BARCLAYS SHARED SERVICES PRIVATE LIMITED(MERGED WITH BARCLAYS TECHNOLOGY CENTRE INDIA PVT LTD),PUNE vs. ACIT, COMPANY CIRCLE-1(2), CHENNAI

PER R.S.SYAL, VP : This appeal by the assessee is directed against the order dated 17-11-2017 passed by the CIT(A)-5, Chennai in relation to the assessment year 2010-11. 2. The first major issue raised in this appeal is against restricting deductions u/ss. 10A and 10AA of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) on several counts.

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engaged in the business of providing Information Technology

Enabled services. It filed its return declaring total income at

Nil under regular provisions and at Rs.45,85,14,327/-

u/s.115JB of the Act. In the computation of income 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

Rs.1,20,86,914/- which were clubbed under the main head of

‘Other income’, viz., (1) Interest on Short Term Fixed

Deposits – Rs.99,02,569/-; (2) Recovery/Reimbursement of

expenses from group companies – Rs.20,23,083-; (3) Gain on

sale of Fixed Assets – Rs.1,000/-; (4) Sale of Scrap –

Rs.1,31,005/-; and (5) Other income – Rs.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.

3 ITA No.267/CHNY/2018 Barclays Global Services Centre Private Limited

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 allowed in the first appeal. That is

how the assessee is before the Tribunal.

Court and gone through the relevant material on record. It is

seen that the AO did not dispute the otherwise eligibility of the

assessee to deductions u/ss.10A and 10AA of the Act. The

limited point under consideration instantly is non-granting of

deduction on the above mentioned five items of income. In

order to appreciate as to whether these income items qualify

for such deductions, we need to look into the relevant

provisions. Firstly, we take up section 10A of the Act, which

is a special provision in respect of newly established

undertakings in free trade zone etc. Material part of sub-

section (1) of section 10A states that: `Subject to the

provisions of this section, a deduction of such profits and

gains as are derived by an undertaking from the export of

articles or things or computer software …. shall be allowed

from the total income of the assessee’. Thus, deduction has

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been provided on such profits and gains as are derived by an

undertaking from the export of articles or things or computer

software etc. Sub-section (4) of section 10A elucidates the

meaning of the term ‘profits derived from export of articles or

things or computer software’ as used in sub-section (1). The

later sub-section states that: `For the purposes of sub-sections

(1) and (1A), the profits derived from export of articles or

things or computer software shall be the amount which bears

to the profits of the business of the undertaking, the same

proportion as the export turnover in respect of such articles or

things or computer software bears to the total turnover of the

business carried on by the undertaking.’ The narrowed

expression ‘derived from’ as used in sub-section (1) needs to

be understood in the hue of sub-section (4) which talks of

‘profits of the business of the undertaking’. On a reading of

sub-section (4) in juxtaposition to sub-section (1) of section

10A, it becomes palpable that the deduction has been provided

on proportionate basis on the ‘profits of the business of the

undertaking’. In order to be covered within the qualifying

amount, it is essential that such amount must answer to the

description of ‘profits of the business of the undertaking’. The

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provisions of section 10AA, insofar as the present issue is

concerned, are almost 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.

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

6 ITA No.267/CHNY/2018 Barclays Global Services Centre Private Limited

will not qualify for deduction. We, ergo, proceed to determine

the nature of income ad seriatim so as to find out the head of

income under which they fall and their consequential

treatment as qualifying income.

unutilized funds in short term fixed deposits with banks in

order to effectively manage the working capital requirements

of its business’. On a specific query, the ld. AR stated, as is

also borne out from the reply submitted before the authorities

below, that the fixed deposits were not meant to be furnished

as primary or collateral securities for obtaining credit facilities

from the bank. The contention of the assessee raised before

the AO that the surplus funds were invested in fixed deposits,

in order to effectively manage the working capital

requirements of its business, would have merited acceptance,

if such fixed deposits had been utilized in any manner in

assisting the working capital requirements. However, the

position is clearly converse before us. If the assessee, instead

of making fixed deposits with banks had deposited the amount

in the cash credit or overdraft or any other such account

7 ITA No.267/CHNY/2018 Barclays Global Services Centre Private Limited

maintained with the banks, that would have been a case of

effectively managing working capital requirements of the

business. Here, we are confronted with a situation in which

the assessee has rather chosen to earn interest income on the

amount of fixed deposits, even for a short duration during

which the funds were unutilized. Under such circumstances,

we fail to appreciate as to how such interest income can be

classified as ‘profits of the business of the undertaking’. The

same, being alien to the business of the undertaking do not

partake the character of ‘profits of the business of the

undertaking’. In that view of the matter, such interest income

cannot be included in the qualifying amount for the purposes

of deduction u/ss.10A/10AA of the Act.

