Tribunal allows assessee's appeals on consultancy charges & provident fund. Revenue's appeals dismissed on section 10A exemption.

The Tribunal allowed the appeals filed by the assessee regarding the disallowance of consultancy charges and employees' contribution to the provident fund. It dismissed the revenue's appeals concerning the disallowance of exemption under section 10A for the assessment years 2009-10, 2010-11, and 2011-12.

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Issues Involved:
1. Disallowance of consultancy charges paid to M/s. I.T. Lokam Services India Pvt. Ltd.
2. Disallowance of employees' contribution to provident fund.
3. Disallowance of exemption under section 10A of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Consultancy Charges:
The assessee, a software development and export company, paid consultancy charges to its subsidiary, M/s. I.T. Lokam Services India Pvt. Ltd., for hiring skilled software professionals. The Assessing Officer (A.O.) disallowed these charges, arguing that the assessee failed to prove the necessity and nexus between the consultancy charges and revenue generation. The A.O. emphasized that the assessee did not provide adequate evidence to demonstrate that the expenditure was incurred wholly and exclusively for business purposes as required under section 37 of the Income Tax Act.

The assessee contended that the consultancy charges were genuine and necessary for fulfilling its contractual obligations with M/s. IBM India Pvt. Ltd. The payments were made through proper banking channels with applicable TDS deductions. The assessee provided agreements, bills, and time sheets certified by the client to substantiate the charges.

The Tribunal found that the assessee had adequately demonstrated the necessity and genuineness of the consultancy charges. The Tribunal noted that the A.O. did not dispute the genuineness of the expenditure but questioned its necessity. The Tribunal concluded that the consultancy charges were incurred wholly and exclusively for business purposes and directed the A.O. to allow these charges for the relevant assessment years.

2. Disallowance of Employees' Contribution to Provident Fund:
The A.O. disallowed the employees' contribution to the provident fund, citing that the deposits were not made within the due date specified under the Provident Fund Act, thus contravening section 2(24)(x) read with section 36(1)(va) of the Income Tax Act.

The assessee argued that the issue was covered by a decision of the ITAT, Visakhapatnam, which held that if the total contribution (employees' and employer's) is deposited on or before the due date of furnishing the return of income under section 139(1), no disallowance should be made.

The Tribunal, following the precedent, held that if the employees' contribution to the provident fund is paid within the due date specified under section 139(1) of the Act, no disallowance could be made. The Tribunal directed the A.O. to allow the contribution for the relevant assessment years.

3. Disallowance of Exemption under Section 10A:
The A.O. recomputed the exemption under section 10A by considering the total turnover of the assessee from all units, arguing that the recognition by the Visakhapatnam Special Economic Zone (VSEZ) was for the assessee as a whole, not just the Bhogapuram unit.

The assessee contended that its Bhogapuram unit was a recognized 100% export-oriented unit and that the turnover of this unit alone should be considered for the exemption. The assessee cited a previous ITAT decision in its favor, which held that after the amendment of section 10A by the Finance Act, 2001, the turnover of the eligible unit alone should be considered for the exemption.

The Tribunal, following its earlier decision, held that for the purpose of exemption under section 10A, the turnover of the undertaking (Bhogapuram unit) alone should be considered, not the total turnover of the assessee. The Tribunal upheld the CIT(A)'s decision to delete the additions made by the A.O. and dismissed the revenue's appeal.

Conclusion:
The Tribunal allowed the appeals filed by the assessee regarding the disallowance of consultancy charges and employees' contribution to the provident fund. It dismissed the revenue's appeals concerning the disallowance of exemption under section 10A for the assessment years 2009-10, 2010-11, and 2011-12. The order was pronounced in the open court on 25th November 2016.

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