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TMI Blog2013 (12) TMI 1590X X X X Extracts X X X X X X X X Extracts X X X X ..... lowable. Computation of deduction u/s 10B - brokerage on sea freight and insurance claim non considered to be part of profit for deduction u/s 10B - Held that:- It is seen that the respected Special Bench of the Tribunal in Maral Overseas Ltd. case [2012 (4) TMI 345 - ITAT INDORE] has held that once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking and will be eligible for deduction. Respectfully following the aforesaid Special Bench decision, we are of the view that the Assessee is eligible for deduction on the brokerage on sea freight and insurance claim which it has credited to its profit and loss account. Thus this ground of the Assessee is allowed. - IT APPEAL NO. 3320 (AHD.) OF 2010 - - - Dated:- 6-12-2013 - D.K. TYAGI, JUDICIAL MEMBER AND ANIL CHATURVEDI, ACCOUNTANT MEMBER Dhanesh Bafna for the Appellant. O.P. Vaishnav for the Respondent. ORDER Anil Chaturvedi, Accountant Member This appeal is filed by the Assessee against the order of Dispute Resolution Panel (DRP), Ahmedabad dated 13.09.2010 for A.Y. 2006-07. 2. The relevant facts as culled out from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in law in not adding such amount of ₹ 5,06,950/- to profits of the business for computing deduction under section 10B of the Act. 5. The learned DCIT erred on facts and in law in reducing brokerage of ₹ 1,00,318 on sea freight charges from eligible profits of business for computing of deduction under section 10B of the Act. 6. The learned DCIT erred on facts and in law in reducing refund of excess insurance charges of ₹ 64,125/- from eligible profits of business for computing deduction under section 10B of the Act. 7. The learned DCIT erred on facts and in law in computing short interest under section 244A of the Act on the refund due to the Appellant. 8. The learned DCIT erred on facts and in law in initiating penalty proceedings under section 271(1)(C) of the Act. Ground no. 1 is general and therefore requires no adjudication. Ground no. 2 and its sub grounds are is with respect to determination of ALP 4. During the year under review, Assessee had provided support services in connection with marketing of products to its Associated Enterprises (AE) worth ₹ 1,30,76,249/-. For bench marking the support services, Assessee carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Assessee. He accordingly worked out the ALP of services made to AE at ₹ 1,50,21,381/- as against the transaction value of ₹ 1,30,76,249/- and since the value of services worked out by him did not fell within the range of +/-5%as per the proviso to s. 92C(2) of the Act, he suggested upward adjustment of ₹ 19,45,136/- to the total income vide order dated 14.10.2009 passed u/s 92CA(3) and the same was made by the AO in the draft assessment order passed u/s 143(3) rws 144C of the Act. Aggrieved by the aforesaid order, Assessee carried the matter before Dispute Resolution Panel (DRP). DRP vide order dated 13.9.2010 partly agreed with the submissions by holding as under: '4. We have considered the order of the TPO/AO and submissions of the assessee. Grounds of objections No. 3 to 12 have been preferred by the assessee company against the Transfer Pricing adjustments proposed by the TPO/AO. Briefly, the assessee has two divisions. In the manufacturing division speciality products from agriculture input are being manufactured, while in the ITES/BPO division, provision of support services in connection with marketing of the products to AE in Europe are carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons laid down under the above section are shown to have been violated by the assessee. In Circular No. 12/2001 dt. 23/8/2001, it has been specifically reiterated that the Assessing Officer can have recourse to Section 92C(3) of the Act, only under the circumstances enumerated under Clauses (a) to (d) of that sub-section and in the event of material information or document in his possession on the basis of which an opinion can be formed that any such circumstance existed. In all other cases, the value of the international transaction should be accepted. As none of the circumstances enumerated in clause (a) to (d) of Sec.92C(3) of the Act are shown to have existed, relying upon the decision in the case of Mentor Graphics Noida(P.) Ltd. v. Dy. C1T 112-TTJ-408 (Delhi) and Asstt. CIT v. MSS India(P.) Ltd. [2009] (TIOL-416-ITAT-Pune), the TPO could not have added further 4 comparables to the comparables already chosen by the assessee after due search process. The AO is directed to exclude the additional 4 comparables selected by him. It is seen that the Assessee has itself selected Vakrangee as one of the 4 comparable selected by it after FAR analysis. The only reason for its exclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding 5% of such arithmetical mean. The Transfer Pricing provisions were brought on the statute by the Finance Act, 2001 w.e.f. 1.4.2002. It is with a view to avoid hardship to the tax payers in the initial years of implementation of these provisions, the Government of India, through a press note issued by the Ministry of Finance (Deptt. of Revenue) on 22.08.2001 , expressed its intention of not making, any adjustment if the price adopted by the assessed was up to 5% less or up to 5% more than the arm's length price determined by the A.O. Immediately thereafter, the Central Board Of Direct Taxes (CBDT) issued the Circular No.12 dtd.23. 08 2001 specifying that the A,O. shall not make any adjustment to the price shown by the assesses, if such price was up to 5% less or up to 5% more than the arm' s length price determined by the A.O. and in such cases, the price declared by the assessee may be accepted. In the present case it is seen that the ALP of the international transactions undertaken by the assessee is beyond the 5% margin of the price of Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Software and Database related services segment, which was different from the activities of the Assessee and therefore also it was not comparable with the Assessee. He further submitted that for AY 07-08, though the Assessee had selected Vakrangee Software as comparable but the same was not considered as comparable by the TPO in support of which he placed on record the relevent extract of the order of TPO dated 30.9.2010. He further submitted that even though the Assessee has taken Vakrangee Software Ltd as a comparable in its TP study but however before Tribunal it can raise a ground for its exclusion on account of non comparability and for which it relied on the decision of Special Bench in the case of Dy. CIT v. Quark Systems (P.) Ltd. [2010] 38 SOT 307 (Chandigarh). He also laced on record a copy of the aforesaid order. He therefore urged that Vakrangee Software should be excluded for the calculation of average OP/TC % . 7. The Ld D.R. on the other hand submitted written submissions. The relevant portion of the written submissions are as under: 'Ground no. 2.1 2.1 In this regard, it can be seen that the TPO had not rejected the entire documentation prepared by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad only considered four comparables, on the basis of TP documentation prepared by it, it is clear that without consideration of the four new comparables identified by the TPO in addition to the comparables identified by the assessee, the information and the data used in the computation of arm's-length price would not remain correct since the arm's-length PLI is required to be considered as the mean PLI of all the comparables identified. Non-consideration of certain comparable companies would lead to a situation in which the mean PLI would be incorrect and consequently the determination of arm's-length price would be incorrect. Consequently, the provisions of section 92C(3)(c) would be applicable and thus the TP documentation prepared by the assessee would be liable to be rejected to the extent found erroneous. 2.1.3 In addition to the above, it is further seen that the assessee has used the multiple year data in its TP documentation for determining the arm's-length price for the international transactions. As discussed in detail below with respect to ground number 2.2, the use of multiple year data in determination of arm's-length price is contrary to law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are to be kept and maintained for a period of 8 years. Rule 10-D of sub-sec.(1) specifies the documents and information which are to be kept and maintained by the assessee and sub-rule-2 thereof provides that nothing contained in sub-rule-1 shall apply in a case where the aggregate .value as recorded in the books of accounts, the international transactions entered into by the assessee does not exceed 1.00 crore rupees. Sub-rule(3) provides the supporting authentic documents which are to be kept and maintained and sub-rule(4) thereof provides that the information and documents specified under sub-rule 1 2 should as far as possible be contemporaneous and should exists latest by the specified date referred to in clause-4 of 92F. Clause-4 of sec.92F gives the definition of specified date to have the same meaning as assigned to 'due date' in Explanation 2 below sub-sec.(1) of sec.139. Explanation-2 to sec.139 defines 'due date' in a case of a company to be '30th day of September of the assessment year'. The assessee before us is a company and therefore, as on '30 day of September' of the relevant assessment year, the assessee is supposed to mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not limited to the documentation kept by the assessee and he is well within his powers to examine other sources to find out the comparables. The rigours of rule 10 D(l), (2) and (3) apply to the assessee and not to the TPO. 2.1.5 In Para-5.9 the OECD prescribes the maintenance of documentation on the basis of information available to the tax payer at the time of establishmentof transfer price rather than justificationof the same. In the instant case, the assessee is trying to justify its transfer price by the use of independent external comparable rather than determine its transfer price. This is a crucial difference which the assessee has not noticed. This issue assumes importance in the present context. In a case where transfer price is set before entering into the transaction, the only data that can be taken into account is the data available to the assessee i.e. the data which was available in public domain and therefore in this context the availability of data with the assessee assumes importance. On the contrary in a case where the transaction has already been entered into at a price which is sought to be justified as ALP, then reliance on the availability of data wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f deductive approach using a database. From the perusal of para 3.41 of the OECD guidelines which details the additive approach ,it is clear that there is no requirement for selection of companies for additive approach only from public domain. The TPO can identify comparables on the basis of data/information available with hinu Therefore, based on the above discussion the assertion that the selection of potential comparables by the TPO is necessarily required to be carried out using a structured deductive process is neither prescribed in the Indian law nor prescribed in the OECD guidelines. The only requirement is that the comparables' so identified should satisfy the factors of comparability, mentioned in rule 1 OB(2).Therefore, the contention of the assessee regarding non consideration of the new comparables identified by the TPO merely on the basis that the same have not been identified on the basis of any structured search process is without any legal basis. The same is therefore, required to be rejected 2.1.8 The issue regarding the comparability of the companies is commented upon below. Ground no. 2.2 The use of data for the period other than the relevant fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der transactions in open market conditions, prices are set by contemporary economic realities of demand, supply, market structure and other relevant factors. In this light, the statute has guided the preparation and maintenance documentation using contemporaneous data used at the time of setting the price of the international transaction between associated enterprises by using the most appropriate method prescribed under the Income Tax Act. However, the TP regulations also allow for documentation on the basis of ex-post analysis to supplement such documentation, for justifying the prices already set at the time of the transaction. Nonetheless, initial documentation prepared at the time of entering into the international transaction is primary and ex-post documentation is supplementary in nature. It is incumbent upon the taxpayer to demonstrate on the basis of contemporaneous documentation at the time of fixing/determining transfer prices, that: (a) The compensation for the operations of an enterprise has been determined on the basis of contemporaneous data available then; and (b) The compensation is commensurate to the functional profile i.e. functions performed, assets emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ysis, even if such data was not available to the assessee in the public database; at the time of preparation of transfer pricing report. In the case of CIT v. British Paints India Ltd. 188 ITR 44, it has been held that it is not only the right but the duty of the Assessing Officer, to act in exercise of his statutory power, for determining, what in his opinion, is the correct taxable income. The same appears to be relevant under the current factual situation as well. 2.2.6 The assessee has not brought on record any cogent, relevant and reliable evidence to prove that the data for preceding two years revealed facts,' which could have an influence on the determination of ALP. The existence of any product/economic/business cycle affecting the performance of the assessee and those of the comparables has not been documented for, by the assessee. It may be pertinent to mention here that the assessee has only given general statements to substantiate its claim that the use of multiple year data affects the data for the year under consideration. The assessee has simply stated that the past years data would affect the current and future decisions of the company. However, it important ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned by him. As a person associated with that particular line of business activity, the assessee is reasonably expected to be not only aware about nuances of that business, but also about economic conditions and peculiar circumstances, if any, of that business. He is likely to know even about comparable uncontrolled transactions.... 2.2.7 Considering the above discussion, it is clear that the assessee has not discharged its onus in the proceedings for substantiating how the use of earlier year data affected the data for the year under consideration in the case of comparables. 2.2.8 The assessee did not use the current year data in the bench marking analysis submitted by it at all. In this respect, it was submitted that the same could not have been used by the assessee as the data was not available at that time. In this respect it can be seen that rule 10B(4) is very categorical in the use of data to be used for analysis to the data relating to financial year in which transaction was taken place. Since the assessee did not substantiate how the use of earlier years data affected the current years data, the application of proviso is not triggered at all. Without prejudice and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained certain facts which would influence determination of transfer pricing - Held, yes xiii. Symantec Software Solutions (P.) Ltd. v. Asstt. CIT [2011] 46 SOT 48 (Mum.) While determining ALP, TPO used financial information of comparables which was not available at time of TP study done by assessee, but available at time of assessment Updated data were provided by assessee itself and TPO had gathered no information Whether act of considering said information by TPO