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2015 (11) TMI 530 - ITAT CHENNAI

2015 (11) TMI 530 - ITAT CHENNAI - TMI - Denial of exemption u/s.10A/10B in respect of provisions no longer required written back - Held that:- Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] has held that whenever any disallowance made while computing the income that disallowance should be part and parcel of the business profit of the assessee and the same should be considered for the purpose of deduction u/s.10A of the Act. In view o .....

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Denial of exemption u/s.10A/10B in respect of profits arising from fluctuation in Foreign Exchange (net) - Held 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 services and if not required can remit back the money to India alongwith interest. Interest is accrued as part of export turnover. It has nexus only with the export turnov .....

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n 2 was added by Finance Act, 2012 with retrospective effect from 01.06.2003. By that amendment, it was clearly brought on the statute that the Section shall also apply to an Assessment Year commencing before the first date of June, 2003 if the proceedings in respect of such Assessment Year is completed after the said date. - Decided against assessee.

Exclusion of foreign currency expenditure and telecommunication expenditure while computing deduction u/s.10A - Held that:- The Special .....

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dia, are required to be excluded from the export turnover and from the total turnover. Being so, in our opinion, this issue is squarely covered in favour of the assessee

Disallowance of set-off of current year losses of the units located in Pune, Chennai Unit I and Kolkatta Unit II, while computing the taxable income - Held that:- There is a judgment from the Delhi High Court in the case of CIT vs. KEI Industries Ltd. (2015 (3) TMI 618 - DELHI HIGH COURT), wherein after considering th .....

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(a)- non deduction of TDS on the payments made to Sprint (a nonresident) - Held that:- even if the payments were treated as non-relating to the use of equipment, they should be considered as payment for the use of the process provided by the assessee, whereby through the assured bandwidth, the customer is guaranteed the transmission of data and the voice. The fact that the bandwidth is shared with others, however, has to be seen in the light of the technology governing the operation of the proce .....

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: S/Shri M.N.Maurya, CIT and A.V.Sreekanth, JCIT ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER The appeals by the assessee and by the Revenue are directed against different orders of the Commissioner of Incometax( Appeals) for the assessment years 2002-03, 2003-04 and 2004-05. The assessee has also filed cross objection. Since, the issues involved in these appeals are common, they are clubbed together, heard together and disposed off by this common order for the sake of convenience. ITA No.1771/M .....

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ction 10A in respect of write-back of annual day expenses and has accordingly erred in directing the Assessing Officer to re-examine the issue. 2.3 The learned CIT(A) has erred in directing the Assessing Officer to re-examine the issue, when the CIT(A) does not have the power to set aside the assessment order in relation to subject assessment year. 3. The facts of the case are that the assessee is a company engaged in the business of development of software and export of the same. It was stated .....

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certain amounts which necessitated the assessee company to write back such amounts during the impugned accounting period. It was argued by the ld. Counsel for the assessee, before the CIT(Appeals) that in as much as this sum was includible as business profit, it was not correct to deny exemption u/s.10A/10B of the Act. To support the view, reliance was placed on the decision of the Tribunal, Ahmedabad Bench in the case of Aarti Industries Ltd. v. DCIT (2005) 95 TTJ 14, wherein it was held that r .....

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, 2100 & 90/2011 for the assessment year 2005-06 and 2007-08 dated 23.1.2011, wherein it was held as under : 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 exemption income treating the same as expenditure incurred in connection with earning the exempt income in the nature of dividend income from mutual funds. It is the case of the assessee that it has not incurred any expend .....

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the case of CIT vs. Gem Plus Jewellery India Ltd. 330 ITR 175 has held that whenever any disallowance made while computing the income that disallowance should be part and parcel of the business profit of the assessee and the same should be considered for the purpose of deduction u/s.10A of the Act. In view of this, we are inclined to hold that the disallowance made with regard to provision is to be considered as part of business profit for the purpose of determining deduction u/s.10A/10B of the .....

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ort from AO and decided the issue and accordingly, has erred in not examining the issue at all. 3.3 Without prejudice to the above and as an alternate submission, the liabilities amounting to ₹ 2,51,62,011 in respect of which a provision was created in AY 2002-03 and which have been written back in 2003-04, ought to have been considered to form part of the eligible profits (ie, profits of the undertakings to be increased by such amount to arrive at the eligible profits) in computing deduct .....

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ssee was allowed in the assessment year 2003-04, when it was actually written off, this is only academic. Hence, this ground is dismissed as infructuous. 8. The next ground of appeal is as follows: 4. Denial of exemption u/s.10A/10B in respect of profits arising from fluctuation in Foreign Exchange (net) 4.1 The learned CIT(A) has erred in holding that the net exchange fluctuation gains arising on account of the effect of restatement of year end balances (debtor/creditor balances and balances in .....

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e are that the assessee company had credited ₹ 6,91,70,239/- as representing the net effect of the Foreign Exchange fluctuation under the head, 'Other Income' in Schedule 9 of the Account for the accounting year ended 31.3.2002. While taxing this sum as business income, the Assessing Officer had denied the benefit of exemption u/s 10A by holding that this sum cannot be said to be derived by the company from its undertaking or from the business of export of computer software. The As .....

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efit of exemption u/s 10A/10B must be denied in the present assessee's case also. On going through the impugned order. it is further seen that the Assessing Officer had dealt with the meaning of the term 'rate of exchange as defined by law and as per the definition given in Encyclopaedia Britannica 2002 and had made a specific observation that the gain as due to exchange variation has as its source or origin, the exchange rates determined by the various Governments, which in turn, are go .....

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he undertaking and reliance was placed on the following decisions of the Supreme Court: (i) Cambay Electric Supply Industrial Co. vs. CIT (113 ITR 84) (ii) CIT vs. Sterling Foods (237 ITR 579) 10. We find that similar issue was considered by the Tribunal in assessee s own case for the assessment years 2005-06 and 2007-08 in ITA Nos. 90, 114 & 2100/11 dated 23.01.2013, wherein the Tribunal has held as under: 6.1. The first ground is that the lower authorities have erred in excluding the net e .....

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y with the export turnover and therefore it is also in the nature of export profits. This issue has been decided by the Hon ble Delhi High Court in favour of the assessee in the case of CIT vs. Indian Toners and Developers Ltd., 326 ITR 435. This issue is decided in favour of the assessee by a series of Tribunal orders in the case of M/s.Rishabh International vs. JCIT, Mumbai in ITA No.2788 & 2789 of 2004; in the case of Discover India Tours(P) Ltd. vs. Assessing Officer, 9 SOT 665 (Del); in .....

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see and vide its order dated observed as under : 14. The next grievance of the Revenue is that the CIT(A) has wrongly directed the Assessing Officer not to exclude the foreign currency expenditure from the export turnover. 15. Relevant facts qua this ground are that in the course of scrutiny , the Assessing Officer noticed from the details submitted by the assessee a sum of ₹ 10,06,69,173/- and a loss of ₹ 6,14,12,438/- on exchange earners foreign currency accounts in relevant previo .....

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T.A.No.2100/Mds/2011 dated 23.1.2013 holding therein that such gains have to be treated as part of income derived from export for the purpose of deduction u/s 10A of the Act. On being granted opportunity to rebut, the Revenue only reiterates the pleadings in the grounds. In our view, once the hon'ble jurisdictional high court has decided the very question of law which has also been echoed in the assessee s own case, there is hardly any reason to adopt a different approach in the impugned ass .....

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er of the Tribunal, this issue is decided in favour of the assessee. 11. The next ground of appeal is as follows: 5. Interest under Section 234D: 5.1 The learned CIT(A) has erred in upholding the interest under section 234D of the Act when provisions of the said section were not applicable for the subject AY. The learned CIT(A) ought to have followed the rationale of the jurisdictional Tribunal in the case of East Coast Constructions which is binding upon her and which supports the stand of the .....

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filing the appeal. But, however, by way of filing an additional ground on 5.7.2006, the assessee has objected to the levy. 13. After hearing the parties, we are of the opinion that this issue is covered against the assessee by the decision of the Tribunal in the case of DDIT vs. Oracle Corporation in ITA No.4618/Del/2012, wherein the Tribunal vide order dated 23.11.2012 observed as under: 4. We have heard the rival contentions in the light of the material produced and precedents relied upon. Th .....

