M/s. KPIT Technologies Limited, Pune V. Deputy Commissioner of Income -tax,

ITA 2614/PUN/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4038 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 17-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Depreciation; Capital expenditure
• Section: 43B; 40A(3); 14A; 115JB; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI VIKAS AWASTHY, JM . / ITA NO.2614/PUN/2016 / ASSESSMENT YEAR : 2010-11 M/S. KPIT TECHNOLOGIES LIMITED (ERSTWHILE KPIT CUMMINS GLOBAL BUSINESS SOLUTIONS LTD.), PLOT NO.35 & 36, MIDC, PHASE-1, RAJIV GANDHI INFOTECH PARK, HINJEWADI, PUNE 411 057 PAN : AACCK6967F /APPELLANT VS. DCIT, CIRCLE-11(1), PUNE . /RESPONDENT ASSESSEE BY : SHRI KISHOR PHADKE REVENUE BY : SHRI PANKAJ GARG / DATE OF HEARING : 01.11.2018 / DATE OF PRONOUNCEMENT: 02.11.2018 / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER PASSED BY THE CIT(A)-7, PUNE, DATED 11-07-2016 IN RELATION TO TH E ASSESSMENT YEAR 2010-11. 2. THE FIRST GROUND IS AGAINST DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.3,39,16,904/- ON THE CAPITAL EXPENDITURE IN CURRED FOR ACQUIRING RIGHT TO RENDER BPO SERVICES FROM CUMMINS INC. USA. 3. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT THE ASSES SEE CLAIMED DEPRECIATION ON AN INTANGIBLE ASSET, I.E. RIGHT TO RENDER BU SINESS PROCESS OUTSOURCING SERVICES. THE AO DISALLOWED SUCH DE PRECIATION BY TREATING IT AS A RECURRING ISSUE AND FOLLOWING THE VIEW TAKEN BY HIM ITA NO.2614/PUN/2016 M/S. KPIT TECHNOLOGIES LIMITED 2 IN THE PRECEDING YEARS. THE LD. CIT(A) UPHELD THE ASSESS MENT ORDER ON THIS ISSUE. 4. HAVING HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH T HE RELEVANT MATERIAL RECORD, WE FIND THAT THE ASSESSMENT ORD ER FOR THE A.Y. 2009-10, DENYING THE SIMILAR CLAIM OF DEPRECIATION, TRAVELLE D TO THE TRIBUNAL. VIDE ITS ORDER DATED 09-04-2018 FOR THE A.Y. 2009-10, A COPY OF WHICH HAS BEEN PLACED ON RECORD, THE TRIBUNAL HAS DIRECTED THE AO TO ALLOW DEPRECIATION ON THE RIGHT TO RENDER BP O SERVICES. IN THE ABSENCE OF ANY DISTINGUISHING FACTS BROUGHT TO OUR NOTICE BY THE LD. DR, RESPECTFULLY FOLLOWING THE PRECEDENT, WE HOLD TH E ASSESSEE TO BE ENTITLED TO DEPRECIATION OF RS.3.39 CRORE AND ODD ON `RIGHT TO RENDER BPO SERVICES . THIS GROUND IS ALLOWED. 5. GROUND NO. 2 IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.3,16,221/- MADE U/S.14A OF THE INCOME-TAX ACT, 1961 (HE REINAFTER ALSO CALLED `THE ACT) READ WITH RULE 8D(2)(III) IN THE COMPUTA TION OF INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. THE AO OBSERVED THAT THE ASSESSEE DECLARED EXEMPT DIVIDEND INCOME OF RS.14,88,25 0/-, BUT NO DISALLOWANCE WAS OFFERED U/S.14A OF THE ACT. INVOKIN G THE PROVISIONS OF RULE 8D(2)(III), THE AO COMPUTED THE DISALLOWANCE OF RS.3,16,221/- AT THE RATE OF 0.5% OF THE AVERAGE VALUE O F INVESTMENTS. THE LD. CIT(A) ECHOED THE ASSESSMENT ORDER ON THIS POINT. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE ASSE SSEE HAS CLAIMED DEDUCTION U/S.10A OF THE ACT IN RESPECT OF ITS INCOM E FROM EXPORTS, WHICH IS STATED TO BE ROUGHLY 95% OF THE TOTAL INCOME. CIRCULAR NO.37/2016 DATED 02-11-2016 PROVIDES THAT WHER E AN ITA NO.2614/PUN/2016 M/S. KPIT TECHNOLOGIES LIMITED 3 ASSESSEE IS ENTITLED TO DEDUCTION UNDER CHAPTER VIA OF T HE ACT AND THE AO MAKES CERTAIN DISALLOWANCES, SUCH AS, PERTAINING TO SECTION 32, 40(A)(IA), 40A(3) OR 43B ETC., WHICH LEAD TO INCREASE IN T HE AMOUNT OF PROFITS, THEN DEDUCTIONS IN RESPECT OF INCOME COV ERED UNDER CHAPTER VIA SHOULD BE ALLOWED ON RESULTANT ENHANC ED INCOME. THE EFFECT OF SUCH CIRCULAR IS THAT, IF THERE IS SOME INCREASE IN THE PROFITS OF THE ELIGIBLE UNITS BY VIRTUE OF CERTAIN ADDITIONS MAD E BY THE AO ON ACCOUNT OF DISALLOWANCE OF EXPENSES ETC., THEN THE ELIGIBLE INCOME FOR DEDUCTIONS UNDER CHAPTER VIA OF THE ACT SHO ULD BE ENHANCED ACCORDINGLY AND THE DEDUCTIONS SHOULD BE ALLOWE D CONSIDERING SUCH AN ENHANCED INCOME. THOUGH STRICTLY, T HIS CIRCULAR DOES NOT SPECIFICALLY COVER SECTIONS 10A OR 10B ETC. AND REFER TO DEDUCTIONS UNDER CHAPTER VIA OF THE ACT, BUT THE ESSEN CE OF THE CIRCULAR EXTENDS TO DEDUCTIONS IN RESPECT OF ELIGIBLE UNITS C OVERED U/S.10A AND 10B ALSO. THERE IS NO RATIONALE IN RESTRICTING THE AMOUNT OF DEDUCTION U/S.10A, 10B ETC. ON THE INCOME OF ELIGIBLE UNITS PRIOR TO SUCH ADDITIONS AND GRANTING DEDUCTION TO THE E LIGIBLE UNITS COVERED BY SECTIONS AS PER CHAPTER VIA ON THE ENHANC ED INCOME AFTER SUCH ADDITIONS. WE, THEREFORE, HOLD, IN PRINCIPLE, THAT THE SPIR IT OF THE CIRCULAR APPLIES WITH FULL FORCE TO THE INCOME COVERED BY SEC TIONS U/S.10A AND 10B ALSO. 7. COMING BACK TO THE ISSUE IN QUESTION, WHEREBY THE AO COMPUTED THE DISALLOWANCE U/S. 14A R.W. RULE 8D(2)(III) OF THE ACT AMOUNTING TO RS.3,16,221/-, THE LD. AR SUBMITTED THAT ABOU T 95% OF ITS INCOME IS ELIGIBLE FOR DEDUCTION U/S.10A OF THE ACT AND THE DISALLOWANCE U/S 14A SHOULD ALSO BE ACCORDINGLY REDUCED. FOLLOWING THE SPIRIT OF THE CIRCULAR, WE HOLD THAT THE AMOUNT OF DISALLO WANCE ITA NO.2614/PUN/2016 M/S. KPIT TECHNOLOGIES LIMITED 4 COMPUTED BY THE AO AT RS.3,16,221/- SHOULD BE ADDED TO THE ELIGIBLE PROFITS AND THEN DEDUCTION U/S.10A SHOULD BE ALLOWED ACCOR DINGLY. WE THEREFORE DIRECT THE AO TO COMPUTE THE AMOUNT OF D EDUCTION U/S.10A IN THE MANNER STATED HEREINABOVE. 8. GROUND NO.3 IS AGAINST MAKING AN ADDITION OF RS.3,16,211/- RELATING TO DISALLOWANCE U/S.14A IN COMPUTING THE BOOK PROFIT U/S.115JB OF THE ACT. 9. THE AO COMPUTED THE AMOUNT OF DISALLOWANCE U/S.14A AN D ADDED THIS AMOUNT TO THE NET PROFIT FOR THE COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT AS WELL, WHICH STAND WAS APP ROVED IN THE FIRST APPEAL. 10. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELEVA NT MATERIAL ON RECORD, WE FIND THAT THE ISSUE OF MAKING DISALLOWANCE U/ S.14A IN THE CONTEXT OF COMPUTATION OF BOOK PROFIT U/S.115JB IS N O MORE RES INTEGRA IN VIEW OF THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN ACIT VS. VIREET INVESTMENT (P) LTD. (2017) 82 TAXMANN.COM 415 (DELHI (TRIB.) (SB). IN THIS DECISION, THE SPECIAL BENCH HAS HELD THAT COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115 JB(2) SHOULD BE MADE WITHOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED U/S.14A R.W. RULE 8D. NO CONTRARY DECISION O F ANY HONBLE HIGH COURT HAS BEEN BROUGHT TO OUR NOTICE BY T HE LD. DR. RESPECTFULLY FOLLOWING THE SPECIAL BENCH DECISION, WE HOLD THA T THE AMOUNT OF DISALLOWANCE U/S.14A CANNOT BE ADDED TO THE NE T PROFIT WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE ACT. THIS GROUND IS ALLOWED. ITA NO.2614/PUN/2016 M/S. KPIT TECHNOLOGIES LIMITED 5 11. THE LAST GROUND OF THE APPEAL FOR GRANTING TDS CRED IT WAS NOT PRESSED BY THE LD. AR FOR THE ASSESSEE. THE SAME IS, THE REFORE, DISMISSED AS NOT PRESSED. 12. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02 ND NOVEMBER, 2018. SD/- SD/- (VIKAS AWASTHY) (R.S. SYAL) /JUDICIAL MEMBER / VICE PRESIDENT PUNE; DATED : 02 ND NOVEMBER, 2018 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-7, PUNE. 4. / THE PR. CIT-6, PUNE 5. , , / DR B, ITAT, PUNE; 6. / GUARD FILE. // TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE *