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Income Tax Appellate Tribunal, HYDERABAD BENCH ‘A, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI A. MOHAN ALANKAMONY
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ‘A', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA No. 914/Hyd/2017 Assessment Year: 2009-10 Dy. Commissioner of vs. Virtusa (India) Pvt. Ltd., Income-tax, Hyderabad. Circle – 17(2), Hyderabad. PAN – AABCV 4077E Appellant Respondent Revenue by: Shri Y.V.S.T Sai Assessee by: Maitreya Date of hearing: 30/10/2019 Date of pronouncement: 15/11/2019 O R D E R PER P. MADHAVI DEVI, J.M.:
This is an appeal filed by the Revenue against the order of CIT(A) – 5, Hyderabad, dated 20/03/2017.
The grounds of appeal raised by the revenue are as under: “1. The Ld, CIT(A) is erroneous in law and on the facts of the case. 2. The Learned Commissioner of Income Tax (Appeals) erred in holding that the amount of statuary disallowances has to be considered as business profit elieib1e for deduction u/s 10A. 3. The Learned Commissioner of Income Tax (Appeals) erred in directing to reduce communication expenses, insurance and expenses reimbursed both from the export turnover and the total turnover to determine the quantum of exemption u/s10A ignoring the fact that SLP was filed by the department vide SLP(Civil) CC No.
2 I.T.A. No. 914/H/17 Virtusa (India) P. Ltd., Hyd. 15057 of 2014, on identical issue in assessee's own case for the A Y. 2006-07. 4. Any other ground that may be urged at the lime of hearing.”
At the time of hearing, ld. Counsel for the assessee submitted that similar issue had arisen in assessee’s own case for the earlier AY 2006-07 in ITA No. 268 and 482/Hyd/2011 and the Tribunal at paras 26 & 27 of its order has held as under:
“26. Effective grounds of the Revenue in this appeal are as follows- "(i) ..... (ii) The CIT(A) has erred in holding that if the (i)communication charges of (ii) Insurance Charges of Rs.2,39,47,853/-and Rs.16,80,632/- were excluded from the export turnover, the same have to be excluded from the total turnover also, when such an adjustment to the 'total turnover' is not contemplated in the provisions laid down below sec.10A. (iii) The CIT(A) erred in holding that having not considered the (i) reimbursement of expenses at Rs.33,96,032/- and (ii) reimbursement of expenditure by Virtusa Corpn. USA (Rs.3,81,47,701/-), Virtusa UK(P)Ltd. (Rs.42,88,632/-) and Virtusa (P)Ltd., Colombo(Rs.2,57,09,133/-), aggregating to Rs.6,81,45,466/- as part of the export turnover, the same is also not includible in the total turnover. (iii) The CIT(A) has erred in directing to consider Rs.31,44,491/- representing statutory disallowances u/s. 40A(3), u/s. 40A(7) and u/s. 43B in the eligible business profits for computation of deduction u/s. 10A, since the provisions of sec.10A(1) provides that the income should have been "derived from" the export of articles or things or computer software. (iv) .... " 26. We heard both sides and perused the impugned orders of the lower authorities and other material available on record. As for grounds No.(ii) regarding exclusion of communication charges and insurance from total turnover, the same having been excluded from the export turnover, in view of our findings on these aspects while
3 I.T.A. No. 914/H/17 Virtusa (India) P. Ltd., Hyd. dealing with the grounds of the assessee in relation to these very items, for the reasons discussed in that context, these grounds of the Revenue also stand allowed for statistical purposes for being decided afresh by the assessing officer, while redeciding the same in accordance with our directions in the context of the assessee's appeal on the corresponding grounds of the assessee. 27. As for ground (iv) relating to the grievance of the Revenue on account of CIT(A)'s direction to consider Rs.31,44,491 representing statutory disallowances u/s. 40A(3), 40A(7) and 43B as eligible business profits for computation of deduction under S.10A, we find that the impugned order of the CIT(A) on this issue is in consonance with the consistent view taken by the Tribunal in similar matters, as in Planet On- line (P)Ltd. in ITA No.1016/Hyd/07 and Zawata India P. Ltd. in ITA No.1100/Hyd/.2009. In the absence of any decision to the contrary brought to our notice, following the consistent view taken by the Tribunal in the cases referred to above, we find no infirmity in the impugned order of the CIT(A) on this issue also. The same is accordingly confirmed and this ground of the Revenue is also dismissed.” 3.1 He also relied on the CBDT Circular No. 37/2016, dated 2nd November, 2016, wherein at para 3, it was directed as under: “3. In view of the above, the Board has accepted the settled position that the disallowances ma de under sections 32, 40(a)(ia), 40A(3), 43B, etc . of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed , result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance.” 4. The ld. DR, on the other hand, relied upon the decision of ITAT, Visakhapatnam Bench in the case of K. Venkataraju Vemagiri Vs. Addl. CIT, [2013] 34 Taxmann.com 92, wherein it was held that disallowance u/s 40(a)(ia) is for deferment of allowance of expenditure for non-compliance of TDS provisions, but, there are disallowances prescribed u/s 40A(1) and 40A(3), which are not to be allowed as expenses in computing business income and, therefore, it cannot be equated with other disallowances prescribed u/s 40, 40A etc.
4 I.T.A. No. 914/H/17 Virtusa (India) P. Ltd., Hyd. 5. Having regard to the rival contentions and perusing the material on record, we find that the issue in dispute is covered by the CBDT Circular (supra) and the revenue authorities are bound to follow the CBDT Circular. The CIT(A) has only followed the decision of the ITAT in assessee’s own case for AYs 2006-07 & 2008-09 in respect of the statutory disallowances to hold that the amounts disallowed have to be considered as business profits eligible for deduction u/s 10A of the Act. Therefore, we do not find any infirmity in the order of the CIT(A) and upholding the same, we dismiss the grounds raised by the revenue on this issue.
In the result, appeal of the revenue is dismissed.
Pronounced in the open court on 15th November, 2019.
Sd/- Sd/- (A. MOHAN ALANKAMONY) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, dated 15th November, 2019. kv Copy forwarded to: 1. DCIT, Circle – 17(2), 9th floor, Signature Towers, Opp. Botanical Gardens, Kondapur, Hyderabad – 500 084 2. M/s Virtusa (India) Pvt. Ltd., 6-3-1192, Block-A, 3rd Floor, My Home Tycoon, Kundanbagh, Begumpet, Hyderabad – 500 016. 3. CIT(A) – 5, Hyderabad 4. Pr. CIT – 5, Hyderabad. 5. The DR, ITAT, Hyderabad 6. Guard File