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2017 (5) TMI 9 - ITAT HYDERABADAddition u/s 40(a)(ia) - tax withheld with respect to purchase of software from foreign sellers - addition under the head ‘software purchases’ - Held that:- CIT(A) had correctly came to the conclusion that income from overseas operations cannot be brought to tax in India and to that extent, supported by various case law, he has rightly concluded that profits earned by the USA branch cannot be brought to tax in India. We affirm the order to that extent. The claim of purchases to an extent of ₹ 49,83,08,802/- made in the branch accounts are not covered by the provisions of TDS as the transactions occurred overseas. Even with reference to the software purchases, claims made with reference to exports from India, it was submitted by Ld. Counsel that they are not covered by the provisions of TDS. Even though various case law relied that the software purchases that it does not amount to royalty, we are not adjudicating that issue on the simple reason that there are no outstanding payments ( payble) at the end of the year to be disallowed u/s. 40(a)(ia). If the issue is considered u/s. 201, then a finding is required whether the amounts paid are covered by TDS provisions or not? Since the disallowance made was under the provisions of Section 40(a)(ia), following the Special Bench decision in the case of Merilyn Shipping and Transport Ltd., Vs. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ), we are of the opinion that since there is no outstanding payable at the end of the year, provisions of Section 40(a)(ia) are not attracted. To that extent, order of the CIT(A) gets affirmed and Revenue grounds on this issue are to be dismissed. Estimation of income and allowance of deduction u/s. 10A - Held that:- As can be seen from the order of the AO, there is no dispute with reference to claim of 10A. In fact, AO has re-worked out the profit and allowed the deduction more than what assessee has claimed by way of his own working by taking a less export turnover and more profit. There is no dispute with reference to the fact that assessee is eligible for a deduction u/s. 10A. Therefore, order of the CIT(A) that deduction u/s 10A is not to be allowed has no basis. As seen from the record also, there is no such admission by assessee that he will not claim 10A deduction. Therefore, assessee’s grounds to that extent are allowed. To that extent, order of the CIT(A) gets modified. Estimation of income u/s. 10A, assessee himself has accepted the estimation of income by rejecting the books of account. Assessee admitted for estimation up to 6%, whereas Ld.CIT(A) without any basis, has estimated the income at 10%. Whether it is 3% or 6% or 10%, the same does not matter as the entire income get exempted u/s. 10A. In view of that, we do not intend to estimate the profit at any particular rate. Since Ld. CIT(A) has already, rather arbitrarily, fixed the rate at 10%, we are of the opinion that the estimation of income at 10% can be resorted to only on the software exports from India of ₹ 20,80,35,745/-. Income offered under MAT provisions - Held that:- Subject to satisfying the AO with reference to the export proceeds received into India, the AO is directed to estimate the income only on the export turnover from India at 10% and allow the deduction u/s. 10A as applicable as per the provisions of the Act. In case the total income determined becomes less than the income offered the income under the MAT provisions, AO is directed to accept the income offered under MAT provisions by assessee at ₹ 1,27,55,690/-. Subject to the above observations, assessee’s grounds are considered allowed partially. Unexplained cash credits - Held that:- The principle is established that AO has power to bring to tax unexplained cash credits as income from other sources provided they are not connected to business activity/business income. In view of that, the order of the CIT(A) to that extent is not justifiable. However, it is the contention of assessee that necessary evidence for proving the genuineness of the credits were already furnished before the AO which are not verified/accepted. In view of that we are of the opinion that in principle while accepting that income from other sources can be brought to tax by way of unexplained cash credits, the issue is restored to the file of the AO to examine the cash credits separately and give due findings whether they are explained cash credits or unexplained cash credits. Assessee is directed to furnish necessary evidence and cooperate with the AO in making necessary enquiries
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