2005 (6) TMI 210 - AT - Income Tax

Provident Fund/Superannuation Fund, Income From Export Of Computer Software, Method of accounting, Deductions - Profits and gains from infrastructure undertakings, Double Taxation Relief

Issues Involved:
1. Allocation of corporate and group overheads.
2. Claim of deduction under Section 10A of the IT Act.
3. Provision for bad and doubtful debts.
4. Provision for bad and doubtful advances.
5. Provision for warranty expenses.
6. Claim under Section 43B of the IT Act in respect of excise duty.
7. Claim under Section 43B of the IT Act in respect of customs duty.
8. Deduction under Section 80-IA relating to various units.
9. Deduction under Section 80HH relating to Amalner unit.
10. Deduction under Section 80-I relating to Tumkur unit.
11. Deduction under Section 80-IA relating to Peenya unit.
12. Impact of Modvat credit.
13. Deduction under Section 80HHC in respect of excise duty and sales-tax.
14. Disallowance of expenditure claimed on imported software.
15. Interest under Section 234B.
16. Interest under Section 244A.
17. Foreign tax credit.

Detailed Analysis:

1. Allocation of Corporate and Group Overheads:
The CIT(A) deleted the additional allocation of Rs. 4.2 crores and Rs. 8.27 crores made by the AO to the Section 10A units for the assessment years 1998-99 and 1999-2000 respectively. The Tribunal upheld the CIT(A)'s decision, noting that the issue was already decided in favor of the assessee in the earlier year by the Tribunal.

2. Claim of Deduction under Section 10A of the IT Act:
The Tribunal addressed various components under this issue:
- Liquidated Damages, Retention Money, Sales-tax Recoveries, Credit Balances, Foreign Exchange Gain: The Tribunal reversed the orders of the authorities below and directed the AO to include these receipts/income in the profits of business of industrial undertakings under Section 10A.
- Miscellaneous Income from Sale of Scrap: The Tribunal followed its earlier decision and directed the AO to include the income from the sale of scrap in the profits of Section 10A units.
- Royalty Income: The Tribunal held that royalty income is part of the export turnover of the undertaking and is entitled to relief under Section 10A.
- Lease Rental Income: The Tribunal dismissed the ground as no details were furnished.
- Loss of Discontinued Business: The Tribunal allowed the loss claimed by the assessee, including operational loss, valuation of stock, and bad debts.

3. Provision for Bad and Doubtful Debts:
The CIT(A) directed the AO to verify the correctness of the claims made by the assessee regarding the provision for bad and doubtful debts and decide in accordance with the Tribunal's directions. The Tribunal upheld this decision.

4. Provision for Bad and Doubtful Advances:
The CIT(A) directed the AO to verify the correctness of the claims made by the assessee regarding the provision for bad and doubtful advances and decide accordingly. The Tribunal upheld this decision.

5. Provision for Warranty Expenses:
The CIT(A) allowed the provision for warranty expenses based on the Tribunal's earlier decision in the case of Wipro GE Medical Systems Ltd. The Tribunal upheld this decision.

6. Claim under Section 43B of the IT Act in Respect of Excise Duty:
The CIT(A) directed the AO to verify the claim of excise duty and allow it if the conditions are fulfilled. The Tribunal upheld this decision.

7. Claim under Section 43B of the IT Act in Respect of Customs Duty:
The CIT(A) directed the AO to verify the claim of customs duty and decide accordingly. The Tribunal upheld this decision.

8. Deduction under Section 80-IA Relating to Various Units:
The Tribunal upheld the CIT(A)'s decision to delete the allocation of expenditure made by the AO to the peripherals unit at Mysore, Tumkur unit, and Peenya unit, noting that the allocation was without any rational basis.

9. Deduction under Section 80HH Relating to Amalner Unit:
The Tribunal upheld the CIT(A)'s decision to delete the allocation of expenditure made by the AO to the Amalner unit, noting that the allocation was without any rational basis.

10. Deduction under Section 80-I Relating to Tumkur Unit:
The Tribunal upheld the CIT(A)'s decision to delete the allocation of expenditure made by the AO to the Tumkur unit, noting that the allocation was without any rational basis.

11. Deduction under Section 80-IA Relating to Peenya Unit:
The Tribunal upheld the CIT(A)'s decision to delete the allocation of expenditure made by the AO to the Peenya unit, noting that the allocation was without any rational basis.

12. Impact of Modvat Credit:
The Tribunal upheld the CIT(A)'s decision to direct the AO to verify the Modvat claim of the assessee and add back any unavailed Modvat credit to the income.

13. Deduction under Section 80HHC in Respect of Excise Duty and Sales-tax:
The Tribunal upheld the CIT(A)'s decision to exclude sales-tax and excise duty from the total turnover while computing the deduction under Section 80HHC, based on the decision of the Karnataka High Court in CIT vs. Bharat Earth Movers Limited.

14. Disallowance of Expenditure Claimed on Imported Software:
The Tribunal upheld the CIT(A)'s decision to allow the expenditure on imported software, noting that the issue was already decided in favor of the assessee in the earlier year by the Tribunal.

15. Interest under Section 234B:
The Tribunal directed the AO to grant consequential relief in the levy of interest under Section 234B.

16. Interest under Section 244A:
The Tribunal remitted the matter back to the AO for fresh consideration, directing that the interest should not be brought to tax unless it accrues irrevocably to the assessee.

17. Foreign Tax Credit:
The Tribunal admitted the additional ground raised by the assessee and directed the AO to verify whether the income earned in the United States of America was included in the return filed in India and to grant credit as per the applicable provisions of the DTAA between India and the USA.

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