9911796707
TMI Blog2020 (10) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 2009-10 to 2011-12. Since most of the issues urged in these appeals are identical in nature, they were heard together and are being disposed of by this common order, for the sake of convenience. 2. The assessee is engaged in different types of business activities, viz., software development services and IT services; manufacture of Vanaspati/Hydro generated oils; toilet soaps; lighting products; pharmaceuticals & Neutraceutical products; leather products; computers, hydraulic and pneumatic equipment; water treatment systems and solutions etc. It is also engaged in trading of servers, routers, networking equipments, spare parts, etc. 3. During the course of hearing before us, the Ld. Counsel appearing for the assessee submitted that most of the issues urged in the appeals filed by both assessee and revenue are common in nature in all the years. Accordingly, he suggested that the Tribunal may adjudicate each of the issues separately and the same may be applied to all the years under consideration. Accordingly he preferred to advance his arguments also issue wise. The Ld D.R also agreed for the same. Accordingly, we are dealing with the grounds urged in all the years by both the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit earned by non-SEZ/non-STPI undertakings. 4.4 Before Ld. D.R.P., the assessee submitted that an identical claim made by the assessee in assessment year 2007-08 has been allowed by the Tribunal. Accordingly, it was prayed that the claim of the assessee should be allowed. However, the Ld. DRP did not accept the submissions of the assessee and accordingly, confirmed the order of the A.O. with the following observations: "It is observed by the Panel in the immediately preceding year vide its order dated 17.9.2012 the Panel has decided while dealing with the preceding year that the A.O. had rightly denied the set off current year losses with 10A units with other income It has also upheld the AO's action of denying set-off of losses of STP units in the AY 2007-08 while computing the profits of the business before allowing deduction under Chapter VIA and XA. The issue has not been judicially clarified by the Ld. Supreme Court in the case of HimatsingkaSeide Vs. CIT. This Panel therefore finds no reason to take a different view in the matter for the period under consideration. Accordingly, both the objections raised under this ground are rejected." 4.5 The Ld. A.R. submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble jurisdictional High Court in assessee's own case reported in 382 ITR 179 for the Assessment Year 2004-05 has upheld the decision of this Tribunal in favour of the assessee and against the revenue. We further note that this Tribunal in assessee's own case for the Assessment Year 2007-08 has again decided this issue in para 7.4 as under : "7.4 We have heard both parties and perused and carefully considered the-material on record We find that the identical issue was considered by a coordinate bench of the Tribunal in the assessee's own case for Assessment Year 2004-05 in ITA Na1072/Bang/2007 (supra), wherein the Tribunal confirming the finding of the learned CI (A), at para 16.4 on pages 29 and 30 thereof, held as under : "16.4. We have carefully considered the contentions of the either parties and also carefully perused the order of the Hon'ble Tribunal While deciding an identical issue, the Hon'ble Tribunal cited the following decisions - (1) [12.5.] ITA No: 669 & 804/Ban/05 dated: 22.3.2006 for the AY-2000-01 in the case of assessee company wherein it was concluded that we direct the AO to allow set off of loss from 10,4 units against the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that an identical issue was decided by Hon'ble High Court of Karnataka in AY 2001-02 to 2004-05 in the assessee's own case reported in 382 ITR 179. We extract below the relevant discussions made by Hon'ble Karnataka High Court on this issue:- "Substantial question of law No.14: "Whether the Tribunal was right in directing that losses of a section 10A unit, which are already set off against other business income of the appellant, should be again carried forward and set-off against eligible profits of the same unit in a subsequent year ?" "Whether the Tribunal was correct in holding that income of each undertaking should be taken independently and losses of section 10A units cannot be set off against profits of section 10A units, when computing deduction under section 10A of the Act?" "Whether the appellate authorities failing to take into consideration the amendment provision of section 10A(6)(ii) of the Act, which clearly contemplated that the loss of the undertaking can be carried forward and adjusted against other income?" "Whether the appellate authorities were correct in holding that the finding recorded by the Assessing Officer that in view of the amendment to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income from Mutual fund 391.63 86.73 -- -- -- -- Others 325.49 90.33 267.56 51.24 -- 372.32 Interest income -- -- -- 311.20 922.99 -- 5.3 The assessee has not claimed deduction u/s 10A/10AA/10B in respect of "profit on sale of assets", since the same is required to be deducted from Net profit while computing total income and it also requires different kind of treatment under Income tax Act. The A.O. accepted that dividend income from mutual fund is exempt and hence the same was also excluded while computing total income. In respect of other items shown in the table above, the assessee had claimed deduction u/s 10A/10AA/10B treating them as part of "Profits and gains derived from the eligible undertaking". However, the A.O. took the view that these incomes do not have any nexus with software development activities of the units and hence they cannot be treated as part of "Profits and gains derived from eligible undertaking". Accordingly, the A.O. held that these incomes are not eligible for deduction u/s 10A/10AA/10B of the Act. The Ld. DRP also confirmed the same. Identical view was taken in other years also. Ld DRP also confirmed the said view in other years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to "Other income" to the file of the AO with similar directions. 6. Issue No.3 relates to Exclusion of Net interest income for deduction u/s 10A/10AA/10B:- 6.1 This issue relates to rejection of claim for deduction u/s 10A/10AA/10B of the Act in respect of interest income earned by the assessee. This issue has been urged by the assessee in all the six years, namely in the assessment years 2009-10 to 2014-15. 6.2 We notice that the assessee has booked interest income under the head "Miscellaneous income" in AY 2012-13 and 2013-14, apart from booking interest income separately as under:- Assessment year Interest Income 2009-10 60.27 crores 2010-11 150.03 crores 2011-12 26.54 crores 2012-13 224.65 crores 2013-14 2.91 crores 2014-15 3.45 crores It is also not clear as to whether the nature of interest income booked under the head "miscellaneous income" in AY 2012-13 and 2013-14 are identical with the nature of interest income booked separately. Since the legal principles relating to deduction of interest income u/s 10A/10AA/10B are discussed here, we adjudicate interest income booked under the head "miscellaneous income" and also reported separately. The facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banks and from inter-corporate deposits. The Hon'ble High Court has decided as under:- "But there is change in the law for the assessment year 2001-02. Section 10(B)(1) and (4) reads as under:- "Section 10B : Special provisions in respect of newly established hundred per cent export-oriented undertakings.- (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent exportoriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the aforesaid provisions, it is clear that, what is exempted is not merely the profits and gains from the export of articles but also the income from the business of the undertaking. 8. In the instant case, the assessee is a 100% EOU, which has exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to the sister concern which is deriving interest or the consideration received from sale of the import entitlement, which is permissible in law. Now the question is whether the interest received and the consideration received by sale of import entitlement is to be construed as income of the business of the undertaking. There is a direct nexus between this income and the income of the business of the undertaking. Though it does not partake the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of 'Income from Profits and Gains' incorporated in Subsection (4), the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he finding in the decision of the coordinate bench of the Tribunal (supra) and respectfully following the same, we are of the considered view that the said decision holds good for this assessment year also with regard to interest income and income from sale of scrap. However, since we find that no details are available with regard to other income of Rs. 3,48,524, we deem it fit to remit the matter back to the file of the Assessing Officer with a direction to examine the matter afresh and decide the issue on merits." The order passed on this issue in assessment year 2007-08 was followed in AY 2008-09 also. 6.5 From the foregoing discussions, we notice that the principle enunciated by Hon'ble Karnataka High Court in the case of Motorola India Electronics (P) Ltd (supra) is that the deduction u/s 10B is allowable if there is direct nexus between interest income and the income of the business of the undertaking. The co-ordinate benches in the earlier years have also followed the decision rendered by Hon'ble Delhi High Court in the case of CIT Vs. Shriram Honda Power Equipment 289 ITR 475, wherein it was held that, if the AO has assessed interest income under the head Income from bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that the surplus funds relating to SEZ division could not be separately identified, if all the surpluses of all divisions are put together, meaning thereby, it is the case of the AO that there is no nexus between interest income and income of business undertaking. In our view, the assessee may be given an opportunity to show that the nexus between SEZ/STPI divisions and the fixed deposits from which interest income was earned. If the assessee is able to show the nexus to the satisfaction of the AO, then the interest income to that extent should be eligible for deduction u/s 10A/10AA/10B of the Act. 6.9 With these observations, we restore this issue to the file of the AO for examining it afresh in the light of discussions made supra. 7. Issue No.4 relates to the issue whether Deemed exports are eligible for deduction section 10A/10AA/10B:- 7.1 This issue relates to rejection of claim of deduction u/s 10A/10AA/10B of the Act in respect of sale proceeds received from customers located in SEZ units in India, though it was received in foreign currency. This issue is being urged by the assessee in assessment years 2009-10, 2010-11, 2012-13 to 2014-15. 7.2 During the years under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware sales made to STP units in India from "export turnover" for the purpose of computing deduction under section 10A of the Act?" 147. The said question came up for consideration before this Court in the case Tata Elxsi vs. Asst. CIT (I.T.A No.411 of 2008). This court has answered the said substantial question in favour of the assessee and against the Revenue. Accordingly, the said substantial question of law is answered in favour of the assessee and against the Revenue." 7.6 In the case of Tata Elxsi Ltd (supra), the Hon'ble Karnataka High Court dealt with this issue as under:- "18. As Section 10A was introduced to give effect to the Exim Policy of the Central Government, we have to take into consideration the provisions of the Exim Policy. 19. Paragraph 6.10 of the Exim Policy speaks about exchange through others. It provides that a EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through another exporter or any other EOU/EHTP/STP/SEZ unit subject to the conditions mentioned in paragraph 6.19 of Handbook. The conditions to be fulfilled if a Unit has to export through other exporters is as under: "6.19 An EOU/EHTP/STP/BTP unit may expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .19 specifically provides for export through Status Holder. It provides that an EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through other exporter or Status holder recognized under this policy or any other EOU/EHTP/STP/SEZ/BTP unit. What follows from this provision is that to be eligible for exemption from payment of income tax, export Should earn foreign exchange. It does not mean that the undertaking should personally export goods manufactured/software developed by it outside the country. It may export out of India by itself or export Out of India through any other STP Unit. Once the goods manufactured by the assessee is shown to have been exported out of India either by the assessee or by another STP Unit and foreign exchange is directly attributable to such export, then Section 10A of the Act is attracted and such exporter is entitled to benefit of deduction of such profits and gains derived from such export from payment of income tax. Therefore, the finding of the authorities that the assessee has not directly exported the computer software outside country and because it supplied the software to another STP unit, which though exported and forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion by the assessee to RBI is not sufficient to infer that RBI has allowed extension of time for realizing sale proceeds in foreign exchange. Accordingly, he rejected the claim of the assessee. Ld. DRP also confirmed the order of A.O. in all the years under consideration except in assessment year 2011-12, wherein Ld. DRP directed the A.O. to include the turnover covered by the application filed to RBI as part of export turnover. 