TaxTMI 
TaxTMI 
2022 (11) TMI 1316
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....andis for the years under consideration. For the sake of convenience and to put in summary manner, we are only referring to the relevant paragraphs wherein these issues have be considered and decided in the order dated 28/11/2022. A.Y. Ground No. Issue Contested in the Appeals Covered by Paras of A.Y. 2012-13 2010-11 2011-12 15 to 18 2 to 6 Denial of deduction claimed under section 10AA totally amounting to 1472,93,64,010 in respect of 4 SEZ units viz., Chennai - Unit 1, Chandigarh, Mangalore - Unit 1 and Pune Unit 1. Losses of Trivendrum SEZ unit amounting to Rs. 1,52,56,742 was not set off against other taxable income Erred in concluding that the 5 SEZ units have been formed by splitting up and reconstitution of an already existing business Deduction claimed u/s 10AA amounting to Rs.1920,38,02,954 in respect of profits of 5 SEZ units was denied. Erred in denying deduction in respect of profit of Trivandrum SEZ Unit - 1 and not giving effect to Hon'ble DRP directions. Erred in concluding that 5 SEZ units have been formed by splitting up and reconstruction of an already existing business and hence these SEZ units are not eligible for deduct....
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....lternative claim if at all needs to be considered, the directions in para 11.6 has to be followed. Both revenue and assessee's appeals allowed for statistical purposes. 2007-08 2008-09 2009-10 2010-11 2011-12 2011-12 11 13 13 10 15 16, 17 Disallowance of 'brand building expenditure' Percentage of total business revenues of 10A, 10AA(50%) and 10AA(100%) units wrongly computed by including other business income having no element of turnover and rounding off the said % to whole number instead of absolute % at two decimal points). Consequential wrong allocation of disallowances Ground no. 25 Paras 12 - 12.8 The issue is allowed in favour of assessee by following the decision of Coordinate Bench of this Tribunal in case of Infosys BPO Ltd v DCIT in ITA No. 1367/Bang/2014 by order dated 27.09.2019 referred to in para 12.5 2007-08 2008-09 2009-10 2010-11 2011-12 12 14 14 4 (Dept. Appeal) 7 (Dept. Appeal) Disallowance of Commission paid to non resident agents Ground no. 26 Paras 13.1 - 13.11 The issue is remanded to the Ld.AO to verify the claims in accordance with the direction....
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....n under section 10A and 10AA as per the decision of the Jurisdictional High Court in the case of Wipro Ltd v DCIT[2016] 382 ITR 179 (Karnataka) Foreign tax credit and incremental deduction state tax paid claimed during the course of assessment not allowed Ground no. 54 Paras 23 to 23.6 The issue has been remanded to the Ld.AO to verify the FTC paid and to allow the claim u/s. 90 of the Act. Relied on Hon'ble Karnataka High Court in case of Wipro Ltd. vs. DCIT reported in 382 ITR 179. 2007-08 2008-09 2009-10 30 36 36 Deduction for taxes paid to Local municipal authorities in Japan and Italian regional production tax paid in Italy which was not in the nature of 'Income tax' Ground nos. 55-57, was not pressed by assessee for A.Y. 2012-13. 2010-11 2011-12 19 22 TDS credit Ground no. 53 Para 22.1. Remanded to the Ld.AO for verification and consideration in accordance with law. 2007-08 2008-09 2009-10 2010-11 2011-12 32 38 38 20 31 Interest levied under section 234B and 234D Consequential in nature. We have already tabulated hereinabove the issues that stands covered by the observations of the decision....
