TaxTMI 
TaxTMI 
2019 (7) TMI 865
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.... section 10A of the Income Tax Act, 1961 (in short 'the Act'). Book profits under section 115JB of the Act were computed at Rs. 30,49,80,031/-. The return was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny for Assessment Year 2010-11. The assessment was concluded under section 143(3) of the Act vide order dated 31.10.2014, wherein the assessee's income was determined at Rs. 19,96,09,740/- in view of the following additions / disallowances:- (i) Disallowance under section 40(a)(ia) of Export - Rs. 4,18,21,648/- Commission claimed; for non deduction of tax at source. (ii) Disallowance out of assessee's claim of deduction - Rs. 14,13,53,193/- u/s section 10A of the Act (iii) Disallowance of capital loss under section 94(7) of the Act 2.2 On appeal, the CIT(A)-15, Delhi, disposed off the same; vide order dated 23.03.2017, allowing the assessee partial relief. 3. Both Revenue and the assessee, being aggrieved by the order of CIT(A)-15, Bangalore, dated 23.03.2017 for Assessment Year 2010-11, have filed cross appeals before the Tribunal, which we now proceed to dispose off hereunder. Assessee's appeal in ITA No.1519/Bang/2017 ....
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....in foreign currency amounting to INR 30,16,21,141 from ET while computing the deduction under section 10A of the Act without appreciating the fact that these amounts were neither included in the export invoices nor did they form part of ET. 5. On facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the action of the Ld. AO to re-compute the deduction allowable under section 10A of the Act on the returned business income instead of assessed business income. Disallowance of commission expense on account of non-deduction of tax at source 6. On the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the action of the Ld. AO to disallow export commission expense amounting to INR 4,17,10,537 and commission paid for hiring of apartments amounting INR 1,11,111 paid to non-resident parties under section 40(a)(i) of the Act without appreciating that such payments were not taxable in India. Levy of interest under sections 234B and 234D of the Act 7. On the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the levy of interest under sections 234B and 234D of the Act. Penalty 8. On the facts and circumsta....
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....8,69,205/- in respect of its Bangalore Units had not been realized within the due date; totally aggregating to Rs. 37,61,94,696/-. Before the AO, the assessee contended that it had moved applications for extension of time before the authorized dealers and filed copies of the letters seeking extension of time filed by the assessee with the authorized dealers, as recorded by the AO at para 3.6 of the order of assessment. The AO, however, after discussing the provisions of section 10A(3) of the Act and the RBI Circular in this regard dated 28.01.2002, held that a specific extension letter from the authorized banker is a must to claim the benefit under section 10A of the Act. Since no specific extension from the authorized banker was filed by the assessee, the AO denied the assessee the benefit of deduction under section 10A of the Act to the extent of the export sales, whose proceeds were not received within the six month period; i.e., amounting to Rs. 37,61,94,696/- and reduced the same from the export turnover, while computing the deduction under section 10A of the Act. 7.2 Aggrieved by the order of the AO, the assessee carried the matter in appeal before the CIT(A); who upheld th....
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....on .70A(3) of the Act as an application for extension had been filed and Section 155(11A) of the Foreign Exchange Management Act 1999 and RBI Rules were applicable?" [Question of law No.28 in ak Nos.907 86 909/2008; Question of law No.24 in ITA Nos.904 86 905/2008; Question of law No.8 in ITA Nos.210 & 21112009 and Question of law No.12 in ITA No.363/2009 (Department's appeal)] 146. The facts are riot in dispute. The assessee is a status holder exporter. The export has been done strictly in accordance with law. Foreign exchange remittances should have been received within six months from and of the financial year. It has not been received. Therefore, an application is filed seeking for extension of time to the Reserve Bank of India. Even to this day the Reserve Bank of India has not rejected the said request. On the contrary, after the period of 6 months, foreign exchange remittances are received and credited to the assessee's account through the Reserve Bank of India. It is in this context merely because the written approval of extension is not passed by the Reserve Bank of India, whether the assessee could be denied the benefit of Section 10A. The Tribunal on consid....
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....esaid decision in the case of Wipro Ltd., (382 ITR 179) (Kar). Consequently, ground No.3.2 raised by the assessee in this appeal is allowed. 7.7 Ground No.3.3 7.7.1 In this ground (supra), the assessee contends that the CIT(A) has erred in not directing the AO to amend the order of assessment for Assessment Year 2010-11 under section 155(11A) of the Act to allow deduction under section 10A of the Act in respect of export sales proceeds which were received subsequently. Since we have already held earlier in this order (supra) that those export sales proceeds which were realized within the specified time limit as well as those export sales proceeds which were received subsequently and for which extension of time limit was applied to the authorized bankers are eligible for deduction under section 10A of the Act, this ground No.3.3 becomes infructuous and is accordingly dismissed. 8. Ground No.4 : Exclusion of Expenditure incurred in foreign currency from Export Turnover 8.1 In the course of assessment proceedings, the AO observed from Note No.16 of Schedule 16 of the financial statements that the assessee had incurred amounts totaling Rs. 30,16,21,142/- (i.e., Rs. 4,42,94,575/....
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..... Ground No.5 : Deduction under section 10A of the Act to be on assessed income 9.1 In this ground (supra), the assessee contends that the AO erred in restricting the deduction under section 10A of the Act only to the extent claimed in the return of income, i.e., on returned income and that the AO ought to have computed the deduction under section 10A of the Act on the assessed income. In support of this proposition, the assessee placed reliance on the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. M/s. M. Pact Technology Services Pvt. Ltd., (since merged with Wipro Ltd.,) in ITA No.228/2013 dated 11.07.2018. 9.2.1 We have considered the rival contentions and carefully perused the material on record. We find from the impugned order of assessment that the AO has made certain disallowances under section 40(a)(i) of the Act, thereby increasing the business profits of the assessee. It is however seen that the AO has allowed the deduction under section 10A of the Act only to the extent claimed by the assessee in the return of income. On appeal, the CIT(A) rejected the contentions of the assessee on the ground that the disallowance under section 40(a)(i) of the A....
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....ct: Date of Judgment 11-07-2018 I.T.A.No.228/2013 Commissioner of Income Tax & Anr. Vs. M/s. M PACT Technology Services Pvt. Ltd. Chapter VI-A deduction on enhanced profits, is quoted hereunder: "The issue of the claim of higher education on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows: [i] If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non- deduction of TDS under law, such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee af te r adjusting disallowance under section 4orallia] of the Act would qualify for deduction under section 8oIB of the Act. This view was taken by the courts in the following cases: [a] Income-tax Officer-Ward 5[1] 1Keval Construction, Tax Appeal No.443 of Date of Judgment 11-07-2018 I.T.A.No.228/2013 ....
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.... PACT Technology Services Pvt. Ltd., been derived from manufacturing activity. The salaries paid by the assessee, it has not been disputed, relate to the manufacturing activity. The disallowance of the Provident Fund/ESIC payments has been made because of the statutory provisions - Section 43B in the case of the employer's contribution and Section 36(v) read with Section 2(24)(x) in the case of the employee's contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contention of the Revenue that in computing the deduction under Section 10A the addition made on account of the disallowance of the Provident Fund / ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow. The second question shall accordingly stand answered against the Revenue and in favour of the assessee." 9.2.3 The facts of the assessee's case on hand are similar to that of the cited case. In the cas....
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....ue. 10.3.1 Before us, the learned AR for the assessee reiterated the submissions put forth before the authorities below. It is submitted that the only reason for disallowance of these expenses incurred on commission payments to non-residents is that TDS was liable to be deducted on these payments and which was not done. According to the learned AR, the details of the parties to whom the payments were made were admittedly submitted before the AO and as can be seen from the details, these parties are nonresidents and have no permanent establishment (PE) or business connection in India. Therefore, according to the learned AR, since these payments having been made to non-residents for services rendered abroad, they are not taxable in India. In support of these contentions, the learned AR placed reliance on the following judicial pronouncements:- (i) Zanar Home Collection Vs. JCIT (2015) 68 SOT 184 (Bangalore - Trib); and (ii) DCIT Vs. S. R. M. Agro Foods (2016) 161 ITD 786 (Mumbai - Trib). 10.3.2 In the course of hearings before us, the amendments to Section 9 the Act, particularly the Explanations inserted in the Section, came up for discussion. The learned AR for the assess....
