Income Tax Appellate Tribunal - Bangalore
Wipro Ltd.,, Bangalore vs Assessee on 25 June, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT
AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
ITA No.1349/Bang/2010
Assessment year : 2006-07
M/s. Wipro Limited, Vs. The Additional Commissioner of
Doddakannelli, Income Tax,
Sarjapur Road, Range 12,
Bangalore - 560 025. Bangalore.
PAN : AAACW 0387R
APPELLANT RESPONDENT
Appellant by : Shri K.R. Pradeep, C.A.
Respondent by : Shri S.K. Ambastha, CIT-I(DR)
Date of hearing : 25.06.2012
Date of Pronouncement : 18-07-2012
ORDER
Per N.V. Vasudevan, Judicial Member
This appeal by the Assessee is directed against the order of assessment dt.28.10.2010 passed u/s.143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred as 'the Act') by the Additional Commissioner of Income Tax, ITA No.1349/Bang/2010 Page 2 of 51 Circle 12, Bangalore in accordance with the direction of the Dispute Resolution Panel (DRP) u/s. 144(5) r.w.s. 144C(8) of the Act dt.26.9.2011. The Assessment Year involved is 2006-07.
2. The Assessee is a company. It is engaged in the business of developing software. In view of international transactions the assessee had with Associated Enterprises (AE), the case was referred to the Transfer Pricing Officer (TPO) under section 92CA for determination of the arm's length price (ALP) after obtaining the approval of the CIT. The TPO by order under section 92CA of the Act dt.27.9.2010 suggested Transfer Pricing adjustment of Rs.4,75,86,539 on the issue of interest chargeable to its associated enterprises. In view of the transfer pricing adjustment, a draft order under section 144C of the Act was passed on 31.12.2009. The assessee company filed objections thereto before the DRP on 29.01.2010. The DRP vide directions dt.27.09.2010 referred to above did not accept the assessee's objections to the TP adjustment and directed the Assessing Officer to complete the assessment accordingly. Besides the above, other several other additions were made to the income returned by the Assessee in the draft assessment order. After the order of the DRP, a fair assessment order was passed determining total income as proposed in the draft assessment order and in accordance with the directions of the DRP on the draft assessment order. The Assessing Officer accordingly passed the order of assessment on 28.10.2010. The various issues will be now dealt with as projected in the grounds of appeal raised by the Assessee before us.
3. Grounds 1 to 4 are general in nature and do not call for any specific adjudication. Grounds 5 to 9 raised by the Assessee relate to the addition of ITA No.1349/Bang/2010 Page 3 of 51 Rs.4,75,86,539/- by way of Transfer pricing adjustment on account of interest on advances given to Associated Enterprises who were wholly owned subsidiaries of the Assessee. At the outset, the learned counsel for the assessee stated that the ground raised at S.No.9 regarding grant of safe harbor adjustment of + / - 5 % of ALP is not being pressed in this appeal and is therefore accordingly dismissed as infructuous. The Assessee had given advances to its associated enterprises but did not charge any interest on such loans. The loan in question was an international transaction. Therefore the provisions of Sec.92CA of the Act were applicable. The Transfer Pricing Officer (TPO) determined interest on such interest free loans that ought to have been charged at Rs.4,75,86,539/-. The same was accepted by the AO and approved by the DRP. It is not in dispute before us that the basis of determination of the ALP and the justification for such adjustment was the same as was done in the earlier assessment years in respect of identical interest free advances to AE.
4. It is not in dispute before us that identical issue had come up for consideration in AY 07-08 in ITA No.972/Bang/2011 order dated 15.6.2012 and this tribunal held as follows:
"5.3 In respect of the grounds at S.Nos.5 to 9, the learned counsel for the assessee submitted that the Assessing Officer erred in making a transfer pricing adjustment of Rs. 9,67,89,370 based on the TPO's order and the confirmation of this by the DRP on the issue of interest on advances given by the assessee to its associated enterprises which were its wholly owned subsidiaries. It was submitted that the authorities below overlooked the fact that these interest free advances were given to its overseas subsidiaries out of commercial expediency from out of surplus funds available with it and in accordance with the principles and ratio laid out by the Hon'ble Apex Court in the case of S.A. Builders reported in 288 ITR 1. The ITA No.1349/Bang/2010 Page 4 of 51 learned counsel for the assessee contends that the transfer pricing adjustment made by the TPO at 14% rate of interest based on LIBOR, as the reasonable rate of interest under the CUP method, was based on surmises and was not based on the transfer pricing requirement of computing the arms length interest based on any comparable uncontrolled transaction as was directed by appellate orders in earlier years in the assessee's own case. The learned counsel for the assessee further pointed out that the DRP, in its order dt.26.9.2011 on page 2 and para 3 thereof, while acknowledging that relief has been granted by the Tribunal on this issue in the assessee's own case in earlier years, has mechanically and without application of mind upheld the adjustment determined by the TPO stating that this issue has not reached finality as the Department has filed further appeal under section 260A against the Tribunal order. The learned counsel for the assessee contended that the interest determined in the TPO's order is not an arms length rate determined in comparable uncontrolled transaction and therefore prayed that it be set aside in conformity with the Tribunal's findings in the assessee's own case for earlier years and placed on record a copy of the decision of the co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2004-05 in ITA No.1072/Bang/2007 dt.30.1.2009.
5.4 The learned Departmental Representative supported the orders of the authorities below on this issue and submitted that they be confirmed. 5.5 We have heard both parties and perused and carefully considered the material on record. We find that a similar issue was considered by the co- ordinate bench of the Tribunal in assessee's own case for Assessment Year 2004-05 in ITA No.1072/Bang/2007. The co-ordinate bench in paras 7.1 and 7.2 thereof had given its finding which are as under :
" 7.1. We find that an identical issue was considered by the Hon'ble Tribunal in ITA No: 624 & 1178/Bang/2007 dated: 31-10-08 for the AY 2003-04 in the assessee's own case. The Hon'ble Tribunal while confirming the finding of the Ld.CIT(A) had quoted the same and the relevant portion of which is reproduced as under:
"6.4......................TP adjustment is possible only in cases where comparable uncontrolled transactions entered into between two enterprises are established. Unless such an uncontrolled transaction is identified, no ALP adjustment is possible. .......................".
ITA No.1349/Bang/2010Page 5 of 51
7.2. Respectfully following the said decision, we confirm the order of the learned CIT(A) on this count."
Since the issue of adjustment for rate of interest chargeable in respect of interest free advances given by the assessee to its wholly owned foreign subsidiaries is identical to that of the earlier years, the Assessing Officer is directed to follow the directions given in the orders for earlier years in the assessee's own case for Assessment Year 2004-05 following the decision in ITA Nos.624 & 1178/Bang/2007 dt.31.10.2008 in the assessee's own case for Assessment Year 2003-04."
We direct the AO to follow the directions as given in the earlier years referred to above. Thus Ground Nos.5 to 8 are decided accordingly.
5. Grounds of appeal 10 & 11 projects the grievance of the Assessee with regard to the action of revenue authorities in disallowing a sum of Rs.4,33,78,765 (being 5% of the dividend) under Section 14A of the Act as against the claim of the Assessee that only a sum of Rs.82,80,707/- was expenditure incurred in earning exempt income that ought to have been disallowed u/s.14A of the Act. The Assessee earned income in the form of dividend of Rs.3,24,07,833/- on shares and Rs.83,51,57,478/- on mutual fund units held as investments. The aforesaid income did not form part of the total income under the Act, in view of the provisions of Sec.10(34) and 10(35) of the Act. In other words they were exempt from tax. Section 14-A of the Act provides that any expenditure incurred in earning income which does not form part of the total income under the Act, will not be allowed as deduction while computing total income. In accordance with the aforesaid provisions, the Assessee had quantified a sum of Rs.82,80,707/- as expenditure incurred in earning exempt income which has to be disallowed and added to total income by applying the provisions of Sec.14-A of the Act. The above working was ITA No.1349/Bang/2010 Page 6 of 51 done by the Assessee based on the estimated time spent by the functionaries responsible for managing company's investments and cash surpluses. The AO was of the view that the Assessee in working the aforesaid sum had considered only direct expenses on employees/directors by way of salaries, staff welfare, traveling, communication etc. He was of the view that there were various other expenses on corporate establishment which are left out as non-allocable expenses and all that establishment helps the functionaries in some manner in carrying out investment functions. He held that investment was a key function of corporate office. He also found that the quantum of investment was in the range of Rs.3459.50 crores against reserves and surplus of Rs.6135.60 Crores at the year end. The AO therefore was of the view that management would certainly devote more time to safeguard the earnings deployed in investments. The AO accordingly applied 5% of the dividend income as the expenditure which can be said to have been incurred in earning the exempt income and accordingly disallowed a sum of Rs.4,33,78,265/-. The action of the AO was also approved by the DRP.
6. The plea of the Assessee is that one should not go by the quantum of investments but by the nature of exempt income earned. According to the Assessee, investments in units of mutual funds involve very minimum risk and do not require significant efforts. It is the further plea of the Assessee that the AO has ignored the working of actual expenditure as given by the Assessee by bifurcating each cost centre responsible for managing investments and cash surplus with reference to the estimated time spent. It is the further plea of the Assessee that disallowance u/s.14A of the Act cannot be made on the basis of estimates as laid ITA No.1349/Bang/2010 Page 7 of 51 down by the Hon'ble Karnataka High Court in the case of Maharashtra Apex Corporation Vs. CIT 286 ITR 585 (Kar) in the context of Sec.80-M of the Act which allows deduction on account of net dividend (gross dividend - expenses incurred to earn dividend).
7. The learned DR relied on the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Vs. DYCT 328 ITR 81 (Bom), wherein the Hon'ble Bombay High Court in the context of Sec.14A of the Act has held that for the assessment year prior to AY 08-09, disallowance has to be made on a reasonable basis considering all circumstances. In other respects he relied on the order of the AO.
8. We have considered the rival submissions. The disallowance u/s.14A of the Act in the present case is restricted only to indirect expenses. The Assessee's calculation is based on the time spent by the functionaries responsible for making investment of cash surpluses. The revenue's objection is that other expenses on corporate establishment should also be considered as they also help the functionaries in some manner in carrying out investment functions. We find force in the submissions of the ld. DR. We are, however, of the view that the quantum of disallowance estimated at 5% is on the higher side. An estimate of 2.5% of the dividend income in our view would be just, fair and reasonable. In this regard, we also find that the quantum of dividend income is roughly about 3% of the total income returned by the Assessee, though this is not the only basis for our conclusion. We are also of the view that provisions of Sec.14A of the Act contemplate disallowance of indirect expenses on an estimate basis whereas ITA No.1349/Bang/2010 Page 8 of 51 provisions of Sec.80M of the Act do not contemplate any such estimation. Therefore the decision of the Hon'ble Karnataka High Court in the case of Maharashtra Apex Corporation Ltd. (supra) referred to by the learned counsel for the Assessee will not be applicable to the present case. Thus grounds No.10 & 11 are partly allowed.
9. Grounds 12 to 16 project the grievance of the Assessee with regard to the rejection of the claim by the AO for set off of loss incurred by seven STP units (which was entitled to claim deduction u/s.10A of the Act) against other business income of the Assessee (non STP units) for the same assessment year. The loss sought to be set off is a sum of Rs.23,37,10,661/-. The AO held that Sec.10A was a special provision. He held that as per Sec.10-A of the Act only profits of unit earned in ten consecutive years is to be allowed as deduction over 10 assessment years. If the losses incurred by a particular unit (STP unit) in the first few years are allowed to set off with other profits (Non-STP units) and profits earned by that unit (STP Unit) in the subsequent years are allowed as deduction, in the remaining period of ten years, then the deduction allowed u/s.10A of the Act would exceed the net profit earned by such unit in this period. This, according to the AO would not be in tune with the spirit and meaning of Sec.10-A of the Act. The AO also referred to the provisions of Sec.10-A(6) of the Act.
10. It is not in dispute before us that similar issue came up for consideration in Assessee's own case in AY 07-08 and this Tribunal held as follows:
"7.2. The learned counsel for the assessee submitted that the core of the issue is in respect of set off of losses of Rs. 30,30,25,916 from 12 undertakings in Software Technology Parks (STPs) and Special Economic Zones (SEZs) against the taxable profits from other business of the ITA No.1349/Bang/2010 Page 9 of 51 assessee company. The learned counsel for the assessee submitted that for arriving at the total income for the assessment year, the losses of these STP and SEZ undertakings were set off against other taxable business . of the assessee company. It was contended by the learned counsel for the assessee that the set off business losses have to be mandatorily considered as per the provisions of section 70 and 71 of the Act for which there was no prohibition. It was submitted that the Assessing Officer disallowed the set off claim made by the assessee on the ground that it was not in the spirit and meaning of section 10A for if the losses incurred by a particular unit in the first few years are allowed for set off with other profits and the profits earned by that unit in the subsequent years are allowed as a deduction, in continuance of ten years, then the deduction allowed under section 10A would exceed the net profit earned by such unit in this period. It was submitted that the Assessing Officer referring to section 10A(6) of the Act, allowed carry forward of the losses of the undertakings for set off in accordance with section 72 of the Act with the caution that the total income in the year of set off shall reduce to that extent and section 10A deduction also would reduce equally. The learned counsel for the assessee submitted that when reliance was placed on the Tribunal orders in the assessee's own case for earlier assessment years that the issue was covered in favour of the assessee, the Assessing Officer stated that this issue is still under dispute as the department has filed further appeals in the preceeding years. The learned counsel for the assessee submitted that the DRP in its order issued directions on the basis that the losses incurred by certain 10A units should be set off against the profits earned by other 10A units. It was submitted by the learned counsel for the assessee that the directions of the DRP violated, the settled legal position as it is in direct conflict with the decision of the Hon'ble Apex Court in the case reported at 161 ITR 320 in the matter of set off of losses from priority industry.
7.3 The learned Departmental Representative supported the orders of the authorities below.
7.4 We have heard both parties and perused and carefully considered the material on record. We find that the identical issue was considered by a co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2004-05 in ITA No.1072/Bang/2007 (supra), wherein the Tribunal confirming the finding of the learned CIT(A), at para 16.4 on pages 29 and 30 thereof, held as under :
" 16.4. We have carefully considered the contentions of the either parties and also carefully perused the order of the Hon'ble ITA No.1349/Bang/2010 Page 10 of 51 Tribunal. While deciding an identical issue, the Hon'ble Tribunal cited the following decisions -
(1) [12.5.] ITA No: 669 & 804/Ban/05 dated: 22.3.2006 for the AY 2000-01 in the case of assessee company wherein it was concluded that we direct the AO to allow set off of loss from 10A units against the other business income of the assessee or income from other sources."
(2) ITA NO.248 &249/Bang/07 dated 27.11.2007in the case of I-Gate Global Solutions Ltd. v. ACIT wherein the issue was decided in favour of the assessee.
(3) ITA No.387/Bang/06 dated: 26.6.2007 in the case of M/s Web Spectron P.Ltd the issue was decided in favour of the assessee. The Hon'ble Tribunal has, further, observed that "the decision of jurisdictional High Court is to the effect that deduction allowed u/s 10A in respect of undertaking is to be allowed after setting off of brought forward loss of that undertaking. Income of each undertaking is to be computed independently as per the provisions of the Act. An assessee cannot be compelled to seek deduction u/s 10A in respect of an undertaking in which there is a loss. This is the basis of not setting off of losses of 10A units against the profit of 10A units for computing deduction u/s 10A. This is in view of the decision of the Third Member in the case of Navin Bharat Industries Ltd. v. DCIT 90 ITD 1. In view of the judgment of the jurisdictional High Court in the case of Himmatsingh (supra), the assessing officer will set off brought forward losses of the units for which the assessee has disclosed positive income for the purpose of claiming deduction u/s 10A".
16.5. Respectfully following the decisions of the Hon'ble Tribunal referred supra, we direct the assessing officer to set off brought forward losses of the units for which the assessee has disclosed positive income for the purpose of claiming deduction u/s 10A." Respectfully following the decision of the co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2004-05 (supra) on this issue, we direct the Assessing Officer to set off brought forward ITA No.1349/Bang/2010 Page 11 of 51 losses of the units for which the assessee has disclosed positive income for the purpose of claiming deduction under section 10A."
11. Respectfully following the decision of the Tribunal in Assessee's own case for AY 07-08, we direct the AO to allow the set off as claimed by the Assessee. Grounds No.12 to 16 are thus allowed to the above extent.
12. In Grounds 17 to 19, the Assessee has challenged the order of the AO whereby the AO did not allow claim for deduction on account of deferred compensation paid on behalf of the Assessee to one Mr.Vivek Paul by a trust from and out of the contributions by the Assessee to the Trust. The material facts giving raise to the aforesaid grounds of appeal are as follows.
13. The assessee had constituted a deferred compensation plan. Mr. Vivek Paul, its whole-time director who had exercised his employment in the US was a participant under the plan. Under the Plan, the assessee-company was required to contribute a proportion of the basic salary of the participating employee to a grantor trust (as defined in the Internal Revenue Code of the US) settled for this purpose, with the objective of providing a deferred compensation to the participating employee at the time of his separation. In this regard, the Trust Deed and other documents were produced to the AO.
14. During the previous years relevant to the assessment years 2004-05 & 2005- 06, the assessee had made contributions aggregating to Rs.12,15,86,375/- to the trust in respect of Mr. Vivek Paul who was a participant (beneficiary) under the trust. The contributions were reported in Clause 17(j) of the Tax Audit Report and ITA No.1349/Bang/2010 Page 12 of 51 accordingly were disallowed by the assessee in computing the total income in the tax returns for the said assessment years.
15. During the previous year relevant to the assessment year 2006-07 (current assessment), the contributions were paid to Mr. Vivek Paul, on his separation from the Company as deferred compensation through the trust. The amount of Rs. 12,15,86,375/- so paid out was claimed as a deduction. The expenditure was also allocated to various Units in STP / SEZ, which reduced the deduction under section 10A and 10AA.
16. It was the submission of the Assessee that the contributions to the trust in the earlier years in respect of the employee-director have been subject to disallowance in those years. The payment of such contributions as deferred compensation to the employee-director who separated from the Company is a payment by the trust on behalf of the assessee and hence eligible for deduction u/s 37(1) of the Act.
17. The AO rejected the claim of the Assessee holding that the Trust formed under Deferred Compensation Plan cannot be such fund as referred to in Section 36(1)(iv) or (v). The AO also held that the assessee rightly disallowed such contributions u/s 40A(9) in the earlier assessment years. When such contributions become expenditure allowable in the hands of the assessee, it is governed by the provisions of sub-sections 10 & 11 of section 40A, but these provisions are applicable to the pen prior to 01.03.1984. Therefore, the assessee cannot take benefit of these provisions. Secondly, the AO held that it is not known whether and in what manner the sole beneficiary of the irrevocable trust declared the payout and whether tax was paid thereon. In any case, since these contributions were made to a ITA No.1349/Bang/2010 Page 13 of 51 Fund mentioned in Section 40A(9) of the Act and there is prohibition for their allowance, general provisions sec.37 cannot be applied. Therefore, the deduction of Rs. 12,15,86,375/- claimed was disallowed.
