TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 87
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....by him. The order so passed to the extent prejudicial to the appellant is bad in law and liable to be quashed. 2. Adjustment of loss and turnover (export turnover & total turnover) of loss making 10AA unit with the profit making 10AA units:- 2.1. The learned NFAC has erred in adjusting the loss and turnover of 10AA unit (Hubballi) amounting to Rs 4,18,33,747 and Rs. 17,94,717 respectively from the profit & turnover of 10AA-100% eligible units while computing deduction under section 10AA without specifying any reason in the show cause notice and order and the learned CIT(A) erred in confirming the same. 2.2. The learned CIT(A) has erred in relying on the Explanation to below subsection 1 of section 10AA without appreciating that the said Explanation is applicable only at the stage of allowing deduction under section 10AA from the total income and it is not applicable at the stage of computation of deduction under section 10AA in respect of profits of each SEZ unit. 2.3. On facts and circumstances of the case and law applicable, the losses and turnover of the loss making 10AA unit should not be adjusted with the profit making 10AA eligible units fo....
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....ntly under dispute with Australian tax authorities (ATO) amounting to Rs 154,36,96,035 (including Rs. 52,10,92,957 in relation to income on which deduction under section 10AA was claimed) once the dispute is settled 5. Levy of interest under section 234B: 5.1. The levy of interest under section 234B is bad in law and liable to be quashed. 6. Prayer: 6.1. Based on the above grounds and other grounds adduced at the time of hearing, the appellant prays that the order passed under section 250 to the extent prejudicial to the appellant be quashed or in alternative the above grounds and relief prayed thereof be allowed. The appellant prays accordingly." 3. The Revenue has raised the following grounds of appeal: - "1. The order of the learned CIT(A) is opposed to law and facts of the case. 2. The CIT(A) erred in directing the assessing authority to delete disallowance made under section 14A r.w. Rule 8D (iii) of ignoring that conditions for invoking said section are fully satisfied in instant case and CIT(A) has also ignored the circular No.5/2014, dated 11 February 2014 which has clarified that Rule 8D of the Rules read wi....
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....n was again revised on 30- 11-2020 with total income of Rs. 12461,51,45,390/- Thereafter, the case of the assessee company was selected for complete scrutiny assessment under the E-assessment Scheme,2019. Accordingly, statutory notices u/s 143(2) as well as 142(1) of the Act were issued. After considering the submissions of the assessee, submissions through video conference and also material available on record, the National Faceless Assessment Centre passed the assessment order under section 143(3) r.w.s. 144B of the Act dated 31.03.2022 assessing the total income of the assessee at Rs. 15744,99,67,454. 6. Aggrieved by the order of the Ld. AO dated 31/03/2022 passed u/s 143(3) of the Act, the assessee preferred an appeal before the ld. CIT(A)/NFAC. 7. The Ld. CIT(A)/NFAC partly allowed the appeal of the assessee vide order dated 05/10/2023. 8. Aggrieved by the order of the ld. CIT(A)/NFAC dated 05/10/2023, the assessee has filed the appeal in ITA No. 881/B/2023 & the Revenue has filed the appeal in ITA No. 245/B/2024 before this Tribunal. 9. First, we take up the appeal of the assessee in ITA No. 881/B/2023. 9.1. The issue raised by the assessee vide ground No.1 of ....
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....d in respect of profits of SEZ unit without setting off the losses of other units as per the ratio of the decision of the Supreme Court in the case of CIT v Yokogawa India Ltd [2017] 391 ITR 274. 9.6 The ld. DR however heavily relied on the order of the ld. CIT(A)/NFAC. 9.7 We have heard the rival submissions and perused the material on record. The Hon'ble Supreme Court in the case of CIT v Yokogawa India Ltd [2017] 391 ITR 274, inter alia, considered the followed question of law for adjudication. (IV) Whether losses of other 10A Units or non 10A Units can be set off against the profits of 10A Units before deductions under Section 10A are effected? The Hon'ble Supreme Court in the above decision held as under - "15. Sub-section 4 of Section 10A which provides for pro rata exemption, necessarily involving deduction of the profits arising out of domestic sales, is one instance of deduction provided by the amendment. Profits of an eligible unit pertaining to domestic sales would have to enter into the computation under the head "profits and gains from business" in Chapter IV and denied the benefit of deduction. The provisions of Sub-section 6 of Section 10A,....
