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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
PER N.R.S. GANESAN, JUDICIAL MEMBER:
The assessee and the Revenue filed the appeals for the assessment year 2010-11 and the Revenue has also filed the appeal for the assessment year 2011-12. The assessee filed cross objection for the year 2011-12. Since common issue arises for consideration in all the appeals, we heard the same together and disposing off the same by this common order.
The first issue arises for consideration in all the three appeals is with regard to communication expenses and foreign travel expenses.
2.1. Shri R. Vijayaraghavan, the Ld. counsel for the assessee submitted that communication expenses and foreign travel expenses are part of the export turnover and the Assessing Officer has included the same as such. According to the Ld. counsel, the communication charges are included in Indian currency and not in foreign currency. The export turnover may not include the communication charges so as to warrant the exclusion of the same from the export turnover.
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2.2. On the contrary, Shri N. Madhavan, the Ld. Departmental
Representative submitted that the foreign travel expenses and communication expenses are related to providing technical services
outside India. Therefore, the Assessing Officer reduced both
communication expenses and foreign travel expenses from export
turnover and include the same in the total turnover for the purpose of computing eligible deduction under Section 10B of the Act. According
to the Ld. D.R., expenses like freight, telecommunication charges,
insurance charges and other charges incurred in foreign currency in
the course of providing technical services outside India cannot form part of export turnover. Therefore, the CIT (Appeals) has rightly
confirmed the addition made by the Assessing Officer.
2.3. We have considered the rival submissions on either side and perused the material available on record. The Assessing Officer
excluded the telecommunication charges and foreign travel
expenditure from export turnover while computing deduction under Section 10B of the Act, however, included the same in total turnover.
This Tribunal is of the considered opinion that the export turnover and
the total turnover shall be of the same factors, what was excluded in
export turnover cannot be included in the total turnover. Otherwise the
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resultant figure may not result the correct result. Moreover, the
Special bench of this Tribunal examined the same in ITO v M/s. Sak
Soft Limited 313 ITR 353 and found that both the export turnover and
the total turnover shall be of the same factors. Therefore, the orders
of the lower authorities are set aside and the Assessing Officer is
directed to exclude the telecommunication charges and foreign travel
charges both from the export turnover and total turnover and thereafter
compute the eligible deduction under Section 10B of the Act.
The next issue arises for consideration is set off of earlier loss
against the eligible profit before granting deduction under Section 10B
of the Act.
3.1 Shri R. Vijayaraghavan, the Ld. counsel for the assessee
submitted that this issue was examined by the Apex court in CIT v
Yokogawa India Limited 2016-TIOL-228-SC-IT. The Supreme Court
found that “the aggregate of the incomes under the other heads and the
provisions of set off and carry forward contained under Sections 70, 72 and
74 of the Act would be premature for application. The deductions under
Section 10A therefore would be prior to commencement of the exercise to be
undertaken under chapter VI of the Act for arriving at the total income of the
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assessee from the gross total income.” In view of this judgment of the Apex
court, the Ld. counsel submitted that brought forward losses cannot be set off before computing eligible deduction under Section 10A of the Act. Therefore according to the Ld. counsel, both the authorities below are not justified in setting off the brought forward losses before allowing deduction under Section 10B of the Act.
3.2 We heard Shri N. Madhavan, the Ld. Departmental Representative also. In view of the judgment of the Apex court in Yokogawa India Limited supra, the brought forward losses cannot be set off before computing deduction under Section 10B of the Act. Therefore, we are unable to uphold the order of the lower authorities. Accordingly, the order of the lower authorities are set aside and the Assessing Officer is directed to compute the eligible deduction under Section 10B of the Act before setting off the brought forward losses as held by the Apex court in Yokogawa India Limited supra.
The next ground of appeal is with regard to disallowance of advance written off to the extent of ₹8,06,134/-.
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4.1 Shri R. Vijayaraghavan, the Ld. counsel for the assessee submitted that the assessee written off ₹8,06,134/- under the head provision for doubtful debts under the normal provisions of the Income Tax Act. However, the Assessing Officer disallowed the claim of the assessee on the ground that these are all not allowable as deductions. According to the Ld. counsel even though it is a provision for doubtful debts, it was written in the books of account. Therefore it has to be allowed while computing taxable income.
4.2 On the contrary, Shri N. Madhavan, the Ld. Departmental Representative submitted that what was written off by the assessee is a capital loss and not an actual expenditure. Since it is a capital loss, even though it was written off the same cannot be allowed as deduction.
4.3 We have considered the rival submissions on either side and perused the material available on record. It is not in dispute that what was written off by the assessee is a capital loss and not the expenditure. Therefore, this Tribunal is of the considered opinion that the CIT (Appeals) has rightly confirmed the disallowance made by the Assessing Officer. Accordingly the same is confirmed.
