2019 (11) TMI 203 - AT - Income Tax

Deduction u/s 10A - AR admitted that there is mistake in figures pertaining to one undertaking. The Ld. AR submitted that by revised return filed on 22.09.2009, deduction u/s 10A of ₹ 25,61,48,875/- was claimed. - HELD THAT - Profit of the business was taken at ₹ 23,22,45,490/-. Export turnover and total turnover was reduced by ₹ 3,08,53,780/- and ₹ 7,80,68,057/- on account of telecommunication expenses and travel expenses. Though deduction of ₹ 23,95,42,286/- was allowed in the respect of four undertakings having profit, however, by mistake only the figures pertaining to Noida IT were noted. Thus, these aspects needs to be verified and should be put before the Assessing Officer for fresh adjudication. It will be appropriate to remand back this issue to the file of the Assessing Officer. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Thus, Ground No. 1(a) is partly allowed for statistical purpose. Adjustment u/s.115JB towards provision for diminution in value of investment and doubtful debts as well as advances written back - HELD THAT - In the present case, net profit for the year ended on 31.3.2007 was increased by the amount of provision of ₹ 1,04,42,237/- and ₹ 1,82,43,319/- therefore, CIT(A) was not justified in upholding the adjustment. Merely because for AY 2007-08, total income under regular provisions was more than the book profit u/s 115JB, it cannot be said that book profit for AY 2007-08 was not increased by the amount of provisions. CIT(A) was not correct in holding that the book profits of the earlier ears have not been increased by the said reserves or provisions therefore as per provision Section 115JB the addition sustains. In fact, the net profit for the year ended on 31.3.2007 was increased by the amount of provision. Thus, Ground Nos. 1(b) and 1(c) are allowed. Exclusion of exchange fluctuation in computing deduction u/s 10A - HELD THAT - All the transactions relate to foreign operations i.e. investment in subsidiaries. Since the gain relate to capital field being investment in subsidiaries, therefore, such gain was capital in nature. These submissions were not taken into account by the Assessing Officer as well as by the CIT(A). Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Thus, Ground No. 2 is partly allowed for statistical purpose. Charging of interest u/s 234B of tax computed u/s 115JB - HELD THAT - From the perusal of the record it can be seen that as the amendment of section 115JB by the Finance (No.2) Act 2009 operates with retrospective effect from 1.4.2001, the assessee filed revised computation of book profit and thereby, provision for bad debts of ₹ 1,68,37,339/- and provisions for doubtful advances of ₹ 3,67,86,988/- was added to the book profit which led to shortfall in advance tax. Thus, on such interest u/s 234B cannot be charged as held in various decisions. The legal position is settled that in such cases, interest u/s 234B cannot be charged.

Summary

Issues Involved:
1. Disallowance of expenses in computing deduction under Section 10A.
2. Adjustment of provisions under Section 115JB.
3. Exclusion of exchange fluctuation gain in computing deduction under Section 10A.
4. Charging of interest under Section 234B.

Issue-wise Detailed Analysis:

1. Disallowance of Expenses in Computing Deduction under Section 10A:
The assessee contested the disallowance of ?10,39,36,080/- in computing deduction under Section 10A, which included telecommunication expenses and travel expenses. The assessee argued that the telecommunication expenses of ?2,76,28,106/- were not incurred to deliver computer software outside India and thus should not be deducted from export turnover. Similarly, travel expenses of ?7,63,07,974/- were not incurred to provide technical services outside India. The Tribunal noted that the Assessing Officer (AO) and CIT(A) did not provide sufficient evidence that these expenses were related to services outside India. The Tribunal remanded the issue back to the AO for fresh adjudication, allowing the assessee an opportunity for a hearing.

2. Adjustment of Provisions under Section 115JB:
The assessee challenged the adjustments of ?1,04,42,237/- and ?1,82,43,319/- under Section 115JB for provisions for diminution in value of investments and doubtful debts/advances written back. The assessee argued that these provisions were added back in the previous year's book profit and thus should not be added back again. The Tribunal found that the net profit for the year ended on 31.3.2007 was increased by these provisions and thus, CIT(A) was not justified in upholding the adjustment. The Tribunal allowed the assessee's appeal on this ground.

3. Exclusion of Exchange Fluctuation Gain in Computing Deduction under Section 10A:
The assessee argued that the exchange fluctuation gain of ?43,82,892/- was capital in nature as it related to foreign operations and investment in subsidiaries. The Tribunal noted that the AO and CIT(A) did not consider these submissions. The Tribunal remanded the issue back to the AO for fresh adjudication, ensuring the assessee is given an opportunity for a hearing.

4. Charging of Interest under Section 234B:
The assessee contended that interest under Section 234B should not be charged due to the retrospective amendment of Section 115JB by the Finance (No.2) Act 2009, which led to a shortfall in advance tax. The Tribunal agreed with the assessee, citing various judicial precedents that interest under Section 234B cannot be charged in such cases. The Tribunal allowed the assessee's appeal on this ground.

Conclusion:
The appeal was partly allowed for statistical purposes, with issues remanded back to the AO for fresh adjudication and ensuring the assessee is given an opportunity for a hearing. The Tribunal provided detailed reasoning for each issue, ensuring adherence to legal principles and judicial precedents.