18. The learned counsel for the Assessee submitted before us that the prohibition in Section 40A(9) of the Act was duly recognized in the returns for the assessment year in which the contributions were made to the Trust, viz., AY 2004- 05 & AY 2005-06, which the AO has taken note of. The AO has invoked the same prohibition, when the deferred compensation is paid to the employee-director, who is the participant under the trust, out of such contributions made by the assessee to the trust in the earlier years. However, the AO failed to note that Section 40A(9) was inserted by the Finance Act, 1984 with retrospective effect from 1-4-1980. Section 40A(10) ensured that the insertion of section 40A(9) with retrospective effect does not result in disallowance of bonafide incurred expenditure out of the contributions disallowed u/s 40A(9). This limited purpose of section 40A(10) is not to deny a deduction for bonafide incurred expenditure in a subsequent period, which meets with requirements of section 37(1) of the Act. It was submitted that the AO has considered irrelevant factors for proposing the disallowance and further, having disallowed the deferred compensation claimed by the assessee, the AO has not re- computed the enhanced deduction u/s 10A.
19. The learned DR relied on the order of the AO.
20. We have considered the rival submissions. The relevant provisions of Sec.40A(9) of the Act read as follows:
ITA No.1349/Bang/2010Page 14 of 51
"(9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution, for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause
(iv) or clause (v) of sub-section (1) of section 36, or, as required by or under any other law for the time being in force.
21. Section 40A(10) & (11) of the Act which were applicable to contributions prior to 1-4-1984 read as follows:
"(10) Notwithstanding anything contained in sub-section (9) where the Income-tax Officer is satisfied that the fund, trust, company, association of persons, body of individuals, society or other institution referred to in that sub-section has, before the 1st day of March, 1984, bona fide laid out or expended any expenditure (not being in the nature of capital expenditure) wholly and exclusively for the welfare of the employees of the assessee referred to in sub-section (9) out of the sum referred to in that sub-section, the amount of such expenditure shall, in case no deduction has been allowed to the assessee in respect of such sum and subject to the other provisions of this Act, be deducted in computing the income referred to in section 28 of the assessee of the previous year in which such expenditure is so laid out or expended, as if such expenditure had been laid out or expended by the assessee.
(11) Where the assessee has, before the 1st day of March, 1984, paid any sum to any fund, trust, company, association of persons, body of individuals, society or other institution referred to in sub-section (9), then, notwithstanding contained in any other law or in any instrument, he shall be entitled--
(i) to claim that so much of the amount paid by him as has not been laid out or expended by such fund, trust, company, association of persons, body of individuals, society or other institution (such amount being hereinafter referred to as the unutilised amount) be repaid to him, and where any claim is so made, the unutilised amount shall be repaid, as soon as may be, to him ;ITA No.1349/Bang/2010 Page 15 of 51
(ii) to claim that any asset, being land, building, machinery, plant or furniture acquired or constructed by the fund, trust, company, association of persons, body of individuals, society or other institution out of the sum paid by the assessee, be transferred to him, and where any claim is so made, such asset shall be transferred, as soon as may be, to him."
22. It is clear from the aforesaid provisions of Sec.40A(10) & (11) of the Act that contribution after 1.4.1984 to a trust to be eligible for deduction has to be in conformity with the provisions of Sec.36(1)(iv) & (v) of the Act as laid down in Sec.40A(9) of the Act. The provisions of Sec.36(1)(iv) & (v) of the Act read as follows:
"Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 --
..........
..........
(iv) any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be ; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the number of members of the fund;
(v) any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by ITA No.1349/Bang/2010 Page 16 of 51 him for the exclusive benefit of his employees under an irrevocable trust ;"
23. The object behind the provisions of Sec.40-A(9) as explained in Board Circular No.387 dated 6.7.1984 are to ensure that wherever employers create irrevocable trust ostensibly for welfare of the employees and transfer funds to such trust by way of contribution and where such trust is a discretionary trust with absolute discretion to the trustee to utilize the trust property in such manner as they may think fit for the benefit of emplyees without any scheme or safeguards for the disbursement of these funds, the trustees get absolute discretion. In such an event there is a possibility of the trust being used as a medium of tax avoidance by which the contribution is claimed as deduction and the same contribution flowing back to the employer in the form of deposits, investments in shares etc. The entire object of Sec.40A(9) of the Act is to prevent the employer having the benefit of deduction in the name of staff welfare, while having the use of the funds indirectly by controlling it. We are of the view that in the light of the specific prohibition in Sec.40A(9) of the Act and keeping in mind the principle that when there are specific provisions governing a deduction then the general deduction allowable u/s.37(1) of the Act, cannot be invoked, the disallowance made by the Revenue authorities had to be sustained. It is not the case of the Assessee that the deduction claimed by the Assessee does not fall within the parameters of Sec.36(1)(iv) & (v) of the Act. We therefore sustain the disallowance made by the Revenue authorities. We however accept the alternative claim of the Assessee that in the event of the disallowance being sustained, the action of the AO in allocating the aforesaid expenses to the profits of the units ITA No.1349/Bang/2010 Page 17 of 51 eligible for deduction u/s.10A of the Act which had gone to reduce the profits eligible for deduction u/s.10A of the Act cannot be sustained. The AO is therefore directed to computed the enhanced profits on which eligible deduction u/s.10A of the Act should be allowed. Thus the aforesaid grounds are allowed to the extent indicated above.
24. In Grounds No.20 to 23, the Assessee has projected its grievance against the order of the AO whereby the AO disallowed claim of the Assessee for depreciation of Rs.19,46,23,236/- on imported software products used by the Assessee in-house. The assessee claimed depreciation amounting to Rs.19,46,23,236/- on software purchased both locally and imported and used in its business and furnished the details thereof to the Assessing Officer in the course of assessment proceedings. The Assessing Officer was of the opinion that the provisions of section 40(a)(ia) of the Act are applicable and proposed to disallow the depreciation claimed on such purchases. The assessee submitted that the software purchased by it is in the nature of goods and the provisions of section 40(a)(ia) were not applicable to it and also that no order has been passed under section 201(1) of the Act treating it as an assessee in default in respect of payments for imported software. It was submitted by the learned Authorised Representative that the Assessing Officer did not accept the explanation put forth by the assessee and disallowed the entire depreciation claimed on the ground that there was an obligation on the part of the payers to effect deduction from out of payments made by them in favour of non-resident recipients for acquiring any software even assuming that it partakes the character of goods. It was submitted that the Assessing Officer was of the view that software is basically ITA No.1349/Bang/2010 Page 18 of 51 purchased by way of licence to use and he relied on the judgment of the Hon'ble High Court of Karnataka in the case of Synopsis Inc. and the decision of the Delhi Tribunal in the case of Microsoft Corporation Vs. ADIT. It was contended that the DRP agreed with the reasoning of the Assessing Officer in continuing the disallowance, even though it was submitted therein that the learned CIT(A) and the Tribunal had decided this issue in the assessee's favour in the earlier assessment years, on the ground that the Department has taken the matter in further appeal under section 260A of the Act and that the matter had not attained finality. The learned Departmental Representative placed reliance on the findings of the Assessing Officer and the DRP on this issue and reiterated the arguments in the orders of the authorities below.
25. We have heard both parties and carefully perused and considered the material on record. We find from a perusal of the order of the co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2004-05 in ITA No.1072/Bang/2007 (supra) at para 8.2 thereof that this issue has been held in favour of the assessee following the earlier decision of the Tribunal in the assessee's own case in ITA Nos.426, 427, 468 and 469/Bang/2006 for Assessment Years 2001- 02 and 2002-03. It is seen from this order that this issue has been decided in favour of the assessee company by the Tribunal from Assessment Year 1998-99 onwards. We, therefore, respectfully following the decision of the co-ordinate bench of the Tribunal for Assessment Year 2004-05 (supra), decide this issue in favour of the assessee. Grounds No.20 to 23 are allowed to the above extent. ITA No.1349/Bang/2010 Page 19 of 51
26. In Grounds No.24 to 27, the Assessee has projected its grievance against the action of the AO in allocating expenses of Wipro Corporate to units which are eligible for deduction u/s.10A of the Act and thereby reducing the profits of the units on which deduction u/s.10A of the Act is claimed.
27. On the above grounds it was submitted by the learned counsel for the assessee that Wipro Limited is a set up which evolves growth plans of the assessee and the manner in which the plans will be achieved and the medium and long term vision is defined by Wipro Corporate and it evaluates various business opportunities and investment strategies. It was submitted that expenditure incurred by the corporate was for the development of business of the company. It was submitted by the learned counsel for the assessee that the functioning of Wipro Corporate is independent of the software business OR other business divisions, as those business are run as independent profit centres and their expenses are separately incurred and recorded. It was submitted that the Assessing Officer agreed for the allocation of interest and exchange difference on PCFC loans as claimed by the assessee. Further, the Assessing Officer was of the view that expenditure booked by Wipro Corporate Division related to various divisions. The Assessing Officer's stand was that if no allocation was made, then the profits eligible for deduction under section 10A and under the provisions of chapter VIA of the Act would be artificially enhanced. In doing so, the Assessing Officer excluded the Wipro Corporate expenditure determined by him in the assessment as relatable to earning of dividend income under section 14A of the Act. It was submitted that the Assessing Officer reallocated corporate expenditure to other divisions using the turnover ratio and thus ITA No.1349/Bang/2010 Page 20 of 51 an amount of Rs. 52,51,49,491 was reallocated to various units. The learned counsel for the assessee submitted that even though it was claimed by the assessee that issue was covered in its favour by the decision of the coordinate bench of the Tribunal in the assessee's own case for Assessment Year 2004-05 (supra), the DRP in its order, while acknowledging this fact, confirmed the Assessing Officer's view on the ground that the matter has not attained finality as the Tribunal order (supra) has been challenged by the Department before the Hon'ble High Court.
28. The learned Departmental Representative supported the findings in the orders of the authorities below.
29. We have heard both parties, carefully perused and considered the material on record. We find that the decision of the co-ordinate bench of the Tribunal has in the assessee's own case in ITA No.1072/Bang/2007 (supra) has followed its earlier order in ITA No.651/Bang/94 for Assessment Year 1997-98 and in ITA Nos.426, 427, 468 & 469/Bang/2006 dt.3.5.2008. The relevant findings are extracted hereunder :
"11.4. We have carefully considered the submissions of both the parties. We have also perused the decisions of the Hon'ble Tribunal on which the assessee company has placed strong reliance. The order of the Hon'ble Tribunal for the AY 97-98 in assessee's own case in ITA No:651/B/94 has decided the issue in favour of the assessee and relevant findings of the Tribunal is reproduced as under:
"27.14. In view of these entire facts of the case and, in the absence of any specific finds by the authorities below that the expenditure is incurred for the various units claiming exemption/deduction in an artificial way of allocating the expenses and that too on surmises is not ITA No.1349/Bang/2010 Page 21 of 51 justifiable. We are, therefore of the opinion that the profits of the undertaking eligible for exemption u/s 10A is correctly worked out and no artificial working can be attributed thereto. The ground taken by the assessee is, therefore, allowed and the order of the Commissioner (Appeals) is reversed in this aspect."
11.5. The Hon'ble Tribunal in its decision in ITA Nos:426,427,468 & 469/Bang/2006 dt:30.5.2008 in assessee's own case has dealt with this issue exhaustively and had concluded that -
"6. Another issue which arises before us is in respect of allocation of common expenditure. As per the assessing officer, 57% of revenue is generated by Wipro Technologies; therefore, he has allocated the common expenses in that ratio. It will be useful to reproduce the allocation of rates and taxes as made by the assessing officer:
Rates and taxes Of an amount of Rs.4,65,72,898/- an amount of Rs.3.1. crores Pertains to Wipro Infotech and has been wrongly accounted in the books. Only the balance amount is being taken as common expenditure.(Net allocation of Rs.1,55,72,898/-) for allocation.
From the above, it is clear that when direct expenses of rates and taxes were known in respect of unit whose income is deductible u/s 10A then otherwise allocation cannot be made. The allocation of common expenditure cannot be made on the basis of revenue generated. The assessee himself has agreed to allocation of 20% of such expenditure and the same has been confirmed by the learned CIT(A). We, therefore, feel that allocation at the rate of 20% of common expenses is in order. Hence, direct expenditure disallowed by the Assessing Officer is confirmed and disallowance ITA No.1349/Bang/2010 Page 22 of 51 of 20% of common expenditure as confirmed by the learned CIT(A) is upheld."
30. In view of the decisions of the co-ordinate bench of the Tribunal (supra) and respectfully following the same, we are of the considered view that the said decisions hold good for the Assessment Year under consideration also and accordingly decide this issue in favour of the assessee. Grounds No.24 to 27 are allowed to the extent stated above.
31. In Grounds No.28 & 29, the Assessee has challenged the order of the AO whereby the AO refused to allow deduction u/s.10A of the Act on profits generated by the Assessee's overseas software development. It was submitted by the learned counsel for the assessee that the Software Development Centres (SDCs) in Germany, Sweden, UK, Canada and Japan were set up by the assessee to facilitate the on-site development of software to specific customers. These, it was submitted, are the cost centres of Wipro Technologies Divisions and its sub-units, viz., the undertakings in Software Technology Parks (STPs) and Special Economic Zones (SEZs). It was submitted that the assessee's submissions that the SDCs are extensions of STP / SEZ units was rejected by the Assessing Officer, who was of the view that they are independent of STP units. The Assessing Officer was of the view that the revenue generated by the above SDCs abroad are included in the revenues shown by the STP / SEZ units. The Assessing Officer concluded that 'on site' as envisaged in Explanation 3 to section 10A is development at the clients location but that, SDCs are not so as they are offices operating as Permanent Establishments ITA No.1349/Bang/2010 Page 23 of 51 (PEs) of the assessee company in foreign countries and also paying foreign taxes. In computing the deduction under section 10A, the Assessing Officer following the method established in earlier years' assessments, arrived at the reserves and profits derived from these SDCs and excluded them from the profits of individual STP units. The DRP concurred with the view of the Assessing Officer and issued directions accordingly.
32. It was submitted by the learned counsel for the assessee that the assessee claimed that a similar issue was considered by the co-ordinate bench of the Tribunal for Assessment Year in ITA No.1072/Bang/ 2007 (supra) and held in favour of the assessee and therefore its ground be accepted and relief be accordingly granted.
33. The learned Departmental Representative supported the orders of the authorities below.
34. We have heard both parties, carefully perused and considered the material on record. We have also perused the order of the co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2004-05 in ITA No.1072/Bang/07 (supra) and find that the discussions are at para 24 onwards and the relevant findings are at para 24.2 to para 24.3 which are extracted hereunder :
" 24.2. We have carefully considered the argument put-forth by the Ld. A.R. and also the reasoning of the Ld. AO and the Ld. CIT (A) in their respective orders. The Hon'ble Tribunal, for the AYs 2001-02 and 02-03 in the assessee's own case had an occasion to deal with an identical issue. After deliberations, the Hon'ble Tribunal had concluded thus -
"34.4. The learned CIT(A) has also not recorded a finding that such goods or services have been transferred at the market value. In absence of such a finding, it is not possible ITA No.1349/Bang/2010 Page 24 of 51 to uphold the finding of the learned CIT(A). This issue is required to be remitted back to the assessing officer and the assessee will be required to file the relevant details as required by the assessing officer so that the assessing officer can ascertain the market value of such goods or services transferred by arriving at the profit of the eligible business."
24.3. Considering the above finding, we are of the firm view that this issue requires to be remitted back to the assessing officer and, accordingly, we are remitting back this issue to the assessing officer for necessary action as contemplated in the Tribunal's finding referred supra."
35. On consideration of the above findings, we respectfully following this decision, are of the opinion that for this year also, the issue requires to be remitted back to the Assessing Officer and accordingly do so with a direction to the Assessing Officer to follow the decision of Tribunal mentioned supra.
36. In Grounds No.30 to 33 and Ground No.34 to 37, the Assessee has projected its grievance against the order of the AO whereby the AO excluded interest income, income generated from sale of scrap and exchange fluctuation, while computing eligible income on which deduction u/s.10A of the Act has to be allowed.
37. The learned counsel for the assessee submits that the aforesaid items are derived by the STP/SEZ undertakings and were correctly included for computing the eligible deductions. The assessee had also submitted that the deduction under section 10A is to be computed with reference to working formula in section 10A(4) wherein the expression 'profit of the business of the undertaking' is used and there is no case for excluding any of the aforesaid sources of income for computing the deduction. Alternatively, the learned counsel for the assessee submitted that the AO ITA No.1349/Bang/2010 Page 25 of 51 should be directed to calculate net income i.e., the related expenses incurred in earning the aforesaid income debited to profit and loss account should also be excluded. It was submitted that the Assessing Officer concluded that the interest shown as miscellaneous income in each of the units has to be excluded from the profits since no borrowed funds were used in the business of STP units. The Assessing Officer also held that income from sale of scrap has no relation to software development activity and hence the same is to be excluded. The learned counsel for the assessee further submitted that the DRP applied the decision in the case of Liberty India Vs. CIT (317 ITR 218) (SC) rendered in the context of section 80-IB deduction and concurred with the finding of the Assessing Officer.
38. The learned Departmental Representative relied on the finding on this issue in the orders of the authorities below.
39. We have heard both parties, carefully perused and considered the material on record. We find that this issue has been considered by the co-ordinate bench of this Tribunal, in the assessee's own case for Assessment Year 2004-05 in ITA No.1072/Bang/2007 dt.30.1.2009, wherein on page 19 in para 12.5 thereof, the Bench followed its earlier order wherein it was held as under :
"12.5. We have carefully considered the rival submissions and also perused the decisions on which reliance has been placed by either party.
(1) In respect of Scrap sale amount, we find that the Hon'ble Tribunal in its decision for the AYs 2001-02 & 02-03 in the assessee company's own case in ITA Nos:426,427,468 & 469/B/2006, following its earlier decision for the AYs 98-99 & 99-00 and extensively reproducing its reasoning, has concluded that, ITA No.1349/Bang/2010 Page 26 of 51 "it is clear that the sale of scrap reduced the quantum of expenditure debited for that purpose. On that basis, the amount received from the sale of scrap cannot be excluded for the purpose of computing deduction u/s 10A."
(2) In respect of exclusion of exchange rate fluctuation, the Hon'ble Tribunal in its decision referred supra has observed:
"11.3. It is seen that the Tribunal for the asst. year 2000-01, following its order for the asst. years 1998-99 and 1999-2000, held that foreign exchange gain due to fluctuation in the rate of rupee is to be included in the profit of the undertaking and is to be considered as eligible for deduction u/s 10A. The excess amount is received because the sale proceeds when received are more as compared to the price at which the goods were exported on account of exchange rate fluctuation. The exports are made at a price in foreign exchange and the amount is received in India subsequently and, therefore, some gain is there on account of fluctuation. For the purpose of section 80-HHC, the Mumbai Bench in the case of ACIT v. Muthu Mandir Tardev Road, Mumbai (2006) 10 SOT 148 held that exchange gain itself is to be considered as part of the export turnover. Hence, following the decision of the Bench in the case of the assessee for the earlier years, it is held that exchange fluctuation is to be considered as part of the profit of the undertaking eligible for deduction u/s 10A."