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Now coming to the provision for doubtful debts. The Ld.
counsel for the assessee submitted that the assessee shifted the
premises to the new location. The advance given by the assessee to
the lessor was not return by the lessor. Since, the advance could
not be recovered the same was written off in the books of accounts.
5.1 On the contrary, Shri N. Madhavan, the Ld. Departmental
Representative submitted that the assessee advanced the money for
the purpose of acquiring a property by lease. Therefore it is a capital
expenditure. When the assessee incurred a capital expenditure for
the purpose of acquiring a business premises and the same could not
be recovered, the loss would be on the capital account. Therefore, it
would also not be allowed.
5.2 We have considered the rival submissions on either side and
perused the material available on record. Admittedly, the advance
was made by the assessee for acquiring the lease premises for the
purpose of business. Therefore, the loss suffered by the assessee is
only on the capital account. Therefore it cannot be allowed while
computing the taxable income. Therefore, this Tribunal do not find any
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reason to interfere with the orders of the lower authorities.
Accordingly, the same is confirmed.
The next ground of appeal is with regard to set off earlier
losses while computing income under Section 115JB of the Act.
6.1 Shri R. Vijayaraghavan, the Ld. counsel for the assessee
submitted that the Assessing Officer may be directed to recomputed
the profit under Section 115JB of the Act, while giving effect to the
order of this Tribunal.
6.2 Shri N. Madhavan, the Ld. Departmental Representative also
firmly submitted that the Assessing Officer may recomputed the
income under Section 115JB of the Act.
6.3 We have considered the rival submissions on either side and
perused the material available on record. As rightly submitted by the Ld. counsel for the assessee and the Ld. Departmental
Representative, the Assessing Officer shall reconsider the issue
afresh with regard to set off of earlier year losses while computing
profit under Section 115JB of the Act. Accordingly, the orders of the
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lower authorities are set aside and the issue is remitted back to the file
of the Assessing Officer. The Assessing Officer shall reconsider the issue afresh with law after giving reasonable opportunity to the
assessee.
The next issue arises for consideration is levy of interest under Section 234C of the Act.
7.1 We heard Shri R. Vijayaraghavan, the Ld. counsel for the
assessee and Shri N. Madhavan, the Ld. Departmental Representative. It is not in dispute that levy of interest under Section
234C of the Act is mandatory under the scheme of Income Tax Act.
Therefore, the Assessing Officer is directed to recompute the interest
under Section 234C of the Act, after giving a reasonable opportunity to the assessee in accordance with law.
Now coming to the Revenue’s appeal, the first ground of appeal is with regard to exclusion of communication charges and
foreign travel expenses from the export turnover and the total turnover.
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8.1 We heard Shri N. Madhavan, the Ld. Departmental
Representative and Shri R. Vijayaraghavan, the Ld. counsel for the
assessee. While discussing the assessee’s appeal for the
assessment year 2010-11, this Tribunal after referring to the decision
of the Special bench of this Tribunal in M/s. Sak Soft Limited and
found that both telecommunication charges and travel charges shall
be excluded from the export turnover and the total turnover. This
Tribunal found that the total turnover and the export turnover shall be
of the same factors. Therefore, this Tribunal do not find any reason to
interfere with the order of the lower authority and the same is
confirmed.
The Revenue has taken one more ground for the assessment
year 2010-11, with regard to set off of business loans and
depreciations from the eligible profit. The Apex court in Yokogawa
India Limited examined this issue and found that at the time of
computing eligible deduction under Section 10A of the Act, application
of Section 70, 72 & 74 of the Act would be premature. The Apex court
further found that the stage of deduction of losses would be while
computing the gross total income of the eligible undertaking under
chapter – IV of the Act and not at the stage of computing total income
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under chapter – VI of the Act. In view of the above decision of the Apex court, this Tribunal do not find any reason to interfere with the order of the lower authorities and the same is confirmed.
To sum up the result, the appeal of the assessee in ITA No.1035 of 2015 is partly allowed while the Revenue appeals in ITA Nos. 1171 & 1172 of 2015 are dismissed. The Cross objection of the assessee is only to support the order of the CIT (Appeals) for the assessment year 2011-12. This Tribunal is of the considered opinion that to support the order of the CIT (Appeals), cross objection is not maintainable. Therefore, the Cross Objection of the assessee in CO No.76 of 2015 becomes infructuous. Accordingly the same is dismissed.
Order pronounced on 28th February, 2017 at Chennai.
Sd/- Sd/- (िड.एस. सु�दर �सह) (एन.आर.एस. गणेशन) (D.S. Sunder Singh) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �याियक सद�य/Judicial Member चे�ई/Chennai, �दनांक/Dated, the 28th February, 2017.
JR.
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आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) – 15, Chennai 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF.