2023 (8) TMI 1528 - AT - Income Tax

Nature of expenses - Salaries and wages expenses - HELD THAT - This issue came for consideration before this Tribunal in assessee s own case 2023 (6) TMI 1118 - ITAT BANGALORE for the assessment year 2016-17 wherein, the Tribunal followed the earlier order of the Tribunal in assessee s own case held that such expenses should be treated as revenue in nature. Interest on advances to overseas subsidiaries - Since the assessee has entered for unilateral Advance Primary Agreement for assessment year 2016-17 to 2020-21, which is binding as per section 92CC(5) of the Act. Being so, these grounds are infructuous and dismissed. Corporate guarantee commission - We have heard the rival submissions and perused the materials available on record. These grounds are infructuous in view of the APA entered by the assessee for the assessment year 2016-17 to 2020-21. Adjustment for Specified Domestic Transaction ( SDT ) - We are of the opinion that this issue has been considered by this Tribunal in assessee s own case in 2023 (6) TMI 1118 - ITAT BANGALORE as held as during the course of hearing, after taking consent from both the sides, we think it will be appropriate to grant credit period of 45 days and interest is to be calculated using LIBOR 6 months 350 basis points. Accordingly this is sent back to TPO/AO to recalculate the interest on delayed receivables afresh following the LIBOR 6 months 350 basis points. This ground is allowed for statistical purpose. Disallowance u/s 14A - After hearing both the parties, we are of the opinion that this issue came for consideration before this Tribunal in assessee s own case 2023 (6) TMI 1118 - ITAT BANGALORE held that a perusal of the assessment order passed by A.O. would show that the A.O. has observed that he was not satisfied with the working furnished by the assessee. A.O. has not examined the basis of the allocation and apportionment of expenses towards the exempt income. Hence, the coordinate bench has restored this issue to the file of the A.O. for examining it afresh. Accordingly, following the decision rendered by the coordinate bench, we restore this issue to the file of the A.O. The assessee is free to make its submissions and the AO shall decide the decide the issue in accordance with law, by duly considering the submissions made by the assessee. - we restore this issue to the file of AO with similar directions. Since Rule 8D has been amended, the AO has to follow the amended Rule 8D. This ground is allowed for statistical purpose. Computing book profit u/s 115JB for addition u/s 14A - HELD THAT - As decided in 2020 (10) TMI 605 - ITAT BANGALORE amount disallowed u/s 14A of the Act cannot be adopted for the purpose of computation of book profit u/s 115JB of the Act and the disallowance to be made u/s clause (f) to explanation 1 has to be computed independently without having regard to the provisions of section 14A of the Act. In view of the above, we are unable to sustain the addition made by the A.O. Denying set-off of losses of STP units against other business income of the appellant in terms of Section 70 or Section 71 - HELD THAT - We are of the opinion that this issue came for consideration before this Tribunal in 2023 (6) TMI 1118 - ITAT BANGALORE to hold that the loss arising in eligible SEZ/STPI undertakings are not required to be adjusted against the profits arising from other SEZ/STPI undertakings and the said loss can be adjusted against profits arising from non-SEZ/non-STPI units this issue is decided in favour of the assessee. Excluding income under the nomenclature of other income from the profits of the business of the undertakings eligible for deduction u/s 10AA - HELD THAT -We are of the opinion that this issue came for consideration in assessee s own case in 2023 (6) TMI 1118 - ITAT BANGALORE as held that the income generated on sale of scrap/newspaper should be included in the profits of the undertaking eligible for deduction u/s 10AA of the Act. In this year also, the break-up details of Other income are not available. Accordingly, we restore this issue to the file of AO with the direction to examine the break-up details of other income which were debited into the profit loss account in earlier years and decide the issue in accordance with the discussions made supra. Accordingly, this issue is partly allowed for statistical purpose. Excluding net interest income from PCFC loans and surpluses for computing the deduction u/s 10AA - HELD THAT - As decided in assessee s own case 2023 (6) TMI 1118 - ITAT BANGALORE cited (supra), wherein the Tribunal held as noticed earlier that the AO has taken the view that the surplus funds of undertaking located in SEZ are put into common bank account. Accordingly, the AO has observed that the surplus funds relating to SEZ division could not be separately identified, if all the surpluses of all divisions are put together, meaning thereby, it is the case of the AO that there is no nexus between interest income and income of business undertaking. In our view, the assessee may be given an opportunity to show that the nexus between SEZ/STPI divisions and the fixed deposits from which interest income was earned. If the assessee is able to show the nexus to the satisfaction of the AO, then the interest income to that extent should be eligible for deduction u/s 10A/10AA/10B of the Act. Excluding deemed exports from export turnover of the undertaking for the purposes of computing deduction u/s 10AA - HELD THAT - As in assessee s own case 2023 (6) TMI 1118 - ITAT BANGALORE we direct the AO to include deemed exports to SEZ as part of turnover while computing deduction u/s 10AA of the Act. Accordingly this ground is allowed. Excluding revenues realized in convertible foreign exchange of communication link reimbursement, asset reimbursement, incentive and rewards and other reimbursement from the export turnover - HELD THAT - As in assessee s own case 2023 (6) TMI 1118 - ITAT BANGALORE Expenditure incurred in development of software and which forms part of direct cost of development of software would not fall under the category of technical services or services rendered outside India, as contemplated in the definition of Export turnover. Hence the same is not required to be excluded from export turnover. Accordingly, what is required to be excluded is the expenses specifically mentioned in the definition of export turnover , viz., the expenditure incurred on freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if any incurred in foreign exchange in providing technical services outside India alone are required to be excluded from the export turnover. Further, if any amount is excluded from export turnover , the same is required to be excluded from total turnover also, as held in the case of Tata Elixi Ltd 2011 (8) TMI 782 - KARNATAKA HIGH COURT and case of CIT vs. HCL Technologies Ltd 2018 (5) TMI 357 - SUPREME COURT - we set aside the order passed by the A.O. on this issue and direct him to compute the deduction u/s 10A/10AA/10B of the Act by following the discussions - issue is remitted to the file of AO/TPO to compute the deduction u/s 10AA of the Act on similar directions. Computing the deduction u/s 10A - Include sale amount in the Export turnover while computing deduction u/s 10AA wherever the applications have been filed by the assessee to RBI through its bankers seeking permission to receive the export proceeds beyond the prescribed period. Foreign tax credit - We direct the AO to allow the foreign tax State Tax paid by the assessee, to the extent not allowed as tax credit u/s 90 91 as deduction from the business income of the assessee from the respective units. Disallowance of payment made u/s 40(a)(i) of the Act for non-deduction of tax at source - HELD THAT - It is the submission of the assessee that the Hon ble High Court Samsung Electronics Ltd 2011 (10) TMI 195 - KARNATAKA HIGH COURT has decided an identical issue against the assessee following its own decision rendered in the case of Samsung Electronics Ltd 2011 (10) TMI 195 - KARNATAKA HIGH COURT which has since been revered in the case of Engineering Analysis Centre of Excellence P Ltd 2021 (3) TMI 138 - SUPREME COURT The decision in the above said case has been rendered by Hon ble Supreme Court subsequent to the passing of the assessment order. Accordingly, we are of the view that this issue requires fresh examination at the end of AO. Accordingly we restore this issue to the file of the AO with the direction to examine this issue afresh applying the principles laid down by Hon ble Supreme Court in the case, referred above. If the AO comes to the conclusion that the decision rendered by Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence P Ltd is applicable to the payments made to Gartner group and there is no requirement to deduct tax at source, then there is no requirement of making any disallowance u/s 40(a)(i) - if the AO comes to the conclusion that the above said decision of Hon ble Supreme Court is not applicable and the assessee is liable to deduct tax at source, then the AO shall grant enhanced deduction u/s 10A/10AA/10B of the Act by increasing the profits of undertaking by the amount of disallowance so made.

Summary

Issues Involved:
1. Variation in total income.
2. Order passed by NFAC u/s 144C(13) of the Act is barred by limitation.
3. Capitalization of salaries and wages.
4. Interest on advances to overseas subsidiaries.
5. Corporate guarantee commission.
6. Adjustment for Specified Domestic Transaction (SDT).
7. Adjustment for interest on delayed trade receivables.
8. Software development service.
9. Disallowance u/s 14A of the Act.
10. Exclusion of income from the profits of the business of the undertakings eligible for deduction under section 10AA of the Act.
11. Exclusion of net interest income from PCFC loans and surpluses for computing the deduction under section 10AA.
12. Exclusion of revenues realized in convertible foreign exchange from the export turnover.
13. Exclusion of expenditure incurred in foreign currency from export turnover.
14. Exclusion of deemed exports from export turnover.
15. Foreign tax credit.
16. Payments made to Gartner Group.
17. Credit for tax deducted at source.

Detailed Analysis:

1. Variation in Total Income:
The appellant argued that the National Faceless e-Assessment Centre (NFeAC) had computed two different total incomes, Rs. 68,87,72,84,860 and Rs. 70,99,50,98,970, under normal provisions. The second computation was contrary to the reasons cited in the assessment order. The Tribunal directed that any mistake in determining the total income should be corrected by the Assessing Officer (AO) while passing the Order Giving Effect to the Tribunal's order.

2. Order Passed by NFAC u/s 144C(13) of the Act is Barred by Limitation:
The appellant did not press this ground during the argument. Therefore, this ground was dismissed as not pressed.

3. Capitalization of Salaries and Wages:
The appellant contended that the NFAC and DRP erred in capitalizing employee costs related to the development of new technologies and software applications. The Tribunal noted that the issue had been considered in the appellant's own case for AY 2015-16 and AY 2016-17, where it was held that such expenses should be treated as revenue in nature. The Tribunal followed its earlier order and allowed the appellant's argument, directing that the expenses be treated as revenue expenditure.

4. Interest on Advances to Overseas Subsidiaries:
The appellant argued that the advances to subsidiaries were out of surplus funds and no interest expenditure was incurred. The Tribunal noted that the appellant had entered into a unilateral Advance Pricing Agreement (APA) for AYs 2016-17 to 2020-21, which was binding as per section 92CC(5). Therefore, the grounds were dismissed as infructuous.

5. Corporate Guarantee Commission:
The appellant submitted that the NFAC, TPO, and DRP erred in enhancing the commission rate on corporate guarantees to 2% without any valid computation. The Tribunal noted that the appellant had filed a modified return for AY 2017-18 and dismissed the grounds as withdrawn.

6. Adjustment for Specified Domestic Transaction (SDT):
The appellant contended that the NFAC, TPO, and DRP failed to interpret the provisions of sections 80-IA(8), 80-IA(10), and 92BA correctly. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and remitted the issue to the AO/TPO for fresh consideration.

7. Adjustment for Interest on Delayed Trade Receivables:
The appellant argued that the NFAC, TPO, and DRP erred in making adjustments towards interest on delayed receivables. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and remitted the issue to the AO/TPO to recalculate the interest at the rate of 6 months LIBOR + 350 basis points after granting a credit period of 45 days.

8. Software Development Service:
The appellant did not press this ground. Therefore, it was dismissed as not pressed.

9. Disallowance u/s 14A of the Act:
The appellant argued that the NFAC/DRP erred in quantifying and adding a notional expenditure under section 14A by applying Rule 8D. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and remitted the issue to the AO to examine the basis of allocation and apportionment of expenses towards the exempt income.

10. Exclusion of Income from the Profits of the Business of the Undertakings Eligible for Deduction under Section 10AA:
The appellant contended that the NFAC/DRP erred in excluding certain incomes from the profits of the business of the undertakings eligible for deduction under section 10AA. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and remitted the issue to the AO to examine the break-up details and decide accordingly.

11. Exclusion of Net Interest Income from PCFC Loans and Surpluses for Computing the Deduction under Section 10AA:
The appellant argued that the NFAC/DRP erred in excluding net interest income from PCFC loans and surpluses for computing the deduction under section 10AA. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and remitted the issue to the AO to examine if the interest income was assessed under the head "Income from business" or "Income from other sources."

12. Exclusion of Revenues Realized in Convertible Foreign Exchange from the Export Turnover:
The appellant contended that the NFAC/DRP erred in excluding certain revenues from the export turnover. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and remitted the issue to the AO to examine the break-up details and decide accordingly.

13. Exclusion of Expenditure Incurred in Foreign Currency from Export Turnover:
The appellant argued that the NFAC/DRP erred in excluding expenditure incurred in foreign currency from export turnover. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and directed the AO to compute the deduction u/s 10AA by excluding only the expenses specifically mentioned in the definition of "export turnover."

14. Exclusion of Deemed Exports from Export Turnover:
The appellant contended that the NFAC/DRP erred in excluding deemed exports from export turnover. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and directed the AO to include deemed exports as part of turnover while computing deduction u/s 10AA.

15. Foreign Tax Credit:
The appellant argued that the NFAC/DRP erred in not granting full credit for foreign taxes and state-level taxes. The Tribunal followed its earlier order in the appellant's own case for AY 2015-16 and directed the AO to allow foreign tax credit as per the decision of the Hon'ble High Court of Karnataka.

16. Payments Made to Gartner Group:
The appellant contended that the NFAC/DRP erred in treating the payments made to Gartner Group as royalty. The Tribunal noted that the Hon'ble Supreme Court had set aside the order of the Hon'ble High Court in the appellant's own case and remitted the issue to the AO to re-examine in light of the decision in Engineering Analysis Centre of Excellence Private Limited v. CIT.

17. Credit for Tax Deducted at Source:
The appellant sought a direction to the AO to consider the TDS certificates and the latest Form Nos. 26AS furnished by the appellant. The Tribunal directed the AO to give credit for the TDS certificates as per the latest Form No. 26AS.

Conclusion:
The Tribunal partly allowed the appeal of the appellant for statistical purposes, remitting several issues to the AO/TPO for fresh consideration and directing corrections based on the Tribunal's earlier orders and relevant judicial precedents.