8.3 We heard the parties on this issue and perused the record. We notice that an identical issue was considered by Hon'ble High Court of Karnataka in the assessee's own case in 2001-02 to 2004-05, wherein the High Court decided the issue in favour of the assessee with the following observations:- "146. The facts are not in dispute. The assessee is a status holder exporter. The export has been done strictly in accordance with law. Foreign exchange remittances should have been received within six months from end of the financial year. It has not been received. Therefore, an application is filed seeking for extension of time to the Reserve Bank of India. Even to this day the Reserve Bank of India has not rejected the said request. On the contrary, after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid incometax on the very same income both in the foreign Country and in India. The AO observed that the assessee has generated the income from foreign countries through the undertakings eligible for deduction u/s 10A & 10AA of the Act. The assessee has also been allowed deduction under the above said sections. If the deduction has been allowed, then it cannot be said that the assessee has not income tax on the profits so generated from the eligible undertakings from sources outside India. Accordingly, the AO took the view that the assessee did not pay tax on those income under the Indian Income tax Act. Accordingly, the A.O. held that there is no necessity to allow foreign tax credit on the said income. 9.3 In some of the years, the A.O. also referred to the provisions of DTAA entered with United States of America (USA) and observed that the tax credit shall not be allowable for units which have claimed deduction u/s 10A & 10AA of the Act. 9.4 The assessee had also paid taxes levied at "state level" and "local authority level" in the USA. It claimed for credit of those taxes also. It is stated that, in some of the states like California and New York in USA, income tax is levi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or (ii) income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or Countries with which no agreement exists 91. (1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal. Explanation.-In this section,- (i) ....... (ii) ........ (iii) ........ (iv) the expression "income-tax" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that this issue has been examined by Hon'ble Karnataka High Court in assessment years 2001-02 to 2004-05 (supra) and the above said contentions of the assessee have been accepted. 9.8 The Ld. A.R. further submitted that the tax credit is allowed both u/s 90 and 91 of the Income tax Act. Section 90 is applicable in respect of Countries with which India has entered into DTAA. He submitted that section 91 of the Act is applicable in respect of taxes paid in a foreign country with which India has not entered into DTAA. The Ld A.R submitted that the AO has failed to appreciate these fine distinctions while examining the claim of the assessee for foreign tax credit. 9.9 The Ld. A.R. invited our attention to clause (iv) of explanation given u/s 91 of the Act, wherein it is mentioned that the expression "Income Tax" in relation to any country includes any excess profit tax or business profits tax charged on the profits by the Government of any part of the country or a local authority in that country. Accordingly, the Ld A.R. submitted that the taxes paid by the assessee in the foreign country at "State level" or "Local authority level" shall also be eligible for tax credit u/s 91 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. This applies to a case where the income of the assessee is chargeable under this Act as well as in the corresponding law in force in the other country. Though the Income-tax is chargeable under the Act, it is open to Parliament to grant exemptions under the Act from payment of tax for any specified period. Normally it is done as an incentive to the assessee to carry on manufacturing activities or in providing the services. Though the Central Government may extend the said benefit to the assessee in this country, by negotiations with the other countries, they could also be requested to extend the same benefit. If the contracting country agrees to extend the said benefit, then the assessee gets the relief. In another scenario, though the said income is exempt in this country, by virtue of the agreement, the amount of tax paid in the other country could be given credit to the assessee. Thus for the payment of Income-tax in the foreign jurisdiction, the assessee gets the benefit of its credit in this country. 40. However, if the contracting country is not agreeable to extend the said benefits, then in terms of the agreement and probably in terms of the exemption granted, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the said income is taxable. When such exemption is given under the Act, but the said income is taxed in foreign jurisdiction, there is no relief to the assessee at all. Therefore, to promote mutual economic relations, trade and investment, the Act was amended by way of the Finance Act, 2003 which came into force from April 1, 2004. By insertion of a new clause (ii) in subsection (1)(a) of section 90 the Central Government has been vested with the power to enter into an agreement with the Government of any country outside India for the granting of relief in respect of Income-tax chargeable under the Income-tax Act or under the corresponding law in force in that country, to promote mutual economic relations, trade and investment. Therefore, the statute by itself is not granting any relief. But, by virtue of the statute, if an agreement is entered into providing for such relief, then the assessee would be entitled to such relief. ..................... 56. Therefore, it follows that the income under section 10A is chargeable to tax under section 4 and is includible in the total income under section 5, but no tax is charged because of the exemption given under section 10A only f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his provision is in conformity with section 90(1)(a)(ii) of the Act, i.e., the Income-tax chargeable under the Income-tax Act and in the corresponding law in force in the United States of America. Therefore, it is not the requirement of law that the assessee, before he claims credit under the Indo-US convention or under this provision of Act should pay tax in India on such income. However, the said provision makes it clear that such deduction shall not, however, exceed that part of the Income-tax (as computed before the deduction is given) which is attributable to the income which is to be taxed in the United States. Therefore, an embargo is prescribed for giving such tax credit. In other words, the assessee is entitled to such tax credit only in respect of that income, which is taxed in the United States. This provision became necessary because the accounting year in India varies from the accounting year in America. The accounting year in India starts from 1st of April and closes on 31st of March of the succeeding year. Whereas in America, the 1st of January is the commencement of the assessment year and ends on 31st of December of the same year. Therefore, the income derived by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hargeable to Indian tax. In other words if the Income-tax paid in India is less than the Income-tax paid in Canada, the assessee would be entitled to relief only to the extent of tax paid in India and not to the extent of tax paid in Canada. Therefore, this clause is in conformity with section 90(1)(a)(i) of the Act. As a corollary if the assessee is exempted from payment of tax in India, then if the same income is subjected to tax in Canada, according to the treaty, there is no double taxation. Therefore, the benefit of this treaty is not available to the Indian assessee. 62. It is submitted on behalf of the assessee that by virtue of the formulae prescribed under section 10A(4), entire export profits had not got exempted under section 10A, residuary surplus being subjected to tax both in India and Canada. This residuary surplus could qualify for tax credit as it is subjected to tax in both the countries. 63. As is clear from the aforesaid clause in the IndoCanadian agreement if the income from source within Canada, is lower, has been subjected to tax both in India and Canada then, the tax paid in Canada shall be allowed as a credit against the Indian tax paid in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits by the Government of any part of that country or a local authority in that country. Thereforethe intention of Parliament is very clear. The Income-tax in relation to any country includes Incometax paid in any part of the country or a local authority. It applies to cases where in a federal structure a citizen is made to pay federal Income-tax and also the State income tax. The Income-tax in relation to any country includes Income-tax paid not only to the Federal Government of that country, but also any Income-tax charged by any part of that country meaning a State or a local authority, and the assessee would be entitled to the relief of double taxation benefit with respect to the latter payment also. Therefore, even in the absence of an agreement under section 90 of the Act, by virtue of the statutory provision, the benefit conferred under section 91 of the Act is extended to the Income-tax paid in foreign jurisdictions. India has entered into an agreement with the federal country and not with any State within that country. In order to extend the benefit of this, relief or avoidance of double taxation, the aforesaid Explanation explicitly makes it clear that Income-tax in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , by invoking provisions of section 40(a)(ia) of the Act for non-deduction of tax at source from the payments made for purchase of software. This issue arises only in assessment year 2009-10 & 2010-11 in the appeals filed by the assessee and in assessment year 2011-12 in the appeal filed by the revenue. 10.2 The facts relating to this issue are that the assessee had purchased software locally as well as from abroad for its own use. The assessee capitalized the value of software and accordingly, claimed depreciation on the software @ 60%, as applicable to computers. The A.O. noticed that the assessee has not deducted tax at source from the payments made for purchase of software. The A.O. noticed that the Hon'ble Karnataka High Court has held in the case of Samsung electronics Ltd. 345 ITR 494 that the payment made for purchase of software is in the nature of royalty. Accordingly, the A.O. took the view that the depreciation claimed by the assessee on the value of software is liable to be disallowed u/s 40(a)(ia) of the Act, as the assessee did not deduct tax at source from the payments made for purchase of software. The A.O. also held that the disallowance so made u/s 40(a)(ia) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered the material on record. The issue before us is limited only with respect to the disallowance of depreciation by invoking the provisions of section 40(a)(i) of the Act. There is no dispute that the assessee has made the payment in question to a nonresident for purchase of software and the said payment has been capitalized by the assessee in the block of computer asset. Once the assessee capitalized the payment and has not claimed the same as an expenditure against the profits of the business of the assessee, then, the question arises whether the depreciation is a statutory deduction as per the section 32 of the Act can be disallowed by invoking the provisions of section 40(a)(i) of the Act. At the outset, it is to mention that on the same set of facts an identical issue has been dealt by the ITAT, Mumbai Bench in the case of SKOL Breweries Ltd. (supra), wherein it was held in paras 16.1 to 16.4 as under : 16.1 As regards the alternative plea of the ld Sr counsel for the assessee that since the assessee has not claimed the entire amount as revenue expenditure; but has capitalized the same and claimed only depreciation u/s 32(1)(ii); therefore, provisions of sec. 40(a)((i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning as in Explanation 2 to clause (vi) of sub- section (1) of section 9 ; (B) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; 16.2 It is manifest from the plain reading of provisions of sec. 40(a)(i) that an amount payable towards interest, royalty, fee for technical services or other sums chargeable under this Act shall not be deducted while computing the income under the head profit and gain of business or profession on which tax is deductible at source; but such tax has not been deducted. The expression 'amount payable' which is otherwise an allowable deduction refers to the expenditure incurred for the purpose of business of the assessee and therefore, the said expenditure is a deductible claim. Thus, section 40 refers to the outgoing amount chargeable under this Act and subject to TDS under Chapter XVII-B. There is a difference between the expenditure and other kind of deduction. The other kind of deduction which includes any loss incidental to carrying on the business, bad debts etc., which are deductible items itself not because an expenditure was laid out and consequentially any s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) also although she referred to page 4 of the assessment order, where it was mentioned that the tax deducted in respect of the payment was made over to the Government in the subsequent year and, therefore, depreciation could not be deducted on the capital expenditure incurred by the assessee. In reply, the learned counsel pointed out that the expenditure by way of technical know- how was capitalized and it was not claimed as revenue expenditure. Therefore, there was also no reason to disallow depreciation on such capitalized amount as the aforesaid provision does not deal with deduction of depreciation. Having considered arguments from both the sides, we are of the view that there is no error in the order of the learned CIT(A) which requires correction from us. Thus, this ground is also dismissed." Following the decision rendered by the coordinate bench in the Tally Solution (supra), we direct the A.O. to delete the disallowance on depreciation made u/s 40(a)(ia) of the Act. Since we have held that depreciation is not liable to be disallowed u/s 40(a)(ia) of the Act, the alternative claim of the assessee for enhanced deduction shall become infructuous, even though the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereto are booked separately. In the alternative, the assessee submitted that the allocation of entire corporate expenses to various business divisions and units is not appropriate in the facts and circumstances of the case. Accordingly, the assessee submitted that a sum computed up to 20% of the corporate expenses may be considered as relatable to other business divisions and units and the same may be allocated on a reasonable basis. The A.O. did not accept the submissions made by the assessee. He proceeded to allocate the expenditure of Rs. 83.62 crores (referred to above) to various business divisions and units on the basis of turnover. Accordingly, profits of units which were claiming deduction u/s 10A/10AA/10B of the Act came to be reduced to the extent of corporate expenses allocated to those units, resulting in corresponding reduction of deduction claimed under those sections. In the same manner, the AO allocated corporate expenses in AY 2010-11 and 2011-12 also. The Ld. D.R.P. upheld the order of the A.O. in assessment years 2009-10, 2010-11 & 2011-12. However, the Ld. DRP directed the A.O. in assessment year 2012-13 to follow the decision rendered by jurisdictional High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure and the same has been confirmed by the Commissioner of Income-tax (Appeals). Therefore, the Tribunal felt that the allocation at the rate of 20 per cent. of common expenses is in order. Thus the Income-tax Appellate Tribunal upheld the order of the appellate authority. Aggrieved by the said order the Revenue is in appeal. 