2014 (4) TMI 31 - AT - Income Tax

Claim of deduction u/s 10A and 10AA of the Act Held that - The decision in Gemplus Jewellery Mfg. Co. Ltd., Vs. ITO 2010 (6) TMI 65 - BOMBAY HIGH COURT followed - the assessee had deposited both the employer s and the employees contribution towards provident fund and ESIC, though beyond the due date including the grace period - The disallowance which was effected by the AO had not been challenged by the assessee - The plain consequence of the disallowance and the add back that had been made by the AO was an increase in the business profits of the assessee - The contention of the Revenue that in computing the deduction under section 10A the addition made on account of the disallowance of the provident fund/ESIC payments ought to be ignored could not be accepted - No statutory provision to that effect having been made, the plain consequence of the disallowance made by the AO must follow - The Tribunal was justified in directing the AO to grant the exemption u/s 10A of the Act on the assessed income, which was enhanced due to disallowance of the employer s as well as employees contribution towards PF/ESIC thus, the order of the CIT(A) upheld - Decided against Revenue. Communication charges excluded from the export turnover Held that - The decision in ITO Vs Saksoft Ltd 2009 (3) TMI 243 - ITAT MADRAS-D followed - expenses excluded from export turnover should also be excluded from the total turnover Decided against Revenue.

Summary

Issues:
1. Exclusion of statutory disallowances while computing eligible profits under sections 10A and 10AA.
2. Treatment of communication charges in export turnover for deduction under sections 10A and 10AA.

Issue 1: Exclusion of statutory disallowances under sections 10A and 10AA:
The appeal involved a dispute regarding the exclusion of statutory disallowances like provision for gratuity, leave encashment, bonus payable, and employees' contribution to the provident fund while calculating eligible profits under sections 10A and 10AA for the assessment year 2009-10. The Assessing Officer contended that income arising from these disallowances was not derived from the export of software and thus not eligible for deduction under sections 10A and 10AA. However, the CIT(A) allowed the claim of the assessee, emphasizing that the income eligible for deduction under these sections should be computed after considering these statutory disallowances as per the Act itself. The CIT(A) relied on various decisions of the ITAT and ultimately ruled in favor of the assessee. The Tribunal, after considering the arguments of both parties and relevant case laws, upheld the CIT(A)'s order, citing precedents like Virtusa India (P) Ltd. Vs. DCIT and Gemplus Jewellery Mfg. Co. Ltd. Vs. ITO, among others. Consequently, the Tribunal dismissed the revenue's appeal on this issue.

Issue 2: Treatment of communication charges in export turnover for deduction under sections 10A and 10AA:
The second issue revolved around the treatment of communication charges in the export turnover for the purpose of claiming deductions under sections 10A and 10AA. The Assessing Officer had excluded these charges from the export turnover but included them in the total turnover. On appeal, the CIT(A) directed the Assessing Officer to exclude communication charges from both the export turnover and the total turnover for computing deductions under sections 10A and 10AA. The revenue challenged this decision, leading to the matter being brought before the Tribunal. The Tribunal, after reviewing the arguments and relevant case laws, including decisions like ITO vs. Saksoft Ltd and CIT vs. Tata Elxsi Ltd., upheld the CIT(A)'s order. The Tribunal ruled in favor of the assessee, emphasizing that expenses excluded from the export turnover should also be excluded from the total turnover for computing deductions under sections 10A and 10AA. Consequently, the Tribunal dismissed the revenue's appeal on this issue as well.

In conclusion, the Tribunal dismissed the revenue's appeal concerning the exclusion of statutory disallowances and the treatment of communication charges in export turnover for deductions under sections 10A and 10AA. The decisions were based on established legal principles and precedents, ultimately upholding the orders of the CIT(A) in favor of the assessee.