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2016 (4) TMI 1120 - AT - Income TaxDisallowance of staff welfare expenditure - Held that - As find from the order of the AO the detail of the expenditure reflects that there is no material to show that the said expenditures were not incurred. We have also gone through the contents of Sec.37 of IT Act where there are certain bars for allowing the expenditures described in Section 31-36 of the IT Act. The wordings of Sec.37 reflects that if the expenditure not being Capital or personal expenditure but incurred wholly and exclusively for the purpose of business or profession it shall be allowed to be excluded in computing the income eligible under the head profits and gains of business or profession . In our considered view both the authorities below have acted on presumption and on their notions as seen from the AO s Order he also considers the expenditure as personal in nature . Assessee being a corporate body so question of expenditure being personal in nature does not arise. It is clear that the said staff welfare expenses were incurred directly and exclusively for the purpose of business because the staff welfare is the paramount in social arena for the growth and development of business therefore we are the considered view to allow 100% expenditure qua staff welfare expenditure claim of the Assessee. Deduction under the head bad debt - Held that - After 1st April 1989 it is not necessary for the assessee to establish that the debt in fact has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Respectfully following judgment of Apex Court in M/s TRF Limited Vs CIT (2010 (2) TMI 211 - SUPREME COURT ) we are inclined to allow deduction under the head of bad debt. Disallowance under the head commission - Held that - As the AO allowed more than 75% of the claimed amount under the head commission but disallowed to the tune of 5.00 lakhs only on the presumption that what was the necessity of paying the commission to unknown persons and it was also not clear as to what are the nature of services rendered by the recipients to the companies. When the major portion of the amount of commission has been allowed by the AO there is no material/evidence to prove contrary to the claim of the assessee therefore we feel it appropriate to allow 100% under the head commission . Ad hoc disallowance on motor vehicle hiring expenses - Held that - AO added 5.00 lakhs out of 80, 69, 000/- just on the assumption and on wrong presumption that the element of personal use cannot be totally denied. Even otherwise learned CIT(A) also failed to give any special reason while confirming the disallowance. Therefore we feel it appropriate to allow the claimed amount of 80, 69, 000/- under the head motor vehicle hiring expenses as deduction in its entirety . Computation of deduction u/s 10A - whether the export turnover should not be reduced from the figure of export turnover - Held that - AO was pleased to reduce the aforesaid amount from the export turnover for the reason that the same has not been brought into India till the date of order passed u/s 143(3) of the IT Act or even during the appellate proceedings the assessee failed to bring on record any evidence to substantiate the above amount that has been received in or brought into India. Hence we are inclined to dismiss the instant ground raised by the Assessee. Telecommunication expenses - Held that - AO felt that major amount would have been incurred in respect of export than for other purpose therefore he had taken the value of telecommunication at 2, 00, 00, 000/- as adopted. The Ld CIT (A)n failed to adjudicate this head. We feel that the ld AO adopted value at the higher rate only on the assumption but not on any basis relevant to hence we restrict the amount under head of telecommunication to 73, 73, 107/- only and the same can be excluded but not otherwise. Expenses Incurred Towards Overseas Travelling - Held that - As it is evident from the operative part of order that the Ld AO only on assumption held that the Assessee is providing technical services and coming to this conclusion failed to point out any material in support of the conclusion. The ld. AO also taken expenses incurred towards overseas travelling of 10.00 Crores and an amount of 15 lakhs being expenditure incurred on payment of commission to one Mr. Les Lawrence a foreign national only on estimate basis. We feel it appropriate that because the Ld AO failed to bring any material on record qua providing of technical service by the Assessee and even otherwise the amount worked out also to be on estimate basis which seems to be on assumptions therefore the said amount of 10 Crores and 15.00 Crores under the head of expenses incurred towards overseas travelling and expenditure incurred towards commission respectively are not to be excluded hence exclusions made by the ld. AO are set aside. Consideration received for services rendered to overseas clients outside India - Held that - As it reflects from the relevant part of the order passed by the learned AO that he adopted the figure under the aforesaid head at the rate of 20% of the above receipts and worked out to 2, 94, 75, 502/-. We have also considered the Clarificatory circular no.1/2013 dated 17-01-2013 issued by CBDT to address various contentious issues leading to tax dispute in cases of entities engaged in export of computer software which are availing tax benefit under section 10A 10AA and 10B of the IT Act 1961. Hence we are of the view that the said amount cannot be excluded from export turnover hence exclusions made by the ld. AO under the instant head is set aside.
