DCIT, CHENNAI vs. RENAULT NISSAN TECHNOLOGY & BUSINESS CENTRE INDAI PRIVATE LIMITED, KANCHEEPURAM

आदेश / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER

The brief facts of the case are as under: 2.

The appellant namely M/s. Renault Nissan Technology & Business Centre India Private Ltd,. is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of engineering, designing services, information technology support services, back office accounting support services, contract research and development services and sourcing support services for its group companies. The return of income for the AY 2012-13 was filed on 30.11.2012 disclosing total income of �13,00,78,070/-. Against the said return of income, the assessment was completed by the Deputy Commissioner of Income Tax, Corporate Circle-5(1), Chennai (hereinafter called “AO”) vide order dated 02.05.2016 passed u/s. 143(3) r.w s. 92CA(3) of the Income Tax Act, 1961 (in short ‘the Act’) after making the following disallowances.

ITA Nos.182 & 187/2018 :- 3 -:

(i) Restricting the disallowance u/s.10AA of the Act by reducing the expenditure incurred in foreign currency from export turnover.

Addition on account of belated remittance of employees (ii) contribution to Employees Provident fund/ESI �28,11,739/-.

(iii) Adjustment made u/s.92CA of the Act �35,87,344/-.

(iv) Interest on fixed deposits �3,69,63,622/-.

(v) The Assessing Officer also disallowed remittance of foreign tax paid of �8,44,57,768/- claimed during the assessment proceedings against claim made in the return of income of �5,58,87,820/- on the ground that claim was not made in the return of income by placing reliance on the decision of Hon'ble Supreme Court in the case of Geotze India Ltd vs. CIT, 284 ITR 323.

With regard to the addition on account of delay in remittance of EPF/ESI, he allowed the ground of appeal by placing reliance on the ITA Nos.182 & 187/2018 :- 4 -: judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Madras Radiators & Pressing, 129 Taxmann 709, and Co-ordinate Bench decision of Bombay and Chennai Tribunal in the case of CIT vs.Ghate Patil Transport Ltd (ITA No.1002/2012 & 1034/2012) and DSM Soft Pvt Ltd vs. ACIT, & 12/Mds/2010. With regard to the claim for foreign tax paid the issue was set aside to the Assessing Officer for due verification.

Aggrieved by that part of the ld. CIT(A) order, which is 4. against assessee-company, the assessee company is in appeal before us in challenging the decision of ld. CIT(A) in reducing the expenditure incurred in foreign currency both total export turnover as well as total turnover contending that expenditure was not incurred in connection with delivery of computer software or services and also challenged the addition made under the head ‘’income from other sources’’ in respect of foreign exchange gain. The assessee raised the following grounds of appeal.

‘’The grounds stated here are without prejudice to one another.

ITA Nos.182 & 187/2018 :- 5 -:

2.1. The Ld. CIT(A) and the Ld. AO have erred in excluding expenses incurred in foreign currency and communication and insurance cost from export turnover for the purpose of computation of deduction under section 10AA of the Act 2.2. The Ld. CIT(A) and the Ld. AO have erred in treating expenses incurred in foreign currency and communication and insurance costs as having been incurred in connection with rendering services outside India without considering the facts of the case and nature of such expenses. 2.3. The Ld. CIT(A) and the Ld. AO have failed to appreciate that the export turnover earned by the appellant does not include any receipts separately recovered towards expenditure incurred in foreign currency, communication and insurance cost 2.4. The Ld. CIT(A) and the Ld. AO failed to consider the favorable directions of the DRP on the identical issue in Appellant’s own case for the earlier AY 2009- 10 2.5. The Ld. CIT(A) has erred in not separately adjudicating the issue of exclusion of communication and insurance cost from export turnover

3. Exclusion of ‘Other Income’ from computation of profits for the purpose of computation of deduction under section 10AA 3.1. The Ld. AO have erred in excluding foreign exchange gain and other income from profits of the undertaking in the computation of deduction under section 10AA of the Act by concluding the same are not profits derived by the eligible undertaking. 3.2. The Ld. CIT(A) has erred in not adjudicating on the said issue in his order passed under section 250 of the Act’’.

ITA Nos.182 & 187/2018 :- 6 -:

Ground No.1 is general in nature therefore, does not 5. require any specific adjudication.

Ground No.2 challenges the decision of the Assessing Officer 6. with regard to exclusion of expenditure incurred in foreign currency on communication and insurance from export turnover contending that these were not incurred in connection with rendering of services outside India. This issue was also challenged before the ld. CIT(A) by contending as under:-

’The Ld. AO, while computing the deduction under section 1OAA of the Act, had reduced the abovementioned expenditure from the export turnover by placing reliance on the definition of ‘export turnover’ provided under Explanation 1 to Section 1OAA of the Act, the extract of which is provided below for your goodself’sease of reference:“ export turnover means the consideration in respect of export by the undertaking, being the Unit of articles or things or services received in, or brought into India by the Assessee but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things outside India or expenses, if any, incurred in foreign exchange in rendering of services (including computer software) outside India “. 2.2 Our Submission A) Expenditure incurred in foreign currency not to be excluded from export turnover Our arguments for non-exclusion of the above said expenditure from export turnover are summarized below: 1. Precedent in Appellant’s own case At the outset, the Appellant wishes to submit that the Hon’ble Dispute Resolution Panel (‘DRP’) has in Appellant’s own case for AY 2009-10 examined in detail, treatment of similar expenditure and vide directions dated

ITA Nos.182 & 187/2018 :- 7 -:

December 20, 2013, directed the Ld. AO to delete the exclusion of the following expenses from export turnover while computing deduction under section 1 OAA of the Act • Travel Expenses; .• information technology and technical support service charges: and • Reimbursements to Renault Global Management and Nissan Motor Company Limited As regards professional and consultancy expenditure incurred in foreign currency, the Hon’ble DRP granted parity in exclusion of expenditure from export turnover while computing deduction under section 1OAA of the Act. Copy of the aforementioned directions of Hon’ble DRP for AY 2009-10 is enclosed as Annexure 6of this submission. In addition to the above, the Appellant places the following arguments before your goodself — 2. Expenditure not incurred for rendering services outside India The intention of the legislation is to preclude the benefit of section 10AA of the Act in respect of expenses incurred in foreign exchange in rendering service outside India. The same is evident from the definition of export turnover provided in explanation 1 to section 1OAA of the Act which mandates that expenditure if any Incurred in rendition of services in foreign soil alone have to excluded from export turnover while computing deduction under section i0AP of the Act. In the instant case, the Ld. AO has not appreciated this aspect and has proceeded to exclude expenditure from export turnover while computing deduction under section 1OAA of the Act, merely because it was incurred in foreign currency. At this stage, the Appellant wishes to place reliance on the ruling of the Hon’ble Bangalore Income Tax Appellate Tribunal (‘Tribunal’) in the case of Subex Limited vs DCIT [68 taxmann.com 233], wherein it was held that mere incurring of expenditure in foreign currency would not tantamount to automatic reduction of such expenditure from export turnover while computing deduction under section 1OA of the Act. As mentioned earlier, the Appellant rendered services out of its SEZ Unit located in Mahindra World City, Kancheepuram — Chennai, India. Therefore, the expenditure incurred in ITA Nos.182 & 187/2018 :- 8 -: foreign currency is not towards provision of services in foreign soil. Accordingly, the Appellant humbly submits that the said expenditure need not be excluded while computing deduction under section 10AA of the Act. The above principle of non-exclusion from export turnover where services are not r rendered in foreign solihas been upheld by the Jurisdictional Hon’ble Chennai Income Tax Appellate Tribunal in the following rulings: 1. Zylog Systems vs ITO{2011] 7 [TR (t) 348 (Chennai - Special Bench); 2. Financial Software and Systems P Ltd v DCIT [ITA No. 1 070/Mds2016]’’.

However, ld. CIT(A) while granting relief on alternative plea that same should be reduced from both export turnover as well as total turnover, has not adjudicated the issue, the expenditure incurred in foreign currency should not be reduced from the export turnover.

Hence, this issue is remitted back to the file of ld. CIT(A) for fresh adjudication after affording due opportunity of hearing to the appellant in accordance with law. Thus, ground No.2 raised by the assessee is partly allowed for statistical purposes.

Ground No.3 challenges the decision of ld. CIT(A) in assessing 7. interest earned on fixed deposits as business receipts under the head ‘’income from other sources’’. This issue was challenged before the ld. CIT(A) in ground No.3. Though the ld. CIT(A) extracted the ground of appeal but failed to adjudicate this ground of appeal.

Therefore, we remit this issue back to the file of the ld. CIT(A) for ITA Nos.182 & 187/2018 :- 9 -: fresh adjudication after affording due opportunity of hearing to the assessee in accordance with law. Ground No.3 raised by the assessee is partly allowed for statistical purpose.

In the result, the appeal of the assessee in ITA 8. No.182/CHNY/2018 is partly allowed for statistical purposes. Now, we take up Revenue appeal in 9. for adjudication.

‘’1. The order of the ld CIT(A) is contrary to law and facts and circumstances of the case.

2.1 The ld CIT(A) erred in directing the AO to exclude expenditure incurred in foreign currency and other income from the total turnover also, relying on the decision of the Tribunal in assessee’s case for AY 2009-10, wherein the Hon’ble Tribunal had relied on its decision in the case of M/s Sak Soft Limited, whereby expenditure incurred in foreign currency cannot form part of both export and total turnover.

2.2 The ld CIT(A) failed to note that as per Explanation 1(i) to Sec.10AA, export turnover does not include freight, telecommunication charges or insurance attributable to the delivery of articles or things outside India or expenses, if any, incurred in foreign exchange in rendering of services outside India and accordingly the AO is justified in excluding the expenditure incurred in foreign currency from the export turnover.

2.3 The id CIT(A) ought to have noted that as per Explanation 1 to Sec.10AA, there is no mandate given in the Act to exclude such expenditure incurred in foreign currency from the total turnover.

ITA Nos.182 & 187/2018 :- 10 -:

2.4 The decision of the Tribunal relied upon in the case of M/s Sak Soft Limited was not accepted by the Department and appeal u/s 260A has been preferred before the Hon’ble High Court.

3.1 The ld CIT(A) erred in deleting the disallowance u/s 36(1)(va) r.w.s 2(24)(x) made by the AO to the tune of Rs.28, 11,739/- on employee’s contribution towards ESI/PF, on account of belated remittance into Government Account, not conforming to the due dates as per relevant Acts.

3.2 The ld CIT(A) failed to note that as per the decision of the jurisdictional High Court in the case of CIT Vs Madras Radiators and Pressing Limited (2003) 129 Taxmann 709, the employees’ contribution received by the employer would be income in his hands and that would be allowed as permissible deduction under clause (Va) of Sec.36(1) in computing the business income u/s 28, provided the assessee credits the same to the relevant fund as per the due dates specified.

3.3 The ld CIT(A) ought to have noted that as per the decision of the Hon’ble Gujarath High Court in the case of CIT II Vs Gujarath State Road Transport Corporation, as per the definition of ‘income’ as per Sec.2(24)(x), any sum received by the assessee from his employees as contribution to any PF or Superannuation Fund etc., as per the Relevant Acts, is to be treated as income and the employer-assessee is eligible to claim deduction of such amount as per Explanation to Sec.36(l)(v) only when the same is credited into the relevant fund within the due dates specified under those Acts.

3.4 The ld CIT(A) failed to note that in the case of M/s Gujarath State Roj Transport Corporation, the Hon’ble Gujarath High Court has clearly discussed that the Hon Thile Apex Court in the case of Alom Extrusions Limited, never had the occasion to consider the deduction u/s 36(1)(va) with respect to employees’ contribution and the only controversy before the Supreme Court was with respect to the amendment (deletion) of second proviso to Sec.43B operative w.e.f 1.4.2004 or whether it operates retrospectively w.e.f 1.4.1988?

ITA Nos.182 & 187/2018 :- 11 -:

3.5 The ld CIT(A) failed to note that the Board itself has differentiated between employer’s contribution and employees’ contribution to funds, vide Board’s Circular No. 22/20 15 dated 17-12-2015, wherein it has been clarified that the Hon’ble Apex Court’s decision in the case of CIT Vs Alom Extrusion Limited, has been accepted with regard to employer’s contribution only and does not apply ,to the claim of deduction under employees’ contribution.

Grounds of appeal No.1 & 4 are general in nature therefore, 11. does not require any no specific adjudication.

Ground No.2 challenges the decision of ld. CIT(A) in directing 12. the Assessing Officer to exclude expenditure incurred in foreign currency on insurance, freight and telecommunication charges from both export turnover and total turnover. The issue is no longer res integra, and has been decided in favour of the assessee and against the Revenue by the decision of the Hon’ble Apex Court in the case of CIT vs. HCL Technologies Ltd, (2018) 404 ITR 719, wherein at para 19 to 21, it has been held as under:-

‘’19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under section 10A of the Income-tax Act are allowed only in export turnover but not from the total turnover then, it would give rise to ITA Nos.182 & 187/2018 :- 12 -: inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the respondent which could have never been the intention of the Legislature.

Respectfully following the above decision, we dismiss ground No.2 raised by the Revenue.

Ground No.3 challenges the decision of the ld. CIT(A) in 13. allowing belated remittance of Provident Fund/ ESI payments as deduction. The ld. Commissioner of Income Tax (Appeals) deleted the addition on the ground that payments are made within the due date of filing of return of income and not within the time stipulated u/s.36(1) (va) of the Act. The Hon’ble Jurisdictional High Court in the case of CIT vs. M/s. Industrial Security &Intelligence India Pvt. Ltd in TC Nos.585 & 586 of 2015, dated 24.07.2015, had held that when

ITA Nos.182 & 187/2018 :- 13 -:

EPF/ESI contribution are made within due date of filing the return, the same should be allowed as deduction. Therefore we do not find any reason to interfere with the order of the ld. CIT(A). Ground No.3 raised by the Revenue stands dismissed.

In the result, the appeal of the Revenue in ITA 14.

No.18/CHNY/2018 stands dismissed.

Order pronounced on 14th day of February, 2020, at Chennai.