Assessee wins deductions appeal, remanded leave encashment issue, revenue appeal dismissed,

The Tribunal allowed the assessee's appeal on various issues including deductions under Section 80IC and 10B, disallowances under Section 14A and foreign travel expenses, depreciation on goodwill, and claim of depreciation on building. The Tribunal remanded the issue of leave encashment for further adjudication and an additional ground regarding gratuity claim to the CIT(A). The revenue's appeal was dismissed, and the assessee's appeal was partly allowed for statistical purposes.

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Issues Involved:
1. Deduction under Section 80IC of the Income Tax Act, 1961.
2. Deduction under Section 10B of the Income Tax Act, 1961.
3. Disallowance under Section 14A read with Rule 8D.
4. Disallowance of foreign travel expenses.
5. Depreciation on goodwill.
6. Disallowance of leave encashment under Section 43B.
7. Claim of depreciation on building.
8. Additional ground regarding gratuity.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IC:
The assessee claimed a deduction of Rs. 17,77,02,892 under Section 80IC, which the AO reduced by Rs. 18,19,179. The CIT(A) further reduced the deduction by Rs. 10,28,461. The reduction was due to the application of Section 80IA(8), which mandates transfer pricing at market value. The Tribunal found that the AO did not discharge the onus of determining the market value and should have used the value determined by the Government of India, i.e., cost plus 10%. The Tribunal allowed the assessee's ground and set aside the CIT(A)'s order, restoring the deduction claim.

2. Deduction under Section 10B:
The assessee's disallowance of Rs. 7,92,300 under Section 40A was contested. The Tribunal noted that disallowances increase the profits eligible for deduction under Section 10B, as supported by previous Tribunal decisions. The AO's reduction of Rs. 35,83,048 in the deduction was deleted by the CIT(A), and the Tribunal upheld this, noting that indirect expenses should not affect the computation of profits for Section 10B.

3. Disallowance under Section 14A read with Rule 8D:
The AO increased the disallowance under Section 14A to Rs. 17,77,193 without recording satisfaction. The Tribunal confirmed that no disallowance can be made without such satisfaction and upheld the CIT(A)'s restriction of disallowance to Rs. 4,23,507.

4. Disallowance of Foreign Travel Expenses:
The AO disallowed 20% of foreign travel expenses, reduced by the CIT(A) to 30% of certain expenses. The Tribunal noted that fringe benefit tax had been paid, and thus, no disallowance for personal expenses was warranted. The Tribunal deleted the disallowance of Rs. 11,55,832.

5. Depreciation on Goodwill:
The AO denied depreciation on goodwill, but the CIT(A) allowed it. The Tribunal confirmed the CIT(A)'s decision, citing a precedent that goodwill is eligible for depreciation.

6. Disallowance of Leave Encashment under Section 43B:
The AO disallowed Rs. 7,231, and the CIT(A) confirmed this. The Tribunal noted that the assessee had amended the grounds of appeal to include a larger claim not addressed by the CIT(A). The Tribunal remanded the issue to the CIT(A) for adjudication.

7. Claim of Depreciation on Building:
The assessee claimed depreciation of Rs. 6,68,071 for a building previously rented out but now used by the assessee. The Tribunal allowed the claim, noting the building's change in use.

8. Additional Ground Regarding Gratuity:
The assessee raised an additional ground regarding a gratuity claim of Rs. 10,62,376, which the CIT(A) did not address. The Tribunal remanded this issue to the CIT(A) for a decision.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal for statistical purposes, remanding specific issues to the CIT(A) for further consideration. The order was pronounced on 22 September 2017.

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