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....rnataka High Court in case of CIT v Mac Charles (India) Ltd reported in [2015] 233 Taxman 177 (Karnataka), wherein Hon'ble High Court held that, expenditure incurred on replacing flooring, false roofing, furniture, carpets and refurbishing of hotel rooms in tune with international standards without addition of extra floor space or extra room capacity was allowable as revenue expenditure. The Ld.AR thus submitted that in the present case also, the expenditure did not result in increase in the capacity or extra building space. He also submitted that the expenditure was not capable of enhancing the future benefits from the existing asset (buildings) beyond its previously assessed standard of performance. The Ld.AR submitted that the DRP gave factual observation that building repair expenses has been incurred in respect of existing assets and there is no change in facts and circumstances over the years. It is submitted that the disallowance is made only from AY 2007-08 to 2009-10 by the Ld.AO and for A.Ys. 2010-11 and 2011-12 the revenue is in appeal. The Ld.AR also submitted that for A.Y. 2012-13, the revenue has not preferred any appeal on this issue. 4.4 The Ld.DR relied on the o....
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....ition of Axon Group Plc. The appellant had incurred expenditure of Rs. 14,93,61,022/- towards the proposed acquisition, advisory, due diligence, legal charges etc. Excess of inducement fees received over expenditure incurred amounted to Rs. 17,55,37,820/- [32,48,98,842 less 14,93,61,022] and the same was treated as 'capital receipt' by the assessee and consequently the said sum was not offered to tax. During the assessment proceedings, the assessee was called upon by the Ld.AO to justify as to why the above sum of Rs.17,55,37,820/- is not chargeable to tax. The assessee, vide submissions dated 28.1.2013 explained in detail as to why the above net surplus of Rs. 17,55,37,820/- is a capital receipt and not chargeable to tax. It was explained that expenditure incurred on proposed acquisition was also not claimed as deduction and the said expenditure has been set off against the inducement fees received. 5.2 The Ld.AO considered the net surplus of Rs. 17,55,37,820/- as revenue receipt and assessed the same to tax. The Ld.AO was of the view that the assessee has been claiming expenditure on expansion of business, mergers and acquisitions as revenue in nature for the earlier years and....
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....ed, the entire purchase price and incidental expenses would have been considered as investment in the books of the assessee. Accordingly, the amount received as inducement fees also was also a capital receipt. The incidental expenditure related to the acquisition transaction was also not claimed as revenue expenditure but adjusted against the inducement fees received and the net amount only was considered as capital receipt. 5.6 On the contrary, the Ld.DR submitted that the excess of expenditure incurred by assessee being Rs.14,93,61,022/- and the amount received by assessee from Axon being Rs.32,48,98,842/- is Rs.17,55,37,820/-. He submitted that this amount is in the nature of compensation received by assessee for the proposed acquisition that could not be concluded. He submitted that had this amalgamation to happen, assessee would have been enriched with a profit making apparatus that would have boosted the business structure of assessee. He thus supported the disallowance made by the Ld.AO. 5.7 We have perused the submissions advanced by both sides in the light of records placed before us. The assessee was in the process of acquiring Axon Group Plc, an IT service compa....
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....unless the same is hedged by the entity through hedging techniques like Forward Contracts, Currency Invoicing etc. The risk associated with such transactions may result into either Exchange Gain or Exchange Loss. The exchange fluctuations which are related to acquisition, installation, disposition of any capital asset, such fluctuations are only to be treated as Capital in nature. 6.2 The foreign exchange loss is due to the reinstatement of the accounts at the end of the financial year as well as loss incurred on account of exchange fluctuation on repayment of borrowings is similar to the interest expenditure and it is to be allowed as revenue expenditure u/s 37 of the I.T.Act, as per the accounting standard approved by the Institute of Chartered Accountants of India. 6.3 This issue is no longer res integra. Hon'ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. reported in (2009) 312 ITR 254 has held that, the actual payment was not a condition precedent for making adjustment in respect of foreign currency transactions at the end of the closing year. 6.4 We also draw support from the decision of Hon'ble Mumbai Special Bench decision in case of DCIT....
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.... with ordinary principles of commercial accounting, unless such principles stand superseded or modified by legislative enactments, unrealized profits in the shape of appreciated value of goods remaining unsold at the end of the accounting year and carried over to the following year's account in a continuing business are not brought to the charge as a matter of practice, though, as stated above, loss due to fall in the price below cost is allowed even though such loss has not been realized actually." Ld CIT D.R.'s submission is that this decision is with reference to monetary items as referred to in AS-11 and since forward foreign exchange contracts do not come within the monetary items, therefore, the said decision cannot be applied. However, we have already discussed in the concept of recognition of various events in financial statements and have noted that the assessee , in fact, has recorded net effect in its profit and loss account. Therefore, on this count, the department's plea cannot be accepted. Thus, in view of the decision of the Supreme Court in the case of Chellapali Sugar Mills (supra), and also in view of decision of the the Hon'ble Supreme Co....
