TaxTMI 
TaxTMI 
TaxTMI 
2022 (5) TMI 1030
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.... order and also supported the issues which have gone in assessee's favor. The Ld. CIT-DR also advanced argument and took contrary position. The Ld. CIT-DR also filed written submissions which have duly been considered. The Ld. Ld. CIT-DR submitted that disallowance u/s 40(a)(i) could not be considered as income derived from export and therefore, deduction u/s 10A and 10AA would not be available against the same. The Ld. CIT-DR submitted that post 2001, these provisions are deduction provisions. The stage of deduction u/s 10A is while computing gross total income of eligible undertaking under Chapter IV of the Act and not at stage of computation of total income under Chapter VI of the Act. The provisions of Sec.40(a)(i) would apply only when income under the head is to be computed. Thus, the stage of deduction u/s 10A is anterior to stage at which Sec.40(a)(i) disallowance is to be made. The arguments have also been made assailing setting-off of losses. On the contrary, Ld. AR controvert the same and relied on the decision of Hon'ble Bombay High Court in Pr. CIT V/s BMC Software India (P.) Ltd. (109 Taxmann.com 277; 10/12/2018; AY 2006-07) wherein Hon'ble Court held the issue in ass....
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.... CIT(A) erred in allowing the claim of the assessee to set off the loss of STPI unit against business income. She ought to have followed the decision of Delhi High Court in CIT Vs Ket Industries Ltd. (118 DTR 306). 4. The assessee being resident corporate assessee is stated to be engaged in Business Process Outsourcing (BPO), IT enabled services and Software development. The return, though scrutinized u/s 143(3), was reopened to make various adjustments and disallowances which form subject matter of cross-appeal before us. Out adjudication would be as under: - 5. Business Development Commission 5.1 The assessee paid Business Development Commission (BDC) of Rs.2241.69 Lacs to its US based Associated Enterprises (AE). However, no tax at source (TDS) was deducted on the same. Though corresponding disallowance u/s 40(a)(i) (wrongly referred to as 40(a)(ia) in the orders of lower authorities) was already made in assessment u/s 143(3), however, the same was included in deduction u/s 10A and 10AA consequently increasing the deductions. The disallowance u/s 40(a)(i) could not be said to be income derived from the export of software. Since as per CBDT Circular No.7/2009, the BDC would be....
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....ere to be reduced from export turnover, the same should also be excluded from total turnover also. However, Ld. AO opined that the provisions of Sec.10A (3) provide that export proceeds should be brought back within a period of 6 months or within such time as RBI may allow. The master circular only speaks about write-off of outstanding dues whereas 10A (3) only refers to RBI for the purpose of time limit only. Therefore, the provisions could not be considered as part of export turnover. Further, the same were not to be excluded from total turnover as pleaded by the assessee. Accordingly, deduction u/s 10A was recomputed and an amount of Rs.269.51 Lacs was added to the income of the assessee. 6.2 During appellate proceeding, the assessee reiterated that the provision was only 2.5% of the turnover. If the provisions are reduced from export turnover, then the same should be reduced from total turnover as well as held by Hon'ble Supreme Court in the case of CIT V/s Lakshmi Machine Works (290 ITR 667) as well as CIT V/s Catapharma India P. Ltd (292 ITR 641). The decision of special bench of Chennai Tribunal in ITO V/s Saksoft Ltd. (30 SOT 55) was also referred which upheld the doctrine....
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....appeals for AY 2008-09 stand dismissed in terms of our above order. Cross-Appeals for AY 2009-10 8. The assessment for this year has been farmed u/s 143(3) r.w.s. 92CA(4) on 30.03.2013.The Ld. CIT(A) has partly allowed the appeal vide order dated 01.03.2016 against which the assessee as well as the revenue is in further appeal before us. The sole disallowance made in the assessment order is disallowance of Business Development Commission (BDC) for Rs.2455.98 Lacs for want of TDS compliance. The Ld. CIT(A), though upheld the disallowance, directed Ld. AO to allow deduction u/s 10A and 10AA. Considering appellate order dated 03.02.2014 for AYs 2011-12 & 2012-13 which has attained finality and in view the decision of Hon'ble High Court of Madras in TCA No.32 of 2019 for AY 2008-09 dated 23.09.2020, we would hold that the aforesaid payments would not require any TDS and therefore, no disallowance u/s 40(a)(i) would be attracted in the hands of the assessee. Accordingly, the assessee's appeal stand allowed whereas the revenue's appeal stand dismissed as infructuous. Cross-Appeals for AY 2010-11 9. The assessment for this year has been framed u/s 143(3) r.w.s. 92CA(4) on 30.03.2014. ....
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....ds raised by the revenue. 12. Additional Ground of Assessee's Appeal 12.1 The assessee has raised an additional ground in this appeal wherein the assessee seeks exclusion of unrealized debtors from total turnover for the purpose of computing deduction u/s 10A. We admit the additional ground. Facts qua the issue are that STP-1 Unit could not realize debtors of Rs.15.18 Lacs within the prescribed time limit. Accordingly, Ld. AO excluded the same from export turnover. The assessee sought exclusion of the same from total turnover which was denied. During appellate proceedings, the assessee submitted that the realization was made within the extended time limit. However, no evidence could be produced. Therefore, the action of Ld. AO was confirmed against which the assessee has raised additional ground of appeal wherein the assessee seeks exclusion of unrealized debtors from total turnover for the purpose of computing deduction u/s 10A. 12.2 The Ld. CIT-DR has submitted that the case law of Hon'ble Supreme Court in CIT V/s HCL Technologies Ltd. (404 ITR 719) would not be applicable since that decision was related to expenditure in the nature of freight, telecommunication, insurance exp....
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.... of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the 19 Respondent which could have never been the intention of the legislature. 20) Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover 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.' 22. Learned Counsel for the Revenue seeks to distinguish the above judgment stating that the rationale thereof ....
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....ed finality and in view the decision of Hon'ble High Court of Madras in TCA No.32 of 2019 for AY 2008-09 dated 23.09.2020, we would hold that the aforesaid payments would not require any TDS and therefore, the disallowance u/s 40(a)(i) was not attracted in the hands of the assessee. Ground Nos.1 & 2 of assessee's appeal stand allowed which render Ground No.3 infructuous. 15. Computation of Export Turnover for the purpose of Sec.10A and Sec.10AA 15.1 The assessee claimed deduction u/s 10A and 10AA for 9 units. Six of the units were in SEZ eligible for Sec.10AA whereas 3 were STPI units which were eligible for deduction u/s 10A. The Ld. AO reduced deduction by Rs.389.88 Lacs by excluding expenditure in foreign currency from export turnover. These expenses were in the nature of travel, connectivity charges, management fees, business development commissions, sales and marketing expenses, software maintenance expenses and other expenses in foreign currency amounting to Rs.8674.49 Lacs. These expenses were held to be part and parcel of expenses incurred to deliver the software outside India. The plea of the assessee that these items should be excluded from total turnover was rejected. ....