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....ated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No. 794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression "total income of the assessee" in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in Section 10A as 'total income of the undertaking'....
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.... allowed from the total income of the assessee computed in accordance with the provisions of the Act before giving effect to the provisions of the section 10AA and the deduction under section 10AA in no case shall exceed the said total income. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years." 9.10 We are of the opinion that the above Explanation only addresses the allowability of deduction under section 10AA. It does not deal with the computation of deduction under section 10AA. The said Explanation states that the amount of deduction under section 10AA shall be allowed from the total income of the assessee computed in accordance with the provisions of the Act. It also states that deduction under section 10AA shall not exceed such total income. The above Explanation does not overrule the ratio of the decision of the Supreme court in Yokogawa's case that the deduction should be computed with reference to profits of each eligible units without setting off the losses of other units. Thus, the deduction under section 10AA is to be computed as per the decision of the Supreme C....
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.... section 10AA in respect of these incomes were justified by the assessee relying on the decision of full bench decision of the High Court of Karnataka in CIT v Hewlett Packard Global Soft Ltd [2017] 87 taxmann.com 182 and other similar decisions. In the computation of total income, these incomes were allocated to various units under section 10A & 10AA, based on the respective turnover. The AO is of the opinion that these decisions are not acceptable as are pending before the Supreme Court. It was held that merely because these incomes have been assessed as business income will not automatically confer the benefits of the particular deductions once there is a stipulation that such income should be derived from a particular source. It was held that the above incomes are only attributable to the business but are not derived from the activity of the software development and export. Accordingly, it was held by the AO that the above-mentioned incomes are to be excluded from the business profit for the purpose of deduction under section 10AA. 10.1 The CIT(A)/NFAC however followed the decision of this Tribunal in assessee's own case for AY 2014-15 and AY 2015-16 in ITA Nos 125 & 126/B/2....
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....such. It was held that these incomes do not constitute business income of the assessee and also do not have nexus with the business operations of the assessee. Accordingly, the said incomes were held to be not qualifying for a deduction under section 10AA. 10.7 Similarly, relying on the ITAT order in assessee's own case for AY 2014-15 and AY 2015-16, the CIT(A)/NFAC held that incentive from airlines and rental income from BSNL is not eligible for deduction under section 10AA. 10.8 Before us, the ld. AR of the assessee relied on the decision of the full bench of Karnataka High Court in the case of CIT v Hewlett Packard Global Soft Ltd [2017] 87 taxmann.com 182 which has been followed by the Hon'ble Karnataka High Court and this Tribunal in assessee's own case for AY 2014-15 & AY 2015-16, to justify the allowability of deduction under section 10AA in respect of the incomes which are held to be not eligible for deduction under section 10AA by the CIT(A)/NFAC. The statement of computation of total income for the AY under consideration was submitted and it was shown that all the above incomes were offered to tax as business income and not as income from other sources as held by th....
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....submitted the computation of total income of the assessee and drew our attention that all the incomes on which deduction under section 10AA of the Act was claimed was offered to tax as business income and not under the head income from other sources. From the computation of total income, the incomes offered under the head income from other sources are only guarantee income, dividend income and income from venture capital fund. Thus, it is evident that interest on NCDs, interest on loan to Subsidiaries, interest on debentures, interest on Govt securities, interest on tax refunds, insurance claim, incentive from airlines and rental income from BSNL are offered to tax under the head Profits and gains of business and not under the head Income from other sources. The AO has also assessed these incomes under the head Profits and gains of business or Profession. 10.10.3 The full bench of the Hon'ble Karnataka High Court in the case of CIT v Hewlett Packard Global Soft Ltd reported in [2017] 87 taxmann.com 182 held that the interest income from fixed deposits and staff loans are eligible for deduction under section 10A. It was held that section 10A and 10B are special provisions and com....
