Income Tax Appellate Tribunal - Bangalore
M/S Tavant Technologies India Pvt Ltd , ... vs Deputy Commissioner Of Income Tax ... on 14 June, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH, BENGALURU
BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER
and
SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER
ITA No.967/Bang/2017
(Assessment year: 2009-10)
M/s.Tavant Technologies India Pvt. Ltd.
CSRIE-11, No.12, Guava Garden,
5th Block, Koramangala,
Bengaluru-560095. ... Appellant
PAN:AABCT3261 E
Vs.
Deputy Commissioner of Income-tax,
Circle 12(4),
Bengaluru. ... Respondent
Appellant by : Shri V.K.Gurunathan, Advocate.
Respondent by : Shri Vimal Anand, Addl.CIT(DR)
Date of hearing: 02/05/2019
Date of pronouncement: 14/06/2019
O R D E R
Per PAVAN KUMAR GADALE, JM :
The assessee has filed the appeal against the order of the CIT(A), Mysore, passed u/s 143(3) read with section 144C and 250 of the Income-tax Act,1961 ['the Act' for short].
2. The assessee has raised the following grounds of appeal:
1. "The learned CIT (Appeals) erred in passing the order in the manner he did.
2. The learned CIT (Appeals) grossly erred in confirming the additions made by the AO under Section 14A read with Rule 8D of the Rules although there was no specific expenditure incurred while earning the ITA No.967/Bang/2017 Page 2 of 8 exempted income and also there was no nexus between the expenditure and exempted income that was established by the Appellant.
3. The learned CIT (Appeals) erred in confirming the provision that was made for long term retention bonus to the employees which was subsequently paid to the employees which was the part of the salary itself.
4. The learned CIT (Appeals) failed to consider that the provision made towards long term retention bonus of the employees is a part of their pay package negotiated with the employees and as such the provision of Section 43B is not applicable to salary expenses.
5. The learned CIT (Appeals) grossly erred in confirming the additions made by the AO towards rent equalization provision by not considering the fact that the Appellant during the year had reversed an amount for rent equalization provision which was provided in the previous year and had also debited an amount of Rs.3,72,599/- being the provision for rent equalization for the year which is in accordance with the accounting standards.
6. The learned CIT (Appeals) failed to consider that such amount towards rent equalization provision should be allowed as expenditure after giving effect to reversal of provision.
7. The Ld CIT(A) failed to consider that the expenditure incurred in foreign currency towards telecommunication, insurance 86 freight charges had to be reduced from the total turnover as it was already reduced from the export turnover. The abovementioned reduction needs to be made in the light of the decision of the Hon'ble jurisdictional High Court of Karnataka.
8. The learned CIT (Appeals) erred in confirming the levy of Interest under Section 234B of the Act.
9. For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed."
3. Brief facts of the case are that the assessee is in the business of property development and filed the return of ITA No.967/Bang/2017 Page 3 of 8 income on 28/09/2009 with book profits u/s 115 JB of Rs.23,97,38,525/-. The case was selected for scrutiny and notices u/s 143(2) and 142(1) were issue. In compliance, AR of the assessee appeared on various dates and furnished the relevant details, particulars and clarifications as called for. Since the assessee has International transactions, reference was made to the Transfer Pricing Officer (TPO) whereas the TPO by order dated 27/04/ 2012 made no adjustment to the arm's length price of the assessee. On the disputed issue, the Assessing Officer found that the assessee has received dividend income of Rs.84,91,571/- and claimed as exempt. Whereas no expenses have been disallowed by the assessee for earning of such income. The AO, applied the provisions of section 14A r.w.s. rule 8D(2)(iii) and calculated ½% of average investments worked out to Rs.4,18,230/-. Similarly, AO has disallowed the claim of long-term Retention Bonus of Rs.10,31,070/- as it was not paid on or before the due date of filing return u/s 139(1) of the Act. Further AO found that the assessee has claimed Rs.3,72,599/- towards rent equalization reserve of the current year and whereas the AO is of the opinion that it does not relate to the relevant period and disallowed the claim. Similarly, AO while computing the deduction u/s 10A of the Act, has not allowed the claim of freight charges, insurance, ITA No.967/Bang/2017 Page 4 of 8 tele-communication expenses from the total turnover as the SLP filed by the Revenue is pending before the Hon'ble Supreme Court against the order of the Hon'ble High Court and the expenses incurred in foreign currency towards providing technical services outside India has to be reduced only from export turnover and not from total turnover and restricted the claim of deduction u/s 10A of the Act and determined the total income and passed the order u/s 143(3) r.w.s. 144C dated 18/3/2013.
4. Aggrieved by the order, the assessee has filed an appeal with the CIT(A). Whereas the CIT(A) has not granted the relief on the disputed issues but granted relief on other additions and partly allowed the appeal of the assessee.
5. Aggrieved by the order of the CIT(A), the assessee has filed an appeal before the Tribunal. The learned AR of the assessee on the issue of disallowance u/s 14A submitted that the CIT(A) has erred in confirming the addition made by the AO where no expenditure was incurred by the assessee and the application of rule 8D(2)(iii) was not properly considered. The learned AR further submitted that the CIT(A) has confirmed the addition made for long term retention bonus paid to the employees as part of salary and is an ascertained liability and ITA No.967/Bang/2017 Page 5 of 8 therefore, it has to be allowed as business deduction and fall under the purview of section 43B of the Act. On the third disputed issue, the learned AR submitted that the CIT(A) has erred in confirming the addition in respect of rent equalization provision as the assessee has reversed the amount for rent equalization provision which was considered in the earlier year as per the accounting standards and has to be allowed as expenditure. On the last disputed issue, the learned AR submitted that the CIT(A) has erred in confirming the disallowance of claim u/s 10A of the Act whereas the issue is covered by the jurisdictional High Court in the case of Tata Elxsi (349 ITR 98) and filed paper book to substantiate the claim along with judicial decisions. Contra, the Ld. DR relied on the order of the CIT(A).
6. We heard the rival submissions and perused the material on record. On the first disputed issue of disallowance u/s 14A r.w. rule 8D(2)(iii), learned AR argued that the assessee has not incurred any expenditure for earning dividend income and hence, no disallowance is called for. On perusal of the assessment order, we found that the AO has calculated disallowance under rule 8D(2)(iii) considering ½% of average value of investment. As rightly pointed out by the learned AR that the AO has considered the value of all investments as on ITA No.967/Bang/2017 Page 6 of 8 1/4/2008 and as on 31/3/2009 and calculated. In the Special Bench decision of Tribunal rendered in the case of Vireet Investments (165 ITD 27)(Del.), it has been held that where for the purpose of calculation of disallowance under rule 8D, only those investments which yielded exempt income have to be considered. Considering the above facts and circumstances, we restore this disputed issue to the file of the AO to recompute the disallowance considering the decision of the Special Bench in the case of Vireet Investments(supra) where only dividend yielding investment has to be considered for the purpose of calculation of average value of investments under rule 8D(2)(iii). Accordingly, the ground of appeal of the assessee are allowed for statistical purposes.
7. On the second disputed issue with respect to disallowance of long-term retention bonus, the learned AR contention that bonus paid to employees has to be allowed. But on perusal of the assessment order, we found that the AO has considered the provision of long-term retention bonus as an ascertained liability and it was not paid before due date of filing of Return of income u/s 139(1) of the Act and disallowed apparently u/s 43B of the Act, which the learned AR concedes. In the circumstances, we are of the substantive opinion that the claim shall not be allowable for the assessment year 2009- ITA No.967/Bang/2017 Page 7 of 8
10. But if the assessee has paid in subsequent year, the claim has to be allowed on payment basis and ground of appeal is dismissed.
8. On third disputed issue, the learned AR submitted that the assessee-company has claimed rent equalization provision as it was provided in the earlier year. But we find that these facts are not emerging from the order of the AO or from the order of the appellate authority. Therefore, we restore this disputed issue to the file of the AO to verify the material and evidence in respect of claim made in the earlier years and allow the deduction and this ground of appeal is allowed for statistical purposes.
9. The last ground of appeal being that the AO has restricted the claim of expenses towards telecommunication expenditure, insurance incurred in foreign currency for providing technical services outside India, by allowing the deduction only from export turnover. The learned AR relied on the decision of the jurisdictional High Court in the case of Tata Elxsi (supra) where the Hon'ble High Court held that for the purpose of computing exemption u/s 10A, when the export turnover in the numerator is to be arrived at after excluding communication expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the donominator. We, ITA No.967/Bang/2017 Page 8 of 8 relying on the decision of the jurisdictional High Court and direct the AO to reduce the expenses incurred in foreign exchange from the export turnover as well as total turnover and allow the claim u/s 10A and the ground of appeal of the assessee is allowed.
10. In the result, the assessee's appeal is partly allowed for statistical purposes.
Order pronounced in the open court on 14th June, 2019.
Sd/- Sd/-
(B.R. BASKARAN) (PAVAN KUMAR GADALE)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Place : Bengaluru
D a t e : 14/06/2019
srinivasulu, sps
Copy to :
1 Appellant
2 Respondent
3 CIT(A)-
4 CIT
5 DR, ITAT, Bangalore.
6 Guard file
By order
Assistant Registrar
Income-tax Appellate Tribunal
Bangalore