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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R.S. SYAL & SHRI VIKAS AWASTHY, JM
आदेश / ORDER आदेश आदेश आदेश
PER R.S.SYAL, VP :
This appeal by the assessee is arising out of the order passed by the CIT(A)-7, Pune, dated 11-07-2016 in relation to the assessment year 2010-11.
The first ground is against disallowance of depreciation amounting to Rs.3,39,16,904/- on the capital expenditure incurred for acquiring ‘Right to Render BPO Services” from Cummins Inc. USA.
Succinctly, the facts of the case are that the assessee claimed depreciation on an intangible asset, i.e. “Right to Render business process outsourcing services”. The AO disallowed such depreciation by treating it as a recurring issue and following the view taken by him
ITA No.2614/PUN/2016 M/s. KPIT Technologies Limited
in the preceding years. The Ld. CIT(A) upheld the assessment order
on this issue.
Having heard the rival submissions and gone through the
relevant material record, we find that the assessment order for the
A.Y. 2009-10, denying the similar claim of depreciation, travelled to
the Tribunal. Vide its order dated 09-04-2018 for the A.Y. 2009-10, a
copy of which has been placed on record, the Tribunal has directed
the AO to allow depreciation on the “Right to Render BPO services”.
In the absence of any distinguishing facts brought to our notice by
the Ld. DR, respectfully following the precedent, we hold the assessee
to be entitled to depreciation of Rs.3.39 crore and odd on `Right to
render BPO services’ . This ground is allowed.
Ground No. 2 is against the confirmation of disallowance of
Rs.3,16,221/- made u/s.14A of the Income-tax Act, 1961 (hereinafter
also called `the Act’) read with Rule 8D(2)(iii) in the computation of
income under the normal provisions of the Act. The AO observed that
the assessee declared exempt dividend income of Rs.14,88,250/-,
but no disallowance was offered u/s.14A of the Act. Invoking the
provisions of Rule 8D(2)(iii), the AO computed the disallowance of
Rs.3,16,221/- at the rate of 0.5% of the average value of investments.
The Ld. CIT(A) echoed the assessment order on this point.
After considering the rival submissions and perusing the
relevant material on record, it is observed that the assessee has
claimed deduction u/s.10A of the Act in respect of its income from
exports, which is stated to be roughly 95% of the total income.
Circular No.37/2016 dated 02-11-2016 provides that where an
ITA No.2614/PUN/2016 M/s. KPIT Technologies Limited
assessee is entitled to deduction under Chapter VIA of the Act and
the AO makes certain disallowances, such as, pertaining to section
32, 40(a)(ia), 40A(3) or 43B etc., which lead to increase in the
amount of profits, then deductions in respect of income covered
under Chapter VIA should be allowed on resultant enhanced income.
The effect of such circular is that, if there is some increase in the
profits of the eligible units by virtue of certain additions made by the
AO on account of disallowance of expenses etc., then the eligible
income for deductions under Chapter VIA of the Act should be
enhanced accordingly and the deductions should be allowed
considering such an enhanced income. Though strictly, this circular
does not specifically cover sections 10A or 10B etc. and refer to
deductions under Chapter VIA of the Act, but the essence of the
circular extends to deductions in respect of eligible units covered
u/s.10A and 10B also. There is no rationale in restricting the
amount of deduction u/s.10A, 10B etc. on the income of eligible units
prior to such additions and granting deduction to the eligible units
covered by sections as per Chapter VIA on the enhanced income after
such additions. We, therefore, hold, in principle, that the spirit of the
Circular applies with full force to the income covered by sections
u/s.10A and 10B also.
Coming back to the issue in question, whereby the AO
computed the disallowance u/s. 14A r.w. Rule 8D(2)(iii) of the Act
amounting to Rs.3,16,221/-, the Ld. AR submitted that about 95%
of its income is eligible for deduction u/s.10A of the Act and the
disallowance u/s 14A should also be accordingly reduced. Following
the spirit of the Circular, we hold that the amount of disallowance
ITA No.2614/PUN/2016 M/s. KPIT Technologies Limited
computed by the AO at Rs.3,16,221/- should be added to the eligible
profits and then deduction u/s.10A should be allowed accordingly.
We therefore direct the AO to compute the amount of deduction
u/s.10A in the manner stated hereinabove.
Ground No.3 is against making an addition of Rs.3,16,211/-
relating to disallowance u/s.14A in computing the book profit
u/s.115JB of the Act.
The AO computed the amount of disallowance u/s.14A and
added this amount to the net profit for the computation of ‘book
profit’ u/s. 115JB of the Act as well, which stand was approved in
the first appeal.
Having heard both the sides and perused the relevant material
on record, we find that the issue of making disallowance u/s.14A in
the context of computation of ‘book profit’ u/s.115JB is no more res
integra in view of the decision of Special Bench of the Tribunal in
ACIT Vs. Vireet Investment (P) Ltd. (2017) 82 taxmann.com 415 (Delhi
(Trib.) (SB). In this decision, the Special Bench has held that
computation under clause (f) of Explanation 1 to section 115JB(2)
should be made without resorting to the computation as
contemplated u/s.14A r.w. Rule 8D. No contrary decision of any
Hon’ble High Court has been brought to our notice by the Ld. DR.
Respectfully following the Special bench decision, we hold that the
amount of disallowance u/s.14A cannot be added to the net profit
while computing the ‘book profit’ u/s.115JB of the Act. This ground
is allowed.
ITA No.2614/PUN/2016 M/s. KPIT Technologies Limited
The last ground of the appeal for granting TDS credit was not
pressed by the Ld. AR for the assessee. The same is, therefore,
dismissed as ‘not pressed’.
In the result, the appeal is partly allowed.
Order pronounced in the Open Court on 02nd November, 2018.
Sd/- Sd/- (VIKAS AWASTHY) (R.S.SYAL) �याियक सद�य �याियक सद�य /JUDICIAL MEMBER उपा�य� उपा�य�/ VICE PRESIDENT �याियक �याियक सद�य सद�य उपा�य� उपा�य�
पुणे Pune; �दनांक Dated : 02nd November, 2018 सतीश
आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत
अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT (Appeals)-7, Pune. 3. आयकर आयु� / The Pr. CIT-6, Pune 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “बी 5. बी बी” / DR ‘B’, बी ITAT, Pune; गाड� फाईल / Guard file. 6.
// True copy // आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार
// True Copy //
Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune *