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ACIT-Range-8(3) Aayakar Bhavan,Mumbai vs. Syntel Limited Mumbai-400 096.
September, 01st 2015
                   , `'                             
     INCOME TAX APPELLATE TRIBUNAL,MUMBAI "E" BENCH
             . . ,   ,   ,   
Before S/Sh. A.D. Jain,Judicial Member & Rajendra,Accountant Member
  /.ITA No.3413/Mum/2007, /Assessment Year-2003-04
 Syntel Limited                      Vs. Jt. CIT-(OSD)
 (Formerly known as Syntel (India)       Range-8(3)
 Limited,Unit No.112, S.D.F. IV,         Aayakar Bhavan
 Seepz,Andheri (E)-Mumbai-96.            Mumbai.
 PAN:AAACS 8305 D
        ( /Appellant)                     (  / Respondent)
  /.ITA No.3340/Mum/2007, /Assessment Year-2003-04
 ACIT-Range-8(3)                     Vs. Syntel Limited
 Aayakar Bhavan,Mumbai.                  Mumbai-400 096.
       ( /Appellant)                     (  / Respondent)
  /.ITA No.2263/Mum/2008, /Assessment Year-2004-05
 ACIT-Range-8(3)                     Vs. Syntel Limited
 Aayakar Bhavan,Mumbai.                  Mumbai-400 096.
             ( /Appellant)                     (  / Respondent)
  /.ITA No.1069/Mum/2008, /Assessment Year-2004-05
 Syntel Limited                      Vs. ACIT-Range-8(3)
 Mumbai-400 096.                         Aayakar Bhavan,Mumbai.
       ( /Appellant)                     (  / Respondent)
  /.ITA No.7391/Mum/2010, /Assessment Year-2006-07
 Dy. CIT-Range-8(3)                  Vs. Syntel Limited
 Aayakar Bhavan,Mumbai.                  Mumbai-400 096.
       ( /Appellant)                     (  / Respondent)
  /.ITA No.6589/Mum/2011, /Assessment Year-2007-08
 Syntel Limited                      Vs. Addl.CIT-Range-8(3)
 Mumbai-400 096.                         Aayakar Bhavan, Mumbai.
       ( /Appellant)                     (  / Respondent)
   /.ITA No.6742/Mum/2011, /Assessment Year-2007-08
 Dy. CIT-Range-8(3)                  Vs. Syntel Limited
 Aayakar Bhavan, Mumbai.                 Mumbai-400 096.
  /.ITA No.6885/Mum/2012, /Assessment Year-2008-09
 Addl.CIT-Range-8(3)                 Vs. Syntel Limited
 Aayakar Bhavan, Mumbai                  Mumbai-400 096.

         ( /Appellant)          (  / Respondent)
             /Assessee by :Shri Dinesh Vyas-(AR)
             / Revenue by : Shri Manjunatha Swamy-CIT-(DR)
            / Date of Hearing         : 05-08 -2015
                                                                                            6589-Syntel Ltd.




                     / Date of Pronouncement                   : 31 -08-2015
                    , 1961   254(1)     
                   Order u/s.254(1)of the Inco me-tax Act,1961(Act)
      PER RAJENDRA, AM-
Challenging the orders of the CIT (A)-,Mumbai,the Assessee and the Assessing Officers(AO.s.)
have filed cross appeals and have raised following grounds of appeal for the above mentioned
Assessment Years(AY.s.)
ITA No.3413/Mum/2007-AY.03-04,(Appeal by the Assessee):
       "1.On the facts and in the circumstances of the case, the learned Commissioner of Income Tax
       (Appeals) XXIX, Mumbai (,the CIT(A)')legally erred in upholding the action of the Joint
       Commissioner of Income Tax Range 8(3), Mumbai ('the JCIT') in reducing from the profits of the
       business eligible for deduction under Section 10A/ 10B of the Income Tax Act, 1961 ('the Act') an
       amount of Rs.15,18,65,460 on account of recoveries of under- utilised dedicated human
       resources.
       2. The Appellant prays that the JCIT be directed not to reduce from the profits of the business
       eligible for deduction under Section 10A/10B of the Act the amount of Rs. 15,18,65,460 on
       account of recoveries of under-utilised dedicated human resources.
        II 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming
       the action of the JCIT in reducing from the profits of the business eligible for deduction under
       Section 10A/10B of the Act an amount of Rs. 9,71,653 out of Rs. 5,00,44,259 in respect of
       recovery of Global Recruitment Cell (GRC) cost.
        2. The Appellant prays that the JCIT be directed not to reduce from the profits of the business
       eligible for deduction under Section 10A/10B the amount of Rs. 9,71,653 out of Rs. 5,00,44,259
       in respect of recovery of GRC cost.
       III 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in not
       concluding that the provisions of Section 10A(7) of the Act were incorrectly invoked by the JCIT
       after holding that general observations cannot be made with regard to the profit margins shown
       by the Appellant and comparison of industry average profits to determine the ordinary profits
       was not a fair criterion adopted by the JCIT.
        2. The Appellant prays that it be held that no disallowance under Section 10A/10B of the Act
       was warranted by invoking the provisions of Section 10A(7) of the Act.
       IV 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in not
       considering and disregarding the additional ground of appeal raised during the course of
       appellate proceedings which reads as follows:
         "The learned A.O. has erred in not considering the claim that the interest income aggregating
       to Rs. 5,40,69,769 derived by the Appellant Company is derived from the industrial undertaking
       and not allowing deduction u/s 10A/10B of the Act in respect of the said interest income."
        2. The Appellant prays that the learned CIT(A) be directed to consider and deal with the said
       additional ground of appeal raised during the course of proceedings before CIT(A).
        V 1. On facts and in the circumstances of the case, the learned CIT(A) erred in not directing the
       JCIT to follow a consistent view in respect of treatment of exchange loss amounting to Rs.
       6,51,30,323 for computing export profit eligible for deduction u/s 10A/10B of the Act.




