2021 (11) TMI 362 - AT - Income Tax

Computation of deduction u/s 10AA - telecommunication charges - exclusion of amounts both from the export turnover and the total turnover - HELD THAT - As decided in own case 2021 (10) TMI 1248 - ITAT PUNE exclusion of telecommunication charges etc. both from the export turnover and total turnover in the computation of deduction u/s 10AA of the Act. The impugned order is, therefore, upheld and consequently the grounds raised by both the assessee as well as the Revenue are dismissed. Exclusion of providing technical services abroad from the export as well as total turnover in the computation of deduction u/s 10AA. Not granting deduction u/s 10AA of the Act on onsite/deputation of technical manpower (DTM) software services - HELD THAT - Tribunal had an occasion to decide similar issue for the immediately preceding assessment year in favour of the assessee by directing that profit on onsite / DTM services should be considered as part of turnover for the purposes of granting the deduction. Respectfully following the precedent, we overturn the impugned order on this score and direct to include such amount in the profit for the purpose of deduction u/s 10AA. Allocation of common expenses (including interest on loan ) to the eligible undertakings for the purpose of computing deduction under section 10AA - HELD THAT - AR could not point out that the amount of corporate expenses and the amount of interest cost was allocated to the eligible Hyderabad SEZ and Chennai SEZ units. Since these costs were incurred for and pertained to all the units of assessee including the SEZ units, it was necessary to consider them in computing the profit from the two SEZ units for the purpose of deduction u/s 10AA of the Act. It is found that the AO made allocation to these two SEZ units on the basis of turnover key, which was, in fact, computed by the assessee itself. Thus, on a totality, the amount of corporate expenses and interest cost allocated by the AO to the Hyderabad SEZ and Chennai SEZ is nothing but the amounts suo motu calculated by the assessee which were earlier not included in the cost base for computing profit from them. We, therefore, uphold the same. This ground is not allowed. Foreign exchange fluctuation gain on account of overseas branches which was taken by the assessee directly to the Reserve account - AO considered this amount as part of total income - HELD THAT - It is seen that similar issue came to be decided by the Tribunal in the assessee s own case for the A.Y. 2011-12. The Tribunal, following its earlier order, held that the amount of foreign exchange fluctuation gain relatable to the revenue field should be considered as includible in the total income and the part relatable to the capital field should be excluded. This view has been taken on the basis of similar view taken for the earlier years. As the ld. CIT(A) s decision matches with the view approved by the Tribunal for the earlier years, respectfully following the precedent, we uphold the same. The ground taken by the assessee is therefore, dismissed. Set off of brought forward losses and unabsorbed depreciation of erstwhile subsidiary - HELD THAT - CIT(A) restored the matter to the file of the AO giving directions through para 24 that the assessee s claim of set off of brought forward losses be verified and unabsorbed depreciation should be allowed as per law. Since the ld. CIT(A) has already issued necessary directions in this regard, the ground taken by the assessee becomes infructuous and is hence dismissed. Disallowance u/s 40(a)(ia) on account of short deduction of tax at source - assessee suo motu disallowed, inter-alia u/s 40(a)(ia) at the time of filing the return on the ground of short deduction of tax at source from the payments made to Unique Tourism Private Limited - HELD THAT - The claim of assessee is that it deducted tax at source @ 0.70% from ₹ 46,36,714 paid to Unique Tourism Pvt. Ltd. and made suo motu disallowance u/s 40(a)(ia) of the Act on the wrong interpretation that tax should have been deducted at source at 2%. It was later on realized that Unique Tourism Pvt. Ltd. was issued certificate u/s 197 of the Act requiring the deduction of tax at source @ 0.70%. Under such circumstances, we are of the considered opinion that it would be in the fitness of things, if the AO is directed to examine and verify the assessee s facts in this regard and then decide as per law. We order accordingly. If the amount of deduction of tax at source from the payment is found to be made at the correct rate for which necessary certificate was issued by the Department u/s 197 to Unique Tourism Pvt. Ltd., then suo motu disallowance made by the assessee u/s 40(a)(ia) of the Act should be deleted. Needless to say, the assessee will be accorded a reasonable opportunity of hearing. Education cess on income-tax and Secondary and Higher Education cess on Income-tax paid during the year ought to be allowed as deduction while computing the taxable income for the year - HELD THAT - Similar issue came up for consideration before the Hon ble Bombay High Court in the case of Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT in which it has been held that Education cess and Higher secondary education cess are not allowable as deduction in the year of payment and hence, the deduction is not linked with actual payment. Similar issue has been considered and decided by the Tribunal in the assessee s own case for the A.Y. 2011-12. Respectfully following the precedent, we set aside the impugned order and remit the matter to the file of the AO for making requisite verification in this regard and thereafter allow necessary deduction. Disallowance made u/s 14A read with 8D - HELD THAT - Similar course of action was taken by the ld. CIT(A) in his order for the preceding year. When the matter came up for consideration, the Tribunal held that the AO recorded proper satisfaction. The ld. AR fairly admitted that the AO recorded satisfaction in the assessment order for the year under consideration in the same manner as was done for the preceding year. Following the same view, we vacate the order of the ld. CIT(A) on the issue of improper recording of satisfaction by the AO. This ground is allowed. Disallowance u/s 14A of the Act in the computation of income u/s 115JB - HELD THAT - We find that the Special Bench of Tribunal in ACIT vs. Vireet Investment (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI has held that no disallowance u/s 14A can be made while computing book profit u/s 115JB. In reaching this conclusion, the Special Bench relied on Pr.CIT Anr. Vs. Bhushan Steels Ltd. Anr 2015 (9) TMI 1424 - DELHI HIGH COURT . In view of the above legal position, we countenance the opinion of ld. CIT(A) on this score. This ground is not allowed. Depreciation on goodwill even though the same was acquired in the F.Y. 2003-04 and the assessee did not make any similar claim in earlier years - HELD THAT - This issue came up for consideration before the Tribunal in the assessee s own case for the A.Y. 2011-12. Although in the preceding year, the ld. CIT(A) decided the issue against the assessee, but for the year under consideration a reverse view has been taken. As can be seen, the Tribunal discussed this issue on page 12 onwards of its order for the preceding year and eventually, accepted the grant of depreciation subject to certain verifications by the AO. Since the facts and circumstances for the instant year are mutatis mutandis similar, respectfully following the precedent, we direct the AO to decide this issue by following the decision of Tribunal for the aforesaid earlier year.

