2015 (11) TMI 530 - AT - Income Tax

Denial of exemption u/s.10A/10B in respect of provisions no longer required written back - Held that - Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT has held that whenever any disallowance made while computing the income that disallowance should be part and parcel of the business profit of the assessee and the same should be considered for the purpose of deduction u/s.10A of the Act. In view of this we are inclined to hold that the disallowance made with regard to provision is to be considered as part of business profit for the purpose of determining deduction u/s.10A/10B of the Act. - Decided in favour of assessee. Claim with respect to liabilities written back in AY 2003-04 - Held that -Since the claim of the assessee was allowed in the assessment year 2003-04 when it was actually written off this is only academic. Hence this ground is dismissed as infructuous. Denial of exemption u/s.10A/10B in respect of profits arising from fluctuation in Foreign Exchange (net) - Held that - The assessee is permitted by RBI to keep a part of its foreign exchange earnings in foreign currency account abroad so that it can be used by the assessee for purchasing raw materials and availing other services and if not required can remit back the money to India alongwith interest. Interest is accrued as part of export turnover. It has nexus only with the export turnover and therefore it is also in the nature of export profits. This issue has been decided by the Hon ble Delhi High Court in favour of the assessee in the case of CIT vs. Indian Toners and Developers Ltd. 2008 (12) TMI 375 - DELHI HIGH COURT - Decoded in favour of assessee. Interest under Section 234D - Held that - This issue is covered against the assessee by the decision of the Tribunal in the case of DDIT vs. Oracle Corporation 2012 (11) TMI 1097 - ITAT DELHI as held Explanation 2 was added by Finance Act 2012 with retrospective effect from 01.06.2003. By that amendment it was clearly brought on the statute that the Section shall also apply to an Assessment Year commencing before the first date of June 2003 if the proceedings in respect of such Assessment Year is completed after the said date. - Decided against assessee. Exclusion of foreign currency expenditure and telecommunication expenditure while computing deduction u/s.10A - Held that - The Special Bench of the Tribunal Chennai in the case of ITO vs. Sak Soft Ltd. reported 2009 (3) TMI 243 - ITAT MADRAS-D was also considered this issue wherein it was observed that for the purpose of applying the formula prescribed by sub-sec.(4) of sec.10B of the Act expenses on freight communication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses if any incurred in foreign exchange in providing technical services outside India are required to be excluded from the export turnover and from the total turnover. Being so in our opinion this issue is squarely covered in favour of the assessee Disallowance of set-off of current year losses of the units located in Pune Chennai Unit I and Kolkatta Unit II while computing the taxable income - Held that - There is a judgment from the Delhi High Court in the case of CIT vs. KEI Industries Ltd. (2015 (3) TMI 618 - DELHI HIGH COURT) wherein after considering the judgment of CIT v. Yokogawa India Ltd. (2011 (8) TMI 845 - Karnataka High Court) it was held that loss suffered by the assessee in a unit entitled to exemption under sec.10B of the Act cannot be set off against income from any other unit not eligible for such exemption. In view of the above as these units are claiming exemption u/s.10B of the Act the loss suffered in these units cannot be set off with income of other units - Decided against assessee. Disallowance under section 40(a)- non deduction of TDS on the payments made to Sprint (a nonresident) - Held that - even if the payments were treated as non-relating to the use of equipment they should be considered as payment for the use of the process provided by the assessee whereby through the assured bandwidth the customer is guaranteed the transmission of data and the voice. The fact that the bandwidth is shared with others however has to be seen in the light of the technology governing the operation of the process and this by itself does not take the assessee out of the scope of royalty. Thus the consideration being for the use and right to use of the process it is Royalty within the meaning of Clause-(iii) of Explanation-2 to section 9(1)(vi) of the Act. - Decided against assessee.

Summary

Issues Involved:
1. Denial of exemption u/s 10A/10B in respect of provisions no longer required written back.
2. Claim with respect to liabilities written back in AY 2003-04.
3. Denial of exemption u/s 10A/10B in respect of profits arising from fluctuation in Foreign Exchange (net).
4. Interest under Section 234D.
5. Exclusion of foreign currency expenditure and telecommunication expenditure while computing deduction u/s 10A.
6. Disallowance of set-off of current year losses of certain units while computing taxable income.
7. Payments made to Sprint and deduction of tax at source.
8. Set-off of brought forward losses before allowing deduction u/s 10A/10B.

Detailed Analysis:

1. Denial of exemption u/s 10A/10B in respect of provisions no longer required written back:
The assessee argued that the link charges written back should be considered part of export profits for the purposes of section 10A. The Tribunal, referencing previous decisions, held that such disallowances should be part of business profit for determining deduction u/s 10A/10B. The decision was in favor of the assessee.

2. Claim with respect to liabilities written back in AY 2003-04:
The assessee contended that the excess provision made in AY 2002-03, written back in AY 2003-04, should be disallowed and added back to the total income of the impugned accounting period, granting exemption u/s 10A. Since this claim was allowed in AY 2003-04, the Tribunal dismissed this ground as infructuous.

3. Denial of exemption u/s 10A/10B in respect of profits arising from fluctuation in Foreign Exchange (net):
The assessee claimed that net exchange fluctuation gains should be eligible for exemption under section 10A/10B. The Tribunal, following previous decisions and judgments, directed the Assessing Officer to include the gain from EEFC account as part of the profits eligible for deduction under section 10A, deciding the issue in favor of the assessee.

4. Interest under Section 234D:
The assessee objected to the levy of interest u/s 234D. The Tribunal, referencing the Bombay High Court decision in CIT vs. M/s. Indian Oil Corporation Ltd., held that section 234D applies retrospectively to assessments completed after June 1, 2003. Thus, the Tribunal dismissed the assessee's ground of appeal.

5. Exclusion of foreign currency expenditure and telecommunication expenditure while computing deduction u/s 10A:
The Tribunal, referencing previous decisions, held that expenses on freight, communication charges, or insurance attributable to the delivery of articles or technical services outside India should be excluded from both export turnover and total turnover. This issue was decided in favor of the assessee.

6. Disallowance of set-off of current year losses of certain units while computing taxable income:
The Tribunal, referencing the Delhi High Court and Karnataka High Court judgments, held that losses suffered by units entitled to exemption under sec.10B cannot be set off against income from other units not eligible for such exemption. This ground of appeal was dismissed.

7. Payments made to Sprint and deduction of tax at source:
The Tribunal, following the jurisdictional High Court's decision in a similar case, held that payments made to Sprint constitute 'Royalty' and are taxable in India. Consequently, the disallowance under section 40(a) was upheld, deciding the issue against the assessee.

8. Set-off of brought forward losses before allowing deduction u/s 10A/10B:
The Tribunal, following previous decisions, held that brought forward losses of eligible units should not be set off against current year's profits of eligible units before computing the deduction under section 10A. This issue was decided in favor of the assessee.

Conclusion:
The appeals were partly allowed or dismissed based on the above detailed analysis. The Tribunal followed precedents and legal principles to arrive at its decisions, ensuring consistency and adherence to judicial interpretations.