149. Learned senior counsel appearing for the Revenue submits that, when 57 per cent. of the revenue is generated by the section 10A units and 82 per cent. is the profit earned by the said units allocating 20 per cent. of the common expenditure to such section 10A units is not proper when in fact, on an earlier occasion 57 per cent. was allocated to the section 10A units and therefore he submits that the orders passed by the appellate authority requires to be set aside. 150. Per contra, learned senior counsel appearing for the assessee submitted the said issue is covered by the judgment of this court in the assessee's case I. T. A. No. 507 of 2002 disposed on August 25, 2010. Based on the aforesaid facts it is clear that the assessee wanted allocation of actual expenditure incurred by each unit. When the assessing authority did not agree, they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Tribunal has held on proper appreciation of the material on record. In that view of the matter we do not find any justification to interfere with the well considered order of the Tribunal. Accordingly, this question of law is answered in favour of the assessee and against the Revenue." 151. We do not find any justification to differ from the said view taken by this court and the question is answered in favour of the assessee and against the Revenue. 11.5 We notice that there is some confusion on the manner of allocation of Head office expenses. According to AO, the assessee has not allocated corporate office expenses to various undertakings and hence, the AO has proceeded to allocate them in the ratio of turnover of all the undertakings. The Hon'ble High Court has observed that the assessee has allocated the expenses on actual basis, which is contrary to the observations made by the AO. In between, there is a reference to allocation of 20% of expenses also, which appears to have not been accepted by Hon'ble High Court. 11.6 In our considered view, the head office maintained by the assessee is essentially a cost centre in that it incurs expenditure for providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed that the assessee has been incurring common expenses for various units on communication, travel, sub-contracting charges, personal allowances, etc. The said common expenses have been apportioned to various units by the assessee on the basis of turnovers on each of the units. Accordingly, the AO took the view that the fact of incurring of common expenses also would show that they are only expansion of existing business. Accordingly, the A.O. rejected the claim for deduction u/s 10A of the Act in the assessment year 2009-10. However, in assessment year 2010-11, the A.O. allowed the claim on the basis of directions issued by DRP, which had followed the decision rendered by the Tribunal in the earlier years. The assessee is aggrieved by the decision of A.O. taken in assessment year 2009-10 and the revenue is aggrieved by the decision of A.O. taken in assessment year 2010-11. 12.3 We heard the parties and perused the record. We notice that this is a recurring issue and in assessment year 2008-09, the Tribunal had directed the A.O. to allow the claim of the assessee by following the decision rendered by coordinate bench in assessment year 2007-08, which in turn had followed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The second condition is such an undertaking should not be formed, by splitting up or reconstruction of a business already in existence. In other words, it should be a new undertaking. Third condition to be satisfied is that it should not have been formed by a transfer to a new business of any machinery or plant previously used for any purpose. In other words, that new undertaking should use new machinery or plant. Once all the conditions are fulfilled, the assessee is entitled to the benefit of tax exemption in respect of the income accrued from such undertaking. 8. The arguments of the revenue is that if the assessee has to avail the said benefit, he should set up a new independent undertaking after obtaining requisite permission for each of the floors and then only such benefit is granted. In the instant case, it is not disputed that the assessee is having manufacturing unit in the third floor of the Golden Enclave which was commenced prior to 1993 for which the assessee is not entitled to claim the benefit under Section 10A of the Act. The assessee sought permission to expand its business. After getting such permission it has set up a undertaking in the second floor on 16.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the new industrial undertaking on account of which the assessee claims exemption under section 15C. No hard and fast rule can be laid down. Trade and industry do not run in earmarked channels and particularly so in view of manifold scientific and technological developments. There is great scope for expansion of trade and industry. The fact that an assessee by establishment of a new industrial undertaking expands his existing business, which he certainly does, would not, on that score, deprive him of the benefit under section 15C. Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under section 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal denied relief to the assessee are irrelevant. Merely because pursuant to a single collaboration agreement the units in question came into existence it cannot be said that they are not new industrial undertakings or separate units. The fact that the assessee was getting articles produced from the new undertakings from abroad for manufacturing dashboard instruments earlier, shows that they were marketable commodities and they answered one of the tests adopted by the Supreme Court in determining whether an undertaking is a new industrial undertaking or not. The fact that there was common management or the fact that separate accounts had not been maintained, would not also lead to the conclusion that they were not separate undertakings. Even if separate account is not maintained the investment on each of the units can be reasonably determined with the material which the assessee may make available to the Department. We are, therefore, of the view that the finding of the Tribunal that the assessee was not entitled to relief under s. 84 and deduction under s. 80J of the Act during the assessment years in question, is erroneous.' 10. From the aforesaid judgments, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtakings. Even if separate account is not maintained, the investment on each of the units can be reasonably determined with the material which the assessee may make available to the Department. It has to be understood that by establishing of a new industrial undertaking the assessee expands its existing business. The assessee should not be deprived of the benefit under Section 10A. In order that the new undertaking is said to be not form part of the already existing business there must be a new emergence of a physically and separate industrial unit which may exist on its own as a viable unit. An undertaking newly formed should be in physical identity and the old unit be preserved. The fact that if there was common management or separate accounts had not been maintained would not lead to the conclusion that there were not separate undertakings. Even if separate accounts are not maintained, the investment on each of the units can be reasonably determined with the material, which the assessee may make available with the department. 11. In the background of the law, if we look at the facts of the case, the assessee set up an undertaking in the third floor of the Golden Enclave which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 13. ISSUE NO.10 relates to the question as to whether applicable foreign VAT/GST shall form part of export turnover or not while computing deduction u/s 10A/10AA/10B of the Act. 13.1 This issue has been urged by the assessee in assessment year 2009-10 and 2010-11 only. For the remaining years, the A.O. included the foreign VAT/GST in export turnover while computing deduction in compliance with the directions issued by DRP. 13.2 The facts relating to this issue are stated in brief. The assessee has raised invoices on its customers, which included foreign tax (VAT/GST). The assessee has also collected sale proceeds inclusive of foreign VAT/GST. Accordingly, the assessee included foreign tax VAT/GST as part of "export turnover", while computing deduction u/s 10A/10AA/10B of the Act. The A.O. took the view that these taxes collected from customers are required to be remitted to the Government and hence these taxes cannot form part of component of export turnover. Accordingly, the A.O. excluded foreign VAT/GST amounts from the amount of export turnover. It is pertinent to note here that the deduction allowable u/s 10A/10AA/10B of the Act is computed in proportion of export turnove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-15. 14.2 The facts relating to the issue are stated in brief. Under the provisions of sec.244A of the Act, the revenue shall grant interest on the refund amount due to an assessee as per the order passed by the assessing officer. Generally, the assessment order/CIT(A) is challenged by the assessee/revenue to higher appellate forum. On receipt of the order of the higher appellate forum, it is possible that the refund already issued to the assessee, may be required to be collected back. In that event the assessee has to return back the amount of refund along with interest u/s 234D of the Act. 14.3 The assessee followed the practice of accounting for "interest receivable on income tax refund due to it" on accrual basis. It was also accounting for interest payable by it u/s 234D of the Act also on accrual basis. Before the A.O., the assessee submitted that the net interest income (interest receivable and interest payable) relating to income tax refund should not be taxed on accrual basis, even though the assessee has accounted for the same on accrual basis. The A.O. accepted the claim of the assessee that interest accounted by it on accrual basis should not be assessed to tax. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of law is as follows:- "4. Whether tile Tribunal was correct in holding that interest levied under Section 244A of the Act which was received by the assessee during the current assessment year cannot be brought to tax by basing its finding on mere conjectures and surmises even though the said amount of Rs. 84,34,064/- was received by the assessee during the current assessment year and consequently recorded a perverse finding by remitting the matter back to the assessing officer?" The assessee Company had been granted o sum of Rs. 84,34,064/- as interest under Section 244-A of the Act during the financial year 1998-99. The assessee Company was asked to clarify whether the said interest had been included in the return of income. In reply it was stated by the assessee that it has riot been offered for tax in the present assessment year. Further it was stated that the same has been offered for tax from the assessment year 2002-03. Therefore, the said interest income was considered for addition under the head income from other sources. Aggrieved by the said order the assessee preferred an appeal to the Commissioner of Income-Tax(Appeals), who upheld the order of the assessing au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. That would meet the ends of justice. Thus question No.4 is disposed off. 14.6 In assessment years 2001-02 to 2004-05 also, this issue was remitted to the file of A.O. with identical directions given in assessment year 1999-2000. The coordinate bench of the Tribunal has followed the decision rendered by High Court in the assessment year 1998-99 and held that, in principle, the interest received u/s 244A of the Act is an income liable to tax. However, following the decision of the High Court referred above, this issue was restored to the file of the A.O. for the limited purpose of computing the taxable amount. 