(3) With regard to interest income also, the Hon'ble Tribunal in its decision referred supra, after deliberating the issue at length has, arrived at a conclusion that -
"10.2. ................The treatment to be meted out to interest had been under dispute while computing profits of the business u/s 80HHC of the I.T.Act. as per Explanation (baa) to section 80HHC, 90% of the interest is not to be included in the profits of the business. The issue as to whether the interest to be treated as business income or income from other sources has been considered by various High Courts. The Delhi High court in the case of CIT v. Shriram Honda Power Equipment 289 ITR 475 has discussed such an issue at length. However, it was observed by the Delhi High Court that in a given case if the assessing officer has held the interest income as business income and this has not been challenged by the department in thereafter, then the question cannot be permitted to be reopened and the only question then ITA No.1349/Bang/2010 Page 27 of 51 will be if netting should be allowed. In the instant case the interest receipts have not been taxed as income from other sources. The assessing officer has also not discussed the nature of the interest income. It is not the case of the revenue that interest income is not business income of the undertaking eligible for deduction u/s 10A. Under the circumstances, we hold that the learned CIT(A) was justified in directing for not excluding the interest for the purpose of computing deduction u/s 10A as the assessing officer has not treated the interest income as income from Other sources or has not held that such income does not belong to the undertaking to which section 10A is applicable".
40. In view of the finding in the decision of the co-ordinate Bench of the Tribunal (supra) and respectfully following the same, we are of the considered view that the said decision holds good for this assessment year also with regard to interest income, exchange gain and income from sale of scrap. Ground No.30 to 37 are thus allowed.
41. In Grounds No.38 to 40, the Assessee has projected its grievance against the action of the AO in not considering the aggregate deemed export as export turnover of the undertakings eligible for deduction under Section 10A. The Assessee submits that the authorities failed to appreciate that deemed export enjoy the same status of export as per the EXIM policy and consequently is entitled to all the benefits as in the case of actual export. The learned counsel for the assessee submitted that the assessee company had carried out deemed exports by raising bills on local parties and received the sale proceeds in convertible foreign exchange. In the course of assessment proceedings, the assessee claimed that the deemed exports should be included as part of ''export turnover' of the undertakings eligible for deduction under section 10A / 10AA of the Act. The Assessing Officer, however, did not accept the ITA No.1349/Bang/2010 Page 28 of 51 assessee's claim and held that deemed exports are obviously not on account of export of software. It is submitted by the learned counsel for the assessee that the DRP was of the view that deduction under section 10A was to be allowed only when foreign exchange is received on export of computer software manufactured by the assessee and that the EXIM Policy cannot overrule the Income-tax Act which is a separate code in itself. The DRP noted that the assessee itself had not made this claim for deduction under section 10A in the return of income filed and finally held that since deemed exports do not actually involve export, the assessee is not eligible for deduction under section 10A thereby rejecting the assessee's claim. The learned Departmental Representative supported the orders of the Assessing Officer and pointed out that the ITAT in the assessee's own case for Assessment Year 2004-05 had held the issue in favour of Revenue and against the assessee and sought dismissal of assessee's grounds on this issue.
42. We have heard both parties and have carefully perused and considered the material on record. We are not convinced with the submission of the assessee and find that the co-ordinate Bench of this Tribunal in ITA No.1072/Bang/2007 in assessee's own case for Assessment Year 2004-05 had considered an identical issue and decided the issue against the assessee. The relevant extract of the finding in the Tribunal order at page 40 in para 22.1 is extracted hereunder :
"22.1. The Hon'ble Tribunal in assessee's own case for the AYs 2001-02 and 02-03 had an occasion to consider a similar issue. After an exhaustive deliberation and also drawing strength from its earlier decision in the case of Tata Elxsi Ltd. in ITA No: 315/Bang/2006 has confirmed the order of the Ld. CIT(A) on the issue. Respectfully following the said decision of ITA No.1349/Bang/2010 Page 29 of 51 the Hon'ble Tribunal, we are of the considered view that no interference is called for."
43. In view of the above decision, we are of the considered view that no interference is called for and consequently the grounds of appeal at S.Nos. 38 to 40 are dismissed.
44. In Ground No.41, the Assessee has challenged the action of the AO in excluding the Foreign taxes (VAT/GST) from the total turnover while computing deduction u/s.10-A of the Act. The learned counsel for the assessee submitted that the assessee is aggrieved by the action of the Assessing Officer in excluding the foreign tax (VAT / GST) collected from customers from the export turnover and total turnover and thereby granting a lower deduction under section 10A of the Act for STP units. The learned counsel for the assessee submitted that the Assessing Officer excluded the collection of foreign tax (VAT / GST) both from 'export turnover' and 'total turnover' as he was of the view that the same tax which is collected is subsequently remitted to the Government. The DRP concurred with and confirmed the Assessing Officer's finding.
45. The learned Departmental Representative supported the finding of the authorities below and pointed out that this Tribunal in the assessee's own case for Assessment Year 2004-05 in ITA No.1042/Bang/2007 (supra) had dismissed the assessee's ground on the very same issue. He, therefore, prayed that the assessee's ground be dismissed.
ITA No.1349/Bang/2010Page 30 of 51
46. We have heard both parties and have carefully perused and considered the material on record. We find that the co-ordinate Bench of this Tribunal had an occasion to consider the same issue in the assessee's own case for Assessment Years 2001-02 and 2002-03 wherein it was held that the Assessing Officer was justified in not including the foreign taxes in export turnover. The Tribunal further held that once this sum is not included in 'export turnover', then the same cannot be included in the 'total turnover'. The said decision was followed by the Tribunal in the assessee's own case for Assessment Year 2004-05 in ITA No.1072/Bang/2007. Respectfully following these decisions of the Tribunal (supra) on this issue, we are of the considered view that no interference is called for and accordingly dismiss the assessee's ground No.41.
47. In Grounds No.42 to 46, the Assessee has projected its grievance against the action of the AO in excluding communication link and other reimbursements incentives and rewards from the export turnover while computing deduction u/s.10-A of the Act. Alternatively, the Assessee has prayed that if the aforesaid sums are excluded from the export turnover then they should also be excluded from the total turnover.
48. The assessee company had primarily two categories / methods for realizing its price (i) Time and Material Contracts, which means that the price realized is linked to the efforts for the computer software delivered and the tools and equipment used for the same; and (ii) Fixed Price Contracts, wherein the price realized is with reference to milestones for delivery of computer software. The assessee submitted that it realized in convertible foreign exchange for the export of computer software ITA No.1349/Bang/2010 Page 31 of 51 accounted under various heads viz., assets reimbursement, travel reimbursements, incentive awards and other reimbursements and deductions under section 10A, 10B and 10AA of the Act were computed by the assessee including the said amounts in the 'export turnover' of the undertakings. The assessee also received communication link reimbursements in convertible foreign exchange as a component in the realization of the sales price for the computer software exported. The assessee submitted to the Assessing Officer that the nomenclature of the reimbursement is only representative of the customers having paid the price for the computer software developed and delivered in terms of identified expenses which are reimbursed pursuant to the contract of sale of computer software and that the amounts realized in convertible foreign exchange by way of reimbursements and incentive rewards are to be included as part of 'export turnover'.
49. The learned counsel for the assessee submitted that the Assessing Officer did not concur with the assessee's claim and held that reimbursements and incentive rewards cannot be turnover of the assessee, and least of all, a part of 'export turnover', as it is not consideration received for export of computer software. As regards the communication link reimbursement, the Assessing Officer held that these are in the nature of telecommunication charges attributable to delivery of computer software and are therefore to be excluded only from 'export turnover'. The DRP in its directions concurred with the views and findings of the Assessing Officer.
50. The learned Departmental Representative supported the orders of the authorities below. We have heard both parties and have carefully perused and considered the material on record. We find that the co-ordinate Bench of the ITA No.1349/Bang/2010 Page 32 of 51 Tribunal in the assessee's own case in ITA No.1072/Bang/2007 (supra) considered a similar issue on reimbursement of communication links and other sales performance expenses etc. at pages 23 to 26 and at para 14.7 thereof have followed the decision of the Tribunal in the assessee's case for Assessment Year 2001-02 and 2002-03 stating as under :
" 14.7 As similar issues have been decided by the Hon'ble Tribunal after the Assessment Years 2001-02 and 2002-03 in the assessee's own case, we respectfully follow the said decision in toto which holds good for the Assessment Year under dispute also. Accordingly, this issue is remitted back to the file of the Assessing Officer as in last year."
51. We, respectfully following the decisions of the co-ordinate Bench of the Tribunal in the assessee's own case in the earlier years, in ITA No.1072/Bang/2007 (supra), remit this issue back to the file of the Assessing Officer and direct the Assessing Officer to give the assessee adequate opportunity of filing the details on this issue and being heard in the matter.
52. In Ground No.47 to 53 and 54 & 55 the Assessee has projected its grievance against the action of the AO in excluding expenses incurred in foreign currency abroad and telecommunication expenses, from the export turnover while computing deduction u/s.10-A of the Act. It is the plea of the Assessee that the learned authorities below erred in proceeding with a presumption that expenses are embedded in the export turnover whereas in appellant's case there is no dispute that the items sought to be excluded are business expenditure incurred in foreign currency for on-site development of computer software (including services for development of computer software) which were not specifically included in turnover. ITA No.1349/Bang/2010 Page 33 of 51 The learned counsel for the assessee submitted that the Assessing Officer excluded the expenditure incurred in foreign currency from 'export turnover' on the basis of the definition of 'export turnover' contained in section 10A of the Act and held that the said expenditure having been incurred in providing technical services outside India requires to be excluded from the 'export turnover'. The Assessing Officer did not agree with the contention raised by the assessee that no such expenditure is required to be excluded as it is not in the business of providing technical services but in the business of computer software. It is submitted by the learned counsel for the assessee that in spite of Tribunal's decision, of earlier years in its own case being in its favour, the DRP has concurred with and confirmed the findings of the Assessing Officer.
