TMI Blog2013 (1) TMI 767X X X X Extracts X X X X X X X X Extracts X X X X ..... er years even though relating to eligible units - The AO has to give deduction under section 10A on eligible profits of the current AY - Decided im favor of assessee Disallowance of 2% of exempt income treating as expenditure u/s 14A - Held that:- the disallowance of 2% made by the assessing authority is reasonable - also the profit for the purpose of section 10A will be enhanced to the extent of the above disallowance - partly decided in favour of the assessee - ITA Nos. 114 & 2100(Mds)/2011 AND ITA No.90(Mds)/2011 - - - Dated:- 23-1-2013 - Dr. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI S.S.GODARA, JUDICIAL MEMBER Assessee by: (1) Shri Arvind P Datar, Sr.Advocate for Shri R.Vijayaraghavan, Advocate (2) Shri Sandeep Bagmar, Advocate Department by: Shri G.K.Dhall, IRS, CIT O R D E R PER Dr. O.K.NARAYANAN, VICE PRESIDENT There are three appeals. Two appeals are filed for the assessment year 2005-06, one by the assessee in ITA No.114(Mds)/2011 and the other by the Revenue in ITA No.90(Mds)/2011. The third appeal in ITA No.2100(Mds)/2011 is filed by the assessee for the assessment year 2007-08. 2. First we will consider the appeal filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year s profits of the eligible units before computing the deduction under section 10A. The very same issue was considered by the Income-tax Appellate Tribunal, B-Bench, Chennai, in the case of RR Donnelley India Outsource Pvt. Ltd. vs DCIT, in ITA Nos.1489 1490(Mds)/2010. Through their order dated 26-7-2012 the Tribunal, following the decisions of the Hon ble Karnataka High Court in the case of CIT Anr. Vs. Yokogawa India Ltd. and Others, 246 CTR (Kar) 226 and in the case of CIT Anr. Vs. Tata Elxsi Ltd. Others, 247 CTR 334, has held that the current year s profit of the eligible units should not be reduced by setting off of the brought forward losses of earlier years even though relating to eligible units. The Assessing Officer has to give deduction under section 10A on eligible profits of the current assessment year. This issue is decided in favour of the assessee. 2.4. The last issue raised by the assessee for the present assessment year is on the question of section 14A disallowance. The Assessing Officer has disallowed 2% of exempt income treating the same as expenditure incurred in connection with earning the exempt income in the nature of dividend income from m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contingent expenditure. It is a provision made against actual expenditure. Therefore, the decision of the Hon ble supreme Court rendered in the case of Bharat Earth Movers vs. CIT, 245 ITR 428, squarely applies here. The ground of the Revenue is dismissed. 4.4. The last issue raised by the Revenue is in the context of disallowance under section 14A. We have already decided the issue in the course of deciding the appeal filed by the assessee. No separate treatment is called for in the light of the ground raised by the Revenue. This ground is accordingly rejected. 5. The appeal filed by the Revenue for the assessment year 2005-06 is liable to be dismissed. 6. Next we will go to the appeal filed by the assessee for the assessment year 2007-08. 6.1. The first ground is that the lower authorities have erred in excluding the net exchange gain on Exchange Earner s Foreign Currency (EEFC) account from profits eligible for deduction under section 10A of the Act. The issue is that the assessee is permitted by RBI to keep a part of its foreign exchange earnings in foreign currency account abroad so that it can be used by the assessee for purchasing raw materials and availing other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at telecom expenditure incurred in Indian currency reduced from the export turnover should also be reduced from the total turnover. In both these cases, exclusion of telecommunication and telecom expenditure incurred in Indian currency from the export turnover is not justified. Those expenditure were incurred for effecting the export. Therefore, the question of excluding them from the export turnover does not arise. In view of this, we hold that the contention of the assessee has to be accepted and accordingly we direct the Assessing Officer to include the telecommunication as well as the telecom expenses incurred in Indian currency as part of the export turnover of the assessee. The quantum of deduction available under section 10A will be modified accordingly. These two issues are decided in favour of the assessee. 6.5. The next issue raised by the assessee is that the disallowance of provision for liabilities by holding them to be contingent in nature is not justified. In view of our finding for the earlier assessment year and in the light of the decision of the Hon ble Supreme Court in the case of Bharat Earth Movers vs CIT, 245 ITR 428, we hold that the provision is not in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is regarding the disallowance made under section 14A of the Act. The Assessing Officer has invoked Rule 8D and we confirm the disallowance made by him. This issue is decided against the assessee. 6.9. But, we accept the alternate contention of the assessee that the disallowance shall go to enhance the profit eligible for deduction under section 10A. Accordingly, we direct the Assessing Officer to enhance the disallowance made under section 14A as part of the eligible profit for the purpose of section 10A. 6.10. The next issue raised by the assessee is against the addition made by the Transfer Pricing Officer on the ground of reimbursement of expenses. The Transfer Pricing Officer has made a mark up of 5 per cent on certain travel cost incurred by the assessee and reimbursed by its associate enterprise and treated as additional income to be taxed as part of transfer pricing adjustment. But the fact is that the reimbursement was made on cost to cost basis and there is no rendering of any service and it does not involve service element. What is incurred is reimbursed. So, therefore, there is no profit element in the reimbursement. In such situation there is no just ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
