2017 (6) TMI 1155 - AT - Income Tax

Tribunal rules in favor of assessee on tax issues under Income Tax Act, citing precedent and statutes.

Ms. iNautix Technologies India Private Limited Versus The Deputy Commissioner of Income Tax, Company Circle II (3), Chennai, And Vice-Versa

Ms. iNautix Technologies India Private Limited Versus The Deputy Commissioner of Income Tax, Company Circle II (3), Chennai, And Vice-Versa - Tmi Issues Involved:1. Disallowance under Section 10A of the Income Tax Act.2. Disallowance under Section 14A of the Income Tax Act.3. Disallowance of Fringe Benefit Tax under Section 115JB of the Income Tax Act.4. Chargeability of interest under Section 234C of the Income Tax Act.Issue-Wise Detailed Analysis:1. Disallowance under Section 10A of the Income Tax Act:Exclusion of Payments and Foreign Travel Costs:The assessee, a private limited company engaged in software development, filed a return declaring an income of Rs. 11,08,48,280 after claiming a deduction of Rs. 39,04,10,134 under Section 10A. The Assessing Officer (AO) excluded certain expenditures (salary, wages, allowances, traveling expenses, and import payments) from the export turnover, treating them as expenses incurred for technical services outside India. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this exclusion but granted relief by directing that these exclusions should also be made from the total turnover. The assessee appealed against this decision, arguing that these exclusions were erroneous.Exclusion of Telecommunication Expenditure:The AO also excluded telecommunication expenditure of Rs. 1,29,82,852 from the export turnover, which was upheld by the CIT(A). The assessee contended that these expenses were not attributable to the delivery of computer software outside India and were incurred in Indian rupees. The Tribunal found that these issues were covered by previous decisions in the assessee's favor, concluding that the assessee was engaged in software development, not technical services. Consequently, the Tribunal allowed the assessee's claims and dismissed the revenue's appeal.2. Disallowance under Section 14A of the Income Tax Act:Disallowance of Expenditure for Earning Exempt Income:The AO disallowed Rs. 2,43,50,989 under Section 14A read with Rule 8D, which was upheld by the CIT(A). The assessee argued that no expenditure was incurred for earning the exempt dividend income and that the AO had erroneously included investments yielding taxable income in the disallowance calculation. The Tribunal admitted additional evidence from the assessee regarding the involvement of managerial personnel in investment activities and directed the AO to verify this claim without resorting to Rule 8D. Additionally, the Tribunal ruled that disallowance under Section 14A should not be included in the computation of book profits under Section 115JB, following previous decisions in similar cases.3. Disallowance of Fringe Benefit Tax under Section 115JB of the Income Tax Act:The Tribunal addressed whether Fringe Benefit Tax (FBT) should be disallowed while computing book profits under Section 115JB. The CBDT Circular No. 8/2005 clarified that FBT is an allowable deduction in the computation of book profit under Section 115JB. Accordingly, the Tribunal directed the AO to grant this deduction.4. Chargeability of Interest under Section 234C of the Income Tax Act:The assessee contended that interest under Section 234C should be charged on the returned income, not the assessed income. The Tribunal found that the provisions of the Act are clear in this regard and directed that interest under Section 234C should be charged only on the returned income.Conclusion:The Tribunal allowed the appeal of the assessee for statistical purposes and dismissed the appeal of the revenue, providing detailed directions on each issue based on previous case laws and statutory provisions. The order was pronounced on February 8, 2017, in Chennai.