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....t be telescoped or imported in Section 10-A or 10-B of the Act. The words 'derived by an Undertaking' in Section 10-A or 10-B are different from 'derived from' employed in Section 80-HH etc. Therefore, all Profits and Gains of the Undertaking including the incidental income by way of interest on Bank Deposits or Staff loans would be entitled to 100% exemption or deduction under Section 10-A and 10-B of the Act. Such interest income arises in the ordinary course of export business of the Undertaking even though not as a direct result of export but from the Bank Deposits etc., and is therefore eligible for 100% deduction. 36. ....... 37. On the above legal position discussed by us, we are of the opinion that the Respondent assessee was entitled to 100% exemption or deduction under Section 10-A of the Act in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also interest earned by it from the staff loans and such interest income would not be taxable as 'Income from other Sources' under Section 56 of the Act. The incidental activity of parking of Surplus Funds with t....
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....es of incomes, the CIT(A)/NFAC was not right in disallowing deduction under section 10AA of the Act in respect of other categories of incomes like interest on NCDs, interest on debentures, interest on loan to Subsidiaries, interest on Govt securities, interest on tax refunds, insurance claim, incentive from airlines and rental income from BSNL. 10.10.5 Further, the decision of the full bench of the Hon'ble Karnataka High Court in the case of CIT v Hewlett Packard Global Soft Ltd [2017] 87 taxmann.com 182 was followed by the Karnataka High Court in assessee's own case for the AY 2005-06 in ITA No. 348, 349 of 2019 vide decision dated 22.11.2022 and deduction under section 10A of the Act was allowed in respect of rental income from Infosys BPO Ltd and BSNL Chennai. Similarly, the decision of this Tribunal in assessee's own case for the AY 2014-15 and AY 2015-16 has allowed deduction under section 10AA of the Act on interest and other incomes. 10.10.6 Further, the insurance claim received in respect of flood in Chennai during the FY 2016-17 and incentive from airlines are in the nature of abatement or reimbursement of expenses incurred by the SEZ units. Since these expenses are ....
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.....8.2023 was passed by the AO allowing FTC of Rs. 531,54,92,612 in the computation of tax. However, the foreign tax credit pertaining to incomes eligible for deduction under section 10AA was not allowed in the assessment order as well as rectification order. 11.2 The CIT(A)/NFAC instead of adjudicating the issue of allowability of foreign tax credit pertaining to incomes eligible for deduction under section 10AA, held that the said issue has been rectified under section 154 and accordingly dismissed the ground as infructuous. 11.3 The issue of allowability of foreign tax credit pertaining to incomes eligible for deduction under section 10AA has been decided in favour of the assessee by the judgment of Hon'ble Karnataka High Court in the case of Wipro Ltd v DCIT 382 ITR 179. The decision in Wipro's case was followed by the Hon'ble Karnataka High Court and by this Tribunal in assessee's own case for the earlier years and the foreign tax credit pertaining to 10AA income was allowed. Thus, the AO is directed to allow the foreign tax credit with respect to income on which deduction under section 10AA has been claimed as per the decision of the Karnataka High Court in Wipro Ltd v DC....
