ACIT vs Savista Gloabal Solutions Pvt. Ltd.

PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :

The captioned appeal preferred by the assessee is against the order of The Commissioner of Income Tax (Appeal)-ADDL/JCIT(A) Bhopal, dated 24.09.2025 arising out of assessment order dated 24.03.2014 passed by the Circle-2(1)(2), Bangalore (hereinafter referred to as “the AO”) under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) concerning Assessment Year 2011-12.

Grounds of appeal raised by the Revenue are as under:

Brief facts of the case are that the assessee Savista Global Solutions Private Limited is a private limited company. The company is primarily engaged in the business of providing healthcare outsourcing services for the healthcare industry in United States of America. During the year, assessee earned a revenue of INR 8,14,46,558 pursuant to a contract with M/s Indus BPO Services Private Limited (a company incorporated in India, having an approval for setting up a STP unit, granted by Software Technology Parks of India, Ministry of Communication & Information Technology, Chennai), wherein the services were directly rendered to its overseas clients, namely American Managed Care LLC (AMC) and M/s Universal Healthcare (UHC), being US entities. The services were provided directly to AMC/UHC outside India by the assessee and the consideration was received in convertible foreign exchange from M/s Indus BPO Services Pvt. Ltd. (M/s Indus BPO) against the invoices raised by assessee to M/s Indus BPO.

The learned AO, while passing the assessment order, held that the revenue accrued pursuant to services rendered to the foreign companies, namely AMC and UHC, under a contract entered into with Indus BPO, was ineligible for deduction under section 10A of the Act. The reasoning of the ld AO was that foreign exchange received by the assessee through another Indian company, namely M/s Indus BPO, does not qualify as an eligible receipt under section 10A(3) of the Act. On this basis, the learned AO rejected the assessee's claim for inclusion of the sum of INR 8,14,46,558 in export turnover pertaining to Indus BPO for the purpose of claiming deduction under section 10A of the Act. Upon appeal, the Learned CIT(A) allowed the appeal of the assessee by relying on the favorable appellate order for AY 2010-11. The relevant extract of the CIT(A) order is reproduced as under:

Further aggrieved by the order passed by the Ld. CIT(A), the Revenue has filed an appeal before the tribunal on the ineligibility of deduction u/s 10A on the export income earned through contract with Indus BPO.

Learned DR relied upon the order of the AO.

Learned Counsel for the assessee submitted that it is the case of denial of partial deduction u/s 10A of the Act. It is submitted that while passing the appellate order for AY 2011-12, the Ld. CIT(A) has relied on appellate order of AY 2010-11, as the issue under consideration was identical. Accordingly, the issue under consideration stands squarely covered in assessee's own case since there is no change in the facts of the case. The ld AR relied on the following:

We have heard the rival submissions and perused the material available on record. The first issue in this case is with regard to the denial of partial deduction under section 10A of the Act. We find that the issue is squarely covered in assessee's own case. The Delhi bench of ITAT for A.Y. 2009-10 remanded the matter back to learned AO on the eligibility of deduction u/s 10A with respect to export sales made through Indus BPO. The learned AO in the remand back proceedings for A.Y. 2009-10, vide order dated 06.12.2019, granted the deduction u/s 10A on export sales made through M/s Indus BPO without drawing any adverse inference. This fact has also been recorded by the Id. CIT(A) in its order for A.Y 2010-11. The relevant extract are as under:

We find that it is an unrebutted fact that the Revenue itself has allowed the deduction u/s 10A for A.Y 2009-10 on similar/identical facts. As the facts of the instant year is identical to AY 2009-10, we are of the considered view that the assessee is eligible for deduction u/s 10A. Accordingly, the grounds 1 to 3 are decided in aforesaid terms.

Second issue is with regard to the disallowance of expenditure under section 14A of the Act read with Rule 8D of the Act. During the year, assessee received dividend income amounting to INR 2,23,400 in respect of units held in various mutual funds, which was claimed as exempt under section 10(35) of the Act. During the assessment proceedings, the Id. AO observed that the assessee had debited interest expenditure amounting to INR 802,915 to the Profit & Loss Account. The Ld. AO contended that interest expenditure incurred on borrowed funds cannot be directly attributed to any particular stream of income. Accordingly, in respect of such interest expenditure, the disallowance was computed in terms of the formula prescribed under Rule 8D(2)(ii) of the Income-tax Rules, 1962, and the disallowance in the case of the assessee was worked out at 25,100 under section 14A read with Rule 8D(2)(ii) of Income Tax Rules, 1962.

The ld AR submitted that the AO has not recorded the satisfaction before invoking Rule 8D which is a mandatory precondition for the application of Rule 8D. Reliance in this regard is placed on the following judicial precedents :

We have heard both parties. We find that the fact of non-recording of satisfaction, before invoking the provisions of Rule 8D, has gone unrebutted. In such facts and circumstances, we are of the considered view, in the light of judicial precedence cited, that the Ld. AO cannot invoke Rule 8D without recording mandatory satisfaction under section 14A and hence invocation of Rule 8D in such cases suffers from jurisdictional infirmity. Accordingly, in the absence of such satisfaction, the mechanical invocation of Rule 8D is held as void ab initio. The grounds are allowed.

In the result, the appeal in ITA ITA No. 7880/DEL/2025 is allowed.