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....e help to the department inasmuch as the same has been rendered with reference to contract for purchase of raw material. The contracted price was more than the market price as the price went down and the material had not been received at the end of the accounting year. Under these facts, the Hon'ble High court held that notional loss claimed by the assessee on the balance sheet date was not allowable because there was merely the contract to purchase the material at a future date. Neither any payment was made by the assessee nor any material was received. This case, in our opinion, cannot be applied to the facts of the present case as in the present case, we are concerned about the anticipated loss booked by the assessee on account of foreign exchange rate fluctuation as on balance sheet date, which was in accordance with RBI guidelines as well as in accordance with AS-11. Moreover, a binding obligation arose the minute the contract was entered into. However, now the decision of the Hon'ble Supreme Court in the case of Woodward Governor India P. ltd (supra) covers the issue on account of variation in foreign exchange rate with reference to current assets. The facts in the ca....
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....(supra), which decision has been considered in detail by the Hon'ble Delhi High Court in the case of Woodward Governor India (P)Ltd (supra), wherein, it has been observed as under:- "The revenue relied upon the decision of the Calcutta High Court in Bestobell (India) Ltd.,(1979) 117 ITR 789 in support of the submission that the increased liability on repayment of a loan borrowed in foreign exchange for business purposes as a result of exchange rate fluctuation would be a capital loss and not a trading loss. What weighed with the Calcutta High Court there appears to be that there was no outflow of funds during the year, as has been urged by the revenue before us. However, a closer scrutiny of the said decision indicates that the Calcutta High Court in this case relied upon its earlier judgement in Sutlej Cottons Mills Ltd v CIT (1971) 81 ITR 641. It will be recalled that the Hon'ble Supreme Court in Sutlej Cotton Mills Ltd v CIT(1979) 116 ITR 1 reversed the aforesaid decision of the Calcutta High Court on this point and held that such liability would be treated as a trading loss. In that view of the matter, the reliance placed by the revenue on the judgement of the ....
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....alance sheet date is determinable with reasonable certainity. The considerations for accounting the income are entirely on different footing. v) As per AS-11, when the transaction is not settled in the same accounting period as that in which it occurred, the exchange difference arises over more than one accounting period. vi) The forward foreign exchange contracts have all the trappings of stock- in-trade. vii) In view of the decision of Hon'ble Supreme Court in the case of Woodward Governor India (I) P.Ltd., the assessee's claim is allowable. viii) In the ultimate analysis, there is no revenue effect and it is only the timing of taxation of loss/profit. 59. We, accordingly, hold that where a forward contract is entered into by the assessee to sell the foreign currency at an agreed price at a future date falling beyond the last date of accounting period, the loss is incurred to the assessee on account of evaluation of the contract on the last date of the accounting period i.e. before the date of maturity of the forward contract." 6.5 We direct the Ld.AO to carry out necessary verification in respect of the loss /gain incurred by the as....
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....t Authority under FEMA can be said to be the approval granted by the Competent Authority under section 10A(3) of the Income-tax Act, 1961. This issue has been addressed by the Hon'ble Bombay High Court in case of Mogan Stanley( supra) by observing and held as under: Explanation 1 to section 10A(3 ) clearly provides that the expression 'competent authority' in section 10A means the RBI or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange. Admittedly, RBI is the competent authority under the FEMA which regulates the payments and dealings in foreign exchange. Thus, what section 10A(3) provides is that the benefits under section 10A(1) would be available if the export proceeds are realized within the time prescribed by the competent authority under the FEMA. In the instant case, the competent authority under the FEMA, namely, the RBI has granted approval in respect of the export proceeds realised by the assessee till December, 2004. Therefore, the approval granted by RBI under the FEMA would meet the requirements of section 10A. In other words, once the competent authority under the ....
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....he revenue is not doubting the origin of the rental income because the disallowance was made by the Ld.AO based on the turnover of these units. At the outset however, the Ld.AR submitted that this issue has been considered by Coordinate Bench of this Tribunal for A.Y. 2005-06 in assessee's own case in IT(TP)A No. 102/Bang/2013. This Tribunal vide order dated 10/11/2017 considered the issue by observing as under: "30. Ground No.9. 30.1 In this ground (supra), Revenue assails the order of the learned CIT (Appeals) in allowing the assessee's claim for inclusion of rental income from Infosys BPO Ltd. and BSNL, Chennai as profits of the business in computing deduction under Section 10A of the Act, when these incomes were not derived from the export of computer software. 30.2 In the order of assessment, the Assessing Officer held that the aforesaid rental income from Infosys BPO Limited and BSNL, Chennai cannot be regarded as income derived from the business of export of software. On appeal, before the learned CIT (Appeals), it was submitted by the assessee that inter alia, the rental income received from its subsidiary, Infosys BPO Limited, was incidental ....
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....ss expenses', as against the 'expenses incurred'. The assessee has received a sum of Rs.17,27,385/- as rent receipt for the relevant period. Assessee is not the owner of the said premises. Assessee is carrying on the business of development of Software in Canada. The said premises was taken for the aforesaid business purpose. As a portion of the said premises was not used for business purpose, instead of keeping it vacant and suffering loss, it was rented out. Therefore, the said income derived from lease of the said premises constitutes "income from business". Neither it would be 'income from house property' nor 'income from other sources'. In view of the explanation used in sub Section (4) of Section 10A of the Act for the purpose of Sub section 1, the profit derived from export of articles or things or computer software shall be the amount which bears to the profits of business of the undertaking. Though the said profits are not derived from export of articles or things or computer software, by virtue of sub Section (4) it is deemed to be the profits of the business of the undertaking for the purpose of extending the benefit of exemption of payment of tax under Section 10A of th....
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....mitted that the Ld.AO added the 14A disallowance while computing the book profits of the assessee. The Ld.AR further submitted that the disallowance was made towards 10AA deduction was also added to the book profits while computing 115JB. 9.3 It is submitted that no reasons have been given in the assessment order as to why additions are made. On an appeal before the Ld.CIT(A), the taxable income was determined under the normal provisions of the Act. Therefore, the CIT(A) held that the present issue relating to computation of income under the MAT provisions has become academic and the issue does not require any specific adjudication. 9.4 Before us the Ld.AR submitted that the computation of book profits under section 115JB is dealt by Expl. 1 to section 115JB. The computation of book profit starts with net profit as per Profit and loss account. He submitted that the explanation provides for certain additions and deletions in computing the book profits. Subsection 6 of section 115JB provides that the provisions of this section shall not apply to the income accrued or arising on or after the 1st day of April, 2005 from any business carried on, or services rendered, by an entrepr....
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....BANCS 2000 which was remodelled and renamed as "Finacle". The Ld.AO noted that the license fee received by the assessee from overseas was entirely claimed as deduction u/s. 10A pertaining to Infosys STP-II at Electronic City, Bangalore. While computing the deduction u/s. 10A, the Ld.AO invoked the provisions of section 80IA(8) r.w.s. 10A(7) and only allowed 50% of the license fee received from overseas for the purposes of profits of 10A unit. 10.3 Before the Ld.CIT(A), assessee filed various details to establish the difference between the two software and that the Finacle software was totally different and the observations of the Ld.AO that it was remodel of BANCS 2000 is factually incorrect. The Ld.CIT(A) from various submissions of assessee on the technical aspects of this software, observed that assessee has been continuously upgrading its banking software products and therefore he upheld the action of the Ld.AO in attributing only 50% of total revenue towards the earning of license fee. Before the Ld.CIT(A), assessee had also claimed that Ld.AO only reduced the said amount of 50% from the profits of the 10A in respect of reducing the same from export turnover of the unit. Th....