2015 (9) TMI 897 - AT - Income Tax

Tribunal Rules in Favor of Assessee on Various Tax Issues, Upholding Deductions

The Tribunal ruled in favor of the assessee on multiple issues, upholding deductions under Section 10A/10B for costs related to underutilized human ... Computation of deduction under Section 10A/ 10B - CIT(A) reducing from the profits of the business eligible for deduction under Section 10A/ 10B an amount on account of recoveries of under- utilised dedicated human resources - Held that:- Tribunal while adjudicating the issue in the AY.2002-03 decided the matter as undisputedly, the expenses incurred by the assessee on account of export of computer software are much higher than the amount of ₹ 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. - Decided in favour of the assessee. Reducing from the profits of the business eligible for deduction under Section 10A/10B an amount in respect of recovery of Global Recruitment Cell(GRC)cost - Held that:- Identical issue is decided in favour of the assessee by the order of the Tribunal for the AY.2002- 03 - Decided in favour of the assessee. Applicability of provisions of section 10A(7) - Held that:- 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 as held that 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. Not considering the claim that the interest income derived from the industrial undertaking - not allowing deduction u/s 10A/10B of the Act in respect of the said interest income - Held that:- his 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. Foreign exchange loss on sales/debtors, balance in EFFC account and its treatment while computing deduction u/s. 10A - Held that:- 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 ₹ 6.51 crores in the P&L account and after reducing the export turnover amount by ₹ 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. Therefore,we allow the last ground of appeal for statistical purposes. Disallowance of deduction under section 10A/10B on the gross receipts netted off in the respective accounts - Held that:- 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 - Decided in favour of assessee. Deduction on delayed payment of employer and employee's contribution to P. F - Held that:- 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. - Decided in favour of assessee. Disallowance u/s 14A - Held that:- We find that the assessee earned dividend income of ₹ 13,870/-,that the FAA made a disallowance of ₹ 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. (2015 (3) TMI 155 - DELHI HIGH COURT ) we hold that the disallowance should not exceed exempt income.- Decided in favour of assessee. Issues Involved:1. Reimbursement of cost of underutilized dedicated human resources for the purpose of deduction under Section 10A/10B.2. Reduction from profits of the business eligible for deduction under Section 10A/10B in respect of recovery of Global Recruitment Cell (GRC) cost.3. Applicability of provisions of Section 10A(7).4. Eligibility of interest income for deduction under Section 10A/10B.5. Treatment of foreign exchange loss for computing export profit eligible for deduction under Section 10A/10B.6. Deduction on delayed payment of employer and employee's contribution to Provident Fund.7. Disallowance under Section 14A.Detailed Analysis:1. Reimbursement of Cost of Underutilized Dedicated Human Resources:The Tribunal upheld the assessee's claim for deduction under Section 10A/10B for the reimbursement of costs related to underutilized dedicated human resources. The Tribunal referenced its previous decision in the assessee's own case for AY 2002-03, where it was held that such reimbursements were directly linked to the business of exporting computer software and thus eligible for deduction. The Tribunal noted that the Department had not challenged this decision before the High Court, thereby affirming the position in favor of the assessee.2. Reduction from Profits for Recovery of Global Recruitment Cell (GRC) Cost:The Tribunal ruled in favor of the assessee, stating that the GRC cost recovery should not be reduced from the profits eligible for deduction under Section 10A/10B. This decision was consistent with the Tribunal's earlier ruling for AY 2002-03, where it linked the issue to the underutilized human resources and allowed the claim.3. Applicability of Provisions of Section 10A(7):The Tribunal found that the provisions of Section 10A(7) were not applicable in this case. The CIT(A) had noted that comparing the assessee's profit margins with the industry average was not appropriate. The Tribunal agreed, stating that the profit margins of the assessee were justified due to its 100% export turnover, lower depreciation costs, and no interest costs. The Tribunal followed its previous decision for AY 2002-03, ruling in favor of the assessee.4. Eligibility of Interest Income for Deduction:The Tribunal ruled that the interest income derived by the assessee was eligible for deduction under Section 10A/10B. This decision was consistent with previous Tribunal rulings in the assessee's favor for other assessment years, including AY 2002-03. The Tribunal noted that the Department's appeal on this issue had been dismissed by the High Court.5. Treatment of Foreign Exchange Loss:The Tribunal allowed the assessee's claim regarding the foreign exchange loss on sales/debtors and its treatment while computing deduction under Section 10A. The Tribunal directed the AO to follow the orders of higher judicial authorities, thereby allowing the ground for statistical purposes.6. Deduction on Delayed Payment of Provident Fund Contributions:The Tribunal upheld the CIT(A)'s decision to allow the deduction for delayed payment of employer and employee's contribution to Provident Fund, provided the payments were made within the grace period. The Tribunal found no legal infirmity in the CIT(A)'s order.7. Disallowance under Section 14A:The Tribunal ruled that the provisions of Rule 8D of the Income Tax Rules, 1962, were not applicable for AY 2007-08. The Tribunal held that the disallowance under Section 14A should not exceed the exempt income, following the judgment of the Delhi High Court in the case of Joint Investment Pvt. Ltd. The Tribunal directed that the disallowance should be limited to the exempt income earned by the assessee.Conclusion:The Tribunal's decisions largely favored the assessee, allowing claims for deductions under Section 10A/10B for various costs and reimbursements. The Tribunal also directed the AO to follow the orders of higher judicial authorities and limited disallowances under Section 14A to the exempt income earned. Appeals by the AO were generally dismissed, while the assessee's appeals were partly allowed.