2013 (11) TMI 1577 - HC - Income Tax

Karnataka High Court Upholds Tax Rulings on Income Eligibility & Expenditure Deductions

The Commissioner of Income-Tax and the Deputy Commissioner of Income-Tax Central Circle -1 (3), Bangalore Versus M/s Wipro Limited

The Commissioner of Income-Tax and the Deputy Commissioner of Income-Tax Central Circle -1 (3), Bangalore Versus M/s Wipro Limited - TMI Issues Involved:1. Validity of notice under Section 148 of the I.T. Act.2. Eligibility of miscellaneous income for deduction under Section 10A.3. Tax liability on interest accrual.4. Allowability of provision for advances as revenue expenditure.5. Claim of bad debts and write-off of debts.6. Business loss due to liquidated damages.7. Carry forward of loss from 10A units.8. Fluctuation gain in exchange rate.9. Deductibility of expenditure incurred by corporate office.10. Deductibility of expenditure for importing software without TDS.11. Allowability of provision for warranty expenses.12. Exclusion of sales tax and excise duty from turnover for Section 80HHE computation.13. Total turnover consideration for Section 80HHE deduction.14. Allowability of foreign tax credit.15. Controversy regarding un-availed MODVAT credit.Issue-wise Detailed Analysis:1. Validity of Notice under Section 148:The Tribunal held that the present appeal pertains to regular assessment under Section 143(3) and not reassessment under Section 147. Therefore, the validity of the notice under Section 148 does not arise for consideration in this appeal.2. Eligibility of Miscellaneous Income for Deduction under Section 10A:The Tribunal reversed the findings of the Assessing Officer, holding that the miscellaneous income from exchange rate fluctuation, sale of scrap, etc., is eligible for deduction under Section 10A. This was based on the facts being similar to those of earlier assessment years (1998-99 and 1999-2000), where such income was considered eligible.3. Tax Liability on Interest Accrual:The Tribunal remitted the matter back to the Assessing Officer to follow directions given for the assessment year 1999-2000. This Court held that interest received as a refund should be taxed in the year it is granted, not when it becomes irrevocable.4. Allowability of Provision for Advances as Revenue Expenditure:The Tribunal found that the details for the provision of advances were furnished by the assessee and directed the Assessing Officer to allow the deduction. This Court affirmed the Tribunal's order, referencing earlier judgments.5. Claim of Bad Debts and Write-off of Debts:The Tribunal remitted the matter back to the Assessing Officer to verify the reconciliation furnished by the assessee. This Court declined to answer the question, as it was a matter of reconciliation.6. Business Loss due to Liquidated Damages:The Tribunal held that liquidated damages are a business loss allowable under Section 37. The Tribunal's finding was upheld by this Court, affirming that the write-off of bad debts, including liquidated damages, is allowable.7. Carry Forward of Loss from 10A Units:The Tribunal directed the Assessing Officer to allow the set-off of loss from 10A units, following decisions of the Apex Court and the Tribunal at Mumbai. This Court declined to answer the question, as it was already settled by the Apex Court.8. Fluctuation Gain in Exchange Rate:The Tribunal held that the fluctuation gain in exchange rate is not liable to tax, following earlier assessment years' decisions. This Court upheld the Tribunal's finding.9. Deductibility of Expenditure Incurred by Corporate Office:The Tribunal allowed the deduction of expenditure incurred by the corporate office to 10A units, following earlier years' decisions. This Court affirmed the Tribunal's order.10. Deductibility of Expenditure for Importing Software without TDS:The Tribunal allowed the expenditure for importing software without deducting TDS, following earlier years' decisions. This Court upheld the Tribunal's finding.11. Allowability of Provision for Warranty Expenses:The Tribunal allowed the provision for warranty expenses, following the Apex Court's decision in Rotork Controls India (P.) Ltd. v. CIT. This Court affirmed the Tribunal's order.12. Exclusion of Sales Tax and Excise Duty from Turnover for Section 80HHE Computation:The Tribunal excluded sales tax and excise duty from the turnover for Section 80HHE computation, following the Apex Court's decision in CIT v. Laxmi Machine Works. This Court affirmed the Tribunal's order.13. Total Turnover Consideration for Section 80HHE Deduction:The Tribunal included the total turnover of the software business for Section 80HHE deduction, following earlier decisions. This Court upheld the Tribunal's finding.14. Allowability of Foreign Tax Credit:The Tribunal remitted the matter back to the Assessing Officer for proper determination, following directions given for earlier years. This Court declined to answer the question as it was a matter of remand.15. Controversy Regarding Un-availed MODVAT Credit:The Tribunal remitted the matter back to the Assessing Officer for consideration, following the First Appellate Authority's order. This Court declined to answer the question as it was a matter of remand.Conclusion:The High Court of Karnataka addressed multiple issues in this judgment, affirming the Tribunal's findings on most counts, remanding some issues for further consideration, and declining to answer questions already settled by higher courts or pending reassessment. The judgment underscores the importance of adhering to statutory provisions and the legitimacy of tax planning within the framework of law.