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M/s Tata Elxsi Ltd. Versus The Addl. Commissioner of Income-tax Range-12, Bangalore and The Asst. Commissioner of Income-tax Cirlce-12 (4) , Bangalore Versus M/s Tata Elxsi Ltd.

2016 (4) TMI 1120 - ITAT BANGALORE

Disallowance of staff welfare expenditure - Held that:- As find from the order of the AO, the detail of the expenditure reflects that there is no material to show that the said expenditures were not incurred. 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 exclusiv .....

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e 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 .....

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aying 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 commission has been allowed by the AO, there is no material/evidence to prove contrary to the claim of the assessee therefore, we feel it appropriate to allow 100% under the head ‘commission’.

Ad hoc disallowance on motor vehicle hiring expenses - Held that:- AO added ₹ 5.00 lakhs out of ͅ .....

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of export turnover - Held that:- 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.

Telecommunicati .....

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otherwise.

Expenses Incurred Towards Overseas Travelling - Held that:- As it is evident from the operative part of order that the Ld AO only on assumption held that the Assessee is providing technical services and coming to this conclusion, failed to point out any material in support of the conclusion. The ld. AO also taken expenses incurred towards overseas travelling of ₹ 10.00 Crores and an amount of ₹ 15 lakhs being expenditure incurred on payment of commission to one .....

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e 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 contentiou .....

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The Assessee : Shri Padamchand Khincha, CA For The Revenue : Mrs Neera Malhotra, CIT-II ORDER PER SHRI NARENDRA KUMAR CHOUDHRY, JM: A. These are cross appeals by the assessee and the revenue respectively directed against an order dated 28-03-2014 of CIT(A), Mysore for the assessment years : 2005-06. B. The assessee has raised the following grounds; 1. The order passed by the learned Commissioner of Income tax (Appeals) - Mysore to the extent prejudicial to the appellant is bad in law and liable .....

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irming the adhoc disallowance of commission paid amounting to ₹ 5,00,000/- 5. The learned Commissioner of Income tax (Appeals) - Mysore has erred in confirming the adhoc disallowance of motor vehicle hiring expenses amounting to ₹ 5,00,000/- 6. The learned Commissioner of Income tax (Appeals) - Mysore has erred in confirming the reduction of export turnover of ₹ 38,79,909/- from the figure of export turnover for the reason that the same has not been received or brought into Ind .....

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15 lakhs being expenditure incurred on payment of commission to one Mr. Les Lawrence, a foreign national and a sum of ₹ 2,94,75,520/- being 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 .....

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) 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 of allowing deduction under section lOA; (vi) entire realization of export turnover deposited outside Indian in the foreign bank amounting to ₹ 2,00,00,000/- be considered as realization of "ex .....

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be held as not engaged in providing technical services outside India. (x) the assessing officer be directed to make a correct computation of deduction under section 10A; (xi) Interest levied under section 234B be deleted. The Revenue has raised the following grounds; 1. The order of the ld.CIT(A) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case, ld.CITA) erred in allowing the wrong claim of 75% of expenditure incurred for supplying lunch coupons, eve .....

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eduction u/s 10A despite it not being erred from the business of software export by placing reliance on the order of High Court of Karnataka in the case of Infosys Technologies Pvt.Ltd which has not reached finality in view of pending SLP of the department. 5. On the facts and circumstances of the case, ld.CIT(A) erred in law in directing the AO to exclude the reimbursement of certain expenses both from the export turnover as well as from total turnover for the purposes of computation of deducti .....

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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 .....

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nt was completed u/s 143(3) on 20-12- 2007. The AO while passing the assessment order allowed some of the expenditure claim and disallowed the rest claim of the assessee. D. Aggrieved by the said order of the AO, assessee preferred an appeal before the CIT(A), who has given partial relief to the assessee. E. Aggrieved by the Impugned Order passed by the Ld CIT(Appeal), the assessee preferred the instant appeal . 1. GROUND NO.1 is general in nature and does not require any specific adjudication a .....

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expenditure. The learned AR forcefully argued that the details called for were produced during the assessment proceedings and the impugned expenditure satisfies all the requirements of Sec.37 of the IT Act, 1061 , therefore, the revenue authorities cannot decide how much is the reasonable expenditure.. Even otherwise still the expenditure under instant head is continuing and consistence. On the other hand, learned DR vehemently argued that the staff welfare expenses are in higher side and seems .....

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is important to mention herein that from the order of the AO, the detail of the expenditure reflects that there is no material to show that the said expenditures were not incurred. 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 busi .....

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ectly 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 disallowance of bad debts relatable to Sec.10A units to the extent of ₹ 80.75 lakhs. It is argued by the learned AR that the company is .....

