9911796707
TMI Blog2016 (5) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... ) : 2. Grounds of appeal No.1 and 1.1 by the assessee read as under : Ground 1 : Set off of brought forward business loss and unabsorbed depreciation before allowing deduction under Section 10A 1.1 The Hon'ble CIT(A) has erred in facts and law in holding that deduction under section 10A of the Act is allowable after set off of brought forward business loss and unabsorbed depreciation. 3. Facts of the case, in brief, are that the AO during the course of assessment proceedings noted from the statement of computation of income and audit report in Form 56G that the assessee has claimed exemption u/s.10A of the Act at Rs. 113,32,52,316/- after computing the same as net profit. He noted that the assessee has also carried forwarded unabsorbed depreciation of Rs. 10,69,75,452/- and business loss of Rs. 3,63,60,503/- totaling to Rs. 14,33,35,955/-. Thus assessee has not set off the business losses and unabsorbed depreciation before computing exemption u/s.10A. The AO asked the assessee to explain as to why deduction u/s.10A of the Act should not be allowed after set off of brought forward losses and unabsorbed depreciation. 4. It was submitted by the assessee that as per provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Relying on the decision of Hon'ble Karnataka High Court in the case of Himatasingika Seide Ltd. reported in 286 ITR 255 and the decision of the Delhi Bench of the Tribunal in the case of Globe Vantedge Pvt. Ltd. Vs. DCIT reported in 37 SOT 1 the AO rejected the claim of the assessee. 7. In appeal the Ld.CIT(A) upheld the action of the AO by observing as under : "3.3 I have carefully considered the facts of the case and the law as are apparent from the records. The assessee is engaged in the business of software development with Associated Enterprises. As per the para 3 of the assessment order the appellant had received payment of Rs. 3,73,02,71,812 for software development services from the AEs and has incurred interest expenditure of Rs. 1,14,19,869 on ECB loans. Both these international transactions were declared to be at ALP under the CUP method and the same were also accepted to be correct by the Jt.CIT(TP)-I, Pune. However, the Assessing Officer noted that the appellant has claimed deduction u/s 10A of the I.T. Act at Rs. 1,13,32,52,316. for which auditors' report in Form No. 56G has been filed. The Assessing Officer noted that the appellant has not set off the unab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent judgments to claim that the deduction computed by it u/s 10A is correct and is required to be accepted. From the perusal of the arguments made by the appellant it could be seen that the appellant has tried to argue that the term 'total income' appearing in sec. 10A(1) cannot be given the meaning as is available in sec. 2(45) of the I.T. Act. Instead it has been claimed that a contextual meaning is required to be given. Furthermore, it has been stated that sec. 10A(4) also supports their claim as it says that the deduction will be allowed from the profit derived from export of article or things or computer software as it bears to be total turnover of the business. It has also been contended that deduction u/s 10A is to be computed before application of Chapter VIA. In simple terms, it has been stated that the deduction u/s 10A should be computed under Chapter IVD at the time of computing the profits and gains of business. In other words, it has been claimed that set off of unabsorbed loss and depreciation cannot be made before computing the deduction. The appellant has also tried to refer to Form No. 56F which is required to be filed by the CA for the above deduction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business as a whole and therefore, it will be incorrect to say that the deduction should be computed on the profit determined without taking into account the brought forward tosses and the depreciation of the eligible business as such income will be inflated. All the arguments made by the appellant are based on interpretations which are not directly applicable to the facts of this case and most of them are distinguishable on facts and law. It is not difficult to note that the Authorised Representative has tried to draw strengths from provisions, judgments and forms and not from the section 10A or 28 to 44D etc. It is a trite law that such indirect support can only be drawn when the provisions cannot be given effect properly. A provision cannot be interpreted differently because it does not give higher deduction being sought to be claimed. In fact on careful consideration, it can be seen that no order of the jurisdictional High Court or the Tribunal has been relied upon by the appellant which is directly applicable to the facts of this case and in view of the same, there is no judicial binding precedent available on Ground No.1. In the absence of the same, those findings are to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that deduction u/s.10B