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2016 (11) TMI 1635 - AT - Income TaxDisallowance of consultancy charges paid - assessee has paid consultancy charges to M/s. I.T. Lokam Services India Pvt. Ltd., which is a subsidiary company of the assessee - A.O. disallowed consultancy charges for the reason that the assessee has failed to prove the nexus between consultancy charges paid to M/s. I.T. Lokam Services India Pvt. Ltd. and generation of revenue - HELD THAT:- On perusal of the income tax returns filed by M/s. I.T. Lokam Services India Pvt. Ltd., the major source of revenue for the company is from consultancy charges received from the assessee. The recipient also paid more than 50% of consultancy charges as salary to its employees duly deducting tax at source wherever applicable, the proof of which has been furnished. On perusal of all these documents furnished by the assessee, it was clear that the consultancy charges paid by the assessee is genuine and also the assessee has proved the necessity of incurring such consultancy charges in relation to its works executed to M/s. IBM India Pvt. Ltd. Even for some time, if we assume that the payments are fictitious and unproved, it will lead to wrong calculation of margins earned by the assessee that if the consultancy charges incurred by the assessee are added to the margins returned by the assessee for these assessment years, the net margin would go up to 51% which is quite contrary to the industrial average declared by the NASCOM. Therefore, we are of the considered view that the A.O. was erred in disallowing consultancy charges paid by the assessee. Consultancy charges paid by the assessee to M/s. I.T. Lokam Services India Pvt. Ltd. is having nexus between earning of income. The assessee has proved beyond doubt with necessary supporting documents that it has incurred consultancy charges wholly and exclusively for the purpose of business. CIT(A), without appreciating the facts, simply confirmed the additions made by the A.O. by holding that the impugned expenses have not been proved to be incurred wholly and exclusively for the purpose of assessee’s business. Therefore, we set aside order passed by the CIT(A) and direct the A.O. to allow consultancy charges paid by the assessee for the assessment years 2009-10 to 2011-12. Disallowance of employees contribution to provident fund - addition u/s 2(24)(x) r.w.s. 36(1)(va) - contribution deposited on or before the due date of furnishing return of income u/s 139(1) - HELD THAT:- We find that the coordinate bench of this Tribunal, in the case of Eastern Power Distribution Company of AP Limited [2016 (9) TMI 1040 - ITAT VISAKHAPATNAM] has considered similar issue and held that if employees contribution to provident fund is paid on or before the due date of furnishing return of income u/s 139(1) of the Act, then no disallowance can be made. If employees contribution to provident fund is paid within the due date specified u/s 139(1) of the Act, then no disallowance can be made towards employees contribution to provident fund. Therefore, we direct the A.O. to allow contribution to provident fund for the assessment year 2009-10 to 2011-12. Addition of export profit under the provisions of section 10A - HELD THAT:- In assessee’s own case for the assessment year 2003-04, we are of the view that for the purpose of determination of exemption u/s 10A, the turnover of the undertaking has to be considered, but not turnover of the assessee. The CIT(A), after considering the relevant facts and also following coordinate bench decision has rightly deleted additions made by the A.O. towards disallowance of exemption claimed u/s 10A. We do not see any error or infirmity in the order of the CIT(A). Hence, we inclined to uphold CIT(A) order and dismiss appeal filed by the revenue.
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