TMI Blog2016 (4) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said staff welfare expenses were incurred directly and exclusively for the purpose of business, because the staff welfare is the paramount in social arena for the growth and development of business therefore, we are the considered view to allow 100% expenditure qua staff welfare expenditure claim of the Assessee. Deduction under the head bad debt - Held that:- After 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Respectfully following judgment of Apex Court in M/s TRF Limited Vs CIT (2010 (2) TMI 211 - SUPREME COURT ), we are inclined to allow deduction under the head of bad debt. Disallowance under the head ‘commission’ - Held that:- As the AO allowed more than 75% of the claimed amount under the head “commission”, but disallowed to the tune of ₹ 5.00 lakhs only on the presumption that what was the necessity of paying the commission to unknown persons and it was also not clear as to what are the nature of services rendered by the recipients to the companies. When the major portion of the amount of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any material on record qua providing of technical service by the Assessee and even otherwise , the amount worked out also to be on estimate basis which seems to be on assumptions therefore the said amount of ₹ 10 Crores and 15.00 Crores under the head of expenses incurred towards overseas travelling and expenditure incurred towards commission, respectively are not to be excluded, hence, exclusions made by the ld. AO are set aside. Consideration received for services rendered to overseas clients outside India - Held that:- As it reflects from the relevant part of the order passed by the learned AO that he adopted the figure under the aforesaid head at the rate of 20% of the above receipts and worked out to ₹ 2,94,75,502/-. We have also considered the Clarificatory circular no.1/2013 dated 17-01-2013 issued by CBDT to address various contentious issues leading to tax dispute in cases of entities engaged in export of computer software which are availing tax benefit under section 10A, 10AA and 10B of the IT Act, 1961. Hence, we are of the view that the said amount cannot be excluded from export turnover, hence exclusions made by the ld. AO under the instant head is set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20% of ₹ 14,73,77,601/- being consideration received for software development to overseas clients, should not be reduced from export turnover while computing deduction under section 10A. 9. The learned Commissioner of Income tax (Appeals) - Mysore has erred in not adjudicating the ground relating to levy of interest under section 234B. On facts and in the circumstances of the case, interest under section 234B is not leviable. The appellant denies its liability to pay interest under section 234B. 10. In view of the above and other grounds to be adduced at the time of hearing, the appellant company prays that the order passed by the learned Commissioner of Income tax (Appeals), Mysore, in so far it is prejudicial to the appellant, be quashed . Or in the alternative (i) staff welfare expenses be allowed as a deduction in its entirety; (ii) bad debts written off be completely allowed as a deduction; (iii) commission payments be allowed as a deduction in its entirety; (iv) motor vehicle expenses be fully allowed as a deduction; (v) export turnover of ₹ 38,79,909/- be included in the figure of export turnover for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific definition of export turnover as envisaged by sub-clause(4) of Explanation-2 below subsection( 8) of sec.10A and the total turnover has not been defined in this section. 6. On the facts and circumstances of the case, ld.CIT (A) erred in directing the AO to compute deduction u/s 10A in the above manner by placing reliance on the decision of the Hon ble High Court of Karnataka in the case of M/s Tata Elxsi Ltd., which has not become final since the same has not been accepted by the department and SLPs are pending before the Hon ble Supreme Court. 7. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in sofar as it relates to the above grounds may be reversed and tht of the AO may be restored . C. We shall take up the Assessee s appeal first. Brief facts of the case are as under :- That the assessee is a public limited company engaged in the business of design and development of computer software, engineering services, visual computing labs and systems integration. For the assessment year under consideration, the return of income was filed declaring a total income of ₹ 9,34,65,814/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred. We have also gone through the contents of Sec.37 of IT Act, where there are certain bars for allowing the expenditures described in Section 31-36 of the IT Act. The wordings of Sec.37 reflects that if the expenditure not being Capital or personal expenditure but incurred wholly and exclusively for the purpose of business or profession, it shall be allowed to be excluded in computing the income eligible under the head profits and gains of business or profession . In our considered view, both the authorities below have acted on presumption and on their notions as seen from the AO s Order, he also considers the expenditure as personal in nature . Assessee being a corporate body so question of expenditure being personal in nature does not arise. It is clear that the said staff welfare expenses were incurred directly and exclusively for the purpose of business, because the staff welfare is the paramount in social arena for the growth and development of business therefore, we are the considered view to allow 100% expenditure qua staff welfare expenditure claim of the Assessee. 