2017 (2) TMI 504 - AT - Income Tax

Disallowance of claim for exemption under section 10B - Held that - Similar issue in the assessee s claim for deduction under section 10B in the context of interest income had come up for consideration before the Bangalore Bench of this Tribunal in the case of ACIT vs.- Motorola India Electronics (P) Limited 2006 (11) TMI 541 - ITAT BANGALORE and after taking into consideration the methodology provided in sub-section (4) for arriving at the export profits of the business of the Undertaking, it was held by the Tribunal that the entire profits derived from the business of Undertaking should be taken into consideration while computing profit eligible for deduction under section 10B by applying the mandatory formula given in sub-section 4. Thus the ratio laid down by the Coordinate Bench of this Tribunal is squarely applicable in the present case and since the receipts or income on account of provision for bad and doubtful debts written back, excess provision written back, sale of scrap and sundry balances written back clearly formed part of the business income of the assessee, it is of the view that the same should be taken into consideration while computing the profit of the assessee eligible for deduction under section 10B - Decided in favour of assessee. Disallowance on account of prior period expenses - Held that - The prior period expenses claimed by the assessee in the year under consideration are disallowed by the Assessing Officer as well as by the ld. CIT( Appeals) as the assessee failed to establish on evidence that the same had crystallized during the year under consideration. Even at the time of hearing before us the ld. counsel for the assessee has not been able to do so. Therefore, find no justifiable reason to interfere with the impugned order of the ld. CIT (A) confirming the disallowance - Decided against assessee. MAT - Disallowance made u/s 10B while computing the book profit under section 115JB - Held that - It is observed that such adjustment to the book profit on account of disallowance under section 10B is not permissible as per Explanation to section 115JB as rightly pointed out by the assessee. Even the ld. D.R. has not been able to dispute this position. Also as the addition made by the Assessing Officer s deleted and confirmed by the ld. CIT( Appeals) on account of disallowance of deduction under section 10B substantially while deciding Ground No.1 raised by the assessee in this appeal. Accordingly direct the Assessing Officer to delete the addition made on account of disallowance of deduction under section 10B while computing book profit under section 115JB - Decided in favour of assessee

Summary

Issues involved:
1. Disallowance of assessee's claim for exemption under section 10B
2. Disallowance of prior period expenses
3. Addition made under section 115JB for disallowance under section 10B

Analysis:

Issue 1: Disallowance of assessee's claim for exemption under section 10B
The appeal pertains to the disallowance of the assessee's claim for exemption under section 10B concerning various incomes. The Assessing Officer disallowed the claim as the receipts were not directly linked to export. The ld. CIT(Appeals) upheld this disallowance, stating that for claiming exemption under section 10B, the amount must be received from export. However, the Tribunal referred to a similar case and held that all profits derived from the business should be considered for deduction under section 10B. As the disputed receipts formed part of the assessee's business income, they should be considered for computing the eligible profit under section 10B. Consequently, the Tribunal directed the Assessing Officer to reconsider the deduction under section 10B, partially allowing Ground No. 1 of the appeal.

Issue 2: Disallowance of prior period expenses
The second issue concerns the disallowance of prior period expenses amounting to &8377; 8,92,230. The Assessing Officer disallowed these expenses as the assessee failed to prove their crystallization in the relevant year. The ld. CIT(Appeals) upheld this disallowance, emphasizing that only crystallized prior period expenses could be allowed. Despite the assessee's efforts, no evidence was presented to establish the crystallization of these expenses during the relevant year. Consequently, the Tribunal found no reason to interfere with the disallowance and dismissed Ground No. 2 of the appeal.

Issue 3: Addition under section 115JB for disallowance under section 10B
The final issue pertains to the addition of &8377; 18,75,145 made under section 115JB for disallowance under section 10B while computing the book profit. The Tribunal noted that such adjustment is impermissible as per the Explanation to section 115JB. Given the deletion of the disallowance under section 10B in the earlier issue, the Tribunal directed the Assessing Officer to remove the addition made under section 115JB. Consequently, Ground No. 3 of the appeal was allowed.

In conclusion, the Tribunal partly allowed the assessee's appeal, providing detailed reasoning and analysis for each issue raised, resulting in adjustments to the disallowances and additions made by the Assessing Officer and the ld. CIT(Appeals).