M/s Wipro Limited, Bangalore V. DCIT, Bangalore

ITA 972/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60747 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 31-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA
• Assessee Lawyers: K R PRADEEP
• Keywords: Business income; Depreciation; Transfer pricing; Business expenditure; Double taxation relief; Principle of natural justice; Rule of consistency; Earning of tax free income; Source of fund; Deemed export; Competent authority; Commercial expediency
• Section: 143(3); 10AA; 80HHC; 234B; 14A; 260A; 80IB; 10B; 201(1); 32; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO.972/BANG/2011 (ASSESSMENT YEAR : 2007-08) M/S. WIPRO LIMITED, DODDAKANNELLI, SARJAPUR ROAD, BANGALORE-560 025 . APPELLANT. PAN AACW 0387R VS. DY. COMMISSIONER OF INCOME TAX, RANGE 12(5), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI K. R. PRADEEP. RESPONDENT BY : SHRI ETWA MUNDA. DATE OF HEARING : 28.05.2012. DATE OF PRONOUNCEMENT : 15.06.2012. O R D E R PER SHRI JASON P. BOAZ : THIS APPEAL IS DIRECTED AGAINST THE ORDER OF ASSE SSMENT DT.29.9.2011 PASSED U/S. 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (HER EIN AFTER REFERRED AS 'THE ACT') BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(5 ), BANGALORE IN ACCORDANCE WITH THE DIRECTION OF THE DISPUTE RESOLUTION PANEL (DRP) U/S . 144(5) R.W.S. 144C(8) OF THE ACT DT.26.9.2011. THE ASSESSMENT YEAR INVOLVED IS 2007 -08. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE, A WELL KNOWN SOFTWARE COMPANY, WI TH OTHER LINES OF BUSINESS, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 ON 31 .10.2007 DECLARING INCOME OF 2 ITA NO.972/BANG/11 RS.531,20,99,354. THE CASE WAS TAKEN UP FOR SCRUTI NY BY ISSUE OF NOTICE UNDER SECTION 143(2) OF THE ACT. IN VIEW OF INTERNATIONAL TRANSA CTIONS THE ASSESSEE HAD WITH ASSOCIATED ENTERPRISES (AE), THE CASE WAS REFERRED TO THE TRAN SFER PRICING OFFICER (TPO) UNDER SECTION 92CA FOR DETERMINATION OF THE ARMS LENGTH P RICE (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.15.4.2010 SUGGESTED TRAN SFER PRICING ADJUSTMENT OF RS. 9,67,89,370 ON THE ISSUE OF INTEREST CHARGEABLE TO ITS ASSOCIATED ENTERPRISES. IN VIEW OF THE TRANSFER PRICING ADJUSTMENT, A DRAFT ORDER UNDE R SECTION 144C OF THE ACT WAS PASSED ON 31.12.2010. THE ASSESSEE COMPANY FILED OBJECTI ONS THERETO BEFORE THE DRP ON 31.10.2011. THE DRP VIDE DIRECTIONS DT.26.9.2011 RE FERRED TO ABOVE DID NOT ACCEPT THE ASSESSEES OBJECTIONS TO THE TP ADJUSTMENT AND DIRE CTED THE ASSESSING OFFICER TO COMPLETE THE ASSESSMENT ACCORDINGLY. THE ASSESSING OFFICER ACCORDINGLY PASSED THE ORDER OF ASSESSMENT ON 29.9.2011. 3. IN ALL THE ASSESSEE COMPANY HAS RAISED 98 GR OUNDS. THESE WILL BE DISPOSED OFF IN SERIATUM GROUND WISE AS UNDER. 4. THE GROUNDS OF APPEAL RAISED AT S.NOS.1 TO 4 ARE AS UNDER : 1. THE ORDER U/S 143(3) DATED 29.09.2011 OF THE L EARNED ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO), THE ORDER U/ S 92CA DATED 15.04.2010 OF THE LEARNED TRANSFER PRICING OFFICER (HEREINAFTE R REFERRED TO AS THE TPO) AND THE DIRECTIONS DATED 26.09.2011 ISSUED U/S 144C (5) OF THE LEARNED DISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED TO AS DRP) ARE AGAINST THE LAW, FACTS, CIRCUMSTANCES, NATURAL JUSTICE, EQUITY AND ALL OTHE R KNOWN PRINCIPLES OF LAW. 2. THE ORDER ISSUED BY THE LEARNED AO AS WELL AS TH E DIRECTIONS OF THE LEARNED DRP ARE VIOLATIVE OF THE PRINCIPLES OF JUDICIAL DIS CIPLINE AND ARE ACCORDINGLY LIABLE TO SET ASIDE AS THE BINDING NATURE OF THE OR DERS OF THE HIGHER APPELLATE AUTHORITIES HAS BEEN TOTALLY IGNORED. 3 ITA NO.972/BANG/11 3. THE DIRECTIONS OF THE LEARNED DRP ARE UNSUSTAINA BLE IN LAW IN AS MUCH AS THEY HAVE BEEN ISSUED IN A MECHANICAL MANNER WITHOUT CON SIDERING THE RELEVANT MATERIALS, EVIDENCES AND DATA AND WITHOUT APPLICATI ON OF MIND. CONSEQUENTLY, THE ADDITIONS BASED ON SUCH DIRECTIONS REQUIRE TO B E DELETED. 4. THE TOTAL INCOME COMPUTED AND THE TOTAL TAX COMP UTED IS HEREBY DISPUTED. THESE GROUNDS AT S.NOS.1 TO 4 ARE GENERAL IN NATURE AND THEREFORE NO SEPARATE ADJUDICATION IS CALLED FOR THEREON. 5.1 THE GROUNDS OF APPEAL AT S.NOS.5 TO 10 IN RESPECT OF TRANSFER PRICING ADJUSTMENTS ARE AS UNDER : TRANSFER PRICING ADJUSTMENTS 5. THE TPO ERRED IN PASSING AN ORDER DATED 15-04- 2010 AND SERVING THE SAME ON THE ASSESSEE ON 03-11-2010 WITHOUT PROVIDING AN OPPORTUNITY TO THE ASSESSEE TO RESPOND AND ALSO WITHOUT CONSIDERING THE SUBMISS IONS MADE VIDE LETTER DATED 25-10-2010. 6. THE LEARNED AO ERRED IN ADDING A SUM OF RS. 9,67 ,89,370/- TOWARDS THE TRANSFER PRICING ADJUSTMENT SUGGESTED BY THE LEARNE D TPO AND AFFIRMED BY THE LEARNED DRP ON THE ISSUE OF INTEREST ON THE ADVANCE S OF THE APPELLANT TO ITS ASSOCIATED ENTERPRISES, BEING WHOLLY-OWNED SUBSIDIA RIES OF THE APPELLANT. 7. THE LEARNED AUTHORITIES BELOW OVERLOOKED THE FAC T THAT NO INTEREST WAS EARNED FROM THE ADVANCES GIVEN TO THE SUBSIDIARIES ABROAD OUT OF COMMERCIAL EXPEDIENCY AND THAT THE ADVANCES TO THE FOREIGN SUB SIDIARIES WERE MADE OUT OF SURPLUS FUNDS OF THE APPELLANT AND NOT OUT OF BORRO WED FUNDS. 8. THE LEARNED AUTHORITIES BELOW ERRED IN MAKING AN ADJUSTMENT BASED ON SURMISES AND CALLING THE LIBOR BASED RATE DETERMINE D BY THE TPO AS CUP RATE RATHER THAN BY MEETING THE TRANSFER PRICING REQUIRE MENT OF COMPUTING THE ARMS LENGTH INTEREST BASED ON ANY COMPARABLE UNCON TROLLED TRANSACTIONS AS DIRECTED IN THE APPELLATE ORDERS IN EARLIER ASSESSM ENT YEARS. 9. THE LEARNED DRP ERRED IN NOT DELETING THE TRANSF ER PRICING ADJUSTMENT MERELY ON THE GROUND THAT THE ISSUE IS CONTINUING F ROM EARLIER YEARS AND THAT FURTHER APPEALS OF THE DEPARTMENT U/S 260A ARE PEND ING BEFORE THE HONBLE HIGH COURT OF KARNATAKA. 4 ITA NO.972/BANG/11 10. WITHOUT PREJUDICE, THE DRP ERRED IN NOT GRANTIN G THE SAFE HARBOR ADJUSTMENT OF +/- 5% OF THE ALP ON THE GROUND THAT THE DEPARTMENTS APPEAL U/S 260A IN THE CASE OF SAP LABS AND OTHERS ARE PEN DING BEFORE THE HONBLE HIGH COURT OF KARNATAKA. 5.2 AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THE GROUND RAISED AT S.NO.10 REGARDING GRANT OF SAFE HARBOR ADJUSTMEN T OF / - 5 % OF ALP IS NOT BEING PRESSED IN THIS APPEAL AND IS THEREFORE ACCORDINGLY DISMISSED AS INFRUCTUOUS. 5.3 IN RESPECT OF THE GROUNDS AT S.NOS.5 TO 9, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER ERRED IN MAKIN G A TRANSFER PRICING ADJUSTMENT OF RS. 9,67,89,370 BASED ON THE TPOS ORDER AND THE CONFIR MATION OF THIS BY THE DRP ON THE ISSUE OF INTEREST ON ADVANCES GIVEN BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES WHICH WERE ITS WHOLLY OWNED SUBSIDIARIES. IT WAS SUBMIT TED THAT THE AUTHORITIES BELOW OVERLOOKED THE FACT THAT THESE INTEREST FREE ADVANC ES 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 OU T BY THE HON'BLE APEX COURT IN THE CASE OF S.A. BUILDERS REPORTED IN 288 ITR 1. THE LEARNE D COUNSEL FOR THE ASSESSEE CONTENDS THAT THE TRANSFER PRICING ADJUSTMENT MADE BY THE TP O AT 14% RATE OF INTEREST BASED ON LIBOR, AS THE REASONABLE RATE OF INTEREST UNDER THE CUP METHOD, WAS BASED ON SURMISES AND WAS NOT BASED ON THE TRANSFER PRICING REQUIREME NT OF COMPUTING THE ARMS LENGTH INTEREST BASED ON ANY COMPARABLE UNCONTROLLED TRANS ACTION AS WAS DIRECTED BY APPELLATE ORDERS IN EARLIER YEARS IN THE ASSESSEES OWN CASE. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER POINTED OUT THAT THE DRP, IN ITS ORDER DT.2 6.9.2011 ON PAGE 2 AND PARA 3 THEREOF, 5 ITA NO.972/BANG/11 WHILE ACKNOWLEDGING THAT RELIEF HAS BEEN GRANTED BY THE TRIBUNAL ON THIS ISSUE IN THE ASSESSEES OWN CASE IN EARLIER YEARS, HAS MECHANICA LLY AND WITHOUT APPLICATION OF MIND UPHELD THE ADJUSTMENT DETERMINED BY THE TPO STATING THAT THIS ISSUE HAS NOT REACHED FINALITY AS THE DEPARTMENT HAS FILED FURTHER APPEAL UNDER SECTION 260A AGAINST THE TRIBUNAL ORDER. THE LEARNED COUNSEL FOR THE ASSESS EE CONTENDED THAT THE INTEREST DETERMINED IN THE TPOS ORDER IS NOT AN ARMS LENGTH RATE DETERMINED IN COMPARABLE UNCONTROLLED TRANSACTION AND THEREFORE PRAYED THAT IT BE SET ASIDE IN CONFORMITY WITH THE TRIBUNALS FINDINGS IN THE ASSESSEES OWN CASE FOR EARLIER YEARS AND PLACED ON RECORD A COPY OF THE DECISION OF THE CO-ORDINATE BENCH OF THE TRI BUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 IN ITA NO.1072/BANG/2007 D T.30.1.2009. 5.4 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUP PORTED THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND SUBMITTED THAT THEY BE CONF IRMED. 5.5 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT A SIMILAR ISSUE WAS CONSIDERE D BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEA R 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 CONSIDER ED BY THE HONBLE TRIBUNAL IN ITA NO: 624 & 1178/BANG/2007 DATED: 31- 10-08 FOR THE AY 2003- 04 IN THE ASSESSEES OWN CASE. THE HONBLE TRIBUNA L WHILE CONFIRMING THE FINDING OF THE LD.CIT(A) HAD QUOTED THE SAME AND TH E 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 6 ITA NO.972/BANG/11 ESTABLISHED. UNLESS SUCH AN UNCONTROLLED TRANSACTI ON IS IDENTIFIED, NO ALP ADJUSTMENT IS POSSIBLE. .. 7.2. RESPECTFULLY FOLLOWING THE SAID DEC ISION, WE CONFIRM THE ORDER OF THE LEARNED CIT(A) ON THIS COUNT. SINCE THE ISSUE OF ADJUSTMENT FOR RATE OF INTEREST CHARGEABLE IN RESPECT OF INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE TO ITS WHOLLY OWNED FOREIGN SUBSIDIARIES IS IDENTICAL TO THAT OF THE EARLIER YEARS, THE ASSESSING OFFICER IS DIRE CTED TO FOLLOW THE DIRECTIONS GIVEN IN THE ORDERS FOR EARLIER YEARS IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 FOLLOWING THE DECISION IN ITA NOS.624 & 1178/BANG/2 007 DT.31.10.2008 IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04. 6.1 IN GROUNDS RAISED AT S.NOS.11 TO 14 , THE ASSESSEE HAS CONTENDED AS UNDER : DISALLOWANCE UNDER SECTION 14A 11. THE LEARNED AO, BASED ON SURMISES AND CONJECTUR ES, ERRED IN NOT ACCEPTING THE ACTUAL EXPENDITURE OF RS. 89,14,479/- INCURRED IN RELATION TO EXEMPT INCOME FOR THE PURPOSES OF SECTION 14A OF THE ACT Q UANTIFIED BY THE APPELLANT WITH A DETAILED WORKING FROM ITS ACCOUNTS. THE AO FURTHER ERRED IN FOLLOWING THE EARLIER YEARS ORDER IN ESTIMATING 5% OF THE DI VIDEND INCOME AS THE EXPENDITURE AND THEREBY MAKING AN ADHOC DISALLOWANC E U/S 14A OF RS 8,35,59,108/-. 12. THE LEARNED DRP ERRED IN STATING THAT NO SEPARA TE ACCOUNTS HAVE BEEN MAINTAINED IN RESPECT OF ACTIVITY OF EARNING INCOME WHILE GIVING A DIRECTION THAT THE AO HAD RIGHTLY ESTIMATED THE EXPENDITURE @ 5% O F THE DIVIDEND INCOME. 13. THE LEARNED AUTHORITIES BELOW OVERLOOKED THE FA CT THAT SUBSTANTIAL INVESTMENTS WERE IN UNITS OF MUTUAL FUNDS AND THAT THE DIVIDEND WAS IN THE NATURE OF INCOME RECEIVED IN RESPECT OF UNITS OF MU TUAL FUNDS WHEREIN THE EXPENSES INCURRED IN MANAGING THE UNDERLYING INVEST MENTS AND EARNING THE DIVIDEND WERE ALREADY DEDUCTED BY THE MUTUAL FUNDS DISTRIBUTING THE INCOME. 14. THE LEARNED AUTHORITIES BELOW ERRED IN OVERLOOK ING THE SUBMISSION OF THE APPELLANT THAT THE DIVIDEND INCOME HAD SUFFERED SUR ROGATE TAX IN THE FORM OF DISTRIBUTION TAX. 7 ITA NO.972/BANG/11 6.2 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE ASSESSEE COMPANY EARNED AGGREGATE DIVIDEND OF RS. 167,11,82,150 FROM SHARES IN COMPANIES AND MUTUAL FUND UNITS HELD AS INVESTMENTS AND CLAIMED THEM AS EXEMPT UNDE R SECTION 10(34) AND 10(35) OF THE ACT. IT WAS SUBMITTED THAT AN AMOUNT OF RS. 89,14, 479 @ 2% OF CERTAIN CORPORATE EXPENSES WAS DETERMINED BY THE ASSESSEE AS EXPENDIT URE INCURRED IN RELATION TO EXEMPT INCOME BASED ON THE ESTIMATED TIME SPENT BY THE FUN CTIONARIES RESPONSIBLE FOR MANAGING THE COMPANYS 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 VIZ. RS. 8,35,59,108 WHICH THE LEARNED COUNSEL FOR THE ASSES SEE CONTENTION WAS WITHOUT ANY BASIS. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT THE DRP CONFIRMED THE ASSESSING OFFICER S DISALLOWANCE UNDER SECTION 14A ON THE BASIS OF ITS HYPOTHESIS THAT WHEN NO SEPARATE ACCOUNTS HAVE BEEN MAINTAINED IN R ESPECT OF ACTIVITY OF EARNING INCOME, THERE IS NO OTHER ALTERNATIVE WITH THE ASSESSING OF FICER BUT TO ESTIMATE SUCH EXPENDITURE. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT NO ADHOC DISALLOWANCE CAN BE MADE AND PLACED RELIANCE ON THE FOLLOWING DECISIONS IN SUPPO RT OF THIS PROPOSITION : I) CIT VS. UNITED COLLERIES 203 ITR 857 (CAL) II) CIT VS. HERO CYCLES 31 DTR 301 (P & H) III) GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 328 ITR 819 (BOM) 6.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE PLE ADED IN SUPPORT OF THE ORDERS OF THE AUTHORITIES BELOW. 6.4 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- 8 ITA NO.972/BANG/11 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 OF FICER 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 MAR CH 24, 2008, WOULD APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESS MENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAD TO EN FORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OF FICER 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 C IRCUMSTANCES 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 RE LATION 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 OFFI CER SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUN TS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. RESPECTFULLY FOLLOWING THE 9 ITA NO.972/BANG/11 DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I N 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), WE RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH BY APPLYING THE RATIO OF TH E JUDGEMENT OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ & BOYCE MFG. CO. LT D. (SUPRA). IT IS ORDERED ACCORDINGLY. 7.1 THE GROUNDS RAISED AT S.NOS.15 TO 20 ARE AS UNDER : SET-OFF OF LOSS OF STP UNDERTAKINGS: 15. THE LEARNED AO FAILED TO APPRECIATE THAT WHERE AN UNDERTAKING LOCATED IN SOFTWARE TECHNOLOGY PARK INCURS A LOSS THEN THE DED UCTION FOR THE UNDERTAKING UNDER SECTION 10A FOR THE PREVIOUS YEAR IS NIL. 16. THE LEARNED AO ERRED IN REFUSING TO SET OFF THE LOSS INCURRED BY THE FOLLOWING STP AND SEZ UNITS AGAINST OTHER BUSINESS INCOME OF THE APPELLANT: SL. NO NAMES OF THE UNITS LOSS (RS) STP UNITS: 1. WIPRO TECHNOLOGIES, BELAPUR 79,27,357 2. WIPRO TECHNOLOGIES, BHUBANESWAR 8,02,206 3. WIPRO TECHNOLOGIES, CHENNAI STERLING BUILDING 3,93,727 4. WIPRO TECHNOLOGIES, CARLTON TOWERS 49,73, 698 5. WIPRO TECHNOLOGIES, SIGMA TECH PARK, BANGALORE 7,30,40,336 6. WIPRO TECHNOLOGIES, MADIVALA R&D UNIT, BANGALORE 3,52,13,538 7. WIPRO TECHNOLOGIES, MADIVALA 5, BANGALORE 1,92,15,127 8. WIPRO TECHNOLOGIES, GURGAON 7,65,96,000 9. WIPRO TECHNOLOGIES, MYSORE 1,62,39,627 10 ITA NO.972/BANG/11 SEZ UNITS: 10. WIPRO TECHNOLOGIES, SARJAPUR SEZ 4,96,15,183 11. WIPRO TECHNOLOGIES, MANIKONDA SEZ 71,10,097 12. WIPRO TECHNOLOGIES, CHENNAI ETL BUILDING 1,18,99,020 TOTAL 30,30,25,916 17. THE LEARNED DRP ERRED IN ISSUING ITS DIRECTIONS BASED ON A MISUNDERSTANDING OF THE ORDER OF THE HONBLE ITAT FOR AY 2004-05 WHE REIN THE DECISION WAS WITH REGARD TO BROUGHT FORWARD LOSSES OF 10A UNITS WHEREAS THE CASE BEFORE THE DRP WAS WITH REGARD TO CURRENT LOSSES OF 10A UN ITS. 18. THE LEARNED DRP ERRED IN NOT VERIFYING THE FACT S AND ERRED IN JUST FOLLOWING THE EARLIER YEARS DRP DIRECTIONS. 19. THE DIRECTION OF THE LEARNED DRP IS ON THE BASI S THAT THE LOSSES INCURRED BY CERTAIN 10A UNITS SHOULD BE SET-OFF AGAINST THE PRO FITS EARNED BY OTHER 10A UNITS WHICH IS IN DIRECT CONFLICT WITH DECISION OF THE SUPREME COURT IN 161 ITR 320 IN THE MATTER OF SET OFF OF LOSSES FROM THE PRI ORITY INDUSTRY AND ACCORDINGLY VIOLATES THE SETTLED LEGAL POSITION. 20. THE LEARNED AUTHORITIES BELOW ERRED IN NOT APPL YING SEC. 70 OR SEC. 71 IN THE MATTER OF SET OFF OF ABOVE LOSSES FOR THE YEAR IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. 