DCIT 15(3)(1), MUMBAI vs. ROAMWARE (INDIA) P.LTD, MUMBAI

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ITA 1951/MUM/2015Status: DisposedITAT Mumbai09 September 2016AY 2007-086 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the CIT(A) was justified in directing the AO to rework the deduction under Section 10A on the enhanced income. This was based on the reasoning that disallowances leading to increased profits should be considered for the Section 10A deduction, following jurisdictional High Court precedent.

What were the facts?

The assessee, engaged in software development, had its assessment reopened. The Assessing Officer restricted the deduction under Section 10A by treating a portion of foreign exchange as unrealized. The CIT(A) directed the AO to reconsider the Section 10A deduction on enhanced income due to disallowances for leave encashment and bonus.

What were the issues?

Whether the deduction under Section 10A should be allowed on income enhanced due to disallowances of leave encashment and bonus. Whether the CIT(A) was justified in directing the AO to rework the Section 10A deduction on enhanced income.

Which sections of the Income-tax Act were involved?

Section 10A,Section 143(3),Section 147,Section 148

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI

Before: SHRI R.C. SHARMA(AM) & SHRI SANDEEP GOSAIN (JM)

For Appellant: Shri. Paras Sarla, Ms. Keerthiga Sharma
For Respondent: Shri. Randhir Gupta
Hearing: 28/07/2016Pronounced: 09/09/2016

Ld. DR supported the order of Assessing Officer passed under section 143(3) r.w.s 147 and submitted that the assessee claimed that the entire export proceed have been realized with in the stipulated time as per Act remains unsubstantiated. It was further argued by Ld. DR that the AO has rightly treated the sum of Rs. Rs. 1,49,88,246/- unrealized foreign remittance and rightly restricted deduction under section 10A by Rs. 18,40,104/-.

7.

On the other hand Ld. AR appearing on behalf of the assessee and supporting the order passed by the Ld. CIT(A).

8.

We have heard Ld. Representative of both the parties and perused the material on record placed before us.

9.

We find that the Ld. CIT(A) has decided the said issue in his detailed order.

The operative portion of the order is as follows:

4.3 I have carefully considered the submissions of the appellant and the impugned assessment order. It is the contention of the appellant that to the extent of disallowance made on account of above 2 items, the total income of the appellant goes up and consequently it is entitled for enhanced deduction u/s 10A in view of enhanced profits. In support of this, the AR of the appellant relied on order of Gem Plus Jewellery India Ltd. reported in 330 ITR 175 and the decision of ITAT, Hyderabad in the case of Virtusa India Pvt. Ltd. reported in 41 taxamnn.com 244. 4.4 The CIT(A) while adjudicating ground of appeal

No. 3 had directed the AO to allow enhanced deduction u/s 10A on the increased profit on account of disallowance made by the AO towards capital expenses and provision for gratuity. 4.5 The question referred before the jurisdictional HC and the relevant portion of the finding in the case of Gem Plus Jewellery India ltd. (supra)is reproduced hereunder for better understanding and clarity. “b Whether on the facts and in the circumstances of the case, the Tribunal was justified n directing the Assessing officer to grant the exemption u/s 10A of the Act on the assessed income, which was enhanced due to disallowance of employer’s as well as employee’s contribution towards PF/ESIC.” Re Question b:

11. For the purposes of the appeal it is necessary ot refer tot eh admitted position which is that the assessee had deposited both the employer’s and the employee’s contribution towards Provident Fund and ESIC, though beyond the due date including the grace period. The Assessing Officer added these payments to the total income of the assessee and made an addition in th amount of Rs. 71.59 lacs. However, for the deduction under Section 10A, the addition made on accunt of the employees’ contribution was ignored in calculating the profits eligible for deduction on the ground that these receipts were not generated out of the manufacturing activity of the assessee company.

12.

By reason of the judgment of the Supreme Court in Commissioner of Income Tax V. Alom Extrusions Limited the employer’s contribution was liable to be allowed, since it was deposited by the due date for the filing of the return. The peculiar position, however, as it obtains in the present case arises out of the fact that the disallowance which was effected by the Assessing Officer has not, the Court is informed, been challenged by the assessee. As a matter of fact the question of law which is formulated by the Revenue proceeds on the basis that the assessed income was enhanced due to the disallowance of the employer’s as well as the employees’ contribution towards Provident Fund / ESIC and the only question which is canvassed on behalf of the Revenue is whether on that basis the Tribunal was justified in directing the Assessing Officer to grant the exemption under Section 10A. On this position in the present case it cannot be disputed that the net consequence of the disallowance of the employer’s and the employee’s contribution is that the business profits have to that extent been enhanced. There was, as we have already noted, an add back by the Assessing Officer to the income. All profits of the 4(2009) 319 ITR 306 unit of the assessee have been derived from manufacturing activity. The salaries paid by the assessee, it has not been disputed, relate to teh manufacturing activity. The disallowance of the Provident Fund / ESIC payments has been made because of the statutory provisions – Section 43B in the case of the employer’s contribution and Sectn 36(v) read with Section 2(24)(x) in the case of the employee’s contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contention of the Revenue that in computing the deduction under Section 10A the addition made on account of the disallowance of the Provident Fund / ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow. The second question shall accordingly stand answered against the Revenue and in favour of the assessee. 4.6 Since the issue is covered by the decision of jurisdictional HC, I direct the AO to rework the deduction u/s 10A on the enhanced income on account of disallowances made in respect of the 2 items viz. leave encashment and bonus. This ground of appeal is Allowed.

From the perusal of the aforementioned detailed order passed by the Ld. CIT(A) we find that the Ld. CIT(A) after considering the fact of the case relied upon the order of his predecessors for Assessment Year 2007-08 and also while relying upon the jurisdictional High Court decision in the case of M/s Gem Plus Jewellery India Ltd. reported in 330 ITR 175 and the decision of Hon’ble Hyderabad bench in case of Virtusa India Pvt. Ltd. reported in 41 taxmann.com 244. Since the fact of the present case are identical with the fact discussed in the case of M/s Gem Plus Jewellery India Ltd. (supra) decided by Hon’ble Jurisdictional High Court.

Following the above discussion we dismissed the appeal of Revenue and CO is also dismissed by us.

10.

In the result appeal of the Revenue and CO by the assessee both are dismissed.

Order pronounced in the open court on 9th September, 2016.

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