of the Act would be allowed to the assessee before allowing the adjustment on account brought forward business loss and depreciation. The deduction u/s.10B of the Act is to be against the eligible profits and in case there are any left over profits, then the same are to be adjusted against brought forward unabsorbed depreciation/business loss as claimed by the assessee in its return of income. Following the above 2 decisions, the Tribunal in the case of M/s.KPIT Cummins Infosystems Ltd. (Supra) has held the same view by observing as under. The relevant observation of the Tribunal from para 5 onwards read as under: "5. We find that identical issue of sequences of allowing the benefit of deduction under section 10B of the Act and the adjustment of brought forward losses / unabsorbed depreciation, arose before Pune Bench of Tribunal in M/s. Vishay Components India Pvt. Ltd. Vs. Addl.CIT & Anr. (supra). The Tribunal after considering the facts of the case, which are identical to the facts before us, observed as under:- "27. We have heard the rival contentions and perused the record. The issue arising vide ground of appeal No.3 is in relation to the comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome" to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the content of the deduction which is allowable under s.10A, which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. Thus ITAT was correct in holding that the brought forward unabsorbed depreciation and losses of the unit the Income which is not eligible for deduction under s.10A of the Act cannot be set off against the current profit of the eligible unit for computing the deduction under s.10A of the IT Act." 28. The said proposition of law has further been applied by the Hon'ble Bombay High Court in CIT Vs. M/s. Ganesh Polychem Ltd. in Income Tax Appeal No.2083 of 2012, order dated 25.02.2013 and in CIT Vs. Schmetz India Pvt. Ltd. (2012) 79 DTR (Bom) 356 and also by the Hon'ble High Court of Gujarat in CIT Vs. Ace Software Exports Ltd. in Tax Appeal No.687 of 2012, order dated 18.02.2013. The Mumbai Bench of Tribunal has also applied the said proposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be computed before adjusting brought forward unabsorbed losses / depreciation. The facts arising in the present case are similar to the facts before the Tribunal in Vishay Components India Pvt. Ltd. Vs. Addl.CIT & Anr. (supra) and following the same parity of reasoning, we hold that the deduction under section 10B of the Act would be allowed to the assessee in the first instance before allowing the adjustment on account of brought forward depreciation losses, the deduction under section 10B of the Act is to be first allowed against the eligible profits and in case there are any leftover profits, then the same are to be adjusted against brought forward unabsorbed depreciation / loss as claimed by the assessee in its return of income. Accordingly, we direct the Assessing Officer to re-compute the deduction under section 10B of the Act in the hands of the assessee. The additional ground of appeal Nos.1 and 2 raised by the assessee are thus, allowed." 7. The issue arising before us is in relation to the computation of deduction under section 10A of the Act, which admittedly is paramatria to section 10B of the Act and hence, the ratio laid down by the Tribunal in M/s. Vishay Component ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are certain left over profits for the year under appeal the same are to be adjusted against the brought forward losses and unabsorbed depreciation as claimed by the assessee in the return of income. We accordingly set aside the order of the CIT(A) and direct the AO to recompute the deduction u/s.10A of the Act against the eligible profits before adjustment of brought forward losses/depreciation. Grounds of appeal No.1 and 1.1 by the assessee are accordingly allowed. 13. Since the assessee succeeds on grounds of appeal No. 1 and 1.1 the grounds of appeal No.1.2 and 1.3 become academic in nature and therefore do not require any adjudication. 14. Ground of appeal No.2 by the assessee reads as under : "2. Ground No.2 : Reduction of expenses incurred on lease line charges from export turnover The Hon'ble CIT(A) erred in facts and law by upholding the order of Deputy CIT for reducing the expenses on lease lined charges from export turnover of the appellant while computing deduction u/s.10A of the Act." 15. Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the asessee company has incurred expenditure of Rs. 53,79,131/- as lease li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the facts of the case and the law as are apparent from records. The Assessing Officer has treated the receipts relating to leased line Charges as not part of the export turnover in view of the specific provisions available in this section 10A. The appellant has claimed that the receipt relating to leased line Charges is part and parcel of the total payment receivable for the export of the software and therefore, it should be treated as part of the export turnover. Alternatively, the appellant has claimed that if such receipts are excluded from export turnover, then it should also be excluded from the total turnover for computing the deduction u/s 10A(4). In other words, the leased line charges were argued to be excluded from the numerator and the de-numerator both. On careful consideration of the law, I am in agreement with the finding of the Assessing Officer that the receipt from the leased line charges are to be excluded from the export turnover in view of the specific provisions available in Explanation 2(iv) of sec. 10A, which says that the export. turnover is the consideration in respect of export turnover by the undertaking of article or things or computer software receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided. " Therefore, it can be seen that the courts have given the interpretation that the items required to be specifically excluded from the definition of export turnover as specified in the section has to be excluded. However, since total turnover is not defined but would definitely include the export turnover and the other turnover, the same export turnover for which the exclusion has been made can only be considered to constitute the total turnover. In view of the above, the alternate claim of the appellant has to be allowed. The Assessing Officer is directed to exclude leased line charges from the export turnover and the total turnover both for computing the deduction u/s 10A. Ground No. 2 therefore, is partly allowed." 18. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 19. The Ld. Counsel for the assessee referring to the provisions of section 10A drew the attention of the Bench to Explanation 2(iv) where the export turnover has been defined as under : "export turnover" means the consideration in respect of export [by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee in his rejoinder drew the attention of the Bench to para 4.1.5 and 4.1.6 of the letter dated 31-08-2010 addressed to the AO during the course of assessment proceedings a copy of which is placed at pages 51 to 57 of the paper book. Referring to the reply of the assessee he submitted that it was categorically stated before the AO that only if the sale consideration includes said telecommunication charges, i.e. if the charges are recovered from the purchaser, they have to be excluded from the export turnover but where the sale consideration is a single consolidated amount it should not be split into individual components and to exclude some of them for the purpose of section 10A of the Act. He accordingly submitted that the Ld. Departmental Representative is not justified in stating that nothing was brought to the notice of the AO or the CIT(A). As regards various decisions relied on by the AO and the CIT(A) he submitted that those decisions are prior to the decision of Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. and various latest decisions of the Tribunal. He accordingly submitted that the grounds raised by the assessee should be dismissed. 24. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "If such expenses are not included in the consideration received in convertible foreign exchange, deduction of such expenditure from the consideration does not arise . . . . . . . . " ". . . . . ..If the consideration received is only against the goods then there is no need to deduct such expenses from the consideration received in convertible foreign exchange." 26. We find identical issue had come up before the Hyderabad Bench of the Tribunal in the case of Patni Telecom Pvt. Ltd. (Supra). The Tribunal after considering clause (iv) of Explanation 2 to section 10A has held that such expenses cannot be excluded from the export turnover. The relevant observation of the Tribunal at Para 7.4 of the order read as under : "7.4 Now, we examine the facts of the case in the light of the above discussion. The AO noticed that the expenses attributable to the delivery of the software were Rs. 40,93,493 booked under ISP, since the assessee got leased line exclusively. The AO deducted this amount from consideration treating as communication charges. We find that the said expenditure on Internet Service Provider (ISP) does not come within the scope of telecommunication charges as provided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion u/s.10A of the Act. We therefore set aside the order of the CIT(A) and the ground raised by the assessee is allowed. ITA No.978/PN/2012 (By Revenue) (A.Y. 2007-08) : 28. The only effective ground raised by the Revenue reads as under: "1. On the facts and circumstances of the case, the Ld.CIT(A) erred in directing the AO to exclude leased line charges from the export turnover and the total turnover both for computing the deduction u/s.10A of the Income Tax Act, 1961." 29. After hearing both the sides we find the assessee before the CIT(A) made an alternate claim that the items which are excluded from the export turnover are also be excluded from the total turnover. The Ld.CIT(A) following the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Gemplus Jewellery India Ltd. reported in 330 ITR 175 directed the AO to exclude the lease line charges from the export turnover and the total turnover both for computing deduction u/s.10A. We do not find any infirmity in the order of the CIT(A) who has followed the decision of the Hon'ble Bombay High Court while directing the AO to exclude the lease line charges from the export turnover and the total turnover for computi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 59,515,054. The same has been claimed as a deduction/ adjustment, both under the normal provisions of the Act as well as under the provisions of section 115JB of the Act. " 32. However, the AO was not satisfied with the explanation given by the assessee. He verified the claim of the assessee from the return of income for A.Y. 2007-08 and noted that in the computation of income for A.Y. 2007-08 under MAT provisions this item was not added back by the assessee. The only adjustment made in the computation of income u/s.115JB for A.Y. 2007-08 is for provision of income tax of Rs. 1,12,790/-. Since the provision for ESOP was not added back while computing book profit u/s.115JB of the Act for A.Y. 2007-08 the AO held that no deduction can be allowed from the book profit u/s.115JB of the Act for the current year. Accordingly, the claim of the assessee for reduction of this amount of Rs. 5,95,15,054/- on account of provision for ESOP from the taxable book profit was rejected by the AO. 33. In appeal the Ld.CIT(A) upheld the action of the AO. While doing so she noted that for A.Y. 2007-08 the assessee has added back the expenses relatable to section 10A income (inclusive of ESOP p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36. Referring to the letter dated 21-11-2011 addressed to the AO he drew the attention of the Bench to para 5 of the submission which reads as under : "Treatment of provision for Employee Stock Compensation cost while computing MAT for the A.Y. 2007-08. While computing the income under the section 115JB of the Act, ADCIPL has reduced the net profit as appearing in the profit and loss account, prepared in accordance with schedule VI of the Companies Act, 1956 (i.e. net of all the expenses debited to profit and loss account and the income credited to profit and loss account that is related to the income deductible under the section 10A). Accordingly, ADCIPL has added back all the expenses that are debited to profit and loss account and further reduced the income that is related to the income deductible under the section 10A of the Act in accordance with the provisions explanation 1(f) and 1(ii) to the section 115JB of the Act. All the expenses that have been added back to the income under section 115JB includes provision made towards Employee Stock Compensation Cost. Accordingly provision for Employee Stock Compensation Cost has been added back while computing MAT for the A.Y. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case made addition of Rs. 5,95,15,054/- to the taxable book profit on the ground that the assessee has wrongly reduced the amount of Rs. 5,95,15,054/- on account of withdrawal from the provision of ESOP from the taxable book profits in the working of MAT. According to the AO since the assessee in its computation of income for A.Y. 2007-08 under MAT provisions had not added back the provision for ESOP, therefore, the assessee is not entitled to any deduction from the book profit u/s.115JB of the Act in the current year. We find the CIT(A) upheld the action of the AO. While doing so, she also held that since the assessee company has not added back the ESOP provision in terms of clause (c) to Explanation I of section 115JB the AO has correctly held that this amount of reversal of provision of Rs. 5,95,15,054/- cannot be reduced from the book profit of the current year. 40.1 It is the submission of the Ld. Counsel for the assessee that the assessee in the A.Y. 2007-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s admittedly increased its book profit in A.Y. 2007-08 as per the submission before CIT(A), which has already been recorded by the CIT(A) in the body of the order at page 7 and the same has not been proved to be false or untrue, therefore, we are of the considered opinion that the assessee is entitled to reduce an amount of Rs. 5,95,14,054/- on account of withdrawal from the provision for ESOP from the taxable book profit in the working of MAT. Ground raised by the assessee is accordingly allowed. 41. Ground of appeal No.2 by the assessee reads as under : Ground No.2 : Set off of brought forward business loss and unabsorbed depreciation before allowing deduct ion under Section 10A 2.1 The Hon'ble CIT(A) has erred in facts and law in holding that deduction under section 10A of the Act is allowable after set off of brought forward business loss and unabsorbed depreciation. 2.2 The Hon'ble CIT(A) erred in facts and law in not allowing set off of brought forward loss from profits / gains from business for the year amounting to Rs. 11,08,219/-. 2.3 The Hon'ble CIT(A) erred in facts and law in not allowing carry forward of business loss and unabsorbed depreciation amounting to R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Companies Act and Schedules thereto the profit and loss account of the company is prepared in accordance with the Accounting Standards specified by ICAI and further notified by the Ministry of Corporate Affairs. However, the AO was not satisfied with the explanation given by the assessee. He concluded that since provisions, which are in the nature of unascertained liabilities, have to be added back to compute book profit u/s.115JB. The provisions for lease rent equalization being in nature of unascertained liabilities was required to be added back in the MAT working. He accordingly added the same while computing the book profit. 48. Before CIT(A) the assessee made elaborate submissions and stated that the provision for lease rent equalization are ascertained liabilities and therefore should not be added as per section 115JB of the Act while computing book profit since such provision made was as per AS-19 which is required to be mandatorily followed by the assessee. The provisions so made will be discharged in the future as per the terms of agreement. Relying on various decisions it was submitted that lease rent equalization provision is not a provision for unascertained li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the Tribunal referred to above, we allow the appeal of the assessee. We are not convinced with the argument of learned Departmental Representative that the amount in question namely the lease equalization charges is an amount set aside to provisions for meeting liability other than ascertained liabilities. The lease equalization charge is not an amount set aside for meeting any liabilities which is unascertained. It is a recognized method for preparing financial statement of NBFCs. It is applicable while preparing financial statements under the Companies Act, 1956. The sum in question does not fall within any of the other cls. (a) to (/) of Explanation to s. 115 JA. In view of the above, the claim maid by the assessee for the asst. yr. 1998-99 is allowed. In the result, IT Appeal No. 2977/Del/02 and IT Appeal No. 2912/Del/02 are dismissed while IT Appeal No. 1712/Delhi/02 is allowed." 4.3 On account of the judicial precedent available on this issue with reference to Section 115JA, which is pari material to Section 115JB, it is held that the provisions for lease rent equalization may not be included for computing the book profits u/s. 115JB of the I.T. Act. Consequently, G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce referred to above, the onus had shifted to the revenue and the latter having failed to make enquiries from the concerned dealers whose turnover had been included by the assessee in the turnover of other dealers for the purposes of computation of incentive bonus as also having failed to collect any material against the assessee disproving their claim, the addition made by the Assessing Officer, in our view, is uncalled for and unwarranted. We, therefore, hold that the Assessing Officer was not justified in making the additions of Rs. 24,87,111/- for assessment year 1988-89 and Rs. 61,28,207/- for assessment year 1989-90 on account of suppressed sales. The said additions are accordingly deleted." He accordingly admitted that the order of CIT(A) be upheld and the grounds raised by the revenue be dismissed. 52. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Ld.CIT(A) while holding that the lease rent equalization provision should not be included for computing book profit u/s.115JB of the Act has foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the issue and the grounds raised by the Revenue have been dismissed. Following the same reasonings this ground raised by the revenue is dismissed. 56. Grounds of appeal No.1, 6 and 7 being general in nature are dismissed. ITA Nos. 17 & 18/PN/2014 (A.Y. 2009-10) : 57. Grounds raised by the assessee in ITA No.17/PN/2014 are as under : Aggrieved by the order passed by the Hon'ble Commissioner of Income-tax (Appeals) - I, Pune hereinafter referred to as 'the Honble CIT(A)'], under section 250 of the Income-tax Act, 1961 ('Act') and based on the facts and circumstances of the case, Amdocs Development Centre India Private Limited [hereinafter referred to as 'Appellant"] respectfully submits that the Honble CIT(A) erred in disposing off the appeal of the Appellant, on the following ground which are without prejudice to each other: Ground 1 : Set off of brought forward business loss and unabsorbed depreciation before allowing deduct ion under Section 10A 1.1 The Honblc CIT(A) has erred in facts and law in holding that deduction under section 10A of the Act is allowable after set off of brought forward business loss and unabsorbed depreciation. 1.2 The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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