2016 (5) TMI 107 - AT - Income Tax

Tribunal directs AO to recompute deductions & book profits, dismisses revenue's appeals.

The Tribunal allowed the assessee's appeals on all issues, directing the AO to recompute deductions and book profits as per the Tribunal's findings. The ... Set off of brought forward business loss and unabsorbed depreciation before allowing deduction under Section 10A - Held that:- Deduction u/s.10A of the Act is to be allowed against the eligible profits and in case there are certain left over profits for the year under appeal the same are to be adjusted against the brought forward losses and unabsorbed depreciation as claimed by the assessee in the return of income. We accordingly set aside the order of the CIT(A) and direct the AO to recompute the deduction u/s.10A of the Act against the eligible profits before adjustment of brought forward losses/depreciation. Reduction of expenses incurred on lease line charges from export turnover - Held that:- In view of the categorical submission of the assessee before the AO that sale consideration includes telecommunication charges and it is not separately charged to customers and following the decision of the Hyderabad Bench of the Tribunal in the case of Patni Telecom Pvt. Ltd. (2008 (1) TMI 452 - ITAT HYDERABAD-A ) we are of the considered opinion that the lease line charges should not be reduced from the export turnover of the assessee while computing the deduction u/s.10A of the Act. Exclusion of leased line charges from the export turnover and the total turnover both for computing the deduction u/s.10A - Held that:- CIT(A) following the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Gemplus Jewellery India Ltd. reported in [2010 (6) TMI 65 - BOMBAY HIGH COURT ] directed the AO to exclude the lease line charges from the export turnover and the total turnover both for computing deduction u/s.10A. We do not find any infirmity in the order of the CIT(A) who has followed the decision of the Hon’ble Bombay High Court while directing the AO to exclude the lease line charges from the export turnover and the total turnover for computing deduction u/s.10A of the Act. MAT - deduction of reversal of provisions made for employees stock option plan while computing book profit under section 115JB disallowed - Held that:- We find merit in the submission of the Ld. Counsel for the assessee that whether the same has been added under clause (f) or as per clause (c) to Explanation 1 of section 115JB, there will be no difference and the result would have been same had the assessee added the ESOP provision under clause (c) instead of clause (f). Since an amount of ₹ 7,67,47,000/- has already been added by the assessee while computing the book profit as per section 115JB of the I.T Act in the A.Y. 2007-08, therefore, in our opinion the assessee is entitled to reduce an amount of ₹ 5,95,15,054/- on account of withdrawal from the provision for ESOP from the taxable book profit in the working of MAT. We further find merit in the submission of the Ld. Counsel for the assessee that the proviso nowhere says that you should have added the provision under a particular clause and if the assessee has increased its book profit under any other clause of the proviso the assess is not entitled for the reduction. Since the assessee has admittedly increased its book profit in A.Y. 2007-08 as per the submission before CIT(A), which has already been recorded by the CIT(A)and the same has not been proved to be false or untrue, therefore, we are of the considered opinion that the assessee is entitled to reduce an amount of ₹ 5,95,14,054/- on account of withdrawal from the provision for ESOP from the taxable book profit in the working of MAT. Lease rent equalization provision not be included for computing book profit u/s.115JB - Held that:- CIT(A) while holding that the lease rent equalization provision should not be included for computing book profit u/s.115JB of the Act has followed the decision of the Delhi Bench of the Tribunal in the case of Goodwill India Ltd. (2006 (2) TMI 219 - ITAT DELHI-C ) and has held that lease rent equalization charge cannot be said to be an unascertained liability. Further, he has also analysed various clauses of the lease agreement according to which the terms of lease is for initial period of 3 years which can be renewed for a further period of two terms of three years each. There is also provision for increase in the monthly rent by 15% of the last paid rent at the end of each 3 year period. Thus, the assessee in fact signed the lease agreement for 9 years with provision for escalation of rent at the end of every 3 years. The Ld. Departmental Representative neither could point out any infirmity in the order of the CIT(A) appeal nor could controvert the factual findings given by the CIT(A). Decided in favor of assessee and against the revenue. Issues Involved:1. Set off of brought forward business loss and unabsorbed depreciation before allowing deduction under Section 10A.2. Reduction of expenses incurred on lease line charges from export turnover.3. Deduction of reversal of provisions made for employees stock option plan while computing book profit under section 115JB.4. Provision of lease rent equalization while computing book profits under section 115JB.Detailed Analysis:1. Set off of brought forward business loss and unabsorbed depreciation before allowing deduction under Section 10A:- Facts and Arguments: The assessee claimed exemption under Section 10A without setting off brought forward business losses and unabsorbed depreciation. The AO and CIT(A) held that the deduction under Section 10A should be allowed after setting off these losses and depreciation.- Tribunal's Decision: The Tribunal referred to its decisions in similar cases, where it was held that deduction under Section 10A should be computed before adjusting brought forward losses and depreciation. The Tribunal relied on the decision of the Bombay High Court in CIT vs. Black & Veatch Consulting Pvt. Ltd., which supported the assessee's claim. Consequently, the Tribunal allowed the assessee's appeal, directing the AO to recompute the deduction under Section 10A before adjusting brought forward losses and unabsorbed depreciation.2. Reduction of expenses incurred on lease line charges from export turnover:- Facts and Arguments: The AO excluded telecommunication charges (lease line charges) from the export turnover while computing the deduction under Section 10A. The assessee argued that these charges were not separately charged to customers and should not be excluded.- Tribunal's Decision: The Tribunal referred to the decision in Patni Telecom Pvt. Ltd. vs. ITO, where it was held that internet service provider charges incurred by the assessee on the development of software do not come within the scope of telecommunication charges as provided under clause (iv) of Explanation 2 to Section 10A. The Tribunal concluded that the lease line charges should not be reduced from the export turnover while computing the deduction under Section 10A and allowed the assessee's appeal.3. Deduction of reversal of provisions made for employees stock option plan while computing book profit under section 115JB:- Facts and Arguments: The assessee reversed a provision for ESOP and claimed a deduction while computing book profit under Section 115JB. The AO and CIT(A) disallowed the claim, stating that the provision was not added back in the previous year.- Tribunal's Decision: The Tribunal found that the assessee had added back the ESOP provision under clause (f) to Explanation 1 of Section 115JB in the previous year. It held that whether the provision was added under clause (f) or clause (c), the result would be the same. The Tribunal allowed the assessee's claim for deduction of the reversed provision for ESOP from the book profit for the current year.4. Provision of lease rent equalization while computing book profits under section 115JB:- Facts and Arguments: The AO added back the provision for lease rent equalization to the book profit, treating it as an unascertained liability. The CIT(A) allowed the assessee's appeal, holding that the provision was an ascertained liability.- Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, referring to the Delhi ITAT's ruling in Goodwill India Ltd. vs. ACIT, where it was held that lease rent equalization charges are not unascertained liabilities. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's appeal.Conclusion:The Tribunal allowed the appeals filed by the assessee on all issues, directing the AO to recompute deductions and book profits as per the Tribunal's findings. The appeals filed by the revenue were dismissed.