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TMI Blog2013 (11) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... the export turnover or the total income - If at all the effect is to be given to the enhancement of income made by the TPO, it will have the impact of increasing the assessee’s export turnover, then total turnover and finally, the total income. If all three are increased, obviously, the deduction claimed by the assessee under Chapter VI-A would increase – Matter remanded to the file of A.O. to decide the issue in the light of the above observation. Interest on delayed payment to be treated as income derived from activities contemplated u/s 80HHE - Whether in view of Explanation (d) to sec. 80HHE, which defines the ‘profits of the business’, 90% of the impugned amount is to be reduced or not as it is in the form of interest on delayed payment – Held that:- As per Govinda Chaudhary & Sons [1992 (4) TMI 8 - SUPREME Court], wherein it was held that interest awarded to assessee by arbitrator in respect of a contract was assessable as business income - In the present case also there is no dispute that the impugned amount was business income. However, for the purposes of claiming deduction u/s 80HHE, the profits of the business have been specifically defined in Explanation (d) to sec. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 3. The deduction u/s 80HHE was computed as under: - COMPUTATION OF DEDUCTION U/S 80HHE 1. Export Turnover 496743546 2. Total Turnover As per Form 10CCAF 557365790 Add: (i) As per TPO order 80819778 (ii) Sale of PC, scrap etc. 555904 (iii) Bad debts recovered 1488373 (iv) Liabilities written back 12327948 (v) Reimbursement of expenses 72496365 167688368 725054158 3. Profit of business 'Profits gains of business' 98926104 Less: 90% of (i) Discount received (539819) 485837 (ii) Interest from customer (3300322) 2970290 3456127 95469977 4. Profit eligible for deduction 95469977 x 496743546/ 725054158 = 654 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,55,904/made on account of sale of scrap ignoring that the contention of the assessee that sale of PC/server, scrap, etc. was eligible for deduction u/s 80HHE of the I.T. Act is against the very spirit of the section which deals with deduction on export of computer software. No adjustment whatsoever made in this regard by the assessee has resulted in claiming deduction u/s 80HHE of the I.T. Act on sale of PC/server, scrap etc., which is against the intent of sec. 80HHE of the I.T. Act. 6. The ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 1,23,27,948/made on account of liabilities written back ignoring that liabilities written back were part of the total business receipt of the assessee and, therefore, the same should be added in the total turnover for computation of deduction u/s 80HHE of the I.T. Act. 7. The ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 7,24,96,365/made on account of reimbursement of expenses ignoring that the provisions of the I.T. Act do not allow any such accounting where certain receipts and expenses are not shown as a part of Profit Loss account. 6. Brief facts apropos ground no. 1 are that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject like bridge etc. and thus, was not in software development business but in engineering, design and drawing business by use of software for design and drawing. 9. At the outset, ld. Counsel for the assessee fairly submitted that this matter needs to go back to AO/TPO for re-adjudication of the issue in the light of Tribunal s order dt. 21/12/2012 for AY 2004-05 and 2005-06 vide ITA Nos. 4338/D/11 4339/D/11 respectively, wherein Tribunal in para 5 has observed as under: 5. In view of the above submission of both the parties, we set aside the orders of the authorities below on this point and restore the matter to the file of the Assessing Officer and direct him to again refer the matter to the TPO for determining the arm s length price afresh in the light of his order for AY 2008-09 treating the assessee company as involved in the business of engineering, design and drawing. Needless to mention that AO/TPO while re-adjudicating the issue will allow adequate opportunity of being heard to the assessee. 10. Ld. DR submitted that AO/TPO should be directed to examine whether the assessee was in the same line of business or not in the current assessment year as in AY 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the effect of reducing the deduction u/s 80HHE. However, the finding of the TPO is that the international transaction of the assessee is not at arm s length and, therefore, by determining the arm s length price of the international transaction, he proposed the addition of Rs. 6,93,21,169/-. Though while considering ground no. 1 of the revenue s appeal we have already set aside this matter to the file of the AO, however, even if some addition is required to be made by determining the ALP, the question is whether the same will have the effect of enhancing the total turnover. If at all the effect is to be given to the enhancement of income made by the TPO, it will have the impact of increasing the assessee s export turnover, then total turnover and finally, the total income. If all three are increased, obviously, the deduction claimed by the assessee under Chapter VI-A would increase. The proviso to sec. 92C(4) prohibits any deduction under Chapter VI-A to be allowed on the enhancement made as per the TPO s order. Therefore, the only logical conclusion that can be drawn is that no effect is to be given to the addition made by the Assessing Officer as per the TPO s order while computin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 25. Brief facts apropos ground no. 4 are that in the profit and loss account, assessee had shown interest from customers at Rs. 33,00,322/-. The AO noticed that assessee had not reduced 90% of the same to arrive at profit of business as per Explanation (d) to sec. 80HHE. The assessee s contention was that the interest was received from its client, M/s Haldia Petro Chemicals Ltd. and earned in the normal course of business and was, therefore, included in profits and gains of business or profession. The contention of assessee was that 90% of it was not liable to be reduced as it was not covered by any other receipt of similar nature as mentioned in Explanation (d) to sec. 80HHE. The AO, however, did not accept the assessee s contention and reduced 90% of such interest income to arrive at profit of business as per Explanation (d) to sec. 80HHE. 26. Ld. CIT(A) accepted the assessee s contention observing that the receipt on account of delayed payment is a trading receipt and has a direct nexus with the business of the assessee. 