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2021 (3) TMI 418 - AT - Income TaxComputing deduction u/s10A/10AA - Treatment to amount of expenses incurred by the assessee in foreign exchange - HELD THAT - The CBDT in its circular No.04/2018 has provided that while computing deduction u/s.10A, the amount of freight, telecommunication charges and insurance expenses should be excluded from both the Export turnover and Total turnover . The Hon ble Punjab Haryana High Court in CIT Vs. Mercer Consulting (India) Pvt. Ltd. 2016 (8) TMI 1163 - PUNJAB AND HARYANA HIGH COURT has also held that telecommunication charges should be excluded from both the Export turnover and also the Total turnover in the formula while computing deduction u/ss.10A/10AA. In view of the foregoing, it is evident that the amount of expenses incurred by the assessee in foreign exchange should be reduced from both the Export turnover as well as Total turnover while computing deduction u/ss.10A/10AA. As the AO reduced such amounts only from the Export turnover and not the total turnover , we direct to exclude these amounts from Total turnover as well while computing the deductions. MAT Computation - disallowance of Provision for performance bonus and Provision for expenses while computing book profits u/s.115JB of the Act on the ground that such expenses are unascertained liabilities - HELD THAT - There is an apparent contradiction in the recording made by the AO. We have gone through the relevant parts of the assessee s tax audit report for the year under consideration, as per which the assessee made provision for bonus. Except for a sum of ₹ 6.36 lakh, the assessee paid the entire amount of bonus in the succeeding year. Thus, it is overt that the provision for bonus is an ascertained liability which was largely discharged in the immediately succeeding year. The next is the item of Provision for expenses . Details of such provision have been placed at page 64 of the paper book. Such provision includes salary, employee incentive, staff cost, car hire charges, staff training expenses, staff welfare expenses, repairs, maintenance, electricity, travelling, bank charges and insurance etc. On the later pages, the assessee has placed copious details of such expenses. All these expenses are in the nature of regular business expenses incurred by the assessee during the year for which bills were not received by the year end, leading to creation of a provision. Since such provision is in respect of ascertained liability, the same cannot be added back while computing book profit u/s.115JB of the Act. We, therefore, order to treat both the amounts in question as provisions for ascertained liability and not to make any addition to the book profit in this regard. This ground is allowed. Depreciation on computers/computer peripherals - AO allowed depreciation on computers/computer peripherals @15% as against the assessee s claim of 60% - HELD THAT - , in respect of computer peripherals, the Special Bench of the Tribunal in DCIT Vs. Data Craft India Ltd. 2010 (7) TMI 642 - ITAT, MUMBAI has held that routers and switches should also be classified under the term computers subject to higher rate of depreciation. The Hon ble Delhi High Court in CIT Vs. BSES Yamuna Towers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT has also made the assessee entitled to higher rate of depreciation in respect of routers and switches. In view of the foregoing discussion, it is graphically clear that the assessee is rightly entitled to the higher rate of depreciation of 60% on computers/computer peripherals etc. The impugned order is overturned on this issue and the necessary relief is allowed.
Issues Involved:
1. Restriction of deductions under sections 10A and 10AA of the Income-tax Act, 1961. 2. Disallowance of provision for leave encashment. 3. Adjustment of foreign travel expenses and communication/connectivity charges from export turnover. 4. Disallowance of provision for performance bonus and expenses while computing book profits under section 115JB. 5. Allowance of depreciation on computers/computer peripherals at 15% instead of 60%. Detailed Analysis: 1. Restriction of Deductions Under Sections 10A and 10AA: The assessee claimed deductions under sections 10A and 10AA of the Income-tax Act, 1961. The Assessing Officer (AO) disallowed deductions on five items totaling ?1,20,86,914, which were classified under 'Other income.' These items included interest on short-term fixed deposits, recovery/reimbursement of expenses from group companies, gain on sale of fixed assets, sale of scrap, and other income. The Tribunal analyzed each item: - Interest on Short-Term Fixed Deposits: The AO held that the interest income from fixed deposits did not qualify for deductions under sections 10A and 10AA, as it was not derived from the business of the undertaking. The Tribunal upheld this view, relying on the jurisdictional High Court's judgment in CIT Vs. Menon Impex (P) Ltd., which denied such deductions for interest income. - Recovery/Reimbursement of Expenses from Group Companies: The Tribunal found that the reimbursement of expenses incurred on behalf of group companies should be included in the qualifying amount for deductions as it was part of the business profits. The Tribunal overturned the AO's decision and allowed the deduction. - Gain on Sale of Fixed Assets: The Tribunal noted that the assessee did not claim any deduction for this item, and hence, there was no need for exclusion. The assessee succeeded on this count. - Sale of Scrap: The Tribunal held that the sale of scrap, which emanated from the normal working items of the company, should be included in the qualifying amount for deductions. The assessee succeeded on this count. - Other Income: The Tribunal noted that the nature of this income was not explained, and hence, it could not form part of the business profits eligible for deductions. The assessee failed on this score. 2. Disallowance of Provision for Leave Encashment: The AO observed discrepancies in the provision for leave encashment and reduced the qualifying amount for deductions under sections 10A and 10AA by ?17,15,686. The Tribunal found that the AO did not fully examine the computation of income, which already accounted for the provision. The Tribunal allowed this ground in favor of the assessee. 3. Adjustment of Foreign Travel Expenses and Communication/Connectivity Charges: The AO excluded foreign travel expenses and communication/connectivity charges from export turnover without making corresponding adjustments to total turnover. The Tribunal directed that these amounts should be excluded from both export turnover and total turnover, in line with CBDT Circular No. 04/2018 and the judgment in CIT Vs. Mercer Consulting (India) Pvt. Ltd. 4. Disallowance of Provision for Performance Bonus and Expenses While Computing Book Profits Under Section 115JB: The AO added back provisions for performance bonus and expenses, considering them 'unascertained liabilities.' The Tribunal found that the provisions were for ascertained liabilities, supported by evidence and largely discharged in the subsequent year. The Tribunal ordered not to add these amounts back while computing book profits under section 115JB. 5. Allowance of Depreciation on Computers/Computer Peripherals: The AO allowed depreciation at 15% instead of the claimed 60%. The Tribunal found that the assessee was entitled to a higher rate of depreciation for computers and peripherals, including routers and switches, as per the Special Bench decision in DCIT Vs. Data Craft India Ltd. and the Delhi High Court judgment in CIT Vs. BSES Yamuna Towers Ltd. The Tribunal allowed the higher rate of depreciation. Conclusion: The Tribunal partly allowed the appeal, providing relief on several counts while upholding the AO's decisions on others. The order emphasized the need for a detailed examination of the nature of income and expenses to determine eligibility for deductions under sections 10A and 10AA, and the appropriate computation of book profits under section 115JB.
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