2018 (6) TMI 1027 - AT - Income Tax

Eligibility of deduction u/s.10B - Held that - The issue of eligibility of deduction u/s.10B has already been decided by the Tribunal in the earlier years, that the Department has challenged the order of the Tribunal before the honorable Bombay High Court, that the honorable court has not decided the issue till date. Respectfully following the order of the Tribunal for the earlier years, we decide the first effective ground of appeal against the AO. Claim of deduction u/s.10B on interest income,exchange loss, and hedging gain - Held that - FAA has given a finding of fact that sundry credit balance written back represented the sundry creditors related to the export business of the assessee and that the said expenses were considered as part of export business. There is nothing on record to prove that the order of the FAA is factually incorrect. Similarly, it is found that the disputed interest income was earned on fixed deposits pledged with bank or the authorised brokers, that it was a pre-requisite to carry the hedging transaction, that the revenue generated by it from overseas, that hedging transaction were entered into by the assessee as a safeguard against exchange rate fluctuation, that hedging is directly related to export business of the assessee. Applicability of provisions of section 115JB - income relating to SEZ unit - Held that - As relying on Genesis International Ltd. 2012 (12) TMI 491 - ITAT MUMBAI and G Jewel Craft 2014 (11) TMI 980 - ITAT MUMBAI directed the AO to exclude the income relating to SEZ unit, while computing book profit u/s.115JB of the Act. Claim of the assessee of employee s contribution to PF and ESCI - Held that - As decided in Hindustan Organics Chemicals Ltd.(2014 (7) TMI 477 - BOMBAY HIGH COURT) and Ghatge Patil Transporters Ltd. (2014 (10) TMI 402 - BOMBAY HIGH COURT) held that employee s contribution to PF had to allowed as deduction, if it was paid by the employer before the due date of filing of income.

Summary

Issues:
1. Deduction u/s.10B of the Income-tax Act, 1961
2. Allowance of deduction u/s.10B on interest income, exchange loss, and hedging gain
3. Applicability of provisions of section 115JB of the Act
4. Allowance of employee's contribution to PF and ESCI beyond due dates

Analysis:

Issue 1: Deduction u/s.10B of the Income-tax Act, 1961
The Assessing Officer (AO) challenged the claim made by the assessee u/s.10B, citing previous rejections in earlier assessment years. The First Appellate Authority (FAA) allowed the deduction based on Tribunal decisions from previous years. The Tribunal, in this case, followed the precedent set by its earlier decisions and allowed the deduction u/s.10B, as the issue was sub judice before the Bombay High Court.

Issue 2: Allowance of deduction u/s.10B on interest income, exchange loss, and hedging gain
The AO disallowed the deduction claimed by the assessee on interest income, exchange loss, and hedging gain under u/s.10B. The FAA, after detailed submissions and case law references, allowed the deduction, stating that these amounts were integral to the export business profit. The Tribunal upheld the FAA's decision, emphasizing the direct link of these incomes to the export business activities.

Issue 3: Applicability of provisions of section 115JB of the Act
The AO applied section 115JB to the assessee's income, considering the widened scope of Minimum Alternate Tax (MAT) provisions. However, the FAA directed the exclusion of income related to the SEZ unit while computing book profit u/s.115JB, based on Tribunal precedents. The Tribunal concurred with the FAA's decision, citing previous Tribunal orders in similar cases.

Issue 4: Allowance of employee's contribution to PF and ESCI beyond due dates
The AO disallowed the employee's contribution to PF and ESCI as they were paid beyond the due dates. The FAA, relying on relevant case laws, allowed the deduction, emphasizing that if paid before the due date of filing income, these contributions should be allowed. The Tribunal upheld the FAA's decision, citing the judgments of the High Courts.

In conclusion, the Tribunal dismissed the appeal filed by the AO, upholding the decisions made by the FAA regarding the deductions and applicability of tax provisions. The Tribunal's decision was pronounced on 5th January 2018.