EXCELRA KNOWLEDGE SOLUTIONS PRIVATE LIMITED,HYDERABAD V. DCIT., CIRCLE-8(1), HYDERABAD

ITA 545/HYD/2025

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Excelra Knowledge Solutions Private Limited appealed against the penalty imposed by the Deputy Commissioner of Income Tax, which was confirmed by the Commissioner of Income Tax (Appeals). The penalty was levied for under-reporting of income, as the assessee claimed a deduction under section 10AA for interest income from bank deposits, which the tax authorities deemed ineligible. The Tribunal examined whether the assessee's claim was made with a bona fide belief and whether all material facts were disclosed. The Tribunal concluded that the assessee's claim was reasonable and based on a plausible understanding of the law, thus meriting the deletion of the penalty.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 789636 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: misc
• Appeal Filed On: 27-03-2025
• Other Referred Cases: CIT v. Hewlett-Packard Global Soft Ltd. 403 ITR 453, CIT v. Menon Impex Pvt. Ltd. (259 ITR 403)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: H SRINIVASULU
• Keywords: Business income; Transfer pricing; International transaction
• Section: 143(3); 10AA

Judgement Text

" ITA No 545 of 2025 Excelra Knowledge Solutions P Ltd Page 1 of 8 आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ DB-A ‘ Bench, Hyderabad Įी ͪवजय पाल राव, उपाÚ य¢ एवं Įी मधुसूदन सावͫडया, लेखा सदè य क े सम¢ । Before Shri Vijay Pal Rao, Vice-President A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No.545/Hyd/2025 (िनधाŊरण वषŊ/Assessment Year: 2018-19) Excelra Knowledge Solutions Private Limited Hyderabad PAN:AAFCG5715Q Vs. Dy.CIT Circle 8(1) Hyderabad (Appellant) (Respondent) िनधाŊįरती Ȫारा/Assessee by: Advocate H Srinivasulu राज̾ व Ȫारा/Revenue by:: Shri Ranjan Agrawala, Sr. DR सुनवाई की तारीख/Date of hearing: 17/11/2025 घोषणा की तारीख/Pronouncement: 26/11/2025 आदेश/ORDER Per Madhusudan Sawdia, A.M.: This appeal is filed by Excelra Knowledge Solutions Private Limited (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 22.01.2025 for the A.Y 2018-19. Printed from counselvise.com ITA No 545 of 2025 Excelra Knowledge Solutions P Ltd Page 2 of 8 2. The assessee has raised the following grounds of appeal: Printed from counselvise.com ITA No 545 of 2025 Excelra Knowledge Solutions P Ltd Page 3 of 8 3. The brief facts of the case are that the assessee is a company eligible for deduction under section 10AA of the Income Tax Act, 1961 (“the Act”). The assessee filed its return of income for Assessment Year 2018–19 on 30.11.2018, declaring nil income under normal provisions and book profit of Rs.31,32,51,966/- under MAT provisions of the Act. The case of the assessee was selected for complete scrutiny under CASS and accordingly, notice under section 143(2) of the Act dated 23.09.2019 was issued by the Learned Assessing Officer (“Ld. AO”) to the assessee. During the assessment proceedings, the Ld. AO noticed that the assessee had earned interest income of Rs.3,27,09,605/- on bank deposits, on which the deduction under section 10AA of the Act was claimed by the assessee. The Ld. AO held that such interest income was taxable under the head Income from Other Sources and, therefore, not eligible for deduction under section 10AA of the Act. He accordingly completed the assessment under section 143(3) r.w.s. 144B of the Act on 25.05.2021, determining the total income of the assessee at Rs.3,29,42,527/- under the normal provisions. Subsequently, the Ld. AO initiated penalty proceedings under section 270A of the Act, treating the interest income as under-reported income, and levied penalty of Rs.54,45,894/- vide order dated 07.12.2021. 4. Aggrieved with the penalty order of the Ld. AO, the assessee filed appeal before the Ld. CIT (A). The Ld. CIT(A) confirmed the penalty levied by the Ld. AO and dismissed the appeal of the assessee. Printed from counselvise.com ITA No 545 of 2025 Excelra Knowledge Solutions P Ltd Page 4 of 8 5. Aggrieved with the order of the Ld. CIT (A), the assessee is now in appeal before us. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the solitary issue involved out of the grounds of the appeal of the assessee is the penalty of Rs.54,45,894/- levied by the Ld. AO under section 270A of the Act. In this regard, the Ld. AR further submitted that the assessee is undisputedly eligible for deduction under section 10AA of the Act. He invited our attention to Note No. 17 of the audited financial statements placed at page no. 3 of the paper book, wherein the assessee has clearly and separately disclosed the interest income of Rs.3,27,09,605/- earned on fixed deposits under the head of “other income”. The Ld. AR also submitted that the assessee had fully disclosed all primary facts and there was no concealment or furnishing of inaccurate particulars. The interest was disclosed both in the computation and in the audited accounts. The Ld. AR also submitted that the assessee claimed deduction under section 10AA of the Act under a bona fide belief, relying on the judgment of the Hon’ble Karnataka High Court in the case of CIT v. Hewlett-Packard Global Soft Ltd. 403 ITR 453, wherein it was held that interest on bank deposits formed part of the business income of the eligible unit for the purpose of deduction under sections 10A/10B of the Act. He again explained that, although this decision pertained to section 10A/10B of the Act, the assessee reasonably believed that the same principle extends to section 10AA of the Act, which is also an incentive provision. It was further submitted that section 270A(6)(a) of the Printed from counselvise.com ITA No 545 of 2025 Excelra Knowledge Solutions P Ltd Page 5 of 8 Act provides that where the assessee furnishes a bona fide explanation and discloses all material facts, the case shall not be treated as under-reporting of income. Since the assessee has disclosed every detail in the audited financials and acted under a bona fide legal understanding, no penalty can be imposed. Thus, the Ld. AR prayed for deletion of penalty. 6. Per contra, the Learned Departmental Representative (“Ld. DR”) supported the orders of the Ld. AO and Ld. CIT(A). He argued that the assessee was not eligible for deduction under section 10AA of the Act on interest income from bank deposits. In this regard, the Ld. DR relied on the judgment of the Hon’ble Madras High Court in the case of CIT v. Menon Impex Pvt. Ltd. (259 ITR 403) wherein it was held that unless there is a direct nexus between the interest income and the eligible undertaking, such income cannot qualify for deduction. Accordingly, the Ld. DR submitted that the interest earned by the assessee does not have any immediate nexus to the eligible unit, and therefore, the claim for deduction under section 10AA of the Act was incorrect, justifying penalty under section 270A of the Act. 7. We have carefully considered the rival submissions and perused the material available on record. There is no dispute that the assessee is eligible for deduction under section 10AA of the Act. There is also no dispute that the assessee has entirely disclosed the interest income of Rs.3,27,09,605/- in Note No. 17 of its audited financial statements (page no. 30 of the paper book). Printed from counselvise.com ITA No 545 of 2025 Excelra Knowledge Solutions P Ltd Page 6 of 8 Therefore, there is a complete disclosure of income by the assessee in its return of income. We observe that the assessee has claimed deduction under section 10AA of the Act based on the judgment of the Hon’ble Karnataka High Court in the case of CIT vs. Hewlett- Packard Global Soft Ltd. (Supra), forming a bona fide belief that the principle applicable to sections 10A/10B of the Act would also apply to section 10AA of the Act. The assessee has also fully disclosed the nature of income, source of income, and computation of income. On the contrary, the Ld. DR relied on the decision of CIT vs. Menon Impex Private Limited (Supra) to contend that interest income is not eligible for 10AA deduction. In our considered view, the contention of the Ld. DR may be relevant for quantum proceedings, it cannot by itself establish mala fides for the purpose of penalty. Further, we have gone through the provisions of section 270A(6) of the Act, which is to the following effect: 270A. Penalty for under-reporting and misreporting of income. (1)…… 2……. 3……... 4……… 5…….. .(6)The under-reported income, for the purposes of this section, shall not include the following, namely:— (a)the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered; Printed from counselvise.com ITA No 545 of 2025 Excelra Knowledge Solutions P Ltd Page 7 of 8 (b)the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom; (c)the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance; (d)the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and (e)the amount of undisclosed income referred to in section 271AAB.” 8. Perusal of Section 270A(6)(a) clearly provides that an addition shall not be treated as under-reporting where the assessee offers a bona fide explanation, and all material facts necessary for assessment have been fully disclosed. In the present case the interest income was explicitly disclosed and the assessee acted based on the judgment of the Hon’ble Karnataka High Court in the case of CIT vs. Hewlett-Packard Global Soft Ltd. (Supra). In our considered view, the claim of the assessee was made based on a reasonable and plausible understanding of law. Thus, the assessee satisfies the statutory exception provided under section 270A(6) (a) of the Act. Therefore, in our considered view, the penalty levied by the Ld. AO is liable to be deleted. Accordingly, the Ld. AO is directed to delete the penalty of Rs.54,45,894/-. Printed from counselvise.com ITA No 545 of 2025 Excelra Knowledge Solutions P Ltd Page 8 of 8 9. Since we have allowed the appeal of the assessee, we are not inclined to adjudicate on the other alternative submission raised by the assessee, as the same has become academic in nature. Accordingly, these issues are kept open. 10. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 26th November, 2025. Sd/- Sd/- (VIJAY PAL RAO) VICE PRESIDENT (MADHUSUDAN SAWDIA) ACCOUNTANT MEMBER Hyderabad, dated 26th November, 2025 Vinodan/sps Copy to: S.No Addresses 1 Excerla Knowledge Solutions (P) Ltd 7th Floor, Wing B NSL Arena Plot No.6 Uppal SO, (K.V Rangareddy) Uppal 500039 Hyderabad 2 Dy. CIT/ACIT, Circle 8(1), Signature Towers, Sy. No.6(P), Kondapur, Opp: Botanical Gardens, Serilingampally Hyderabad 500084 3 Pr. CIT - Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File By Order Printed from counselvise.com "