7.2 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE CORE OF THE ISSUE IS IN RESPECT OF SET OFF OF LOSSES OF RS. 30,30,25,916 FR OM 12 UNDERTAKINGS IN SOFTWARE TECHNOLOGY PARKS (STPS) AND SPECIAL ECONOMIC ZONES (SEZS) AGAINST THE TAXABLE PROFITS FROM OTHER BUSINESS OF THE ASSESSEE COMPANY. THE L EARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR ARRIVING AT THE TOTAL INCOME FOR THE ASSESSMENT YEAR, THE LOSSES OF THESE STP AND SEZ UNDERTAKINGS WERE SET OFF AGAINST OTHER TAXABLE BUSINESS . OF THE ASSESSEE COMPANY. IT WAS CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SET OFF BUSINESS LOSSES HAVE TO BE MANDATORILY CONSIDER ED AS PER THE PROVISIONS OF SECTION 70 AND 71 OF THE ACT FOR WHICH THERE WAS NO PROHIBITIO N. IT WAS SUBMITTED THAT THE 11 ITA NO.972/BANG/11 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 FO R 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 ALL OWED 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 SUBMIT TED 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 WI TH 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 ASSESS EE SUBMITTED THAT WHEN RELIANCE WAS PLACED ON THE TRIBUNAL ORDERS IN THE ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE, TH E ASSESSING OFFICER STATED THAT THIS ISSUE IS STILL UNDER DISPUTE AS THE DEPARTMENT HAS FILED FURTHER APPEALS IN THE PRECEEDING YEARS. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE DRP IN ITS ORDER ISSUED DIRECTIONS ON THE BASIS THAT THE LOSSES INCURRED BY CERTAIN 10A UNITS SHOULD BE SET OFF AGAINST THE PROFITS EARNED BY OTHER 10A UNITS. IT W AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE DIRECTIONS OF THE DRP VIOLATE D, THE SETTLED LEGAL POSITION AS IT IS IN DIRECT CONFLICT WITH THE DECISION OF THE HON'BLE AP EX COURT IN THE CASE REPORTED AT 161 ITR 320 IN THE MATTER OF SET OFF OF LOSSES FROM PRIORITY I NDUSTRY. 7.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPP ORTED THE ORDERS OF THE AUTHORITIES BELOW. 12 ITA NO.972/BANG/11 7.4 WE HAVE HEARD BOTHPARTIES AND PERUSED AND CA REFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE IDENTICAL ISSUE WAS CONSI DERED BY A CO-ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 IN ITA NO.1072/BANG/2007 (SUPRA), WHEREIN THE TRIBUNAL CON FIRMING THE FINDING OF THE LEARNED CIT(A), AT PARA 16.4 ON PAGES 29 AND 30 THEREOF, HE LD AS UNDER : 16.4. WE HAVE CAREFULLY CONSIDERED THE CONTENT IONS OF THE EITHER PARTIES AND ALSO CAREFULLY PERUSED THE ORDER OF THE HONBLE TRIBUNAL. WHILE DECIDING AN IDENTICAL ISSUE, THE HONBLE TRIBUNAL CITED THE FOL LOWING 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 C ONCLUDED THAT WE DIRECT THE AO TO ALLOW SET OFF OF LOSS FROM 10A UNITS AGAI NST THE OTHER BUSINESS INCOME OF THE ASSESSEE OR INCOME FROM OTHE R 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 ASSES SEE. THE HONBLE TRIBUNAL HAS, FURTHER, OBSERVED THAT THE DECISION OF JURISD ICTIONAL 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 O F THAT UNDERTAKING. INCOME OF EACH UNDERTAKING IS TO BE COMPUTED INDEPENDENTLY AS PER THE PROVISIONS OF THE ACT. AN ASSESSEE CANNOT BE COMPELLED TO SEEK D EDUCTION U/S 10A IN RESPECT OF AN UNDERTAKING IN WHICH THERE IS A LOSS. THIS I S THE BASIS OF NOT SETTING OFF OF LOSSES OF 10A UNITS AGAINST THE PROFIT OF 10A UN ITS FOR COMPUTING DEDUCTION U/S 10A. THIS IS IN VIEW OF THE DECISION OF THE TH IRD 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 HIMMAT SINGH (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 CL AIMING DEDUCTION U/S 10A. 16.5. RESPECTFULLY FOLLOWING THE DECI SIONS OF THE HONBLE TRIBUNAL REFERRED SUPRA, WE DIRECT THE ASSESSING OFFICER TO SET OFF BROUGHT FORWARD LOSSES OF THE UNITS FOR WHICH THE ASSESSEE HAS DISC LOSED POSITIVE INCOME FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 10A. 13 ITA NO.972/BANG/11 RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 (SU PRA) 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 CL AIMING DEDUCTION UNDER SECTION 10A. 8.1 THE GROUNDS OF APPEAL RAISED AT S.NOS.21 TO 2 5 ARE AS UNDER : EXPENDITURE ON SOFTWARE IMPORTS: 21. THE LEARNED AO ERRED IN DISALLOWING DEPRECIATIO N OF RS. 57,38,83,507/- ON IMPORTED SOFTWARE PRODUCTS USED IN-HOUSE BY REFERRI NG TO THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN SYNOPSIS INC. CASE AND TO DELHI ITAT IN THE CASE OF MICROSOFT CORPORATION VS. ADIT STATING THAT THE ASSESSEE HAD FAILED TO COMPLY WITH TDS PROVISIONS U/S 195 WHILE MAKING PAY MENTS TO SOFTWARE VENDORS. 22. THE LEARNED AO FAILED TO GIVE EFFECT TO EXPLANA TION 5 UNDER SECTION 32(1) WHEREIN IT IS CLARIFIED THAT THE PROVISIONS OF SUB- SECTION 1 OF SECTION 32 SHALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE D EDUCTION IN RESPECT OF DEPRECIATION IN COMPUTING THE TOTAL INCOME. 23. THE LEARNED AUTHORITIES BELOW ERRED IN PROCEEDI NG ON THE BASIS THAT PAYMENT FOR IMPORTED SOFTWARE IS IN NATURE OF ROYAL TY WHEREAS IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT, THE PAYMENTS DID NO T ATTRACT THE PROVISIONS OF SECTION 40A(I). 24. THE LEARNED AUTHORITIES BELOW, WHILE MAKING THE DISALLOWANCE OF THE DEPRECATION ON IMPORTED SOFTWARE USED IN-HOUSE, ERR ED IN NOT FOLLOWING THE APPELLATE ORDERS IN APPELLANTS OWN CASE AND THE OR DER OF THE HONBLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY SERVICES LTD REPORTED IN 271 ITR 401. 25. THE LEARNED DRP ERRED IN NOT UPHOLDING JUDICIAL DISCIPLINE FOR THE ONLY REASON THAT THE DEPARTMENT HAS NOT ACCEPTED THE ORD ERS OF THE ITAT ON THE ISSUE AND FILED APPEALS U/S 260A, WHICH ARE PENDING . 8.2 IT IS SUBMITTED THAT THE ASSESSEE COMPANY C LAIMED DEPRECIATION AMOUNTING TO RS. 7,38,83,507 ON SOFTWARE PURCHASED BOTH LOCALLY AND IMPORTED AND USED IN ITS BUSINESS AND FURNISHED THE DETAILS THEREOF TO THE ASSESSING OFFI CER IN THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER WAS OF THE OPIN ION THAT THE PROVISIONS OF SECTION 14 ITA NO.972/BANG/11 40(A)(IA) OF THE ACT ARE APPLICABLE AND PROPOSED TO DISALLOW THE DEPRECIATION CLAIMED ON SUCH PURCHASES. THE ASSESSEE SUBMITTED THAT THE SO FTWARE 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 SOFTWAR E. IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE ASSESSING OFFICE R DID NOT ACCEPT THE EXPLANATION PUT FORTH BY THE ASSESSEE AND DISALLOWED THE ENTIRE DEP RECIATION CLAIMED ON THE GROUND THAT THERE WAS AN OBLIGATION ON THE PART OF THE PAYERS T O EFFECT DEDUCTION FROM OUT OF PAYMENTS MADE BY THEM IN FAVOUR OF NON-RESIDENT REC IPIENTS FOR ACQUIRING ANY SOFTWARE EVEN ASSUMING THAT IT HAS PARTAKEN THE CHARACTER OF GOODS. IT IS SUBMITTED THAT THE ASSESSING OFFICER WAS OF THE VIEW THAT SOFTWARE IS BASICALLY PURCHASED BY WAY OF LICENCE TO USE AND HE RELIED ON THE JUDGMENT OF THE HON'BL E HIGH COURT OF KARNATAKA IN THE CASE OF SYNOPSIS INC AND THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF MICROSOFT CORPORATION VS. ADIT . IT IS CONTENDED THAT THE DRP AGREED WITH THE REA SONING OF THE ASSESSING OFFICER IN CONTINUING THE DISALLOWANCE EV EN THOUGH IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) AND THE TRIBUNAL HAD DECIDED THIS IS SUE IN THE ASSESSEES FAVOUR IN THE EARLIER ASSESSMENT YEARS ON THE GROUND THAT THE DEP ARTMENT HAS TAKEN THE MATTER IN FURTHER APPEAL UNDER SECTION 260A OF THE ACT AND TH AT THE MATTER HAD NOT ATTAINED FINALITY. 15 ITA NO.972/BANG/11 8.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE PL ACED RELIANCE ON THE FINDINGS OF THE ASSESSING OFFICER AND THE DRP ON THIS ISSUE AND REI TERATED THE ARGUMENTS IN THE ORDERS OF THE AUTHORITIES BELOW. 8.4 WE HAVE HEARD BOTH PARTIES AND HAVE PER USED 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 ASSESSEES 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 FAOVUR OF THE ASSESSEE FOLLOWING THE EARLIER DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NOS.426, 427, 468 AND 469/BANG/2006 FOR ASSESSM ENT 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 1998-9 9 ONWARDS. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH OF THE TRIBUNAL FOR ASSESSMENT YEAR 2004-05 (SUPRA) DECIDE THIS ISSUE I N FAVOUR OF THE ASSESSEE. 9.1 THE GROUNDS OF APPEAL AT S.NOS.26 TO29 ARE A S UNDER : ALLOCATION OF CORPORATE EXPENSES 26. THE LEARNED AO ERRED IN ALLOCATING EXPENSES OF WIPRO CORPORATE TO UNDERTAKINGS UNDER SECTION 10A EVEN THOUGH THE SAID EXPENSES WERE NOT REQUIRED TO BE ALLOCATED. 27. WITHOUT PREJUDICE, THE LEARNED AO OUGHT TO HAVE REFRAINED FROM MAKING AN ALLOCATION OF EXPENSES OF WIPRO CORPORATE IN AN ADH OC MANNER TO THE UNDERTAKINGS UNDER SECTION 10A, IGNORING THE DETAIL ED SUBMISSIONS MADE BY THE ASSESSEE. 28. THE LEARNED DRP ERRED IN STATING THAT THE AO HA S ADOPTED A REASONABLE APPROACH BY WAY OF ALLOCATING SUCH EXPENDITURES ON THE BASIS OF TURNOVER OVERLOOKING THE FACT THAT NO ALLOCATION WAS REQUIRE D IN THE FIRST PLACE. 16 ITA NO.972/BANG/11 29. THE LEARNED AUTHORITIES BELOW ERRED IN MAKING A N ALLOCATION OF EXPENSES OF WIPRO CORPORATE TO THE UNDERTAKINGS UNDER SECTION 1 0A AND THEREBY FAILED TO FOLLOW THE ORDER OF THE ITAT BENCH IN APPELLANTS O WN CASE FOR AN EARLIER ASSESSMENT YEAR FOR THE REASON THAT THE SAID ORDER HAS BEEN CHALLENGED BY THE DEPARTMENT BEFORE THE HONBLE HIGH COURT, WHICH IS PENDING. 9.2 IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT WIPRO LIMITED IS A SET UP WHICH EVOLVES GROWTH PLANS OF THE ASSESSEE COMPA NY AND THE MANNER IN WHICH THE PLANS WILL BE ACHIEVED AND THE MEDIUM AND LONG TERM VISIO N IS DEFINED BY WIPRO CORPORATE AND IT EVALUATES VARIOUS BUSINESS OPPORTUNITIES AND INVEST MENT STRATEGIES. IT IS SUBMITTED THAT EXPENDITURE INCURRED BY THE CORPORATE WAS FOR THE D EVELOPMENT OF BUSINESS OF THE COMPANY. IT IS SUBMITTED BY THE LEARNED COUNSEL FO R THE ASSESSEE THAT THE FUNCTIONING OF WIPRO CORPORATE IS INDEPENDENT OF THE SOFTWARE BUSI NESS OR OTHER BUSINESS DIVISIONS AS THOSE BUSINESS ARE RUN AS INDEPENDENT PROFIT CENTRE S AND THEIR EXPENSES ARE SEPARATELY INCURRED AND RECORDED. IT IS SUBMITTED THAT THE AS SESSING OFFICER AGREED FOR THE ALLOCATION OF INTEREST AND EXCHANGE DIFFERENCE ON P CFC LOANS AS CLAIMED BY THE ASSESSEE. FURTHER, THE ASSESSING OFFICER WAS OF THE VIEW THAT EXPENDITURE BOOKED BY WIPRO CORPORATE DIVISION RELATED TO VARIOUS DIVISIONS. T HE ASSESSING OFFICERS STAND WAS THAT IF NO ALLOCATION WAS MADE, THEN THE PROFITS ELIGIBLE F OR DEDUCTION UNDER SECTION 10A AND UNDER THE PROVISIONS OF CHAPTER VIA OF THE ACT WOULD BE A RTIFICIALLY ENHANCED. IN DOING SO, THE ASSESSING OFFICER EXCLUDED THE WIPRO CORPORATE EXPE NDITURE DETERMINED BY HIM IN THE ASSESSMENT AS RELATABLE TO EARNING OF DIVIDEND INCO ME UNDER SECTION 14A OF THE ACT. IT IS SUBMITTED THAT THE ASSESSING OFFICER REALLOCATED CO RPORATE EXPENDITURE TO OTHER DIVISIONS USING THE TURNOVER RATIO AND THUS AN AMOU NT OF RS. 52,51,49,491 WAS REALLOCATED 17 ITA NO.972/BANG/11 TO VARIOUS UNITS. THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT EVEN THOUGH IT WAS CLAIMED BY THE ASSESSEE THAT ISSUE WAS COVERED IN I TS FAVOUR BY THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OW N CASE FOR ASSESSMENT YEAR 2004-05 (SUPRA), THE DRP IN ITS ORDER, WHILE ACKNOWLEDGING THIS FACT, CONFIRMED THE ASSESSING OFFICER VIEW ON THE GROUND THAT THE MATTER HAS NOT ATTAINED FINALITY AS THE TRIBUNAL ORDER (SUPRA) HAS BEEN CHALLENGED BY THE DEPARTMENT BEFOR E THE HON'BLE HIGH COURT. 9.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUP PORTED THE FINDINGS IN THE ORDERS OF THE AUTHORITIES BELOW. 9.4 WE HAVE HEARD BOTH PARTIES AND HAVE PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE DECISION OF THE CO-ORD INATE BENCH OF THE TRIBUNAL HAS IN THE ASSESSEES OWN CASE IN ITA NO.1072/BANG/2007 (SUPRA ) HAS FOLLOWED ITS EARLIER ORDER IN ITA NO.651/BANG/94 FOR ASSESSMENT YEAR 1997-98 AND IN ITA NOS.426, 427, 468 & 469/BANG/2006 DT.3.5.2008. THE RELEVANT FINDINGS A RE EXTRACTED HEREUNDER : 11.4. WE HAVE CAREFULLY CONSIDERED THE SUBMISS IONS OF BOTH THE PARTIES. WE HAVE ALSO PERUSED THE DECISIONS OF THE HONBLE TRIBUNAL ON WHICH THE ASSESSEE COMPANY HAS PLACED STRONG RELIANCE. T HE ORDER OF THE HONBLE TRIBUNAL FOR THE AY 97-98 IN ASSESSEES OWN CASE IN ITA NO:651/B/94 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND REL EVANT FINDINGS OF THE TRIBUNAL IS REPRODUCED AS UNDER: 27.14. IN VIEW OF THESE ENTIRE FACTS OF THE CASE A ND, IN THE ABSENCE OF ANY SPECIFIC FINDS BY THE AUTHORITIES BELOW THAT TH E EXPENDITURE IS INCURRED FOR THE VARIOUS UNITS CLAIMING EXEMPTION/DEDUCTION IN A N ARTIFICIAL WAY OF ALLOCATING THE EXPENSES AND THAT TOO ON SURMISES IS NOT JUSTIF IABLE. WE ARE, THEREFORE OF THE OPINION THAT THE PROFITS OF THE UNDERTAKING ELI GIBLE FOR EXEMPTION U/S 10A IS CORRECTLY WORKED OUT AND NO ARTIFICIAL WORKING C AN BE ATTRIBUTED THERETO. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, ALL OWED AND THE ORDER OF THE COMMISSIONER (APPEALS) IS REVERSED IN THIS ASPECT. 18 ITA NO.972/BANG/11 11.5. THE HONBLE TRIBUNAL IN ITS DECISION IN IT A NOS:426,427,468 & 469/BANG/2006 DT:30.5.2008 IN ASSESSEES OWN CASE H AS DEALT WITH THIS ISSUE EXHAUSTIVELY AND HAD CONCLUDED THAT 6. ANOTHER ISSUE WHICH ARISES BEFORE US IS IN RES PECT 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 REPRO DUCE 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 ACC OUNTED IN THE BOOKS. ONLY THE BALANCE AMOUNT IS BEING TAKEN AS COMMON EXPENDITURE.(NET ALLOCATION OF RS.1,55,72,898/-) FO R ALLOCATION. FROM THE ABOVE, IT IS CLEAR THAT WHEN D IRECT EXPENSES OF RATES AND TAXES WERE KNOWN IN RESPECT OF UNIT WHOSE INCOME I S DEDUCTIBLE U/S 10A THEN OTHERWISE ALLOCATION CANNOT BE MADE. THE ALLOCATIO N OF COMMON EXPENDITURE CANNOT BE MADE ON THE BASIS OF REVENUE GENERATED. THE ASSESSEE HIMSELF HAS AGREED TO ALLOCATION OF 20% OF SUCH EX PENDITURE AND THE SAME HAS BEEN CONFIRMED BY THE LEARNED CIT(A). WE, THEREFO RE, FEEL THAT ALLOCATION AT THE RATE OF 20% OF COMMON EXPENSES IS IN ORDER. HE NCE, DIRECT EXPENDITURE DISALLOWED BY THE ASSESSING OFFICER IS CONFIRMED AN D DISALLOWANCE OF 20% OF COMMON EXPENDITURE AS CONFIRMED BY THE LEARNED CIT (A) IS UPHELD. IN VIEW OF THE DECISIONS OF THE CO-ORDINATE BENCH O F THE TRIBUNAL (SUPRA) AND RESPECTFULLY FOLLOWING THE SAME, WE ARE OF THE CONSIDERED VIEW T HAT THE SAID DECISIONS HOLD GOOD FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO AND AC CORDINGLY DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 10.1 THE GROUNDS OF APPEAL AT S.NOS.30 TO 32 ARE AS UNDER : SOFTWARE DEVELOPMENT CENTRES OUTSIDE INDIA 30. THE LEARNED AUTHORITIES BELOW ERRED IN STATING THAT ON-SITE IS ONLY CLIENTS SITE AND THE DEVELOPMENT OF COMPUTER SOFTWARE IN SO FTWARE DEVELOPMENT CENTRES OF THE ASSESSEE OUTSIDE INDIA CANNOT BE CON STRUED AS ON-SITE 19 ITA NO.972/BANG/11 DEVELOPMENT OF COMPUTER SOFTWARE REFERRED TO IN EXP LANATION 3 TO SECTION 10 WHEREAS A PLAIN READING OF THE SAID EXPLANATION DOE S NOT LEAD TO THE CONCLUSION THAT ON-SITE DEVELOPMENT CAN ONLY BE UNDERSTOOD AS THE DEVELOPMENT OF SOFTWARE AT CLIENTS PREMISES. 31. THE LEARNED AUTHORITIES BELOW ERRED IN NOT APPR ECIATING THAT THE SOFTWARE DEVELOPMENT CENTRES OUTSIDE INDIA WERE ONLY FACILIT ATING THE ON-SITE DEVELOPMENT FOR THE STP UNDERTAKINGS IN INDIA. 32. THE LEARNED DRP ERRED IN STATING THAT THE ASSE SSEE COULD NOT PROVE THAT THE WORK CARRIED OUT AT THE SOFTWARE DEVELOPMENT CE NTRES IS AN EXTENSION OF SOFTWARE DEVELOPMENT WHICH TOOK PLACE IN THE STP UN ITS, WHICH IS CONTRARY TO THE FACTS ON RECORD WHEREIN THE APPELLANT HAD ESTAB LISHED THAT REVENUES FROM CLIENTS FACILITATED BY THE OVERSEAS SOFTWARE DEVELO PMENT CENTRES WERE DERIVED BY THE UNDERTAKINGS IN SOFTWARE TECHNOLOGY PARKS. 