect of Titanium Unit on the reasoning that necessary conditions u/s 10A does not stand satisfied from the year one. Ld.DR submitted that in the earlier years, the required conditions has not been looked into by this Tribunal, when there is a categorical observation of this Tribunal for AY 2008-09 regarding the same being not satisfied. The Ld.DR thus emphasised that, the principle of consistency urged by Ld.AR on a wrong reasoning may not be followed.
We have produced the submissions advanced by both the sides and light of the records placed before us.
12.7. The finding recorded by this Tribunal in the first year of the claim for Titanium Unit, i.e. assessment year 2008-09, suffers from an incorrect appreciation of facts and therefore we are not inclined to treat it as a binding or persuasive precedent. While this Tribunal categorically held that the assessee failed to establish the Titanium Unit as a separate and independent undertaking particularly noting the absence of a separate asset schedule, it nevertheless allowed deduction under section 10A on the alternative premise that the said unit constituted an expansion of the UB Plaza Unit, without examining whether such expansion independently satisfied the statutory conditions of section 10A. This internally inconsistent approach resulted in erroneous direction to the Ld.AO to allow the claim in respect of Titanium Unit. This was 12.8. In view of the above, and since deduction under section 10A is undertaking-specific, the principle of consistency cannot be invoked unless the conditions stand satisfied. At the same time, considering that the claim has been allowed in earlier years, the issue cannot be concluded without a proper and comprehensive factual examination. We therefore deem it appropriate, in the interests of justice, to set aside the issue to the file of the Ld.AO for fresh adjudication for the year under consdieration.
12.9. The Ld.AO shall examine the issue de novo, after affording adequate opportunity of being heard to the assessee, and shall specifically verify and examine, inter alia:
• the separate fixed asset register / asset schedule of the Titanium Unit, including date of acquisition and deployment of assets; • the nature of infrastructure, plant and machinery, and whether the same is distinct from or common with the UB Plaza Unit; • the approvals, registrations and permissions (including STPI / SEZ / other regulatory approvals, if any) pertaining specifically to the Titanium Unit; the date of commencement of operations of the Titanium Unit and whether it falls within the eligible tax holiday period under section 10A; • the separate books of account, cost centre records, and allocation of expenses and revenues, if maintained; • the employee strength and deployment, including whether personnel are separately identifiable 12.10. The Ld.AO shall decide the issue afresh on merits, strictly in accordance with law, without being influenced by the contradictory findings recorded in earlier assessment years, and shall pass a reasoned order after considering all material placed on record.
12.11. In the event the Ld.AO finds, upon verification, that the Titanium Unit does not have entirely independent infrastructure and that certain facilities, assets, manpower, or common services are shared with the UB Plaza Unit, the claim under section 10A shall not be rejected outright on that ground alone. Instead, the Ld.AO shall examine the claim in the following manner:
• The Ld.AO shall determine whether the Titanium Unit constitutes a functionally identifiable segment of the existing eligible undertaking, capable of being regarded as an integral part of the UB Plaza Unit, rather than a mere extension created by splitting up or reconstruction of an existing business.
Where common facilities such as premises, servers, administrative infrastructure, or employees are used, the Assessing Officer shall: o verify the basis of allocation of common assets and expenses; o ensure that such allocation is reasonable, consistent, and supported by records (such as cost centre accounting, time-sheets, usage logs, or management certifications); and o compute the eligible profits of the Titanium Unit (or the expanded undertaking) after making appropriate allocations, in accordance with law.
12.12. It may be noted that the deduction under section 10A shall not be denied merely because certain facilities are common, provided the assessee is able to demonstrated that the Titanium Unit contributes to the export of eligible articles or services, the expansion does not result in splitting up or reconstruction of the existing eligible undertaking within the meaning of section 10A and the claim pertains to the unexpired tax holiday period of the UB Plaza Unit.
12.13. If the Titanium Unit is found to be an integral expansion of the UB Plaza Unit, the Ld.AO shall treat the combined operations as a single eligible undertaking and allow deduction under section 10A only in respect of profits attributable to the eligible 12.14. We specify that the assessee shall bear the burden of establishing, through contemporaneous documentation, that the expansion is genuine and not a device to inflate eligible profits and the methodology adopted for allocation of common costs and resources is fair and in line with commercial principles.
12.15. The Ld.AO shall thus examine the claim in a holistic manner, keeping in view that commonality of facilities by itself is not determinative, and that the allowability of deduction under section 10A depends upon the functional integration, genuineness of expansion, and correct computation of eligible profits in accordance with law.
Ground No. 8, raised by assessee is against denial of deduction u/s 10A in respect of STPI Unit acquired by assessee from Reuters India Private Ltd., by way of slump sale. The Ld.AR submitted that, assessee took over the business relating to IT enabled services from Reuters India Private Ltd., by way of slump sale as a growing concern. He submitted that, the said business transfer was entered into by way of an agreement dated 09/09/2008 which was effected from 01/04/2008. The Ld.AR emphasised that, revenue has not disputed the claim of deduction u/s 10A in the hands of Reuters India Private Ltd., from AY 2005- 06 onwards on year on year basis. He submitted that, post the transfer of business to assessee, deduction u/s 10A was claimed by assessee for the balance period from 01/11/2008 onwards.
13.1. The Ld.AR brought to our notice that with regards to the claim of deduction u/s 10A in the hands of assessee, Ld.AO denied the claim for AY 2009-10 on the ground that STPI Unit was transferred to assessee under the slump sale and the same was not permissible. He submitted that, similar was the reason to deny the claim for assessment year 2011-12. He submitted that, coordinate bench of this Tribunal, while considering this issue for AY 2009-10 in IT(TP)A NO. 231/Bang/2014, granted the deduction based on identical reasoning adopted for granting deduction in respect of UB Plaza unit, which was followed for assessment year 2011-12 in (supra). The Ld.AR submitted that, deduction u/s 10A cannot be denied merely on the ground that business was transferred to assessee in slump sale.
13.2. The Ld.DR on the contrary relied on the orders passed by authorities below.
We have perused the submissions advanced by both sides in light of the records placed before us.
13.3. Admittedly, the unit is eligible for deduction u/s 10A as the same was granted in the hands of the transferor from the year one onwards being 2005-06. Circular No. 1/2013 issued by CBDT categorically clarifies that the benefit u/s 10A cannot be purely denied due to the change of ownership in a slump sale. From the order passed by the Ld.AO, we do not find any other reason that formed basis to deny the claim of assessee u/s 10A for the unit acquired from Reuters India Private Limited. Under such circumstances, we do not find any reason to uphold the disallowance made by Ld.AO.
Ld.AO is thus directed to grant the deduction claimed by assessee in respect of the unit that was acquired from Reuters India Private Ltd..
Accordingly, Ground No. 8 raised by assessee stands allowed.
Ground No. 9 raised by assessee is against disallowance of depreciation of good-will in respect of the undertakings acquired through slump sale. The Ld.AR submitted that, the issue can be decided based on the observations by Hon’ble Supreme Court in the case of CIT vs Smifs Securities Ltd. reported in 340 IT 302 (SC). It was submitted that, assessee had not raised this claim at the time of filing the return of income but at a later stage of the assessment proceedings, pursuant to the decision of the Hon’ble Supreme Court. The Ld.AR submitted that, the authorities below rejected the claim of assessee as it did not form part of the return of income. The Ld.AR placed reliance on the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. v. CIT reported in 283 ITR 323 (SC), to support that, this Tribunal has discretion to entertain a fresh claim made by assessee even if such a claim was not made in the return of income or by way of a revised return.
14.1. On the contrary, the Ld.DR submitted that no details in respect of the claim was furnished by assessee and the Ld.AO could not verify the same as it did not form part of the return of income. The Ld.DR thus, supported the orders passed by the authorities below.
We have perused the submissions advanced by both the sides in light of the records placed before us.
14.2. It is noted that, assessee raised this claim consequent to the decision of Hon’ble Supreme Court in the case of CIT vs Smifs Securities Ltd. (supra). Reliance placed by Ld.AR on the decision of Hon’ble Supreme Court in the case of Goetze (India) Ltd. (supra), supports the submission of assessee regarding the powers of this Tribunal in considering fresh claim raised for the first time before this Tribunal. However, in the interest of justice, the issue is remitted to Ld.AO to carry out necessary verification of the contents that assessee shall furnish in the light of the ratio by Hon’ble Supreme Court in the case of CIT vs Smifs Securities Ltd. (supra). We, therefore, direct the Ld.AO to carry out de novo verification of the claim of assessee in light of the decision of Hon’ble Supreme Court and consider the claim in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee.
Accordingly, this ground raised by assessee stands partly allowed for statistical purposes.
Ground No. 10, raised by assessee is in respect of disallowance of depreciation on the software items u/s 40(a)(ia) of the Act on account of non-deduction of tax u/s 194J of the Act.
The Ld.AR submitted that, this issue at this stage becomes infructuous pursuant to the rectification order dated 13/04/2015 passed by Ld.AO following the directions of Ld.DRP vide rectification order dated 25/02/2015 passed u/s 144 r.w.s. 144C of the Act.
15.2. The Ld.DR submitted that, revenue has also filed an appeal against the order dated 13/04/2015 passed by the Ld.AO following the DRP directions dated 25/02/2015.
We have considered the submissions advanced by both the sides in light of the records placed before us.
15.3. This issue is covered in favour of the assessee by an order passed by the Co-ordinate Bench of the Tribunal in assessee’s own case for assessment year 2009-10. Admittedly, the facts for the year under consideration vis-à-vis assessment year 2009-10 are identical. The reasoning for allowing the claim of assessee by this Tribunal is as under:-
***This space is left blank intentionally, P.T.O.***
***This space is left blank intentionally, P.T.O.*** 15.4. Under these circumstances, we do not find any merit in the appeal filed by revenue in , as the ground raised by assessee under these circumstances become infructuous. Accordingly, Ground No. 10 raised by assessee is dismissed as infructuous.
Ground Nos. 11 & 12 raised by assessee are consequential in nature and, therefore, do not required any adjudication.
Revenue’s appeal in ITA No. 234/Bang/2015
Ground No. 1 raised by revenue is challenging the exclusion of following four comparables under ITeS segment:-
1) Accentia Technologies Limited 2) Acropetal Technologies Ltd. 3) ICRA Online Limited 4) Jeevan Scientific Technology Ltd. A. Accentia Technologies Limited:- The Ld.AR submitted that, this company is engaged in Healthcare Receivables Cycle Management (HRCM) services and software products for business process outsourcing. He submitted that, this company provides medical transcription, medical coding, medical billing, receivables management. Thus, the annual report of this company categorised it to be a KPO in the field of healthcare. He referred to the annual report placed at page 779, 817 to 823 of the paperbook. Ld. AR submitted that, this company also offers various other services like data process outsourcing services and legal transcription services comprising of legal transcription, legal coding, legal claims processing, legal document review, legal research and writing, drafting of pleadings and briefs etc. He also submitted that this company is involved in providing development and develops its own software which was considered by the DRP while rejecting this comparable. He also emphasised that the total revenue of this company is from various segments for which segmental details are not available. The Ld.AR emphasised that based on this reasoning, Ld.DRP excluded this company from the final set.
A.1. The Ld.DR on the contrary relied on the observations of the Ld.AO/TPO.
We have perused the submissions advanced by both sides in light of the record is before us.
A.2. It is noted that, this company has excluded in the assessee’s own case for AY 2007-08 and 2009-10 by observing as under:-
***This space is left blank intentionally, P.T.O.*** A.3. It is also noted from the annual report that this company is typically into software services which are delivered to 3rd parties. Further it is noted that this company has acquired Ascent Infoserve Pvt. Ltd., vide an amalgamation approved by the Hon’ble Karnataka High Court vide order dated 06/02/2010. For all the aforestated reasons, we do not find this company to be comparable with that of assessee. We accordingly do not find any reason to differ with the view taken by the DRP and the same is upheld. Accordingly, we are uphold the exclusion of this comparable from the final list.
A.4. The Ld.AR at the outset submitted that in the event Accentia Technologies Limited is upheld to be excluded, remaining comparables argued by revenue need not be considered as the assessee is within the range of ± 5%.
A.5. The Ld.AR also submitted that, even if Acropetal Technologies Ltd., ICRA Online Limited and Jeevan Scientific Technology Ltd., are retained in the final list, assessee would still be within the margin of 15%. He has submitted the following computation in respect of the same regarding the final list of comparables after considering the inclusion and exclusion sought by assessee as well as revenue in the present appeal:-
Accordingly, Ground No. 1 raised by the revenue stands partly allowed.
Ground No. 2 raised by revenue is in respect of exclusion of certain expenditure from export turnover as a respond total turnover for the purposes of computation of deduction u/s 10A of the Act. Admittedly this issue squarely covered in favour of the assessee by the decision of Hon’ble Supreme Court in the case of CIT v. HCL Technologies Ltd. reported in (2018) 404 ITR 719. The issue has also been considered by following decisions of this Tribunal in assessee’s own case:- IT(TP) A No. 1352/Bang/2010 - Bangalore Tribunal - AY 2006-07 IT(TP) A No. 1565/Bang/2012 - Bangalore Tribunal - AY 2008-09 - Mumbai Tribunal - AY 2011-12 IT(TP)A No. 231/Bang/2014 - Mumbai Tribunal - AY 2009-10 19.1. Respectfully following the view taken by Hon’ble Supreme Court in the case of CIT vs. HCL Technologies (supra), we direct the Ld.AO/TPO to exclude the communication and travel expenses from Accordingly, Ground No. 2 raised by revenue stands dismissed.
The Ld.AR submitted that, assessee has filed an application seeking admission of additional grounds. Additionally, the Ld.AR submitted that, these grounds may be left open and academic at this stage.
20.1. Considering the submissions of assessee, these grounds are not adjudicated and are kept open to be considered in appropriate circumstances.
In the result, appeal filed by revenue in IT(TP) 234/Bang/2015 and assessee’s appeal in IT(TP) 542/Bang/2015 stands partly allowed and appeal filed by revenue in IT(TP) 843/Bang/2015 stands dismissed as infructuous.
Order pronounced in the open court on 31/12/2025