                                                   2
                                                                                           6589-Syntel Ltd.



      2.The Appellant prays that the JCIT be directed that in the event of final resolution of the
      disputed issue in relation to exchange gain/ loss, the JCIT should, if so required, modify the
      order of the current year to be in harmony with the final order of adjudication.
       VI The Appellant craves leave to add, alter, or withdraw all or any of the above Grounds of
      Appeal and to submit such statements, documents and papers as may be considered necessary
      either at or before the appeal hearing."
ITA No.3340/Mum/2007AY-2003-04(Appeal by the AO):
      "On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the
      Assessing Officer to restrict the disallowance for purpose of deduction u/s.10A/10B of the Act to
      Rs.9,71,653/-out of total recovery of Rs.5,00,44,259/- and delete the addition in respect of the
      remaining amount of Rs4,90,72,606/-(Rs.5,00,44,259 - Rs.9,71,653)
       2. On the facts and in the circumstances of the case in law, the CIT(A) erred in directing to
      allow deduction on delayed payment of employer and employee's contribution to P.F made within
      grace period.
       3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing
      not to exclude Rs.15,18,65,460/- being recovery of under utilized human resources and other
      cost recoveries from -the profit of business for the purpose of allowing deduction u/s. 10A/10B of
      the Act."
ITA No.1069/Mum/2008, Assessment Year-2004-05(Appeal by the assessee):
      "I 1. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax
      (Appeals) XXV, Mumbai ('the CIT(A)') legally erred in upholding the action of the Addl.
      Commissioner of Income Tax, Range 8(3), Mumbai (the Addl.CIT). In reducing the profits of the
      business eligible for deduction under section 10A/ 10B/ 80HHE of the Act an amount of Rs.
      16,90,05,755 on account of recoveries of under-utilised dedicated human resources.
      2.The Appellant prays that the Addl.CIT be directed not to reduce from the profits of the
      business eligible for deduction under section 10A/10B/80HHEof the Act the amount of
      Rs.16,90,05,755 on account of recoveries of under-utilised dedicated human resources.
      11 Without prejudice to the above,
      1 On the facts and in the circumstances of the case, the learned CIT(A) erred in not granting
      relief against the action of the Addl.CIT treating the gross amount of recoveries of under
      utilized human resources of Rs 16,90,05,755 as income without allowing corresponding
      expenses as deduction.
       2. The Appellant prays that the Addl.CIT be directed to allow deduction of expenses from
      recoveries of under utilized human resources of Rs. 16,90,05,755.
      III 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming
      the action of the Addl.CIT in reducing from the profits of the business eligible for deduction
      under section 10A/ 10B/ 180HHE of the Act an amount of Rs. 5,68,902 out of Rs. 5,84,67,872 in
      respect of recovery of Global Recruitment Cell (GRC) cost.
      2. The Appellant prays that the Addl.CIT be directed not to reduce from the profits of the
      business eligible for deduction under section 10A/ 10B/80HHE the amount of Rs, 5,68,902 out
      of Rs. 5,84,67,872 in respect of recovery of GRC cost.
      IVI 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming
      the action of the Addl.CIT in disallowing deduction under section.10A/10B/80HHE of the Act in
      respect of interest on income-tax refund of Rs.49, 19,769/-, interest on security deposit with

                                                  3
                                                                                            6589-Syntel Ltd.



