TaxTMI 
TaxTMI 
2021 (3) TMI 1072
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....l income of Rs. 45,78,65,652/-. 3. The case of the assessee was selected for scrutiny and the assessing authority has disallowed the deduction under Section 10B of the Income tax Act, 1961 ('the Act' for short) in respect of two units claimed by the assessee for income from onsite-subcontract work given to its associated enterprises in its order passed under Section 143(3) r/w Section 144(C)(13) by holding that the above profit was not eligible for deduction and hence, disallowed the claim of deduction under Section 10B of the Act. 4. The assessee preferred an appeal before the Income Tax Appellate Tribunal ('the Tribunal' for short) as its objections were rejected by the DRP (Dispute Resolution Panel) and the Tribunal has allowed the appeal in part. 5. The draft assessment order was passed on 28.3.2013 inter alia proposing;- "a) reduction of the deduction claimed under Section 10B/10AA of the Act on the ground that: (i) The assesse is not entitled to claim deduction in respect of turnover relatable to onsite development of software sub-contracted by it to its Associate Enterprises ('the AEs' for short); (ii) The expenses incurred by the assessee....
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....eligible for deduction u/s 10B with regard to income earned by the assessee from the on site development of software through its associated enterprises under sub contract. The Tribunal dismissed the Revenue's appeal relying on the identical issue in the case of Mphasis Software Services India P.Ltd., which has not reached finality. 6. It is submitted that the Tribunal erred in setting aside the reduction of deduction under section 10B in respect of on-site software development work performed by the AEs of assessee outside India eventhough the ingredients of section 10B and its Explanation are not satisfied in the case of the assessee by following its earlier decision which has not reached finality. 7. It is submitted that the Tribunal erred in setting aside the recomputation of section 10B deduction by following the decision of this Hon'ble High Court in the case of CIT v/s Tata Elxsi and even when the recomputation done by the assessing authority is in accordance with the provisions of the Act. 8. It is submitted that the Tribunal erred in setting aside the disallowance of depreciation @ 60% on switches and routers amounting to Rs. 98,11,575/- by ....
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.... MPHASIS LTD., reported in (2020) 113 taxmann.com 74 (SC), 4. CIT vs. BSES YAMUNA POWERS LTD., reported in (2013) 40 taxmann.com 108 (Delhi), 5. CIT vs. D.CHETAN & CO. reported in (2016) 75 taxmann.com 300 (Bombay) and 6. CIT vs. WOODWARD GOVERNOR INDIA (P.) LTD., reported in (2009) 179 Taxman 326(SC). 11. Heard the learned counsel for the parties at length and perused the record. In respect of the first substantial question of law, the judgment delivered by the Delhi High Court in the case of CIT vs. BSES YAMUNA POWERS LTD., reported in (2013) 40 taxmann.com 108 (Delhi) has concluded the controversy. The Delhi High Court in paragraphs 5 and 6 of the aforesaid judgment has held as under:- "5. However, upon a perusal of the file, we find that the higher rate of depreciation was allowed both by the Commissioner of Income Tax (Appeals) ("CIT(A)") and the Tribunal. In fact, the Tribunal in its impugned order has observed as under :- "The issue involved in this appeal is covered by the decision of Coordinate Bench of the Tribunal as discussed below:- In the case of ITO vs. Samiran Majumdar (2006) 98 ITD 119 (Kol.), Income-tax Appe....
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....hat the loss arising out of the foreign exchange fluctuation on forward contract should be allowed as deduction. Paragraphs 6 and 7 of the judgment delivered by the Bombay High Court read as under: "6. Mr. Malhotra, learned Counsel appearing for the Revenue submits that this appeal had to be admitted as the impugned order has ignored its order in the case of S. Vinodkumar Diamonds Pvt. Ltd. v. Addl. CIT, (2013) 59 SOT 124/35 taxmann.com 337 (Mum.-Trib.) rendered on 3 May 2013 which on similar facts is in favour of the Revenue. He further submits that the impugned order of the Tribunal is suspect because it accepts the Respondent assessee's claim without calling upon it to prove that the same was not speculative. Lastly, he sought to place reliance upon Accounting Standard-11 to claim that such a loss is not allowable thereunder. 7. The impugned order of the Tribunal has, while upholding the finding of the CIT (Appeals), independently come to the conclusion that the transaction entered into by the Respondent assessee is not in the nature of speculative activities. Further the hedging transactions were entered into so as to cover variation in foreign exchange ra....
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....., (supra). In the above case, this court has held that forward contract in foreign exchange when incidental to carrying on business of cotton exporter and done to cover up losses on account of differences in foreign exchange valuations, would not be speculative activity but a business activity." In light of aforesaid judgment, this Court is of the opinion that the Tribunal was justified in setting aside the disallowance of foreign exchange loss on forward contract. 15. Learned counsel for the revenue has argued before this Court that such loss is a notional and contingent and has to be treated as speculative loss in terms of Section 43(5) of the Income tax Act. He has also argued before this Court that the Tribunal without examining the finding rendered by the assessing officer, has allowed the issue in favour of the assesseee by merely relying upon the judgment delivered in the case of M/s Kotak Mahendra Bank Ltd. 16. This Court has carefully gone through the entire record and the case of the assessee is that the loss is on account of the restatement of debtors and creditors, book liability etc., which was incurred on account of the forward contracts which include....
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....cording to the learned counsel, in the case of increase in liability due to foreign exchange fluctuations, if there is a revaluation of the rupee vis-a-vis foreign exchange at or prior to the point of payment, then there would be no question of money having gone irretrievably and consequently, the requirement of "expenditure" is not met. Consequently, the additional liability arising on account of fluctuation in the rate of foreign exchange was merely a contingent/notional liability which does not crystallize till payment. In that case, the Supreme Court was considering the meaning of the expression "expenditure incurred" while dealing with the question as to whether there was a distinction between the actual liability in presenti and a liability de futuro. The word "expenditure" is not defined in the 1961 Act. The word "expenditure" is, therefore, required to be understood in the context in which it is used. Section 37 enjoins that any expenditure not being expenditure of the nature described in Sections 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head "profits and gains of bus....
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....f business are to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. One more aspect needs to be highlighted. Under Section 28(i), one needs to decide the profits and gains of any business which is carried on by the assessee during the previous year. Therefore, one has to take into account stock-in-trade for determination of profits. The 1961 Act makes no provision with regard to valuation of stock. But the ordinary principle of commercial accounting requires that in the P&L account the value of the stock-in- trade at the beginning and at the end of the year should be entered at cost or market price, whichever is the lower. This is how business profits arising during the year needs to be computed. This is one more reason for reading Section 37(1) with Section 145. For valuing the closing stock at the end of a particular year, the value prevailing on the last date is relevant. This is because profits/loss is embedded in the closing stock. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to s....