DCIT, NEW DELHI vs. M/S. AEGIS BPO SERVICES LTD., NEW DELHI

Brief facts of the case are that the assessee derived income from business of process outsourcing. For the assessment year 2005-06, the assessee filed their return of income on 31.10.2005 declaring total loss of

Learned Assessing Officer also did not allow deduction u/s. 10A of the Act while framing the assessment at a total income of Rs.29,06,68,601/-.

Hence, the assessee preferred appeal before the ld. CIT(A) who by way of impugned order deleted the additions made on account of disallowance of low end lease liability of Rs.5,22,22,388/-, disallowance of depreciation of Rs.1,56,29,005/-, disallowance u/s. 68 of the Act to the tune of Rs.20,10,43,010/-, disallowance of corporate expenses to the tune of Rs.7,75,48,687/- and disallowance of repair to the building to the tune of Rs.1,01,41,474/-. On the issue of claim of the assessee for deduction u/s. 10A of the Act, ld. CIT(A) observed that inasmuch as he directed the Assessing Officer to consider the revised return filed by the assessee and grant of relief on account of depreciation and corporate expenses, such a ground has become infructuous and accordingly rejected the same. Aggrieved by these deletions of disallowances, the Revenue preferred this appeal before us.

We consider the grounds hereunder. In so far as the first ground of disallowance of low end lease liability to the tune of Rs.5,22,22,388/- is concerned, it was submitted by the assessee before the ld. CIT(A) that the assessee has not claimed such amount as low end lease liability. Learned CIT(A) obtained the remand report dated 12.01.2009 wherein, ld. Assessing Officer confirmed that the assessee had not claimed the same in its profit and loss account. Considering such confirmation by the ld. Assessing Officer, learned CIT(A) deleted this addition. We fail to understand how the Revenue is aggrieved by such an act of the ld. CIT(A), which is firmly based on the confirmation of the ld. Assessing Officer in the remand report. The grievance of the Revenue is misconceived one and ground No. 1 of the Revenue is dismissed accordingly.

Coming to ground No. 2 in respect of disallowance of depreciation to the tune of Rs.1,56,20,005/-, ld. Assessing Officer disallowed such depreciation on the assets in respect of Okhla Unit of the assessee basing on the reasoning given for such disallowance in the assessment order for the assessment year 2004-05. Ld. CIT(A) found that, as rightly observed by the ld. Assessing Officer, there is no change in the facts and circumstances of the case in this year from the facts and circumstances of the assessment year 2004-05. Learned CIT(A) recorded a fact that the issue was considered by him at length for the assessment year 2004-05 and held it in favour of the assessee that the assessee is entitled to claim depreciation.

Learned CIT(A) further recorded a fact that the ld. Assessing Officer had not pointed out any specific item of fixed assets being added during the year in respect of which the bills and vouchers were not

Learned CIT(A), therefore, deleted the disallowance of depreciation in respect of the assets acquired in the earlier years as well as the assets added during the current year. Before us also, there is no explanation from the Revenue as to how the finding of the learned CIT(A) suffer any illegality or irregularity. When the ld. CIT(A) forwarded all the relevant vouchers and books of account to the ld. Assessing Officer for verification and remand report, ld. Assessing Officer is bound to verify the books and vouchers and report the matter to the ld. CIT(A), but instead of doing so, ld. Assessing Officer simply stuck to his reasoning given in the assessment year 2004-05 and tripped into the error of not considering the assets already held and the assets acquired during the year. In so far as the assets acquired earlier to this assessment year, the case is covered by the order of ld. CIT(A) for the assessment year 2004- 05, against which there is no submission as to any appeal and became final. In so far as the assets acquired during the year, ld. CIT(A) is right in deleting the disallowance because having an opportunity to examine, the Assessing Officer failed to do so. We do not find anything illegality or irregularity in the findings of the ld. CIT(A) and therefore, confirm the same. Ground No. 2 is, accordingly, dismissed.

Coming to ground No. 3 in respect of addition u/s. 68 of the Act, ld. Assessing Officer made this addition on account of addition to share capital. Learned CIT(A), as a matter of fact, observed that the assessee produced the evidence in support of the genuineness of the share capital in the form of certified copy of resolution passed of the meeting of the Board of Directors held on June 30, 2004, copy of certificate of foreign inward remittance dated 08.03.2004 for Rs.6,51,81,600/- received from Customer Solutions, Mauritius issued by Hon Kong & Shanghai Banking Corporation Ltd., copy of certificate of Foreign Inward Remittance Certificate dated 11.05.2004 for Rs.5,54,46,300/- received from Customer Solutions Mauritius towards share subscription, copy of joint venture agreement dated 28.03.2003, copy of acknowledged return of allotment (Form No. 2) filed pursuant to section 75(1) of the Companies Act, 1956, copy of letter dated 21.07.2004 issued by Reserve Bank of India, Foreign Exchange Department, New Delhi granting approval for issue of shares to Customer Solutions Mauritius for Rs.1,20,62,790/- at the rate of Rs.10 each amounting to Rs.12,06,27,900/-, and copy of letters dated 15.03.2004 and 11.05.2004 addressed to General Manager, Reserve Bank of India, Exchange Control Department, New Delhi regarding intimation of receipt of foreign remittance towards subscription of equity shares in the company amounting to Rs.6,51,81,600/- and Rs.5,54,46,306/- from Customer Solutions Mauritius. Further, learned CIT(A) obtained the remand report from the ld. Assessing Officer. Learned CIT(A) recorded that the ld. Assessing Officer accepted the share capital received from the very same joint venture partner for the assessment year 2004-05 in the assessment order passed u/s. 143(3) of the Act. Having considered the fact that the

Except stating that each assessment year has to be treated as a separate unit and therefore, whatever that happened in the assessment year 2004-05 will not be binding for the assessment year 2005-06, the Revenue failed to explain how the documents filed by the assessee will not establish the creditworthiness of the share applicants or the genuineness of the transactions. The reasoning given by the ld. CIT(A) is impeccable and does not suffer any perversity. We, therefore, while accepting the findings of the ld. CIT(A), dismiss ground No. 3.

Now, coming to ground No.4, it relates to the disallowance of corporate expenses on the ground that there was no income and that books of accounts and vouchers were not produced before the ld. Assessing Officer to verify the corporate expenses. During the appellate proceedings before the ld. CIT(A), on being required, the assessee produced the evidences and details of major corporate expenses such as advertisement and sale promotion, travelling & conveyance, communication expenses, legal and professional fees, rates and taxes, partnership and subscription and miscellaneous expenses. On a careful consideration of the matter in the light of the remand report dated 08.02.2011, ld. CIT(A) observed that the observation of the ld. Assessing Officer that the books of account and vouchers were not produced was incorrect but having an opportunity to examine, the ld. Assessing Officer

There is no explanation as to why the ld. Assessing Officer failed to examine the books of account furnished by the assessee and to offer comments and in spite of specific directions, issued by the ld. CIT(A), ld. Assessing Officer failed in his duty to examine the books and to give specific reasoning for disallowing these expense. There is no reason as to why the observations of the ld. CIT(A) shall not be accepted and for failure of ld. Assessing Officer in this regard, the addition cannot be sustained. We agree with the ld. CIT(A) and dismiss ground No. 4 of Revenue’s appeal.

Now, coming to ground No.5 which relates to disallowance of repair to the building to the tune of Rs.1,01,41,474/-, such a disallowance was made on the ground that the details/vouchers of the said expenses and the books of account were produced. It was the observation of the ld. CIT(A) that the books were produced before the ld. Assessing Officer, but the ld. Assessing Officer failed to examine the same. Ld. CIT(A) on a perusal of the remand report of the ld. Assessing Officer and rejoinder of the assessee found that out of total disallowance of Rs.1,10,77,865/-, a sum of Rs.1,01,44,474/- was paid to M/s. Tulip Projects Pvt. Ltd. towards maintenance charges as per maintenance agreement dated 07.02.2004 and as a matter of facts, ld. Assessing Officer himself allowed the maintenance expenses incurred pursuant to this agreement in the assessment year 2006-07 and therefore, there is no question of disputing the very same agreement having accepted the same in the assessment year 2006-07. On this premise, ld. CIT(A) deleted the addition.

It is not the case of the Revenue that for the assessment year 2006-07, the agreement dated 07.02.2004 was not accepted by the ld. Assessing Officer or that the expenses incurred under such an agreement were not allowed. Having accepted the same for the assessment year 2006-07, there is no point in disallowing such expenses for the assessment year 2005-06. Hence, this addition cannot be sustained and the findings of the ld. CIT(A) are upheld. Ground No. 5 is accordingly dismissed.

In so far as the issue of claim of deduction u/s. 10A is concerned, ld. CIT(A) observed that in view of his directions to the ld. Assessing Officer to consider the revised return filed by the assessee and also the disallowance of the depreciation and corporate expenses, such a ground had become infructuous and has rejected it. However, the Revenue filed this appeal against this finding of the ld. CIT(A) also. We do not find any illegality or irregularity in such a finding of ld. CIT(A) and such a challenge of the Revenue is untenable. This ground is accordingly dismissed.

In the result, the appeal is dismissed.