53. The learned Departmental Representative on this point supported the orders of the authorities below.
54. We have heard both parties, carefully perused and considered the material on record. We find from the record that this Tribunal in the assessee's own casein ITA No.1072/Bang/2007 (supra) has considered a similar issue in favour of the assessee at paras 15 to 15.4 on pages 26 to 28 thereof, following the Tribunal's earlier order in the assessee's own case for Assessment Year 2001-02 and 2002-03. We, therefore, respectfully following the decisions of the Tribunal in the assessee's case for Assessment Year 2004-05 (supra), are of the considered view that the said decision applies for this year also and accordingly direct the Assessing Officer to follow the findings of the Tribunal. Thus grounds 47 to 53 and 54 & 55 are allowed to the extent stated above.
ITA No.1349/Bang/2010Page 34 of 51
55. In Grounds No.56 to 58, the Assessee has projected its grievance against the order of the AO in excluding from the export turnover while computing deduction u/s.10-A of the Act, sale proceeds that were not realised and brought into India within 6 months from the end of the previous year as provided in Sec.10-A(3) of the Act. The learned counsel for the assessee submits that the assessee company is aggrieved by the Assessing Officer's action in excluding the aggregate sum of Rs.13,07,29,648 received after 30.9.2006 from the 'export turnover' of undertakings eligible for deduction under section 10A of the Act. The Assessing Officer was of the view that since the sale proceeds were not remitted into India within 6 months from the end of the previous year as provided in section 10A(3) and also since the delayed realization did not have the approval of the competent authority, they were to be excluded from the 'export turnover'. The DRP, it is submitted, concurred with and upheld the Assessing Officer view brushing aside the assessee's reliance placed on the decision of the Hon'ble Apex Court in 204 ITR (St) 9 and of the Hon'ble Punjab & Haryana High Court in 193 ITR 71 in support of its claim.
56. The learned Departmental Representative, on his part, supported the orders of the authorities below.
57. We have heard both parties, carefully perused and considered the material on record. We find that a similar issue was considered by a co-ordinate bench of this Tribunal, in the assessee's own case, in ITA No.1072/Bang/2007 (supra) at pages 22 and 23 at paras 13 to 13.5 thereof and find that the issue has been decided in favour of the assessee. We, therefore, respectfully following the decision of the Tribunal in the assessee's own case for Assessment Year 2004-05 (supra), direct ITA No.1349/Bang/2010 Page 35 of 51 the Assessing Officer to include in 'export turnover' the collection made after the expiry of six months.
58. In Ground No.59 to 71, the Assessee has projected its grievance against the action of the AO in denying deduction u/s.10-A of the Act to its undertakings at Bangalore. The stand of the Assessee on the above issue was that the learned AO after noticing that the undertakings were established at various points of time for various business reasons erred in holding that all the undertakings were established prior to 1993. It is further claimed that the learned AO erred in refusing to recognize that each of the new undertakings were different from one another and exist independently and are eligible for deduction under Section 10A. That, establishing each new undertaking is an expansion of business could not be held against the appellant. It is further claimed that the learned AO having himself employed turnover as a key throughout the assessment order for assessing the total income, erred in giving a conflicting finding that allocation of common expenses of Wipro Technologies division to the various units in STPI and SEZ would result in the undertakings not being run independently. It is pleaded that the learned AO having sought and verified various unit-wise details of revenues and costs, which the appellant had furnished from the separate books of accounts maintained by it, committed a grave error in stating that separate accounts are being shown only to satisfy the Department for 10A deduction though the AO has not recorded any finding in this regard. The further stand of the Assessee is that the learned AO erred in denying the deduction under Section 10A even after recognizing the fact that the undertakings were located in Software Technology Park and all the conditions under ITA No.1349/Bang/2010 Page 36 of 51 Section 10A(2) of the Act are met and further erred in law in interpreting the provision of STPI against the assessee though no such interpretation is possible.
59. It was submitted by the learned counsel for the assessee that the assessee company had various undertakings at different locations within STPs, SEZs and also 100% EOUs. In respect of 38 undertakings, including eight new undertakings formed during the year, the assessee company claimed aggregate deduction of Rs. 1987,19,34,785 under sections 10A, 10B and 10AA of the Act in the return of income. It is submitted that on examination of the details filed in respect of this claim, the Assessing Officer proposed to disallow the deduction claimed u/s. 10A in respect of certain units at Bangalore having regard to the past assessment years wherein the deduction was denied. The Assessing Officer, after making adjustments in the 'export turnover' and the profits of the business, computed the deduction u/s. 10A/10AA for each of the undertakings in respect of which the assessee had made a claim. The Assessing Officer, it was submitted allowed deductions under sections 10A, 10AA and 10B as computed by him for STP undertakings located in cities other than Bangalore and also for 100% EOU; and for undertakings located in SEZs. It was submitted that the Assessing Officer allowed deduction under section 10A, computed by him, for undertakings, Electronic City 4 and Madiwala 5 located at Bangalore in the STP commenced on the strength of the new licence. The Assessing Officer also allowed deduction under section 10A/10AA of the Act in respect of STP/SEZ undertakings formed during the year. The Assessing Officer held undertakings located at M.G. Road, Koramangala 1, Laxmi Building, Madhapur ITA No.1349/Bang/2010 Page 37 of 51 and Madiwala 1 are not in any case eligible for deduction under section 10A as the period of 10 years has elapsed.
60. It was submitted by the learned counsel for the assessee that citing similar reasons as in the earlier years assessment orders, the Assessing Officer disallowed the claim for deduction under section 10A in respect of other undertakings in Bangalore formed at various points in time as a result of expansion of business as if they were formed in 1993 for all the undertakings were located in STPs with original licences issued in 1992. In this manner, the learned counsel for the assessee submits, the Assessing Officer concluded that the assessee had only two undertakings at Bangalore and since these undertakings commenced operations prior to 1.4.1993, they were not eligible for deduction under section 10A of the Act. It is submitted that the Assessing Officer also was of the view that the undertakings are not independent since common expenses were allocated on the basis of turnover to all the units as per the method of accounting followed by the assessee and that the software development centres situated in various countries executed the work of all units. The Assessing Officer observed that the appellate orders granting relief to the assessee were contested by the Department before the High Court under section 260A and as the outcome thereof was not known, in order to keep the matter/issues alive, he is following the decisions taken by the Assessing Officer on the same issue in earlier years. With these reasons, the Assessing Officer allowed aggregate deduction under section 10A/10AA/10B of the Act. It is contended that the DRP merely agreed with the order of the Assessing Officer noting that though the assessee company had obtained relief from the Tribunal in earlier years on this ITA No.1349/Bang/2010 Page 38 of 51 issue, the matter had been taken up by the Department under section 260A before the Hon'ble High Court.
61. The learned Departmental Representative on his part supported the findings and orders of the authorities below.
62. We have heard both parties, carefully perused and considered the material on record. The records indicate that the similar issue has been considered and dealt with exhaustively by this Tribunal. We find that this Tribunal has decided this issue in favour of the assessee company holding that the assessee is entitled for deduction under section 10A in its order in ITA No.1072/Bang/2007 and C.O. No.77/Bang/2007 dt.30.1.2009 for Assessment Year 2004-05. At para 17.3 and 17.4 at pages 31 and 32 of the said order, the Tribunal has held as under :
"17.3. We have duly considered the rival submissions and also critically analysed the facts and circumstances under which the Ld. CIT(A) had formed an opinion and arrived at a decision that the undertakings at Bangalore are eligible for deduction u/s 10A of the Act. We have also perused the Hon'ble Tribunal's decision referred supra. The Hon'ble Tribunal had dealt with the issue of applicability of section 10A of the Act comprehensively and also extensively quoted the decisions of Hon'ble Bombay Tribunal in the case of JCIT v. Associated Capsules (P) Ltd Mumbai (2008) 21 SOT 420, Hon'ble Delhi High court in the case of DI(Exemptions) v. Escorts Cardiac Assistance Hospital society reported in 300 ITR 75 and Hon'ble Supreme Court in the case of Radhasoami Satsang v.CIT reported in 193 ITR 321 to substantiate its stand in confirming the finding of the Ld.CIT(A). In its concluding paragraph, it has been thus held that -
"13.12. Hence, considering the rule of consistency, we also hold that the assessing officer was not justified in not allowing deduction u/s 10A. The Board vide Circular has explained the deduction will be permissible for ten years to the existing undertakings which were earlier allowed exemption u/s 10B, but that will be equally applicable for section 10A because both the ITA No.1349/Bang/2010 Page 39 of 51 sections are similar. Hence, we confirm the finding of the learned CIT (A) that the assessee is entitled deduction u/s 10A."
Considering the facts and circumstances of the issue and respectfully following the verdict of the Hon'ble Tribunal referred supra, we are of the considered view that the assessee company is entitled for deduction u/s 10A and, hence, we confirm the finding of the Ld. CIT(A) on this count."
63. After careful consideration of the facts and circumstances of this issue and respectfully following the decision of the Tribunal, for Assessment Year 2004-05 (supra), we are of the considered view that the assessee company is entitled for deduction under section 10A and therefore direct the Assessing Officer to allow the same in accordance with law. Grounds No.59 to 71 are allowed to the extent indicated above.
64. In Ground No.72 to 76, the Assessee has projected its grievance against the action of the AO in not allowing the deduction under section 80-IB in respect of the eligible undertaking at Pondicherry for manufacture of computer even though the assessee complied in all respects with the provisions of the said section and in treating sale of monitors along with computers as trading activity in this line and excluding the same while determining the profits eligible for deduction under Section 80-IB for undertakings at Pondicherry.