14.7 Since the facts are identical in this year also, following the decision rendered by the High Court, we also restore this issue to the file of the A.O. with the direction to ascertain the interest, if any, withdrawn out of the interest given to the assessee u/s 244A of the Act in the respective years and reduce the same from the interest income and tax the balance amount. We order accordingly. 15. ISSUE NO.12 pertains to deduction claimed by the assessee u/s 80IB of the Act. 15.1 This issue is urged by the assessee in assessment year 2009-10, 2010-11 & 2011-12. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004-05 and the issue being identical with one of the issues raised in respect of deduction claimed u/s 10A of the Act, the Hon'ble High Court followed its decision rendered for deduction claimed u/s 10A of the Act. In that regard, the Hon'ble High Court followed its decision rendered in the assessee's own case in ITA No.507/2002 dated 25.8.2010. The co-ordinate bench of ITAT has considered an identical issue in assessment year 2008-09, wherein it followed the decision rendered by the Tribunal for assessment year 2007-08, wherein the decision rendered in assessment year 2004-05 had been followed. 15.4 We have considered an identical issue in this order in the context of allocation of corporate expenses to undertakings claiming deduction u/s 10A/10AA/10B of the Act (Issue no.8). We have restored this issue to the file of the AO for the reasons discussed in issue no.8. Though the issue herein is contested in the context of deduction u/s 80IB of the Act, yet the underlying facts are identical with issue no.8, discussed supra. Accordingly, in order to maintain uniformity, we feel it proper to restore this issue to the file of AO with similar directions. 16. ISSUE NO.13 pertains to el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting this issue in assessment year 2009-10 & 2010-11 and the revenue is contesting the issue in assessment year 2011-12. 16.3 We heard the parties on this issue and notice that an identical issue has been examined by the Hon'ble Karnataka High Court in the assessee's own case relating to assessment year 2001-02 to 2004-05 (382 ITR 179) and has decided the issue as under: "106. After the aforesaid information was furnished, the assessing authority proceeded with the assessment order holding that the assessee has furnished incomplete details, only value of monitors which have been sold separately are given and details of monitors sold as a component with the computer has not been furnished. Therefore, he took the average value on the basis of the details furnished filed in Annexure and did not extend the benefit of section 80-IB in respect of the monitors which were sold as a part of the computer. In the aforesaid tabular column, it is shown that the assessee has sold 25,681 monitors, i.e., they are purchased and sold as monitors and the value of the same is given and the assessee has not claimed benefit under section 80-IB in respect of the said amount. He has also given the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e computer is sold along with monitor, then the monitor forms part of the said computer, and hence the same falls within the first degree and is eligible for deduction u/s 80IB of the Act. Accordingly, following the decision rendered by Hon'ble High Court, we direct the A.O. to allow deduction u/s 80IB of the Act in respect of sale of monitors made along with the computer hardware, as part of computers. 17. ISSUE NO.14 relates to the issue of eligibility of the assessee to claim deduction u/s 80IB of the Act in respect of "other incomes" received by it. 17.1 This issue arises in assessment years 2009-10 & 2011-12. The A.O. took the view that the other income, which consisted of rental income and interest income is not eligible for deduction u/s 80IB of the Act, since the same does not fall under the category of "profit derived by industrial undertaking". The Ld. DRP confirmed the view of the A.O. in assessment year 2009-10. However, the Ld. DRP directed the A.O. to allow deduction u/s 80IB of the Act in respect of other income in assessment year 2011-12. Hence, the assessee is in appeal before us in assessment year 2009-10 and the revenue is in appeal before us in assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, the direction given by Ld. DRP in assessment year 2011-12 is reversed. 18. ISSUE NO.15pertains to exclusion of other income while computing deduction u/s 80IC of the Act. 18.1 This issue arises in assessment years2009-10 in the appeal of the assessee and in assessment year 2011-12 in the appeal of the revenue. 18.2 The facts relating to the issue are stated in brief. The assessee has set up a new industrial undertaking at Baddi, Himachal Pradesh, which is eligible for deduction u/s 80IC of the Act. The A.O. noticed that assessee has shown certain miscellaneous income and claimed deduction u/s 80IC of the Act in respect of the miscellaneous income also. The A.O. took the view that the miscellaneous income cannot be considered as income derived from industrial undertaking and accordingly disallowed the same while computing deduction u/s 80IC of the act. The DRP confirmed the order of A.O. in assessment year 2009-10. However, DRP directed the A.O. to allow the deduction on miscellaneous income also in other years. 18.3 We heard the parties and perused the record. Before us, the assesseereferred to the decision of the coordinate bench of ITAT in assessment year 2008-09 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure incurred in foreign currency is required to be deducted from the export turnover while computing deduction u/s 10A/10AA/10B of the Act. 19.1 This issue is being contested by both the parties in all the years under consideration, viz.,assessment years 2009-10 to 2014-15. 19.2 The facts relating to this issue are stated in brief. The A.O. noticed that the assessee has incurred various expenses in foreign currency under different heads. The issue is whether these expenses are required to be deducted from "export turnover" as required under the definition of the term "Export turnover" for the purpose of computing deduction u/s 10A/10AA/10B of the Act. 19.3 We notice that the term "export turnover" is defined as under in the Explanation given under section 10A of the Act:- iv) "export turnover" means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being prepared on "cost plus profit" basis and hence the above expenses, being direct expenses, shall form part of "export turnover".Hence they are not required to be excluded from the amount of export turnover. 19.4 The A.O. did not agree with the submissions made by the assessee. The A.O. noticed that assessee has incurred expenditure in foreign currency under 3 categories. a) Expenditure on project allowances, salaries and wages, staff welfare, travelling expenses and insurance expenses. b) Expenditure under the head "Legal & Professional fees", which consisted of brokerage and commission, fees for technical services and legal and professional charges. It was explained to the A.O. that the fee for technical services primarily consisted of sub-contracting charges paid to various sub-contractors, who were engaged for the purpose of delivery of computer software to its overseas customers. It was explained that this payment is in the nature of software development expenses paid to technical personnel other than its own employees engaged in on site development. Accordingly, it was submitted that these expenses are also form part of direct cost incurred in development of software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contain in section 10A. He had also concluded that the assessee had ed technical services and thus expenses incurred in foreign currency in rendering such technical services require exclusion from export turnover. On the other hand, the assessee company, extensively quoting the provisions of section 10A(4) of the Act and also placing strong reliance on the decision of the CIT(A) for the AYs 01-02 and 02-03 had argued that the exclusion of above sums of communication link and other reimbursements, VAT/GST, telecommunication expenses and expenditure in foreign currency as carried out by the AO be vacated. 15.1. After critically analyzing the rival submissions and also drew strength from his earlier decision on a similar issue, the Ld.CIT(A) has held that no exclusion was required on this issue and, accordingly, directed the Ld. AO to re-compute the deduction u/s 10A. 15.2. Protesting against the action of the Ld. CIT(A), the Revenue has brought up this issue before us for redressal. It was the case of the Revenue that the Ld.CIT(A) has grossly erred in deciding the issue in favour of the assessee by following the decision of Hon'ble Tribunal in the case of Infosys Technolo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he consideration in respect of export of article or things is liable to be taken for the purposes of section 10A. Thus, the AO had concluded that the amount received by the assessee as communication link charges or other rewards and incentives were not a consideration for the export of the software. However, the assessee company's contention was that - "15.1 The reimbursement of certain expenses was also in the nature of export as the same was paid pursuant to the contract of sale of computer software. Alternatively, if it is held that the said sum does not form part of sale proceeds of export turnover then similar amount should be reduced from the total turnover also as held by Bombay High Court in Sudarshan Chemicals reported in 245 769. Alternatively, the AO should have consistently applied the rationale that what is not turnover in the first place cannot be part of either export turnover or total turnover." 14.1, After considering the rival submissions, the Ld. CIT(A) took a view that this issue was covered by his decision for the AYs 01-02 and 02-03 and holds good for the AY under dispute also and, accordingly, directed the AO to consider the reimbursements as part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Insosys Technologies vide order dated 31 March, 2005 in ITA NO.50/Bang/2001 held in that case that the assessee is involved in developing software. The assessee was not involved in rendering of technical services. Such software are provided through the computer programmes developed by them. Hence, expenses in foreign currency were not to be reduced for ascertaining the export turnover. This bench in the case of M/s.Relq software Pvt. Ltd. in ITA No:767/Bang/2007 vide order dated 16th May 2008 has also held that the on-site expenses for development of computer software is not in the nature of technical services. It will be useful to reproduce para 14 and 15 from that order:- "14. During the course of proceedings before us, the learned AR su'dmitted that the issue stands decided in favour of the assessee by the Tribunal in the case of" I. ACIT v. M/s.Infosys Ltd.653 & 969(B)/2006 2. M/s.TataElxsi Ltd. 315(B)/2006 dt 16.10.2007 3. M/s.I-Gate Global Solutions Ltd. v.ACIT (Supra) 15. We have heard both the parties. Deduction u/s 10A is available in respect of profit or gains derived from an undertaking from the export of articles or things or computer software. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he export turnover. Incometax Act does not provide any bifurcation of the expenses incurred outside India. The assessing officer has not brought on record any expenditure which may not be relevant for the purpose of export. Hence, the apportionment is not desirable. We confirm the finds of the learned CIT(A) that such apportionment cannot be done. 24.7. In respect of telecommunication expenses, only those expenses which are relevant for the delivery of software are to be excluded. No effort has been made by the assessing officer to ascertain the telecommunication expenses relating to the delivery of the software. This Bench in the case of I-Gate Global Sales held that 80% of unlinking charges should be reduced from the export turnover. Such finding of the learned CIT(A) was confirmed on the basis of the fact that the learned CIT(A) discussed the software development with a number of representatives of various companies and noticed that 80% of the uplinking charges are incurred for the delivery of software. We are not having the details of the unlinking charges, hence, the issue of disallowance of telecommunication expenses relating to the delivery of software is restored on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "expenses, if any, incurred in foreign exchange in rendering of services (including computer software) outside India. The question as to whether the cost of development of software would fall under the category of "technical services"has been examined by the coordinate bench in assessment year 2004-05 and the Tribunal has taken the view that the cost incurred outside India in development of software would not fall under the category of 'expenses incurred in providing technical services outside India' as mentioned in the definition. Accordingly, we are of the view that the expenditure incurred in development of software and which forms part of "direct cost of development of software" would not fall under the category of "technical services"or "services" rendered outside India, as contemplated in the definition of Export turnover. Hence the same is not required to be excluded from export turnover. Accordingly, what is required to be excluded is the expenses specifically mentioned in the definition of "export turnover", viz., the expenditure incurred on freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 The submissions made by the assessee before the Tribunal are extracted below:- "SUBMISSION BEFORE THE HON'BLE TRIBUNAL No Exclusion is necessary (i) The assessee has various measures for realizing its price. Primarily this fall into two categories, viz (a) Time and Material, which means that the price realized is linked to the efforts for the computer software delivered and the tools and equipment, identified resources used for the same. (b) Fixed price contracts, wherein the price realized is with reference to milestones for delivery of computer software. The nomenclature of 'reimbursement" is only representative of the customers having paid the price for the computer software delivered in terms of identified expenses which are reimbursed pursuant to the contract of sale of computer software. (ii) Asset Reimbursement: INR 87,383,367 Some customers request the Company to purchase specialized equipment's with an obligation to reimburse the cost. The payments made for acquiring the assets which are used in software development for the customers are debited to the P&L account, whereas the reimbursements received from customers are credited to the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to take into consideration the binding decisions of this Hon'ble Tribunal rendered in the appellant own case in ITA no. 426 /B /2006, 427 /B /2006, 468 /B /2006, 469 /B /2006, 817 /B /2007,624 /B /2007.1178 /B /2008,C0 no. 77 /B /2007, ITA 1072 /B /2007, for AY 2001-02 to 2004-05. This order of the Tribunal has attended finality and revenue had not preferred any further appeal before the Hon'ble High Court. (viii) It is also important to highlight and submit that along with the Bangalore bench of Hon'ble Tribunal, other co-ordinated benches of the Hon'ble Tribunal have also expressed similar view holding that a software development onsite will not tantamount to rendition of technical services and the cost incurred towards travel, lodging and other cost should not stand excluded and they should form part of the export turnover and therefore of total turnover too. (ix) In this connection reliance is placed on the decision by this Hon'ble Tribunal in Infosys Technologies (ITA No. 50/B/2001) and Relq Software Pvt. Ltd. (ITA 767/B/2007). In this case, this Hon'ble Tribunal was pleased to refer to the decision rendered by the coordinated benches in Hyderabad B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining amounts require fresh examination in the light of discussions made supra. 20.8 We also make it clear that, if any of the amount is required to be excluded from export turnover, then the same shall be excluded from the total turnover also, as held by Hon'ble High Court of Karnataka in the case of CIT Vs. Tata Elxi Ltd. 204 Taxmann.com 321 and also by Hon'ble Supreme Court in the case of CIT Vs. HCL Technologies Ltd. (C.A. No.8489-8490). 20.9 Accordingly, we direct the AO to compute the deduction u/s 10A/10AA/10B of the Act by following discussions made supra. 21. ISSUE NOs.18 &19relate to allocation of corporate overheads to the units claiming deduction u/s 80IAB & 80IC of the Act. 21.1 The assessee has raised this issue in Assessment Years 2009-10 to 2012-13. The revenue has raised this issue in AY 2011-12. 21.2 The assessee has developed Special Economic Zones named Kolkata Salt Lake SEZ Developer, Hyderabad SEZ Developer and electronic City SEZ Developer. It has claimed deduction u/s 80IAB of the Act in respect of the above said three SEZs. The assessee has also claimed deduction u/s 80IC of the Act in respect of units located at Baddi, Himachal Pradesh. 21.3 The A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(iii) of the I.T. Rules @ 0.5% of average value of investments. Ld. DRP restored the matter to the file of A.O. with the direction to examine this issue afresh by considering the decision rendered by ITAT in the case of Syndicate Bank, by Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ltd. 328 ITR 81 and by Hon'ble Kerala High Court in the case of Dhanalakshmi Bank Ltd. 344 ITR 259. The A.O. while passing the final assessment order, duly considered the above said 3 decisions and confirmed the disallowance originally made in the draft assessment order. Aggrieved, the assessee has filed this appeal before us. 22.3 We heard the parties on this issue and perused the records. We notice that the coordinate bench has considered an identical issue in assessment year 2008-09 and the matter was restored to the file of the A.O. with the following observations: "12. Thus it is clear that the Tribunal was of the view that the disallowance made under section 14A as computed under Rule 8D(2)(iii) cannot be more than the actual expenditure which can be relatable for earning the exempt income and debited to the Profit and Loss account. In the case on hand the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been incurring only expenditure in these centers and revenue generated from onsite work are included in the turnover of the respective undertakings. It was also submitted that the assessee do not maintain separate books of accounts for these centers. However, the A.O. took the view that these are independent units. Accordingly, he rejected the claim of the assessee that these are all extension centers of STP units located in India. The A.O. also took the view that profits derived from STP/SEZ units should be allocated to these cost centers and those profits should be excluded while computing deduction u/s 10A/10AA/10B of the Act. Since no specific turnover could be attributed to these centers, the A.O. estimated the profits attributable to these centers by taking into account space of the office, number of personnel employed therein, their salary, sales turnover etc. Accordingly, he computed profits attributable to each of these centers and excluded the same while computing deduction u/s 10A/10AA/10B of the Act. Ld. DRP also confirmed the view taken by the A.O. on this issue. 23.3 We heard the parties on this issue and perused the record. We notice that the coordinate bench has c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Assessing Officer and accordingly do so with a direction to the Assessing Officer to follow the decision of Tribunal mentioned supra." By following the earlier orders of this Tribunal, we remit this issue to the record of the Assessing Officer to consider the same in accordance with the earlier directions of the Tribunal." Consistent with the view taken by the Tribunal in the earlier years, we remit this issue to the file of the A.O. for examining it afresh in accordance with the directions given in the earlier order of the Tribunal. 24. ISSUE No.22 relates to levy of interest u/s 234B/234C/234D of the Act. This issue is urged in all the six years under consideration. Charging of interest is consequential in nature and hence this issue does not require any adjudication. 25. ISSUE NO.23 relates to rejection of claim for deduction of educational cess. 25.1 This issue is urged by the assessee in AY 2013-14 and 2014-15. The assessee claimed "educational cess" paid by it along with the income tax as deductible expenditure in assessment year 2013-14 and 2014-15. The assessee placed its reliance on a circular issued by CBDT (Circular F.No.91/58/66-ITJ(19) dated 18.5.1967) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of, or otherwise on the basis of, any such profits or gains. [Explanation 1.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.] [Explanation 2.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;] 17. Therefore, the question which arises for determination is whether the expression "any rate or tax levied" as it appears in Section 40(a)(ii) of the IT Act includes "cess". The Appellant - Assessee contends that the expression does not include "cess" and therefore, the amounts paid towards "cess" are liable to be deducted in computing the income chargeable under the head "profits and gains of business or profession". However, the Respondent - Revenue contends that "cess" is also included in the scope and import of the expression " any rate or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 40(a)(ii) has provided that "any rate or tax levied" on "profits and gains of business or profession" shall not be deducted in computing the income chargeable under the head "profits and gains of business or profession". There is no reference to any "cess". Obviously therefore, there is no scope to accept Ms. Linhares's contention that "cess" being in the nature of a "Tax" is equally not deductable in computing the income chargeable under the head "profits and gains of business or profession". Acceptance of such a contention will amount to reading something in the text of the provision which is not to be found in the text of the provision in Section 40(a)(ii) of the IT Act. 23. If the legislature intended to prohibit the deduction of amounts paid by a Assessee towards say, "education cess" or any other "cess", then, the legislature could have easily included reference to "cess" in clause (ii) of Section 40(a) of the IT Act. The fact that the legislature has not done so means that the legislature did not intend to prevent the deduction of amounts paid by a Assessee towards the "cess", when it comes to computing income chargeable under the head "profits and gains of business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard's F. No.91/58/66-ITJ(19), dated 18-5-1967.] 27. The CBDT Circular, is binding upon the authorities under the IT Act like Assessing Officer and the Appellate Authority. The CBDT Circular is quite consistent with the principles of interpretation of taxing statute. This, according to us, is an additional reason as to why the expression "cess" ought not to be read or included in the expression "any rate or tax levied" as appearing in Section 40(a)(ii) of the IT Act. 28. In the Income Tax Act, 1922, Section 10(4) had banned allowance of any sum paid on account of 'any cess, rate or tax levied on the profits or gains of any business or profession'. In the corresponding Section 40(a)(ii) of the IT Act, 1961 the expression "cess" is quite conspicuous by its absence. In fact, legislative history bears out that this expression was in fact to be found in the Income Tax Bill, 1961 which was introduced in the Parliament. However, the Select Committee recommended the omission of expression "cess" and consequently, this expression finds no place in the final text of the provision in Section 40(a)(ii) of the IT Act, 1961. The effect of such omission is that the provision in Section 40(a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted out three decisions of ITAT, in which, the decision of the Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd.(supra) was followed and it was held that the amounts paid by the Assessee towards the 'education cess' were liable for deduction in computing the income chargeable under the head of "profits and gains of business or profession". They are as follows :- (i) DCIT Vs Peerless General Finance and Investment and Co. Ltd. (ITA No.1469 and 1470/Kol/2019 decided on 5th December, 2019 by the ITAT, Calcutta; (ii) DCIT Vs Graphite India Ltd. (ITA No.472 and 474 Co. No.64 and 66/Kol/2018 decided on 22nd November, 2019 )by the ITAT, Calcutta; (iii) DCIT Vs Bajaj Allianz General Insurance (ITA No.1111 and 1112/PUN/2017 decided on 25th July, 2019) by the ITAT, Pune. 32. Again, Ms. Linhares, learned Standing Counsel for the Revenue was unable to say whether the Revenue had instituted the appeals in the aforesaid matters. Mr. Ramani, learned Senior Advocate for the Appellant submitted that to the best of his research, no appeals were instituted by the Revenue against the aforesaid decisions of the ITAT. 33. The ITAT, in the impugned judgment and order, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra ) can be of no assistance to the Respondent - Revenue in the present matters. 37. Mr. Linhares, learned Standing Counsel for the Revenue however submitted that the Appellant - Assessee, in its original return, had never claimed deduction towards the amounts paid by it as "cess". She submits that neither was any such claim made by filing any revised return before the Assessing Officer. She therefore relied upon the decision of the Supreme Court in Goetze (India) Ltd. Vs Commissioner of Income Tax (2006) 284 ITR 323 (SC) to submit that the Assessing Officer, was not only quite right in denying such a deduction, but further the Assessing Officer had no power or jurisdiction to grant such a deduction to the Appellant - Assessee. She submits that this is what precisely held by the ITAT in its impugned judgments and orders and therefore, the same, warrants no interference. 38. Although, it is true that the Appellant - Assessee did not claim any deduction in respect of amounts paid by it towards "cess" in their original return of income nor did the Appellant - Assessee file any revised return of income, according to us, this was no bar to the Commissioner (Appeals) or the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a letter claiming such deduction before the assessment could be completed. However, even if we proceed on the basis that there was no obligation on the Assessing Officer to consider the claim for deduction in such letter, the Commissioner ( Appeals ) or the ITAT, before whom such deduction was specifically claimed was duty bound to consider such claim. Accordingly, we are unable to agree with Ms. Linhare's contention based upon the decision in Goetze (supra ). 42. For all the aforesaid reasons, we hold that the substantial question of law No.(iii) in Tax Appeal No.17 of 2013 and the sole substantial question of law in Tax Appeal No.18 of 2013 is also required to be answered in favour of the Appellant - Assessee and against the Respondent-Revenue. To that extent therefore, the impugned judgments and orders made by the ITAT warrant interference and modification." Respectfully following the decision rendered by Hon'ble Rajasthan High Court and the Bombay High Court (referred above), we hold that the education cess is allowable as deduction. We direct the AO accordingly. 