      BSES Rs.28,266/- and interest on loan to employees Rs.1,92,398/- on the ground that these
      income are not derived from export of computer software.
          2. The appellant prays that the Addl.CIT be directed to consider interest on income-tax refund
      of Rs.49,19,769/-, interest on security deposit of Rs.28,266/- and interest on loans to employers
      of Rs.1 ,92,398/-, as derived from export of computer software and grant deduction under
      section.10/A/10B/80HHEof the Act.
      V 1. On facts and in the circumstances of the case, the learned CIT(A) erred in not directing the
      Addl.CIT to follow a consistent view in respect of treatment of foreign exchange loss amounting
      to Rs.22,69,22,824/- for computing export profit eligible for deduction under section. 10A/ 10B/
      80HHE of the Act.
      2. The Appellant prays that the learned Addl.CIT be directed that in the event of final resolution
      of the disputed issue, the Addl.CIT should, if so required, modify the order of the current year
      to be in harmony with the final order of adjudication.
      VI 1. The Appellant craves leave to add, alter, or withdraw all or any of the above Grounds of
      Appeal and to submit such statements, documents and papers as may be considered necessary
      either at or before the appeal hearing."
ITA No.2263/Mum/2008, Assessment Year-2004-05(Appeal by the AO):
      1. "On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing
      the A.O to restrict the disallowance to Rs.5,68,902/- and delete the disallowance of Rs.5,78, 98,
      970/-for the purpose of calculation of eligible profit for deduction u/s.10A/10B/ 80HHE, without
      appreciating the facts of the case.
       2. "On the facts and in the circumstances of the case and in law, the CIT(A)erred in directing the
      A.O to recalculate the deduction u/s.10A/10B/80HHE by reducing recoveries of Rs.21, 41, 55,
      334/-from the eligible profits of Rs.132,15,55,067/-without appreciating the facts of the case."
       3. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in
      directing the A.O to allow deduction u/s.l0A & 10B on interest income of Rs.3,06,63,052/-being
      interest of EEFC account and deposit with bank as margin money, without appreciating the facts
      of the case."
ITA No.7391/Mum/2010-AY.2006-07(Appeal by the AO):
      "1.On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing
      Rs.10,07,15,209/- as profits eligible for deduction u/s.10A / 10B though the same were not
      derived from export of computer software without appreciating the facts of the case."
      2. On the facts and in the circumstances of the case and in law, theCIT(A) erred in not
      appreciating the ratio of the judgement of the Hon'ble Apex Court in the case of Liberty India
      Limited vs. CIT 317ITR 218, wherein it is held that certain income may constitute profit from
      business under section 28,but it cannot be construed as profits derived from Industrial
      Undertaking and the decision of the Hon'ble ITA T, 'E' Bench, Mumbai in the case of Tricom
      India Limited vs. ACIT 36 SOT 302, wherein it is held that interest income is not eligible for
      deduction u/s.10A / 10B."
      The Appellant prays that the order of the CIT(A) on the above ground be set aside and that of the
      ITO/ ACIT /DCIT be restored.
      The Appellant craves leave to amend or alter any grounds or add a new ground which may be
      necessary.
ITA No.6589/Mum/2011,AY.2007-08(Assessee's appeal):


                                                  4
                                                                                          6589-Syntel Ltd.






      1. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax(A)
      - 8, Mumbai ('the learned CIT(A)'} erred in upholding the action of the Additional Commissioner
      of Income Tax, Range 8(3), Mumbai ('the AO') of disallowing Rs. 46,12,133/- under section 14A
      of the Income-tax Act, 1961 ('the Act').
      The Appellant prays that the AO be directed to delete the aforesaid addition.
       2.Without prejudice to the above ground, on the facts and in the circumstances of the case, the
      learned CIT(A) erred in upholding the action of the AO of not granting the deduction under
      Section 10A/10B, which is consequent to the addition made to the Business Income of the units
      claiming such deduction, as the profits of the business units are eligible for deduction under
      Section 10A/ 10B of the Act.
      The Appellant prays that the AO be directed to grant deduction under Section 10A/10B after
      considering the addition made to the income.
      3.Without prejudice to the above grounds, on the facts and in the circumstances of the case, the
      learned CIT(A) erred in rejecting the Appellant's prayer to restricted the disallowance under
      Section 14A of the Act to Rs.14,337/-.
      The Appellant prays that the AO be directed to restrict the addition to Rs. 14,337/-.
      4. The Appellant craves leave to add to, alter, or withdraw all or any of the above Grounds of
      Appeal and to submit such statements, documents and papers as may be considered necessary
      either at or before the appeal hearing.
ITA/6742/Mum/2011.AY.,2007-08(AO's appeal)
      "1.On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing
      interest income of Rs.11,90,24,116/- as profits eligible for deduction u/s.10A / 10B though the
      same were not derived from export of computer software without appreciating the facts of the
      case."
      2.On the facts and in the circumstances of the case and in law, the CIT(A) erred in not
      appreciating the ratio of the judgement of the Hon'ble Apex Court in the case of Liberty India
      Limited vs. CIT 317ITR 218, wherein it is held that certain income may constitute profit from
      business under section 28, but it cannot be construed        as profits derived from Industrial
      Undertaking and the decision of the Hon'ble ITA T, 'E' Bench, Mumbai in the case of Tricom
      India Limited vs. ACIT 36 SOT 302, wherein it is held that interest income is not eligible for
      deduction u/s.10A / 10B."
      The Appellant prays that the order of the CIT(A) on the above ground be set aside and that of the
      ITO/ ACIT /DCIT be restored.
      The Appellant craves leave to amend or alter any grounds or add a new ground which may be
      necessary.
ITA/6885/Mum/2012.AY.,2008-09(AO's Appeal)
      "1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing
      interest income of Rs.14,2819,778/- as profits eligible for deduction u/s.10A / 10B though the
      same were not derived from export of computer software without appreciating the facts of the
      case."
      2.On the facts and in the circumstances of the case and in law, the CIT(A) erred in not
      appreciating the ratio of the judgement of the Hon'ble Apex Court in the case of Liberty India
      Limited vs. CIT 317ITR 218, wherein it is held that certain income may constitute profit from
      business under section 28, but it cannot be construed        as profits derived from Industrial


                                                 5
                                                                                            6589-Syntel Ltd.



