2020 (7) TMI 169 - AT - Income Tax

Tribunal Rulings on Assessee's Appeals: Disallowance, Deductions, Foreign Tax Credit

HCL Comnet Systems and Services Ltd Versus The Dy. C.I.T Circle – 12 (1) New Delhi

The Tribunal allowed the assessee's appeals in ITA No. 5555/DEL/2014 and ITA No. 835/DEL/2014, partly allowed the appeal in ITA No. 6162/DEL/2013, and ... Disallowance u/s 14A - 10% of dividend income earned during the financial year - HELD THAT:- It is not in dispute that Rule 8D of the Rules is not applicable for the year under consideration. However, some reasonable expenditure needs to be allowed for earning exempt income. The ld. CIT(A) has restricted the disallowance to 10% of the dividend income. In our considered opinion, restriction by the ld. CIT(A) seems to be reasonable and, therefore, no interference is called for. Ground No. 1 is accordingly, dismissed. Adjustment of foreign currency expenditure and tele-communication charges for working out the deduction u/s 10A - main contention of the appellant is that the ld. CIT(A) erred in exceeding his jurisdiction u/s 251(1) of the Act in restoring the matter back to the file of the Assessing Officer - HELD THAT:- As decided in own case [2015 (1) TMI 924 - ITAT DELHI] we set aside the impugned order of the ld. CIT(A) on this issue and the AO is directed to reduce the expenses incurred in foreign currency and telecommunication from the export turnover as well the total turnover while working out the deduction u/s 10A Addition on account of licence fee paid to DOT - HELD THAT:- An identical issue was considered by the co-ordinate bench in assessee’s own case [2015 (1) TMI 924 - ITAT DELHI] similar to the facts involved in the case of CIT Vs Bharti Hexacom Ltd. (Delhi) [2013 (12) TMI 1115 - DELHI HIGH COURT] we, therefore, restored this issue to the file of the AO to be decided in accordance with the findings given by the Hon'ble Jurisdictional High Court in the case of Bharti Hexacom Ltd. and if any expenditure on account of licence fee was payable up to 31.07.1999, it should be treated as capital expenditure and the licence fee on revenue sharing basis after 01.08.1999 should be treated as revenue in nature. Claim of foreign tax credit - HELD THAT:- As relying on WIPRO LTD.[2015 (10) TMI 826 - KARNATAKA HIGH COURT] Assessee would be entitled to only the tax paid for that relevant financial year in America, i.e., the income attributable to that year in America. In other words, the income tax paid in the same calendar year in United States of America is to be accounted for two financial years in India. Addition u/s 14A - HELD THAT:- It is a settled law that Rule 8D of the Rules is applicable from A.Y 2008-09 onwards. However, some reasonable expenditure needs to be disallowed for earning exempt income. Since the ld. CIT(A) has considered the reasonableness and restricted the disallowance to 5% of dividend income, we do not find any error or infirmity in the findings of the ld. CIT(A). Disallowance u/s 14A r.w.r 8D of the Rules - HELD THAT:- Income which does not form part of the total income and this can be done by taking into consideration the investment which has given rise to exempt income which does not form part of the total income - Tribunal in assessee’s own case for A.Y 2011-12 has held that wherein dividend was received from investments made in mutual funds which were brought and sold during the year and since there was no opening and closing balance of investments from mutual funds, it is impossible to determine the average value of investments for the purpose of Rule 8D(2)(ii) of the Rule and accordingly, disallowance made u/s 14A of the Act r.w.r 8D of the Rules was deleted. Addition being advances given by the assessee in earlier year - HELD THAT:- It is not in dispute that ₹ 25.69 lakhs were paid to DOT as advance recoverable from DOT. The assessee may have taken wrong stand while claiming it as advance recoverable from DOT, but, at the same time, write off during the year under consideration cannot be brushed aside lightly as in case the same has to be considered as business loss. Now the only issue which needs our consideration is whether the same is prior period expenses. In our considered opinion, and looking to the returned income of the assessee, in earlier years, we find that there would be no revenue leakage as the assessee is consistently subjected to same rate of income tax. Therefore, in the interest of justice and fair play, we do not find any merit in the disallowance made. We, accordingly, direct the Assessing Officer to delete the addition Issues Involved:1. Disallowance under Section 14A of the Income Tax Act, 1961.2. Adjustment of foreign currency expenditure and telecommunication charges for deduction under Section 10A.3. Deletion of addition on account of license fee paid to DOT.4. Determination of deduction under Section 10A in respect of foreign currency expenses and telecommunication charges.5. Claim of Foreign Tax Credit.6. Disallowance of advances written off.Detailed Analysis:1. Disallowance under Section 14A:The primary issue was the disallowance under Section 14A related to dividend income. The assessee earned dividend income but did not disallow any expenditure under Section 14A. The Assessing Officer (AO) disallowed 25% of the dividend income, which was reduced by the CIT(A) to 10%. The Tribunal upheld the CIT(A)'s decision, considering it reasonable.2. Adjustment of Foreign Currency Expenditure and Telecommunication Charges for Deduction under Section 10A:The AO excluded certain expenditures from the export turnover for the purpose of deduction under Section 10A. The CIT(A) remanded the matter back to the AO. The Tribunal found that similar issues were addressed in the assessee's own case in previous years, where it was held that if expenses are excluded from export turnover, they should also be excluded from total turnover. The Tribunal directed accordingly, allowing the ground in favor of the assessee.3. Deletion of Addition on Account of License Fee Paid to DOT:The AO treated the license fee paid to DOT as capital expenditure, allowing only 1/10th of the payment under Section 35ABB. The CIT(A) deleted the addition, following earlier orders. The Tribunal found that the issue was covered by the jurisdictional High Court's decision in CIT Vs Bharti Hexacom Ltd., which held that license fees payable after 01.08.1999 should be treated as revenue expenditure. The Tribunal directed the AO to follow this precedent, dismissing the Revenue's grounds.4. Determination of Deduction under Section 10A in Respect of Foreign Currency Expenses and Telecommunication Charges:The AO excluded telecommunication and foreign currency expenses from export turnover. The CIT(A) and Tribunal held that such expenses should also be excluded from total turnover if excluded from export turnover, following earlier decisions. The Tribunal dismissed the Revenue's grounds on this issue.5. Claim of Foreign Tax Credit:The assessee raised an additional ground for Foreign Tax Credit, citing the Karnataka High Court's decision in Wipro Ltd. The Tribunal admitted the additional ground, following the Supreme Court's decision in NTPC, and directed the AO to consider the claim as per the High Court's directions, allowing the ground in favor of the assessee.6. Disallowance of Advances Written Off:The AO disallowed advances written off, treating them as capital in nature. The CIT(A) upheld the disallowance. The Tribunal found that the advances were trade advances written off in the normal course of business and should be considered as business loss. The Tribunal directed the AO to delete the addition, allowing the ground in favor of the assessee.Judgment Summary:- Assessee’s appeals in ITA No. 5555/DEL/2014 and ITA No. 835/DEL/2014 were allowed.- Assessee’s appeal in ITA No. 6162/DEL/2013 was partly allowed.- Revenue’s appeals in ITA No. 6181/DEL/2013, ITA No. 922/DEL/2014, and ITA No. 5924/DEL/2014 were dismissed.The order was pronounced in the open court on 25.06.2020.