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....s earlier decision rendered in the case of Transmission Corporation of AP Vs. CIT (239 ITR 587) (SC), held that only if the income is chargeable to tax in India in the hands of the non-resident recipient, would tax be required to be deducted at source from such payment. Various Courts and Tribunals have followed the aforesaid decision of the Hon'ble Apex Court and have consistently held that in the absence of any activity in India by a non-resident commission agent, the commission does not accrue or arise in India and is not taxable in India. 10.5.3 Explanation - 2 added to Section 195 of the Act by Amendment introduced by Finance Act, 2012 w.e.f. 01.04.1962 reads as under:- "[Explanation 2 - For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has - (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India." This Explanation has onl....
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....e, provides for two conditions (supra). The first condition of receipt of income in India is not applicable to the case on hand, as the non-resident agents have not received the commission in India. However, the second condition i.e., of whether the income accrues or arises or is deemed to accrue or arise in India, requires to be examined. 10.5.6 Section 9 of the Act provides for the income that is deemed to accrue or arise in India. It creates a legal fiction and provides that certain income shall be deemed to accrue or arise in India. The plain language of Section 9(1)(i) of the Act provides that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, shall be deemed to accrue or arise in India. 10.5.7 Applying the above provisions of the Act to the factual matrix of the case on hand, the question that needs to be addressed is whether the income earned by the foreign commission agents accrues or arises from any business connection in India. In this regard, the Hon'ble Apex Court in its decision in the case of CIT Vs. Toshoku Ltd., (1980) 125 ITR 525 (SC) held that the commission amounts which were earned by non-residen....
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....India." From a plain reading of these explanations, it is clear that it is applicable only if the non-residents have income accruing or arising to them in India and the transactions happen in India. As such, in our view, these Explanations (supra) are not applicable to the facts of the case on hand, where the commission agents are non-residents and the impugned payments are made for services rendered outside India. 10.5.9 The explanation at the end of Section 9 of the Act introduced by Finance Act, 2010, w.e.f. 01.06.1976 reads as under:- "Explanation.-For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of subsection (1) and shall be included in the total income of the non-resident, whether or not,- (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India." As can be seen from the above, this Explanation applies to clause (v), clause (vi) and clause (vii) of sub section (1) of section 9of the Act, (i) which relates to income by ....
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....rned CIT(A) is opposed to law and facts of the case. 2. Whether on the facts and circumstances of the case, the CIT(Appeals) was justified in law in holding that the expenditure incurred towards expenses incurred in foreign currency attributable to delivery of computer software for providing technical services outside India to be excluded both from export turnover and total turnover for the purpose of computation of deduction u/s 10A of the Act, whereas such exclusion is permitted to arrive at the export turnover only as per the definitions given in sec. 10A of the Act and total turnover has not been defined in the section?" 3. "The CIT(A) erred in not considering the appeal of the Revenue against the order of the jurisdictional High Court in the case of CIT vs. Tata Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs are pending before the Hon'ble Apex Court"? 4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 5. The appellant craves leave to....
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....nover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well. 21. On the issue of expenses on technical services provided outside, we have to follow the same principle of interpretation as followed in the case of expenses of freight, telecommunication etc., otherwise the formula of calculation would be futile. Hence, in the same way, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover." 14.4 In this legal and factual matrix of the case, as discussed above, respectfully following the decision of the Hon'ble Apex Court in the case of CIT Vs. HCL Technologies Ltd., (supra) , we direct the AO to allow assessee' s claim for deduction under Section 10A of the Act. Consequently, the grounds raised by revenue are dismissed. 15. In the result, Revenue's appeal for Assessment Year 2010-11 is dismissed. Assessee's appeal in ITA No.1520/Bang/2017 - Assessment Year 2011-12 16. In this appeal, the assessee has rais....
