2019 (9) TMI 912 - AT - Income Tax

Computation of deduction u/s 10A - STP Unit and not a SEZ unit - AO has reduced the amount from the export turnover but it has not been reduced from the total turnover - HELD THAT - As per the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT it was held that total turnover is sum total of export turnover and domestic turnover and if an amount is reduced from export turnover then the total turnover also goes down by the same amount automatically. Since the direction of CIT(A) on this issue is in line with this judgment of Hon'ble Karnataka High Court, we decline to interfere in the order of ld. CIT(A) on this issue. Accordingly ground nos. 5 and 6 of the revenue s appeal are rejected. Eligible deduction computed u/s 10A - Whether Foreign Inward Remittances which are received within a period of one year from the date of export will stand qualified for the purpose of eligible remittances ? - Export Turnover for computation of deduction u/s 10A - HELD THAT - As per the RBI Master Circular No. 10/2011-12 available filed by the revenue, it is seen that for STP units, time allowed for collection of export proceeds in India is 12 months from the date of export and hence, it has to be seen as to whether the amount of export in question was received in India in foreign currency within the period of 12 months from the date of export. There is no finding available in the order of ld. CIT(A) on this aspect. The working of this amount of ₹ 4,23,73,388/- is also not available before us in the paper book and hence, we feel it proper to restore this aspect of the matter back to the file of ld. CIT(A) for fresh decision with the direction that he should determine the actual amount of export proceeds not received within 12 months from the date of export. Regarding the extension granted by RBI also, he should examine the copy of request made by the assessee for obtaining such extension of time and the actual permission granted by the RBI because we find that the permission of RBI brought on record by the assessee available on page 26 to 27 of the paper book is regarding USD 4,590,641.00 and it includes invoices for both years i.e. Assessment Years 2011-12 and 2012-13. On page no. 4 of the paper book is the detail regarding outstanding amount as on 31.03.2012 of ₹ 4,23,73,388/- but there is no invoice date available in this statement and date of realization during Financial Year 2011-12 is also not available to conclude that such realization made in Financial Year 2011-12 is within 12 months from the date of export or not. The ld. CIT(A) should examine and decide all these aspects by way of a speaking and reasoned order after providing adequate opportunity of being heard to both sides Disallowance u/s. 14A and foreign exchange gain / loss - HELD THAT - CIT(A) has restored back both the matters to the file of AO for decision but now this is settled position of law that ld. CIT(A) cannot restore the matter back to the AO for fresh decision. The ld. CIT(A) should decide the issue himself and since, he has not done so, we set aside the order of ld. CIT(A) on both these issues and restore back these issues to his file for decision with the direction that he should decide the issue himself by way of a speaking and reasoned order after providing adequate opportunity of being heard to both sides. Accordingly ground nos. 2 to 4 of the revenue s appeal are allowed for statistical purposes. Impairment of assets - HELD THAT - Order of ld. CIT(A) is very cryptic and there is no finding that assets in question were sold or discarded or demolished and hence, in our considered opinion, the order of CIT (A) on this issue is not sustainable. It may be that the claim of the assessee is not allowable but even in that case also, the assessee should be allowed depreciation. Hence we set aside the order of ld. CIT(A) on this issue also and restore back the matter to his file for fresh decision with the direction that he should decide the issue afresh by way of a speaking and reasoned order in the light of above discussion after providing adequate opportunity of being heard to both sides. Ground no. 5 is also allowed for statistical purposes.

Summary

Issues Involved:
1. Computation of deduction under Section 10A of the Income Tax Act for Assessment Year 2011-12.
2. Disallowance under Section 14A for Assessment Year 2012-13.
3. Treatment of foreign exchange gain/loss for Assessment Year 2012-13.
4. Allowance of impairment of assets for Assessment Year 2012-13.

Issue-wise Detailed Analysis:

1. Computation of Deduction under Section 10A for Assessment Year 2011-12:

The revenue raised several grounds challenging the order of the CIT(A) regarding the computation of deduction under Section 10A. The key points of contention were:
- The correct figure of unrealized export proceeds within twelve months.
- The applicability of RBI circulars and the treatment of foreign inward remittances.
- The reduction of expenses incurred in foreign currency from both export and total turnover.

The Tribunal noted that the CIT(A) followed the Karnataka High Court's judgment in the case of Tata Elxsi Ltd., which stated that if an amount is reduced from export turnover, it should also be reduced from total turnover. The Tribunal upheld the CIT(A)'s direction to reduce the expenses from both export and total turnover, rejecting the revenue's grounds on this point.

Regarding the unrealized export proceeds, the CIT(A) had determined that the correct figure was ?4.23 crores, not ?16.36 crores as computed by the AO. The Tribunal found that the CIT(A) had not properly addressed whether the assessee was located in a Special Economic Zone (SEZ) or a Software Technology Park (STP), which affected the applicable time limits for realizing export proceeds. The Tribunal remanded this issue back to the CIT(A) for a fresh decision, directing a detailed examination of the actual amount of export proceeds not realized within twelve months and the validity of RBI extensions.

2. Disallowance under Section 14A for Assessment Year 2012-13:

The CIT(A) directed the AO to verify whether the funds used for investments were from IPO proceeds or borrowed funds and to adjust the disallowance under Section 14A accordingly. The Tribunal noted that the CIT(A) cannot restore matters back to the AO and should decide the issue himself. Therefore, the Tribunal set aside the CIT(A)'s order on this issue and remanded it back to the CIT(A) for a fresh decision.

3. Treatment of Foreign Exchange Gain/Loss for Assessment Year 2012-13:

The CIT(A) had directed the AO to verify the figures and details provided by the assessee regarding foreign exchange gain/loss and to allow the loss accordingly. The Tribunal reiterated that the CIT(A) should not restore matters to the AO but decide the issue himself. Consequently, the Tribunal set aside the CIT(A)'s order and remanded the issue back to the CIT(A) for a fresh decision.

4. Allowance of Impairment of Assets for Assessment Year 2012-13:

The CIT(A) allowed the assessee's claim for impairment of assets amounting to ?8,17,26,101/-, stating that the software modules could not be used or resold due to order cancellations. The Tribunal found the CIT(A)'s order to be cryptic and lacking a detailed rationale. The Tribunal emphasized that the block of assets concept allows for depreciation until the asset is sold, discarded, or demolished. The Tribunal set aside the CIT(A)'s order and remanded the issue back to the CIT(A) for a fresh decision, ensuring a reasoned order considering the block of assets concept.

Conclusion:

For Assessment Year 2011-12, the revenue's appeal was partly allowed for statistical purposes. For Assessment Year 2012-13, the appeal was allowed for statistical purposes. The Tribunal directed the CIT(A) to provide detailed and reasoned orders on the remanded issues after proper examination and providing adequate opportunities for both parties to be heard.