10.2 IT WAS SUBMITTED BY THE LEARNED COUNSEL FO R THE ASSESSEE THAT THE SOFTWARE DEVELOPMENT CENTRES (SDCS) IN GERMANY, SWEDEN, UK, CANADA AND JAPAN WERE SET UP BY THE ASSESSEE TO FACILITATE THE ON-SITE DEVELOPMENT OF SOFTWARE TO SPECIFIC CUSTOMERS. THESE, IT IS SUBMITTED, ARE THE COST CENTRES OF WIP RO TECHNOLOGIES DIVISIONS AND ITS SUB- UNITS, VIZ. THE UNDERTAKINGS IN SOFTWARE TECHNOLOGY PARKS (STPS) AND SPECIAL ECONOMIC ZONES (SEZS). IT IS SUBMITTED THAT THE ASSESSEES SUBMISSIONS THAT THE SDCS ARE EXTENSIONS OF STP / SEZ UNITS WAS REJECTED BY THE A SSESSING OFFICER WHO WAS OF THE VIEW THAT THEY ARE INDEPENDENT OF STP UNITS. THE ASSESS ING OFFICER WAS OF THE VIEW THAT THE REVENUE GENERATED BY THE ABOVE SDCS ABROAD ARE INCL UDED IN THE REVENUES SHOWN BY THE STP / SEZ UNITS. THE ASSESSING OFFICER CONCLUDED T HAT 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 ESTAB LISHMENTS (PES) OF THE ASSESSEE COMPANY IN FOREIGN COUNTRIES AND ALSO PAYING FOREIG N TAXES. IN COMPUTING THE DEDUCTION UNDER SECTION 10A, THE ASSESSING OFFICER FOLLOWING THE METHOD ESTABLISHED IN EARLIER YEARS 20 ITA NO.972/BANG/11 ASSESSMENTS , ARRIVED AT THE RESERVES AND PROFITS D ERIVED FROM THESE SDCS AND EXCLUDED THEM FROM THE PROFITS OF INDIVIDUAL STP UNITS. THE DRP CONCURRED WITH THE VIEW OF THE ASSESSING OFFICER AND ISSUED DIRECTIONS ACCORDINGLY . IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE CLAIMED THAT A SIMILAR ISSUE WAS CONSIDERED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL FOR ASSESSME NT YEAR IN ITA NO.1072/BANG/ 2007 (SUPRA) AND HELD IN FAVOUR OF THE ASSESSEE AND THER EFORE ITS GROUND BE ACCEPTED AND RELIEF BE ACCORDINGLY GRANTED. 10.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE SU PPORTED THE ORDERS OF THE AUTHORITIES BELOW. 10.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREF ULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE HAVE PERUSED THE ORDER OF TH E CO-ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 IN ITA NO.1072/BANG/07 (SUPRA) AND FIND THAT THE DISCUSSIONS ARE AT PARA 24 ONWARD S AND THE RELEVANT FINDINGS ARE AT PARA 24.2 TO PARA 24.2 WHICH ARE EXTRACTED HEREUNDER : 24.2. WE HAVE CAREFULLY CONSIDERED THE ARGUMEN T PUT-FORTH BY THE LD. A.R. AND ALSO THE REASONING OF THE LD. AO AND THE LD. CI T (A) IN THEIR RESPECTIVE ORDERS. THE HONBLE TRIBUNAL, FOR THE AYS 2001-02 AND 02-03 IN THE ASSESSEES OWN CASE HAD AN OCCASION TO DEAL WITH AN IDENTICAL ISSUE. AFTER DELIBERATIONS, THE HONBLE 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 O F THE LEARNED CIT(A). THIS ISSUE IS REQUIRED TO BE REMITTED BACK TO THE ASSESS ING OFFICER AND THE ASSESSEE WILL BE REQUIRED TO FILE THE RELEVANT DETAILS AS RE QUIRED BY THE ASSESSING OFFICER SO THAT THE ASSESSING OFFICER CAN ASCERTAIN THE MAR KET VALUE OF SUCH GOODS OR SERVICES TRANSFERRED BY ARRIVING AT THE PROFIT OF T HE ELIGIBLE BUSINESS. 21 ITA NO.972/BANG/11 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 OFFI CER FOR NECESSARY ACTION AS CONTEMPLATED IN THE TRIBUNALS FINDING REFERRED SUP RA. ON CONSIDERATION OF THE ABOVE FINDINGS, WE RESPECTF ULLY FOLLOWING THIS DECISION, ARE OF THE OPINION THAT FOR THIS YEAR ALSO THE ISSUE REQUIRES TO BE REMITTED BACK TO THE ASSESSING OFFICER AND ACCORDINGLY DO SO WITH A DIRECTION TO T HE ASSESSING OFFICER TO FOLLOW THE DECISION OF TRIBUNAL MENTIONED SUPRA. 11.1 THE GROUNDS OF APPEAL AT S.NOS.33 TO 38 ARE AS UNDER : OTHER INCOME NOT CONSIDERED AS PART INCOME ELIGIB LE UNDER SECTION 10A: 33. THE LEARNED AO ERRED IN EXCLUDING AGGREGATE INT EREST INCOME OF RS. 6,61,13,968/- FROM THE PROFITS OF THE 10A UNITS EVE N THOUGH THE AO HAS GIVEN A FINDING THAT THE INTEREST INCOME WAS DERIVED OUT OF THE SURPLUSES GENERATED BY THE UNITS. 34. THE LEARNED AO OUGHT TO HAVE NETTED OUT THE INT EREST PAID AGAINST THE INTEREST INCOME BEING ITEMS OF THE SAME NATURE AND EXCLUDED ONLY THE NET INTEREST INSTEAD OF THE GROSS INTEREST EARNED. 35. THE LEARNED DRP ERRED IN STATING THAT THE UNSEC URED LOANS HAVE BEEN USED ONLY ON CAPITAL WORK-IN-PROGRESS WHEN IT IS CLEAR A S PER THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE THAT THE INTERE ST ATTRIBUTABLE TO ACQUISITION OF ASSETS TILL THE DATES ON WHICH THE A SSETS WERE FIRST PUT TO USE HAVE ALREADY BEEN INCLUDED IN THE ACTUAL COST OF AC QUISITION OF THE ASSETS BY THE APPELLANT. 36. THE LEARNED AO ERRED IN EXCLUDING SALE OF SCRAP OF RS. 47,11,908/- FROM THE PROFITS OF UNITS LOCATED IN SOFTWARE TECHN OLOG Y PARKS BY STATING THAT SALE OF SCRAP HAS NO RELATION TO SOFTWARE DEVELOPMENT AC TIVITY. THE LEARNED AO OUGHT TO HAVE APPRECIATED THAT RECEIPT FOR SALE OF SCRAP MERELY REPRESENTED THE RECOVERY OF SCRAP VALUE AGAINST THE EXPENDITURE INCURRED, WHICH GOES TO REDUCE THE PROFIT OF THE UNDERTAKINGS. 37. THE LEARNED DRP ERRED IN APPLYING THE RATIO OF THE DECISION OF THE HONBLE SUPREME COURT IN 317 ITR 218 RENDERED IN THE CONTEX T OF SECTION 80-IB DEDUCTION, WHICH HAS NO APPLICATION FOR COMPUTING T HE DEDUCTION UNDER SECTION 10A SINCE THE PROFITS AND GAINS DERIVED BY AN UNDER TAKING UNDER SUB-SECTION 1 22 ITA NO.972/BANG/11 OF SECTION 10A HAS TO BE DETERMINED BY APPLYING THE MATHEMATICAL FORMULA PRESCRIBED UNDER SUB-SECTION 4 OF SECTION 10A. 38. THE LEARNED AUTHORITIES BELOW ERRED IN NOT FOLL OWING THE APPELLATE ORDER OF THE ITAT, BANGALORE IN APPELLANTS OWN CASE IN RESP ECT OF ABOVE ITEMS. 11.2 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TS THAT THE ASSESSEE FURNISHED THE PROFIT AND LOSS ACCOUNT OF INDIVIDUAL STP/SEZ UNITS WHICH INCLUDED AGGREGATE INCOME OF RS. 6,61,13,968 SALE OF SCRAP OF RS. 47,11,908 AND OTHE R INCOME OF RS. 3,48,524 UNDER THE HEAD MISCELLANEOUS INCOME. THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITS THAT THE AFORESAID ITEMS ARE DERIVED BY THE STP/SEZ UNDERTAK INGS AND WERE CORRECTLY INCLUDED FOR COMPUTING THE ELIGIBLE DEDUCTIONS. THE ASSESSEE HA D 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 T HE 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 CALCULATE D ON NET BASIS BECAUSE THE RELATED EXPENSES WERE ALSO DEBITED TO PROFIT AND LOSS ACCOU NT. IT WAS SUBMITTED THAT THE ASSESSING OFFICER CONCLUDED THAT THE INTEREST SHOWN AS MISCELLANEOUS INCOME IN EACH OF THE UNITS HAS TO BE EXCLUDED FROM THE PROFITS SINCE NO BORROWED FUNDS WERE USED IN THE BUSINESS OF STP UNITS. THE ASSESSING OFFICER ALSO HELD THAT INCOME FROM SALE OF SCRAP HAS NO RELATION TO SOFTWARE DEVELOPMENT ACTIVITY AND HE NCE THE SAME IS TO BE EXCLUDED. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE DRP APPLIED THE DECISION IN THE CASE OF LIBERTY INDIA VS. CIT (317 ITR 218) (SC ) RENDERED IN THE CONTEXT OF SECTION 80 IB DEDUCTION AND CONCURRED WITH THE FINDING OF T HE ASSESSING OFFICER. 23 ITA NO.972/BANG/11 11.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE R ELIED ON THE FINDING ON THIS ISSUE IN THE ORDERS OF THE AUTHORITIES BELOW. 11.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREFUL LY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THIS ISSUE HAS BEEN CONSID ERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL, IN THE ASSESSEES 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 U NDER : 12.5. WE HAVE CAREFULLY CONSIDERED THE R IVAL SUBMISSIONS AND ALSO PERUSED THE DECISIONS ON WHICH RELIANCE HAS BEEN PL ACED BY EITHER PARTY. (1) IN RESPECT OF SCRAP SALE AMOUNT, WE FIND THAT THE HONBLE TRIBUNAL IN ITS DECISION FOR THE AYS 2001-02 & 02-03 IN THE ASSESSE E COMPANYS OWN CASE IN ITA NOS:426,427,468 & 469/B/2006, FOLLOWING ITS EAR LIER DECISION FOR THE AYS 98-99 & 99-00 AND EXTENSIVELY REPRODUCING ITS REASO NING, HAS CONCLUDED THAT, IT IS CLEAR THAT THE SALE OF SCRAP REDUCED THE QUA NTUM OF EXPENDITURE DEBITED FOR THAT PURPOSE. ON THAT BASIS, THE AMOUNT RECEIV ED FROM THE SALE OF SCRAP CANNOT BE EXCLUDED FOR THE PURPOSE OF COMPUTING DED UCTION U/S 10A. (2) IN RESPECT OF EXCLUSION OF EXCHANGE RATE FLUCTUATION, THE HONBLE TRIBUNAL IN ITS DECISION REFERRED SUPRA HAS OBSERVED: 11.3. IT IS SEEN THAT THE TRIBUNAL FOR THE ASST. Y EAR 2000-01, FOLLOWING ITS ORDER FOR THE ASST. YEARS 1998-99 AND 1999-2000, HE LD 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 EX PORTED ON ACCOUNT OF EXCHANGE RATE FLUCTUATION. THE EXPORTS ARE MADE A T A PRICE IN FOREIGN EXCHANGE AND THE AMOUNT IS RECEIVED IN INDIA SUBSEQ UENTLY 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 IT SELF IS TO BE