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is important to establish that the debts should actually became bad, meaning thereby, irrecoverable. However before coming to conclusion the ratio of judgment referred by the Learned AR is important to enumerate. M/s TRF Limited Vs CIT (2010) 323 ITR . In these appeals, we are concerned with Assessment Year 1990-1991 and Assessment Year 1993-1994. Prior to 1st April, 1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecover .....

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computing the income referred to in section 28- (i) to (vi) xxxx xxxx xxxx (vii) subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year. Post-1st April, 1989: Other deductions. 36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) to (vi) xxxx xxxx xxxx vii) subject to the pr .....

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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 .....

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idered the documents submitted by the assessee and after going through the same he disallowed a sum of ₹ 5.00 lakhs from the said amount. The learned CIT(A) after verifying the claim felt that the sale proceeds has not been brought into India in convertible foreign exchange with in the statutory time period and hence, he confirmed the addition. We have given our thoughtful consideration to submissions of both the parties. As the AO allowed more than 75% of the claimed amount under the head .....

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5. GROUND NO.5, relates to the confirmation of ad hoc disallowance on motor vehicle hiring expenses amounting to ₹ 5.00 lakhs. It was argued by the learned counsel for the assessee that the motor vehicle hiring expenses were of ₹ 80,69,000/-. The AO had disallowed to the extent of ₹ 5.00 lakhs only on the assumption that the element of personal use cannot be totally denied. Even otherwise, learned CIT(A) has not given any specific reason, while upholding the disallowance of  .....

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rety . 6 GROUND no. 6, the assessee argued that the export turnover of ₹ 38,79,909/- should not be reduced from the figure of export turnover in computing the deduction u/s 10A of the IT Act, 1961. Learned DR relied on the order of the CIT(A) on this issue. We have considered the facts relating 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) .....

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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 th .....

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commission to one Mr. Les Lawrence, a foreign national and expenses incurred towards rendering services outside India a sum of ₹ 2,94,75,502/- being 20% of ₹ 14,73,77,601/- consideration received for services rendered to overseas clients outside India . Re: Telecommunication expenses of ₹ 2.00 Crores It is submitted by the Ld AR that the Asesseee has considered only an amount of ₹ 73,73,107/- under the head of telecommunication expenditure as against the expenses of S .....

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rpose, therefore he had taken the value of telecommunication at ₹ 2,00,00,000/- as adopted. The Ld CIT (A)n failed to adjudicate this head. We feel that the ld AO adopted value at the higher rate only on the assumption but not on any basis relevant to, hence we restrict the amount under head of telecommunication to ₹ 73,73,107/- only and the same can be excluded but not otherwise. Re : Expenses Incurred Towards Overseas Travelling of ₹ 10.00 Crores. AND an amount of ₹ 15 .....

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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 expen .....

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er . Para 11.4 (vi) The expenditure incurred on commission amount to ₹ 20.77 Lacs has been paid largely to Les Lawrence , a foreign national for procuring export orders and thus, for rendering services outside India. Accordingly, I hold that out of this expenditure, a sum of ₹ 15.00 lakhs is purely relating to technical services and therefore, it shall be excluded out of the export turnover. We realize, as it is evident from the operative part of order that the Ld AO only on assumpti .....

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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. Re: a sum of ₹ 2,94,75,502/- being 20% of ₹ 14,73,77,601/- consideration received for s .....

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l that 5% is too low a figure. Considering the facts of the case, I adopt this figure at 20% of the above receipts which works out to ₹ 2,94,75,502/- and shall be reduced out of the export turnover, as it is in the nature of technical service rendered outside India . We have given our thoughtful consideration on the facts and circumstances of the case, as well as the orders passed by the authorities below. As it reflects from the relevant part of the order passed by the learned AO that he .....

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t 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 , th .....

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s, gift coupons etc. despite the assessee not being able to prove that the same has been incurred for business purposes . Question of this ground has been decided in favour of the Asesseee vide ground no. 2 of Assesseee Appeal and conclusion of the same is not repeated herein for the sake of brevity. Ground no. 3 : On facts and in the circumstances of the case, the ld,.CT(A) erred in law in holding that the travel expenditure cannot be disallowed because the same has been allowed in earlier year .....

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d from the business of software export by placing reliance on the order of High Court of Karnataka in the case of Infosys Technologies Pvt. Ltd which has not reached finality in view of pending SLP of the department. Controversy of this ground has been decided in favour of the Assessee vide ground no. 8 of Assessee Appeal and conclusion of the same is not repeated herein for the sake of brevity. Ground no. 5 : On the facts and circumstances of the case, ld.CIT(A) erred in law in directing the AO .....

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