Assistant Commissioner of Income-tax, V. Vanderlande Industries Software Pvt. Ltd., Pune

ITA 1037/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7692 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 17-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK AGGARWAL
• Assessee Lawyers: NACHIKET BARVE
• Keywords: Business expenditure
• Section: 40A(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . . . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO. 1037/PUN/2015 / ASSESSMENT YEAR 2010-11 ACIT, CIRCLE - 13, PUNE . / APPELLANT V/S VANDERLANDE INDUSTRIES SOFTWARE PRIVATE LIMITED, S.NO.209, BUILDING 4A, S.P. INFOCITY, PUNE SASWAD ROAD, NEXT TO SATYAPURAM SOCIETY, FURSUNGI, PUNE 412308 PAN : AACCV7224Q . / RESPONDENT ASSESSEE BY : SHRI NACHIKET BARVE REVENUE BY : SHRI VIVEK AGGARWAL / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF CIT(A)-13, PUNE, DATED 28-04-2015 FOR THE ASSESSMENT YEAR 201 0-11. 2. REVENUE RAISED 5 GROUNDS. THE ONLY ISSUE THAT IS RAISED IN THE APPEAL RELATES TO GRANTING DEDUCTION U/S.10AA IN RESPECT O F THE ENHANCED PROFITS BECAUSE OF THE DISALLOWANCE U/S.40(A)(IA) OF THE AC T BASED ON THE REASONING THAT NO SUCH RESTRICTIONS ARE PLACED IN THE SAID PR OVISIONS AS IN THE CASE OF SECTION 92C(4) OF THE ACT. / DATE OF HEARING : 16.08.2017 / DATE OF PRONOUNCEMENT: 16.08.2017 2 ITA NO.1037/PUN/2015 VANDERLANDE INDUSTRIES SOFTWARE PVT. LTD., 3. BEFORE US, BOTH THE REPRESENTATIVES, IN PRINCIPL E, CONCURRED WITH THE DECISION OF CIT(A) . FIRST APPELLATE AUTHORITY DEC IDED THE SAID ISSUE IN FAVOUR OF THE ASSESSEE RELYING ON VARIOUS DECISIONS DESCRI BED IN PARA 2.4.2 OF THE ORDER OF CIT(A). OTHERWISE, THIS IS A CASE WHERE A O MADE ADDITION U/S.40(A)(IA) OF THE ACT ON ACCOUNT OF THE MANAGEME NT FEE AS DISCUSSED IN PARA 7 OF THE ASSESSMENT ORDER AS WELL AS ON ACCOUN T OF REIMBURSEMENT OF EXPENSES OF COMMUNICATION COST AS DISCUSSED IN PARA 8 OF THE ASSESSMENT ORDER. THE ASSESSEE BEING ELIGIBLE FOR DEDUCTION U /S.10AA OF THE ACT WAS DENIED EXEMPTION ON THE ENHANCED PROFITS BY WAY OF THE SAID ADDITIONS U/S.40(A)(IA) OF THE ACT. THE CIT(A) VIDE DISCUSSI ON GIVEN IN PARA NOS. 2.4.1 TO 2.4.4 ALLOWED THE DEDUCTION IN RESPECT OF THE SA ID ADDITIONS U/S.40(A)(IA) OF THE ACT. IN FACT, LD. DEPARTMENTAL REPRESENTATI VE FOR THE REVENUE FAIRLY BROUGHT TO OUR NOTICE THE CONTENTS OF THE CIRCULAR NO.37/2016 DATED 02-11- 2016 RELATING TO THE CHAPTER VIA DEDUCTION ON THE E NHANCED PROFITS. LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE FILED CA TENA OF DECISIONS IN HIS FAVOUR. 4. ON HEARING BOTH THE SIDES AND AFTER GOING THROUG H THE CONTENTS OF PARA NO.2.4.4 OF THE ORDER OF CIT(A), WE FIND THE S AID PARA IS RELEVANT FOR EXTRACTION AND THE SAME READS AS UNDER : 2.4.4 I HAVE CONSIDERED THE FACTS AND ARGUMENTS O F THE APPELLANT. I AGREE WITH THE APPELLANT THAT THE DEDUCTION U/S.1 0AA IS TO BE GRANTED ON THE AMOUNT OF PROFIT INCREASED BECAUSE OF THE DISAL LOWANCE. THE DEDUCTION U/S.10AA IS NOT TO BE GRANTED ON THE TRANSFER PRICI NG ADJUSTMENT ACCORDING TO THE EXPRESS PROVISIONS OF THE SECTION 92C(4). H OWEVER, NO SUCH RESTRICTION IS PLACED ON GRANTING DEDUCTION ON DISA LLOWANCE OF EXPENDITURE. THEREFORE, WHEN PROFIT IS INCREASED AFTER THE DISAL LOWANCES, DEDUCTION U/S.10AA HAS TO BE COMPUTED ON THE INCREASED NET PR OFIT. ACCORDINGLY, I DIRECT THE LEARNED AO TO GRANT THE DEDUCTION U/S.10 AA ON PROFIT ENHANCED BECAUSE OF THE DISALLOWANCE U/S.40(A)(IA) MADE BY T HE LEARNED AO. 3 ITA NO.1037/PUN/2015 VANDERLANDE INDUSTRIES SOFTWARE PVT. LTD., 5. FURTHER, WE HAVE ALSO CONSIDERED THE FACT THAT T HE ABOVE DECISION OF THE CIT(A) WAS SUPPORTED BY VARIOUS BINDING JUDGMEN TS OF THE JURISDICTIONAL HIGH COURT. WE ALSO EXAMINED THE SAID CIRCULAR (SU PRA) OF CBDT, WHICH CLARIFIED THE PRESENT ISSUE. WE FIND THE DECISION OF THE CIT(A) IS IN TUNE WITH THE SAID CBDT CIRCULAR NO.37/2016 DATED 02-11-2016. FOR THE SAKE OF COMPLETENESS, WE PROCEED TO REPRODUCE THE CONTENTS MENTIONED THEREIN IN THE CBDT CIRCULAR AND THE SAME READS AS UNDER : 2. THE ISSUE OF THE CLAIM OF HIGHER DEDUCTION ON T HE ENHANCED PROFITS HAS BEEN A CONTENTIOUS ONE. HOWEVER, THE COURTS HAVE GE NERALLY HELD THAT IF THE EXPENDITURE DISALLOWED IS RELATED TO THE BUSINESS A CTIVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN CLAIMED, THE DEDUCT ION NEEDS TO BE ALLOWED ON THE ENHANCED PROFITS. SOME ILLUSTRATIVE CASES UPHOLDING THIS VIEW ARE AS FOLLOWS: (I) IF AN EXPENDITURE INCURRED BY ASSESSEE FOR THE PURPOSE OF DEVELOPING A HOUSING PROJECT WAS NOT ALLOWABLE ON A CCOUNT OF NON- DEDUCTION OF TDS UNDER LAW, SUCH DISALLOWANCE WOULD ULTIMATELY INCREASE ASSESSEE'S PROFITS FROM BUSINESS OF DEVELO PING HOUSING PROJECT. THE ULTIMATE PROFITS OF ASSESSEE AFTER ADJ USTING DISALLOWANCE UNDER SECTION 40 (A)(IA) OF THE ACT WOULD QUALIFY F OR DEDUCTION UNDER SECTION 80-IB OF THE ACT. THIS VIEW WAS TAKEN BY TH E COURTS IN THE FOLLOWING CASES: INCOME-TAX OFFICER - WARD 5(1) VS. KEVAL CONSTRUCTI ON, TAX APPEAL NO. 443 OF 2012, DECEMBER 10, 2012, GUJARAT HIGH COURT. COMMISSIONER OF INCOME-TAX-IV, NAGPUR VS. SUNIL VISHWAMBHARNATH TIWARI, IT APPEAL NO. 2 OF 2011, SE PTEMBER 11, 2015, BOMBAY HIGH COURT. (II) IF DEDUCTION UNDER SECTION 40A(3) OF THE ACT IS NOT ALLOWED, THE SAME WOULD HAVE TO BE ADDED TO THE PROFITS OF T HE UNDERTAKING ON WHICH THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80- IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURT IN THE FOLLOWING CASE: PRINCIPAL CIT, KANPUR VS. SURYA MERCHANTS LTD., LT. APPEAL NO. 248 OF 2015, MAY 03, 2016, ALLAHABAD HIGH COURT. THE ABOVE VIEWS HAVE ATTAINED FINALITY AS THESE JUD GMENTS OF THE HIGH COURTS OF BOMBAY, GUJARAT AND ALLAHABAD HAVE BEEN A CCEPTED BY THE DEPARTMENT. 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SETTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A )(IA). 40A(3). 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DE DUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF TH E ELIGIBLE BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALLOWANCE. 4 ITA NO.1037/PUN/2015 VANDERLANDE INDUSTRIES SOFTWARE PVT. LTD., 6. IN THE PRESENT CASE, THE ADDITIONS IN QUESTION I NCLUDES THE MANAGEMENT FEE AND REIMBURSEMENT OF EXPENDITURE OF COMMUNICATION COST AND THEY CONSTITUTE BUSINESS EXPENSES. CONSIDERING THE JUDGMENTS AND THE CBDT CIRCULAR REFERRED ABOVE, WE ARE OF THE VIEW TH AT THE DECISION GIVEN BY THE CIT(A) ON THE ISSUE MENTIONED ABOVE IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE GR OUNDS RAISED BY THE REVENUE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF AUGUST, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 16 TH AUGUST, 2017. / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. THE CIT (A) - 13, PUNE THE CIT-13, PUNE 5. % , , B BENCH PUNE; 6. / GUARD FILE.