did not amount to violation of any provision of law - Held, yes - Whether it is manifest from Rule 10B(4) that generally data of financial year in which international transaction has been entered into is to be used for analysing comparability of uncontrolled transaction in order to determine ALP; proviso to Rule 10B(4) does not mandate to always consider two more years' data of comparables in such analysis - Held, yes -Whether there is a rationale for using data of comparables pertaining to same period during which international transactions took place because it will rule out effect of difference in economic and market conditions prevailing/exist at different time period and therefore, there is no error or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmed by the ITAT even though counsel for the assessee made a special submission about the benefit of adjustment of + 5% . It was again decided by the Hon'ble Delhi tribunal in the case of Marubeni India (P.) Ltd. [2011] Tn-36-ITAT-Del-TP) that: The benefit of+/- 5 % as per proviso to Section 92C of the Act cannot be considered to be a standard universal deduction allowed in each and every case which the assessee exceeds the permissible limit and falls outside the arm's length. The proviso provides a relief to the taxpayer at the time of determining the ALP. Therefore, this option is available to the assessee only when assessee is computing the ALP and not when the A O/TPO is computing the ALP . The same view is upheld in the following judgements: i. ST Microelectronics (2011-TII-63-ITAT-Del-TP) ii. Dy. CIT v. Deloitte Consulting India (P.) Ltd. (ITAT Hyderabad) 4 Further it has been held in a plethora of judgments that the benefit of +/- 5% is to be given only when where more than one price is determined by the most appropriate method .The deduction is not to be given when only one arms length price is determined. Similar view is propounded in the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity in his order. Hence, the grounds raised by the assessee on this issue are rejected. 6. Again in a very recent judgment delivered in the case of Dy. CIT v. Roche Diagnostics India (P.) Ltd. [2012] 19 taxmann.com 172 (Mum.), it has been held that the 5% variation is not to be allowed as standard deduction. The issue is discussed in the judgment as below: 25. It is important to mention that the proviso to section 92C(2) has been enshrined to make the assessee's declared price as acceptable if the ALP so determined is within plus minus 5% range of such price. It is not in the nature of any standard deduction or standard addition which has to be invariably allowed or made. Only if the price charged by the assessee is within plus minus 5% of the average profit of comparable cases, that this benefit of plus minus 5% is to be granted. In case it is beyond such plus minus 5% range, then the difference between the assessee's price and ALP calls for addition. We make it clear that if the average price of uncontrolled transactions is say ₹ 100 and the assessee has paid ₹ 104 or ₹ 105 then no addition is called for as it falls within + 5% range. If however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first appellate authority in dealing with this issue and accordingly we do not see any infirmity in his order. Hence, the grounds raised by the assessee on this issue are rejected. In the case of Ms. ST Microelectronics Pvt. Ltd. v. Addl. CIT in ITA Nos.1806 1807/Del.2008 Ors., the ITAT, Delhi Bench 'G', New-Delhi in its order dated 03.06.2011 has also considered the similar issued and decided as under :- 44. With the assistance of learned representatives, we have gone through the record carefully. Learned CIT(Appeals) in assessment year 2003-04 has examined this issue in detail. He observed that in order to avoid hardships to the assessees in the initial years of implementation of the TP provisions, the Government of India, through a press note issued by the Ministry of Finance on 22nd August 2001 expressed its intention that no adjustment could be made if the transfer price adopted by the assessee was within the band of 5% of the ALP determined by the Assessing Officer. CBDT had issued Circular No. 12 on 23.8.2001 specifying that Assessing Officer shall not make any adjustment to the price shown by the assessee if it is within the 5% band, the effect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benchmarking analysis carried out in the transfer pricing analysis with the help of a sample set of comparables. There is no scope for any standard deduction under this rule. In other words, if the ALP falls outside the tolerance band, TP adjustment would have to be made for the difference between the ALP determined by the A.O. based on the arithmetical mean of the prices and the price shown by the assessee . 45. The contention of the learned counsel for the assessee was that arithmetic mean of the comparable price should be reduced by 5% for determining the ALP. He pointed out that in 2009, the proviso appended to section 92C has been amended but this amendment would be applicable prospectively, because the basis of determination of ALP in respect of international transaction get changed. This amendment effects imposing a new liability by taking the option away from the taxpayers. Thus, according to the learned counsel for the assessee, the amended proviso is not applicable. On the other hand, Learned DR has submitted that under the proviso no standard deduction has been provided to the assessee. 46. On due consideration of the facts and circumstances and perusal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xceeds five per cent of the arithmetical mean, then, the assessee shall not be entitled to exercise the option as referred to in the said proviso. 9. Thus as far as the issue of applicability of standard deduction of+/-5% is concerned, in view of the discussion above; the same cannot be granted and the contention therefore is rejected. 3. Issue regarding the comparability of entities 3.1 It can be seen from the table on page 7 of the TPO's order that the entities considered as comparable by the assessee were engaged in providing computer software services. As a matter of fact the same is also clear from the search process carried out by the assessee itself. Annexure 4A of the TP study report in which the comparable entities selected by the assessee can be seen show the following extract: S. No. Company name Economic Activity NIC Code 1 Ace Software Exports Ltd. Computer software 72200 2 C S Software Enterprise Ltd. Computer Software 72200 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late authorities can direct lower revenue authorities to carry this exercise in accordance with law. The matter cannot be left hanging in between. ALP of international transaction has to be determined in every case. 4.1 On the basis of the above, if it is found that the benchmarking carried out by the TPO is incorrect, it should not automatically mean that the comparability analysis carried out by the assessee is acceptable. If the comparables considered by the TPO are not found to be comparables on the basis that they were engaged in providing computer software services, it should not automatically mean, that the comparables considered by the assessee are correct since the majority of the comparables were also engage in providing computer software services. At this juncture it is also important to note that in case TNMM is used as the most appropriate method, the comparable size should be such which would lead to a reliable estimate of the arms length price. A single comparable should not be considered unless it is exactly similar to the transactions undertaken by the assessee.lt was held in the case of SAP LABS India (P.) Ltd. [2011] 44 SOT 156 (Bang.)- - Three comparables are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o cost ratio which is actually 93 06% as against 138.46% adopted by the IPO. Learned Special counsel however, submits that tinkering with the loss of comparables at this stage and a fresh determination as to which comparable be accepted and which one should not be accepted will lead to revising the transfer pricing analysis conducted by the assessee himself. He submits that such an exercise will open floodgates of uncertainty to the settled assessments of transfer pricing cases. Shri Kapila also submitted that the onus was on the assessee to give all the relevant details to the TPO. which he obviously and admittedly did not do nor did he do so at the stage to proceedings before the CIT(A). Shri Kapila submits that these is no material on record to show that even before the CIT (A) such details were ever filed As regards the question of intra Associated Enterprises transaction being involved in the turnover of the Datamatics, Shri Kapila submits that this issue was never taken up before any of the authorities below. The details were also not available in the Prowess database and have come to the light only as a result of detailed balance sheet of Datamatics Technologies Ltd company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case. We would only say that prima facie, as per the material, to which reference has been drawn by Shri Agarwal, Datamatics does not appear to be comparable. Even if the taxpayer or its counsel had taken Datamatics as comparable in its T P audit, the taxpayer is entitled to point out to the Tribunal that above enterprise has wrongly been taken as comparable in fact there are vast differences between tested party and the Datamatics. The case of Datamatics is like that of Imercius Technologies representing extreme positions. If Imercius Technologies, has suffered heavy losses and, therefore, it is not treated as comparable by the tax authorities, they also have to consider that the Datamatics has earned extraordinary profit and has a huge turnover. Besides differences In assets and other characteristics referred to by Shri Aggarwal. The Income Tax Appellate Tribunal is a fact finding body and, therefore has to take into account all the relevant material and determine the question as per the- statutory regulations. 