DCIT, Circle-6(1), New Delhi v. M/s. McKinsey Knowledge Centre India Pvt. Ltd
[Citation -2016-LL-0928-81]

Citation 2016-LL-0928-81
Appellant Name DCIT, Circle-6(1), New Delhi
Respondent Name M/s. McKinsey Knowledge Centre India Pvt. Ltd.
Court ITAT-Delhi
Relevant Act Income-tax
Date of Order 28/09/2016
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags export of computer software • business or profession • information technology • data processing • insurance claim • end product
Bot Summary: In the return of income filed, the assessee claimed deduction under section 10A of the Income-tax Act, 1961, amounting to Rs.38,34,83,407/-. The assessee claimed that it is an IT enabled company set up in accordance with the Software Technology Parks, the scheme of Government of India and is engaged in rendering IT enabled services being customization of data/data processing/back-office operations acting as a support centre and activities were covered as export of computer software under the STP Scheme. According to the Assessing Officer, the assessee was not engaged in rendering any IT enabled services and not engaged in exporting or transmitting services of similar nature within the meaning of explanation-2 to section 10A of the Act and it was not eligible for deduction under section 10A of the Act. The learned Commissioner of Income Tax relied on the findings of the Assessing Officer and submitted that the activities of the assessee were not eligible for deduction under section 10A of the Act and accordingly the disallowance made by the AO might be sustained. Apart from holding that the Assessee company has furnished inaccurate particulars with a view to evade the tax, the AO also initiated penalty proceedings under section 271(1) of the I.T. Act, 1961 for filing inaccurate particulars and concealment of income. The CIT was of the opinion that the claim of the assessee that all of its business income or profits from business or profession are exempt under section 10A of the Act is correct and the assessee is entitled to exemption and thereby reversed the finding of the AO and directed him to allow the exemption to the whole of assessee s profit as computed under the said head 'profit and gains of business. The Assessee acted as a back office of the parent company and provided support services to its parent company.


IN INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 2151/Del/2014 Assessment Year: 2007-08 DCIT, Circle-6(1), New Delhi Vs. M/s. McKinsey Knowledge Centre India Pvt. Ltd., F-40, NDSE, Part-I, New Delhi PAN : AACCM2356G (Appellant) (Respondent) Appellant by Ms. Deepika Mittal, CIT(DR) Respondent by S/sh. Porus Kaka and Divesh Chawla, Advocates Date of hearing 19.07.2016 Date of pronouncement 28.09.2016 ORDER PER O.P. KANT, A.M.: This appeal by Revenue is directed against order dated 29/01/2014 of learned Commissioner of Income Tax (Appeals)-XX, New Delhi, for assessment year 2007-08, raising following grounds: i. Whether on facts and circumstances of case & in law, learned Commissioner of Income Tax (Appeals) erred in allowing claim of deduction u/s 10A, amounting to Rs.38,34,83,407/-, to assessee without appreciating detailed reasons given by A.O.? ii. That order of learned Commissioner of Income Tax (Appeals) is erroneous and is not tenable on facts and in law. 2 ITA No. 2151/Del/2014 AY: 2007-08 iii. That grounds of appeal are without prejudice to each other. iv. That appellant craves leave to add, alter, amend or forge any ground(s) of appeal either before or at time of hearing of appeal. 2. facts in brief of case are that assessee filed return of income declaring income of Rs.3,50,73,287/- on 16/10/2007. In return of income filed, assessee claimed deduction under section 10A of Income-tax Act, 1961 (hereinafter referred to as "the Act"), amounting to Rs.38,34,83,407/-. assessee claimed that it is IT enabled company set up in accordance with Software Technology Parks, scheme of Government of India and is engaged in rendering IT enabled services being customization of data/data processing/back-office operations acting as support centre and activities were covered as export of computer software under STP Scheme. In assessment completed under section 144C r.w.s. 143(3) of Act on 03/02/2011, Assessing Officer disallowed claim of deduction under section 10A of Act along with other disallowances/additions. According to Assessing Officer, assessee was not engaged in rendering any IT enabled services and not engaged in exporting or transmitting services of similar nature within meaning of explanation-2 to section 10A of Act and, therefore, it was not eligible for deduction under section 10A of Act. 2.1 learned Commissioner of Income-tax (Appeals), however, deleted disallowance with following findings: 3 ITA No. 2151/Del/2014 AY: 2007-08 4.3 In appellant s own case for AY 2006-07, Hon ble ITAT Delhi has upheld order of ld CIT(A) that appellant was eligible for deduction u/s 10A. In AY 2002-03, Hon ble Tribunal has also upheld order of Ld. CIT(A) allowing deduction u/s 10A. As regards, AY 2004-05 and 2005-06, it has been clarified that relief u/s 10A has been allowed by AO himself. fact in present case for AY 2007-08 is exactly similar to facts as in AY 2006-07. Respectfully following aforesaid decision of Hon ble ITAT Delhi in appellant s own case for AY 2006-07, I am of view that appellant is eligible for deduction u/s 10A. Accordingly, A.O. is directed to allow its claim u/s 10A. These grounds of appeal are allowed. 2.2 Aggrieved, Revenue is in appeal before us raising grounds as reproduced above. effective ground is in respect of allowing deduction under section 10A of Act by learned Commissioner of Income Tax Appeals. 3. Before us, learned Commissioner of Income Tax (Departmental Representative) relied on findings of Assessing Officer and submitted that activities of assessee were not eligible for deduction under section 10A of Act and accordingly disallowance made by AO might be sustained. 4. On other hand, learned Authorized Representative of assessee, submitted that issue in dispute is covered by decision of Tribunal in case of assessee for assessment year 2002-03 and 2006-07 and decision of Hon ble Delhi High Court in case of assessee for assessment year 2006-07 and accordingly order of learned Commissioner of Income-tax( Appeals) might be upheld. 4 ITA No. 2151/Del/2014 AY: 2007-08 5. We have heard rival submissions and perused material on record. We find that Hon ble Delhi High Court in case of assessee vide order dated 27.03.2015 for assessment year 2006-07 in ITA 217/2014 decided issue with following observations: 8. perusal of above provision and explanation implies that two conditions so mentioned must be cumulatively satisfied in order to be eligible for deduction. While Assessee claims itself to be covered under broader definition of Computer Software and more particularly under clause (b) of Explanation 2 under services of similar nature , Assessment Order was based on decisions in S. Gopal Reddy v. State of Andhra Pradesh, K. P. Varghese v. ITO and Indian Hotels Co. Ltd. v. Income Tax Officer and relying upon purposive approach to interpret Act reflects that services are being performed in India and end product, which is not software within meaning of Section 10A is being exported outside India and thus not making services of similar nature as such services can only be rendered on real time basis electronically to qualify for purpose of Section 10A. Also, TPO, by his order of 92CA(3) dated 09.10.2009 advised concerned officer to make upward adjustment of `Rs.59,09,890/- to total income declared and AO allowed adjustment. Apart from holding that Assessee company has furnished inaccurate particulars (the report of auditor considered non est) with view to evade tax, AO also initiated penalty proceedings under section 271(1) (e) of I.T. Act, 1961 for filing inaccurate particulars and concealment of income. 9. Aggrieved by Assessment Order, Assessee appealed against that to CIT (A) who thereby held that by making disallowance, AO erroneously concluded that appellant is engaged in business of analysis of financial and business information and not in business of data processing. CIT (A) in its findings, notes that it is 5 ITA No. 2151/Del/2014 AY: 2007-08 evident that appellant is customizing data, what is accessed by appellant in databases and what is delivered to its parent company are two different products, i.e. data is customized to suit needs of requester and thereafter exported out of India. 10. This Court, while considering question involved in applicability of deduction under Section 10A notes that in CIT v. M.L. Outsourcing Services (P) Limited6 assessee s contention of entitlement to claim deduction u/s 10A of IT Act, 1961 read with Notification No. bearing SO 890 (E) dated 26th September, 2000 was upheld. In above mentioned case, it was observed that, Board has issued notification as per mandate and empowerment under Section 10A and this is not case of issue of circular under Section 119, which are issued for different purposes and have another purport. Notification is piece of delegated legislation and to that extent cannot be contrary to principal enactment nor can it whittle down effect of same. Albeit, clause (b) of Explanation 2 to Section 10A has been worded in manner which enforces view and opinion that Legislature, in their wisdom, has left it to Board to decide which product or services of similar nature would qualify and should be treated as falling under clause (b), in addition to customised data processing. intention of Legislature was not to constrain or restrict but to enable Board to include several services or products of similar nature in ambit of provision. This is what precisely Board has done when it used expression, information technology enabled products or services in notification. 11. court relied on circular issued by CBDT explaining provisions of Finance Act, 2000, and held that interpretation of term 'manufacture or produce of article or thing or computer software' by tax authorities should be guided by intention of legislature (including pronouncements of Central Government while notifying STP scheme) and 6 ITA No. 2151/Del/2014 AY: 2007-08 directions/notifications of CBDT. Furthermore, deductions on same grounds were disallowed by AO and later permitted by CIT (A) and upheld by ITAT for AY 2002-2003 and subsequently examined and allowed in preceding AYs 2003-04, 2004-05 and 2005- 06 by AO himself and since there has been no change either in facts or circumstances of case of appellant accordingly, in view of foregoing appellant is eligible to claim deduction under section 10A of Act being sixth year of claim. Therefore, CIT (A) was of opinion that claim of assessee that all of its business income or profits from business or profession are exempt under section 10A of Act is correct and assessee is entitled to exemption and thereby reversed finding of AO and directed him to allow exemption to whole of assessee s profit as computed under said head 'profit and gains of business. In present case, ITAT held that, There is no dispute on services provided by Assessee. modus operandi of Assessee, as noted earlier while considering submissions made before ld. CIT(A), makes it very clear that assessee was acting as back office of its parent company by providing customized electronic data as per request received by it from parent company. It is clear from modus operandi that what was accessed by assessee at STP Unit and what was delivered to Mckinsey (Parent Company) after conversion took place were two different products/services which is described as customization of data/data processing. STP Unit undertook series of operations on data received from various data bases before it was finally delivered to customer. Thus, there was value addition made by STP Unit on data. We, therefore, are not in agreement with findings of AO that there was no value of addition on data obtained from various data base from parent company. Assessee acted as back office of parent company and provided support services to its parent company. Therefore, Id. CIT (A) rightly held that activities of assessee squarely 7 ITA No. 2151/Del/2014 AY: 2007-08 fall within expanded definition of 'computer software. ITAT also relied on principle of consistency (Ref Assistant Commissioner of income-tax v. NGC Network (India) (P) Ltd., Lenovo (India) P. Ltd v. Assistant Commissioner of Income-tax, Deputy Commissioner of Income-tax v. Cheil Communication. India P. Ltd. etc.) 12. CBDT circular relied upon by assessee in present case, reads as follows: "S.O.890(E) - In exercise of powers conferred by clause (b) of item (l) of Explanation 2 of section 10A. Clause (b) of item (l) of Explanation 2 to section 10B and clause (b) to Explanation to section 80HHC of Income-tax Act, 1961 (43 of 1961), Central Board of Direct Taxes hereby specifies following Information Technology enabled products or services as case may be for purpose of said clauses namely :- (l) Back-Office Operations (ii) Call Centres (iii) Content Development or animation (iv) Data Processing (v) Engineering and Design (vi) Geographic Information System Services (vii) Human Resources Services (viii) Insurance claim processing (ix) Legal Databases (x) Medical Transcription (Xl) Payroll (xii) Remote Maintenance (xiii) Revenue Accounting (xiv) Support Centres and (xv) Web-site Services. There is no dispute with respect to findings arrived at by lower authorities. assessee is involved in providing back office support and thereby entitled to benefit under definition of term computer software . Its activities are in nature of data 8 ITA No. 2151/Del/2014 AY: 2007-08 processing, customization of data, acting as back office of parent company and acting as support center to parent company. Clearly it could not have been deprived of benefit of Section 10A, as is argued by revenue. This contention is accordingly rejected as unmerited. 6. Since issue in dispute has already been decided by Hon ble High Court, respectfully following above decision of Hon ble High Court, we uphold impugned order of learned Commissioner of Income-tax (Appeals) on issue of allowing claim of deduction under section 10A of Act. ground No. 1 of appeal is dismissed. 7. grounds No. 2 to 4 of appeal are general in nature and, therefore, not required to be adjudicated upon by us. 8. In result, appeal of Revenue is dismissed. decision is pronounced in open court on 28th Sept., 2016. Sd/- Sd/- (H.S. SIDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 28th September, 2016. Laptop/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi DCIT, Circle-6(1), New Delhi v. M/s. McKinsey Knowledge Centre India Pvt. Ltd
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