65. It is not in dispute before us that in ITA No.972/Bang/11 order dated 15.6.2012 in Assessee's own case, the Tribunal decided the issue of not allowing deduction u/s.80-IB of the Act in respect of Pondicherry unit as follows:
"18.4 We have heard both parties and have carefully perused and considered the material on record. We find that the issue of allocation of ITA No.1349/Bang/2010 Page 40 of 51 corporate overheads to various business units has already been considered by the Tribunal in the assessee's own case for A.Y. 2004-05 (supra) and earlier years and has deleted the addition made by the A.O. on this count. At para 20.3 on page 38 of the said order the Tribunal has held as under :
" 20.3. We have carefully considered their submissions. We have respectfully perused the decision of Hon'ble Tribunal referred supra. The Hon'ble Tribunal, after analyzing an identical issue exhaustively with reference to submissions of either party and also considering the reasoning of the Ld.CIT (A) in depth, has concluded, thus-
"33.7. In respect of allocation of expenditure, we have perused the order of the learned CIT(A). The assessee himself has allocated the overheads and such allocation has been made on the basis of sales turnover. Once such an allocation has been made by the assessee, then it was the duty of the assessing officer to point out that why the allocation is not correct. The assessing officer has simply ignored the details filed by the assessee and made the allocation. Without pointing out any error in the allocation the assessing officer was not justified in disturbing the allocation. Hence, the finding of the leaned CIT(A) on this issue is confirmed.
20.4. Respectfully, following the above ruling, we confirm the Ld.CIT(A)'s action."
We, therefore, respectfully following the decision of this Tribunal decision for A.Y. 2004-05 (supra), on the issue of allocation of corporate overheads, direct the A.O. not to allocate any corporate overheads to the 80-IB unit by disturbing the allocation made by the assessee company."
66. Similarly in respect of excluding income from trading activity of printers and monitors was also decided by the Tribunal in the aforesaid order as follows:
"19.4 We have heard both parties and have carefully perused and considered the material on record. We find that a similar issue was considered by the Tribunal in the assessee's own case for A.Y. 2004-05 (supra) wherein the Tribunal following its earlier order for Asst. Years ITA No.1349/Bang/2010 Page 41 of 51 2001-02 and 2002-03 at pages 43 and 44 at paras 25.3 and 25.4 have held the issue against the assessee as under :
" 25.3. Rival submissions were duly considered. The Hon'ble Tribunal in its order referred supra, has dealt with a similar issue in the assessee's own case for the AYs.01-02 & 02-03, comprehensively. After taking into account the Ld.AO's action, the findings of the Ld. CIT(A) and also a detailed rebuttal submitted by the assessee, the Hon'ble Tribunal has observed thus -
33.5. We have heard both the parties. As per section 80IB(3), the deduction is available as a percentage of profit and gains derived from the industrial undertaking. The industrial undertaking has not been defined u/s 80IB of the I.T.Act. Industrial undertaking has been defined in Explanation 1 to section 10(15). However, the definition is only for the purpose of 10(15). As per this definition, industrial undertaking means any undertaking, which is engaged in the manufacture or processing of goods. There is no dispute that Pondicherry units are industrial undertakings. In respect of electronic goods, the sales can take place in two ways as mentioned by the AR, either the amount is included in the sales invoice and warranties provided or the item is sold and separate amount is charged for annual maintenance charges. The assessing officer in his order has mentioned that entire control and management of post sales and service is rendered by Wipro Infotech. If the amount is included in the sales invoice and warranty is provided, then the purchaser has no option. No separate amount is charged for warranty and the amount charged is for the sale of the product manufacture by the industrial undertaking. Annual maintenance contract is a service contract for the maintenance of the electronic instrument. If it is not charged in the sales bill, then sales tax or excise cannot be charged on these amounts. When the assessee is deriving income from the service contract, then it cannot be said that it is deriving income from the industrial undertaking. The deduction u/s 80-IB commences from the year in which the industrial undertaking begins to manufacture or produce articles or things. Hence, the intention of the Legislature is quite clear that the deduction should be allowed to an industrial undertaking which the profit is derived from the manufacturing or production of an article or thing. Therefore, the learned CIT(A) was justified in ITA No.1349/Bang/2010 Page 42 of 51 holding that profit from AMC cannot be included for the purpose of computing deduction u/s 80IB.
33.6. In respect of monitors, it was submitted before the learned CIT(A) that the monitors are sold along with the computer manufacture by the undertaking. It may be an integrated component of the computer. If there is no value addition without any change in name, character or and use, then such an activity cannot constitute manufacture or production. If the monitors have been sold as part of the computer without making any value addition by the industrial undertaking, then the profit derived from sale of such monitors cannot be considered as profit derived from the industrial undertaking. Therefore, the learned CIT (A) was justified in holding that profit from sale of monitor is not includible for computation of deduction u/s 80-IB."
25.4. Respectfully following the said decision, we are of the considered view that (i) profit from AMC cannot be included and
(ii) the profit from sale of monitors cannot be included for computation of deduction u/s 80-IB."
Respectfully following the decision of the Tribunal in the assessee's case for A.Y. 2004-05 (supra) and earlier years (supra), we are of the considered opinion and hold that the profit from sale of monitors and printers are not to be included in computation of deduction u/s.80 IB of the Act. These grounds raised by the assessee are accordingly dismissed."
67. Parties agreed before us that the aforesaid decision of the Tribunal would apply to the present assessment year also as the facts and circumstances are identical. Respectfully following the decision of the tribunal referred to above, Ground of appeal relating to allocation of corporate overheads to 80IB unit is allowed, while the ground relating to including income from trading activity of monitor and printers is dismissed. Thus Grounds 76 to 76 are decided accordingly. ITA No.1349/Bang/2010 Page 43 of 51
68. In Ground No.77 to 79 the Assessee has projected its grievance against the order of the AO whereby the AO did not allow set off of losses of STP unit against income from business (Non STP units).
69. The assessee submitted the statutory report in Form 10CCB along with the Profit and Loss Account in respect of the Glucovita industrial undertaking at Baddi, Himachal Pradesh which manufactures Glucose Powder. The undertaking, which is eligible for deduction u/s 801C, reported a loss of Rs. 24,62,222/- for the relevant previous year and accordingly the deduction under section 80-IC for the year was Nil. For computing the total income for the assessment year, the Assessee set-off the loss of the industrial undertaking against its other taxable business income.
70. The AO held that the loss is not allowable for set-off u/s 80-IC(7) r.w.s. 80- IA(5) since this unit has to be treated as a standalone unit and only the net profits are eligible for deduction u/s 80-IC. Accordingly, the AO added back the loss of Rs. 24,62,222/-. The learned DRP also concurred with the AO with a direction that if an undertaking eligible for section 8O-lC incurs a loss, that loss cannot be set-off against income from other sources because this unit has to be treated as the only source of income.
71. The ld. AR for the assessee submitted that section 80-IC(7) read with section 80-IA(5) operate for the limited purposes of determining the deduction under section 80-IC(1) and it imposes no other restriction with regard to set-off of the loss of an undertaking against other income. Set-off of losses is governed by Section 70 and 71 and there is no restriction that the loss incurred by an undertaking eligible for an incentive deduction cannot be set-off against the other sources of profits / income. ITA No.1349/Bang/2010 Page 44 of 51
72. It was further submitted that the Tribunal in the earlier years has dealt the issue of set off of losses of STP units against other business income and has decided the issue in favour of the assessee in ITA.No. 1072/B/07 for AY: 2004-05 in para 16 of page 28.
73. The learned DR relied on the order of the AO.
74. We have considered the rival submissions. Sec.80IA(5) of the Act only prescribes the method by which the quantum of deduction has to be arrived. he words "as if" contained in sec.80-IA(5) specifically narrate that the profits of eligible business, have to be computed on a separate footing and doesn't bar the assessee from claiming set off of losses of eligible business against the undertaking which is not entitled to claim deduction u/s.80-IA of the Act. Therefore the provisions of sections 80IA of the Act cannot be a bar to claim set off. Moreover the deeming provisions contained in sec.80IA(5) cannot override the sec.70(1) of the Act. The ITAT Banglore in the case of Swarnagiri Wire Insulations Pvt.Ltd., Vs The ITO, Ward-3(1), Hubli, ITA No.200(Bang.)/2010 21.05.2010 has held that Sec.80-IA(5) cannot override the right of an Assessee for set off or being a bar to claim set off of loss u/s.70(1) of the Act. In the case of Swarnagiri Wire Insulation Pvt.Ltd., the Tribunal held as under:
" The carried forward loss of the eligible business was required to set off first against the income of the subsequent years of eligible business while determining the profits eligible for deduction under section 80IA of the Act and set off losses from other sources under the same head is not permissible. However, it should not forgotten that section 80IA of the Act is a beneficial section permitting certain deduction in respect of certain Income under Chapter VIA of the Act. A provision granting incentive for promotion of economic growth and development in taxing statutes should be liberally construed and restriction placed on it by way of exception, should be ITA No.1349/Bang/2010 Page 45 of 51 construed in a reasonable and purposive manner so as to advance the objects of the provision. It is a generally accepted principle that deeming provision of a particular section cannot be breathed into another section. Therefore, the deeming provision contained in section 80IA(5) cannot override the section 70(i) of the Act. The assessee incurs loss after claiming eligible depreciation. Hence, section 80IA becomes insignificant since there is no profit from which this deduction can be claimed. Section 70(i) comes to the rescue of the assessee, whereby he is entitled to set off the losses from one source against income from another source under the same head of income. However, once set off is allowed under section 70(1) from the income from another source under the same head, another deduction on the same count is not permissible i.e. during the subsequent years if the assessee makes surplus profits after claiming eligible allowances and he is entitled to claim deduction under section 80IA, the earlier benefit given under other sections of the Act should be taken into account before granting deduction under section 80IA".