27. Ld. DR submitted that immediate source of interest is to be looked into for deciding whether the interest has been derived from business a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt was assessable as business income of assessee. However, the core of dispute is whether in view of Explanation (d) to sec. 80HHE, which defines the profits of the business , 90% of the impugned amount is to be reduced or not as it is in the form of interest on delayed payment. Ld. Counsel s contention that it actually was in the nature of service income was never taken before Lower Revenue Authorities. Be that as it may, in our opinion, nomenclature is of no consequence. We have to examine the true nature of receipt. As far as the decision of Hon ble Supreme Court in the case of Govinda Chaudhary Sons (supra) is concerned, the dispute was whether the interest awarded to assessee by arbitrator in respect of a contract, was assessable as business income or as income from other sources. The Hon ble Supreme Court held that it was to be assessed as business income and not as income from other sources. In the present case also there is no dispute that the impugned amount was business income. However, for the purposes of claiming deduction u/s 80HHE, the profits of the business have been specifically defined in Explanation (d) to sec. 80HHE which reads as under: 80HHE (1) Where an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Rs. 5,55,904/on sales of parts of PC/Server, cartridge, scraps etc. 34. As regards, receipts of Rs. 5,55,904/-, the AO observed that the same cannot be considered for purposes of deduction u/s 80HHE. However, taking into consideration the nature of receipt he treated the same as part of total turnover for computing deduction u/s 80HHE. 35. Ld. CIT(A) held that the impugned amount could not be considered as amount received against rendering of services and hence, could not be made part of total turnover. 36. Ld. DR relied on the decision of Hon ble Delhi High Court in the case of CIT vs. Jacksen Engineering Ltd., 341 ITR 580, wherein it was held that assessee was not entitled for deduction u/s 80IA in respect of trade advances forfeited by it on account of breach of contract as the said sum was not derived from any goods or services produced by assessee. Ld. DR further referred to the decision of Hon ble Madras High Court in the case of Pandian Chemicals Ltd. vs. CIT, 270 ITR 448, wherein it was held that the income from the sale of scrap was not relatable to the industrial activities of the assessee for the purposes of sec. 80HH of the Income Tax Act. 37. Ld. Counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further it was submitted that total turnover as defined in clause (e) to sec. 80HHE of the Act shall have effect so as to exclude receipts u/s 28(iiia), (iiib) (iiic) which clearly showed that the legislature intend to exclude all receipts which had no nexus with sale proceeds from export activities. It was submitted that in the formula for calculation of deduction u/s 80HHE, when the numerator (i.e.) export turnover speaks of turnover of customized electronic data, the denominator should also be of similar nature, i.e., the total (domestic and export) turnover of the assessee from the business of customized electronic data. Ld. CIT(A) accepted the assessee s contention and directed the AO not to include the amount of liability no longer required written back to be included in the total turnover. 44. Ld. CIT(A) allowed the assessee s appeal against which department did not prefer any appeal before the Tribunal. Therefore, for this item also the department should not have preferred any appeal. He further pointed out that liability written back cannot form part of total turnover. He referred to para 45.1 of CIT(A) order, wherein, in regard to bad debts, it was contended that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He required the assessee to explain as to why the same may not be included in the total turnover for computation of deduction u/s 80HHE of the I.T. Act. The assessee explained that in the course of rendering the service, the assessee incurred certain expenses like traveling, boarding and lodging expenses. These were reimbursed by the clients on actual basis. It was also pointed out that during the year, the assessee recovered reimbursements aggregating to Rs. 7,24,96,365/(Rs. 42,38,653/from domestic customers and Rs. 6,82,57,712/from overseas customers). The assessee explained that since these were not part of the profit and loss account, they were neither included in the export turnover nor total turnover as there was no profit element in the same. The AO held that Income Tax Act does not allow any such accounting where certain receipts and expenses are not shown as part of profit and loss account. He held that this amount forms part of total turnover but not part of export turnover. 50. Ld. CIT(A) following the decision for assessment years 2001-02 2002-03 held that this did not form part of total turnover which finding has been confirmed by the Tribunal. 51. Having heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as the other judicial pronouncements referred to hereinabove and considering all the facts of the case, we hold that there was no infirmity in the impugned order of the ld. CIT(A) in directing the AO not to include the receipts by the assessee on account of reimbursement of expenses in its turnover for the purpose of computing deduction u/s 80HHE. The same is, therefore, upheld and ground no. 2 of the Revenue s appeal is dismissed. 52. Respectfully following the above decision of ITAT, we uphold the finding of ld. CIT(A) with regard to reduction of reimbursement of expenses from total turnover. 53. In the result, this ground is dismissed. 54. In the result, Department s appeal is partly allowed for statistical purposes. 55. Now we take up the assessee s cross objection vide CO No. 248/Del/2011. The assessee has taken following grounds in its cross objection: 1. That without prejudice to the relief given by the ld. Commissioner of Income-tax (Appeals) ( ld. CIT(A) ) in deleting the addition of Rs. 80,819,778 made to the international transactions of the assessee and with respect to ground no. 1(a) and 1(b) raised by the Income tax department in its appeal No. 3233/D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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