CONSIDERED AS PART OF THE EXPORT TURNOVER. HENCE, FOLLOWING T HE DECISION OF THE BENCH IN THE CASE OF THE ASSESSEE FOR THE EARLIER YEARS, IT IS HELD THAT EXCHANGE 24 ITA NO.972/BANG/11 FLUCTUATION IS TO BE CONSIDERED AS PART OF THE PROF IT OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 10A. (3) WITH REGARD TO INTEREST INCOME ALSO, THE HONBLE TRIBUNAL IN ITS DECISION REFERRED SUPRA, AFTER DELIBERATING THE ISS UE AT LENGTH HAS, ARRIVED AT A CONCLUSION THAT - 10.2. .THE TREATMENT TO BE METED OUT TO IN TEREST 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 CI T V. SHRIRAM HONDA POWER EQUIPMENT 289 ITR 475 HAS DISCUSSED SUCH AN ISSUE A T LENGTH. HOWEVER, IT WAS OBSERVED BY THE DELHI HIGH COURT THAT IN A GIVEN CA SE IF THE ASSESSING OFFICER HAS HELD THE INTEREST INCOME AS BUSINESS INCOME AND THIS HAS NOT BEEN CHALLENGED BY THE DEPARTMENT IN THEREAFTER, THEN TH E 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 H AS 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 EL IGIBLE FOR DEDUCTION U/S 10A. UNDER THE CIRCUMSTANCES, WE HOLD THAT THE LEARNED C IT(A) WAS JUSTIFIED IN DIRECTING FOR NOT EXCLUDING THE INTEREST FOR THE PU RPOSE 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 S UCH INCOME DOES NOT BELONG TO THE UNDERTAKING TO WHICH SECTION 10A IS APPLICAB LE. IN VIEW OF THE FINDING IN THE DECISION OF THE CO-OR DINATE BENCH OF THE TRIBUNAL (SUPRA) AND RESPECTFULLY FOLLOWING THE SAME, WE ARE OF THE CONS IDERED VIEW THAT THE SAID DECISION HOLDS GOOD FOR THIS ASSESSMENT YEAR ALSO WITH RGARD TO IN TEREST INCOME AND INCOME FROM SALE OF SCRAP. HOWEVER, SINCE WE FIND THAT NO DETAILS ARE AVAILABLE WITH REGARD TO OTHER INCOME OF RS. 3,48,524, WE DEEM IT FIT TO REMIT THE MATTER BA CK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE MATTER AFRESH AND D ECIDE THE ISSUE ON MERITS. 12.1 THE GROUNDS RAISED AT S.NOS.39 TO 41 ARE AS UNDER : 25 ITA NO.972/BANG/11 DEEMED EXPORTS NOT ELIGIBLE FOR DEDU CTION UNDER SECTION 10A: 39. THE LEARNED AO ERRED IN KEEPING AGGREGATE DEEME D EXPORT OUT OF THE EXPORT TURNOVER OF THE UNDERTAKINGS ELIGIBLE FOR DE DUCTION UNDER SECTION 10A. 40. THE LEARNED AUTHORITIES FAILED TO APPRECIATE T HAT DEEMED EXPORT ENJOY THE SAME STATUS OF EXPORT AS PER THE EXIM POLICY AND CO NSEQUENTLY IS ENTITLED TO ALL THE BENEFITS AS IN THE CASE OF ACTUAL EXPORT. 41. THE LEARNED DRP ERRED IN DISMISSING THE OBJECT IONS OF THE APPELLANT AND AGREEING WITH THE AO, OVERLOOKING THE FACT THAT IN APPELLANTS CASE FOREIGN EXCHANGE WAS RECEIVED ON EXPORT OF COMPUTER SOFTWAR E MANUFACTURED BY THE ASSESSEE. 12.2 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE COMPANY HAD CARRIED OUT DEEMED EXPORTS BY RAISING BILLS ON LOCA L 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 1 0A / 10AA OF THE ACT. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE ASSESSEES CLA IM AND HELD THAT DEEMED EXPORTS ARE OBVIOUSLY NOT ON ACCOUNT OF EXPORT OF SOFTWARE. IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE DRP WAS OF THE VIEW THAT DEDU CTION UNDER SECTION 10A WAS TO BE ALLOWED ONLY WHEN FOREIGN EXCHANGE IS RECEIVED ON E XPORT OF COMPUTER SOFTWARE MANUFACTURED BY THE ASSESSEE AND THAT THE EXIM POLI CY CANNOT OVERRULE THE INCOME TAX ACT WHICH IS A SEPARATE CODE IN ITSELF. THE DRP NO TED THAT THE ASSESSEE ITSELF HAD NOT MADE THIS CLAIM FOR DEDUCTION UNDER SECTION 10A IN THE RETURN OF INCOME FILED AND FINALLY HELD THAT SINCE DEEMED EXPORTS DO NOT ACTUALLY INV OLVE EXPORT, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A THEREBY REJECTING T HE ASSESSEES CLAIM. 26 ITA NO.972/BANG/11 12.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPP ORTED THE ORDERS OF THE ASSESSING OFFICER AND POINTED OUT THAT THE ITAT IN THE ASSESS EES OWN CASE FOR ASSESSMENT YEAR 2004-05 HAD HELD THE ISSUE IN FAVOUR OF REVENUE AND AGAINST THE ASSESSEE AND SOUGHT DISMISSAL OF ASSESSEES GROUNDS ON THIS ISSUE. 12.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREFU LLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE ARE NOT CONVINCED WITH THE S UBMISSION OF THE ASSESSEE AND FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITA NO.1042/BANG/2007 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 HAD CONSIDERED AN IDENTICAL ISSUE AND DECIDED THE ISSUE AGAINST THE ASSESSEE. THE RELEVANT EXTRACT O F THE FINDING IN THE TRIBUNAL ORDER AT PAGE 40 IN PARA 22.1 IS EXTRACTED HEREUNDER : 22.1. THE HONBLE TRIBUNAL IN ASSESSEES OWN CAS E 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 EAR LIER DECISION IN THE CASE OF TATA ELXSI LTD. IN ITA NO: 315/BANG/2006 HAS CONFIR MED THE ORDER OF THE LD. CIT(A) ON THE ISSUE. RESPECTFULLY FOLLOWING THE S AID DECISION OF THE HONBLE TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT NO INT ERFERENCE IS CALLED FOR. IN VIEW OF THE ABOVE DECISION, WE ARE OF THE CONSID ERED VIEW THAT NO INTERFERENCE IS CALLED FOR AND CONSEQUENTLY THE GROUNDS OF APPEAL AT S.NOS .39 TO 41 ARE DISMISSED. 13.1 THE GROUNDS OF APPEAL RAISED AT S.NO.42 IS AS UNDER : EXCLUSION OF VAT/ GST FROM EXP ORT AND TOTAL TURNOVER 42. FOREIGN TAXES (VAT / GST) OF RS. 279,32,36,416/ - COLLECTED AND PAID OUGHT NOT TO HAVE BEEN EXCLUDED FROM EXPORT TURNOVER AS H AS BEEN DONE BY THE LEARNED AO. WITHOUT PREJUDICE, SIMILAR AMOUNT SHOU LD HAVE BEEN REDUCED NOT ONLY FROM THE TOTAL TURNOVER BUT ALSO FROM THE EXPE NDITURE INCURRED BY THE UNITS UNDER SECTION 10A. 27 ITA NO.972/BANG/11 13.2 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE ASSESSEE IS AGGRIEVED BY THE ACTION OF THE ASSESSING OFFICER IN EXCLUDING TH E FOREIGN TAX (VAT / GST) COLLECTED FROM CUSTOMERS FROM THE EXPORT TURNOVER AND TOTAL T URNOVER AND THEREBY GRANTING A LOWER DEDUCTION UNDER SECTION 10A OF THE ACT FOR STP UNIT S. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER EXCLU DED 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 REM ITTED TO THE GOVERNMENT. THE DRP CONCURRED WITH AND CONFIRMED THE ASSESSING OFFICER S FINDING. 13.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE SU PPORTED THE FINDING OF THE AUTHORITIES BELOW AND POINTED OUT THAT THIS TRIBUNAL IN THE ASS ESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 IN ITA NO.1042/BANG/2007 (SUPRA) HAD DISMIS SED THE ASSESSEES GROUND ON THE VERY SAME ISSUE. HE, THEREFORE, PRAYED THAT THE A SSESSEES GROUND BE DISMISSED. 13.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREFU LLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE CO-ORDINATE B ENCH OF THIS TRIBUNAL HAD OCCASION TO CONSIDER THE SAME ISSUE IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2001-02 AND 2002-03 WHEREIN IT WAS HELD THAT THE ASSESSING OFFI CER WAS JUSTIFIED IN NOT INCLUDING THE FOREIGN TAXES IN EXPORT TURNOVER. THE TRIBUNAL FUR THER 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 T HE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 IN ITA NO.1072/BANG/2007. RESPECTFULL Y FOLLOWING THESE DECISIONS OF THE 28 ITA NO.972/BANG/11 TRIBUNAL(SUPRA) ON THIS ISSUE, WE ARE OF THE CONSID ERED VIEW THAT NO INTERFERENCE IS CALLED FOR AND ACCORDINGLY DISMISS THE ASSESSEES GROUND. 14.1 THE GROUNDS OF APPEAL AT S.NOS.43 TO 48 AN D 57 TO 58 ARE AS UNDER : COMMUNICATION LINK AND OTHER REIMBURSEMENTS: 43. THE LEARNED AO ERRED IN CONCLUDING THAT THE AMO UNT AGGREGATING TO RS. 30,66,70,695/- SHOULD BE EXCLUDED FROM EXPORT TURNO VER THOUGH THE REVENUES TOWARDS REIMBURSEMENT OF COMMUNICATION LINK EXPENSE S WAS NOT INVOLVING DELIVERY OF COMPUTER SOFTWARE AS ENVISAGED IN EXPLA NATION 2 TO SECTION 10A OF THE ACT. 44. THE LEARNED AO ERRED IN CONCLUDING THAT THE AMO UNT AGGREGATING TO RS. 163,90,23,556/- ACCOUNTED UNDER HEADS SUCH AS ASSET REIMBURSEMENTS, TRAVEL REIMBURSEMENTS, AND OTHER REIMBURSEMENTS SHOULD BE EXCLUDED FROM THE EXPORT TURNOVER BY STATING THAT FROM ITS VERY DESCR IPTION, THE AMOUNT IS NOT CONSIDERATION RECEIVED FOR EXPORT TURNOVER AND IT C ANNOT BE TURNOVER OF THE ASSESSEE, LEAST OF ALL, A PART OF EXPORT TURNOVER. 45. WITH REGARD TO EXPORT TURNOVER ACCOUNTED UNDER REIMBURSEMENTS, THE LEARNED DRP ERRED IN GIVING ITS DIRECTIONS AND THE LEARNED AO ERRED IN BEING GUIDED BY MERE NOMENCLATURE OF THE REVENUE RATHER T HAN BY THE FACT THAT SUCH REIMBURSEMENTS WERE ESSENTIALLY A MEASURE FOR REALI ZING REVENUES FROM EXPORT OF COMPUTER SOFTWARE TO OVERSEAS CLIENTS OF THE APP ELLANT AND THAT ALL THESE RECEIPTS FORMED AN INTEGRAL PART OF THE CONSIDERATI ON FOR THE EXPORT OF COMPUTER SOFTWARE. 46. THE LEARNED AO ERRED IN EXCLUDING AMOUNT OF RS. 13,58,96,829/- ACCOUNTED AS INCENTIVES AND REWARDS EVEN THOUGH SUCH RECEIPTS WERE ALSO IN THE NATURE OF CONSIDERATION FOR EXPORT OF COMPUTER SOFTWARE TOWAR DS MEETING SPECIFIC CUSTOMER REQUIREMENTS. 47. THE LEARNED AUTHORITIES BELOW FAILED TO APPRECI ATE THAT WHAT CANNOT BE TURNOVER FOR THE PURPOSE OF EXPORT TURNOVER CANNOT BE CONSTRUED AS TURNOVER FOR TOTAL TURNOVER AND ANY EXCLUSION FROM EXPORT TU RNOVER WOULD REQUIRE A CONCURRENT EXCLUSION FROM EXPORT TURNOVER. 48. THE LEARNED DRP ERRED IN NOT FOLLOWING THE DEC ISION OF HONBLE ITAT IN THE ASSESSEES OWN CASE JUST FOR THE FACT THAT THE DEPA RTMENT HAS NOT ACCEPTED THOSE DECISIONS AND APPEALS U/S 260A ARE PENDING BE FORE THE HONBLE HIGH COURT OF KARNATAKA. EXCLUSION OF TELECOMMUNICATION EXPENSES FROM EXPORT TURNOVER 29 ITA NO.972/BANG/11 57. THE LEARNED AO ERRED IN EXCLUDING AN AGGREGATE SUM OF RS. 4,16,72,448/- INCURRED BY THE APPELLANT TOWARDS TELECOMMUNICATION EXPENSES FOR DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. THE AO FAILED TO NOTICE THAT THE APPELLANT HAS NOT INCLUDED THE SAID SUM IN EXPORT TURNOVER AN D CONSEQUENTLY SAME COULD NOT BE EXCLUDED. THUS THE LEARNED AO COMMITTED AN ERROR OF EXCLUDING SOMETHING WHICH IS NOT ORIGINALLY INCLUDED. 58. WITHOUT PREJUDICE, THE AMOUNT OF TELECOMMUNICA TION EXPENSES EXCLUDED BY THE LEARNED AO FROM EXPORT TURNOVER OUGHT TO HAVE B EEN EXCLUDED FROM TOTAL TURNOVER AS WELL. 14.2 THE ASSESSEE COMPANY HAD PRIMARILY TWO CAT EGORIES / 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 P RICE 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 COMP UTER SOFTWARE ACCOUNTED UNDER VARIOUS HEADS VIZ., ASSETS REIMBURSEMENT, TRAVEL RE IMBURSEMENTS, INCENTIVE AWARDS AND OTHER REIMBURSEMENTS AND DEDUCTIONS UNDER SECTION 1 0A, 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 COMMUNICA TION LINK REIMBURSEMENTS IN CONVERTIBLE FOREIGN EXCHANGE AS A COMPONENT IN THE REALIZATION OF THE SALES PRICE FOR THE COMPUTER SOFTWARE EXPORTED. THE ASSESSEE SUBMITTED TO THE ASSESSING OFFICER THAT THE NOMENCLATURE OF THE REIMBURSEMENT IS ONLY REPRESENT ATIVE OF THE CUSTOMERS HAVING PAID THE PRICE FOR THE COMPUTER SOFTWARE DEVELOPED AND D ELIVERED IN TERMS OF IDENTIFIED EXPENSES WHICH ARE REIMBURSED PURSUANT TO THE CONTR ACT OF SALE OF COMPUTER SOFTWARE AND THAT THE AMOUNTS REALIZED IN CONVERTIBLE FOREIGN EX CHANGE BY WAY OF REIMBURSEMENTS AND 30 ITA NO.972/BANG/11 INCENTIVE REWARDS ARE TO BE INCLUDED AS PART OF 'EX PORT TURNOVER'. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER D D NOT CONCUR WITH THE ASSESSEES CLAIM AND HELD THAT REIMBURSEMENTS AND INCENTIVE RE WARDS CANNOT BE TURNOVER OF THE ASSESSEE, AND LEAST OF ALL A PART OF 'EXPORT TURNOV ER', AS IT IS NOT CONSIDERATION RECEIVED FOR EXPORT OF COMPUTER SOFTWARE. AS REGARDS THE CO MMUNICATION LINK REIMBURSEMENT, THE ASSESSING OFFICER HELD THAT THESE ARE IN THE NATURE OF TELECOMMUNICATION CHARGES ATTRIBUTABLE TO DELIVERY OF COMPUTER SOFTWARE AND A RE THEREFORE TO BE EXCLUDED ONLY FROM 'EXPORT TURNOVER'. THE DRP IN ITS DIRECTIONS CONCU RRED WITH THE VIEWS AND FINDINGS OF THE ASSESSING OFFICER. 14.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE S UPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 14.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREFU LLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.1072/BANG/2007 (SUPRA) CONSIDERE D 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 ASSESSEES CASE FOR ASSESSMENT YEAR 2001-02 AND 2002-03 STATING AS UNDE R : . 14.7 AS SIMILAR ISSUES HAVE BEEN DECIDED BY THE HON'BLE TRIBUNAL AFTER THE ASSESSMENT YEARS 2001-02 AND 2002-03 IN THE ASSESSE ES OWN CASE, WE RESPECTFULLY FOLLOW THE SAID DECISION IN TOTO WHICH HOLDS GOOD FOR THE ASSESSMENT YEAR UNDER DISPUTE ALSO. ACCORDINGLY, T HIS ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER AS IN LAST YEA R. 31 ITA NO.972/BANG/11 WE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, IN THE EARLIER YEARS, IN ITA N O.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 DET AILS ON THIS ISSUE AND BEING HEARD IN THE MATTER. 15.1 THE GROUNDS OF APPEAL AT S.NOS.49 TO 56 ARE AS UNDER : EXCLUSION OF EXPENDITURE IN FOREIGN CURRENCY FROM EXPORT TURNOVER 49. THE LEARNED AO ERRED IN EXCLUDING AN AGGREGATE SUM OF RS. 3238,12,53,173/- FROM THE EXPORT TURNOVER BY ERRONE OUSLY HOLDING THAT THE SAID EXPENDITURE HAS BEEN INCURRED IN PROVIDING TEC HNICAL SERVICES OUTSIDE INDIA. THE AO COMMITTED GROSS ERROR IN FAILING TO UNDERSTAND THAT THE APPELLANT COMPANY HAS EXPORTED COMPUTER SOFTWARE AN D THAT THE ON-SITE DEVELOPMENT OF COMPUTER SOFTWARE (INCLUDING SERVICE S FOR DEVELOPMENT OF SOFTWARE) OUTSIDE INDIA IS DEEMED TO BE EXPORT OF C OMPUTER SOFTWARE OUTSIDE INDIA. 50. THE LEARNED DRP IN GIVING ITS DIRECTIONS AND TH E LEARNED AO HAVE ERRED FUNDAMENTALLY IN AS MUCH AS BEFORE MAKING AN EXCLUS ION OF ANY ITEM, IT WAS NECESSARY TO DETERMINE WHETHER THERE WAS AN INCLUSI ON OF THE ITEM IN THE FIRST PLACE. 51. THE LEARNED AUTHORITIES BELOW ERRED IN PROCEED ING WITH A PRESUMPTION THAT EXPENSES ARE EMBEDDED IN THE EXPORT TURNOVER WHEREA S IN APPELLANTS CASE THERE IS NO DISPUTE THAT THE ITEMS SOUGHT TO BE EXC LUDED ARE BUSINESS EXPENDITURE INCURRED IN FOREIGN CURRENCY FOR ON-SIT E DEVELOPMENT OF COMPUTER SOFTWARE (INCLUDING SERVICES FOR DEVELOPMENT OF COM PUTER SOFTWARE) WHICH WERE NOT SPECIFICALLY INCLUDED IN TURNOVER. 52. THE LEARNED AO ALTERNATIVELY SHOULD HAVE EXCLU DED THE SAID SUM FROM THE EXPENDITURE INCURRED IN UNDERTAKINGS ELIGIBLE FOR D EDUCTION UNDER SECTION 10A. 53. WITHOUT PREJUDICE, THE LEARNED AO OUGHT TO HAVE CARRIED OUT SIMILAR EXCLUSIONS FROM TOTAL TURNOVER AS WELL. 54. THE LEARNED AUTHORITIES BELOW OUGHT TO HAVE HE LD THAT TOTAL TURNOVER IS NOTHING BUT AN AGGREGATION OF EXPORT TURNOVER AS DE FINED IN CLAUSE (IV) OF EXPLANATION 2 UNDER SECTION 10A AND OTHER TURNOVER. 55. WITHOUT PREJUDICE, THE LEARNED AO ERRED IN SUB STITUTING A NEW ARBITRARY METHOD, WHICH IS DIFFERENT FROM THE ARBITRARY METHO D FOLLOWED IN THE ORDERS 32 ITA NO.972/BANG/11 FOR EARLIER YEARS ESPECIALLY FOR ASSESSMENT YEAR 20 01-02, WHICH THE DRP HAS FAILED TO SET RIGHT. 56. THE LEARNED DRP ERRED IN AGREEING WITH THE AO FOR NOT ADHERING TO THE EARLIER DECISIONS OF THE ITAT ON THE ISSUE BY STATI NG THAT DEPARTMENTAL APPEALS U/S 260A ARE PENDING BEFORE THE HONBLE HIG H COURT IN A NUMBER OF CASES INCLUDING THE ASSESSEES CASE. 15.2 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE ASSESSING OFFICER EXCLUDED THE EXPENDITURE INCURRED N FOREIGN CURRENC Y FROM 'EXPORT TURNOVER' ON THE BASIS OF THE DEFINITIONOF 'EXPORT TURNOVER' CONTAINED IN SECTION 10A OF THE ACT AND HELD THAT THE SAID EXPENDITURE HAVING BEEN INCURRED IN PROVID ING TECHNICAL SERVICES OUTSIDE INDIA REQUIRES TO BE EXCLUDED FROM THE 'EXPORT TURNOVER'. THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTION RAISED BY THE ASSESSEE THAT NO SUCH EXPENDITURE IS REQUIRED TO BE EXCLUDED AS IT IS NOT IN THE BUSINESS OF PROVIDING TECHNICAL SERVICES BUT IN THE BUSINESS OF COMPUTER SOFTWARE. IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN SPITE OF TRIBUNAL DECISION, OF EARLIER YEARS IN ITS OWN C ASE BEING IN ITS FAVOUR, THE DRP HAS CONCURRED WITH AND CONFIRMED THE FINDINGS OF THE AS SESSING OFFICER. 15.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THIS POINT SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 15.