TMI Blog2023 (4) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... T BANGALORE] has considered the issue and held that Excel be excluded. The relevant part of the decision of the Tribunal is extracted in the later part of this order. Respectfully following the said decision we uphold the decision of CIT(A) to exclude Excel from the list of comparables. Exclusion of M/s Infosys BPO Ltd, TCS E-serve Ltd., M/s BNR Udyog Ltd and M/s Excel Infoway Ltd., from the list of comparable companies and the issue of exclusion Universal Print Systems Ltd is restored to the file of AO/TPO for examining it afresh. Exclusion of Jindal Intellicom Limited - In assessee s case, the CIT(A) has suomoto excluded company on the ground that there is no reliable segmental information with respect to the ITES segment. Considering the facts of the case and the decision of the coordinate bench in the case of CGI Information Systems Management Consultants (P.) Ltd. [ 2018 (4) TMI 1755 - ITAT BANGALORE ] we remit the issue back to the TPO/AO. The TPO/AO directed to verify the segmental details and consider the issue in the light of the decision of the coordinate bench. Negative working capital adjustment - HELD THAT:- As decided in Tivo Tech Private Limited [ 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to keep in mind in the remand proceedings that conditions in section 10AA(4) regarding formation are required to be established only in the year of formation. No evidence for data transmission or export of software - We notice that the issue is settled now by the decision of the Hon ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd. [ 2011 (8) TMI 782 - KARNATAKA HIGH COURT ] which is affirmed by .HCL Technologies case [ 2018 (5) TMI 357 - Supreme Cour ] that any adjustment made to the export turnover ought to be correspondingly made to the total turnover as parity is to be maintained between the two. We therefore direct the AO accordingly to make the adjustment, if any, towards telecommunication charges in foreign currency from the export turnover and the total turnover in the remanded proceedings. Disallowance of Marked to Market losses - AO made disallowance holding it to be a notional and contingent and treated the same as a speculative loss in terms of Section 43(5) - HELD THAT:- We notice that similar issue is considered by the coordinate bench of the Tribunal in assessee own case AY 2009-10 [ 2022 (4) TMI 1468 - ITAT BANGALORE ] , wherein AO as di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the payslips evidencing payment of more than 90% of the gratuity. We admit the additional evidence and since the same goes to the root of the issue and remit the issue to the AO with a direction to examine the additional evidence and allow the claim accordingly. Credit of TDS and advance tax - HELD THAT:- We direct the AO to verify and allow the claim in accordance with law. - IT(TP)A No.844/Bang/2017, IT(TP)A No.932/Bang/2017 - - - Dated:- 14-11-2022 - SMT. BEENA PILLAI, JUDICIAL MEMBER AND Ms. PADMAVATHY S, ACCOUNTANT MEMBER For the Revenue : Shri Manjunath Karkihalli, CIT(DR)(ITAT), Bengaluru. For the Assessee : Shri T. Suryanarayana, Advocate ORDER Per Padmavathy S., Accountant Member This appeal is against the order passed by the Commissioner of Income Tax (Appeals) 14, Bangalore dated 31.01.2017 for the assessment year 2012-13. 2. The brief facts are that the Assessee is engaged in the business of providing Information Technology ( IT ) support services / software development services and IT Enabled services ( ITES ) to its AEs. For the assessment year 2012-13, the assessee filed the return of income on 30.11.2012 declaring a tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Acropetal Technologies Ltd. 26.19 2. Akshay Software Technologies Ltd. -0.17 3. CAT Technologies Ltd. 8.68 4. Helios and Matheson Information Technology Ltd. 14.16 5. Maveric Systems Ltd. -0.60 6. R S Software (India) Limited 14.23 7. Silverline Technologies Ltd. 9.50 8. Cherrytec intelisolve Ltd. 21.38 9. Cigniti Technologies Ltd. 7.63 10. Mindtree Limited 13.23 Arithmetical Mean 11.42% 5. The TPO accepted two comparables i.e., R S Software (India) Limited and Mindtree Limited and rejected the remaining 8 comparables selected by the Assessee. The TPO applied new filters and arrived at a fresh set of comparables as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . IT(TP)A No.844/Bang/2017 (Revenue s appeal) 8. The revenue is in appeal before us contending the exclusion of Genesys International Corpn. Ltd., ICRA Techno Analytics Ltd., Infosys Ltd. and Spry Resources India Pvt. Ltd. by the CIT(Appeals) with regard to the Software development segment. Ground No. 1 to 4 of revenue appeal relate to the same which we will take up for adjudication first. 9. The ld AR made the following submissions with regard to the exclusion of Genesys International Corpn. Ltd and Infosys Ltd - Genesys International Corporation Ltd. ( Genesys ): It is submitted that Genesys provides geographical information services comprising of photogrammetry, remote sensing, cartography, data conversion and state of the art terrestrial and 3D geo-contentincluding location based and other computer based services. However, despite providing the aforesaid diverse services, it has only one reporting segment and, therefore, in the absence of segmental data, it cannot be taken as a comparable to the Appellant s SWD service segment. Also, a perusal of its annual report discloses that Genesys made substantial investments in the area of advanced survey tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same assessment year. 11. We heard the parties. We notice that the coordinate bench in the case of Microfocus Software India Pvt. Ltd.(supra) has considered the inclusion of the above four companies and held that 6. We heard Ld D.R and perused the record. In the case of CGI Information systems management Consultants P Ltd (supra), following four companies were excluded with the following observations 29. We have considered the rival submissions. In the case of Agilis Information Technologies India (P.) Ltd. (supra), this Tribunal considered the comparability of the 3 companies which the Assessee seeks to exclude from the final list of comparable companies chosen by the TPO. The functional profile of me Assessee and that of the Assessee in the case of Agilis Information Technologies India (P.) Ltd. (supra), is identical inasmuch as the said company was also involved in providing SWD services to its AE and the TPO had chosen some comparable companies which were also chosen by the TPO in the case of the Assessee for the purpose of comparability. In the aforesaid decision the Tribunal held on the comparability of the 3 companies which the Assessee seeks to exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO was invited to the directors report to the shareholders at page ii of the annual report 2012, wherein the Directors have informed the shareholders that the company continued in its journey, to be innovators and leaders in the fields of location based services related geoplatforms and advanced survey techniques. There is no segmental reporting because it is stated in the annual report that this company is only in one segment viz., GIS based services and therefore there is no requirement of segmental reporting. It was also submitted that this company owns substantial intangibles equivalent to 10.42% of its total turnover. 32. The TPO however has regarded this company as a comparable company by observing that this company develops software for mapping and geospatial services and operates a few development centres in India. The company is predominantly into software development services. The intangibles in the possession of the company are only the GIS database which is only depreciation. It does not add significant value to the company. 33. The objections as put forth before the TPO were reiterated before the DRP. The DRP in paragraphs 6.2.2 6.2.3 of its directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; In the given facts and circumstances, we are of the view that Genesys International Corporation Ltd., cannot be considered as a comparable company and the said company should be excluded from the final list of comparable companies. We hold accordingly. Accordingly, following the decision rendered by the co- ordinate bench in the case of CGI Information Systems Management Consultants P Ltd (supra), we direct exclusion of M/s Genesys International Corporation Ltd, M/s Infosys Ltd, M/s Larsen Toubro Infotech Ltd and Persistent Systems Ltd. . 12. Respectfully following the above decision of the coordinate bench we direct the exclusion of M/s Genesys International Corporation Ltd, M/s Infosys Ltd. ICRA Techno Analytics Limited 13. The ld. AR submitted that ICRA is engaged in various business activities such as Software development, consultancy services, engineering services, web development and hosting services, and business analytics and business process outsourcing. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are performed. b. Revenue from sales is recognized as and when the delivery of branded software is made is booked net of trade discount .. Page no.2 of Annual Report (Running page 2379 of paper book) contains Profit and Loss account. The Revenue from sale of services is mentioned therein, but break-up details is not given. Thus, we notice that this company is engaged in various types of services and break-up details of each of the services are not available. The Ld A.R also mentioned that a company named M/s Axiom Technologies Ltd has merged with this company during this year. However, the Director s report states that the Hon ble High Court of Calcutta has passed the order confirming the merger of above said company. The effective date of merger is not given. Hence it is not clear as to whether the effective date of merger falls during the year under consideration or in any of the earlier years. If it is falling in any of the earlier years, then the merger should not have any effect, unless the assessee is able to demonstrate the impact, if any. We notice that the TPO has applied RPT filter of 25%. According to the assessee, the RPT works out to 29.36%, while the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing inventories also, which is shown in Note no. 18 (page 2787 of paper book). The revenue from operations, however, consists of Income from software development. Hence it is not clear as to whether this company has sold any of its inventories or not during the year under consideration. We notice that the TPO has not examined the aspects relating to software products. We notice that in the case of CGI information systems Management Consultants (P) Ltd (supra), M/s Spry Resources India P Ltd has been taken as a comparable company. All these aspects show that there is no clarity on the factual aspects relating to this company. Accordingly, we are of the view that this company also requires fresh examination at the end of AO/TPO. Accordingly we restore this company to the file of the AO/TPO for examining it afresh. 19. Respectfully following the above decision and the fact that in assessee s case also the TPO and the CIT(A) has not given any clear finding with regard to the factual aspects, we remit the issue of exclusion of M/s Spry Resources P Ltd back to the TPO/AO for fresh examination. 20. During the course of hearing the ld AR submitted that if the ground no 1 to 4 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove i.e., Informed Technologies India Ltd., Jindal Intellicom Limited and Accentia Technologies and rejected the remaining 6 comparables selected by the Assessee. The TPO applied new filters and arrived at a fresh set of comparables as under:- Sl. No. Name of the Company Mark-up on Total Costs (WC unadj) (in %) Mark-up on Total Costs (WC adj) (in %) 1 Accentia Technologies Ltd. 11.75 9.11 2 Universal Print Systems Ltd. (Seg) (BPO) 52.46 54.52 3 Informed Technologies India Ltd. 6.08 6.42 4 Infosys BPO Ltd. 36.30 32.96 5 Jindal Intellicom Ltd. -0.05 0.46 6 Microgenetic Systems Ltd. 19.61 19.99 7 TCS E-Serve Ltd. 63.69 62.10 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27. On perusal of the annual report the CIT(A) observed that the company has not allocated any employee cost to the Infra Activity segment and therefore concluded that the information obtained from the company u/s.133(6) is not reliable. Basis this, the CIT(A) held that the company is to be excluded. 28. The ld. DR submitted that the CIT(A) held that the financial data of the comparable company is unreliable even when the data adopted for benchmarking was from the audited annual reports and procured from the company u/s. 133(6) of the Act. 29. The ld. AR submitted that (i) Excel is functionally dissimilar to the Assessee and is engaged in handling business relations and managing customer relationship but there is no information available on the activities in performance as part of managing business relations and customer relationships. (ii) Its functions do not include maintaining business/customer relations and, therefore, it is not functionally comparable to the Assessee. (iii) Excel has employed software and hardware experts to render its services to its customers and is equipped with an extensive fleet of the IT sector related equipments including advanced m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Print Systems Ltd: The Assessee submits that Universal Print Systems Ltd. ( UPSL for short) should be excluded from the list of comparables as it fails the employee cost filter applied by the TPO since its employee cost to turnover ratio is 18.56%. Further, UPSL is also not functionally comparable to the Assessee as it is primarily engaged in providing integrated print solutions to its customers. The Pre-press BPO segment of UPSL is involved in providing services such as scanning, design/layout, trapping, handoutlined clipping path and image masking, and magazine and catalogue publishing. Thus, it is clear that UPSL is not engaged in providing normal ITE services. Further, it is clear that the aforesaid activities performed by UPSL are akin to those performed by a digital media/advertising company and, therefore, it is clear that it is functionally dissimilar to the Assessee. Moreover, the functions performed by UPSL do not fall within the definition of IT enabled services as defined in Rule 10TA(e) of the Income-tax Rules, 1962, and thus for this reason as well it can be concluded that UPSL is not engaged in providing ITE services and is, hence, not comparable to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CS E-Serve Ltd.: It is submitted that TCSE is a knowledge process outsourcing ( KPO for short) company which is engaged in providing high end services like analytics, insights and support services for both data and voice processes. However, no break-up of income from KPO services is available in the annual report. The skillset required for rendering routine ITE services is entirely different from the one required for providing high end ITE services i.e., KPO services. Also, TCSE enjoys the brand value of the Tata group and therefore enjoys a high bargaining power in the market. It has incurred substantial expenses towards brand building during FY 2011-12. Further, the company bears several risks unlike the Assessee, which is a risk free service provider. Detailed submissions in this regard are made at pages 450-451 and 567, 587 of the paperbook. Without appreciating the above submissions the CIT(A) upheld the findings of the TPO holding that brand is irrelevant and that in any event the Appellant was part of a group having high brand value, which conclusion is without any basis. BNR Udyog Ltd. The Assessee submits that BNR Udyog Ltd. ( BNR for short) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage of income from ITES was only 21.63% of the total revenue from operations of this company as per its annual report. The Assessee also pointed out that in the Prepress BPO segment this company was providing integrated print solutions to its customers, which includes scanning, design/layout, trapping, hand-outlined clipping path and image masking and magazine and catalogue publishing. The Assessee submitted that the aforesaid services are not in the nature of ITES. The Assessee pointed out that as per the safe harbour rules introduced by the CBDT ITES has been defined as business process outsourcing services provided mainly with the assistance or use of information technology. It was also submitted that this company does not satisfy the definition of ITES as contained in Rule IOTA(e) of the Rules. Since use of information technology is absent .in the various services provided by this company, it cannot be regarded as ITES company. The Assessee also submitted that this company fails the employee cost filter. The employee cost filter requires that the employees cost incurred by the company must be more than 25% of its revenue. 48 to 51 52. There appears to be no bar in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtunity of being heard by the TPO before the issue is decided by the TPO. Following the same, we restore this comparable to the file of AO/TPO for examining it afresh. 13. M/s Infosys BPO Ltd, TCS E-serve Ltd and M/s Excel Infoway Ltd., were excluded by the co-ordinate bench in the case of CGI Information Systems Management Consultants P Ltd (supra) 44-46. The co- ordinate bench had followed the decision rendered by another co-ordinate bench in the caseof Baxter (I) (P) Ltd vs. A.CIT (2017)(85 taxmann.com 285 (Delhi-Trib.). The relevant observations made by the co-ordinate bench in the case of CGI Information systems management consultants P Ltd (supra) are extracted below:- 44. The learned counsel for the Assessee submitted before us that 3 out of the 5 companies which the Assessee seeks to exclude from the list of comparable companies viz., Infosys BPO Ltd. TCS B-service Ltd. and Excel Infoway Ltd., were considered for exclusion by the Tribunal in the case of a similar Assessee such as the Assessee engaged in providing ITES in the case of Baxter (I) (P.) Ltd. v. A.CIT [2017] 85 taxmann.com 285 (Delhi - Trib.). The learned DR relied on the order of the DRP/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical billing and coding whereas the Assessee was a captive service provider. The Tribunal followed its own ruling in the same assessee s case in AY 2011-12 in ITA No.99/Del/2016 reported in (2017) 87 taxmann.com 251 (Del) in BT e-serve (India) P Ltd vs. ITO giving identical reasons for excluding BNR Udyog Limited from the list of comparable companies in the field of companies rendering ITES such as the Assessee. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid company from the list of comparable companies chosen by the TPO. Respectfully following the above said decision of co- ordinate bench, we direct exclusion of M/s BNR Udyog Ltd from the list of comparable companies. 35. Respectfully following the above said decision of co- ordinate bench, we direct exclusion of M/s Infosys BPO Ltd, TCS E-serve Ltd., M/s BNR Udyog Ltd and M/s Excel Infoway Ltd., from the list of comparable companies and the issue of exclusion Universal Print Systems Ltd is restored to the file of AO/TPO for examining it afresh 36. Through Ground No. 2(k) the assessee is contending the exclusion of Jindal Intellicom Limited by the CIT(A). 37. The ld AR submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices to AE's at USA also. Therefore, the entire basis for its exclusion is wholly misconceived and erroneous and, accordingly, its suo motu exclusion by the DRP is not proper. The functions performed by this company are comparable to the services provided by the Assessee and have not been disputed whatsoever by the DRP. That apart, Jindal has been selected by the TPO as a comparable to the Assessee for the assessment years 2008-09, 2011-12 and 2013-14 and its inclusion for those assessment years has not been objected to by the Assessee either. Moreover, it is consistently figuring in the list of comparables in companies providing ITES. We therefore direct inclusion of this company in the list of comparable companies. 39. In assessee s case, the CIT(A) has suomoto excluded company on the ground that there is no reliable segmental information with respect to the ITES segment. Considering the facts of the case and the decision of the coordinate bench in the case of CGIInformationSystems Management Consultants (P.) Ltd (supra) we remit the issue back to the TPO/AO. The TPO/AO directed to verify the segmental details and consider the issue in the light of the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al adjustments. Detailed submissions in this regard are placed at pages 154-155 and 333-337 of the paperbook. 16. The Assessee also places reliance on Digital Juice Animation (P.) Ltd. v. Asstt. CIT [order dated 6-2-2020 in IT(TP) No. 215/Bang/2017], Lam Research India (P.) Ltd. [IT Appeal No. 1473 1385 (Bang.) of 2014, order dated 30-4-2015] and Dy. CIT v. Software AG Bangalore Technologies (P.) Ltd. in [IT Appeal No. 1628 (Bang.) of 2014, order dated 31-3-2016] passed by this Hon'ble Tribunal, where it has been held that negative working capital adjustment shall not be made in case of a captive service provider as there is no risk and it is compensated on a total cost plus basis. The Tribunal in the aforesaid decisions have followed decision of ITAT Hyderabad Bench in the case of Adaptec (India) (P.) Ltd. v. Asstt. CIT [2015] 57 taxmann.com 307. The learned DR relied on the order of the TPO/DRP on the issue. 17. On the above ground, it is undisputed that the Hyderabad Bench of the ITAT in case of Adaptec (India) (P.) Ltd. (supra) held that no such addition can be made for the following reasons:- 'Ground No. 8 pertains to the issue of negative working c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies have such a risk for them. If at all any working capital adjustment is to be made to this situation, only a positive adjustment has to be made to the comparables so that they are brought on par with the applicant. In view of the same, the Panel directs that negative working capital adjustment to the arithmetic mean margin of the comparables shall not be made. In view of the above, the Panel directs that negative working capital adjustment to the arithmetic mean margin of the comparables shall not be made.' 18. In view of the above, we are of the opinion that assessee's case being similar, there is no need for making any negative working capital adjustment when assessee does not carry any working capital risk. In fact, TPO should have done necessary working capital adjustment to the profits of the selected comparables so as to make them comparable to the assessee. In view of this, we direct the TPO not to make negative working capital adjustment. 19. It is undisputed that the Assessee is also a captive service provider such as the Assessee in the case decided by the ITAT Hyderabad Bench and therefore making a negative working capital adjustment with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not defined under that Act. The AO did not make any disallowance towards this since the entire deduction u/s.10AA was denied. 47. The CIT(A) upheld the order of the AO by relying on his order for AY 2010-11 though he has recorded a finding in the rder that the assessee has filed evidences relating to the entire procedural aspects of export of software from Chennai SEZ. 48. During the course of hearing the ld AR presented arguments with regard to each of the grounds listed about based on which the deduction u/s.10AA is denied. 49 . Non-submission of the endorsed softex forms The ld AR submitted that the STPI authorities were in-charge of the SEZ filings in the absence of a designated SEZ authority. Though the company was filing the softex forms on regular basis with the in-charge authorities, the authorities were not endorsing the same. It is submitted that nonendorsement of the softex forms submitted to the requisite authorities is attributable to a lapse on the part of the authorities and the Appellant should not be put into undue hardship on account of the same by disallowing the tax holiday claim made under Section 10AA of the Act. Further, it is submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Leased Circuit ( IPLC ) connection and it had a National Private Leased Circuit ( NPLC ) connection and not an IPLC connection and therefore, concluded that there was no export of software at all. 52. The ld AR submitted that the Assessing Officer has failed to appreciate the business model of the Assessee and has merely proceeded on the basis that since the Assessee did not have IPLC, there was no export at all. It is submitted that although the Assessee has NPLC, the internet connect would be used to access the Virtual Private Network (VPN ) which provides access database of customers outside India for their data/transaction processing. The VPN uses virtual connections routed through the internet from the business s private network to the remote site. It enables a computer to send and receive data across shared or public networks as if it is directly connected to the private network, while benefiting from the functionality, security and management policies of the private network. A VPN is created by establishing a virtual point to point connection through the use of dedicated internet connections, virtual tunnelling protocols or traffic encryptions. A VPN connection across t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export proceeds and that the deduction u/s.10A is to be granted based on the receipt of export proceeds into India in convertible foreign exchange. 56. In assessee s case details of the invoices along with the corresponding FIRCs mapping are furnished by the assessee before the lower authorities to substantiate that the export proceeds are received by the assessee (pages 958-977 of the paper book). We also notice that the AO has denied the deduction, based on the findings of AY 2010-11 by stating that some of the SOFTEX forms are not certified and that the Bank of America has not sent any reply. However there was no adverse finding recorded by the AO with regard to the SOFTEX forms and there is no discussion of the documents submitted by the assessee for the year under consideration. Further, copies of the invoices and softex forms submitted to the authorities and the letters addressed to them requesting endorsement are furnished by the assessee before is in the additional evidence (pages 1-42 of the additional evidence compilation). In view of this we remit the issue to the AO to verify the evidences submitted keeping in mind the ratio laid down by the Hon ble Tribunal in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect the AO to keep in mind in the remand proceedings that conditions in section 10AA(4) regarding formation are required to be established only in the year of formation. 60. Next we will consider the contention of the AO that the assessee did not do any export no evidence was produced. It is an accepted fact that the assessee is a registered STPI/SEZ unit and that the evidences of the receipts towards exports received in convertible foreign exchange has already been furnished before the lower authorities. Once evidence for rendering of services, invoicing done to the service recipient and the realisation of foreign currency (through FIRC) are established, the denial of export benefits merely due to non-availability of IPLC connection in our considered view is not justifiable particularly when IPLC connections is not the only mode of communication by which IT and ITES services can be provided to overseas customers. We therefore direct the AO not to deny the claim on this basis in the remanded proceedings. 61. The ld AR during the course of hearing made a without prejudice submission that while re-computating the deduction under Section 10A of the Act the expenses towards telec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trate the nature of the transaction at page 980 read with page 1432 to 1444 of the paperbook. The ld AR place reliance on the decisions of the Hon ble Karnataka High Court in the case of PCIT v. Mphasis Ltd. (order dated 24.02.2021 in ITA No. 62/2018), Hon ble Bombay High Court in Income-tax-16, Mumbai v. D. Chetan Co. reported in (2016) 75 taxmann.com 300 (Bombay) and the Hon ble Supreme Court in the case of Commissioner of Income-tax, Delhi vs. Woodward Governor India (P.) Ltd., reported in (2009) 179 Taxman 326 (SC) 66. We heard the rival submissions and perused the material on record. We notice that similar issue is considered by the coordinate bench of the Tribunal in assessee own case AY 2009-10 (order dated 08.04.2022 passed in M.P No. 22-23/Bang/2022), wherein the Assessing Officer was directed to delete the disallowance of loss for the reason that loss on account of foreign exchange fluctuations is allowable as a deduction under Section 37(1) of the Act. For the year under consideration, the Assessing Officer did not dispute the fact that the loss incurred by the Assessee is in the ordinary course of its business. Therefore considering the facts of the case and that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Triveni Engineering Industries Limited (ITA No.56 of 2009). Further, the advances given to the vendors, which is nonrecoverable, is also allowable as business loss. This proposition has also been upheld by the Hon ble Apex Court in the case of Mysore Sugar Co. Ltd. (1962) 46 ITR 649. Since the A.O. has not examined the claim of deduction u/s 37(1) r.w.s. 28 of the I.T.Act, we deem it appropriate to restore the issue to the files of the A.O. for de novo consideration. The assessee is directed to furnish necessary evidences before the A.O. The A.O. is directed to dispose of the matter expeditiously after affording a reasonable opportunity of hearing to the assessee. 70. As mentioned earlier in the order that the reason for not allowing the deduction is that the assessee has not furnished sufficient evidence in support of the claim. It is noticed that the Assessee has filed employee-wise listing of advances written off which are available at pages 1452-1470 of the paper book and detailed submissions are placed at pages 794-796 and 808 of the paper book. The ld AR during the course of hearing submitted additional evidence towards details of the advances written off (pages 88-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be allowed as a deduction. The following were the relevant observations of the Hon'ble Madras High Court:-- 14. As already noticed the payment of interest takes colour from the nature of the levy with reference to which such interest is paid and the tax required to be but not paid in time, which rendered the assessee liable for payment of interest was in the nature of a direct tax and similar to the income-tax payable under the Income-tax Act. The interest paid under Section 201(1A) of the Act, therefore, would not assume the character of business expenditure and cannot be regarded as a compensatory payment as contended by learned counsel for the assessee. 15. Counsel for the assessee in support of his submission that the interest paid by the assessee was merely compensatory in character besides relying on the case of Makalakshmi Sugar Mills Co. also relied on the decision of the apex court in the cases of Prakash Cotton Mills Pvt Ltd. v. CIT [1993] 201 ITR 684; Malwa Vanaspati and Chemical Co. v. CIT [1997] 225 ITR 383 and CIT v. Ahmedabad Cotton Manufacturing Co. Ltd. [1994] 205 ITR 163. In all these cases, the court was concerned with an indirect tax pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of Gratuity payment claimed: 76. In the computation of income the Assessee had claimed an amount of Rs. 45,74,46,960/- towards actual payment of gratuity after disallowing the provision made during the year of Rs. 19,11,94,712/-. The assessee during the course of assessment proceedings furnished challans towards payment of Rs.38,62,09,368 and with regard to the remaining amount submitted that the same is paid directly to the employees in the transition period. The AO disallowed the difference amount of Rs.7,12,37,592 stating that no evidence for payment is produced. The CIT(A) confirmed the disallowance for the same reason. 77. The ld AR submitted that during the year under consideration, the Assessee was undergoing a transition phase on account of the merger and thus, certain employees were not covered under the gratuity scheme of the merged entity. Therefore, certain employees were paid gratuity directly by the company on account of settlement at the time of termination of employment. It is submitted that in the computation of income for the assessment year 2012-13, the entire gratuity amount of Rs. 19,11,94,712/- which was debited to the profit and loss account w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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