31. In the case of CIT v. Bharat General Reinsurance Co.Ltd. 81 ITR 303, the Hon'ble Delhi High Court, observed as under: 'It is true that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits, the respondent cannot he estopped from claiming the benefit of such deduction, by reason of the fact that it erroneously allocated a part of it towards the profits earned in Karachi. What has therefore to be determined is whether, notwithstanding the apportionment made by the respondent in the profit and loss statements, the deduction is admissible under the law. 34 In the case of CIT v. V.M.R.P.Firm, Muar (SC) 56 ITR 67, the following observations of their Lordship of Supreme Court are as under: The decision in Amarendra Narayan Roy v. CIT AIR 1954 Cal 271 has no bearing on the question raised before us. There the concessional scheme tempted the assesses to disclose voluntarily ail his concealed income and he agreed to pay the proper tax upon it. The agreement there related to the quantification of taxable income but in the present case what is sought to be taxed is not a taxable income. The assessee in such a case can certainly raise the plea that his income is not taxable under the Act We, therefore, reject this plea. 35 In Para 4.16 of latest report, the OECD provides the following guidelines. In practice, neither countries nor taxpayers should misuse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Thus it is seen that Respected Sp. Bench of the Tribunal after relying on various decisions of Apex Court and High Courts has held that tax payer is not stopped from pointing out a mistake in the assessment though such mistake is the result of evidence adduced by the taxpayer. It has further held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. Further the other side cannot claim to have a vested right in injustice being done due to some mistakes on its part. In view of the aforesaid facts and considering the peculiarity of the facts of the present case and relying on the aforesaid decision of Special Bench, we are of the view that Vakrangee Software should be excluded while working out the OP/TC%. We therefore restore the matter to the file of AO for fresh consideration after considering the foregoing and thereafter decide the issue as per law and after giving a reasonable opportunity of hearing to the Assessee. Thus this ground of the Assessee is allowed for statistical purposes. Ground No 3 4 are interconnected and therefore considered together: 11. AO noticed that Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was given. In our opinion the view of the Appellate Tribunal was based on a complete misapprehension of the true legal position. The High Court also fell into the same error. The allowance which was claimed did not fall within section 19(2)(o). No attempt was made nor indeed could it be usefully made to claim any allowance under section 10(2)(xv) of the Act. For the reasons given above the correct answer to the question referred should be in the negative and against the assessee. 11.11 The Hon'ble Bombay High Court while adjudication similar issue in the case of Standard Mills Co. Ltd. v. CIT reported in 209 ITR 85 (Bom), after relying upon its decision Voltas Ltd. v. CIT, reported in 207 ITR 47 (Bom) has held as under:- By this reference under s, 156(1) of the, IT Act, 1961, made at the instance of the assessee, the Tribunal has referred the following three questions of law to this Court for its opinion: (i) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the expenses amounting to ₹ 22,507, ₹ 85, 777 and ₹ 10,077 incurred by the assessee for various social welfare measures were not allowable as revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t held as under: There is yet one more thing to be remembered while applying s. 37(1). The expenditure claimed therein need not be necessarily spent by the assessee. It must be incurred voluntarily and without any necessity , but it must be for promoting the business. In other words, if the expenditure has been incurred by the assessee voluntarily, even without necessity, but if it is for promoting the business, the deduction would be permissible under s. 37(1). Again the words for the purpose of business used in s. 37(1) should not be limited to the meaning of earning profit alone . Business expediency or commercial expediency may require providing facilities like schools, hospitals for the employees or their children or for the children of the ex-employees. The employees of today may become the ex-employees tomorrow. Any expenditure laid out or expended for their benefit, if it satisfies the other requirements, must be allowed as deduction under s. 37(1). The fact that somebody other than the assessee is also benefited or incidentally taken advantage of by the provision made, should not come in the way of the expenditure being allowed as a deduction under s. 37(1). Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entive received by it. The Special Bench has decided the issue by holding as under:- It is clear from the plain reading of section 10B(1) of the Act that the said section allows deduction in respect of profits and gains as are derived by a 100% EOU. Further, section 10B(4) of the Act stipulates specific formula for computing the profit derived by the undertaking from export. Thus, the provisions of sub-section(4) of section 10B of the Act mandate that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover by the total turnover. Thus, even though sub-section(1) of section 10B refers to profits and gains as are derived by a 100% EOU, the manner of determining such eligible profits has been statutorily defined in sub-section(4) of that section. Both sub-sections(1) and (4) are to be read together while computing the eligible deduction u/s10Bof the Act. We cannot ignore sub-section (4) of section 10B which provides specific formula for computing the profits derived by the undertaking from export. As per the formula so laid down, the entire profits of the business are to be determined which are fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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