Income Tax Appellate Tribunal - Bangalore
M/S Wipro Limited , Bangalore vs Assessee on 4 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCH "B"
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND
SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
ITA No. & Appellant Respondent
Asst. Year
525/Bang/2011 M/s. Wipro Limited, Dy. Commissioner of
2005-06 Doddakannelli, Sarjapur Road, Income Tax,
Bangalore-560 025 Range 12(5), Bangalore.
Pan AACW 0387R
621/Bang/2011 Dy. Commissioner of Income Tax, M/s. Wipro Limited,
2005-06 Range 12(5), Bangalore. Bangalore-560 025
Appellant By : Shri K. R. Pradeep.
Respondent By : Shri Farhat Hussain Qureshi.
Date of Hearing : 04.10.2012.
Date of Pronouncement : 16.11.2012.
O R D E R
Per Shri Jason P. Boaz :
These cross appeals by the assessee and Revenue are directed against the order of Commissioner of Income Tax (Appeals)-IV, Bangalore dt.14.3.2011 for Assessment Year 2005-06. Both these appeals are heard and being disposed off by way of a common order in view of common issues involved and for the sake of convenience.
2. The facts of the case, in brief, are as under :
2.1 The assessee, a software company, with other lines of business, filed its return of income for Assessment Year 2005-06 on 31.10.2005 declaring income of Rs.167,49,72,855 after claiming deduction of Rs.1,509,40,70,753 under section 10A of the Income Tax Act, 1961 (herein after referred to as 'the Act'). The case was taken up for scrutiny by issue of notice under section 143(2) of the Act. In view of international transactions the 2 ITA Nos.525 & 621/Bang/2011 assessee had with Associated Enterprises (AE), the case was referred to the Transfer Pricing Officer (TPO) under section 92CA for determination of the arms length price (ALP) after obtaining the approval of the CIT. The Addl. Director of Income Tax (TP)-II, Bangalore by order under section 92CA of the Act dt.20.3.2008 proposed Transfer Pricing adjustment of Rs.1,98,87,095 on the issue of interest chargeable on advances made to the assessee's associated enterprises. In view of the transfer pricing adjustment, the assessee was granted an opportunity to reply to the proposed adjustment. The assessee company filed objections thereto by letter dt.24.3.2008. The Assessing Officer did not accept the assessee's objections to the TP adjustment and completed the assessment making an addition of Rs.1,98,87,095 to the total income having regard to the ALP so determined. The Assessing Officer accordingly passed the order of assessment under section 143(3) of the Act on 29.12.2008.
3. Aggrieved by the order of the assessment for Assessment Year 2005-06 dt.29.12.2008 the assessee went in appeal before the CIT (Appeals) who disposed the appeal by order dt.14.3.2011 granting the assessee partial relief.ITA No.525/Bang/2011 (Assessment Year 2005-06)
4. In all the assessee company has raised 28 grounds in this appeal. These will be disposed off in seriatum ground wise as under.
5. The grounds of appeal raised at S.Nos.1 and 7 are general in nature and therefore no adjudication is called for thereon.
6.1 The grounds of appeal at S.Nos.2 to 6 in respect of transfer pricing adjustments are as under :3
ITA Nos.525 & 621/Bang/2011 Transfer Pricing Adjustment " 2. The learned authorities below, in the facts and circumstances of the case of the appellant, erred in concluding that further transfer pricing adjustment is necessary on the advances made by the appellant to its associated enterprises for the reason that the appellant had not charged interest on such advances.
3. The learned authorities below erred in not following the principles laid down by the Hon'ble Supreme Court in 236 ITR 315 and 288 ITR 1.
4. The learned CIT (Appeals) erred in not adhering to the principles of consistency in as much as for the earlier years the first appellate authority had held that TP adjustment is possible only in cases where comparable uncontrolled transactions entered into between two enterprises are established, which was also upheld by the Hon'ble ITAT.
5. Without prejudice, the learned CIT (Appeals) in benchmarking with the interest on savings in India for determining the interest rate of 9% as the arm's length price though the requirements of Rule 10B/C were not met.
6. The learned authorities below erred in not allowing the variance of + / - 5% envisaged in the Act and Circular."
6.2 In respect of the grounds at S.Nos.2 to 5, the learned counsel for the assessee submitted that the Assessing Officer erred in making a transfer pricing adjustment of Rs.1,98,87,095 of interest @ 12% p.a. based on the TPO's order and the confirmation of this by the CIT(Appeals) to the extent of Rs.1,39,27,497 @ 9% p. a. worked out on the average balance of each month against the closing balance of each month by the TPO 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 learned counsel for the assessee contends that the transfer pricing adjustment made by the TPO at 12% rate of interest based on 4 ITA Nos.525 & 621/Bang/2011 LIBOR and sustained by the learned CIT(Appeals) at 9%, 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 contended that the interest disallowance sustained in the learned CIT(Appeals)'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 and followed in Assessment Year 2007-08 in ITA No.972/Bang/2011 dt.15.6.2012.
6.3 The learned Departmental Representative supported the orders of the Assessing Officer on this issue holding that the interest chargeable at 12% therein be upheld and the order of the learned CIT(Appeals) sustaining the said disallowance to 9% be reversed.
6.4 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 5 ITA Nos.525 & 621/Bang/2011 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. ..................................".
7.2. Respectfully following the said decision, we confirm the order of the learned CIT(A) on this count."
This finding was followed by this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra). 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 Years 2004-05 and 2007-08 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. 6.5 In the ground raised at S.No.6 (supra), the assessee has sought for the grant of + /
- 5% deduction from the ALP as envisaged in section 92(2) of the Act. The learned counsel for the assessee did not press this ground in view of amendment of the Act by Finance Act, 2012 wherein section 92C(2A) was inserted with retrospective effect from 1.4.2002. In view of this ground not being pressed, it is rendered infructuous and accordingly dismissed.
7.1 The grounds of appeal at S.Nos.8 & 9 are as under :
Miscellaneous Income not considered as part income eligible under Section 10A:
" 8. The learned authorities below erred in holding that 'other income' of Rs.65,550 has to be reduced while computing deduction under section 10A.
9. The learned authorities below ought to have appreciated that the said income directly emerged from the business of the section 10A units and hence qualified for deduction under section 10A of the Act."
6
ITA Nos.525 & 621/Bang/2011 7.2 The learned counsel for the assessee submits that the learned CIT(A) erred in holding that other income amounting to Rs.65,500 has to be reduced while computing the deduction under section 10A of the Act as the said income directly emerged from the business of the 10A units and hence would qualify for deduction under section 10A of the Act.
