DCIT vs. M/S E4E BUSINESS SOLUTIONS P. LTD.,, BANGALORE

This bunch of 4 appeals includes cross appeals by the assessee and the Revenue for the assessment years 2004-05 and 2005-06 which are directed against the combined order of learned Commissioner of Income-tax (Appeals) – 1V Bangalore dated 8/10/2013.

First, we take up the appeals for the assessment year 2004- 05 being IT(TP)A No.76383/Bang/2013 (Revenue’s appeal) and IT (TP)A No.1781/Bang/2013 (assessee’s appeal).

The grounds raised in Revenue’s appeal in are as under:

The grounds raised in assessee’s appeal in are as under:

At the very outset, it was submitted by the learned DR of the Revenue that the issue relating to TP adjustment has been restored back by the learned CIT (A) to the file of the AO and in this regard, he drawn our attention to Para No.7 of page No.22 of the order of the learned CIT (A).

He submitted that under these facts, the entire matter of TP issue in this asst. year should be restored back to the file of the learned CIT (A) for fresh decision at his level instead of restoring the matter back to the file of the AO/TPO.

Learned AR of the assessee also agreed to this proposition put forward by learned DR of the Revenue.

Thereafter, he submitted that in assessee’s appeal, apart from TP issue, there are several grounds in respect of corporate tax issue also as per ground Nos. 6 to 10.

Regarding ground Nos.6 to 9 and 10(a), 10(b), he reiterated the same contention which were raised before the learned CIT (A).

Learned DR of the Revenue supported the order of the CIT (A) in respect of various grounds raised by the assessee in respect of corporate-tax issue.

We have considered rival submission. Regarding the TP issues raised in the revenue’s appeal and in assessee’s appeal, we find force in the submissions of learned DR of the Revenue that learned CIT (A) should have decided the TP issue at his level instead of restoring the matter back to the file of the TPO for a decision as has been done by him as per Para 7 of the order being reproduced below for the sake of ready reference:

Since CIT (A) is not empowered to remit the matter back to the file of AO/TPO, we set aside order of the CIT (A) on TP issues

Now we decide the corporate-tax issues raised by the assessee in its appeal.

The first issue as per ground No.6 is regarding confirming of part disallowance of staff welfare expenses:

We find that this issue was decided by the learned CIT (A) as per Para No.5.6 of his order which is reproduced below for the sake of ready reference:

In the above paragraphs, it is seen that this is noted by the learned CIT (A) that the assessee has only maintained self made internal vouchers and could not produce proper bills supporting the IT(TP)A Nos.1763, 1764, 1781& 1782/B/13 9 genuineness of the payments. We also noted that the AO opined that certain heads of expenditure amounted to entertaining expenditure for which section 37(2A) prescribed limit for allowance. Considering all these facts, the learned CIT (A) has restricted the disallowance to the extent of 25% of such expenses as against 100% disallowance made by the AO. Considering these facts, we find no infirmity in the order of learned CIT (A) on this issue. Accordingly ground No.6 of the assessee’s appeal is rejected.

The second issue raised in respect of corporate-tax matter is as per ground No.7. In this regard, we find that this disallowance was upheld by the learned CIT(A) by following the judgment of Hon’ble Apex court rendered in the case of Brooke Bond India Ltd. Vs. CIT, 225 ITR 798. It is noted by the AO/CIT (A) that the assessee company had paid fees to the Registrar of Companies which is not allowable as per the judgment of Hon’ble Apex Court noted above. Hence, on this issue also, we find no infirmity in the order by the learned CIT(A) and accordingly, ground No.7 of assessee’s appeal is also rejected.

Regarding ground Nos.8 and 9, we find no merit in the claim of the assessee that only 50% of telecommunication expenditure should be reduced from export turnover for the purpose of computing deduction allowable u/s 10A of the Income-tax Act because as per explanation below sub sec. 9(a) of sec. 10A, it is provided that the expenses incurred by the assessee on the account of telecommunication charges etc. attributable to the delivery of article/things having incurred in foreign exchange has to be reduced from export turnover.

In view of this clear provision of the Act, we find no merit in these grounds of the assessee and accordingly, ground Nos. 8 and 9 are also rejected.

Regarding Ground10a and 10b, nothing could be produced before us to show that there is any double adjustment or arithmetical error in computation of deduction u/s 10A of the Income-tax Act and therefore, these grounds of assessee’s appeal being ground No.10(a) and 10(b) are also rejected.

In ground No. 10c of the assessee’s appeal, we find merit because as per the tribunal order cited by learned AR of the IT(TP)A Nos.1763, 1763, 1764, 1764, 1781& 1782/B/13 11 assessee having been having been rendered in the case of M/s Hewlett M/s Hewlett- Packward Global Soft Pvt. Ltd., Packward Global Soft Pvt. Ltd., HP (Supra), this issue was decided his issue was decided in favour of the assessee a favour of the assessee as per Para No.13 which is reproduced .13 which is reproduced herein below for the sake of ready reference. herein below for the sake of ready reference.

Respectfully, , following this Tribunal order, we hold that Tribunal order, we hold that in the present case also the present case also, the profit computed in the assessment order computed in the assessment order after taking into account the relief taking into account the relief, if any, allowed by the CIT(A) allowed by the CIT(A) or by the Tribunal, sh or by the Tribunal, should be considered for the purpose of d be considered for the purpose of quantifying the deduction allowable to the assessee quantifying the deduction allowable to the assessee under section under section 10A of the Income- -tax Act.

This matter is restored back to the This matter is restored back to the file of the AO for fresh the AO for fresh decision in the light o decision in the light of the above discussion after providing the above discussion after providing reasonable opportunity of being opportunity of being heard to the assessee.

In the revenue’s appeal also, some grounds are raised on respect of corporate tax issues and the same are as per ground No.4 to 6 and which are interconnected with ground No.6 raised in assessee’s appeal. We find no infirmity in the order of CIT (A) on this issue because AO’s action was not correct in disallowing the whole amount of expenditure without giving a finding that the expenses are not genuine or that the expenses are not laid out exclusively for the purpose of business.

The learned CIT (A) has already confirmed the disallowance of 25% of such expenses because the assessee could not produce bills and evidence in support of those expenses and considering facts of the present case, we decline to interfere in the order of the learned CIT(A) on this issue.

Accordingly ground Nos.4,5,6 of the revenue’s appeal are rejected.

Regarding the ground No.7 of the revenue’s appeal, it was submitted by the learned AR of the assessee that this ground of the Revenue may be allowed but the AO should be directed to consider the enhanced income after various addition made by the AO for the purpose of computing deduction allowable to the assessee u/s 10A as per ground No.10(c) raised by the assessee in its appeal.

Since the assessee could not establish the 3 ingredients required for section 68 i.e. identify and credit worthiness of the creditor and genuineness of the transaction, we reverse the order of the CIT(A) on this issue and restore that of the A.O.

Ground No.7 of the Revenue’s appeal is allowed.

Regarding this contention of the learned AR of the assessee that the AO should be directed to consider the enhanced income for the purpose of computing deduction allowable u/s 10A of the Income-tax, we would like to observe that this aspect has already been decided while deciding ground No.10(c) raised by the assessee in its appeal. Hence, no separate direction is required.

Regarding ground No.8 and 9 raised by the Revenue in its appeal, we find that this issue is squarely covered in favour of the assessee by the judgment of Hon’ble Karnataka High Court rendered in the case of Tata Elxsi as reported in 349 ITR 98 and since the decision of the learned CIT(A) on this issue is in line with this judgment of Karnataka High Court, we find no infirmity in the order of learned CIT(A) on this issue and accordingly, ground Nos.8 and 9 of the Revenue’s appeal are rejected.

In the result, appeal of the assessee for the AY 2004-05 is partly allowed for statistical purposes, whereas the appeal of the IT(TP)A Nos.1763, 1764, 1781& 1782/B/13 14 Revenue for asst. year 2004-05 is also partly allowed for statistical purposes.

Now, we take up the cross appeals for the assessment year 2005-06.

The grounds raised by the assessee in its Appeal for the assessment year 2005-06 are as under:-

Similarly, in IT(TP)A No.1764/Bang/2013, the appeal filed by the Revenue for assessment year 2005-06, grounds raised by the Revenue in this year are as under:-

Both the sides agreed that all the grounds and arguments in both years are similar and therefore, the appeals in assessment year 2005-06 may be decided on similar line as per the decision in assessment year 2004-05.

We have considered the rival submissions. We find that in the appeal filed by the assessee, the only issue raised is regarding TP adjustment and as per ground No.1,2 and3, in the appeal of the Revenue also, only issue involved is regarding TP adjustment and since the learned CIT(A) remitted the matter back to the file of the AO/TPO regarding TP adjustment, we set aside the order of CIT (A) on TP issue and restore TP matter to the file of the CIT(A) for a fresh decision without remitting the mater back to the file of the AO/TPO as decided by us in assessment year 2004-05. The CIT (A) should pass necessary order as per law after providing adequate opportunity of being heard to both sides.

Regarding ground No.4 of Revenue’s appeal, it is seen that in this year also, the AO made 100% disallowance of staff welfare and other expenses of Rs.1,98,376/- and Rs.9,33,184/- respectively which were restricted to 25% by the learned CIT(A) because the assessee could not produce supporting vouchers and bills etc. In line with our order on this issue for asst. year 2004-05, in this year also, we decline to interfere in the order of the CIT(A) on this issue. Accordingly, ground No. 4 of the Revenue’s appeal is rejected.

As per ground 5 and 6 of Revenue’s appeal, the issue involved is regarding reduction of total turnover also by the same amount by which export turnover was reduced by the A.O. for the purpose of computing deduction allowed u/s 10A of the IT Act.

In the result, the appeal of the assessee for the 2005-06 is allowed for statistical purposes whereas the appeal of the Revenue for the asst. year 2005-06 is partly allowed for statistical purposes.

In the combined result, the appeal of the assessee for asst. year 2005-06 is allowed for statistical purposes and remaining three appeals being one of the assessee and 2 of the Revenue are partly allowed for statistical purposes.