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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI. CHANDRA POOJARI & SMT. BEENA PILLAI
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been placed before us for adjudicating the corporate tax issues, that were not adjudicated in order dated
Page 2 of 9 IT(TP)A No.701/Bang/2016 11/12/2017 passed by this Tribunal. Assessee filed miscellaneous petition being MP No. 59/B/2018 which was decided vide order dated 11/01/2019, wherein in paragraph 6 there is an observation that inadvertently the corporate tax issues were not adjudicated while passing order dated 11/12/2017. Accordingly the order dated 11/12/2017 was recalled for the limited purposes to adjudicate following grounds:
“II.Corporate Tax “1.1 ‘Other income' not considered as part of eligible business profits' while computing section 10A deduction 1.1. The Ld. AO erred in re-computing the deduction under section 1 OA of the Act after reducing other income of Rs. 37,56,066 from the profits of the undertaking eligible for deduction under section 1 OA of the Act without appreciating the fact that other income consisting of house rent deposits, claim in respect of penalty amount receivable from vendors, service tax liability written back, sale of scrap, etc. forms part of the business profit of the STP undertaking which is eligible for deduction under section 10Apffhe Act. 1.2. The Ld. AO and Hon'ble DRP erred in not placing reliance on the decision of Hon'ble ITAT in the Appellant's own case for AY 2006-07, wherein, it was held that other income should form part of the eligible business income for the purpose of computing deduction under section 10A. 1.3. The Hon'ble DRP has erred in holding that such receipts have no connection with the operation of Appellant's business and cannot be considered as business income 'did from activities of the undertaking'.
2. Adjustment of foreign exchange gain of Rs. 95,81,206 2.1. The Ld. AU has adjusted the foreign exchange gain in export turnover without providing any reasoning for the same in the assessment order. 2.2. The Ld. AU erred in reducing the foreign exchange gain of Rs. 95,8 1,206 from the export turnover for the purpose of computing the deduction under section 1 OA. 2.3. Notwithstanding and without prejudice to the above, the Ld. AU ought to have appreciated that, in the assessment order of the previous year (i.e. AY 2010-11), the Ld. AU had reduced the foreign exchange loss from export turnover, and accordingly the adjustment done during the current year (AY 2011-12) has resulted into an inconstancy in the treatment of foreign exchange loss/gain. The Ld. AO ought to have appreciated that if Page 3 of 9 IT(TP)A No.701/Bang/2016
foreign exchange loss is reduced from the export turnover, foreign exchange gain should be added to the export turnover. 2.4. Notwithstanding and without prejudice to the above, should the foreign exchange gain of Rs. 95,81,206 be adjusted from the export turnover, the same should be adjusted with both the export turnover and total turnover in arriving at the deduction under section 10A of the Act.
3. Adjustment of unbilled revenue of Rs.75,51,873. 3.1. The Ld. AU has erred in considering that basis Form 56F, an amount of R6,13,387 has been realized out of export proceeds of Rs.62,33,89,825/-. The Ld. AU ought to have appreciated that entire amount has been realized out of the export proceeds of Rs.62,33,89,825 as mentioned in Form 56F. 3.2. The Ld.AO has erred in computing the unbilled revenue at Rs. 75,5 1,873 as against Rs. 37,75,935 by considering the same amount twice. The Ld. AO has erred in not following the directions of the Hon'ble DRP to consider the correct amount while passing the final assessment order. The Ld. AU ought to have appreciated that correct amount of unbilled revenue is Rs 37,75,935 as evident from the Audited financial statements. 3.3. Notwithstanding and without prejudice to the above, should the unbilled revenue be reduced from the export turnover, the same should also be reduced from the total turnover in arriving at the deduction under section 10A of the Act.
Non grant of refund amounting to Rs. 6,667,550. 4.1. The Ld. AO has erred in considering a refund of Rs. 6,667,550 as granted in the final assessment order, without appreciating the fact that the Company has received the refund.
5. Levy of interest under interest under section 234D and 244A 5.1. The Ld. AO has erred in levying incorrect interest under Section 234D of the Act, amounting to Rs. 19,613, without appreciating the fact that appellant has not received the refund. The interest under section 244A of the Act is consequential in nature. The Appellant would be eligible to higher interest under section 244A of the Act, given that the refund has not been received yet. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided.”
II. Corporate tax:
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Ground No.1: This issue has been raised by assessee as the authorities below upheld exclusion of other income, while computing deduction under section 10 A of the Act.
The Ld.AR submitted that assessee is an 100%/EOU, and therefore all income/expenses are closely related and have a direct nexus to the business of the assessee. It has been submitted that, the Ld.AO disregarded the other income for computation of 10A deduction on the premise that other income did not form part of the direct income from export of the undertaking, and hence reduced the same from eligible profits of the undertaking for the purposes of 10A. The Ld.AR submitted that, other income earned by assessee are in the nature of share of business of auxiliary services, claim in respect of penalty on receivables from vendory for delay delivery, service tax liability written back, sale of scrap, etc., is which are part of business profit of the undertaking and are eligible for 10A deduction. He submitted that, the details of other income was furnished before this Tribunal as these were not called for and examined by the authorities below. The Ld.AR submitted that these documents constitute additional evidence and the petition for admission of additional evidence was filed vide application dated 08/07/2020. 4. The Ld.AR submitted that for deciding this issue it is necessary that the additional evidence has to be admitted for substantial Justice to assessee.
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On merits the Ld.AR placed reliance on the decision of Hon’ble Karnataka High Court in case of Hewlett-Packard Global Soft Ltd. reported in (2017) 87 taxmann.com 182, being a full bench decision, wherein it has been held that, incidental income cannot be delinked from the profit and gains of an undertaking engaged in the export of articles, as envisaged asked under section 10A of the Act, and therefore other income is eligible for deduction under section 10A of the Act.
On the contrary, Ld. CIT DR placed reliance on assessee’s own case for assessment year 2006-07 in by order dated 31/12/2014 in support of argument that there is no nexus between other income and business income, and therefore it cannot be considered as part of eligible to be considered for computing deduction under section 10A of the Act. 7. We have perused submissions advanced by both sides in light of records placed before us. We have perused the order relied by the Ld.CIT.DR. She placed specific reference to para 7.3 of the order wherein interest income earned on fixed deposits made for obtaining credit facility was considered by assessee to be eligible for deduction under section 10A of the Act. This Tribunal while considering the issue upheld the computation of 10A deduction made by assessee, wherein such income was included as eligible for deduction under section 10A. We note that this view nowhere assist the revenue. 8. In any event this issue needs to be remanded to the Ld.AO for due verification of evidences filed by assessee. We therefore
Page 6 of 9 IT(TP)A No.701/Bang/2016 direct the Ld.AO to verify the details filed by assessee and to consider the claim in accordance with law. Neeedless to say that proper opportunity of being heard should be granted to assessee in accordance with law. Accordingly, this ground raised by assessee stands allowed for statistical purposes.
9. Ground No. 2 has been raised as the foreign exchange gain was excluded from the export turnover but not from the total turnover for the purposes of 10A deduction.
10. Admittedly this issue now is stands squarely settled by the decision of Hon’ble Supreme Court in case of HCL Technologies Ltd. reported in (2018) 404 ITR 719. It has been submitted that foreign exchange gain is excluded from export turnover, should also be excluded from the total turnover for computing deduction under section 10A of the Act.
11. We accordingly direct the Ld. AO to compute the deduction is in accordance with the ratio laid down by Hon’ble Supreme Court in case of HCL Technologies Ltd. (supra). Neeedless to say that proper opportunity of being heard should be granted to assessee in accordance with law.
Accordingly this ground raised by assessee stands allowed for statistical purposes. 12. Ground No. 3 has been raised by assessee for the adjustment of unbilled revenue amounting to Rs.75,51,873/-.
Page 7 of 9 IT(TP)A No.701/Bang/2016 12.1 The Ld.AR submitted that Ld.AO reduced the said sum towards unrealised export sales from export turnover for computing 10 A deduction, but did not reduce the same from total turnover. On the objections being raised before the DRP, the DRP directed the Ld. AO to verify the same, but Ld.AO failed to verify as per DRP directions. It is also submitted that, the Ld.AO further erred in reducing the amount of unbilled revenue twice while computing the deduction.
The Ld.AR submitted that, the unbilled revenue represents work done by the assessee, which could not be built to the client, as the same was pending acceptance and approval by the client as per the agreed terms. He placed reliance on the decision by Hon’ble Mumbai Tribunal in case of Tech Mahindra R&D services Ltd. in ITA No.4462/M/2016.
We note that the Ld.AO failed to follow the directions of DRP and therefore, this issue needs to be remanded to the file of Ld.AO. The Ld.AO shall verify the details filed and consider the claim of assessee in accordance with law. Neeedless to say that proper opportunity of being heard should be granted to assessee in accordance with law. Accordingly this ground raised by assessee stands allowed for statistical purposes. In the result corporate grounds raised by assessee stands allowed for statistical purposes.
Page 8 of 9 IT(TP)A No.701/Bang/2016 In the result appeal filed by assessee stands allowed for statistical purposes to the extent of corporate tax issues adjudicated hereinabove. Accordingly we allow assessee’s appeal on Ground No.9 In the result appeal filed by assessee stands allowed. Order pronounced in the open court on 7th April, 2021 Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 9th April, 2021. /Vms/ Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file By order