7.3 The learned Departmental Representative relied on the finding on this issue in the orders of the authorities below.
7.4 We have heard both parties and have carefully perused and considered the material on record. We find that this issue has been considered by the learned CIT (Appeals) at para 13.4(iii) on page 21 of his order and has given a categorical finding that -
" The nature of the above income has not been explained nor could it be established that the same can be assessed under the head 'business income'. Accordingly it is held that the Assessing Officer is justified in reducing other income while computing deduction under section 10A."
In appeal before us also, except the submission made by the learned counsel for the assessee, no explanation as to the nature of this income of Rs.65,550 was furnished nor any material brought on record to establish that such income was business income. In these circumstances, we are constrained to uphold the Assessing Officer action in reducing other income of Rs.65,500 while computing deduction under section 10A of the Act.
8.1 The grounds raised at S.Nos.10 & 11 are as under :
7
ITA Nos.525 & 621/Bang/2011 "Deemed Exports not eligible for deduction under Section 10A:
" 10. The learned authorities below erred in not reckoning deemed exports as a part of export turnover for computing the deduction under section 10A. The learned authorities ought to have observed that deemed exports from various undertakings in software technology parks qualified as export turnover.
11. The learned authorities in not appreciating the fact that deemed exports are exports as per the EXIM policy and also erred in excluding the same from the purview of 'export turnover' and thereby concluding that the same is not entitled to the deduction under section 10A."
8.2 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 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 learned CIT(Appeals) 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 learned CIT(Appeals) noted that the assessee itself had accepted that on this issue, the claim for deduction under section 10A was held against the assessee by the decisions of co-ordinate benches of this Tribunal for Assessment Years 2001-02 and 2002-03 wherein it upheld the learned CIT(Appeals)'s finding that the assessee was not eligible for deduction under section 10A on deemed exports thereby rejecting the assessee's claim.
8
ITA Nos.525 & 621/Bang/2011 8.3 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 Years 2004-05 in ITA No.1042/Bang/2007 and 2007-08 in ITA No.972/Bang/2011 dt.15.6.2002 had held the issue in favour of Revenue and against the assessee and sought dismissal of assessee's grounds on this issue.
8.4 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.1042/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 the Hon'ble Tribunal, we are of the considered view that no interference is called for."
This finding of the Tribunal for Assessment Year 2004-05 was followed by another bench of this Tribunal or Assessment Year 2007-08 in ITA No.972/Bang/2011 (supra). In view of the above decisions, we are of the considered view that no interference is called for and consequently the grounds of appeal at S.Nos.10 and 11 are dismissed. 9.1 The grounds of appeal raised at S.Nos.12 to 14 are as under :
Issue of Exclusion of Foreign taxes (VAT / GST) from Export and Total turnover:
" 12. The learned authorities below erred in excluding the foreign taxes (VAT / GST) from export turnover and total turnover and thereby granting a lower 9 ITA Nos.525 & 621/Bang/2011 deduction under Section 10A for the undertakings in software technology parks.
13. The learned authorities below erred in concluding that VAT / GST cannot be included in export turnover and also in the total turnover though there is no requirement to exclude the same as per the provisions of Section 10A of the Act.
14. Without prejudice, similar amount should have been reduced not only from the total turnover but also from the expenditure incurred by the units under section 10A."
9.2 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. 9.3 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 and that this finding was followed by the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.972/Bang/2011 (supra). He, therefore, prayed that the assessee's ground be dismissed.
9.4 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 occasion to consider the same issue in the assessee's own case for Assessment Years 2001-02 and 10 ITA Nos.525 & 621/Bang/2011 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 and Assessment Year 2007-08 in ITA No.972/Bang/2011 (supra). 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.
10.1 The grounds of appeal at S.Nos.15 & 16 are as under :
Software development centres outside India "15.The learned authorities erred in stating that on-site is only client's site and the development of computer software in software development centers of the assessee outside India cannot be construed as on-site development of computer software referred to in Explanation 3 to Section 10A.
16. The learned authorities erred in not appreciating that the software development centers outside India were only facilitating the on-site development of computer software in software technology parks."
10.2 It was submitted by the learned counsel for the assessee that the Software Development Centres (SDCs) in Germany, Sweden, UK, Canada, Finland and Japan were set up by the assessee to facilitate the on-site development of software to specific customers. These, it is 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 is submitted that the assessee's arguments 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 11 ITA Nos.525 & 621/Bang/2011 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 (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 learned CIT(Appeals) concurred with the view of the Assessing Officer. It was submitted by the learned counsel for the assessee that a similar issue was considered by the co-ordinate bench of the Tribunal for Assessment Year in ITA No.1072/Bang/ 2007 (supra) which was held in favour of the assessee which was followed by the co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.972/Bang/2011 dt.15.6.2012. It is contended that the ground be accepted and relief be accordingly granted.
10.3 The learned Departmental Representative supported the orders of the authorities below.
10.4 We have heard both parties and have carefully perused and considered the material on record. We have 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 :12
ITA Nos.525 & 621/Bang/2011 " 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 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."
This decision has been followed by the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.972/Bang/2011. On consideration of the above findings, we respectfully following these decisions of the co- ordinate bench of this Tribunal for Assessment Year 2004-05 and 2007-08 (supra), 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.
11.1 The grounds raised at S.No.17 are as under :
Loss of STP undertaking "17. The learned CIT(A) erred in importing the concept of section 80IA(5) into section 10A when there is no such provision found in section 10A."13
ITA Nos.525 & 621/Bang/2011 11.2 The learned counsel for the assessee submitted that the core of the issue is in respect of set off of losses of Rs.21,84,76,802 from 7 undertakings in Software Technology Parks (STPs) against the taxable profits from other business of the 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 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 14 ITA Nos.525 & 621/Bang/2011 assessee submitted that in the learned CIT(Appeals)'s order be 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 learned CIT(Appeals) 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. 11.3 The learned Departmental Representative supported the orders of the authorities below.
11.4 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 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 15 ITA Nos.525 & 621/Bang/2011 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."
This decision of the Tribunal was followedby a co-ordinate bench of the Bangalore ITAT in the assessee's own case for Assessment Year 2007-08 in ITA No.972/Bang/2011 dt.15.6.2012. Respectfully following the decision of the co-ordinate bench of the Tribunal in the assessee's own case for Assessment Years 2004-05 and 2007-08 (supra) on this issue, 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 under section 10A.
12.1 The ground of appeal at S.Nos.18 to 20 are as under :
Foreign Tax Credit " 18. The learned authorities below erred in overlooking the specific provision such as Sec.90, 90(1), DTA and the decision of the Supreme Court in 263 ITR 706 and various other case laws while rejecting the claim for tax credit.
