2017 (10) TMI 1517 - AT - Income Tax

Deduction u/s 10A allowed in respect of the interest earned on Fixed Deposits - HELD THAT - It is not in dispute that the interest income has been assessed by the Assessing Officer as business income of the assessee. As in the case of Motorola India Electronics (P.) Ltd. ( 2014 (1) TMI 1235 - KARNATAKA HIGH COURT) has clearly taken note of the computation of income under section 80HHC and under Section10A/10B of the Act and then observed that the interest income though cannot be partake the character of profit and gain from the sale of article however, it is the income which is derived from the consideration realised by the export of articles. Therefore having considered the definition of income from profit and gain as envisaged in sub-section (4) of section 10B/10A the benefit of exemption was held to be available to the interest income. A similar view has been taken by the Hon'ble jurisdictional High Court in other cases viz. Caritor India (P.) Ltd 2014 (10) TMI 1016 - KARNATAKA HIGH COURT as well as in the case of Rajesh Exports 2014 (10) TMI 1017 - KARNATAKA HIGH COURT . The Hon'ble Kolkata High Court in the case of Hindustan Gum Chemicals Ltd. ( 2016 (7) TMI 920 - CALCUTTA HIGH COURT ) has also taken a similar view by following the decision in the case of Motorola India Electronics Pvt. Ltd. ( 2014 (1) TMI 1235 - KARNATAKA HIGH COURT ) . In view of the binding precedent of Hon'ble jurisdictional High Court on the issue, we do not find any error or illegality in the impugned directions of DRP qua this issue. These grounds of revenue are dismissed. Expenditure incurred on telecommunication expenses to be excluded from the export turnover as well as from total turnover for computing the deduction under Section 10A - HELD THAT - We find that the issue of expenditure incurred towards telecommunication charges is reduced from export turnover an equal amount should also be reduced from total turnover while computing the deduction under section 10A of the Act, is covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in the case of CIT v. Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT . The decision of Hon'ble jurisdictional High Court is a binding precedent for the Bangalore Bench of the Tribunal. Hence, this issue is decided against the revenue and in favour of assessee.

Summary

Issues Involved:

1. Transfer Pricing Adjustment
2. Deduction under Section 10A on Interest Earned on Fixed Deposits
3. Expenditure on Telecommunication Charges in Computing Deduction under Section 10A

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment:

The assessee raised multiple grounds related to Transfer Pricing (TP) Adjustment (Ground Nos. 4 to 28). However, the learned Senior Counsel for the assessee stated that the TP issue had been settled through Mutual Agreement Procedure (MAP) proceedings, resulting in an order dated 28.10.2015. Consequently, the TP grounds became infructuous, and the assessee did not press these grounds. The revenue raised several grounds (Ground Nos. 2 to 8) challenging the directions of the Dispute Resolution Panel (DRP) regarding the application of various filters and exclusion of certain companies from the list of comparables in the ITES and Software Development segments. However, in view of the resolution of TP issues under MAP, these grounds also became infructuous and were dismissed.

2. Deduction under Section 10A on Interest Earned on Fixed Deposits:

Ground No. 9 concerned the deduction under Section 10A allowed in respect of the interest earned on Fixed Deposits. The learned Departmental Representative (DR) argued that the DRP erred in allowing the claim by relying on the decision of the jurisdictional High Court in the case of CIT v. Motorola India Electronics (P.) Ltd. The DR contended that the facts in the Motorola case were different as the assessee was a 100% Export Oriented Unit (EOU) and the interest was earned on surplus amounts deposited in ECB. The learned Counsel for the assessee countered that the interest income in the Motorola case was also from Fixed Deposits and loans to sister concerns, and the High Court had considered such interest as part of income from profit and gain, eligible for deduction under Section 10A. The Tribunal upheld the DRP's decision, noting that the interest income was assessed as business income and, based on the binding precedent of the jurisdictional High Court, was eligible for deduction under Section 10A.

3. Expenditure on Telecommunication Charges in Computing Deduction under Section 10A:

Ground Nos. 10 and 11 involved the issue of whether telecommunication expenses should be excluded from both the export turnover and the total turnover while computing the deduction under Section 10A. The Tribunal found that this issue was covered in favor of the assessee by the decision of the Hon’ble Karnataka High Court in the case of CIT v. Tata Elxsi Ltd., which held that if telecommunication charges are reduced from export turnover, an equivalent amount should also be reduced from total turnover. Thus, the Tribunal decided this issue against the revenue and in favor of the assessee.

Conclusion:

Both the appeals of the assessee and the revenue were dismissed. The Tribunal upheld the DRP's directions regarding the deduction under Section 10A on interest income and the treatment of telecommunication expenses, following the binding precedents set by the jurisdictional High Court.