The Mumbai bench of Income Tax Appellate Tribunal (ITAT) has recently held that deduction for revenue from onsite services could not be denied on the ground of not connected to eligible units located in India.
The assessee LTIMindtree Limited filed return of income for the Assessment Year 2009-10 under normal provisions of the Income Tax Act, 1961 which was revised on 29.03.2011. Thereafter Assessee’s case was selected for scrutiny and notice under Section 143(2) of the Income Tax Act was issued.
During the assessment proceedings, the Assessing Officer has noted that the assessee has entered into the international transactions with its Associated Enterprises (AEs) and he referred the matter to Transfer Pricing Officer (TPO) under Section 92CA(1) of the Income Tax Act .
During the proceedings assessing officer viewed that onsite services provided by the assessee were not connected to the units in India and therefore, could not be considered as export of software from India derived from STPI Units located in India
Therefore the Assessing Officer concluded that 53.40% of the deduction claimed by the assessee under Section 10A of the Income Tax Act should be disallowed on proportionate basis.
Thus, the Assessing Officer argued that the services are provided outside India by staff controlled by the foreign branches and are billed by the foreign branches and therefore, not linked to the eligible units located in India.
It was observed by the tribunal that as per the CBDT Circular No.1/2013 dated 17.1.2013,clarified that the benefit of Section 10A of Income Tax Act would be available in respect of the profits earned as a result of deployment of technical manpower at the client‟s place abroad for software development work provided all the prescribed conditions are fulfilled.
Moreover, the Assessing Officer has allowed part deduction under Section 10A of the Income Tax Act in respect of eligible units.
After considering the facts the two member bench of B.R. Baskaran, (Accountant Member) Rahul Chaudhary, (Judicial Member) held that for the Assessment Year 2009-10 deduction claimed by the assessee under Section 10A of the Income Tax Act in respect of revenue from onsite services could not be denied on the ground that the onsite services are not connected to the eligible units located in India.
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