19. The learned CIT(A) erred in holding that the earlier decision of CIT(A) for AY 1990-91 in allowing full foreign tax credit is not relevant since deduction was allowed under section 80-O in AY 1990-91 whereas the deduction is allowed under section 10A / 10B in the current assessment year. The learned CIT(A) ought to have appreciated that both section 80-O and section 10A/10B allow a deduction.
20. The learned authorities below erred in not following the binding decision of the Hon'ble Income tax Appellate Tribunal in the appellant's own case for AY 1998-99 & 1999-00."16
ITA Nos.525 & 621/Bang/2011 12.2 The learned counsel for the assessee submitted that when the assessee company had sought credit for foreign taxes paid, the Assessing Officer granted relief of foreign tax paid only in respect of units at Bangalore for which deduction u/s.10A was not allowable. It is submitted that in the course of assessment proceedings, the assessee claimed that it was eligible for credit of aggregate foreign taxes of Rs.83,30,54,629 paid in various countries. On examination of the submitted copies of tax returns filed in those countries the assessee's claim for tax credit was revised to Rs.70,44,35,309. It is submitted by the learned counsel that the assessee company is an Indian Company registered in India, accordingly a tax resident in India. Its global income is liable to tax in India in accordance with the provisions of section 5 of the Act. The assessee, it is submitted, is engaged in the development of computer software for its customers spread across the globe, which inherently involves on-site development as well, and which results in liability to tax in the respective foreign jurisdictions. The assessee company submitted that it has considered all its income as income of various STP undertakings for computing its income under the head 'Profits & Gains from Business & Profession' in the tax return filed in India. It is submitted that in view of this, the entire foreign tax payments is eligible for credit as per the provisions of the respective Double Tax Avoidance Agreements (DTAA), the decision of the Hon'ble Apex Court in 263 ITR 706 and as per the appellate orders in the assessee's own case for earlier years. According to the Assessing Officer, foreign tax credit is to be allowed only in respect of profits of those units in respect of which the deduction u/s.10A is not granted. The Assessing Officer 17 ITA Nos.525 & 621/Bang/2011 held that foreign tax corresponding to profits taxed both in India and respective foreign countries is to be allowed as credit. Accordingly, the Assessing Officer allowed credit of Rs.55,08,08,274. The learned CIT(Appeals) concurred with the view of the Assessing Officer and rejected the assessee's objection.
12.3 The learned Departmental Representative supported the orders of the authorities below.
12.4 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
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"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 18 ITA Nos.525 & 621/Bang/2011 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."
This decision of the Tribunal (supra) was followed by a co-ordinate bench of this Tribunal in the assessee's own case Assessment Year 2007-08 in ITA No.972/Bang/2011 (supra). Respectfully following the decisions 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.
13.1 The grounds raised at S.No.21 is as under :
Deduction under Section 80IB " 21. The learned authorities below erred in concluding that purchase and sales of monitors constituted trading activity, although such monitors are an integral part of computers sold and no separate consideration was realized for the sale of monitors."
13.2 It is submitted by the learned counsel for the assessee that the assessee sold computers manufactured from its industrial undertaking at Pondichery and that monitors were an integral part of the computers manufactured therein. It is submitted that the assessee claimed deduction u/s. 80 IB on the profits on sale of monitors and printers procured from outside which were sold along with the computers manufactured by it at its Pondichery undertaking. The learned counsel for the assessee submitted that a monitor is an output device for the computer, the value of which is included in the value of computers 19 ITA Nos.525 & 621/Bang/2011 on which excise duty is charged and that the assessee has not recovered any separate consideration for the monitor. The Assessing Officer was however of the view that the assessee is also carrying on some trading activity of monitors and printers in addition to manufacture of computer hardware and held that as both monitors and printers are such devices that can be sold independently, therefore, the profit derived from sale of monitors and printers was to be excluded / reduced from the profits for computing the eligible deduction u/s. 80 IB of the Act. It was submitted by the learned counsel for the assessee that the learned CIT(Appeals) upheld the view of the Assessing Officer while disposing off the assessee's objections.
13.3 The learned Departmental Representative on his part supported the orders of the authorities below and prayed that they be upheld.
13.4 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 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 20 ITA Nos.525 & 621/Bang/2011 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 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."
This decision was followed by the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.972/Bang/2011 (supra). Respectfully following the decision of the Tribunal in the assessee's case for A.Ys. 2004-05 and 2007- 08 (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 21 ITA Nos.525 & 621/Bang/2011 deduction u/s.80 IB of the Act. These grounds raised by the assessee are accordingly dismissed.
14.1 The grounds of appeal raised at S.No.22 is as under :
('Other Income' not considered as income eligible for deduction u/s.10A) "22.The learned authorities below erred in concluding that miscellaneous Income is not eligible for deduction U/s 80IB when the same is derived from the undertaking."
14.2 The learned counsel for the assessee submitted that the profit of the industrial undertaking at Pondichery manufacturing computers in respect of which the assessee claimed deduction u/s. 80IB included an amount of Rs.88,64,984 reported as 'Other income' which comprised of rental income and provision no longer required. It was submitted that this sum of Rs.88,64,984 is also eligible profit for claiming deduction u/s.
80 IB and reliance was placed on the decision of the Hon'ble Madras High Court in the case of VBC Industries Ltd. Vs. DCIT reported in 293 ITR 475. The Assessing Officer, however, was of the view and held that deduction u/s. 80 IB was not allowable on 'Other income' and excluded the same while computing the deduction u/s. 80 IB of the Act. It is submitted by the learned counsel for the assessee that the learned CIT(Appeals) concurred with the view of the Assessing Officer stating that profits from allied activities which do not have any first degree nexus are not profits derived from the industrial undertaking. In this regard, the learned CIT(Appeals) was of the view that since no details of provision for expenses made in earlier years has been given this item of other income was to be excluded in computing deduction under section 80IA of the Act.22
ITA Nos.525 & 621/Bang/2011 14.3 The learned Departmental Representative on his part supported the orders of the authorities below and prayed for confirmation of the same.
14.4 We have heard both parties and have carefully perused and considered the material on record. Unless rental income represents a recovery of the rent paid by the undertaking, it cannot be regarded as profit derived by the industrial undertaking. Since the rental income in the assessee company's case does not meet this requirement, we confirm the order of the Assessing Officer that rental income should be excluded in computing the deduction u/s. 80 IB of the Act.
14.5 As regards the issue of provision no longer required, it is the claim of the assessee that it arises on account of the method of accounting followed by the assessee company and it cannot be the case that a provision will reduce the profits of an undertaking but its subsequent reversal will not enhance such profits. In the facts and circumstances of this case, we are of the view that no details of the said provision have been brought on record by the assessee to establish that it was in fact derived by the industrial undertaking and how it was so derived. The fact that it would reduce the profits or enhance it, is immaterial. In this view of the matter, we hold that the item 'provision no longer required' should not be included in the profits derived by the industrial undertaking and therefore would not be included in the profits eligible in computation of the deduction u/s. 80 IB of the Act.
14.6 An identical issue in respect of 'other income' comprising of 'rent' and 'provision no longer required' was considered by the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.972/Bang/2011 (supra) at 23 ITA Nos.525 & 621/Bang/2011 paras 20.1. to 20.4 thereof in which this issue was held against the assessee. Respectfully following the decision of the co-ordinate bench of the Tribunal in the assessee's case for Assessment Year 2007-08 (supra), we hold that 'other income' comprising 'rent' and 'provision no longer required' should not be included in the profits derived by the industrial undertaking and therefore would not be included in the profits eligible for computation of the deduction under section 80IB of the Act. It is ordered accordingly. 15.1 In the ground raised at S.No.23, the assessee has challenged the Assessing Officer's action in excluding 'Misc. income' of Rs.4,21,374 from forming a part of the income derived from the manufacturing activity at the industrial undertaking at Baddi, H.P. for the purposes of computing the deduction u/s.80 IC of the Act. 15.2 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 details before the learned CIT(Appeals) in the course of appellate proceedings leading to him upholding the Assessing Officer's action in the matter. Further, it is seen that there are no details of this issue on record. In this view of the matter, we hold that the learned CIT(Appeals)'s action in sustaining the Assessing Officer's action in excluding 'Misc. Income' of Rs.4,21,374 from the income of the undertaking at Baddi, H.P. for the purposes of computing the eligible deduction under section 80IC of the Act is in order. The assessee's ground is accordingly dismissed.
24
ITA Nos.525 & 621/Bang/2011 16.1 Interest under section 234B.
In the ground raised at S.Nos.24 & 25, the assessee has denied its liability to be charged interest under section 234B of the Act. It was contended by the learned counsel for the assessee that interest under section 234B, if any should have been charged only on the returned income and be limited to the date of regular assessment. 16.2 The grounds raised by the assessee are duly considered. The charging of interest under section 234B is consequential and mandatory and the Assessing Officer has no discretion in the matter. This being the ratio of the decision of the Hon'ble Apex Court in the case of CIT Vs. Arjun M.H. Ghaswala (252 ITR 1), the charging of interest under section 234B by the Assessing Officer is upheld. The Assessing Officer is, however, directed to recompute the interest chargeable under section 234B, if any, while giving effect to this order.
17.1 Interest under section 234D In the grounds raised at S.No.26, the assessee has denied its liability to be charged interest under section 234D of the Act. The learned counsel for the assessee contended that the Assessing Officer erred in charging interest under section 234D of the Act when no refund was actually granted to the assessee.
17.2 The grounds raised by the assessee are duly considered. Interest under section 234D of the Act is to be charged in case the assessee has received a refund, which in regular assessment is found to be not due, the assessee shall liable to pay simple interest @ ½ % on the whole of the excess amount so refunded. In these circumstances, it cannot be said that the assessee was wrongly charged interest by the IT Department. 25
ITA Nos.525 & 621/Bang/2011 In this view of the matter, we uphold the Assessing Officer's action in charging the assessee interest under section 234D of the Act. The Assessing Officer is, however, directed to recompute the interest chargeable under section 234D, if any, while giving effect to this order.
18. The grounds raised at S.Nos.27 & 28, are general in nature and therefore no adjudication is called for thereon.
19. In the result the assessee's appeal in ITA No.525/Bang/2011 is partly allowed. ITA No.621/BANG/2011 (Assessment Year 2005-06)
20. This cross appeal is by Revenue against the order of CIT (Appeals)-IV, Bangalore dt.14.3.2011 in which 21 grounds have been raised. These will be disposed in seriatum as under :
21. The ground raised at S.Nos.1, 19, 20 and 21 being general in nature no adjudication is called for thereon.
22.1 The grounds of appeal at S.Nos.2 to 6 in respect of transfer pricing adjustments are as under :
" 2. That the learned CIT (Appeals) erred in reducing the rate of interest on interest free loans advanced by the assessee to its AEs in USA, UK and Japan from 12% p.a. to 9% p.a., comparing the said commercial loans with comparatively risk free deposits made by individuals with the Banks and the Government particularly when the three AEs aforesaid had admittedly been reporting losses and were, therefore, high risk-bearing business entities.
3. That the learned CIT (Appeals) erred in not considering the TPO's argument of risk factor involved in the loan transactions under consideration when the TPO mentioned the risk factor of the loans with reference to CRISIL risk ratings.
4. That the learned CIT (Appeals) erred in not considering the fact that the BPLRs (Benchmarking Prime Lending Rates) as per the RBI's report on "Trend and Progress of banking in India 2004-05" (discussed in para 1.16 of TPO's 26 ITA Nos.525 & 621/Bang/2011 report) together with an upward adjustment for the higher risks involved in this case, justifies the rate of 12% adopted by the TPO.
5. The learned CIT (Appeals) erred in rejecting the computation of the monthly interest worked out by the TPO which was based on the working provided by the assessee as contained in its submissions dated 12.3.2008 and 20.3.2008 wherein all the incomings and outgoings of money stood considered.
6. The learned CIT (Appeals) ought not to have directed the Assessing Officer to adopt interest rate at 9% on the consideration that the advances were given by the assessee out of surplus funds without appreciating the fact in any uncontrolled transaction, party having surplus funds would be lending money only for an appropriate return after considering the risks involved."
22.2 In respect of the grounds at S.Nos.2 to 6, the learned D.R. submitted that the learned CIT(Appeals) erred in reducing the rate of interest on the interest free loans advanced by the assessee to its Associated Enterprises (AE) in USA, UK and Japan from 12% p.a. to 9% p.a. by comparing the said commercial loans with comparatively risk free deposits made by individuals with Bank and the Government partially when the aforesaid three AE's were running in losses and were, therefore, high risk bearing business entities. It was further argued that the learned CIT(Appeals) was wrong in not considering the risk factor of the loans with reference to CRISIL risk ratings OR the fact that Benchmarking Prime Lending Rates (PLR) as per RBI's report on 'Trend and Progress of banking in India 2004-05' justified the rate of interest at 12% adopted by the TP. Moreover when the advances were given by the assessee to its AE's out of surplus funds which would otherwise have been advanced for an appropriate return after considering the risks involved.
