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TMI Blog2015 (11) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to Rs. 1,09,00,000 should not be considered as part of export profits for the purposes of section 10A of the Act, though the same is includible as business profits. 2.2 The learned CIT(A) ought to have allowed the claim of section 10A in respect of write-back of annual day expenses and has accordingly erred in directing the Assessing Officer to re-examine the issue. 2.3 The learned CIT(A) has erred in directing the Assessing Officer to re-examine the issue, when the CIT(A) does not have the power to set aside the assessment order in relation to subject assessment year." 3. The facts of the case are that the assessee is a company engaged in the business of development of software and export of the same. It was stated by the assessee that since VSNL and other network service providers had reduced their communication link tariff rates after the assessee company had provided for the same, the assessee had to reverse the provision made earlier. According to the assessee company the provision made towards this expenditure in the earlier year was not actually incurred to that extent because, there was reduction in the tariff rates of the other company which has rendered services to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de with regard to provision is to be considered as part of business profit for the purpose of determining deduction u/s.10A/10B of the Act. This ground in this appeal is allowed. 5. The next ground raised in the aforesaid appeal is as under: "3. Claim with respect to liabilities written back in AY 2003-04 3.1 The learned CIT(A) has erred in not examining the claim made by the Appellant in respect of disallowance of provisions amounting to Rs. 2,51,62,011, which was written back in AY 2003-04. 3.2 The learned CIT(A) having admitted that this is a plea that ought to have been examined by the AO, should have sought a remand report from AO and decided the issue and accordingly, has erred in not examining the issue at all. 3.3 Without prejudice to the above and as an alternate submission, the liabilities amounting to Rs. 2,51,62,011 in respect of which a provision was created in AY 2002-03 and which have been written back in 2003-04, ought to have been considered to form part of the eligible profits (ie, profits of the undertakings to be increased by such amount to arrive at the eligible profits) in computing deduction under section 10A/10B for AY 2002-03." 6. It was an altern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not reached finality, the benefit of exemption u/s 10A/10B must be denied in the present assessee's case also. On going through the impugned order. it is further seen that the Assessing Officer had dealt with the meaning of the term 'rate of exchange' as defined by law and as per the definition given in Encyclopaedia Britannica 2002 and had made a specific observation that the gain as due to exchange variation has as its source or origin, the exchange rates determined by the various Governments, which in turn, are governed by a number of macro economic policies. And therefore. it was held by him that the gains due to foreign exchange fluctuation was not to be treated as income derived from the export oriented undertaking or from the export of computer software within the meaning of sec.10A/10B of the Act. The Assessing Officer observed that such gains can be said to be attributable to the export activities of the assessee company which is different from the sum being 'derived from' the business of the undertaking and reliance was placed on the following decisions of the Supreme Court: (i) Cambay Electric Supply Industrial Co. vs. CIT (113 ITR 84) (ii) CIT vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urces out of the purview of deduction u/s 10A of the Act. In assessment order, he acted accordingly and re-worked the assessee's deduction u/s 10A. 16. In the lower appellate proceedings, the CIT(A) has relied upon the decision of hon'ble jurisdictional high court in the case of CIT vs Pentasoft Technologies Ltd - 2010-TIOL- 525-HC-MAD as well as that of the 'tribunal' in assessee's own case for assessment year 2007-08 in I.T.A.No.2100/Mds/2011 dated 23.1.2013 holding therein that such gains have to be treated as part of income 'derived' from export for the purpose of deduction u/s 10A of the Act. On being granted opportunity to rebut, the Revenue only reiterates the pleadings in the grounds. In our view, once the hon'ble jurisdictional high court has decided the very question of law which has also been echoed in the assessee's own case, there is hardly any reason to adopt a different approach in the impugned assessment year. Consequently, this ground is rejected. 17. The next grievance raised by the Revenue relates to telecommunication expenditure which has been ordered by the CIT(A) not to be excluded from the export turnover. 18. In this regard as well, the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. ACIT 97 TTJ (Del) 108. 6.The Ld. DR submitted that all the above case laws were rendered prior to the amendment in Section 234D vide Explanation 2. Hence, he pleaded that Ld. CIT (A)'s order needs to be reversed. The Ld. DR relied upon the following case laws.- i) CIT vs. Kamla S. Rani 189 ITR 359(Bom); and ii) GTC Industries Ltd. vs. DCIT 105 TTJ (Mum) (TM) 1010. 7. We have carefully considered the submissions. We can gainfully refer to the provisions of Section 234D here:- "Interest on excess refund. 234D. (1) Subject to the other provisions of this Act, where any refund is granted to the assessee under sub-section (1) of section 143, and - (a) no refund is due on regular assessment; or (b) the amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment, the assessee shall be liable to pay simple interest at the rate of 6[one-half] per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment. (2) Where, as a result of an order under section 154 or section 155 or section 250 or section 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . M/s. Indian Oil Corporation Ltd. in ITA No.2012 of 2011 dated 12.9.2012 held in paragraphs 26 & 27 as under: "26. A statute could be retrospective in operation being expressly stated or by necessary implication. The case of the revenue is that section 234D as introduced on 1st June, 2003 was retrospective in operation by necessary implication. However, as doubts were raised about its retrospectivity, the same was clarified by adding an explanation to section 234D by Finance Act, 2012. Under the Act what is brought to tax is not the income of the assessee in the assessment year but the income of the assessee in the previous year. The liability to tax arises on account of the Finance Act which fixes the rate at which the tax is to be paid. The law to be applied is as existing on the 1st day of April of the previous year. In support the Counsel for the respondent relied upon the decision of the Supreme Court in Karimthuravi Tea Estates Ltd. v. State of Kerala 60 ITR 262, Maharajah of Pithapurm v. CIT 13 ITR 221 (PC) and CIT v. Scindia Steam Navigation Co. Ltd. 42 ITR 539. The aforesaid decisions are not relevant for our purpose particulars, in view of the fact that Explanation 2 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer has disallowed 2% of exemption income treating the same as expenditure incurred in connection with earning the exempt income in the nature of dividend income from mutual funds. It is the case of the assessee that it has not incurred any expenditure towards earning such exempt income. We find that the disallowance of 2% made by the assessing authority is reasonable. At the same time, we accept the alternate contention of the assessee that the profit for the purpose of section 10A will be enhanced to the extent of the above disallowance. Therefore proportionate enhancement will be made in the amount of deduct ion available under section 10A. This issue is partly decided in favour of the assessee." 15.1. Further, the Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. 330 ITR 175 has held that whenever any disallowance made while computing the income that disallowance should be part and parcel of the business profit of the assessee and the same should be considered for the purpose of deduction u/s.10A of the Act. In view of this, we decide this issue in favour of the assessee. This ground in Revenue's appeal is dismissed. 15.2 In the result, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing exemption u/s.10B of the Act, the loss suffered in these units cannot be set off with income of other units, we are inclined to dismiss this ground of appeal. 22. The next issue raised by the assessee in this appeal is as follows: "7. That, the CIT(A) has erred in considering that amounts paid to Sprint (Rs. 4,24,41,367) attract deduction of tax at source and as a consequence disallowing the same under section 40(a). 8. That, the CIT(A) has erred in holding that the disallowance under section 40(a) of the Act can be invoked on the payments made to Sprint (a nonresident), when a similar disallowance was not required in respect of payments to a resident." 23. Similar issue was considered by the Tribunal in ITA Nos.1535 & 1536/Mds/2010 etc., wherein this issue was decided against the assessee. The Tribunal vide order dated 9.6.2014 in ITA Nos.1535 & 1536/Mds/2009 etc. for the assessment years 2002-03 and 2003-04 held as under : "2.4 We have heard the submissions made by the representatives of both the sides and have perused the orders of the authorities below. We have also examined the judgment of the Hon'ble jurisdictional High Court in the case of M/s.Verizon Communicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 9(1)(vi) of the Act. The Hon'ble High Court affirmed the findings of the Tribunal on the issue. 2.5 The facts in the present case are identical to the one adjudicated by the Hon'ble High Court. Thus, in view of the facts and circumstances of the case and the law laid down by the Hon'ble jurisdictional High Court, we find merit in the appeals of the Revenue. Accordingly, both the appeals of the Revenue are allowed." Respectfully following the aforesaid decisions of the Tribunal we decide this issue against the assessee. 24. The next ground of appeal is with regard to interest under sec.234B of the Act, which is consequential and mandatory in nature and the AO has to compute accordingly. ITA No.209/Mds/2007 is partly allowed. C.O.No.47/Mds/2007 : AY - 2003-04 (Assessee) 25. The assessee has raised the following grounds in this cross objection: "1. The learned Commissioner of Incometax( Appeals) has erred in not appreciating that payments made to Sprint do not constitute royalty and hence, are not taxable in India in the absence of a Permanent Establishment. 2. Without prejudice to the above ground, the learned Commissioner of Income-tax(Appeals) has erred in uph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the case of CIT v. Yokogawa India Ltd. (341 ITR 385), which is discussed in paragraph 21 of this order. Accordingly, this ground of the appeal is dismissed. 32. The next ground raised by the assessee is as follows: "6. That, the learned CIT(A) has erred in confirming the order of the AO with respect to set-off of the brought forward losses even before allowing deduction under section 10A/10B of the Act." 33. The ld. AR submitted that similar issue was considered by the Tribunal in assessee's own case in ITA Nos.114, 2100 & 90/Mds/2011 dated 23.1.2013, for the assessment years 2005- 06 and 2007-08, wherein it was held as follows: "2.3. The next issue, which is raised in ground No.5, is that the losses of eligible units not allowed to be set off against other taxable profits. In the present case the Assessing Officer adjusted the brought forward losses of the assessment year 2004-05 of the eligible units against the current year's profits of the eligible units before computing the deduction under section 10A. The very same issue was considered by the Income-tax Appellate Tribunal, B-Bench, Chennai, in the case of RR Donnelley India Outsource Pvt. Ltd. vs DCIT, in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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