TaxTMI 
TaxTMI 
2013 (11) TMI 901
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.... the income of the assessee is computed as under: 1. Income from Business 98926104.00 Business income (as per return) 98141474.00 Add: (i) Disallowance out of software expenses 784630.00 2. Addition on account of order of TPO 80819778.00 3. Income from other sources (FDR interest) 967979.00 4. Gross Total Income 180713861.00 5. Deduction under Chapter VI-A (u/s 80HHE) 32703830.00 6. Total Income 148010031.00 3. The deduction u/s 80HHE was computed as under: - COMPUTATION OF DEDUCTION U/S 80HHE 1. Export Turnover 496743546 2. Total Turnover As per Form 10CCAF 557365790 Add: (i) As per TPO order 80819778 (ii) Sale of PC, scrap etc. 555904 (iii) Bad debts recovered 1488373 (iv) Liabilities written back 12327948 (v) Reimbursement of expenses 72496365 &....
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.... in law in deleting the addition of Rs. 33,00,322/made on account of interest from customers ignoring that explanation (d) to sec. 80HHE(5) specifically provides for removal of 90% of such interest income to arrive at 'profit of business' for computing deduction u/s 80HHE of the I.T. Act. When the interest received is specifically mentioned in clause (d) of the aforesaid explanation, there was no need to look at the residuary portion. 5. The ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 5,55,904/made on account of sale of scrap ignoring that the contention of the assessee that sale of PC/server, scrap, etc. was eligible for deduction u/s 80HHE of the I.T. Act is against the very spirit of the section which deals with deduction on export of computer software. No adjustment whatsoever made in this regard by the assessee has resulted in claiming deduction u/s 80HHE of the I.T. Act on sale of PC/server, scrap etc., which is against the intent of sec. 80HHE of the I.T. Act. 6. The ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 1,23,27,948/made on account of liabilities written back ignoring that liabilities wri....
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....tion is computed at Rs. 581,441,810/-. The Assessing Officer is directed to make an addition of Rs. 8,08,19,778/to the income of the assessee in the relevant assessment year." Accordingly, the AO had made an addition of Rs. 8,08,19,778/-. 8. Ld. CIT(A) accepted the assessee's contentions that it was not engaged in the business of ITES Services but gave support services like engineering, design and drawing for completion of project like bridge etc. and thus, was not in software development business but in engineering, design and drawing business by use of software for design and drawing. 9. At the outset, ld. Counsel for the assessee fairly submitted that this matter needs to go back to AO/TPO for re-adjudication of the issue in the light of Tribunal's order dt. 21/12/2012 for AY 2004-05 and 2005-06 vide ITA Nos. 4338/D/11 & 4339/D/11 respectively, wherein Tribunal in para 5 has observed as under: 5. "In view of the above submission of both the parties, we set aside the orders of the authorities below on this point and restore the matter to the file of the Assessing Officer and direct him to again refer the matter to the TPO for determining the arm's length ....
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....4. "From the proviso to sec. 92C(4), it is evident that no deduction in Chapter VI-A is to be allowed in respect of the income which is enhanced after the computation of income in the said Section. Thus, the assessee is not entitled for deduction under Chapter VIA in respect of the addition made as per the TPO's order. Despite the above specific provision, the Assessing Officer enhanced the total turnover by the addition made as per the TPO's order, which has the effect of reducing the deduction u/s 80HHE. However, the finding of the TPO is that the international transaction of the assessee is not at arm's length and, therefore, by determining the arm's length price of the international transaction, he proposed the addition of Rs. 6,93,21,169/-. Though while considering ground no. 1 of the revenue's appeal we have already set aside this matter to the file of the AO, however, even if some addition is required to be made by determining the ALP, the question is whether the same will have the effect of enhancing the total turnover. If at all the effect is to be given to the enhancement of income made by the TPO, it will have the impact of increasing the assessee's export turnover, then....
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....d gains of business or profession". Thus, if an item is not coming within the ambit of profits and gains of business or profession, this explanation is of no assistance to assessee. In the present case, interest on FDR was taxable as 'income from other sources' and, therefore, the AO rightly denied the deduction u/s 80HHE on the interest earned on FDR. 23. We, accordingly, set aside the order of ld. CIT(A) on this issue. 24. In the result, this ground is allowed. 25. Brief facts apropos ground no. 4 are that in the profit and loss account, assessee had shown "interest from customers" at Rs. 33,00,322/-. The AO noticed that assessee had not reduced 90% of the same to arrive at 'profit of business' as per Explanation (d) to sec. 80HHE. The assessee's contention was that the interest was received from its client, M/s Haldia Petro Chemicals Ltd. and earned in the normal course of business and was, therefore, included in profits and gains of business or profession. The contention of assessee was that 90% of it was not liable to be reduced as it was not covered by "any other receipt of similar nature" as mentioned in Explanation (d) to sec. 80HHE. The AO, however, did not acc....
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....vinda Chaudhary & Sons (supra) was in respect of AY 1972-73 when sec. 80HHE was not there. He pointed out that the decision in the case of Hero Cycles cited by the assessee is in the context of sec.80HHC and not in the context of 80HHE. He submitted that in the present case immediate source is delayed receipt which is not derived from business. 30. We have considered the rival submissions and have perused the record of the case. 31. There is no dispute that the impugned amount was assessable as business income of assessee. However, the core of dispute is whether in view of Explanation (d) to sec. 80HHE, which defines the 'profits of the business', 90% of the impugned amount is to be reduced or not as it is in the form of interest on delayed payment. Ld. Counsel's contention that it actually was in the nature of service income was never taken before Lower Revenue Authorities. Be that as it may, in our opinion, nomenclature is of no consequence. We have to examine the true nature of receipt. As far as the decision of Hon'ble Supreme Court in the case of Govinda Chaudhary & Sons (supra) is concerned, the dispute was whether the interest awarded to assessee by arbitrator in respe....
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....w of this decision, the interest on delayed payment cannot be treated as income derived from activities contemplated u/s 80HHE. 32. In the result, this ground is allowed. 33. Brief facts apropos ground no. 5 are that assessee had shown an amount of Rs. 10,95,723/as miscellaneous income in the profit and loss account and had claimed deduction u/s 80HHE on this income. The assessee explained that miscellaneous income included rs. 5,39,819/on account of discount received from air lines and Rs. 5,55,904/on sales of parts of PC/Server, cartridge, scraps etc. 34. As regards, receipts of Rs. 5,55,904/-, the AO observed that the same cannot be considered for purposes of deduction u/s 80HHE. However, taking into consideration the nature of receipt he treated the same as part of total turnover for computing deduction u/s 80HHE. 35. Ld. CIT(A) held that the impugned amount could not be considered as amount received against rendering of services and hence, could not be made part of total turnover. 36. Ld. DR relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. Jacksen Engineering Ltd., 341 ITR 580, wherein it was held that assessee was not entitled for deduc....
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....profit and loss account under the sub head "liability no longer required written back". 42. The AO held that these were to be included in total turnover for computation of deduction u/s 80HHE. 43. Before ld. CIT(A) it was pointed out that credit of this amount to profit and loss account was in accordance with the provisions of sec. 41 of the Act. It was submitted that these liabilities had no link with the turnover of the assessee for the year under consideration i.e. for the F.Y. 2002-03. Further it was submitted that total turnover as defined in clause (e) to sec. 80HHE of the Act shall have effect so as to exclude receipts u/s 28(iiia), (iiib) & (iiic) which clearly showed that the legislature intend to exclude all receipts which had no nexus with sale proceeds from export activities. It was submitted that in the formula for calculation of deduction u/s 80HHE, when the numerator (i.e.) export turnover speaks of turnover of customized electronic data, the denominator should also be of similar nature, i.e., the total (domestic and export) turnover of the assessee from the business of customized electronic data. Ld. CIT(A) accepted the assessee's contention and directed....
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....use these amounts were claimed only as expenditure and did not affect the turnover of the respective year. Therefore, in the current assessment year when these amounts are written back then they cannot form part of total turnover. We, therefore, do not find any reason to interfere with the order of ld. CIT(A). 48. In the result, this ground is dismissed. 49. Brief facts apropos ground no. 7 are that the AO noticed that there were certain receipts which did not form part of the profit and loss account. He required the assessee to explain as to why the same may not be included in the total turnover for computation of deduction u/s 80HHE of the I.T. Act. The assessee explained that in the course of rendering the service, the assessee incurred certain expenses like traveling, boarding and lodging expenses. These were reimbursed by the clients on actual basis. It was also pointed out that during the year, the assessee recovered reimbursements aggregating to Rs. 7,24,96,365/(Rs. 42,38,653/from domestic customers and Rs. 6,82,57,712/from overseas customers). The assessee explained that since these were not part of the profit and loss account, they were neither included in the export....
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....be restricted only to such receipts which have an element of profit in it. As the provisions of sec. 80HHC relevant in this context are analogous to the provisions of sec. 80HHE as pointed out by the ld. Counsel for the assessee, we are of the view that the ratio of the decision of the Hon'ble Bombay High Court in the case of Sudershan Chemical Industries Ltd. (supra) is equally applicable to the issue involved in the present appeal and supports the case of the assessee. Keeping in view the said decision as well as the other judicial pronouncements referred to hereinabove and considering all the facts of the case, we hold that there was no infirmity in the impugned order of the ld. CIT(A) in directing the AO not to include the receipts by the assessee on account of reimbursement of expenses in its turnover for the purpose of computing deduction u/s 80HHE. The same is, therefore, upheld and ground no. 2 of the Revenue's appeal is dismissed." 52. Respectfully following the above decision of ITAT, we uphold the finding of ld. CIT(A) with regard to reduction of reimbursement of expenses from total turnover. 53. In the result, this ground is dismissed. 54. In the result, Depart....