The above reasoning of the Hon'ble ITAT has since been confirmed by the Hon'ble Karnataka High Court. In view of the above and also the decision on similar issue in Assessee's own case referred to earlier, we are of the view that the claim of the Assessee for set off has to be allowed. We direct the AO to allow the set off as claimed by the Assessee. The grounds of appeal are decided accordingly.
75. In Grounds No.80 & 81, the Assessee has challenged the order of the AO whereby the AO allocated a sum of Rs.57,76,956/- as relatable to toilet shop at Baddi, H.P. The assessee claimed the deduction u/s 80-lC equal to 100% of the profits of Rs. 34,78,67,020/- derived by the industrial undertaking at Baddi, Himachal Pradesh, which manufactures toilet soaps. The undertaking comes under Wipro Consumer Care Division of the assessee. The profit was computed as per the method of accounting regularly followed by the assessee. It was submitted that it runs each business unit/undertaking as an independent profit-centre and that separate accounts are maintained. It was further submitted that each unit has retained all such income and expenses pertaining to the business carried on by it ITA No.1349/Bang/2010 Page 46 of 51 and the transactions between the units were recorded on an arm's length basis and hence there is no need for allocation of expenses of Wipro Corporate to other Business units.
76. According to the AO, the profit of the undertaking is apparently over-stated and the depreciation adjusted profit of Rs. 34,78,67,020/- is arrived at without considering the Corporate expenses allocable to unit. Referring to the reasons discussed while dealing with 10A profits, the AO first allocated expenses of Wipro Corporate of Rs 2,62,49,109/- to Wipro Consumer Care Division (on the basis of turnover of Wipro Consumer Care division as a % of total turnover of the Company) and made a further allocation of Rs. 57,76,956/- to the industrial undertaking by applying the turnover ratio (i.e. turnover of the industrial undertaking as a % of the turnover of Wipro Consumer Care Division). The DRP agreed with the AO.
77. The ld. AR for the assessee contended that the issue of allocation of corporate expenses has already been exhaustively considered by the Hon'ble Tribunal in the earlier years and has been decided in favour of the appellant. Similar allocation made to units claiming deduction u/s 8OlB has also been deleted. Reliance was placed on the decision in ITA.No. 1072/B/07 on the issue of allocation of corporate expenses which is found in para 11 at page 15 in support of deleting the allocation made by the AO.
78. The learned DR relied on the order of the AO.
ITA No.1349/Bang/2010Page 47 of 51
79. At the time of hearing, both the parties agreed that similar issue was considered by the Tribunal in Assessee's own case in AY 07-08 in ITA No.972/Bang/2011 order dated 15.6.2012 and the Tribunal held as follows:
"21.4 We have heard both parties and have carefully perused and considered the material on record. We find that an identical issue of allocation of corporate over heads to various business units / undertakings for determining the profits for computing the deduction u/s. 80 IB of the Act has already been considered by the Tribunal in an earlier year in the assessee's own case in ITA No.1072/Bang/2007 for A.Y. 2004-05 (supra) in paras 20.3 and 20.4 thereof and has deleted the allocation of corporate overheads made by the Assessing Officer. Respectfully following this decision of the Tribunal on the issue of allocation of corporate overheads, we delete the allocation of corporate overheads made by the Assessing Officer to the soap unit at Baddi, Himachal Pradesh and the Glucovita unit while computing the deduction u/s. 80 IC of the Act."
Respectfully following the order of the Tribunal, we hold that the allocation of expenses as done by the AO be deleted. Gr.No.80& 81 are accordingly allowed as held in the earlier years.
80. In Ground No.82, the Assessee has projected its grievance against the action of the AO in not considering other income of Baddi unit being scrap sales, discounting of cheques and other income totalling in all a sum of Rs.20,17,616/- as part of the income eligible for deduction u/s.80-IC of the Act. It is not in dispute before us that identical issue was considered by the Tribunal in Assessee's own case in AY 07-08 in ITA No.972/Bang/2011 order dated 15.6.2012 and the Tribunal held as follows:
"22.2 We have heard both the learned counsel for the assessee and the learned Departmental Representative on the point. On careful perusal and consideration of the material on record, we find that the assessee company had not filed any objection against the Assessing Officer's finding before ITA No.1349/Bang/2010 Page 48 of 51 the DRP on this issue. Further, it is seen that there are no details of this issue on record. Since there is no cause of grievance on this issue to the assessee as no dispute on this issue arises out of the order of the DRP, this ground of appeal is found to be infructuous and is accordingly dismissed."
The position in the present assessment year remains the same. Following the order of the Tribunal referred to above, Gr.No.82 is dismissed.
81. In Ground No.83, the Assessee has projected its grievance against the action of the AO in not giving credit to foreign tax paid. It is the grievance of the Assessee that the learned AO erred in not allowing full credit of foreign taxes in respect of units eligible for deduction u/s 10A ignoring the principles set in appellant's own case by the CIT(A) while granting deduction u/s 80-O in AY 1990-91, which has attained finality. The learned AO erred in overlooking the specific provisions of section 90, 90(1), DTAA, appellate orders in appellant's own case and the decision of the Hon'ble Supreme Court in 263 ITR 706 while granting foreign tax credit.
82. It is not in dispute before us that identical issue was considered by the Tribunal in Assessee's own case in AY 07-08 in ITA No.972/Bang/2011 order dated 15.6.2012 and the Tribunal held as follows:
"24.4 We have heard both parties and have carefully perused and considered the material on record. We find that a similar issue was considered by this Tribunal in ITA No.1072/Bang/2007 (supra) in the assessee's own case at paras 18 to 18.5 on pages 32 to 34 thereof. The finding of the Tribunal on this issue is at para 18.3 to para 18.5 of the said order and is as under :
"18.3. We have carefully considered the submissions of the Ld.A.R and also the Ld.D.R. in the matter. An identical issue had cropped up in the AY 02-03 too. While considering the same, the Hon'ble Tribunal was of the opinion that -ITA No.1349/Bang/2010 Page 49 of 51
"22.6 ....................... Though the learned CIT(A) has discussed the reasons as to why the Assessing Officer has not allowed the deduction claimed by the assessee, but he has not given finding as to how the order of the Assessing Officer is not legally correct. The Assessing Officer has mentioned that the assessee has made claim for tax relief against the VAT tax paid in USA and Canada. As per the DTAA with USA and Canada, the claim is admissible only for the tax paid under Income-tax Act in India and federal tax in USA and Canada. It is clear that the Ld.CIT(A) has not disposed off this issue on merits ....................."
18.4. The Hon'ble Tribunal analyzing the issue in depth, was, further, opined that "22.8...............credit for income-tax paid in other country in relation to income u/s 10A will not be available u/s 90(1)(a). U/s 90(1)(b), the Central Government may enter into an agreement with a Government of any country outside India for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country. To see the applicability of section 90(1)(b), one is required to go through the DTAA agreements. Though the assessing officer has discussed this issue in detail in his order, but the learned CIT(A) has not considered the arguments advanced by the assessing officer in not allowing the tax credit. Hence, we feel that this issue requires to be reconsidered by the learned CIT(A) in view of the facts and arguments considered by the assessing officer in his order. Hence, this issue is restored back on the file of the learned CIT(A)."
18.5. In view of the above and also the issue before us is a similar one on which the Hon'ble Tribunal has deliberated and arrived at a conclusion cited supra, we are of the considered opinion that this issue should go back to CIT(A) for reconsideration. Accordingly, the issue is restored on the file of the Ld. CIT(A) for reconsideration."
ITA No.1349/Bang/2010Page 50 of 51
Respectfully following the decision of the Tribunal in the aforesaid order (supra), we restore the matter to the file of the CIT(A) for reconsideration in accordance with the directions contained therein."
83. We are of the view that identical directions as given in the earlier order referred to above would be just and proper in this year also. Thus Ground No.83 is decided accordingly.
84. In ground No.84, the Assessee has raised alternative claim u/s.80JJ of the Act in the event of non-grant of deduction u/s.10-A of the Act. Since the deduction u/s.10-A of the Act has been allowed, this ground has become infructuous.
85. The grounds raised at S.No.85 to 88 is with regard to levy of interest under Sections 234B / 234D of the Act. Similar issue was considered and decided by the Tribunal in Assessee's own case in AY 07-08 in ITA No.972/Bang/2011 order dated 15.6.2012 and the Tribunal held as follows:
"26.2 The assessee company denies its liability to the interest charged under section 234B and 234D of the Act. The charging of interest is consequential and mandatory and is to be charged in accordance with the provisions of the Act. The Assessing Officer having no discretion in the matter, his action in charging the same is held to be in order. The Assessing Officer is directed to recompute the interest chargeable under sections 234B and 234D, if any, while giving effect to this order."
86. Similar direction in the present assessment year would also be just and appropriate. We order accordingly.
87. The other grounds of appeal are general and do not require specific adjudication.
ITA No.1349/Bang/2010Page 51 of 51
88. In the result, the appeal of the Assessee is partly allowed.
Order pronounced in the open court on the 18th July, 2012.
Sd/- Sd/-
(N. BARATHVAJA SANKAR) (N.V.VASUDEVAN)
VICE PRESIDENT JUDICIAL MEMBER
Place: Bangalore
Dated: 18-07-2012
Am/DSP*
Copy to :
1. The assessee
2. The Revenue
3. CIT(A)
4. CIT
5. DR
6. GF(B'lore)
7. GF(Delhi)
By order
Sr. Private Secretary, ITAT, Bangalore