M/S. KPIT TECHNOLOGIES LIMITED,PUNE vs. DEPUTY COMMISSIONER OF INCOME -TAX,

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.

on this issue.

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.

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.

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 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.

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 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.

relating to disallowance u/s.14A in computing the book profit

u/s.115JB of the Act.

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.

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.

pressed by the Ld. AR for the assessee. The same is, therefore,

dismissed as ‘not pressed’.

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 *