Ltd.(supra) which is a jurisdictional high Court judgment of

the assessee in which claim u/s.10A has been denied in

respect of the interest income earned from banks. The counter

judgment relied on by the ld. AR is that of the Hon’ble

Karnataka High Court in CIT Vs. Hewlett Packard Global Soft

Ltd. (2017) 87 taxmann.com 182 (Kar) (FB) in which interest

from bank deposits has been made eligible for exemption

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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

Rs.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.

companies.

expenses from group companies. The AO has not separately

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discussed this item in the assessment order. In the Statement

of facts before the ld. CIT(A), the assessee submitted the

nature of such amount by explaining that it was incurred by

the assessee on behalf of its group companies and

subsequently recovered and shown as credit in the Profit and

loss account. That is how that the assessee claimed such an

amount to be eligible for deductions. The ld. CIT(A) did not

concur with the assessee.

material on record, it is observed that the assessee incurred

certain expenses on behalf of its group companies which were

included in its total expenses. Thereafter, a sum of Rs.20.23

lakh was recovered from group companies as reimbursement,

which was shown to the credit of the Profit and loss account.

Once the amount has been included in the expenses which has

gone to reduce the ‘profits of the business of the undertaking’,

its re-imbursement as a sequitur, would obviously be a part of

the qualifying amount for the purposes of deduction under the

sections. We, therefore, overturn the impugned order on this

score and order to grant deduction on such

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recovery/reimbursement of expenses from group companies.

The assessee succeeds here.

The ld. AR submitted that the assessee never claimed any

deduction in respect of this item and the AO was not justified

in excluding it. The ld. DR could not controvert the position

stated on behalf of the assessee as was also stated before the

ld. CIT(A) in the statement of facts. In view of this factual

scenario, where the assessee did not include the amount in the

qualifying amount, there can be no question of reducing it.

We, order accordingly. The assessee succeeds on this count.

Rs.1,31,005/-. Again, the AO did not discuss this item in the

assessment order. The assessee, in the statement of facts

before the ld. CIT(A), reiterated its position.

circumstances, it is not disputed that the scrap emanated from

the normal working items of the assessee company, whose

costs were debited to the Profit and loss account. On sale of

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such scrap, against which the expenses were booked in the

computation of the qualifying amount, the receipt would form

part of the qualifying amount. We order accordingly. The

assessee succeeds.

Rs.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.

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 Rs.63.81 lakh and 10AA

unit at Rs.7.43 lakh. The same was added back while

computing eligible amount. However, while consolidating the

12 ITA No.267/CHNY/2018 Barclays Global Services Centre Private Limited

accounts, the assessee added Rs.88.40 lakh towards provision

for leave encashment as against Rs.71.24 lakh. Hence,

provision was found by the AO to be more to the extent of

Rs.17.15 lakh. The AO reduced such amount of

Rs.17,15,686/- from the qualifying amount towards deductions

u/ss.10A/10AA of the Act. The ld. CIT(A) echoed the

assessment order on this issue.

provision for leave encashment amounting to Rs.88.40 lakh

but did not reduce Rs.17.15 lakh. We have examined the

computation of income, whose copy has been placed at pages

19 and 20 of the paper book. It can be seen from such

computation that the assessee, in fact, added back

Rs.88,40,364/- with the narration “Provision for Leave

Encashment outstanding as on March 31, 2010” and thereafter

reduced the amount of Rs.17,15,686/- with the narration

“Payment of Leave Encashment against the pending provision

as on April 1, 2010”. It appears that the AO did not examine

the computation of income in totality and reduced the claim by

Rs.17.15 lakh which had already been reduced suo motu by

the assessee in the computation of total income. It is with such

13 ITA No.267/CHNY/2018 Barclays Global Services Centre Private Limited

adjusted profit that the assessee went on to claim deduction

u/ss.10A/10AA. This ground is, therefore, allowed.

u/ss.10A/10AA is that the AO erred in making adjustment by

excluding Rs.17,86,89,000/- incurred towards foreign travel

expenses and Rs.6,35,17,000/- incurred towards

communication/connectivity charges from export turnover.

During the course of assessment proceedings, the assessee was

asked to submit details of amount incurred towards

telecommunication charges and expenses incurred in foreign

exchange in providing services outside India. On perusal of

such details, the AO observed that the assessee had not

reduced these amounts from the export turnover. He, ergo,

reduced these two items from the `Export turnover’ without

giving consequential effect to the `Total turnover’ while

working out the amount of deduction u/ss.10A/10AA. No

succour was provided by the ld. CIT(A).

relevant material on record, it is observed that the assessee,

initially did not reduce the amount of the above referred two

expenses from total turnover and also export turnover. The

14 ITA No.267/CHNY/2018 Barclays Global Services Centre Private Limited

AO, however, computed the amount of deduction

u/ss.10A/10AA by reducing these two amounts from the

amount of `Export turnover’ 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.

15 ITA No.267/CHNY/2018 Barclays Global Services Centre Private Limited

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 compute the same in accordance with our above

observations.

disallowance of `Provision for performance bonus’ amounting

to Rs.5,60,27,567/- and `Provision for expenses’ amounting to

Rs.21,36,44,810/- while computing book profits u/s.115JB of

the Act on the ground that such expenses are ‘unascertained

liabilities’.

assessee did not add back `Provision for expenses’ at

Rs.23.77 crore and `Provision for performance bonus’ at

Rs.5.60 crore while computing book profit u/s.115JB. On

being called upon to explain as to why such amounts were not

added back, the assessee submitted that these provisions were

in respect of crystallized liability of bonus and the expenses

incurred for which bills etc. were to be received and hence,

were ‘ascertained liability’. The AO added back these two

amounts by holding that the assessee did not furnish as to how

16 ITA No.267/CHNY/2018 Barclays Global Services Centre Private Limited

these provisions were computed with reasonably certainty.

The ld. CIT(A) accorded his imprimatur to the view point of

the AO.

the relevant material on record. Section 115JB is a special

provision for payment of tax by certain companies. Under this

section, `book profit’ is computed which is then taken into

consideration for working out the amount of tax to be paid.

Explanation to section 115JB defines the expression “book

profit” to mean the profits as shown in the Profit and loss

account as increased by certain items and thereafter as reduced

by certain items. One of the items which have been mentioned

for increase is clause (c), namely, `the amount or amounts set

aside to provisions made for meeting liabilities, other than

ascertained liabilities’. Thus, it is evident that while

computing amount of `book profit’, any amount transferred to

provision account, which is not an ascertained liability, is

liable to be added back to the amount of profit as shown in the

Profit and loss account. If on the other hand, the provision has

been made in respect of ascertained liability, the same would

not be added back.

17 ITA No.267/CHNY/2018 Barclays Global Services Centre Private Limited

the first item is `Provision for expenses’ made by the assessee

during the year at Rs.21,36,44,810/-. Though the AO

mentioned that the assessee 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 Rs.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.

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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 the later pages, the

assessee has placed copious details of such expenses. All

these expenses are in the nature of regular business expenses

incurred by the assessee during the year for which bills were

not received by the year end, leading to creation of a

provision. Since such provision is in respect of ‘ascertained

liability, the same cannot be added back while computing

book profit u/s.115JB of the Act. We, therefore, order to treat

both the amounts in question as provisions for ascertained

liability and not to make any addition to the book profit in this

regard. This ground is allowed.

computers/computer peripherals at 15% instead of 60%

claimed by the assessee. The AO allowed depreciation on

computers/computer peripherals @15% as against the

19 ITA No.267/CHNY/2018 Barclays Global Services Centre Private Limited

assessee’s claim of 60%. The ld. CIT(A) echoed the

assessment order.

relevant material on record, we find from the ground of

appeal that this grievance is only about the rate at which

depreciation should be allowed on computers/computer

peripherals. Whereas the assessee claimed depreciation

@60%, the AO restricted it to 15%. We have gone through

the details of such amounts on which the assessee claimed

depreciation at the increased rate. Such details have been

placed at page 138 onwards of the paper book. On going

through such details, it is manifested that the assessee claimed

depreciation at higher rate only in respect of computers

purchased by it for rendering IT enabled services. There is no

dispute about the eligibility of depreciation on computers at

60%.

Special Bench of the Tribunal in DCIT Vs. Data Craft India

Ltd. (2010) 133 TTJ (SB) 377 has held that routers and

switches should also be classified under the term “computers”

subject to higher rate of depreciation. The Hon’ble Delhi High

20 ITA No.267/CHNY/2018 Barclays Global Services Centre Private Limited

Court in CIT Vs. BSES Yamuna Towers Ltd. 2010-TIOL-636-

HC-DEL-IT has also made the assessee entitled to higher rate

of depreciation in respect of routers and switches. In view of

the foregoing discussion, it is graphically clear that the

assessee is rightly entitled to the higher rate of depreciation of

60% on computers/computer peripherals etc. The impugned

order is overturned on this issue and the necessary relief is

allowed.

of depreciation disallowed, which is subject matter of ground

no.4 vis-a-vis claim of deduction u/ss.10A/10AA, has become

infructuous in view of our decision in favour of the assessee

on ground no.4. This ground is thus dismissed as having

become academic.

Order pronounced in the Open Court on 09th March,

2021.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 09th March, 2021 सतीश

21 ITA No.267/CHNY/2018 Barclays Global Services Centre Private Limited

आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-5, Chennai 4. The Pr.CIT-5, Chennai िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “B” / DR ‘B’, ITAT, Pune गाड� फाईल / Guard file 6. आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 08-03-2021 Sr.PS 2. Draft placed before author 09-03-2021 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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