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Commissioner of LT (OSD) vs. GTL Ltd. (MA NO.746/Mum/2009); ii) CIT vs. Sudhir S. Mehta 139 Taxman 54; and iii) Glaxo Smithkline Asia ep) Ltd. vs. ACIT 97 TTJ (Del) 108. 6.The Ld. DR submitted that all the above case laws were rendered prior to the amendment in Section 234D vide Explanation 2. Hence, he pleaded that Ld. CIT (A)'s order needs to be reversed. The Ld. DR relied upon the following case laws.- i) CIT vs. Kamla S. Rani 189 ITR 359(Bom); and ii) GTC Industries Ltd. vs. DCIT 105 TTJ .....

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mple interest at the rate of 6[one-half] per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment. (2) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount of refund granted unde .....

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that the provisions of this section shall also apply to an assessment year commencing before the 1st day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date." 8. A reading of the above Section clearly indicates that Explanation 2 was added by Finance Act, 2012 with retrospective effect from 01.06.2003. By that amendment, it was clearly brought on the statute that the Section shall also apply to an Assessment Year commencing before the first d .....

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e appeal. In the case of GTC Industries Ltd. vs. DCIT 105 TTJ (Mum) (TM) 1010, the ITAT, Third Member Bench had held that when a law is amended with retrospective effect, the authority when he decides any proceedings has to apply such retrospectively amended law as it were enforced at all material times. 9. Considering the above case laws and the clear provisions of the second Explanation added in Section 234D, we are of the opinion that the order of the Ld. CIT (A) is to be eversed. Accordingly .....

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ne, 2003 was retrospective in operation by necessary implication. However, as doubts were raised about its retrospectivity, the same was clarified by adding an explanation to section 234D by Finance Act, 2012. Under the Act what is brought to tax is not the income of the assessee in the assessment year but the income of the assessee in the previous year. The liability to tax arises on account of the Finance Act which fixes the rate at which the tax is to be paid. The law to be applied is as exis .....

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in nature would be retrospective. This amendment make it clear that it shall apply assessment years even prior to 1/06/2003. 27. In view of the above, we hold that the decision of the Tribunal in ITO v. Ekta Promoters Pvt. Ltd. reported in 113 ITD 719 which has been followed in the impugned order by the Tribunal is not correct. One more aspect of the matter which must be borne in mind is that till such time as the assessment proceedings are completed in respect of any assessment year, the amendm .....

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nding proceedings i.e. where assessments in respect of such assessment year is not completed on 1/6/2003. Respectfully following the aforesaid decision of the Bombay High Court and the decision of the Tribunal, we dismiss this ground of appeal. 13.2 In the result, the appeal in ITA No.1771/Mds/2007 is partly allowed. ITA No. 1784/Mds/2007 - AY 2002-03 : (Revenue) 14. The Revenue has filed the following grounds in this appeal: 2. The learned CIT(A) erred in holding that the assessee is entitled f .....

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s been considered by the Tribunal in assessee s own case in ITA Nos. 114, 2100 & 90/2011 for the assessment year 2005-06 and 2007-08 dated 23.1.2011, wherein it was held as under : 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 exemption income treating the same as expenditure incurred in connection with earning the exempt income in the nature of dividend income from mutual f .....

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cided in favour of the assessee. 15.1. Further, the Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. 330 ITR 175 has held that whenever any disallowance made while computing the income that disallowance should be part and parcel of the business profit of the assessee and the same should be considered for the purpose of deduction u/s.10A of the Act. In view of this, we decide this issue in favour of the assessee. This ground in Revenue s appeal is dismissed. 15.2 In the resu .....

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bunal, Chennai in the case of ITO vs. Sak Soft Ltd. reported in 313 ITR (AT) 353 was also considered this issue, wherein it was observed that for the purpose of applying the formula prescribed by sub-sec.(4) of sec.10B of the Act, expenses on freight, communication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses if any, incurred in foreign exchange in providing technical services outside India, are required to be excluded .....

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bove of this order, this ground in assessee s appeal is allowed. 20. The next ground is with regard to disallowance of set-off of current year losses of the units located in Pune, Chennai Unit I and Kolkatta Unit II, while computing the taxable income. 21. The ld. AR submitted that this issue is squarely covered by the decision of the Tribunal in assessee s own case in ITA Nos.114, 2100 & 90/Mds/2011 dated 23.1.2013. However, we find that there is a judgment from the Delhi High Court in the .....

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h income of other units, we are inclined to dismiss this ground of appeal. 22. The next issue raised by the assessee in this appeal is as follows: 7. That, the CIT(A) has erred in considering that amounts paid to Sprint (Rs. 4,24,41,367) attract deduction of tax at source and as a consequence disallowing the same under section 40(a). 8. That, the CIT(A) has erred in holding that the disallowance under section 40(a) of the Act can be invoked on the payments made to Sprint (a nonresident), when a .....

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ve also examined the judgment of the Hon ble jurisdictional High Court in the case of M/s.Verizon Communications Singapore PTE Ltd., Vs. ITO (International Taxation) (supra). We find that the issue in dispute is identical to the one adjudicated by the Hon ble High Court in the aforesaid case. Similar issue, Whether the services provided by the overseas company constitutes Royalty or not ? came up before the Hon ble High Court. In the said case, the non-resident company was engaged in the busines .....

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mitted it up to the customer location outside India. The nonresident company used its telecom service equipment situated outside India in providing international half circuit. The gateway/landing station in India used in transmitting the traffic within India belong to VSNL and was used by VSNL for providing Indian end services in accordance with the contract with its customers. The Assessing Officer came to the conclusion that the payment received by the non-resident company in providing interna .....

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process provided by the assessee, whereby through the assured bandwidth, the customer is guaranteed the transmission of data and the voice. The fact that the bandwidth is shared with others, however, has to be seen in the light of the technology governing the operation of the process and this by itself does not take the assessee out of the scope of royalty. Thus, the consideration being for the use and right to use of the process, it is Royalty , within the meaning of Clause-(iii) of Explanation .....

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cide this issue against the assessee. 24. The next ground of appeal is with regard to interest under sec.234B of the Act, which is consequential and mandatory in nature and the AO has to compute accordingly. ITA No.209/Mds/2007 is partly allowed. C.O.No.47/Mds/2007 : AY - 2003-04 (Assessee) 25. The assessee has raised the following grounds in this cross objection: 1. The learned Commissioner of Incometax( Appeals) has erred in not appreciating that payments made to Sprint do not constitute royal .....

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for the assessment year 2003-04 in paragraph 23, the cross-objection is dismissed as infructuous. ITA No.591/Mds/2007 : AY 2003-04 (Revenue) 26. The grievance of the Revenue is with regard to deleting the interest levied u/s.234D of the Act. 27. After hearing both the parties, we find that this issue was decided against the assessee by the Bombay High Court in the case of CIT vs. M/s. Indian Oil Corporation Ltd. (supra), which is discussed in paragraphs 13 & 13.1 of this order. Accordingly, .....

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computation of deduction u/s 10B. 3. That, the CIT(A) ought to have appreciated that expenses incurred in foreign currency and telecommunication expenditure incurred in Indian currency were not included in the export turnover. Hence, the same cannot be excluded from export turnover. 4. In any event, and without prejudice to grounds 2 and 3 above, the CIT(A) ought to have noted that the expenses were not incurred for the purpose of rendering of technical services outside India, and were thus, no .....

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s. KEI Industries Ltd. (373 ITR 574) and the judgment of the Karnataka High Court in the case of CIT v. Yokogawa India Ltd. (341 ITR 385), which is discussed in paragraph 21 of this order. Accordingly, this ground of the appeal is dismissed. 32. The next ground raised by the assessee is as follows: 6. That, the learned CIT(A) has erred in confirming the order of the AO with respect to set-off of the brought forward losses even before allowing deduction under section 10A/10B of the Act. 33. The l .....

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s against the current 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 i .....

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