TaxTMI 
TaxTMI 
2015 (1) TMI 924
X X X X Extracts X X X X
X X X X Extracts X X X X
....Turnover" is not liable to be made also from "Total Turnover" for working out the deduction u/s 10A. 3. That Hon'ble CIT(A), while concluding that the above adjustment made from "Export Turnover" is not liable to be made also from "Total Turnover" grossly erred in law in not following the decision of the jurisdictional High Court which was binding on him. 4. The appellant craves leave to add, to alter, to amend or vary from the aforesaid grounds of appeal at or before the time of hearing." 3. From the above grounds it is gathered that only grievance of the assessee relates to the action of the ld. CIT(A) in not directing the AO to exclude the amount of foreign currency expenses and telecommunication cost from the "Export Turnover" as well as the "Total Turnover". 4. Facts of the case in brief are that the AO excluded telecommunication expenses and certain other expenses incurred in foreign currency from the "Export Turnover" while computing the deduction u/s 10A of the Income Tax Act, 1961 (hereinafter referred to as the Act), without simultaneously reducing the same from the "Total Turnover". 5. Being aggrieved the assessee carried the matter to the ld. CIT(A) who d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was also placed on the following case laws: CIT Vs Dell International Services India Pvt. Ltd.: 349 ITR 98 (Kar.) CIT Vs Gem Plus Jewellery India Ltd.: 330 ITR 175 (Bom.) HCL Technologies Vs ACIT: ITA Nos. 1320 & 1446/Del/2008 - affirmed by Delhi High Court DCIT Vs Binary Semantics Ltd.: 109 TTJ 556 (Del) DSL Software Ltd. (HCL Technologies) Vs ACIT: ITA Nos. 3203 & 3204/Del/2007 ITO Vs Sak Soft Ltd.: 313 ITR 353 (Chennai ITAT) (SB) M/s Microchip Technology Designs (India) Pvt. Ltd.: ITA No. 1161/Bang/2007 (Bang.) M/s Alternative Food Process P. Ltd. Vs ITO: ITA No. 52/Bang/2008 (Bang.) M/s Goodrich Aerospace Services P. Ltd. Vs DCIT: ITA No. 58/Bang/2008 (Bang.) M/s Hewlett Packard Global Soft Ltd.: ITA No. 333/Bang/2008 (Bang.) ACIT Vs Infosys Technologies Ltd.: 172 Taxman 134(Mag) (Bang.) ITO Vs Servion Global Solutions Ltd.: 117 TTJ 380 (Chennai) I-Gate Global Solutions Ltd. Vs ACIT: 112 TTJ 1002 (Bang.) Tata Elxsi Ltd.: 115 TTJ 423 (Bang.) - affirmed by Karnataka High Court in CIT Vs Tata Elxsi Ltd.: ITA No. 70/2009 decided on 30.08.2011. Nous Info Systems (P) Ltd. Vs ITO: ITA No. 1042/Bang/2007 (Bang.) Mphasis Ltd. Vs ACIT: ITA ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e expression "total turnover" which is not defined in section 10B should also be interpreted in the same manner. Thus, the two items of expenses referred to in the definition of "export turnover" cannot form part of the total turnover since the receipts by way of recovery of such expenses cannot be said to represent consideration for the goods exported since total turnover is nothing but the aggregate of the domestic turnover and the export turnover. In the formula prescribed by section 10B(4) the figure of export turnover has to be the same both in the numerator and in the denominator of the formula. It follows that the total turnover cannot include the two items of expenses recovered by the assessee and referred to in the definition of "export turnover"." 22. The aforesaid decision had been considered and affirmed by the Hon'ble jurisdictional High Court in the case of Tata Elxsi Ltd. & Ors. 2011-TIOL-684-HC-KAR-II wherein it has been held that for the purpose of computation of deduction u/s. 10A of the Act, if any expenditure is excluded from the export turnover, the same has to be excluded from the total turnover also. A similar view has also been taken by the Hon'ble Bombay....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n facts and circumstances of the case and in law in deleting the addition of Rs. 43,94,513/- made by AO by invoking provisions of section 14A read with rule 8D? 2. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the addition of Rs. 15,28,71,739/- on account of licence fee paid to DOT, which was treated as capital in nature by the AO; by holding that the licence fee/transponder fee was revenue in nature and allowable u/s 37 of the Act? 3. Whether Ld. CIT(A) has erred in law by holding the licence fee/transponder fee as revenue in nature without considering that the assessee had obtained the licence with an option where instead of onetime fixed cost model of licence fee; it was arranged as revenue sharing model; but the nature of payment remained as capital expenditure? 4. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in holding that expenses in nature of communication expenses or expenses incurred in foreign exchange are to be reduced from the total turnover while computing the deduction u/s 10A despite the fact that it is not provided in the provision of Income Tax Act and has also erred in not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vations made by the AO in the assessment order dated 30.12.2010 and strongly supported the assessment order passed by the AO, it was further stated that the provisions of section 14A of the Act were not applicable and no disallowance was called for. It was also stated that there should have been a positive income for making the disallowance u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962. The reliance was placed on the following case laws: CIT Vs M/s Lakhani Marketing Incl., in ITA No. 970/2008 (O&M) order dated 02.04.2014 Hon'ble P & H High Court CIT Vs Holcim India (P) Ltd. in ITA Nos. 486/2014 and 299/2014 order dated 05.09.2014 of Hon'ble Delhi High Court 19. In his rival submissions the ld. Counsel for the assessee strongly supported the orders of the authorities below and further submitted that the earning of income is not a criteria for making the disallowance u/s 14A of the Act and even if no income has been earned the disallowance has to be made u/s 14A of the Act r.w. Rule 8D of the IT Rules. The reliance was placed on the following case laws: Cheminvest Ltd. Vs ITO (2009) 121 ITD 318 (Del) (SB) Maxopp Investment Ltd. Vs CIT (2011) 15 Taxmann.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t amounting to Rs. 46,91,684/-. It was incumbent on the AO to establish a nexus between the expenditure incurred and the income which was exempt under the Act. Facts clearly do not support the action of the AO. Disallowance is accordingly deleted. The AO is directed to recompute the income accordingly." 10. Vide order dated 16.5.2008, Annexure A.III, the Tribunal on appeal by the revenue while upholding the finding recorded by the CIT(A) noticed as under:- "We have heard rival submissions and have perused the material on record. From the reading of section 14A of the Act, it is clear that before making any disallowance the following conditions are to exist:- a) That there must be income taxable under the Act, and b) That this income must not form part of the total income under the Act, and c) That there must be an expenditure incurred by the assessee, and d) That the expenditure must have a relation to the income which does not form part of the total income under the Act. 9. Therefore, unless and until, there is receipt of exempted income for the concerned assessment years (dividend from shares), we are of the view, Section 14A of the Act cannot be invoked. In ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come from interest and the investments in the share and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under section 14A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallowed, is a question of fact. The contention of the revenue that directly or indirectly some expenditure is always incurred which must be disallowed under section 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of section 14A, cannot be accepted. Disallowance under section 14A requires finding of incurring of expenditure; where it is found that for earning exempted income no expenditure has been incurred, disallowance under section 14A cannot stand. In the present case finding on this aspect, against the revenue, is not shown to be perverse. Consequently, disallowance is not permissible. We have taken this view earlier also in IT Appeal No.504 of 2008, CIT vs. Winsome Textile Industries Limited, decided on 25th August, 2009 wherein it was observed as under:- '6. The contention raised on behalf of the revenue is that even if the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....des that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs. 2,03,752/- made by the Assessing Officer was in order." 24. In the aforesaid case their lordships has also considered the decisions of the Hon'ble Punjab and Haryana, Gujarat and Allahabad High Court which are in favour of the assessee. We, therefore, by keeping in view the ratio laid down by the Hon'ble Jurisdictional High Court in the case of CIT Vs Holci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....323 (Del) Hutchison Essar Telecom Ltd. Vs JCIT: 149 TTJ 673 (Del) DCIT Vs Comsat Max Ltd.: 29 SOT 436 (Del) Mahanagar Telephone Nigam Ltd. Vs ACIT: 100 TTJ 1 (Del) ACIT Vs Vodafone Essar Gujarat Ltd.: 131 TTJ 544 (Ahd.) Bharti Airtel Ltd. Vs ACIT: 41 SOT 175 (Mum.) Videsh Sanchar Nigam Ltd. Vs JCIT: 81 ITD 456 (Mum.) 30. We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that the issue under consideration is squarely covered by the judgment of the Hon'ble Jurisdictional High Court in the case of CIT Vs Bharti Hexacom Ltd. 221 Taxman 323 (Del) (supra), wherein it has been held as under: "The licence fee was imposed and payable under the Indian Telegraph Act and other statutory provisions and was/is mandatory. Failure to pay the same would/will result in discontinuance or stoppage of business operations. Under 1999 policy, the amount payable speaks of sharing of gross revenue earned by the service provider from the customers. 1994 agreement as noticed did have a provision for sharing but with minimum payment stipulation. In case of non-payment of licence fee, the licence coul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....services. In aforesaid circumstances, it would be appropriate and proper to apportion the licence fee as partly revenue and partly capital. The next obvious question is, on what basis apportionment should be done and what could be the proportion of apportionment between capital and revenue expenditure. In this regard it would be appropriate and proper to divide the licence fee into two periods i.e. before and after 31-7-1999. The licence fee paid or payable for the period up to.31-7-1999 i.e. the date set out in the 1999 policy should be treated as capital and the balance amount payable on or after the said date should be treated as revenue. The aforesaid apportionment is necessary because licence fee was payable for establishment, maintenance and operation of cellular telephone service. Establishment and set up took place in the initial years and thereafter the payments made were/ are for operation or maintaining the cellular telephone service. Initial outlay and payment, therefore, is capital in nature, whereas the outlays and payments made subsequently are to operate and maintain the service. 1999 policy in the form of letter dated 22-7- 1999 also refers to one time ....