TMI Blog2021 (3) TMI 418X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the `Export turnover and not the `total turnover , we direct to exclude these amounts from `Total turnover as well while computing the deductions. MAT Computation - disallowance of `Provision for performance bonus and `Provision for expenses while computing book profits u/s.115JB of the Act on the ground that such expenses are unascertained liabilities - HELD THAT:- There is an apparent contradiction in the recording made by the AO. We have gone through the relevant parts of the assessee s tax audit report for the year under consideration, as per which the assessee made provision for bonus. Except for a sum of ₹ 6.36 lakh, the assessee paid the entire amount of bonus in the succeeding year. Thus, it is overt that the provision for bonus is an ascertained liability which was largely discharged in the immediately succeeding year. The next is the item of `Provision for expenses . Details of such provision have been placed at page 64 of the paper book. Such provision includes salary, employee incentive, staff cost, car hire charges, staff training expenses, staff welfare expenses, repairs, maintenance, electricity, travelling, bank charges and insurance etc. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the regular provisions, the assessee claimed deduction u/ss. 10A and 10AA of the Act. The Assessing Officer (AO), during the course of assessment proceedings, observed that the assessee claimed deduction, inter alia , on five items totalling ₹ 1,20,86,914/- which were clubbed under the main head of Other income , viz., (1) Interest on Short Term Fixed Deposits ₹ 99,02,569/-; (2) Recovery/Reimbursement of expenses from group companies ₹ 20,23,083-; (3) Gain on sale of Fixed Assets ₹ 1,000/-; (4) Sale of Scrap ₹ 1,31,005/-; and (5) Other income ₹ 29,257/-. On being called upon to explain as to how the assessee was eligible for deduction u/ss.10A and 10AA on the interest income, the assessee submitted that it placed its unutilized funds in short term fixed deposits with banks in order to effectively manage the working capital requirements of its business. Relying on the judgment of Hon ble jurisdictional High Court in CIT Vs. Menon Impex (P) Ltd. (2003) 259 ITR 403 (Mad) , the AO held that the assessee was not eligible for deduction on interest income. Similar view was canvassed on all the remaining items. No reprieve was allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t similar inasmuch as the expression: profits and gains derived from the export of such articles or things.. as used in sub-section (1) of section 10AA has been explained under sub-section (7) to be: `the amount which bears to the profits of the business of the undertaking, being the Unit , the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on by the undertaking . Thus, it can be seen that section 10AA is almost similar to section 10A insofar as this aspect is concerned. 5. On an overview of the above provisions, it becomes crystal clear that an item of income, in order to be covered under the qualifying amount, must have some nexus with the business of the undertaking, which need not necessarily be derived from it. What we need to appreciate is that the amount of income which qualifies for deduction is the profits of the business of the undertaking and not any income earned by the assessee de hors the business of the undertaking. The ld. AR fairly accepted if the relevant items of income are held to be falling under the head `Income from other sources , the same will not qualify f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m bank deposits has been made eligible for exemption u/s.10A or 10B. We need to go with and follow the Menon judgment for two reasons. First is that the same is of the Hon ble jurisdictional High Court, which is binding on the assessee and secondly, we are concerned with section 10A/10AA which are in the nature of deduction provisions, whereas the Hewlett Packard dealt with sections 10A/10B, the then exemption provisions. The ld. DR has also relied on the judgment of Hon ble Uttarakhand High Court in Conventional Fastener Ors. Vs. CIT (2018) 301 CTR 625 (Uttarakhand) in which it has been held that no deduction u/s.80IC can be allowed in respect of interest income earned from fixed deposits. In view of the foregoing discussion, we are fully satisfied that the authorities below were justified in not including the interest on fixed deposits amounting to ₹ 99.02 lakh in the qualifying amount for the purposes of granting deduction u/ss.10A/10A of the Act. The assessee fails on this score. 2. Recovery/reimbursement of expenses from group companies. 8. The next item in dispute is recovery/reimbursement of expenses from group companies. The AO has not separately discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the qualifying amount, the receipt would form part of the qualifying amount. We order accordingly. The assessee succeeds. 5. Other income 13. The last item is a question is `Other income of ₹ 29,257/-. The assessee did not explain the nature of this income before the authorities below as to how it was in relation to the profits of the business of undertaking . Same position continues before the Tribunal as well. In view of the fact that even the nature of income is not known to the assessee, we fail to comprehend as to how it can form part of the profits of the business of undertaking . The assessee fails on this score. 14. The next ground on the computation of the qualifying amount for the grant of deductions u/s 10A/10AA is disallowance of provision for leave encashment. The AO observed that the assessee made provision for leave encashment in section 10A unit at ₹ 63.81 lakh and 10AA unit at ₹ 7.43 lakh. The same was added back while computing eligible amount. However, while consolidating the accounts, the assessee added ₹ 88.40 lakh towards provision for leave encashment as against ₹ 71.24 lakh. Hence, provision was found by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover only. The CBDT in its circular No.04/2018, copy placed at page 240 of the paper book, has provided that while computing deduction u/s.10A, the amount of freight, telecommunication charges and insurance expenses should be excluded from both the `Export turnover and `Total turnover . The Hon ble Punjab Haryana High Court in CIT Vs. Mercer Consulting (India) Pvt. Ltd. (2017) 390 ITR 615 (P H) has also held that telecommunication charges should be excluded from both the `Export turnover and also the `Total turnover in the formula while computing deduction u/ss.10A/10AA. In view of the foregoing, it is evident that the amount of expenses incurred by the assessee in foreign exchange should be reduced from both the `Export turnover as well as `Total turnover while computing deduction u/ss.10A/10AA. As the AO reduced such amounts only from the `Export turnover and not the `total turnover , we direct to exclude these amounts from `Total turnover as well while computing the deductions. 18. In view of the foregoing discussion, we set-aside the impugned order on the question of deductions u/s 10A/10AA of the Act and restore the matter to the file of AO with a direction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not furnish as to how these provisions were computed while making disallowance in para 4 of his order, however, while considering incorrect claim of depreciation in para 6 of his order, observed that the assessee company also quoted the following judicial decisions with supporting evidences like list of persons to whom the performance bonus was provided, ledger copies of provision for expenses, showing various heads of expenditure and the corresponding provisions made . There is an apparent contradiction in the recording made by the AO. We have gone through the relevant parts of the assessee s tax audit report for the year under consideration, as per which the assessee made provision for bonus. Except for a sum of ₹ 6.36 lakh, the assessee paid the entire amount of bonus in the succeeding year. Thus, it is overt that the provision for bonus is an ascertained liability which was largely discharged in the immediately succeeding year. 23. The next is the item of `Provision for expenses . Details of such provision have been placed at page 64 of the paper book. Such provision includes salary, employee incentive, staff cost, car hire charges, staff training expenses, staff ..... X X X X Extracts X X X X X X X X Extracts X X X X
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