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....se of Onmobile Global Ltd. v ACIT [IT(TP)A Nos. 139 & 2560/Bang/2019 dated 10.08.2022]. 13.4 Respectfully, following the same, the additional ground of appeal in respect of the claim of deduction under section 37(1) of the Act in respect of foreign taxes paid amounting to Rs. 16,67,20,749 which is not eligible for relief under section 90 or 91 of the Act, is also remanded to the file of the AO for fresh examination and verification. The AO is directed to decide the said claim in the light of the decisions in the case of Reliance Infrastructure Ltd [2016] 76 taxmann.com 257 (Bom), Onmobile Global Ltd. v ACIT [IT(TP)A Nos. 139 & 2560/Bang/2019 dated 10.08.2022] which were followed in assessee's own case for the AY 2014-15 and AY 2015-16. Thus, the additional ground of appeal is allowed for statistical purposes. 14. The assessee's appeal in ITA No 881/B/2023 is allowed for statistical purposes. 15. Now we take up the revenue's appeal in ITA No. 245/B/2024. 15.1 At the outset, there is a delay of 70 days in filing the appeal by the Revenue. Perused the record and having heard the respective parties, it is perceived that the explanation offered in the condonation application....
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....submitted that the ld. CIT(A)/NFAC grossly erred in ignoring circular No. 5/2014, dated 11/02/2014 which has clarified that rule 8D of the rules read with section 14A of the Act provides for disallowance of expenditure even where taxpayer has not earned any exempt income in a particular year. The AR on the other hand relied on the order of the CIT(A)/NFAC and the decision in assessee's own case for the earlier years. It was also submitted that the impugned finding in the assessment order that management and administrative expenses towards earning exempt income are not allocated is factually incorrect since the assessee has voluntarily disallowed the salary costs of CFO & Deputy CFO, SVP-Global Head - Taxation and other employees. 16.5 We have considered the rival contentions and perused the material on record. We take a note of the fact that the AO has only stated that the assessee company has failed to allocate management and administrative expenses towards earning of the exempt dividend income and therefore there is no fault with for applying rule 8D. However, no justification has been given by the AO as to how and why the voluntary disallowance made by the assessee under sect....
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.... the claim of the assessee. Therefore the disallowance made under section 14A r.w.r 8D(2)(iii) is deleted. This ground is allowed in favour of the assessee." 16.6 The AO in the present case has failed to satisfy the requirements of section 14A(2) before applying the computation mechanism as per rule 8D. The generic statement in the assessment order that the assessee company has failed to allocate management and administrative expenses towards earning of the exempt dividend income is factually incorrect as the salary expenses of CFO & Deputy CFO, SVP-Global Head - Taxation and corporate accounting, Treasury Head and other employees have been disallowed and further the AO has not given any finding as to what are the management and administrative expenses incurred by the assessee company to earn the exempt income. Thus, respectfully following the decision of this Tribunal in assessee's own case for AY 2014-15 and AY 2015-16 in ITA Nos 125, 136, 226 and 227/Bang/2019 decision dated 31.1.2023, we uphold the order of CIT(A)/NFAC in deleting the disallowance under section 14A rws 8D. Accordingly the Ground No 2 as raised by the Revenue is dismissed. 17. The Ground No 3 deals with di....
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.... This issue came for consideration before this Tribunal in assessee's own case in earlier assessment year in ITA No.718/Bang/2017 dated 28.11.2022 for the assessment year 2012-13 wherein it was held as under: 12.8 We have perused the submissions advanced by both sides in the light of records placed before us. We note that Coordinate Bench in case of the sister concerns of assessee(supra), considered identical issue on similar facts. Nothing has been brought on record by the revenue to the expenses incurred by the assessee is towards any capital asset. Respectfully following the same, we direct the disallowance to be deleted." 36. Considering that there is no change in the facts, circumstances and nature of brand building expenses incurred during the year under consideration as compared to the earlier years, we respectfully follow the decision of the coordinate bench and hold that the brand building expenditure incurred during the year should be allowed and the addition is deleted accordingly. This ground is allowed." 17.5 As there is no change in facts and circumstances of the present claim as compared to earlier years, We respectfully following the above decis....
