THE COMMISSIONER OF INCOME TAX vs. M/S. NTT DATA GLOBAL DELIVERY

Whether the Hon'ble Tribunal was justified in allowing the assessee's claim of exemption under Section 10A in respect of units 2, 3 and 4 without appreciating that the assessee had commenced the production much before obtaining the license for bonded warehouse,

Whether, on the facts and in the circumstances of the case, the appellate authorities were correct in directing the assessing officer to exclude the telecommunication charges attributable to the delivery of software outside India both from the export turnover and the total turnover without appreciating the fact that there is no provision in Section 10A that such expenses should be reduced from the total turnover, as clause (iv) of the Explanation 2 to Section 10A provides that such expenses are to be reduced only from the export turnover?

Whether on the facts and circumstances of the case the Tribunal was right in excluding foreign exchange loss from the export turnover while computing the deduction under Section 10A of the Act, when Section 10A provides deduction of such profits and gains as derived by an undertaking from the export of articles or things or computer software only?

Whether on the facts and circumstances of the case the Tribunal was right in holding that provision for leave encashment and provision for gratuity while computing the book profit under Section 115JB of the Act cannot be added back, when the provision is towards unascertained liability as per Explanation-1(c) to Section 115 JB(2) of the Act and requires to be added back to the book profit?

Whether on the facts and circumstances of the case, the Tribunal was correct in holding that 'provision for

Whether on the facts and circumstances of the case the Tribunal was correct in holding that provision for variable pay is similar to the provision for leave encashment, then the 'provision for variable pay' is not to be added to the book profit without appreciating that under Explanation 1(c) of Section 115JB the amount or amounts set aside as provisions for meeting unascertained liability have to be added back to the book profit? "

We have heard Shri. K.V. Aravind, learned Advocate for the Revenue and Shri. K.K. Chythanya, learned Senior Advocate for the assessee.

Shri Aravind, learned Senior Standing Counsel for the Revenue submitted that this question is covered against the Revenue in CIT Vs. NTT Data Global Advisory Services (P.) Ltd.1

Shri. Aravind for the Revenue submitted that this question is covered against the Revenue in CIT & Another Vs. NTT Data Global Delivery Services Pvt. Ltd.2

Shri. Aravind for the Revenue submitted that this question is covered against the Revenue in CIT Vs. HCL Technologies Ltd.3

Shri Chythanya, learned Senior Advocate for the assessee submitted that for the assessment year 2007-08, the ITAT had decided this question in favour of the assessee. In this case, the ITAT has allowed assessee's appeal by following the decision in the case of CIT Vs. Penta Soft Tech.Ltd4.

Shri Aravind for the Revenue pressed this ground and contended that the view taken by the ITAT is not sustainable in law.

The ITAT has considered this aspect in para 22 of it’s order and held that the Assessing Officer has not considered the exact nature of expenses incurred in foreign currency but has reduced it from export turnover while computing the deduction under Section 10A of the Income Tax Act5 and directed the Assessing Officer to reconsider the issue. Since the matter has been remanded to the Assessing Officer, in our view, no interference is called for at this stage.

The issue involved in this question is whether the provision made for leave encashment and gratuity while computing book profit under Section 115 JB of the Act cannot be added back.

Shri Chythanya, learned Senior Advocate submitted that leave encashment is ascertained liability but discharged at a later point of time. The Tribunal taking note of explanation to Section 115 JB of the IT Act has held that it is not a contingent liability.

Shri Aravind argued that it is only a provision and remains so until a claim is made. Therefore, it must be treated as a contingent liability.

In Bharat Earth Movers Vs. Commissioner of Income-tax6 relied upon by Shri Chythanya, it is held as follows: "4. The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future dated on which the liability shall have to be discharged is not certain."

In the case on hand, a provision has been made in respect of a business liability which had arisen in that accounting year. Therefore, in our considered view, the finding recorded by the ITAT does not call for interference.

Shri. Aravind submitted that the bad debt had been written off and therefore, the same must be added to the profit.

We have carefully perused the order passed by the ITAT. While allowing the assessee's appeal, the ITAT has followed the view taken by this Court in CIT Vs. Yokogowa India Ltd.7 as recorded in paras 35 to 38 of it's order. We have perused the said order and we are in respectful agreement of the same. Accordingly, this question requires to be answered against the Revenue.

This question is with regard to provision made for variable pay. The ITAT has recorded in para 39 of its order that the Assessing Officer and the DRP have not given any finding on the issue. Accordingly, it has remanded the matter to the Assessing Officer with a direction to examine whether the provision for variable pay is similar to the provision for leave encashment and as such, the ITAT has not recorded

In the result questions No.1, 2, 3, 5 and 6 are answered in favour of the assessee and against the Revenue. The issues involved in questions No. 4 and 7 have been remanded by the ITAT to the Assessing Officer. Hence, no opinion is expressed at this stage qua the said questions and liberty is reserved to the Revenue to raise said questions in any appropriate case. Appeal is accordingly disposed of.