2024 (5) TMI 215 - AT - Income Tax

Refund of the excess DDT paid - assessee declared and paid dividend to its parent share-holders Genpact India Investment a tax resident of Mauritius - as per assessee DDT paid by it u/s 115-O of the Act is in excess of the rate of 5% provided under Article 10 of the Indo Mauritius DTAA - HELD THAT - We find that the issue raised in the additional ground has been recently decided by the Special Bench of Mumbai Tribunal in the case of Total Oil India Pvt. Ltd. 2023 (4) TMI 988 - ITAT MUMBAI (SB) wherein very same issue has been decided against the assessee stating where dividend is declared distributed or paid by a domestic company to a non-resident shareholder(s) which attracts Additional Income Tax (Tax on Distributed Profits) referred to in Sec.115-O of the Act such additional income tax payable by the domestic company shall be at the rate mentioned in Section 115 O of the Act and not at the rate of tax applicable to the non-resident shareholder(s) as specified in the relevant DTAA with reference to such dividend income. Accordingly the additional ground raised by the assessee is hereby dismissed. Computation of deduction u/s 10A and 10AA - Reduction of freight Telecommunication charges and recovery of expenses in respect of migration/ on-the-job training services from total turnover while computing deduction - HELD THAT - This issue is no longer resintegra in view of the decision of HCL Technologies Ltd reported 2018 (5) TMI 357 - SUPREME COURT wherein it was held that the items that are subject matter of reduction from export turnover in the numerator need to be reduced in the denominator from the ambit of total turnover also as admittedly total turnover is nothing but the sum total of export turnover and domestic turnover. Hence the export turnover reflected in the numerator cannot be different from the export turnover figure reflected in the denominator. Hence for the purpose of computing the deduction u/s 10A/10AA/10B/80HHC/80HHE etc. all items that were sought to be excluded from export turnover need to be excluded from total turnover also in order to bring parity. Decided in favour of assessee. Eligibility for claiming benefit of deduction u/s 10A - 95% of cost recovered of shared costs to be set off against the expenses of 5% of recovery to be taken as non-eligible profit - CIT(A) as argued that assessee ought to have deducted tax at source of expenses incurred by it which were subject matter of reimbursement and therefore disallowance u/s 40(a)(ia) would also come into operation in the instant case - HELD THAT - AO had not disputed the basic fact that recovery of expenses is nothing but reimbursement of expenses on actual cost to cost. Non deduction of tax at source on the expenses incurred was never the case of the ld. AO. Hence the ld. CIT DR cannot make out a fresh case before this Tribunal. This matter is very well settled by the decision of Mahindra Mahindra Ltd. reported in 2020 (6) TMI 564 - ITAT MUMBAI wherein it was categorically held that ld. DR while arguing the case before Tribunal can only support the order of ld. AO and cannot make out a new case by pointing out flaws if any in the order of ld. AO. Hence the argument advanced by the ld. CIT(DR) on the aspect of applicability of provisions of section 40(a)(ia) of the Act stands dismissed. For workings of recovery of expenses the details of cost recoveries were indeed filed before the ld. AO itself for the year under consideration together with the accounting practice followed by the assessee thereon. Hence fairly the order of ld. CIT(A) for A.Y. 2002-03 needed to be followed even for the year under consideration i.e. to say where details are filed by the assessee estimate of 5% of cost recovery is to be construed as not eligible for deduction u/s 10A of the Act. When this was put to ld. AR the ld. AR fairly agreed for the same. Thus we hold that order of ld. CIT(A) in holding 5% of cost recoveries as not eligible for deduction u/s 10A of the Act is to be sustained. Eligibility of interest income from fixed deposits inter-corporate deposits and the employees loans for claim of deduction u/s 10A and 10AA - HELD THAT - Entire argument of the ld. CIT(DR) need not be gone into at all in view of the fact that the ld. AO himself had treated the said mentioned receipts as only business income and not income from other sources which is evident from the computation of total income enclosed in page 20 of the assessment order. Once it is treated as business income the assessee would be automatically eligible for deduction u/s 10A 10AA. Also the provisions of Section 10A(4) are very clear to state that the entire profits of the business of the undertaking in proportion of export turnover to total turnover would be eligible for deduction u/s 10A of the Act. Hence subject mentioned receipts constitute business receipts would fall within the ambit of Section 10A(4) of the Act thereby making the assessee eligible for deduction thereon. Similar is the provision in Section 10AA(7) of the Act with the same words. Hence in view of the explicit provisions of Section 10A(4) and 10AA(7) of the Act the arguments advanced by the ld. CIT(DR) deserve to be dismissed and we do not find any infirmity in the order of the ld. CIT(A) in this regard. Accordingly ground nos. 1 to 3 raised by the Revenue are dismissed. Deduction u/s 10A 10AA - foreign exchange gain and forward contract gain earned by the assessee - HELD THAT - The gain / loss arises because of the fact that at the time of booking the sales in the accounts the exchange rate on the date of raising the invoice is taken into account. Whereas when the actual payment is received from the customer directly or through bank under a forward contract the exchange rate may be different. Thus the impact of the difference of the two rates is recorded in the books separately as an exchange gain/ (loss). Hence the nature of receipt has been completely explained by the assessee. The ld. AR submitted that forward contract outstanding at the end of the year exceeding export receivables at the end of the year is of no consequence or relevance as to that extent the sales would happen in next year. We find that in the case of Pentasoft Technologies Ltd. 2010 (7) TMI 75 - MADRAS HIGH COURT had categorically held that gains arising out of foreign exchange fluctuations are having direct nexus over the export sales of the assessee and would be eligible for deduction u/s 10A of the Act. Decided against revenue. Disallowance of customer discount - AO disallowed the said provision made for discount stating that the assessee has not provided any details to the effect that the said discounts get crystallized in the current year whereas these discounts are passed on to the customers in subsequent years by adjustments from future collections - CIT(A) deleted addition - HELD THAT - CBDT Circular no. 12 of 2022 dated 16.06.2022 had replied that discounts allowed to customers would only represent lesser realization of sale price. Though the Circular has been issued in the context of applicability of deduction of TDS u/s 194R of the Act pursuant to the amendment brought in by the Finance Act 2022 w.e.f. 01.07.2022 the analogy that discount is only a lesser realization of sale price has been accepted and agreed by the CBDT. Drawing support from this Circular and considering the fact that the export sale price declared by the assessee has been accepted to be at arm s length price (ALP) by the ld. TPO in the order passed by him u/s 92CA(3) of the Act dated 27.01.2015 and also considering the fact that the provision of discount has been made on a rational basis as detailed supra we do not find any infirmity in the order of ld. CIT(A) deleting the disallowance made thereof by the ld. AO. Disallowance of Excess depreciation on computer peripherals - HELD THAT - The assets like printers routers along with other accessories/ peripherals form one integrated system and would be of no use independently of each other. Therefore all such facilities from part of computers and hence eligible for depreciation at the rate applicable for computers. This issue is duly covered by the decision of BSES Yamuna Powers 2010 (8) TMI 58 - DELHI HIGH COURT and in the case of Orient Ceramics 2011 (1) TMI 26 - DELHI HIGH COURT - ground raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Exclusion of certain receipts from "export turnover" while computing deductions u/s 10A and 10AA.
2. Eligibility of cost recoveries for deduction u/s 10A.
3. Levy of interest u/s 234B, 234C, and 234D.
4. Validity of the assessment order.
5. Eligibility of interest income for deduction u/s 10A and 10AA.
6. Eligibility of foreign exchange and forward contract gains for deduction u/s 10A and 10AA.
7. Disallowance of provision for customer discounts.
8. Disallowance of excess depreciation on computer peripherals.

Summary:

1. Exclusion of Receipts from "Export Turnover" (Grounds 1-3 of Assessee and Grounds 5-6 of Revenue):
The Tribunal held that items excluded from "export turnover" should also be excluded from "total turnover" for computing deductions u/s 10A and 10AA, following the Supreme Court decision in CIT vs. HCL Technologies Ltd. Thus, the assessee's grounds were allowed, and the Revenue's grounds were dismissed.

2. Eligibility of Cost Recoveries for Deduction u/s 10A (Ground 4 of Assessee and Ground 7 of Revenue):
The Tribunal upheld the CIT(A)'s decision to consider 95% of cost recoveries as eligible for deduction u/s 10A, based on historical treatment and detailed analysis of cost recoveries being pure reimbursements without profit elements. The Revenue's argument for disallowance u/s 40(a)(ia) was dismissed. The assessee's ground was partly allowed, and the Revenue's ground was dismissed.

3. Levy of Interest u/s 234B, 234C, and 234D (Ground 5 of Assessee):
The Tribunal did not specifically address this issue in the summary provided.

4. Validity of the Assessment Order (Ground 7 of Assessee):
The Tribunal did not specifically address this issue in the summary provided.

5. Eligibility of Interest Income for Deduction u/s 10A and 10AA (Grounds 1-3 of Revenue):
The Tribunal upheld the CIT(A)'s decision, allowing the assessee's claim for deduction on interest income from fixed deposits, inter-corporate deposits, and employee loans, as these were treated as "business income" by the AO, thus falling under the provisions of Section 10A(4) and 10AA(7). The Revenue's grounds were dismissed.

6. Eligibility of Foreign Exchange and Forward Contract Gains for Deduction u/s 10A and 10AA (Ground 4 of Revenue):
The Tribunal upheld the CIT(A)'s decision, allowing the deduction for foreign exchange and forward contract gains, as these were directly related to the export business. The Revenue's ground was dismissed.

7. Disallowance of Provision for Customer Discounts (Ground 8 of Revenue):
The Tribunal upheld the CIT(A)'s decision, allowing the provision for customer discounts, as it was made on a scientific basis and accepted by the TPO as part of the arm's length price. The Revenue's ground was dismissed.

8. Disallowance of Excess Depreciation on Computer Peripherals (Ground 9 of Revenue):
The Tribunal upheld the CIT(A)'s decision, allowing higher depreciation on computer peripherals, following jurisdictional High Court decisions. The Revenue's ground was dismissed.

Conclusion:
The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed.