TMI Blog2016 (1) TMI 1334X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits deduction u/s.10A of the Act has to be allowed, thereby rendering tax implication on the Assessee insignificant. As rightly contended on behalf of the Assessee the consequence of disallowance u/s.40(a)(ia) of the Act will be that the business profits of the Assessee to that extent will stand enhanced. - Decided against revenue - IT(TP)A No.675/Bang/2012 - - - Dated:- 8-1-2016 - SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appellant by: Dr. P.K.Srihari, Addl.CIT. For The Respondent by: Shri Chavali S. Narayan, CA. ORDER Per N.V.VASUDEVAN, JM: This is an appeal by the Revenue against the order dated 28.2.2012 of CIT(A)-I, Bangalore, relating to AY 2007-08. 2. Grounds No.1, 9 10 raised by the revenue in this appeal are general in nature and does not call for any specific adjudication. 3. Ground No.2 to 4 raised by the Revenue relates to one and the same issue, viz., computation of deduction u/s.10A of the Income Tax Act, 1961 (Act). The assessee is a company primarily engaged in the software development and testing services in healthcare sector. The Assessee was entitled to claim deduction u/s.10A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No.2 to 4 in this appeal before the Tribunal. 6. We have heard the rival submissions. As far as the alternative claim is concerned, we find that the Hon ble High Court of Karnataka in the case of Tata EIxsi Ltd (supra) has held that while computing deduction under section 10A of the Income Tax Act, 1961 (the Act ), expenditure incurred by the assessee, if excluded from the export turnover ( ET ), should also be excluded from the total turnover ( TT ). It has been held that, The TT would have two components ET and Domestic Turnover. Therefore, if the ET in the numerator is to be arrived at after excluding certain expenses these should also be excluded in computing ET as a component of TT in the denominator. Though there is no definition of TT in section 10A of the Act, there is nothing in the said section to mandate that what is excluded from the numerator and would nevertheless form part of the denominator. The principle laid out in judgements rendered in context of section 80HHC of the Act will equally apply while interpreting section 10A of the Act since the principle underlying both these provisions is the same. 7. In view of the aforesaid decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice(ALP). There is no dispute that the Transfer Pricing Officer to whom a reference was made by the AO had accepted the price charged in the international transaction with it s AE was at Arm s Length. 9. During the previous year the Assessee made a payment of ₹ 3,87,19,625/- to Cerner US. The break-up of the payment so made was as follows: 1. 1. Corporate Card Payments Rs.68,82,509 2. 2. Payment made towards professional Expenses Rs.10,75,794 3. 3. Payment made towards relocation expenses Rs.3,50,970 4. 4. Payment made towards salaries Rs.65,49,000 Payment towards communication expenses Rs.2,38,61,351 Rs.3,87,19,625 The Assessee submitted that the aforesaid payment were payments which Cerner US had made on behalf of the Assessee and which the Assessee is reimbursing to Cerner US. The Assessee pointed out that no portion of the reimburs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation of AP and another Vs. CIT 239 ITR 587 (SC). The AO also came to the conclusion that the payment in question was a payment in the nature of FTS within the meaning of Sec.9(1)(vii) of the Act and that services rendered made available technical knowledge, experience, skill to the Assessee. The AO accordingly disallowed a sum of ₹ 3,87,19,625 u/s.40(a)(ia) of the Act for non-deduction of tax at source on payments made to Cerner US. 12. Aggrieved by the order of the AO, the Assessee preferred appeal before CIT(A). Before CIT(A) apart from reiterating the submissions made before the AO, the Assessee also specifically raised a ground before CIT(A) viz., ground No.4.2 wherein the Assessee contended as follows: 4.2 Without prejudice to the above, even assuming, while denying, that the disallowance was warranted, the ITO ought to have given effect to the above disallowance before arriving at the profits eligible for deduction under section 10A of the Act, rather than making an adjustment after granting deduction under section 10A of the Act. The CIT(A) however decided ground No.4.1 in which the Assessee challenged the disallowance of ₹ 3,87,19,625 only and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal issue for the A.Y.06-07 held that decision in the case of IDS Software Solutions (India) Pvt. Ltd was applicable to the facts of the case and accordingly allowed the appellant's claim in this regard. Therefore, the disallowance of ₹ 3,87,19,625/- is hereby deleted by respectfully following the decision of the Honble ITAT, Bangalore 'B' Bench in the appellant s own case for the AY 06-07 cited above as the facts are exactly identical. 13. Aggrieved by the order of the CIT(A) the revenue has raised grounds No.5 to 8 before the Tribunal. The learned DR relied on the order of the AO. The learned counsel for the Assessee reiterated submissions made before CIT(A)/AO and relied on the order of the CIT(A). He filed an application under Rule 27 of the Income Tax Appellate Tribunal Rules (ITAT Rules). Under Rule 27 of the ITAT Rules a respondent in an appeal, even though he has not filed any appeal, may support the order appealed against on any grounds decided against him. Since ground No.4.2 raised by the Assessee before CIT(A) was not decided by the CIT(A), it is the stand of the Assessee that the said ground is deemed to have been decided against the Assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing profits in the Act and laid down the manner of computing such profits, wherever the intent was to use accounting profits as measure for tax/ deduction, for instance section 115JB of the Act. In the absence of any specific definition of the profits of the business of the undertaking in section 10A of the Act, such profits should be computed in accordance with the provisions of the Act (applicable for computation of income from any business source) rather than adopting 'accounting profits'. It was argued that under the Act, as per section 28 read with section 29 of the Act, profits of a business is required to be computed after giving effect to the provisions of Section 30 to Section 43D of the Act. Accordingly, it is necessary that for the computation of the profits of the business of the undertaking, due effect is required to be given to the WW1 provisions of Section 40(a)(i) of the Act. 15. The learned counsel for the Assessee placed reliance on the decision of the Hon ble Bombay High Court, rendered in a similar context, in the case of CIT vs Gem Plus Jewellery India Ltd (330 ITR 175). He pointed out that the Honourable Bombay High Court held that ..in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee insignificant. Therefore the prayer made in the application under Rule 27 of the ITAT Rules requires consideration. 17. In Deep Chand Kothari Vs. CIT 171 ITR 381 (Rajasthan) Mewar Sugar Mills Ltd. Vs. CIT 119 CTR 161 (Raj.) following the decision of the Hon ble Supreme court in the case of Mahalskhmi Textile Mills Ltd. (Supra) held that respondent in an appeal has a right to support the order on any grounds decided against him. In the aforesaid decision, the Assessee a respondent had challenged the jurisdiction of the ITO before the AAC but the AAC decided the appeal in favour of assessee on merits without touching upon the point of jurisdiction. Though the assessee may not have appealed against the order of AAC he may support the order appealed against on any of the grounds decided against him. Assessee could therefore raise the plea of jurisdiction before the Tribunal in an appeal filed by the Revenue. 18. We therefore permit the Assessee to raise the plea as projected in the application under Rule 27 of the ITAT Rules. 19. As rightly contended on behalf of the Assessee the consequence of disallowance u/s.40(a)(ia) of the Act will be that the business prof ..... 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