       Undertaking and the decision of the Hon'ble ITA T, 'E' Bench, Mumbai in the case of Tricom
       India Limited vs. ACIT 36 SOT 302, wherein it is held that interest income is not eligible for
       deduction u/s.10A / 10B."
       The Appellant prays that the order of the CIT(A) on the above ground be set aside and that of the
       ITO/ ACIT /DCIT be restored.
       The Appellant craves leave to amend or alter any grounds or add a new ground which may be
       necessary.
Assessee-compnay,engaged in the business of development and export of computer software
services,was formed in May 1992. Details of dates of filing of returns,incomes returned,dates of
assessment, assessed incomes,dates of orders of the CIT(A)can be summarised as under :
           Return filed on Returned              Assessment dt. Assessed           Dt. of orders
                            Income (Rs.)                          Income(Rs.)      of CIT(A)
2003-04 28.11.2003          19,45,90,800/-       28.02.2006       38,01,87,600/- 05.02.2007
2004-05 30.10.2004          18,16,25,910/-       12.12.2006       48,80,56,380/- 01.01.2008
2006-07 23.11.2006          21,46,01,320/-       04.12.2009       21,46,01,320/- 18.08.2010
2007-08 31.03.2009          21,00,34,749/-       08.12.2010       21,00,40,670/- 12.07.2011
2008-09 31.03.2009          21,00,34,749/-       08.12.2010       21,00,40,670/- 12.07.2011

ITA/3413/Mum/2007-/AY.2003-04:
2.First Ground of appeal is about reimbursement of cost of underutilized dedicated human
resources for the purpose of deduction u/s. 80A of the Act.During the course of hearing before
us the representatives of both the sides agreed that the issue was decided in favour of the
assessee by the order of the Tribunal delivered in assessee's own case for AY.02-03(ITA/3859/
& 3534/M/06 dt.6.1.09),that in the appeal filed by the Department before the Hon'ble Bombay
High Court against the order of the Tribunal for AY.02-03(ITA-L-1440 of 2009)the ground
about reimbursement of cost was not raised,that the Hon'ble High Court had dismissed the appeal
filed by the Department for AY.02-03,vide its order dated 22.7.2009.
2.1.We find that the Tribunal had,while adjudicating the issue in the AY.2002-03,decided the
matter as under:
        "11 We have heard the rival submissions and considered them carefully.After considering the
       submissions and perusing the relevant material on record,we find that the claim of the assessee is
       allowable.The AO disallowed the claim of the assessee on the reasons that receipt of Rs.18, 91,
       72,279/- are of revenue in nature and they are not entitled for exemption u/s 10A of the Act
       because these receipts were not derived by the undertaking from the export of computer
       software. It has been mentioned by the AO that in other words, the revenue of Rs. 18.91 crores
       should have direct nexus to the export of computer software. In our considered view, these
       observations of the AO are without any basis. The assessee entered into an agreement with
       Syntel Inc and M/ s Syntel Europe and as per the clauses of the agreement, certain expenses and
       other establishment expenses are to be reimbursed by these companies. Accordingly, they were
       reimbursed. The reimbursements were only on account of export of computer software. The AO
       has stated that these receipts do not have direct nexus to the computer software; however, he
       failed to establish that how these receipts are not directly linked with the export of computer
       software and on what account these receipts have been received by the assessee. If the
       contention of the ld AO is accepted that these are revenue receipts, in that case also these
       receipts have to be treated as receipts on account of export of computer software because the

                                                   6
                                                                                             6589-Syntel Ltd.



       assessee deals in this business with these parties from whom on account of reimbursement
       amount has been received.
       11.1 Undisputedly, the expenses incurred by the assessee on account of export of computer
       software are much higher than the amount of Rs. 81.91 crores received by the assessee from
       these two parties. Therefore,the amount received by the assessee is nothing but reimbursement of
       expenses.By reimburse -ment of expenses, the expenses of the assessee had been reduced and the
       profit has been increased. Therefore, the assessee is entitled for deduction u/s 10A because these
       receipts are directly linked with the business of the assessee. Various decisions relied upon by
       the assessee before the CIT(A), which have been discussed by the CIT(A) in his order and also
       reproduced somewhere above in this order, clearly indicates that the reimbursement of expenses
       are nothing but directly linked with the business of the assessee.
       12 In the case of Dunlop Rubber Co Ltd in 141 ITR 493 (Cal), the Hon'ble Calcutta High Court
       has confirmed the decision of the Tribunal that if the assessee had recovered anything more than
       the expenditure actually incurred,then such excess would have been treated as revenue receipts
       liable to tax. In coming to such conclusion,the Tribunal relied on the terms of the agreement
       between the parties, which showed that what was recouped was a part of the expenses. In the
       present case also, the company did not recover anything more than the expenditure actually
       incurred. Further, the expenses so recovered were inextricably related to the execution of
       projects of Syntel Inc/Syntel Europe. The facts of the present case are similar to the facts of the
       case of Dunlop Rubber Company Ltd. Therefore, in view of the decision of the Hon'ble Calcutta
       High Court it has to be held that the receipts on account of reimbursement are nothing but
       reduction of expenses incurred by the assessee on the project executed on behalf of the Syntel
       Inc. /Syntel Europe as per clauses of the agreement.
       12.1 Similar view has been taken by the Mumbai Tribunal In the case of Zuari Agro Chemicals
       and various other decisions relied upon by the assessee before the CIT(A). The ratio of some of
       the decisions have been discussed by the CIT(A) and also reproduced somewhere above in this
       order are in support of the case of the assessee. The assessee has not availed any double benefit
       once by way of incurring expenses and once by way of getting exemption u/s. 10A. Whatever the
       expenses were incurred by the assessee,part of which was reimbursed as per agreement.On
       account of reimbursement the expense burden of the assessee has been reduced,which resulted
       increase in profit. The increased profit on account of reimbursement of expenses is nothing but
       profit derived out of the business of the assessee company; therefore, the assessee company is
       eligible for exemption.
       13 In view of the above facts and circumstances and without going into details further, we hold
       that the assessee is eligible for exemption u/s.10A/10B on the receipts of Rs. 18.91 crores as
       claimed. Accordingly, this ground of the assessee is allowed."
Respectfully,following the above order and considering the fact that the Department had not
challenged the order of the Tribunal with regard to the issue in question before the Hon'ble High
Court,we decide ground no.1 in favour of the assessee.

