2014 (5) TMI 45 - AT - Income Tax

Addition u/s 36(1)(va) r.w. section 2(24)(x) of the Act Delayed remittance of EPF contribution and ESI Subscriptions Held that - The decision in CIT V/s. Sabari Enterprises 2007 (7) TMI 169 - KARNATAKA HIGH COURT followed section 36(1)(va) clear that amounts actually paid on or before the due date of filing return u/s 139 are allowable deductions The Explanation Clause (va) of Section 36 of the Income Tax Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicable in this case at the time of submitting returns of income under Section 139 of the Act to the revenue in respect of the previous year can be claimed by the assessees for deduction out of their gross income - contributions by assessee to P.F. & Employees State Insurance are deductible even if made beyond period prescribed u/s 36(1)(va) but before the due date for furnishing return Decided in favour of Assessee. Disallowance of professional charges Permissibility of disallowance u/s 14A after the adjudication made by the DRP - Held that -In view of amendment to S.144C of the Act, by the Finance Act, 2012 with effect from 1.4.2009, whereby it has been explained that the power of the DRP to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee - Relying upon Aurobindo Pharma Ltd. V/s. Asstt. Commissioner of Income-tax 2014 (4) TMI 27 - ITAT HYDERABAD - There was no infirmity in the action of the AO, in sustaining the addition, not in terms of S.14A of the Act, but on grounds of absence of evidence brought on record by the assessee to substantiate its claim as to the genuineness of the expenditure, as held by the DRP Decided against Assessee. Addition of professional charges made u/s 40(a)(ia) of the Act Held that - DRP had followed the decision in Merilyn Shipping & Transports Versus Assistant Commissioner of Income-tax, Range-1, Visakhapatnam 2012 (4) TMI 290 - ITAT VISAKHAPATNAM , and the same decision is being pending in the High Court thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee. Deduction u/s 10A of the Act - Interest income not considered part of the profits Held that - The decision in Livingstones Jewellery (P) Ltd. V.s. Dy. CIT 2009 (5) TMI 617 - ITAT MUMBAI followed when sub-section (1) of section 10A is read in juxtaposition to sub-section (4), the only the profit and gains as derived by the undertaking from the export of articles cannot be accepted as eligible for deduction - All the profits which have nexus with the business of the undertaking will qualify for deduction - the assessee had given FDRSs to the bank for obtaining credit facility - Such interest has nexus with the business of the undertaking and falls under the head Profits and gains of business or profession as having relation with the carrying on of the business - Decided against Assessee. Deduction u/s 10A of the Act - Foreign exchange fluctuation not considered part of profits Held that - The decision in Commissioner of Income Tax Versus M/s. Gem Plus Jewellery India Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT followed - an assessee would be eligible for relief under S.10A in respect of foreign exchange gain earned on realisation of export receipts in the year of export thus, the order of the DRP set aside and the AO is directed to recomputed the relief u/s 10A of the Act Decided in favour of Assessee. Deduction u/s 10A of the Act Expenses in foreign exchange towards telephone and interest charges Held that - The deduction is allowed and the order of the DRP is set aside the AO id directed to recompute the eligible deduction under S.10A of the Act, excluding the expenditure in the form of telephone, internet charges, etc., which have been deducted from the export turnover, from the total turnover as well Decided in favour of Assessee.

Summary

Issues Involved:
1. Additions on account of delayed remittance of Employees Provident Fund Contributions and ESI Subscriptions.
2. Disallowance of professional charges claimed by the assessee.
3. Addition of professional charges invoking the provisions of S.40(a)(ia) of the Act.
4. Depreciation adjustment while calculating deductions under S.10A.
5. Inclusion of interest income as part of eligible profits for deduction under S.10A.
6. Inclusion of foreign exchange fluctuation gain as part of eligible profits for deduction under S.10A.
7. Deductibility of telephone and internet charges from total turnover while computing eligible deduction under S.10A.

Detailed Analysis:

1. Additions on account of delayed remittance of Employees Provident Fund Contributions and ESI Subscriptions:
The assessee contended that remittances made before the filing of the return of income should be allowable. The Tribunal found the issue covered in favor of the assessee by the decisions of the Karnataka High Court in CIT V/s. Sabari Enterprises and the Delhi High Court in AIMIL Ltd. The statutory provisions of Sections 2(24)(x), 36(1)(va), and 43B(b) were examined, and it was concluded that the amounts paid before the due date of filing returns are deductible. Consequently, the Tribunal deleted the impugned additions made by the Assessing Officer.

2. Disallowance of professional charges claimed by the assessee:
The assessee claimed professional charges amounting to Rs.3,28,24,150, which were disallowed by the Assessing Officer due to the lack of evidence substantiating the services rendered. The Dispute Resolution Panel (DRP) upheld the disallowance, not under S.14A as invoked by the Assessing Officer, but due to the failure of the assessee to prove the genuineness of the expenditure. The Tribunal upheld the DRP's decision, noting that the DRP has the jurisdiction to consider any matter arising out of the assessment proceedings, and the assessee failed to substantiate the claim.

3. Addition of professional charges invoking the provisions of S.40(a)(ia) of the Act:
The Assessing Officer disallowed Rs.33,77,101 on the grounds of non-compliance with TDS provisions. The DRP sustained the addition despite acknowledging a favorable decision for the assessee by the Visakhapatnam Bench of the Tribunal in Merilyn Shipping and Transport Company, as the decision was under appeal. The Tribunal set aside the orders of the Revenue authorities and remanded the matter back to the Assessing Officer to be redecided in accordance with the jurisdictional High Court's view.

4. Depreciation adjustment while calculating deductions under S.10A:
The assessee contended that the Assessing Officer made depreciation adjustments to the profit as per the Profit & Loss Account, which was not in accordance with the DRP's directions. The Tribunal noted that these grounds were not pressed by the assessee during the hearing and thus rejected them as not pressed.

5. Inclusion of interest income as part of eligible profits for deduction under S.10A:
The assessee argued that interest income on deposits made from internal accruals should be considered as part of eligible profits for deduction under S.10A. The Tribunal referred to the decision in Livingstones Jewellery (P) Ltd. V/s. Dy. CIT, which held that all profits with a nexus to the business of the undertaking qualify for deduction. The Tribunal upheld the view of the Revenue authorities, rejecting the assessee's grounds on this issue.

6. Inclusion of foreign exchange fluctuation gain as part of eligible profits for deduction under S.10A:
The assessee contended that foreign exchange fluctuation gains should be considered as part of eligible profits for deduction under S.10A. The Tribunal referred to the decision of the Bombay High Court in Gem Plus India Ltd., which held that foreign exchange gain earned on realisation of export receipts is eligible for relief under S.10A. The Tribunal accepted the assessee's grounds and directed the Assessing Officer to recompute the relief under S.10A, including foreign exchange gain as part of the business profits.

7. Deductibility of telephone and internet charges from total turnover while computing eligible deduction under S.10A:
The assessee argued that the expenditure on telephone and internet charges should be deducted from the total turnover as well as the export turnover. The Tribunal referred to the decision of the Hyderabad Bench in D.E. Block India Software (P) Ltd., which supported the assessee's contention. The Tribunal directed the Assessing Officer to recompute the eligible deduction under S.10A by excluding the expenditure from the total turnover as well.

Conclusion:
The appeal was partly allowed, with the Tribunal providing relief to the assessee on several grounds while upholding the Revenue authorities' decisions on others. The Tribunal's directions emphasized adherence to legal precedents and statutory provisions, ensuring a comprehensive and fair adjudication of the issues involved.