Summary

Issues Involved:
1. Deduction u/s 10AA vis-à-vis telecommunication charges.
2. Exclusion of ?36,04,55,570 for providing technical services abroad.
3. Deduction u/s 10AA on onsite/deputation of technical manpower (DTM) software services.
4. Allocation of common expenses to eligible undertakings for computing deduction u/s 10AA.
5. Taxing of foreign exchange fluctuation gain on overseas branches.
6. Set off of brought forward losses and unabsorbed depreciation of erstwhile subsidiary.
7. Disallowance u/s 40(a)(ia) on account of short deduction of tax at source.
8. Deduction of education cess and secondary and higher education cess.
9. Deletion of disallowance made u/s 14A read with Rule 8D.
10. Granting depreciation on goodwill acquired in F.Y. 2003-04.

Detailed Analysis:

1. Deduction u/s 10AA vis-à-vis telecommunication charges:
The assessee and Revenue contested the treatment of telecommunication and internet user charges in computing deduction u/s 10AA. The Tribunal upheld the CIT(A)'s direction to exclude such charges from both export turnover and total turnover, consistent with the precedent set in the previous year.

2. Exclusion of ?36,04,55,570 for providing technical services abroad:
Both parties appealed against the CIT(A)'s direction to exclude the amount from both export and total turnover. The Tribunal upheld this decision, aligning with the precedent from the previous assessment year.

3. Deduction u/s 10AA on onsite/deputation of technical manpower (DTM) software services:
The Tribunal overturned the CIT(A)'s order, directing that profit from onsite/DTM services be included in the turnover for deduction purposes, following the precedent from the previous year.

4. Allocation of common expenses to eligible undertakings for computing deduction u/s 10AA:
The AO allocated common expenses and interest costs to SEZ units based on turnover, which the CIT(A) upheld. The Tribunal found that these costs were necessary for computing profit from SEZ units and upheld the allocation made by the AO.

5. Taxing of foreign exchange fluctuation gain on overseas branches:
The AO included the gain in total income, while the CIT(A) followed directions from A.Y. 2010-11. The Tribunal upheld the CIT(A)'s decision, consistent with the precedent from A.Y. 2011-12, distinguishing between revenue and capital fields.

6. Set off of brought forward losses and unabsorbed depreciation of erstwhile subsidiary:
The CIT(A) restored the matter to the AO for verification and application of law. The Tribunal dismissed the ground as infructuous since the CIT(A) had already issued necessary directions.

7. Disallowance u/s 40(a)(ia) on account of short deduction of tax at source:
The Tribunal admitted the additional ground and directed the AO to verify the assessee's claim regarding the correct rate of TDS deduction. If verified, the disallowance should be deleted.

8. Deduction of education cess and secondary and higher education cess:
The Tribunal admitted the legal ground and remitted the matter to the AO for verification, following the precedent set by the Bombay High Court in Sesa Goa Ltd. vs. JCIT.

9. Deletion of disallowance made u/s 14A read with Rule 8D:
The CIT(A) deleted the disallowance on merits and under section 115JB. The Tribunal vacated the CIT(A)'s order on the issue of improper satisfaction recording but upheld the deletion under section 115JB, following the Special Bench decision in ACIT vs. Vireet Investment (P) Ltd.

10. Granting depreciation on goodwill acquired in F.Y. 2003-04:
The Tribunal directed the AO to decide the issue following the precedent set in the previous year, allowing depreciation on goodwill subject to certain verifications.

Conclusion:
Both the appeals of the assessee and the Revenue were partly allowed for statistical purposes. The Tribunal's decisions were largely based on precedents from previous years, ensuring consistency in the application of law.