2014 (7) TMI 1170 - AT - Income Tax

Computation of deduction u/s 10A - deduction of telecommunication charges and insurance expenses from the Export turnover for computing deduction - Held that - We agree with the contentions of the assessee and accordingly direct the AO to deduct corresponding amount from total turnover also if any amount is deducted from the Export turnover. See ITO Vs. Saksoft Ltd (2009 (3) TMI 243 - ITAT MADRAS-D ) Applicability of provisions of sec. 14A of the Act to the computation of Book Profit u/s 115JB - Held that - The issue relating to applicability of provisions of sec. 14A of the Act to the computation of Book Profit u/s 115JB of the Act has since been decided against the assessee by Hon ble Delhi High Court in the case of CIT Vs. Goetze (India) Ltd (2013 (12) TMI 607 - DELHI HIGH COURT ).In view of the above we dismiss the grounds relating to the above said issue. Applicability of Rule 8D - Held that - We are of the view that the AO was not right in applying the provisions of Rule 8D(2)(iii) of the IT rules in the instant case. At the same time we have noticed that the assessee has carried out investment activities of purchasing liquidating etc. and has also received dividend income. Hence the contention of the assessee that it did not incur any expenditure is not acceptable to us also. Hence we are of the view that it would be proper to make disallowance of a portion of general expenses in terms of of sec. 14A of the Act. Accordingly we are of the view that a round sum disallowance of 25, 000/- may be made to take care of sec. 14A of the Act and in our view the same would meet the ends of justice. We order accordingly. The order of Ld CIT(A) stands modified accordingly.

Summary

Issues:
1. Deduction of telecommunication charges and insurance expenses from Export turnover for computing deduction u/s 10A of the Act.
2. Disallowance of expenses under sec. 14A of the Act while computing income under normal provisions and book profit u/s 115JB of the Act.

Issue 1: Deduction of Telecommunication Charges and Insurance Expenses from Export Turnover for u/s 10A of the Act:
The appeal by the revenue challenges the decision of the CIT(A) regarding the deduction of insurance and telecommunication expenses from the Export turnover for computing deduction u/s 10A of the Act. The AO had deducted these expenses from the Export turnover but not from the Total turnover. The CIT(A) followed the decision of his predecessor and directed not to deduct these expenses from the Export turnover. However, the alternative contention of the assessee that these expenses should also be deducted from the Total turnover was not adjudicated by the CIT(A). The Tribunal held that a fresh examination is needed by the assessing officer to determine if any portion of these expenses can be attributed to the delivery of articles or software outside India.

Issue 2: Disallowance of Expenses under sec. 14A of the Act:
The AO disallowed expenses under sec. 14A of the Act while computing income under normal provisions and book profit u/s 115JB of the Act. The CIT(A) confirmed this disallowance, considering the movement in investment portfolios and activities related to investments. The Tribunal noted that the AO did not reject the claim of the assessee regarding expenditure before applying Rule 8D(2)(iii) of the IT Rules. The Tribunal found that a round sum disallowance of Rs. 25,000 would be appropriate to meet the ends of justice, modifying the order of the CIT(A) accordingly.

The Tribunal allowed the appeal filed by the revenue for statistical purposes, partly allowed the appeal filed by the assessee, and allowed the cross objection filed by the assessee. The Tribunal directed a fresh examination by the assessing officer regarding the deduction of telecommunication and insurance expenses from the Export turnover and ordered a round sum disallowance of Rs. 25,000 under sec. 14A of the Act.