3. GROUND NO.3 , the assessee challenged that the learned CIT(A) erred in confirming the disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Respectfully following judgment of Apex Court (Supra), we are inclined to allow deduction of ₹ 80.75 lakhs under the head of bad debt. 4. GROUND NO.4, the assessee challenged the impugned order passed on the ground that the learned CIT(A) has erred in confirming the ad hoc disallowance of commission to the tune of ₹ 5.00 lakhs. The learned counsel for the assessee argued that the commission was paid for procuring orders and the commissions were paid to agents to help the assessee company in expanding its business and to derive income and the details of the commission paid and the agreements entered into one of the recipients was also furnished to the AO. It was further argued that the commission expenditure was incurred wholly or exclusively for the purpose of business and there is no incriminating material and/or evidence available before the AO for disallowance. Learned DR relied on the orders of the authorities below. It is evident that before the AO, assessee had c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to these grounds, as the AO was pleased to reduce the aforesaid amount from the export turnover for the reason that the same has not been brought into India, till the date of order passed u/s 143(3) of the IT Act, or even during the appellate proceedings, the assessee failed to bring on record any evidence to substantiate the above amount that has been received in or brought into India. Hence we are inclined to dismiss the instant ground raised by the Assessee. 7. GROUND no.7 relates to the confirmation of reduction of export turnover of ₹ 2.00 Crores from the figure of export turnover in computing deduction u/s 10A, for the reason that the same has not been received or brought into India. It was submitted by the Ld AR that letter of approval was obtained from RBI for opening a Bank Account outside India for depositing the amounts of exports turnover and the competent authorities has been accepting and have had no occasion to question or dispute the procedure adopted by the appellant and this practice has been accepted all along both by the income tax as well as the competent authority. We have given our thoughtful consideration to the submission of the ld AR and perused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia. Even otherwise, said expenditures were though, being incurred in foreign currency and can not be excluded on estimated and adhoc basis. We have gone through the relevant part of Assessment Order passed by the Ld AO in which , he held Para 11.4 (v) that the Assessee has claimed as expenditure of ₹ 15,53,85000/- on overseas travel , apart from ₹ 94.85 Lacs as inland travel in respect of 10A unit . The major expenditure in respect of overseas travel has been incurred on boarding, lodging daily allowance, overseas conveyance, telephone and other charges paid in foreign currencies overseas. As discussed above, this expenditure will come under the ambit of expenditure incurred for technical services in foreign currency outside India. Evidently, the company executives are travelling abroad for providing technical services to their clients in nature setting up of software and operationalising it. Out of total expenditure of ₹ 15.53 Crores, I hold that expenditure to the extent of ₹ 10 Crores in respect of such technical services and therefore, this amount shall also be excluded out of the export turnover . Para 11.4 (vi) The expenditure incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t reflects from the relevant part of the order passed by the learned AO that he adopted the figure under the aforesaid head at the rate of 20% of the above receipts and worked out to ₹ 2,94,75,502/-. We have also considered the Clarificatory circular no.1/2013 dated 17-01-2013 issued by CBDT to address various contentious issues leading to tax dispute in cases of entities engaged in export of computer software which are availing tax benefit under section 10A, 10AA and 10B of the IT Act, 1961. Hence, we are of the view that the said amount cannot be excluded from export turnover, hence exclusions made by the ld. AO under the instant head is set aside. 9. GROUND NO.9, the Assessee s contention is that the learned CIT(A) has erred in not adjudicating the ground relating to levy of interest u/s 234B of the IT Act, 1961. The levy of interest, in our view consequential in nature therefore the assessee would be liable to pay the interest u/s 234B of the IT Act, 1961 according to the amount payable. F. ITA No.939(B)/2014 (By the revenue) In the revenue s appeal , the revenue challenged the impugned Order passed by Ld CIT(Appeal) on the grounds stated supra . We fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .10A and the total turnover has not been defined in this section. Controversy of this ground has been decided in favour of the Asesseee and conclusion of the same is not repeated herein for the sake of brevity. Ground no. 6 : On the facts and circumstances of the case, ld.CIT (A) erred in directing the AO to compute deduction u/s 10A in the above manner by placing reliance on the decision of the Hon ble High Court of Karnataka in the case of M/s Tata Elxsi Ltd., which has not become final since the same has not been accepted by the department and SLPs are pending before the Hon ble Supreme Court. Controversy of this ground has been decided in favour of the Asesseee vide ground no. 8 of Assesseee Appeal and conclusion of the same is not repeated herein for the sake of brevity. Ground no. 7 : For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the AO may be restored . Order passed by the Ld CIT(Appeal) is partly allowed in favour of the Asesseee and conclusion of the same is not repeated herein for the sake of ..... 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