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TMI Blog2016 (11) TMI 1554X X X X Extracts X X X X X X X X Extracts X X X X ..... we allow this ground of the assessee. Charging of interest u/s 234A - Held that:- As return of income in this case was filed well within time i.e., on 30.10.2007. Thus the levy of interest under section 234A is bad in law. Ground of the assessee is allowed. Exemption under section.10A is to be allowed in respect of the amounts in question relating to the disallowance u/s 40(a)(ia) - Decided in favour of assessee. - ITA.No.1988/Hyd/2011, 2040/Hyd/2011 - - - Dated:- 16-11-2016 - Shri J. Sudhakar Reddy, Accountant Member And Smt. P. Madhavi Devi, Judicial Member For Assessee : Mr. A.V. Raghuram For Revenue : Mr. P. Chandrasekhar ORDER J. Sudhakar Reddy, A.M. These are cross-appeals filed by the Assessee and Revenue for the A.Y. 2007-2008 against the order of the CIT(A)-V, Hyderabad dated 31.10.2011. 2. The assessee is a company and is in the business of software development. It has two undertakings one located at Hyderabad and the other located at Pune. It has claimed deduction under section 10A of the I.T. Act, 1961 (hereinafter referred to as Act ). The total turnover of the assessee-company, is its export turnover. In otherwords, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The submissions of the assessee before the Ld. Assessing Officer are extracted for ready reference : 5. Nature of revenue accruals : The total turnover of the Hyderabad unit is ₹ 102,92,36,724. This amount of turnover includes an amount of ₹ 8,23,48,491 which represents net revenue recognized for which bills were not raised as on 31.3.2007 as the billable milestones were not reached (the amount is net of reversal of opening revenue accruals of ₹ 1,30,92,788). Similarly, the total turnover of the Pune unit is Rs,44,52,44,862. This amount of turnover includes an amount of ₹ 1,32,28,208 which represents net revenue recognized for which bills were not raised as on 31.3.2007 as the billable milestones were not reached. The amount of revenue accrual represents estimated cost incurred for work done from the date off last billable milestone to the year-end date. This amount is akin to 'work-in-progress' in a manufacturing concern. This amount is not included in debtors but is shown separately as Cost and Estimated earnings in excess of billing under the head 'Current Assets'. Since this amount does not represent actual billing, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reason that as contended by the assessee s counsel, this amount was not actually billed in the FY 2006-07 relevant to A Y 2007-08 under appeal and the same was actually included in the total turnover as well as export turnover of the subsequent FY i.e. FY 2007-08 relevant to A Y 2008-09. Accordingly, both the unbilled revenue included in the credit side of the Profit Loss account and the corresponding expenditure incurred which is debited to the Profit Loss account in the FY 2006-07 relevant to AY 2007-08 under appeal should be excluded from the Profit Loss account. This exercise will exclude profit included on account of unbilled revenue and, therefore, deduction under section 10A on such profit related to unbilled revenue can be denied. In this view of the matter, the issue may be remitted back to the AO for ascertaining the real profits of the business after excluding the unbilled revenue and corresponding expenditure from the Profit Loss account and thereafter to apply the provisions of Section 10A. 9. We are not convinced with these findings of the First Appellate Authority for the following reasons : a. The yardstick adopted for determining the total turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted this claim, we are of the opinion that the unbilled revenues have to be eliminated from the total turnover as well as the export turnover in this year and the deduction under section 10A be computed. We direct the Assessing Officer accordingly. Hence, we allow this ground of the assessee. 10. Ground No.2 is on the issue of charging of interest under section 234A of the Act. The return of income in this case was filed well within time i.e., on 30.10.2007. Thus the levy of interest under section 234A is bad in law. Ground No.2 of the assessee is allowed. 11. In the result, appeal of the assessee is allowed. ITA.No.2040/Hyd/2011 Revenue Appeal : 12. The Revenue has raised the following grounds in its appeal : 1. The Hon ble Commissioner of Income Tax (Appeals)-V, Hyderabad erred both in facts and law. 2. The CIT(A) erred in directing the Assessing Officer to consider the expenses of data link charges, expenditure incurred in foreign currency on travelling, payment of professional fees and other expenses in the export turnover for the purpose of computation of deduction under section 10A which is not envisaged Explanation 2(iv) of Section 10A. 3. The CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A on such enhanced profits. As such, the Board Circular is not on the issue of allowability of deduction u/s.10A with regard to enhanced profits on account of disallowance made u/s.32, Sec. 40(a)(ia), Sec. 40A(3), Sec. 43B etc. Accordingly, the said circular cannot be taken into consideration in the instant case. 13.2. The Ld. D.R. further submitted that in order to deny deduction u/s.10A on the enhanced profits on account of disallowance made u/s. 40(a)(ia) in the case of assessee : i) Sec.40(a)(ia) is a deeming provision by virtue of which, the assessee is not entitled to claim certain expenditure as deduction while computing the income though the said expenditure is already incurred in the relevant previous year on the basis of the method of accounting followed, but due to failure on its part in deducting tax at source in terms of the provisions contained under Chapter XVII of I.T. Act, 1961. As such, the increase in the business income of the assessee on account of such disallowance is notional in nature without having any real inflow or accrual of income to that extent. In case of export oriented companies, increase in business income on account of 40(a)(ia) disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by CIT(A)-III in the aforementioned order. The following reasons have been given by the C1T(A) in upholding the disallowance u/s 40(a)(ia) and thereafter allowing the deduction under section 10A. 8. In ground No.3, it is stated that the AO erred in disallowing expenditure of ₹ 2,91,450/- under section 40(a)(ia) and taxing it separately and not allowing deduction under section 10A in respect of the same. 8.1.With reference to the above ground, in the written submissions filed by the Ld. AR, it was submitted that the disallowance is made in the computation of total income under the head Income from Business'. It was stated that profits of the business of the undertakings are required to be computed and the proportion of export turnover to total turnover has to be applied to such profits of the business. Profits of the business are required computed and the proportion of export turnover to total turnover has to be applied to such profits of the business. Profits of the business are required to be computed as per the Part 0 of Chapter IV viz. as per the provisions of section 28 to 44DB. The above disallowance is made u/s.40(a)(ia). Thus, while computing deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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