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....ded that merely because the MSAs are entered into prior to formation of SEZs, deduction claimed under section 10AA of the Act cannot be disallowed. The relief allowed by the CIT(A)/NFAC for these years was not challenged by the revenue before the ITAT. For AY 2010-11 to AY 2012-13, the DRP did not allow the said relief and the assessee company challenged the disallowance before this Tribunal for these years. The Tribunal for AY 2012-13 in IT(TP)A No 718/B/2017 dated 28.11.2022 in assessee's own case held as under- "6.15. We have referred to the observations by the Ld.CIT(A) for assessment years 2007-08 to 2009-10 wherein there is a categorical finding that these units have not been formed by splitting up or restructuring. This observation has not been challenged by the revenue in appeals filed in ITA No.1557/B/2017 for AY 2007-18, ITA No.1849/B/17 for AY:2008-09 and ITA No.1848/B/2017 for AY: 2009-10. And thus this issue has attained finality. For sake of convenience, we reproduce the relevant observation by the Ld CIT(A) has been tabulated by the Ld.AR. We therefore direct the Ld.AO to grant the deduction claimed by the assessee in respect of the Chennai SEZ Unit I, Chand....
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....2,63,75,000 was disallowed. 19.1 The CIT(A)/NFAC followed the decision of this Tribunal in assessee's own case for AY 2014-15 and AY 2015-16 in ITA Nos 125, 136, 226 and 227/Bang/2019 decision dated 31.1.2023 and directed the AO to follow the same. Relevant extracts from the above decision are as under "99. We notice that the coordinate bench of Tribunal in the case of M/s Goldman Sachs Services Pvt. Ltd. v JCIT [IT(TP)A No.2355/Bang/2019 dated 15.06.2020 has considered a similar issue where it is held that - Whereas, the assessee company has made a claim for deduction of CSR expenses u/s. 80G of the Income Tax Act, 1961. But the assessing officer has rejected the assesses claim without verifying the nature of contributions and observed that it is not a donation, and was not spent voluntarily for the eligibility of claim u/s. 80G of the Act but due to legal obligation prescribed u/s. 135 r.w. Schedule VII of Companies Act, 2013. We find that the A.O has allowed deduction u/s. 80G of the Act in respect of contribution made to PM Relief Fund which is not disputed. We are of the opinion that the A.O. has not made his observations clear that no CSR expenses are eli....
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....ing Income under the head, "Income from Business and Profession". It has been submitted that some payments forming part of CSR were claimed as deduction under section 80G of the Act, for computing "Total taxable income", which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, it would lead to double disallowance, which is not the intention of Legislature." 101. In assessee's case the reason for denying the deduction u/s. 80G is that the deduction is not available for donations which are part of CSR expenditure. The CIT(A) while upholding the order of the AO stated that the CSR spend is not voluntary and therefore cannot be treated as donation. In our view, the assessee's case is therefore covered by the decision of the coordinate bench in the case of Goldman Sachs Services Pvt. Ltd (supra) and respectfully following the same we remit this issue back to the AO for verification of CSR spends in the light of the said decision. The AO is also directed to consider ....
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....d the AO to compute the said amount after verification of facts of the case. Thus, there is no infirmity in the order of the CIT(A)/NFAC on this issue. Ground No 6 as raised by the Revenue is also dismissed. 21. In the ground No 7 of revenue's appeal, the Revenue contended that the CIT(A)/NFAC erred in considering the amount of Rs. 10,78,69,095/- as deemed income u/s 32AC in the present year without considering the fact that in the assessee's own case. C1T(A) and ITAT had upheld the addition made u/s 32AC for AY 2013-14, 2014-15 and 2015-16. The brief facts of the case are as under- During the year under consideration, the assessee offered Rs. 10,78,69,095/- as deemed income u/s 32AC while computing the income chargeable under the head "profits and gain of business or profession". This income was in relation to deduction claimed u/s 32AC of the Act for the new assets acquired and installed in the earlier years but subsequently sold/transferred within a period of 5 years from the date of its installation in terms of subsection 2 of section 32AC of the Act. The assessee had acquired and installed the certain new assets during AY 2014-15, AY 2015-16, AY 2016-17 & AY 2017-....