22.3 The learned counsel for the assessee contended that the interest determined both in the TPO's order at 12% per annum and that of the learned CIT(Appeals) at 9% was 27 ITA Nos.525 & 621/Bang/2011 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. The learned counsel for the assessee 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. 22.4 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. ..................................".
7.2. Respectfully following the said decision, we confirm the order of the learned CIT(A) on this count."
This decision was followed by a co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.972/Bang/2011 (supra). 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 Years 2004-05 and 2007-08 28 ITA Nos.525 & 621/Bang/2011 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.
23.1 The grounds of appeal raised at S.No.7 is as under :
" The CIT (Appeals) erred in deleting the disallowance of depreciation on imported software made by the Assessing Officer. The CIT (Appeals) ought to have appreciated that - (1) the payments made on account of software import for in house utilization are in the nature of royalty within the meaning of Expln. 2 below section 9(1)(vi); (ii) the assessee has failed to deduct tax at source as per the provisions of section 195; and (iii) applying the provisions of section 40(a)(i), the depreciation on software imports is disallowable. The CIT (Appeals) erred in not considering the decision of jurisdictional High Court in the case of Samsung & Others (2010) 320 ITR 209 (Kar) on this issue."
23.2 It is submitted by the learned Departmental Representative that assessee company claimed depreciation amounting to Rs.17,06,58,039 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. The Assessing Officer did not accept the explanation put forth by the assessee and disallowed the entire depreciation claimed on the ground that
i) the payments made on account of software import for in house utilization are in the nature of royalty as per Explanation 2 to section 9(1)(vi).
29
ITA Nos.525 & 621/Bang/2011
ii) there was an obligation on the part of the assessee to effect deduction from out of payments made by them in favour of non-resident recipients under section 195 of the Act for acquiring any software even assuming that it has partaken the character of goods and failure to do so attracted the provisions of section 40(a)(ia) of the Act. 23.3 It is contended by the learned counsel for the assessee that this issue is squarely covered in favour of the assessee by the orders of the Tribunal in its own case inearlier years viz., for Assessment Year 2004-05 in ITA No.1072/Bang/2007 and Assessment Year 2007-08 in ITA No.972/Bang/2011 dt.15.6.2012 which followed the orders of the Tribunal on this issue for Assessment Years 2001-02 and 2002-03 in ITA Nos.426, 427, 468 & 469/Bang/2006. It is submitted by the learned counsel for the assessee that following these orders of the Tribunal (supra), the learned CIT (Appeals) allowed the assessee's claim on this issue.
23.4 We have heard both parties and have perused and carefully 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 decisionof the co-ordinate bench of the Tribunal for Assessment Years 2004-05 and 30 ITA Nos.525 & 621/Bang/2011 2007-08 in ITA No.972/Bang/2011 (supra) decide this issue of depreciation on software, purchased both locally and imported, for its business in favour of the assessee. 24.1 In the grounds raised at S.No.8, Revenue has challenged the learned CIT(Appeals)'s action in deleting the addition made on account of unavailed Modvat Credit to the value of closing stock, following the decisions of the ITAT for earlier years as the issue had not attained finality since the department had filed an appeal against ITAT orders before the Hon'ble High Court.
24.2 Per contra, the learned counsel for the assessee submitted that the issue of unavailed MODVAT credit to the value of closing stock was covered in favour of the assessee by the decision of the Hon'ble ITAT in its order in ITA Nos.881, 882, 895 & 896/Bang/03, in the assessee's own case for Assessment Years 1998-99 and 1999-2000 at paras 29.1 to 29.5 at pages 123 to 125 thereof.
24.3 We have heard both parties and carefully perused and considered and the decision of the Tribunal in assessee's own case referred to by the learned counsel for the assessee (supra). On perusal thereof, we find that the co-ordinate bench of this Tribunal in the assessee's own case in ITA Nos.881, 882, 895 and 896/Bang/2003 for Assessment Year 1999-2000 considered this very issue at paras 15 and 15.1 at page 42 thereof and its finding is extracted and reproduced hereunder :
" 15. The learned CIT (Appeals) failed to appreciate that even after the introduction of section 145A w.e.f. 1.4.1999, inclusion of Modvat credit in the cost of purchases, consumption and stock valuation does not affect the profit computed for the year. The direction of the learned CIT (Appeals) to recast the trading and profit and loss account by including Modvat credit in opening stock, purchases, consumption and closing stock accordingly erroneous. Further the learned CIT (Appeals) ought to have noted that the introduction of section 31 ITA Nos.525 & 621/Bang/2011 145A in no way altered the force of the decision of the Hon'ble Supreme Court in 24 ITR 481 relied upon by the appellant.
15.1 On going through the orders of the authorities below on the above issue, we do not finding anything wrong in the directions given by the CIT (Appeals) and therefore we refuse to interfere with the order of the CIT (Appeals). Assessee cannot be aggrieved by the direction given in the order of the CIT (Appeals). Accordingly, these grounds are dismissed."
Respectfully following the decision of the co-ordinate bench of this Tribunal in the assessee's own case in ITA Nos.881, 882, 895 and 896/Bang/2003 (supra), we uphold the direction of the learned CIT(Appeals) therein to recast the trading and profit and loss account by including Modvat credit in opening stock, purchases, consumption and closing stock. Accordingly, this ground raised by revenue is dismissed. 25.1 The grounds of appeal at S.No.9 is as under :
" 9. The learned CIT (Appeals) erred in vacating the allocation of corporate expenses made by the Assessing Officer to 10A units forming part of the Wipro Technologies Division in the ratio of turnover of various business units. The CIT (Appeals) failed to appreciate that the corporate office is the brain behind the planning and running of all the units and hence the expense of corporate office have to be borne by the component units. He has failed to appreciate that the corporate office has no other substantial source of Revenue except certain fixed income such as rent, interest, dividend, etc. He ought to have appreciated that the decision of ITAT in the case of the assessee relied on by him has not become final and the appeal of the Revenue against the order of the ITAT filed before the High Court is pending."
25.2 The learned Departmental Representative supported the arguments put forth in the grounds of appeal.
25.3 It is submitted by the learned counsel for the assessee that Wipro Limited is a set up which evolves growth plans of the assessee company 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 is submitted that 32 ITA Nos.525 & 621/Bang/2011 expenditure incurred by the corporate was for the development of business of the company. It is 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 centers and their expenses are separately incurred and recorded. 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 is submitted that the Assessing Officer reallocated corporate expenditure to other divisions using the turnover ratio and thus reallocated it to various units. The learned counsel for the assessee submitted that this issue was covered in its favour by the decision of the co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2004-05 (supra) and which was followed by a co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.972/Bang/2011 dt.15.6.2012.
25.4 We have heard both parties and have perused and carefully 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 for Assessment Year 2004-05 (supra) has followed its earlier order in ITA No.651/Bang/94 for Assessment Year 1997- 33 ITA Nos.525 & 621/Bang/2011 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 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 34 ITA Nos.525 & 621/Bang/2011 disallowed by the Assessing Officer is confirmed and disallowance of 20% of common expenditure as confirmed by the learned CIT(A) is upheld."
This decision was followed by the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 (ITA No.972/Bang/2011). 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. 26.1 The grounds of appeal at S.No.10 is as under :
"10. The CIT (Appeals) erred in directing the Assessing Officer not to exclude incomes namely interest, scrap sales, rent, profit on sale of fixed assets and profit on account of fluctuation in exchange rate aggregating to Rs. 6,56,25,658 for arriving at the profits to STP undertakings. He ought to have appreciated that the source of a particular income on which exemption is sought must directly relate to the running of the STP undertaking yielding profits. He ought to have appreciated that the decision of ITAT in the case of the assessee relied on by him has not become final and the appeal of the Revenue against the order of the ITAT filed before the High Court is pending. Further, the CIT (Appeals) erred in not applying the decision of Hon'ble Supreme Court in the case of Liberty India Vs. CIT (317 ITR 218)."
26.2 The learned Departmental Representative reiterating the grounds of appeal contended that the learned CIT(Appeals) erred in directing the Assessing Officer to exclude income from interest, scrap sales, rent, profit on sale of fixed assets and profit on account of fluctuation in exchange rate, aggregating Rs.6,86,25,658 for arriving at profit of STPI undertaking following the decision of the ITAT since the department has not accepted the Tribunal's decision on this issue and has taken the matter before the Hon'ble High Court which is pending disposal.
35
ITA Nos.525 & 621/Bang/2011 26.3 The learned counsel for the assessee submits that the assessee furnished the profit and loss account of individual STP/SEZ units which had aggregate miscellaneous income of Rs.7,14,10,102 including income from interest, rent, profit on sale of fixed assets, exchange fluctuation, sale of scrap, etc under the head 'Miscellaneous Income'. 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 stated that it was submitted to the Assessing Officer that incomes have to be calculated on net basis because the related expenses were also debited to profit and loss account. It was submitted that the learned CIT(Appeals) after considering the assessee's submissions held that these issues are squarely covered in favour of the assessee by the order of Tribunal in assessee's own case in respect of interest income of Rs.1,21,94,022, exchange gain of Rs.4,51,98,753 and scrap sales of Rs.79,36,138 (viz. ITA No.1027/Bang/07 dt.30.1.2009 for Assessment Year 2004-05 at para 12.5 thereof). In respect of rental income of Rs.2,96,745, it was submitted by the learned counsel for the assessee that this issue is covered by the said order of the Tribunal for Assessment Year 2004-05 (supra) at para 12.8 thereof. It is submitted that on these issues the Hon'ble Tribunal has directed the Assessing Officer not to 36 ITA Nos.525 & 621/Bang/2011 exclude/reduce these amounts for the purpose of computing the eligible deduction under section 10A of the Act.
26.4 We have heard both parties and have 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.1042/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, "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."37
ITA Nos.525 & 621/Bang/2011 (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 byvarious 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 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".
In para 12.8 of the said order for Assessment Year 2004-05, we find that the Tribunal has held that rent is not to be excluded while computing the eligible deduction under section 10A of the Act. These findings have been followed by a co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.972/Bang/2011 dt.15.6.2012. In view of the finding in 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 decision holds good for this assessment year also with regard to interest income, exchange rate fluctuation, income from sale of scrap and rent receipts.
27.1 The grounds of appeal at S.No.11 is as under :
38
ITA Nos.525 & 621/Bang/2011 " 11. The CIT (Appeals) erred in directing the Assessing Officer to include in the 'export turnover' the realization of forex made after the expiry of six months from the end of the relevant financial year as per the details submitted by the assessee. He erred in observing that the competent authority is deemed to have approved delayed realization of forex made after expiry of six months from the end of the relevant financial year. He ought to have appreciated that there is no provision for deeming this approval by the competent authority."
27.2 The learned Departmental Representative challenged the action of the learned CIT(Appeals) in directing the Assessing Officer to include in the export turnover, the aggregate collection of Rs.56,77,62,875 being realisations of foreign exchange on account of exports made after the expiry of six months from the end of the relevant financial year without the approval of the competent authority.
27.3 The learned counsel for the assessee submits that the learned CIT(Appeals) held that this issue stands squarely covered in favour of the assessee by the decisions of the co-ordinate bench of the assessee in the assessee's own case for Assessment Year 2001- 02 and 2002-03 in ITA Nos.426, 427, 468 & 469/Bang/2006 dt.30.5.2008 and which was followed by co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2004-05 in ITA No.1072/Bang/2007 dt.30.1.2009 and for Assessment Year 2007-08 in ITA No.972/Bang/2011 dt.15.6.2012.
27.4 We have heard both parties and have carefully perused and considered the material on record. We find that a similar issue was considered by 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 the Assessing Officer 39 ITA Nos.525 & 621/Bang/2011 to include in 'export turnover' the collection of sale proceeds in foreign exchange made after the expiry of six months.
28.1 The grounds of appeal at S.No.12 is as under :
" 12. The CIT (Appeals) erred in law in directing the Assessing Officer to exclude reimbursement of communication link and other sales performance linked incentives and telecommunication expenses from 'total turnover' for the purpose of computing deduction under section 10A of the IT Act, 1961."
28.2 The learned Departmental Representative supporting the grounds raised contended that the action of the learned CIT(Appeals) in directing the Assessing Officer to exclude reimbursement of communication link and other sales performance linked incentives and telecommunication expenses from total turnover for the purpose of computing deduction under section 10A was erroneous.
28.3 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 Conracts, 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 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 authorities below that the 40 ITA Nos.525 & 621/Bang/2011 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'. The learned counsel for the assessee submitted that the learned CIT(Appeals) allowed the assessee's claim following the decision of the co-ordinate bench of the Tribunal in ITA No.1072/Bang/2007 in the assessee's own case wherein at para 14.7 thereof (following the decision of the Tribunal for Assessment Year 2001-02 and 2002-03 in ITA Nos.426, 427, 468 and 469/Bang/2006) wherein similar issue of reimbursement of communication links and other sales performance incentives were considered. 28.4 We have heard both parties and have carefully perused and considered the material on record. WE find that 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) 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."41
ITA Nos.525 & 621/Bang/2011 We, respectfully following the decisions 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) 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.