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....recting the Ld. AO to drop the penalty proceedings initiated under section 274 read with section 271(1)(c) of the Act. Relief 6. On the facts and circumstances of the case and in law, the Appellant prays that the Ld. AO be directed to grant all such relief arising from the preceding grounds as also all relief consequential thereto. 17. The Ground Nos.1 and 6 (supra) are general in nature and therefore no adjudication is called for thereon. These grounds are accordingly dismissed as infructuous. 18. Ground 2(2.1) - Deduction under section 10A of the Act - Exclusion of expenses incurred in foreign currency 18.1 This issue has been considered and adjudicated in pre paragraphs 8 to 8.4 of this order while disposing off ground No.4 of the assessee's appeal for Assessment Year 2010-11 (supra). As the facts are similar in this year, the decision rendered by us for Assessment Year 2010-11 would also be applicable for this Assessment Year 2011-12. As in the earlier Assessment Year 2010-11, in this year also, the AO has reduced the expenses incurred in foreign currency from the export turnover while computing the deduction under section 10A of the Act. While upholding the AO's ac....
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....ders of the authorities below. 19.3 We have considered the rival contentions put forth before us on this issue and perused the judicial pronouncements cited (supra). We find that the principles laid down in the above-mentioned judicial pronouncements of the Hon'ble Karnataka High Court in the case of CIT Vs. Hewlett Packard Global Soft Ltd., (supra) and of the Delhi Bench of ITAT in the case of Headstrong Services India Pvt. Ltd., Vs. DCIT (supra) squarely apply to the facts of the assessee in the case on hand. The items of income grouped under the head "Other Income' and the write back of liabilities arise out of the business of the assessee and therefore are to be included as business income, while computing the deduction under section 10A of the Act. Consequently, ground No.2.2 of assessee's appeal is allowed. 20. Ground No.2.3 - Deduction under section 10A of the Act on assessed income 20.1 The very same issue i.e., that the assessee is to be allowed deduction under section 10A of the Act on assessed income has been adjudicated at pre paragraphs 9 to 9.2.3 of this order while disposing off ground No.5 of assessee's appeal for Assessment Year 2010-11 (supra). All facts bei....
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....tly, ground No.3 of the assessee's appeal is allowed. 22. Ground No.4 - Charging of interest under section 234B of the Act 22.1 In this ground (supra), the assessee denies himself liable to be charged interest u/s 234B of the Act. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon'ble Apex Court in the case of Anjum H. Ghaswala (252 ITR 1) (SC) and I, therefore, uphold the action of the AO in charging the assessee the aforesaid interest u/s 234B of the Act. The AO is, however, directed to re-compute the interest chargeable u/s 234B of the Act, if any, while giving effect of this order. 23. Ground No.5 23.1 In this ground (supra), the assessee challenges the initiation of penalty proceedings under section 274 r.w.s. 271(1)(c) of the Act. Since no penalty under section 271(1)(c) of the Act has been levied by the AO in the impugned order, this ground is premature and non-maintainable and is accordingly dismissed. 24. In the result, the assessee's appeal for Assessment Year 2011-12 is partly allowed. Revenue's appeal in ITA No.1448/Bang/2017 for Assessment Year 2011-12 25. In its ....
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....e amounts have been paid before the due date for filing the return of income and therefore no disallowance is called for. The AO, however, rejected the assessee's contention and held that the assessee can be allowed deduction thereof, only if the employees' contribution to PF is paid before the date specified i.e., 20th of the following month. On appeal, the CIT(A) allowed the assessee's claim by relying on the decision of the Hon'ble Delhi High Court in the case of CIT Vs. AIMIL Ltd., (2010) 321 ITR 508 (Del HC). 27.2 Aggrieved by the order of the CIT(A), Revenue has carried the matter in appeal before us. After having heard the rival contentions in the matter and considering the judicial precedents in the matter, we find that this issue has been decided by the Hon'ble Karnataka High Court in the case of CIT Vs. Sabari Enterprises (2008) 298 ITR 141 (Kar), which has been followed by the Hon'ble Karnataka High Court in the case of CIT Vs. Spectrum Consultants India Pvt. Ltd., in WA No.4077/2013 (T-IT) dated 09.12.2013. In the aforesaid decisions (supra), the Hon'ble Court has held that the employer shall get deduction for payment of employees' contributions to PF provided they ar....