Issues Involved:
1. Ad hoc disallowance of staff welfare expenses. 2. Disallowance of bad debts. 3. Ad hoc disallowance of commission paid. 4. Ad hoc disallowance of motor vehicle hiring expenses. 5. Reduction of export turnover not brought into India. 6. Non-adjudication of telecommunication, overseas travel, and commission expenses. 7. Levy of interest under section 234B. 8. Inclusion of forex gain in export turnover. 9. Exclusion of reimbursement of expenses from export turnover and total turnover. 10. Method of computation of deduction under section 10A. Detailed Analysis: 1. Ad hoc Disallowance of Staff Welfare Expenses: The assessee contested the confirmation of an ad hoc disallowance of ?36,19,315/- out of total staff welfare expenses of ?1,44,77,261/-. The tribunal noted that the authorities acted on presumption without any material evidence. It was held that the staff welfare expenses were incurred wholly and exclusively for the purpose of business. Therefore, the tribunal allowed 100% of the staff welfare expenses as a deduction. 2. Disallowance of Bad Debts: The assessee challenged the disallowance of bad debts amounting to ?80.75 lakhs. The tribunal referenced the Supreme Court judgment in the case of M/s TRF Limited Vs CIT (2010) 323 ITR 397, which clarified that post-1st April 1989, it is sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee. Consequently, the tribunal allowed the deduction of the bad debts. 3. Ad hoc Disallowance of Commission Paid: The assessee contested the confirmation of an ad hoc disallowance of ?5,00,000/- out of the total commission paid. The tribunal observed that the AO had allowed more than 75% of the claimed commission amount and disallowed only ?5,00,000/- without any material evidence. Therefore, the tribunal allowed the entire commission amount as a deduction. 4. Ad hoc Disallowance of Motor Vehicle Hiring Expenses: The assessee challenged the confirmation of an ad hoc disallowance of ?5,00,000/- out of total motor vehicle hiring expenses of ?80,69,000/-. The tribunal found that the disallowance was made on the assumption of personal use without any specific reason. Hence, the tribunal allowed the entire motor vehicle hiring expenses as a deduction. 5. Reduction of Export Turnover Not Brought into India: The assessee argued against the reduction of ?38,79,909/- from the export turnover. The tribunal upheld the reduction as the amount was not brought into India within the statutory time period. 6. Non-adjudication of Telecommunication, Overseas Travel, and Commission Expenses: The tribunal addressed the non-adjudication of telecommunication expenses of ?2 crores, overseas travel expenses of ?10 crores, and commission payment of ?15 lakhs to a foreign national. The tribunal restricted the telecommunication expenses to ?73,73,107/- and set aside the exclusions made by the AO for overseas travel and commission expenses, as they were based on assumptions without any material evidence. 7. Levy of Interest under Section 234B: The tribunal held that the levy of interest under section 234B is consequential and the assessee would be liable to pay interest according to the amount payable. 8. Inclusion of Forex Gain in Export Turnover: The tribunal decided in favor of the assessee, holding that forex gain should be included in the export turnover for the computation of deduction under section 10A. 9. Exclusion of Reimbursement of Expenses from Export Turnover and Total Turnover: The tribunal ruled in favor of the assessee, directing the AO to exclude the reimbursement of certain expenses from both export turnover and total turnover for the purposes of computation of deduction under section 10A. 10. Method of Computation of Deduction under Section 10A: The tribunal upheld the method of computation of deduction under section 10A as directed by the CIT(A), following the decision of the Hon’ble High Court of Karnataka in the case of M/s Tata Elxsi Ltd. Summary: The assessee’s appeal was allowed, granting relief on most grounds, including the full allowance of staff welfare expenses, bad debts, commission paid, and motor vehicle hiring expenses. The tribunal also ruled in favor of the assessee regarding the inclusion of forex gain in export turnover and the exclusion of certain expenses from both export and total turnover. The revenue’s appeal was dismissed.
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