26. ISSUE NO.24 relates to claim of deduction of employees' contribution made to ESIC. 26.1 This issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily disallowed the loss arising on hedging transactions relating to capital account items. It claimed loss arising on restatement of debtors, creditors, other monetary assets and also outstanding forward contracts, as deduction. The A.O. accepted the gain/loss resulting in revaluation of debtors balances, creditors balances and other monetary assets. The assessee has reported a loss of Rs. 110.74 crores as loss on restatement of forward contracts in AY 2009-10. The assessing officer, following the CBDT instruction No.3 of 2010 dated 23.3.2010, took the view that the loss arising on restatement of forward contracts is notional and contingent. He accordingly disallowed the claim of Rs. 110.74 crores (referred above). The LD. DRP also confirmed the same by observing that the said loss is only an anticipated/notional loss. 27.3 The Ld A.R submitted that the assessee had disclosed loss arising on restatement of forward contracts as on the Balance sheet in AY 2011-12 and 2012-13 also and the AO has disallowed the same in those two years also. However, there was gain on restatement of forward contract as on the Balance Sheet date in AY 2010-11, 2013-14 and 2014-15, which was offered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount transactions. We also notice that the AO has allowed the loss arising on restatement of trade debtors, trade creditors and other monetary assets. The AO has, however, disallowed the loss arising on restatement of forward contracts. 27.6 The decision rendered by the co-ordinate bench in the case of Quality Engineering and software technologies P Ltd (supra) states that the loss arising on reinstatement of a forward contract, whose underlying assets is a revenue item, then the said loss cannot be considered as speculative loss and also not a notional loss. We notice that the details of underlying assets in respect of outstanding forward contracts are not available on record. There should not be any doubt that the value of underlying assets (in the form of debtors, creditors and other monetary assets) as on the balance sheet date, against which the outstanding forward contracts have been taken, should be more than the value of outstanding forward contracts. In that case, the loss arising on restatement of forward contract is fully allowable as deduction. Since the AO has not examined this aspect, we are of the view that this issue needs to be restored to the file of the AO for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest expenditure relating to ECB loan has been claimed as expenditure under the head Income from other sources, even though no foreign dividend income was received from its subsidiary company, cited above. Accordingly, the assessee has claimed loss. 29.2 The A.O. noticed that section 115BBD of the Act provided for taxation of dividend income received from foreign companies at concessional rate, however, subject to the condition that the Indian company should hold 26% or more right in the nominal value of the equity share capital of the foreign company. It is also provided in the said section that no expenditure shall be allowed against the dividend income under any provisions of the Act. The AO noticed that the assessee's shareholding in the foreign subsidiary was more than 26% and hence the provisions of section 115BBD of the Act are attracted. Accordingly, the A.O. took the view that the interest expenditure claimed by the assessee on the ECB loan is not allowable as deduction u/s 115 BBD of the Act, in view of the specific bar mentioned in that section. Accordingly, the AO disallowed the interest expenditure claimed by the assessee by invoking sec.115BBD of the Act. 29.3 Befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee under any provision of this Act in computing its income by way of dividends referred to in subsection (1). (3) In this section,- (i) "dividends" shall have the same meaning as is given to "dividend" in clause (22) of section 2 but shall not include sub-clause (e) thereof; (ii) "specified foreign company" means a foreign company in which the Indian company holds twenty-six per cent or more in nominal value of the equity share capital of the company." The Ld. A.R. submitted that the provisions of section 115BBD are attracted only if the total income of the assessee "includes any income by way of dividend" declared, distributed or paid by a specified foreign company. According to Ld A.R, availability of taxable dividend income during the previous year is the sin-qua-non for invoking the provisions of sec.115BBD of the Act. He submitted that the assessee has not received any dividend income from specified foreign company during the years under consideration and hence the total income of the assessee does not include any taxable dividend income. In fact, the A.O. also has also not included any such dividend income while computing the total income. Accordingly, he su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15BBD of the Act for making the impugned disallowance. Since the AO has not disallowed the interest expenditure on the reasoning given by Ld DRP, we do not find it necessary to address the same. 30. ISSUE NO.28 relates to disallowance of part of advertisement, publicity and sales promotion expenditure treating the same as "brand building expenses". This issue arises only in assessment year 2012-13 in the appeal of the assessee. 30.1 The facts relating to this issue are stated in brief. The A.O. noticed that the assessee has claimed huge expenses on "advertisement, publicity and sales promotion". The A.O. took the view that these expenses would confer a "benefit of enduring nature" to the assessee and accordingly, took the view that the same shall constitute capital expenditure in the hands of the assessee. Accordingly, the AO asked the assessee to explain as to why the expenditure claim of the assessee should not be disallowed. The assessee submitted that the advertisement expenses are incurred to promote its "consumer care products" and it is being incurred year to year. It is pertinent to note that the assessee, besides providing IT services, is also producing and marketing con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epsico India Cold Drink Ltd. in ITA No. 319/2010, decided on 30.03.2011 wherein, the judgment of the Supreme Court in Madras Industrial Investment Corporation Vs. Commissioner of Income Tax, 225 ITR 802 (SC) was examined and it was observed that the assessee is entitled to claim deferred revenue expenditure but the Assessing Officer cannot treat the revenue expenditure as deferred revenue expenditure. The reason is that the Act itself does not have any concept of deferred revenue expenditure. Even otherwise, there are a number of decisions that the advertisement expenditure normally is and should be treated as revenue in nature because advertisements do not have long lasting effect and once the advertisements stop, the effect thereof on the general public and customer diminishes and vanished soon thereafter. Advertisements do not leave a long lasting and permanent effect in the sense that the product or service has to be repeatedly advertised. Even otherwise advertisement expense is a day to day expense incurred for running the business and improving sales. It is noticeable that every year, the respondent-assessee has been incurring substantial expenditure on advertisements. The As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R, while arguing on behalf of the department, also could not cite any judicial precedents in favour of the Revenue. Accordingly, following the decisions rendered by Hon'ble Delhi High Court, referred above, we hold that the AO was not justified in disallowing part of advertisement expenses and accordingly direct him to allow the entire advertisement expenses claimed by the assessee. 31. ISSUE NO.29 relates to disallowance of fees paid to Registrar of companies for increasing the Authorized capital of the assessee company. The assessee is urging this issue in its appeal filed for assessment year 2011-12. 31.1 During the year relevant to the assessment year 2011-12, the assessee has increased its authorized capital and accordingly, it paid a sum of Rs. 31.48 lakhs as fee to Registrar of Companies (ROC). The assessee claimed the same as revenue expenditure. However, the A.O. disallowed the same by following the decision rendered by Hon'ble Supreme Court in the case of Punjab Industrial Corporation Ltd. (225 ITR 792) and Brooke Bond Ltd (225 ITR 798). The Ld. DRP also confirmed the same. 31.2 The Ld. A.R. submitted that the A.O. has treated the impugned payment as capital in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's own case reported in 355 ITR 284 and the issue has been decided against the assessee. Accordingly, the A.O. held that the payment made to M/s. Gartner Group is in the nature of royalty and assessee is liable to deduct TDS from the said payment u/s 195 of the Act. Since the assessee did not deduct TDS, the A.O. disallowed the payments made to Gartner Group in the years relevant to the assessment years 2010-11 to 2014-15 by invoking provisions of section 40(a)(i) of the Act. 32.2 The Ld. A.R. admitted that an identical issue has been decided against the assessee by Hon'ble Karnataka High Court in its own case referred above. He submitted that the Hon'ble Karnataka High Court, however, did not have occasion to examine the applicability of exceptions provided u/s 9(1)(vi)(b) of the Act to the facts of the assessee's case. He submitted that the provisions of sec.9(1)(vi)(b) states that if any royalty is paid for the purposes of business carried on outside India or for the purposes of making or earning any income from any source outside India, then the royalty income shall not be deemed to accrue or arise in India. He submitted that the SEZ/STPI units have an obligation to make expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant to assessment years 2001-02 to 2003-04 within the meaning of section 9(1)(vi) of the Act by Hon'ble jurisdictional Karnataka High Court in the assessee's own case reported in 355 ITR 284. It is the case of the Ld A.R that the Hon'ble Karnataka High Court did not have occasion to examine the applicability of exceptions provided in sec.9(1)(vi) of the Act. Hence, the Ld. A.R. has taken an alternative contention that the royalty was paid for the purpose of earning income from a source outside India. Accordingly, it was contended that the said payment would be covered by exception provided in sec.9(1)(vi). Accordingly, it was contended that the amount so paid to Gartner Group, shall not be deemed to accrue or arise in India within the meaning of section 9(1)(vi) of the Act. Accordingly, it was contended that there is no liability for the assessee to deduct tax from the said payment and hence the A.O. was not justified in disallowing the payment by invoking the section 40(a)(ia) of the Act. 32.5 In effect, the alternative contention of the assessee is that the export proceeds received by it should be considered as an income earned from a source located outside India. There is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried on outside India. Therefore, we cannot also approve of the Tribunal's conclusion in para 29 of its order to the extent it seems to suggest that the assessee satisfies the condition necessary for bringing its case under the first exception. Be that as it may, as we have already pointed out, since the source of income from the export sales cannot be said to be located or situated outside India, the case of the assessee cannot be brought under the second exception provided in the Section." 32.6 It can be noticed that the Hon'ble Delhi High Court has made distinction between "source of income" and "source of receipt of monies". So long as the export contracts are concluded in India, the source of income is treated as located or situated only in India. The Ld. A.R. placed his reliance on the decision rendered by Hon'ble Madras High Court in the case of Aktiengesellschaft Kuhnle Koop and Kausch(supra). However, the Hon'ble Delhi High Court has observed that the decision rendered by Hon'ble Madras High Court in the case of Anglo French Textiles Ltd. (supra) earlier to the above said decision was not brought to the notice of Hon'ble Madras High Court. Accordingly, the Delhi High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proach the question from a theoretical perspective." Accordingly, following the decision rendered by jurisdictional Hon'ble Karnataka High Court in the assessee's own case reported in 355 ITR 284 and also the decision rendered by Hon'ble Delhi High Court in the case of Havells India Ltd. (supra) we hold that the A.O. was justified in holding that the payment made to M/s. Gartner Group is in the nature of royalty within the meaning of section 9(1)(vi) of the Act and hence the assessee is liable to deduct tax at source from the said payment u/s 195 of the Act. In view of the default on the part of the assessee in not deducting the tax at source, the A.O. was justified in making the disallowance of payment made to M/s. Gartner Group by invoking provisions of section 40(a)(i) of the Act. 32.7 The assessee has raised one more alternative contention to press that the amount disallowed u/s 40(a)(i) of the Act would go to increase the profits of the undertakings and hence the eligible deduction u/s 10A/10AA/10Bof the Act would also get increased correspondingly. The Ld. A.R. submitted that the alternative contention of the assessee gets support from the circular issued by CBDT. We notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in Court On its Own Motion vs. Commissioner of Income Tax, 2013 (352) ITR 273. The Court found that a large percentage of cases were coming up where an assessee was entitled to be given the credit of TDS, which had been deducted by the deductor, but, was not being given credit by the Income Tax Department on account of the fact that the TDS was not reflected in Form-26AS for various reasons. The Court noticed that there were cases where the deductor failed to upload the correct and true particulars of the TDS, which had been deducted, as a result of which, the assessee was not given credit of the tax paid. The Court also noticed that there were cases where the details uploaded by the deductor and the details furnished by the assessee in the income tax returns were mismatched and, on this ground, credit was not given to the assessee. The Delhi High Court also noticed that on account of mismatch, the tax payer was required to approach the income tax authority for rectification of the earlier intimation and based on corrected entries prayed for refund of the TDS. The Court found that the problem was apparent, real and enormous and had escalated because of centralisedcomputerisati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer is at liberty to ascertain and verify the true and correct position about the TDS with the relevant AO (TDS). The AO may also, if deemed necessary, issue a notice to the deductor to compel him to file correction statement as per the procedure laid down." In the light of the decision of the Delhi High Court and the instructions issued by the CBDT, we find that the admitted position in the instant case is, that the returns were processed and accepted by the Income Tax Department. A sum of Rs. 43,740/- was refunded and the balance amount was not refunded on account of the TDS being mismatched. It is also admitted that the TDS certificates were also filed by the assessee. It is also an admitted position that the deductor in the instant case is a Government Department. We find from a perusal of the counter affidavit that no effort was made by the assessing officer to verify the fact as to whether the deductor had made the payment of the TDS in the government account. On the other hand, the Income Tax Department has shown their helplessness in not refunding the amount on the sole ground that the details of the TDS did not match with the details shown in Form 26AS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent No. 2." Accordingly, we are of the view that this issue requires fresh examination at the end of the A.O. by duly considering the TDS certificates furnished by the assessee and also making due enquiries, if required. Accordingly, we restore this issue to the file of the A.O in all the years under consideration. 34. ISSUE NO.32 relates to tax charged by the assessing officer u/s 115O of the Act, being the tax payable on distributed profits by domestic companies. This issue is being contested by the assessee in A.Y. 2011-12. 34.1 The Ld. A.R. submitted that the A.O., without making any discussion in the draft assessment order, has added a sum of Rs. 41.37 crores u/s 115O/115P of the Act in the final assessment order. He submitted that Section 115O of the Act relates to levy of tax on distributed profits by domestic companies and section 115P relates to the interest payable for non payment of tax levied u/s 115O of the Act. 34.2 The Ld. A.R. submitted that the assessee is not liable to pay tax u/s 115O of the Act in view of the exemption given under sub-section 6 of section 115O of the Act. He submitted that the A.O. did not discuss about this issue in the draft assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IBOR rate + 150 basis point. The Ld. A.R. submitted that the revenue has accepted the order passed by Tribunal on this issue by not challenging the same before Hon'ble High Court. The Ld. A.R. further submitted that the TPO himself has adopted libor/Euribor + 150 basis point in A.Y. 2015-16. Accordingly, he submitted that the TPO was not justified in adopting higher rate of interest. 36.3 The Ld. A.R. further submitted that the Hon'ble High Court of Rajasthan has examined an identical issue in the case of Vibhav Gems Limited (ITA No.14/2015 dated 13.10.2017). In the above said case the ITAT had determined the interest rate to be adopted at Libor rate + 200 basis points in respect of interest free loan given by the assessee before High Court to its associated enterprises. The Hon'ble High Court held that the mark up of 200 basis points is not proper. Accordingly, the Ld. A.R. submitted that the ALP of interest rate may be determined at Libor rate only. 36.4 We heard Ld. D.R. on this issue and perused the record. We notice that the decision rendered by Hon'ble Rajasthan High Court in the case of Vibhav Gems Ltd. (supra) is based on facts prevailing in that case. Before us, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32/2017 dated 11.12.2018) by holding that the TP adjustment made by adopting bank guarantee rate of 3% in respect of corporate guarantee is not justified. Accordingly, the Ld. A.R. submitted that the TP adjustment made by adopting the rate of 3%, which is usually bank guarantee rate, should not be sustained. 37.3 We heard Ld. D.R. on this issue and perused the record. We notice that the assessee has collected guarantee commission @ 0.50% p.a. on the value of corporate guarantee provided by it to its associated enterprises. It is also stated that the above said rate of 0.50% was determined by the assessee under CUP method described in transfer pricing report. We notice that the TPO has adopted the rate of 3% without furnishing any basis or comparables though the assessee has placed its reliance on the decision rendered by Tribunals on this issue. It is stated that the guarantee commission @ 3% is generally charged by banks for providing guarantees. We notice that the TPO has rejected them by observing that those decisions are not of jurisdictional ITAT. We also notice that the various benches of Tribunal have accepted the guarantee commission of 0.50% to be at arm's length. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer pricing report of Assessee of AY 2014-15 - Page no.28) In USD per person month Particulars AE Non-AE Offshore - India based services 3,800 3,754 Onsite - foreign bases services 11,000 10,873 38.3 The TPO however took the view that CUP method is not the appropriate method. Hence, he issued a show cause notice to the assessee asking for explanations. The assessee submitted that software services provided to Non-AEs constitute about 97% of the total turnover and the services provided to its AEs constitute only about 3%. Accordingly, it was contended that "Internal CUP" is the most appropriate method to determine ALP of the transactions with A.E. With regard to nature of software services provided to AEs and NonAEs, the assessee explained the same as under: * "Manual testing services, which includes: - Test plan creation; - Test setup; - Tracking of schedule sand scope; - Updation and maintenance of manual test cases; - Bug sand results logging, etc. * Automation services, which includes: - Running and debugging automation scripts of LTT tools; - Automating the test centres; - Documenting the automation - Tracking automation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. Even minor differences in contractual terms or economic conditions, geographical areas, risks assumed, functions assumed, etc could affect the amount charged in an uncontrolled transaction. Comparability under this method depends on close similarities with respect to various factors. In the case of UCB India, Hon'ble ITAT Mumbai held that Under the CUP method, the properties of a product and accompanying circumstances and conditions have to be evaluated for comparison and even a minor change in the properties of the product or circumstances of trade (billing period, amount of credit therein, etc) may have a significant effect on the price. Product comparability is absolutely key, in particular physical features such as size, weight, appearance along with volume, reliability/storage requirements, regulatory requirements, etc. Pricing of a product is a very subjective exercise and its true value, as received by the receiver, can differ from that received by others in the market place. Thus, CUP method requires a high degree of comparability along the following dimensions: * Quality of the product or service * Contractual terms (example, scope and terms of warranties pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13-14, the total turnover of the assessee was Rs. 33,226 crores, while the turnover with the AEs was Rs. 861 crores only. Similarly, in assessment year 2014-15, the total turnover was Rs. 38,757 crores and the turnover of the A.E. was only Rs. 1,438 crores. The Ld. A.R. submitted that the nature of services provided to AEs and Non-AEs are similar in nature and the assessee has demonstrated the same by furnishing copies of invoices to the TPO. Further, the assessee has also stated that it is charging its customers at man hour basis and also demonstrated that the charges collected from A.Es are more than the charges collected from Non-AEs. In view of the above facts, the assessee has adopted "internal CUP" method to benchmark the international transactions with AEs. The Ld. A.R. submitted that internal CUP (vis-à-vis the external cup) would be the most appropriate method since vagaries of different businesses, functional differences, qualitative/quantitative differences, if any available with external comparables, will not be there under internal CUP. In support of this proposition the Ld. A.R. placed reliance on the decision rendered by Delhi Bench of Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has benchmarked its international transactions with its AE under TNMM method also. This exercise was carried out by the assessee, only to strengthen its submission that the transaction with its AEs are at arm's length. However, the TPO has taken the view that the assessee is combining two methods prescribed under the rules which is not correct understanding of TPO. Accordingly, the Ld. A.R. submitted the internal CUP adopted by the assessee should be accepted. The Ld. A.R. also defended the computations made by the assessee under TNMM method. 38.5 We heard Ld. D.R. and perused the record. We have gone through the observations made by TPO for rejecting the CUP method, which are extracted above. We notice that the TPO has rejected the CUP method by making general observations without critically examining the factual aspects relating to the assessee. We notice that about 97% of the turnover has been achieved by the assessee from Non-AEs only. The transactions with AEs constitute 2.6% of the turnover in assessment year 2013-14 and 3.71% in assessment year 2014-15. The assessee has also furnished the nature of services provided by it to AEs and Non-AEs before the A.O/TPO. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnology Park (STPI) or other places. Each of the SEZ/STPI/other undertakings are owned by the assessee. These undertakings would independently enter into a contract with each of their customers for providing software and IT services on comprehensive basis. The undertaking which enters into a contract for providing software services is referred to as "Primary Unit". It may so happen that entire skill sets required for rendering all types software services may not be available with the Primary unit. It may so happen that the required skill sets may be available with any of other undertakings owned by the assessee. In those circumstances, Primary unit shall give the work on sub-contract basis/job work basis to other undertakings, where the required skill sets are available. The undertaking to which work is subcontracted is referred to as "Secondary Unit". The work so subcontracted will be performed by the secondary unit and delivered to the primary unit, which in turn, would provide services to end customer as a single deliverable point. 39.2 The primary unit shall compensate the secondary unit for the sub-contract work performed by it. The secondary unit will account the receipts as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions, consequent to the suggestions given by Hon'ble Supreme Court in the case of Glaxo Smithkline Asia (P) Ltd (Appeal (civil) No.18121/2007 dated 26-10-2010). It is stated so by the Parliament in the Memorandum to Finance Bill, 2012 when the above said section was introduced in the Income tax Act. Accordingly, under sec.92BA of the Act, certain domestic transactions are also subjected to Transfer pricing regulations. Those transactions are called "Specified domestic transactions" (SDT) and the transfer pricing regulations shall be applicable to an assessee, if the aggregate value of specified domestic transactions entered into by the assessee in the previous year exceeds the prescribed limit. The inter-unit transactions to which the provisions of sec.80IA(8)/80A apply are included under the definition of "Specified Domestic Transactions" as given in sec. 92BA of the Act. The Specific Domestic Transactions entered into by the assessee during the year relevant to AY 2014-15 has exceeded the prescribed limit. Hence the inter-unit transactions entered by various units of the assessee were also subjected to transfer pricing regulation, meaning thereby, the actual considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied domestic transactions between various undertakings constitute a small portion of the total turnover of the assessee at entity level. Accordingly, it was contended that no transfer pricing adjustment in respect of a Specified domestic transaction is warranted. 39.7 In the alternative, the assessee submitted that the TPO has proposed the Transfer pricing adjustment at entity level for each of SEZ units. It was submitted that the adjustment, if any, should be restricted to the aggregate amount of related party transactions only. 39.8 The TPO did not agree with the contentions of the assessee. He observed that the purpose of introducing T.P provisions for Specified Domestic Transactions is to prevent shifting of profits between two undertakings of the assessee in order to gain tax advantage. He also observed that the T.P adjustment is made with reference to individual SDT, i.e., each transaction with the AE is to be evaluated with reference to the margin prevailing in the market and the transfer pricing adjustment has to be determined accordingly. The TPO, accordingly, rejected the contentions relating to "loss making SEZ units" and also the "higher margin declared by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c transaction are clear indication that profits were shifted from taxable units to non-taxable units. Hence, adjustment made only for units having higher profit margin and having specific Domestic transaction. Details of units having SDT as well as their profit margin & their adjustment as per 92CA order and reason for determining ALP is enclosed in Annexure-A. 3.4.7 As mentioned in Annexure, ALP was determined only for the units having income AE only. As per 92CA order out of 28 units, ALP was determined only for 17 units. Out of that 17 units, 7 units have claimed 100% exemption, whereas 11 units were into 50% exemption. It means, only 50% is exempted from tax and remaining 50% is taxable. Hence, transaction between SEZ to SEZ is not having full tax incentive to restrict the benchmarking only for taxable units. 3.4.8 Further, Taxpayer also claiming that TPO has not considered loss making SEZ units. As per the provisions of Act, ALP will (be) determined, if tax payer margin is higher or within +/- 3% range then the declared profit is accepted as within ALP and there is no reverse impact (benefit will be given for having higher margin). 3.4.9 Notwithstanding above statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of service receiving unit and the deduction u/s 10AA should be recomputed. It was submitted that there is no bar for making this corollary adjustment." The Ld DRP did not agree with contentions of the assessee and concurred with the views of the TPO. At the remand stage, the TPO reported to Ld. DRP that profit of one SEZ unit named Hiranandani SEZ unit requires TP adjustment of Rs. 25.69 lakhs. After considering various submissions of the assessee, the Ld. DRP upheld the TP adjustment made by the TPO for SDT and also enhanced the same by Rs. 25.69 lakhs relating to Hiranandani SEZ unit. 39.11 Before us, the Ld A.R raised various contentions and they are summarized below:- (a) Section 92BA of the Act, which provide for making of transfer pricing adjustment in respect of Specified Domestic Transaction was introduced by the Parliament accepting the suggestion given by Hon'ble Supreme Court in the case of Glaxo Smithkline Asia (P) Ltd (Appeal (civil) No.18121/2007 dated 26-102010). In the above said case, the Hon'ble Supreme Court directed the Government to consider appropriate provisions in law to make transfer pricing regulations applicable to related party domestic transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units. (g) Restriction is placed in the first proviso to sec.92C (4) of the Act denying deduction u/s 10A/10AA/10B of the Act in respect of amount of T.P adjustment by which total income is enhanced. However, this restriction should not be narrowly read to deny recomputing the deduction u/s 10AA of each of the undertaking. Also this provision applies only to income of eligible undertaking is enhanced by applying the provision of section 92C and not in a case where such income is reduced. (h) Any ALP adjustment on SDT should not be directly added to total income. The requirement of sec.80IA(8) is to re-compute the export turnover, total turnover and profits of eligible units and also the deduction allowable u/s 10AA of the Act. Accordingly, after ALP adjustment, the deduction u/s 10AA should be recomputed. (i) The margin arrived at for international transactions should be adopted for the purposes of SDT also and the same would meet the ends of justice. 39.12 We heard Ld D.R and perused the record. We shall first have regard to various applicable provisions of the Act. The provisions of sec.92BA of the Act was introduced by Finance Act, 2012 w.e.f. 1.4.2013 to determine A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he arm's length price of such benefit, service or facility, as the case may be. (2A) Any allowance for an expenditure or interest or allocation of any cost or expense or any income in relation to the specified domestic transaction shall be computed having regard to the arm's length price. (3) The provisions of this section shall not apply in a case where the computation of income under sub-section (1) or subsection (2A) or the determination of the allowance for any expense or interest under sub-section (1) or sub-section (2A), or the determination of any cost or expense allocated or apportioned, or, as the case may be, contributed under subsection (2) or sub-section (2A), has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction or specified domestic transaction was entered into." 39.13 The different undertakings owned by the assessee have entered into inter unit transactions and many of those undertakings have claimed deduction u/s 10AA of the Act. The aggregate value of those transactions has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when there is transfer of goods or services (a) from "eligible business" to "any other business" carried on by the assessee or (b) from "any other business" to "eligible business" carried on by the assessee. Section 10A/10AA/10B, 80IA etc., grants income tax concession by way of granting deduction to certain specified undertakings from gross total income (or) at the point of computation itself, meaning thereby, the same results in income-tax benefit to the assessee. It may so happen that an assessee may be having more than one undertaking, out of which only some units may be eligible for deduction/benefit prescribed in those sections. Hence, there may arise a tendency to shift profits from "non-eligible" undertaking to "eligible" undertaking by under invoicing/over invoicing of transactions of transfer of goods or services, so that the assessee could avail higher tax benefits. Hence, sub-sec. (8) was introduced in sec. 80IA and the same was made applicable to other incentive provisions also. The purpose of introducing sub-sec. (8) was to prevent claim of excess deduction or benefit granted to certain "eligible undertakings". The modality adopted in se.80IA(8) is to substitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of the amount of income by which the total income of the assessee is enhanced after computation of income under sec. 92C(4). 39.16 As per provisions of sec.92(3), the transfer pricing provision of sec.92 shall not apply in a case where the computation of income/expenses under sub. sec (1) or (2) or (2A) of sec.92 has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the Specified Domestic Transaction was entered into. 39.17 It can be noticed that the provisions of sec.92C(4) requires computation of total income by adopting arm's length price determined by the AO and further, if the total income is enhanced on account of adoption of ALP, then the deduction u/s 10A/10AA/10B/Chapter VIA will not be available for such enhanced income. At the same time, while computing the deduction u/s 10A/10AA/10B/Chapter VIA, the AO has to compute the "Profits and gains of business" by substituting ALP and this exercise has to be carried out for the purpose of computing the quantum of deduction. 39.18 We have noticed earlier that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it the transactions entered between two eligible units. Accordingly, we are of the view that there is merit in the contentions of the assessee that the transactions entered between two eligible units would not be covered by the provisions of sec. 80IA(8) of the Act. Even if the rate of deduction allowable to two eligible units differ and such inter-unit transactions between two eligible units may result in tax arbitrage, yet, we are of the view that the same shall be outside the scope of provisions of sec.10AA/Transfer pricing provisions, since the provisions of sec.80IA(8) do not cover transactions between two eligible units. This may be a lacunae in the Income tax Act, but the said lacunae could be cured only by the Parliament. Hence, on a strict interpretation of law, the transactions between two eligible units are not covered by sec.80IA(8) of the Act. Consequently, the transactions entered between two eligible units are outside the scope of "specified domestic transactions" mentioned in sec.92BA of the Act. Accordingly, this view of the tax authorities is set aside. (B) The assessee also contended that Arms length price should be applied to both the eligible unit and non-elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the quantum of deduction under above sections after application of the ALP, in our view, is the Transfer pricing adjustment contemplated in sec.92 of the Act. 39.21 We have prepared certain illustrations in order to explain above points. They are given below:- There are two situations in which the profits of eligible business are inflated. They are (a) Over invoicing revenue (b) Under invoicing expenses Let us give some illustrations in order to explain the effect of adoption of ALP u/s 92 and also while computing deduction u/s 10AA of the Act. The illustrations are given in sets, i.e., for units eligible for deduction @ 100% and units eligible for deduction @ 50%. Within the above said examples, illustrations are given for both the situations, viz., over invoicing of revenue and under invoicing of expenses by eligible units. EXAMPLE A: - Eligible Unit - eligible for deduction u/s 10AA of the Act @ 100%. ILLUSTRATION 1 (Over invoicing revenue) Transaction between an Eligible unit, which is eligible for deduction @ 100% and a non-eligible unit. Eligible unit is Service Provider and accordingly earns revenue from non-eligible unit. Transaction Price - 1,00,000 Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,00,000 5,50,000 15,50,000 Cost Add: Corresponding Adjustment for ALP -9,00,000 - -4,25,000 - -13,25,000 - -9,00,000 -50,000 -4,25,000 - -13,25,000 -50,000 Adj Cost -9,00,000 -4,25,000 -13,25,000 -9,50,000 -4,25,000 -13,75,000 Net Income Deduction u/s 10AA - 100% 1,00,000 -1,00,000 75,000 1,75,000 -1,00,000 50,000 -50,000 1,25,000 - 1,75,000 -50,000 Total Income 75,000 1,25,000 SDT adjustment 50,000 In this illustration, (a) the "net income" remains at Rs. 1,75,000/- before and after ALP adjustments u/s 92 of the Act, since adjustment to the inter-unit transactions have to be done in the hands of both eligible and noneligible units. (b) The amount of deduction u/s 10AA worked out to Rs. 1,00,000/- prior to ALP adjustment. However, it has fallen down to Rs. 50,000/- after ALP adjustment in terms of sec.80IA(8). (c) Thus the reduction in the quantum of deduction u/s 10AA, i.e., Rs. 50,000/- is also the adjustment made u/s 92 of the Act in respect of Specified domestic transaction. (d) Hence the total income has increased from Rs. 75,000/- (prior to ALP adjustment) to Rs. 1,25,000/- after ALP adjustment. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Eligible Unit Non-eligible unit Total Eligible Unit Non-eligible unit Total Sales Revenue Less: Adjustment for ALP 10,00,000 - 5,00,000 - 15,00,000 - 10,00,000 5,00,000 50,000 15,00,000 50,000 Adj Rev 10,00,000 5,00,000 15,00,000 10,00,000 5,50,000 15,50,000 Cost Add: Corresponding Adjustment for ALP -9,00,000 - -4,25,000 - -13,25,000 - -9,00,000 - 50,000 -4,25,000 -13,25,000 - 50,000 Adj Cost -9,00,000 -4,25,000 -13,25,000 -9,50,000 -4,25,000 -13,75,000 Net Income Deduction u/s 10AA - 100% 1,00,000 - 50,000 75,000 - 1,75,000 -50,000 50,000 -25,000 1,25,000 - 1,75,000 -25,000 Total Income 1,25,000 1,50,000 SDT adjustment 25,000 In this illustration, (a) the "net income" remains at Rs. 1,75,000/- before and after ALP adjustments u/s 92 of the Act, since adjustment to the inter-unit transactions have to be done in the hands of both eligible and noneligible units. (b) The amount of deduction u/s 10AA worked out to Rs. 50,000/- prior to ALP adjustment. However, it has fallen down to Rs. 25,000/- after ALP adjustment in terms of sec.80IA(8). (c) Thus the reduction in the quantum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hcare LLC. Since the entire services have been performed by the assessee, M/s Wipro Inc., claimed from the assessee the amount of liquidated damages so paid by it. The assessee also paid the same to M/s Wipro Inc., USA and claimed it as expenditure. In its Transfer pricing report, the assessee claimed the above said payment as "reimbursement of expenses". 40.4 However, the TPO took the view that there was no obligation on the part of the assessee to pay any liquidated damages to its AE and hence it is not required to reimburse the same to its AE. The observations made by TPO in this regard are extracted below:- "5.1 The Taxpayer Wipro India is paying liquidated damages to Wipro Inc for the litigation matters involving Wipro Inc and US customers. For any litigation between Wipro Inc USA and US customers, the damages should be paid by US entity and not by the Indian entity. As per the submission made by the Assessee, the Indian entity Wipro India is paying the liquidity damages as per an agreement between Wipro Inc and Wipro India Ltd, vide agreement dated 1st April, 2005. The said agreement is invalid for the current AY 2010-11. The tax payer has not furnished any agreement renew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice that the observations so made by the TPO are general observations without appreciating properly the facts surrounding the issue. According to the assessee, the software services were provided by the assessee to M/s ACS State healthcare services LLC, USA as per the "Mutual subcontractor Agreement" entered between the assessee and its subsidiary Wipro Inc., USA. It is pertinent to note that M/s Wipro Inc., USA had actually entered into a contract for providing software services with M/s ACS State healthcare services LLC, USA. It is stated that the entire contract was given to the assessee herein on back to back basis. According to the assessee, it has received 90% of the invoice value from M/s Wipro Inc., USA. Since there were deficiencies in the provision of services and also there was violation of terms, M/s ACS State health care services LLC has claimed damages from M/s Wipro Inc., USA, which was finally settled between themselves on payment of liquidated damages. Since entire software services have been provided by the assessee, M/s Wipro Inc., USA has, in turn, claimed the liquidated damages so paid by it from the assessee. According to the assessee, it is required to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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