3.Ground no.2.is about confirming the action of the AO in reducing from the profits of the
business eligible for deduction under Section 10A/10B of the Act an amount of Rs. 9,71,653 out
in respect of recovery of Global Recruitment Cell(GRC)cost.It was brought to our notice that the
identical issue is decided in favour of the assessee by the order of the Tribunal for the AY.2002-
03 (supra).We find that the Tribunal had linked the issue with the issue of under utilization of
                                                   7
                                                                                               6589-Syntel Ltd.



human resources and had held as under:
        "14.Ground no. 5 relates to disallowance of Rs. 9,73,398/- on account of recovery of Global
        Recruitment Cell (GRC) cost.
        14.1 The ld. Counsel of the assessee stated that this ground is similar to the ground No.4. We
        have already disposed the ground no.4 whereby we have directed the Assessing Officer to allow
        the claim of the assessee of Rs.18.91 crores as claimed ; accordingly, we direct the Assessing
        Officer to allow the claim of the assessee in this respect also in view of the reasoning given by us
        while disposing the ground No.4."

4.Ground No.3 is about applicability of provisions of section 10A(7) of the Act.Before us,it was
agreed by the Representatives of both the sides that the tribunal had decided the issue in favour
of the assessee,while adjudicating the appeal filed by the assessee for the AY.02-03(supra).We
would like to reproduce the relevant paragraph of the said order:
        "Ground No 6 relates to applicability of provisions of sec.10A(7). This ground is also linked with
        the ground No.4.Ground No.4 we have disposed in favour of the assessee by which it has been
        held that the assessee is entitled to exemption on account of reimbursement of expenses.The
        CIT(A) himself, at page 68 of his order has given the following findings:
         "... I agree with the AR's submissions that had it been the intention of legislature to comare the
        profit of an assessee with the average profit of the industry legislature would have used the word
        äverage profits"instead of words presently used Ördinary Profits". If at all the margin of profit
        or gain is to be compared with profit or gain of other players in the same industry, such
        comaprison cannot be made with average profit margin of the same industry. This is because, the
        average would necessarily be depressed by taking into account the lower profits made by some of
        the other players. In the case of appellant AR has given various reasons as to how and why its
        profit margins are better than the industry average. Appellant is having 100% export turnover
        and it has no interest cost. AR has also stated that its depreciation cost is also low as the
        appellant company has set up the unit as back as in 1995. AR/appellant has also justified its
        better margin of profit by making comparison to some of the companies in the same field who are
        100% exporters. In view of above discussion, I am of the opinion that while a general observation
        cannot be made with regard to the profit margins shown by the appellant, it may be said that this
        issue does not survive in view of the fact that I have already upheld the addition of
        rs.18,91,93,126/-and Rs.9,73,398/- out of rs.3,11,20,944/-.In view of above discussion, however,
        since addition of Rs.3,01,47,546/-(Rs.3,11,20,944 ­ Rs.9,73,398)has been deleted, profits to that
        extent would increase in view of the above, no separate adjudication is considered necessary on
        this issue.
        The CIT(A) has not given any finding because of the reason that he has dismissed the ground
        no.4, we have allowed in favour of the assessee and in view of the reasoning given by the CIT(A),
        against which the department is not in appeal that there may be increase in profit in some case,
        the provisions of section 10A(7) cannot be applied. The CIT(A) has also found that the assessee's
        main business is export and depreciation etc. has been claimed very less and it is considered that
        the profit can be more than in comparing with the average profits of other industries.In view of
        the above facts and circumstances of the case, we hold that the provisions of sec.10A(7) are not
        applicable on the facts of the present case. Accordingly, this ground of the assessee is also
        allowed."


                                                     8
                                                                                               6589-Syntel Ltd.



Respectfully,following the above referred order of the Tribunal,we decide Ground no.3 in favour
of the assessee.

5.Next ground is about not considering the claim that the interest income aggregating to Rs.5,
40,69,769/-derived by the assesseewas derived from the industrial undertaking and not allowing
deduction u/s 10A/10B of the Act in respect of the said interest income.Before us,it was agreed
by the DR and AR that the issue is decided in favour of the assessee by Tribunal's orders for
other AY.s. including AY.02-03(supra),that department's appeal before the Hon'ble High Court
pertaining to eligibility for deduction u/s. 10A of the Act was dismissed.
5.1.We find that while deciding the Appeals no.7544/7546/Mum/04 and ITA/8122-24/Mum/04
dt.11.02.2008,the Tribunal had decided the issue as under:
       19.As regards grounds Nos. 4 & 6 relating to interest and other income claimed as exemption
       u/s. 10A and 10B of the Act, we find that this issue is also covered in favour of the assessee by the
       decision of the Tribunal in assessee's own case for the AYrs. 99-2000 and 2000-01 wherein it has
       been held to have a direct nexus with the business and development of export of software.
       Respectfully following the decisions of the coordinate bench, these grounds of the assessee are
       allowed.
Respectfully following the above order of the Tribunal and considering the fact-that the appeal
filed by the Department with regard to eligibility of 10A/10B deduction,before the Hon'ble High
Court,has been dismissed-we decide the issue in favour of the assessee.

6.Last ground of appeal is about foreign exchange loss on sales/debtors, balance in EFFC
account and its treatment while computing deduction u/s. 10A of the Act.
6.1.During the assessment proceedings the AO found that the assessee had computed business
profit for the year under appeal after debiting exchange loss of about Rs.6.51 crores in the P&L
account and after reducing the export turnover amount by Rs.6,51,30,323/-.
In the earlier year the AO had not accepted the similar position when there was gain because of
exchange rate.The assessee, before the FAA stated that the issue for the earlier years was
pending for adjudication, that the AO should be directed to modify the order after the issue was
adjudicated by higher authorities. The FAA was of the opinion that the assessee should not have
any grievance,that the AO had accepted the figure shown in the return by the assessee itself, that
it was open to the AO to take a consistent view on the issue as and when the issue was decide by
higher appellate authorities.
6.2.Before us,the AR contended that the views taken by the Higher judicial forms should be
followed by the AO.In our opinion,the AO is bound to follow the orders of the Higher judicial
authorities.Therefore,we allow the last ground of appeal for statistical purposes.

ITA No.3340/Mum/2007AY-2003-04(Appeal by the AO):
7.First ground of appeal,filed by the AO,deals with restricting the disallowance for purpose of
deduction u/s.10A/10B of the Act to Rs.9,71,653/-out of total recovery of Rs.5,00,44,259/- and
deleting the addition in respect of the remaining amount of Rs.4,90,72,606/-.During the
assessment proceedings,the AO found that the assessee had shown total recovery of Rs.5 Crores
and had claimed deduction of the said amount u/s.10 of the Act.He was of the opinion that the
assessee was not eligible for the deduction.In the appellate proceedings,the FAA restricted the
disallowance to Rs.9.71 lakhs and held that balance amount i.e. Rs.4.90 crores was eligible for
deduction.

                                                    9
                                                                                                6589-Syntel Ltd.






7.1.Before us,the DR and the AR agreed that the issue is covered in favour of the assessee by the
order of the Tribunal dated 03.03.2010(ITA/2695/mum/2009-AY.2005-06),that the order of the
Tribunal with regard the above issue was not challenged before the Hon'ble High Court while
filing appeal for the AY.2005-06.
7.2.We are of the opinion that the issue,regarding eligibility for the deduction u/s. 10 A/10B of
the Act,has attained finality,as the department had accepted the order of the Tribunal for the
identical issue in the AY.2005-06.We would like to reproduce the relevant part of the order of
the Tribunal for the that AY.(supra)and same reads as under:
      2.Revenue has raised the following two grounds: -
        "1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing
               Rs.6,83,96,212/- as profits eligible for deduction u/s. 10A/10B though the same were not
               derived from export of computer software without appreciating the facts of the case.
        2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not
               allowing set off of losses before computing deduction u/s. 10A/10B of Rs.72,22,846/-
               without appreciating the facts of the case."
   3.With reference to ground No. 1 the learned D.R. has submitted the CIT(A) has erred in granting
   deduction under section 10A on the amount of expenditure reimbursement as it has no direct nexus with
   the assessee export activity and it being an independent concern of the assessee following the principles
   laid down by the Hon'ble Supreme Court in the case of Liberty India 317 ITR 218 (SC) the amount
   cannot be considered as derived from the export activity for the purpose of section 10A/10B. It was
   further submitted that receipts are not part of the export activity and received by way of reimbursement
   of expenditure incurred for sister concern, which is not the main activity of the assessee. He referred to
   the agreement with the group concern and submitted that the amount cannot be allowed as deduction as
   the profit generated out of the cost cutting also should be considered as having no first degree nexus
   with the cost of purchase and accordingly the same cannot be considered for deduction under section
   10A following the same principles established by the Hon'ble Supreme Court in the above referred
   case.
  4.The learned counsel in reply, however, submitted that the issue is not that of independent concern or
  claim of 10A. He referred to the order of the A.O. and also to the order of the CIT(A), particularly
  para 3.6 to submit that the assessee was never charged the expenditure to the P & L Account. It has
  separately accounted for the expenditure incurred on behalf of the foreign companies in its books and
  the expenditure was reimbursed at cost without any profit or markup. This expenditure was netted off
  in the books of account and is not part of the claim of expenditure in the P & L Account. The CIT(A)
  has correctly analysed the facts in the order and then allowed the amount. It was further submitted
  similar issue has arisen in earlier years in assessee's own case in ITA No. 3859 & 3534/Mum/2006 for
  the A.Y. 2002-03 and the ITAT confirmed the order of CIT(A) and the Revenue has not raised the issue
  before the Hon'ble Bombay High Court and has accepted the orders of the ITAT. Even the issue which
  was contested before the Hon'ble High Court was also dismissed, which is on the foreign exchange
  gains for the purpose of section 10A. In view of the above it was submitted that the orders of the
  CIT(A) are to be upheld.
  5.We have considered the issue. After considering the submissions and perusing the relevant material
  on record we find that the order of the CIT(A) is to be upheld. The order is as under: -
        "3.9 I have gone through the facts of the case, submission made and also the order of the AO. At
        the same time, I have also perused the appellate orders of earlier years in appellant's own case on
        similar grounds. I have noted that on a detailed examination of facts for A.Y. 2002-03, the CIT(A)-
        XXIX, Mumbai vide his order No. CIT(A)-XXIX/DCIT-C8(3)/IT-184/2004-05 dated 31.03.2006
        held that the company has incurred costs under various heads of expenses such as on the office of
        Global COO like salaries, welfare, telephone, travelling, vehicle etc and claimed that these
        expenses have been shared with M/s. Syntel Inc and M/s Syntel Europe on actual time sharing
        basis and there is no profit markup. This aspect of appellant's case was also examined by the Addl.

                                                    10
                                                                                                 6589-Syntel Ltd.



       CIT (Transfer Pricing-II), Mumbai. It is seen from the order u/s. 92CA(3) of the Act of the above
       assessment year passed by the Addl. CIT, Mumbai that the AO [Transfer Pricing-II] has observed
       that the basis of allocation, that is time spent for the respective entity was fair and, therefore, she
       accepted the recovery made by the appellant in this regard. In view of the above, my predecessor
       has held that there is no profit or markup on the aforesaid recoveries and, therefore, same cannot be
       treated as income. As regards other cost reimbursements, my predecessor has also observed that the
       same represents amount spent for and on behalf of M/s. Syntel Inc. and other entities. These
       expenses are under various heads. The cost incurred on behalf of M/s. Syntel Inc. and other entities
       are tracked separately and recovered at the end of the month from the respective entities on actual
       basis without any markup. In view of the detailed examination of facts, my predecessor had
       decided this ground in favour of the appellant for A.Y. 2002-03. During the course of appellate
       proceedings, the appellant has also filed the copy of the order of ITAT, E-bench in ITA No.
       3534/Mum/06 dated 06.01.2009 for A.Y. 2002-03 in appellant's own case. While deciding the
       issue, the Hon'ble ITAT, Mumbai rejected the Departmental appeal and confirmed the order of my
       predecessor as aforesaid. Facts and circumstances being the same and identical, following the
       decision of my predecessor and confirmed by the Hon'ble ITAT, Mumbai, I delete the addition
       made by the AO in respect of other cost reimbursements and sharing of executive cost
       aggregating to Rs.6,83,96,212/-. These grounds are allowed."
   6.The A.O. has disallowed the deduction under section 10A/10B on the gross receipts netted off in the
   respective accounts after obtaining the details of the ledger copies and excluding the same from
   computation. It was the submission that this amount was reimbursement on cost to cost basis for the
   services provided to the other group concerns. There is no basis for Assessing Officer's exclusion of
   the above receipts from computation of business profit as the assessee has not claimed the
   expenditure in its P & L Account and these amounts are netted off in the respective expenditure
   accounts and only the net expenditure related to the assessee's business were claimed in the P & L
   Account. In view of this we are of the opinion that the order of the CIT(A), who analysed the factual
   matrix of the assessee's claims and arrived at the correct conclusion, does not require any
   modification. Similar issue in earlier years was also held in favour of the assessee, as submitted, and
   the department has not challenged the findings of the ITAT even though that order was taken up in
   appeal on another issue, which also was dismissed. In view of this there is no merit in the Revenue's
   ground. Accordingly the same is dismissed."
Following the above,we decide ground no.1 against the AO.

8.Second ground is about directing the AO to allow deduction on delayed payment of employer
and employee's contribution to P.F made within grace period.The AO had not allowed the claim
made by the assessee with regard to payment of employer and employee's contribution to the P F
accounts.
8.1.During the appellate proceedings,the FAA found that the assessee had made payments within
the grace period.In our opinion,there is no legal infirmity in the order of the FAA.Therefore,
confirming his order,we decide ground no.2 against the AO.

9.Last ground pertains to directing not to exclude Rs.15,18,65,460/- being recovery of under-
utilised human resources and other cost recoveries from the profit of business for the purpose of
allowing deduction u/s. 10A/10B of the Act.
9.1.While deciding the ground no.1,filed by the AO for the year under appeal,we have decided
the issue in favour of the assessee.Following the orders of the Tribunal for AY.2002-03
(supra),on the issue before us,we dismiss ground no.3 raised by the AO.

ITA No.1069/Mum/2008, AY.-2004-05:

                                                    11
                                                                                         6589-Syntel Ltd.



10.Following our order on the issues of under-utilised dedicated human resources,GRC cost and
the eligibility of interest income for claiming deduction u/s.10A/10B of the Act,for the AY. 2003
-04,we decide grounds no.1-3,raised by the assessee for the year under appeal,in its favour.Last
ground of appeal is allowed for statistical purposes,following our order for the AY.2003-04.

ITA No.2263/Mum/2008, AY.-2004-05:
11.First two grounds of appeal are about disallowance to be calculated for deduction u/s.10A/
10B/80HHE of the Act.While deciding the first ground of appeal of the appeal filed by the AO
for the AY.2003-04,we have followed the order of the Tribunal on the identical issue decided by
it for the AY.2005-06 and have decided ground no.1 against the AO.Following our order for the
AY.2003-04(at paragraph no. 7 to 7.2)we dismiss both the grounds raised by the AO for the year
under appeal.

12.Last ground raised by the AO is about calculation of interest income for deduction u/s.10A/
10B of the Act.We find that while deciding the issue of eligibility of interest income for the
earlier year and in the appeal filed by the assessee for the year under consideration,we have
decided the issue against the AO and in favour of the assessee.
Following the same,ground no.3 is decided against the AO.

ITA No.7391/Mum/2010-AY.2006-07
13.First ground of appeal is about eligibility for deduction u/s.10A/10B of the Act.We have
decided the identical issue in favour of the assessee in the earlier part of our order. Following the
same ground no.1 is decided against the AO.

14.The Second effective ground of appeal deals with eligibility of interest income for deduction
claimed u/s.10A/10B of the Act.In the orders of the earlier AY.s.,we have adjudicated the issue
of calculation of interest income for deduction u/s.10A/10B and decided that same in favour of
the assessee.Following the same,ground no.2 is decided against the AO.

ITA/6589/Mum/2011-/AY.2007-08:
15. Grounds no.1 & 3 deal with disallowance made by the AO u/s.14 A of the Act.During the
assessment proceedings,the AO found that assessee had shown to have held the investments of
Rs.18.09 lakhs and 13.70 lakhs as on last day of March 2006 and 2007 respectively,that it had
not incurred any expenditure to carry out the activity of making exempt income bearing investme
-nt.He was of the opinion that some kind of expenditure was necessary to make investments, that
the argument of the assessee that no expenditure was incurred to earn exempt income was not
acceptable.Accordingly,the amount of expenditure disallowable u/s. 14A of the Act in relation to
such income was determined at 0.5% of the average value of investment.He made a disallowance
to Rs.5,950/-.
15.1.Aggrieved by the order of the AO the assessee preferred an appeal before the FAA.It was
pointed out by the assessee that there was an arithmetical error in the calculation made by the
AO,that following the method adopted by the AO the disallowance should be have been
54,49,923/-.After considering the submissions of the assessee,he held that rule 8D of the Income
tax Rules,1962 was applicable.He directed the AO to compute disallowance at Rs.46.12 lakhs
instead of Rs.5,950/-.
15.2.Before us,the AR stated that provisions of Rule 8D were not applicable for AY.2007-08,that

                                                 12
                                                                                     6589-Syntel Ltd.



the assessee had earned divided income of Rs.13,870/-only during the year,that the disallowance
u/s.14A cannot exceed exempt income.He relied upon the case of Joint Investment Pvt.Ltd. (ITA
117of 2015,dated 25.02.2015),of Hon'ble Delhi High Court.DR left the issue to the discretion of
the Bench.
15.3.We have heard the rival submissions and perused the material before us.We find that the
assessee earned dividend income of Rs.13,870/-,that the FAA made a disallowance of Rs.54.49
lakhs,that the AY.under appeal is prior to AY.2008-09.In pursuance of the judgment of Hon'ble
Bombay High Court,we hold that provisions of Rule 8D of the Income tax Rules,1962 are
applicable from AY.2008-09 only.Therefore,in our opinion the calculation made by the AO
adopting the formula suggested by Rule 8D cannot be endorsed.Respectfully,following the
judgment of the Hon'ble Delhi High Court delivered in the case of Joint Investment Pvt. Ltd.
(supra) we hold that the disallowance should not exceed exempt income.Considering the above,
we decide grounds no.1 & 3 in favour of the assessee.

16.Second ground of appeal deals with deduction under Section 10A/10B of the Act.Before us,
the AR stated that the ground was of consequential nature.Hence,we allow it for statistical
purposes.

ITA/6742/Mum/2011.AY.-2007-08:
17.Effective ground of appeal is about allowing interest income of Rs.11,90,24,116/- as profits
eligible for deduction u/s.10A/10B of the Act.While deciding the appeal for the AY.2003-04,
filed by the AO,we have decided the issue against him.Following the same,Grounds no.1-2 are
dismissed.
ITA/6885/Mum/2012.AY.,2008-09:
18.Effective ground of appeal for the year under appeal is identical to the Grounds no.1 and 2 of
the grounds for the earlier year.Following our order for that year,we decide both the grounds
against the AO.

As a result,appeals of the assessee are partly allowed and the appeals of the AO stand dismissed
                     .
                Order pronounced in the open court on 31st August,2015.
                       31st  ,2015    

                      Sd/-                                         Sd/-

       (. . /A. D. Jain)                             ( / RAJENDRA)
        / JUDICIAL MEMBER                              / ACCOUNTANT MEMBER
/Mumbai, /Date: 31.08.2015
...Jv.Sr.PS.




                                               13
                                                                    6589-Syntel Ltd.




                    /Copy of the Order forwarded to :
1.Appellant /                                    2. Respondent / 
3.The concerned CIT(A)/    , 4.The concerned CIT /  
5.DR E Bench, ITAT, Mumbai / , ,.. .
6.Guard File/ 
                               //True Copy//
                                                  / BY ORDER,



                                 /  Dy./Asst. Registrar
                                   ,  /ITAT, Mumbai.




                                    14

 
 
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