2019 (12) TMI 1183 - AT - Income Tax

Addition u/s.145A - method of accounting followed - HELD THAT - After going through the Audit Report that assessee has already considered the application of section 145A in the audit report and the practice of showing the working of inclusion of cess and excise duty on the purchases sales and the stock is being followed by the assessee company since last several years. Section 145A requires the valuation of purchase and sale of goods or services and of the inventory shall be adjusted to include the amount of any tax duty cess or fee (by whatever have been called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on date of valuation. In our considered opinion assessee is following the same method for several years and therefore this ground of Revenue is dismissed. Deduction u/s. 10A - if the claim of deduction u/s. 10B is disallowed as assessee unit is included in the business of trading of Computers Computer Peripherals software development etc. and was granted license setting up 100% EOU under STP scheme as per letter of permission - HELD THAT - Assessee has also filed copy of letter from STPI Gandhinagar Gujarat and assessee is reflecting on the website of Department of Electronics Information Technology and assessee has also filed the copy of extract of the said website and which has not been disputed by the ld. A.O. and in the past assessee has been claiming deduction u/s. 10A. Moreover assessee company set up in the 100% EOU under STP Scheme as per letter of permission No. STPIG/EXIM/S/503/STTL-SWED/13 dated 2-1-2007 by the Designated officer Software and IT enabled services and same details were submitted before the lower authorities. The assessee is in this business since 2007 and company has been set up in the 100% EOU under STP Scheme and all details have been submitted before the lower authorities. Since assessee has complied with all the condition for availing of benefit of section 10A. Therefore we dismiss this ground of the revenue. Allowing of foreign exchange gain in the claim of deduction u/s 10A - A.O. held that income due to foreign exchange gain are not eligible for deduction - HELD THAT - Since already we have confirmed the order of the ld. CIT(A) for granting relief to the assessee u/s 10A of the Act. We draw support in favour of assessee from the latest judgment of Hon ble Madras High Court in the matter of CIT Chennai- III vs Pentasoft Technologies Ltd. 2019 (9) TMI 155 - MADRAS HIGH COURT wherein similar claim of the assessee was allowed by the Hon ble Madras High Court. In the matter of Nuwave Esolutions Pvt. Ltd. vs. CIT (Delhi) 2018 (12) TMI 1752 - ITAT DELHI has also granted relief to the assessee and granted deduction in foreign exchange gain. Therefore in our considered opinion assessee is eligible for exemption u/s. 10B of the Act and we do not find any reason to interfere in the order passed by the ld. CIT(A). - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made under Section 145A of the Income Tax Act.
2. Entitlement to deduction under Section 10A of the Income Tax Act.
3. Inclusion of foreign exchange gain in the claim of deduction under Section 10A of the Income Tax Act.

Detailed Analysis:

1. Deletion of Addition Made Under Section 145A:

The Revenue contended that the Commissioner of Income-Tax (Appeals) [CIT(A)] erred in deleting the addition of ?31,11,757 made under Section 145A of the Income Tax Act. The Assessing Officer (A.O.) had incorrectly considered the closing balance of VAT and service tax, which the assessee had already accounted for in the audit report, making the adjustment revenue-neutral. The CIT(A) relied on the judgment in the case of Alpanil Industries Ltd. and Mahavir Aluminum Limited, concluding that no addition under Section 145A was warranted as the practice of including taxes in the valuation of stock, purchases, and sales had been consistently followed by the assessee. The Tribunal upheld the CIT(A)’s decision, noting that the assessee had been following the same method for several years, thus dismissing this ground of Revenue.

2. Entitlement to Deduction Under Section 10A:

The assessee claimed a deduction under Section 10A as an alternative to Section 10B, which was disallowed by the A.O. The CIT(A) granted relief to the assessee, noting that the assessee had been granted a license for setting up a 100% Export Oriented Unit (EOU) under the Software Technology Park (STP) scheme and had complied with all necessary conditions. The Tribunal confirmed the CIT(A)’s decision, emphasizing that the assessee had been operating under the 100% EOU scheme since 2007 and had consistently claimed deductions under Section 10A in the past. The Tribunal found no reason to interfere with the CIT(A)’s order, thereby dismissing this ground of Revenue.

3. Inclusion of Foreign Exchange Gain in the Claim of Deduction Under Section 10A:

The A.O. had disallowed the deduction of foreign exchange gain, arguing that it was not income derived from exports. The CIT(A) overturned this decision, citing that the foreign exchange fluctuation gain was directly related to the export transactions and arose out of business operations. The CIT(A) referenced decisions from the Ahmedabad Tribunal and the Bombay High Court, which supported the inclusion of foreign exchange gains in the deduction under Section 10A. The Tribunal upheld the CIT(A)’s decision, drawing support from similar judgments by the Madras High Court and ITAT Delhi, confirming that the assessee was entitled to the deduction of foreign exchange gain under Section 10A. Consequently, this ground of Revenue was also dismissed.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The assessee's consistent accounting practices and compliance with statutory requirements were key factors in the Tribunal's rulings. The Tribunal also dismissed the Cross Objections (C.O.s) filed by the assessee as not pressed.

Order Pronounced:

The order was pronounced in open court on December 2, 2019.