Assessee wins on salary expenses, foreign tax credit, and section 10AA deemed exports computation

ITAT Bangalore allowed several grounds for statistical purposes while dismissing others. The tribunal followed its earlier decisions in the assessee's own case for assessment year 2016-17 regarding salary expenses as revenue nature and loss set-off provisions. Issues related to interest on advances and corporate guarantee commission were dismissed as infructuous due to existing APA. The tribunal remanded matters concerning disallowance under section 14A, other income classification, and TDS non-deduction for fresh examination by AO. Foreign tax credit was allowed as deduction, and deemed exports were included in export turnover for section 10AA computation.

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Issues Involved:
1. Variation in total income.
2. Order passed by NFAC u/s 144C(13) of the Act is barred by limitation.
3. Capitalization of salaries and wages.
4. Interest on advances to overseas subsidiaries.
5. Corporate guarantee commission.
6. Adjustment for Specified Domestic Transaction (SDT).
7. Adjustment for interest on delayed trade receivables.
8. Software development service.
9. Disallowance u/s 14A of the Act.
10. Exclusion of income from the profits of the business of the undertakings eligible for deduction under section 10AA of the Act.
11. Exclusion of net interest income from PCFC loans and surpluses for computing the deduction under section 10AA.
12. Exclusion of revenues realized in convertible foreign exchange from the export turnover.
13. Exclusion of expenditure incurred in foreign currency from export turnover.
14. Exclusion of deemed exports from export turnover.
15. Foreign tax credit.
16. Payments made to Gartner Group.
17. Credit for tax deducted at source.

Detailed Analysis:

1. Variation in Total Income:
The appellant argued that the National Faceless e-Assessment Centre (NFeAC) had computed two different total incomes, Rs. 68,87,72,84,860 and Rs. 70,99,50,98,970, under normal provisions. The second computation was contrary to the reasons cited in the assessment order. The Tribunal directed that any mistake in determining the total income should be corrected by the Assessing Officer (AO) while passing the Order Giving Effect to the Tribunal's order.

2. Order Passed by NFAC u/s 144C(13) of the Act is Barred by Limitation:
The appellant did not press this ground during the argument. Therefore, this ground was dismissed as not pressed.

3. Capitalization of Salaries and Wages:
The appellant contended that the NFAC and DRP erred in capitalizing employee costs related to the development of new technologies and software applications. The Tribunal noted that the issue had been considered in the appellant's own case for AY 2015-16 and AY 2016-17, where it was held that such expenses should be treated as revenue in nature. The Tribunal followed its earlier order and allowed the appellant's argument, directing that the expenses be treated as revenue expenditure.

4. Interest on Advances to Overseas Subsidiaries:
The appellant argued that the advances to subsidiaries were out of surplus funds and no interest expenditure was incurred. The Tribunal noted that the appellant had entered into a unilateral Advance Pricing Agreement (APA) for AYs 2016-17 to 2020-21, which was binding as per section 92CC(5). Therefore, the grounds were dismissed as infructuous.

5. Corporate Guarantee Commission:
The appellant submitted that the NFAC, TPO, and DRP erred in enhancing the commission rate on corporate guarantees to 2% without any valid computation. The Tribunal noted that the appellant had filed a modified return for AY 2017-18 and dismissed the grounds as withdrawn.

6. Adjustment for Specified Domestic Transaction (SDT):
The appellant contended that the NFAC, TPO, and DRP failed to interpret the provisions of sections 80-IA(8), 80-IA(10), and 92BA correctly. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and remitted the issue to the AO/TPO for fresh consideration.

7. Adjustment for Interest on Delayed Trade Receivables:
The appellant argued that the NFAC, TPO, and DRP erred in making adjustments towards interest on delayed receivables. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and remitted the issue to the AO/TPO to recalculate the interest at the rate of 6 months LIBOR + 350 basis points after granting a credit period of 45 days.

8. Software Development Service:
The appellant did not press this ground. Therefore, it was dismissed as not pressed.

9. Disallowance u/s 14A of the Act:
The appellant argued that the NFAC/DRP erred in quantifying and adding a notional expenditure under section 14A by applying Rule 8D. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and remitted the issue to the AO to examine the basis of allocation and apportionment of expenses towards the exempt income.

10. Exclusion of Income from the Profits of the Business of the Undertakings Eligible for Deduction under Section 10AA:
The appellant contended that the NFAC/DRP erred in excluding certain incomes from the profits of the business of the undertakings eligible for deduction under section 10AA. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and remitted the issue to the AO to examine the break-up details and decide accordingly.

11. Exclusion of Net Interest Income from PCFC Loans and Surpluses for Computing the Deduction under Section 10AA:
The appellant argued that the NFAC/DRP erred in excluding net interest income from PCFC loans and surpluses for computing the deduction under section 10AA. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and remitted the issue to the AO to examine if the interest income was assessed under the head "Income from business" or "Income from other sources."

12. Exclusion of Revenues Realized in Convertible Foreign Exchange from the Export Turnover:
The appellant contended that the NFAC/DRP erred in excluding certain revenues from the export turnover. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and remitted the issue to the AO to examine the break-up details and decide accordingly.

13. Exclusion of Expenditure Incurred in Foreign Currency from Export Turnover:
The appellant argued that the NFAC/DRP erred in excluding expenditure incurred in foreign currency from export turnover. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and directed the AO to compute the deduction u/s 10AA by excluding only the expenses specifically mentioned in the definition of "export turnover."

14. Exclusion of Deemed Exports from Export Turnover:
The appellant contended that the NFAC/DRP erred in excluding deemed exports from export turnover. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and directed the AO to include deemed exports as part of turnover while computing deduction u/s 10AA.

15. Foreign Tax Credit:
The appellant argued that the NFAC/DRP erred in not granting full credit for foreign taxes and state-level taxes. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and directed the AO to allow foreign tax credit as per the decision of the Hon'ble High Court of Karnataka.

16. Payments Made to Gartner Group:
The appellant contended that the NFAC/DRP erred in treating the payments made to Gartner Group as royalty. The Tribunal noted that the Hon'ble Supreme Court had set aside the order of the Hon'ble High Court in the appellant's own case and remitted the issue to the AO to re-examine in light of the decision in Engineering Analysis Centre of Excellence Private Limited v. CIT.

17. Credit for Tax Deducted at Source:
The appellant sought a direction to the AO to consider the TDS certificates and the latest Form Nos. 26AS furnished by the appellant. The Tribunal directed the AO to give credit for the TDS certificates as per the latest Form No. 26AS.

Conclusion:
The Tribunal partly allowed the appeal of the appellant for statistical purposes, remitting several issues to the AO/TPO for fresh consideration and directing corrections based on the Tribunal's earlier orders and relevant judicial precedents.

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