29.1 The grounds of appeal at S.No.13 is as under :
" 13. The CIT (Appeals) erred in holding that expenses incurred in foreign currency on employees for onsite development of computer software does not amount to expenses incurred in providing technical services outside India without appreciating that onsite software development amounts to providing technical services outside India and travel expenses incurred on employees sent for onsite software development are liable to be excluded from 'export turnover' for the purposes of computation of deduction under section 10A of the IT Act, 1961."
29.2 The learned Departmental Representative on his part supported the ground raised that expenses incurred in foreign currency for providing technical services outside India and travel expenses incurred on employees for on site software development are liable to be excluded from export turnover for the purpose of computation of the deduction under section 10A of the Act.
29.3 The learned counsel for the assessee submitted that the issue was of treatment of the expenditure incurred in foreign currency to be included in 'export turnover', since the assessee was in the business of computer software, was squarely covered in its favour by the decision of a co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2004-05 in ITA No.1072/Bang/2007 at paras 15 to 15.4 thereof and that this was followed by another bench of the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.972/Bang/2011.
42
ITA Nos.525 & 621/Bang/2011 29.4 We have heard both parties and have carefully perused and considered the material on record. We find from the record that this Tribunal in the assessee's own case in 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.
30.1 The grounds raised at S.Nos.14 is as under :
" The CIT (Appeals) erred in directing the Assessing Officer to set off the losses of the units in STP against other taxable business income, if any, of the assessee and further holding that the Assessing Officer's contention that section 10A is covered under Chapter III of the Act which deals with exempt incomes has no relevance in this context. He ought to have appreciated that as per th provisions of section 10A(6)(ii), no loss referred to in sub section (1) of section72 shall be carried forward where such losses relate to any of the relevant assessment years (ending before 1.4.01) and accordingly the loss of the undertaking can be carried forward and thereby inferring that the loss of 10A units cannot be adjusted against any income. He further ought to have appreciated that profit includes loss and when profit is excluded as not includable in total income under Chapter III the corresponding loss also is not includible in computing the total income."
30.2 This issue has been dealt with and adjudicated by us in ITA No.525/Bang/2011 (supra) at paras 11.1 to 11.4 of this order (supra) wherein we have followed the decisions of the co-ordinate bench of this Tribunal in ITA No.1072/Bang/2007 for Assessment Year 2004-05 and ITA No.972/Bang/2011 for Assessment Year 2007-08 in the assessee's own case directing the Assessing Officer to set off brought forward losses of the units for 43 ITA Nos.525 & 621/Bang/2011 which the assessee has disclosed positive income for the purposes of computing the deduction under section 10A of the Act.
31.1 The grounds of appeal at S.No.15 is as under :
" 15. The CIT (Appeals) erred in holding that the undertakings set up in Bangalore are eligible for deduction under section 10A. He has further erred in directing the Assessing Officer to compute and allow the deduction under section 10A for all the eligible units at Bangalore in software technology parks. The CIT (Appeals) erred in holding that the undertakings at Bangalore satisfy various conditions set by section 10A(2) on the ground that the units have been formed without spitting up or reconstruction of business already in existence and without transfer of old plant and machinery. He further erred in holding that the Assessing Officer has over looked specific requirement of section 10A(2). The CIT (Appeals) erred in relying on the decision of ITAT on this issue in the assessee's case for the Assessment Year 2004-05 without appreciating the fact that the said decisionhas not become final and the appeal of the Revenue against the order of the ITAT filed before the High Court is pending."
31.2 The learned Departmental Representative in support of the ground of appeal contended that the learned CIT(Appeals) had erred in holding that the undertakings set up in Bangalore are eligible for deduction under section 10A of the Act as they satisfy the conditions laid down in section 10A(2) on the ground that they are formed without splitting up or reconstructing of business already in existence and without transfer of old machinery. It was submitted that the Tribunal decision's in favour of the assessee on this issue are being contested by the Department in the High court. 31.3 It is submitted by the learned counsel for the assessee that this issue of the assessee's various undertakings being eligible to be allowed deduction under section 10A of the Act is squarely covered in its favour by the decisions of the co-ordinate benches of the Tribunal in the assessee's own case in ITA Nos.426, 427, 468 & 469/Bang/2006 for Assessment Year 2001-02 and 2002-03 which was followed in ITA No.1072/Bang/2007 44 ITA Nos.525 & 621/Bang/2011 for Assessment Year 2004-05 and in ITA No.972/Bang/2011 for Assessment Year 2007-
08. In this view of the matter, it is prayed that the revenue's ground on this issue was liable to be dismissed.
31.4 We have heard both parties and have 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 sections are similar. Hence, we confirm the finding of the learned CIT (A) that the assessee is entitled deduction u/s 10A."
17.4. Considering the facts and circumstances of the issue and respectfully following the verdict of the Hon'ble Tribunal referred supra, we 45 ITA Nos.525 & 621/Bang/2011 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." 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. 32.1 The grounds raised at 16 is as under :
" 16. The CIT (Appeals) erred in directing the Assessing Officer to delete the allocation of selling and general administrative expenses of Wipro Infotech Division to the undertakings at Pondicherry made in the assessment for the purpose of computing deduction under section 80IB. He ought to have appreciated the fact that the major expenses of Wipro Infotech Division are common and relates to undertakings at Pondicherry and hence the allocation of expenditure on the basis of turnover is required to arrive at the correct profit of the undertaking. He erred in directing the Assessing Officer to delete the allocation of corporate overhead expenses of Wipro Corporate Division to lighting factory at Pondicherry unit on the basis of turnover. The CIT (Appeals) ought to have appreciated at second appeal has been filed by the Revenue on this issue of allocation of corporate expenses (with regard to computation of deduction under section 10A and 80IB) are pending before ITAT / HC."
32.2 The learned Departmental Representative supporting the grounds of appeal contended that the learned CIT(Appeals) erred in directing the Assessing Officer to delete the allocation of selling and general administrative expenses of Wipro Infotech Division to undertakings at Pondichery for the purpose of computation of deduction under section 80IB of the Act. It was also contended that the learned CIT(Appeals) erred in directing the deduction of allocation of corporate overhead expenses of Wipro Corporate Division to the lighting factory at Pondichery unit on basis of turnover. 46
ITA Nos.525 & 621/Bang/2011 32.3 It is submitted by the learned counsel for the assessee that similar issue of allocation of corporate overheads to units claiming deduction under section 80-IB was already considered by a co-ordinate bench of this Tribunal and adjudicated upon in ITA No.1072/Bang/2007 in the assessee's own case for Assessment Year 2004-05 and earlier years.
32.4 We have heard both parties and have carefully perused and considered the material on record. We find that the issue of allocation of 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 assesse 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."
This decision was followed by the co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.972/Bang/2011. We, therefore, respectfully following the decision of this Tribunal decision for A.Y. 2004-05 (supra), on 47 ITA Nos.525 & 621/Bang/2011 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.
33.1 The grounds raised at S.No.17 is as under :
" 17. The CIT (Appeals) erred in vacating the allocation of corporate office expenses made by the Assessing Officer to the new industrial undertaking set up by the assessee at Baddi, H.P. in the ratio of sales for computing deduction. 80IC, following his decisions of vacating allocation of expenses of corporate office in the context of deductions under section 10A & 10B. The CIT (Appeals) failed to appreciate that the corporate office is the brain behind the planning and running of all the units and hence the expenses of corporate office have to be borne by the component units. He has failed to appreciate that the corporate office has no other substantial source of Revenue except certain fixed income such as rent, interest, dividend, etc. The CIT (Appeals) ought to have appreciated that the decisions of the CIT (Appeals) / ITAT on allocation of corporate office expenses to units in the context of computation of deductions under section 10A and 80IB for earlier years have not become final as appeals filed by the Revenue are pending before ITAT/HC."
33.2 The learned Departmental Representative in supporting the grounds raised submitted that the learned CIT(Appeals) erred in deleting the allocation of corporate office expenses made by the Assessing Officer to the new industrial undertaking set up by the assessee at Baddi, H.P. in the ratio of sales for computing the deduction under section 80-IC as the corporate office being the brain for running and planning of the entire organization, a portion of such expenses are to be borne by the component units. It was also submitted that the decisions of the Tribunal in favour of the assessee on this point are being contested by the Department in the High Court. 33.3 The learned counsel for the assessee submitted that the assessee company had claimed deduction u/s.80 IC of the Act equal to 100% of the profits derived from its industrial undertaking at Baddi, Himachal Pradesh where toilet soaps are manufactured. 48
ITA Nos.525 & 621/Bang/2011 It is submitted that the assessee runs each business unit / undertaking as an independent profit centre and that separate accounts are maintained for each. It was further submitted that since each unit has retained all such income and expenses pertaining to the business carried on by it and the transactions between the units are recorded at arms length basis, there is no need for allocation of expenses on Wipro Corporate to other business units. It is contended by the learned counsel for the assessee that this issue is covered in favour of the assessee by the decision of the co-ordinate bench of this Tribunal in ITA No.1072/Bang/2007 for Assessment Year 2004-05 in the assessee's own case wherein the Tribunal has deleted the allocation of corporate overheads to other units. This decision, it is submitted was followed by the decision of the Tribunal in ITA No.972/Bang/2011 for Assessment Year 2007-08 in the assessee's own case. 33.4 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 while computing the deduction u/s. 80 IC of the Act.
34.1 In grounds raised at S.No.18, the assessee has contended as under : 49
ITA Nos.525 & 621/Bang/2011 " 18. The CIT (Appeals) erred in deleting the disallowance of expenditure relating to exempted dividend income made by the Assessing Officer under section 14A and directing the Assessing Officer to accept the computation made by the assessee. The CIT (Appeals) ought to have appreciated that the expenses disallowed in this regard by the assessee was very nominal and as low as 1% of dividend income."
34.2 The learned Departmental Representative on his part supported the grounds raised.
34.3 The learned counsel for the assessee submitted that the assessee company earned aggregate dividend of Rs.64,38,95,987 from shares in companies and mutual fund units held as investments and claimed them as exempt under section 10(34) and 10(35) of the Act. It was submitted that an amount of Rs.67,87,225 @ 1% of certain corporate expenses was determined by the assessee as expenditure incurred in relation to exempt income based on the estimated time spent by the functionaries responsible for managing the company's investments and cash surpluses. This was not accepted by the Assessing Officer, who went on to estimate the expenditure at 5% of the dividend income which the learned counsel for the assessee contended was without any basis. The learned counsel for the assessee contended that the learned CIT(Appeals) had correctly deleted the same following the decision of the Hon'ble High Court of Karnataka in the case of Canara Bank in IRTC Nos.780 & 781/1998 dt.25.11.1999. He further contended that this issue of disallowance under section 14A of the Act was covered in favour of the assessee by the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.972/Bang/2011 (supra) and in view of this revenue's ground was liable to be dismissed.50
ITA Nos.525 & 621/Bang/2011 34.4 We have heard both parties and have perused and carefully considered the material on record and the judicial decisions relied on. In this issue of disallowance u/ 14A, the co-ordinate bench of the tribunal recently in the case of Syndicate Bank in ITA No.589 & 590/Bang/2010 dt.31.5.2012 for the Assessment Years 2004-05 and 2005-06 had remitted the matter to the file of the Assessing Officer with a direction to follow the decision of the Hon'ble High Court of Bombay in the case of Godrej & Boyce Mfg. Co. Ltd. (supra). The Hon'ble High Court in this case held that the provisions of rule 8D of the Rules which have been notified with effect from March 24, 2008, would apply with effect from assessment year 2008-09. Even prior to Assessment Year 2008-09, when rule 8D was not applicable, the Assessing Officer had to enforce the provisions of sub- section (1) of section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record. the proceedings for Assessment Year 2002-03 would stand remanded to the Assessing Officer. The Assessing Officer should determine as to whether the assessee had incurred any expenditure (direct or indirect) in relation to dividend income/income from mutual funds which does not form part of the total income as contemplated under section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer should provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane 51 ITA Nos.525 & 621/Bang/2011 material having a bearing on the facts and circumstances of the case. This very issue was considered by a co-ordinate bench of this Tribunal in ITA No.972/Bang/2011 in the assessee's own case for Assessment Year 2007-08. We, therefore, respectfully following the decision of the co-ordinate bench of the Tribunal in the case of Syndicate Bank (supra) and of the Hon'ble High Court of Bombay in the case of Godrej & Boyce Mfg. Co. Ltd. (supra), restore this issue back to the file of the Assessing Officer with a direction to decide the issue afresh by applying the ratio of the judgment of the Hon'ble High Court of Bombay in the case of Godrej & Boyce Mfg. Co. Ltd. (supra). It is ordered accordingly.
35. In the result, the revenue's appeal in ITA No.621/Bang/2011 is partly allowed.
Order pronounced in the open court on 16th Nov., 2012.
Sd/- Sd/-
(P. MADHAVI DEVI) (JASON P BOAZ)
Judicial Member Accountant Member
*Reddy gp
Copy to :
1. Appellant
2. Respondent
3. C.I.T.
4. CIT(A)
5. DR, - B Bench.
6. Guard File.
(True copy) By Order
Sr. Private Secretary, ITAT, Bangalore