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREFU LLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND FROM THE RECORD THAT T HIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.1072/BANG/2007 (SUPRA) HAS CONSIDERED A S IMILAR ISSUE IN FAVOUR OF THE ASSESSEE AT PARAS 15 TO 15.4 ON PAGES 26 TO 28 THER EOF FOLLOWING THE TRIBUNALS EARLIER ORDER IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEA R 2001-02 AND 2002-03. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNAL IN THE ASSESSEES CASE FOR 33 ITA NO.972/BANG/11 ASSESSMENT YEAR 2004-05 (SUPRA), ARE OF THE CONSIDE RED VIEW THAT THE SAID DECISION APPLIES FOR THIS YEAR ALSO AND ACCORDINGLY DIRECT T HE ASSESSING OFFICER TO FOLLOW THE FINDINGS OF THE TRIBUNAL. 16.1 THE GROUNDS OF APPEAL AT S.NOS.59 TO 62 ARE AS UNDER : COLLECTIONS BEYOND 30 TH SEPTEMBER 2007: 59. THE LEARNED AO ERRED IN EXCLUDING THE AGGREGAT E SUM OF RS. 65,69,39,304/- FROM THE EXPORT TURNOVER OF THE UNDE RTAKINGS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A ON THE PREMISE THAT THE SALE PROCEEDS WERE NOT REMITTED INTO INDIA WITHIN 6 MONTHS FROM THE END OF THE PREVIOUS YEAR AS PROVIDED IN SECTION 10 A(3). THE LEARNED AO OVERLO OKED THE FACT THAT THE APPLICATION FOR EXTENSION OF TIME WAS FILED WITH TH E COMPETENT AUTHORITY. 60. THE LEARNED DRP AND THE LEARNED AO ERRED IN RE FUSING TO ACCEPT THE LAW DECLARED BY THE HONBLE SUPREME COURT IN 204 ITR (S T.) 9 READ WITH 193 ITR 71 (PUNJAB) WHEREIN FILING OF APPLICATION WOULD TAN TAMOUNT TO EXTENSION OF TIME IN THE ABSENCE OF REJECTION OF THE SAME. 61. THE LEARNED DRP ERRED IN STATING THAT RELAXATI ON PROVIDED BY EXIM POLICY CANNOT BE EXTENDED TO INCOME TAX PROVISIONS. 62. WITHOUT PREJUDICE, IT IS SUBMITTED THAT THE R ECEIPT OF SALE PROCEEDS OF EARLIER YEARS MAY BE ALLOWED FOR THIS YEAR AS PART OF EXPORT TURNOVER. 16.2 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TS THAT THE ASSESSEE COMPANY IS AGGRIEVED BY THE ASSESSING OFFICERS ACTION IN EXCL UDING THE AGGREGATE SUM OF RS.65,69,39,304 RECEIVED AFTER 30.9.2007 FROM THE ' EXPORT TURNOVER' OF UNDERTAKINGS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT . THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE SALE PROCEEDS WERE NOT REMITTED INTO INDIA WITHIN 6 MONTHS FROM THE END OF THE PREVIOUS YEAR AS PROVIDED IN SECTION 10A (3) AND ALSO SINCE THE DELAYED REALIZATION DID NOT HAVE THE APPROVAL OF THE COMPET ENT AUTHORITY, THEY WERE TO BE EXCLUDED FROM THE 'EXPORT TURNOVER'. THE DRP, IT I S SUBMITTED, CONCURRED WITH AND UPHELD THE ASSESSING OFFICER VIEW BRUSHING ASIDE THE ASSES SEES RELIANCE PLACED ON THE DECISION OF 34 ITA NO.972/BANG/11 THE HON'BLE APEX COURT IN 204 ITR (ST)9 OF THE HON' BLE PUNJAB & HARYANA HIGH COURT IN 193 ITR 71 IN SUPPORT OF ITS CLAIM. 16.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON H IS PART, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 16.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREFU LLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT A SIMILAR ISSUE WA S CONSIDERED BY A CO-ORDINATE BENCH OF THIS TRIBUNAL, IN THE ASSESSEES OWN CASE, IN ITA N O.1072/BANG/2007 (SUPRA) AT PAGES 22 AND 23 AT PARAS 13 TO 13.5 THEREOF AND FIND THAT TH E ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. WE, THEREFORE, RESPECTFULLY FOLLOWIN G THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 (SU PRA), DIRECT THE ASSESSING OFFICER TO INCLUDE IN 'EXPORT TURNOVER' THE COLLECTION MADE AFTER THE EXPIRY OF SIX MONTHS. 17.1 THE GROUNDS OF APPEAL AT S.NOS.63 TO 74 ARE AS UNDER : ISSUE OF DENIAL OF DEDUCTION UNDER SECTION 10A FO R UNDERTAKINGS AT BANGALORE 63. THE LEARNED DRP IN GIVING ITS DIRECTIONS AND THE LE ARNED AO ERRED IN NOT ALLOWING THE DEDUCTION AS CLAIMED UNDER SECTION 10A OF THE I NCOME TAX ACT FOR UNDERTAKINGS AT BANGALORE THOUGH THE FINDINGS, REAS ONS, CONCLUSIONS ARE A BUNDLE OF CONTRADICTIONS AND CLEARLY UNSUSTAINABLE IN LAW. 64. THE LEARNED AO AFTER NOTICING THAT THE UNDERTAKINGS WERE ESTABLISHED AT VARIOUS POINTS OF TIME FOR VARIOUS BUSINESS REASONS ERRED I N HOLDING THAT ALL THE UNDERTAKINGS WERE ESTABLISHED PRIOR TO 1993. 65. THE LEARNED AO ERRED IN REFUSING TO RECOGNIZE THAT EACH OF THE NEW UNDERTAKINGS WERE DIFFERENT FROM ONE ANOTHER AND EXIST INDEPENDE NTLY AND ARE ELIGIBLE FOR DEDUCTION UNDER SECTION10A. THAT ESTABLISHING EACH NEW UNDERTAKING IS AN EXPANSION OF BUSINESS COULD NOT BE HELD AGAINST THE APPELLANT . 35 ITA NO.972/BANG/11 66. THE LEARNED AO HAVING HIMSELF EMPLOYED TURNOVER AS A KEY THROUGHOUT THE ASSESSMENT ORDER FOR ASSESSING THE TOTAL INCOME, ER RED IN GIVING A CONFLICTING FINDING THAT ALLOCATION OF COMMON EXPENSES OF WIPRO TECHNOL OGIES DIVISION TO THE VARIOUS UNITS IN STPI AND SEZ WOULD RESULT IN THE UNDERTAKI NGS NOT BEING RUN INDEPENDENTLY. 67. THE LEARNED AO HAVING SOUGHT AND VERIFIED VARIOUS U NIT-WISE DETAILS OF REVENUES AND COSTS, WHICH THE APPELLANT HAD FURNISHED FROM THE S EPARATE BOOKS OF ACCOUNTS MAINTAINED BY IT, COMMITTED A GRAVE ERROR IN STATIN G THAT SEPARATE ACCOUNTS ARE BEING SHOWN ONLY TO SATISFY THE DEPARTMENT FOR 10A DEDUCT ION THOUGH THE AO HAS NOT RECORDED ANY FINDING IN THIS REGARD. 68. THE LEARNED AO ERRED IN DENYING THE DEDUCTION UNDER SECTION 10A EVEN AFTER RECOGNIZING THE FACT THAT THE UNDERTAKINGS WERE LOC ATED IN SOFTWARE TECHNOLOGY PARK AND ALL THE CONDITIONS UNDER SECTION 10A(2) OF THE ACT ARE MET. 69. THE LEARNED AO ERRED IN HOLDING THAT SUBSEQUENT LIC ENSE GRANTED AS EXPANSION WOULD NOT RESULT IN NEW UNDERTAKING. 70. THE LEARNED AO ERRED IN NOT ACCEPTING THAT THE LEGA L POSITION ON COMMENCEMENT OF BUSINESS IS APPLICABLE TO EACH UNDERTAKING AND NOT TO THE LICENSE UNDERNEATH. 71. THE LEARNED AO ERRED IN LAW IN INTERPRETING THE PRO VISION OF STPI AGAINST THE APPELLANT THOUGH NO SUCH INTERPRETATION IS POSSIBLE . 72. THE LEARNED AO ERRED IN NOT NOTICING THE DISTINGUIS HING COMPLIANCE /REPORTING REQUIREMENTS FOR THE RBI, STPI AND INCOME TAX ACT A ND ERRED IN INTERPRETING IN AN OVERLAPPING MANNER. 73. THE LEARNED AO ERRED IN REFUSING TO RELY ON THE DEC ISION OF SUPREME COURT IN 107 ITR 195 AND ALSO JURISDICTIONAL HIGH COURT REPORTED IN 123 ITR 11 AND 128 ITR 476. 74. THE AUTHORITIES BELOW ERRED IN NOT FOLLOWING THE AP PELLATE ORDERS FOR THE EARLIER YEARS FOR THE ONLY REASON THAT APPEALS U/S 260A OF THE DEPARTMENT ARE PENDING BEFORE THE HONBLE HIGH COURT ON THIS ISSUE. 17.2 IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE COMPANY HAD VARIOUS UNDERTAKINGS AT DIFFERENT LOCATIONS WIT HIN STPS, SEZS AND ALSO 100% EOUS. 36 ITA NO.972/BANG/11 IN RESPECT OF 38 UNDERTAKINGS, INCLUDING EIGHT NEW UNDERTAKINGS FORMED DURING THE YEAR, THE ASSESSEE COMPANY CLAIMED AGGREGATE DEDUCTION OF RS. 2445,58,16,786 UNDER SECTIONS 10A, 10B AND 10AA OF THE ACT IN THE RETURN OF INCOM E. IT IS SUBMITTED THAT ON EXAMINATION OF THE DETAILS FILED IN RESPECT OF THIS CLAIM, THE ASSESSING OFFICER PROPOSED TO DISALLOW THE DEDUCTION CLAIMED U/S. 10A IN RESPE CT OF CERTAIN UNITS AT BANGALORE HAVING REGARD TO THE PAST ASSESSMENT YEARS WHEREIN THE DED UCTION WAS DENIED. THE ASSESSING OFFICER, AFTER MAKING ADJUSTMENTS IN THE 'EXPORT TU RNOVER' AND THE PROFITS OF THE BUSINESS, COMPUTED THE DEDUCTION U/S. 10A/10AA FOR EACH OF THE UNDERTAKINGS IN RESPECT OF WHICH THE ASSESSEE HAD MADE A CLAIM, THE DETAILS OF WHICH ARE AS PER ANNEXURE D TO THE ORDER OF ASSESSMENT. THE ASSESSING OFFICER, IT IS SUBMITTED ALLOWED DEDUCTIONS UNDER SECTIONS 10A, 10AA AND 10B AS COMPUTED BY HIM FOR S TP UNDERTAKINGS LOCATED IN CITIES OTHER THAN BANGALORE AND ALSO FOR 100% EOU; AND FOR UNDERTAKINGS LOCATED IN SEZS. IT IS SUBMITTED THAT THE ASSESSING OFFICER ALLOWED DEDUCT ION UNDER SECTION 10A, COMPUTED BY HIM, FOR UNDERTAKINGS, ELECTRONIC CITY 4 AND MADIWA LA 5 LOCATED AT BANGALORE IN THE STP COMMENCED ON THE STRENGTH OF THE NEW LICNECE. THE ASSESSING OFFICER ALSO ALLOWED DEDUCTION UNDER SECTION 10A/10AA OF THE ACT IN RESP ECT OF STP/SEZ UNDERTAKINGS FORMED DURING THE YEAR. THE ASSESSING OFFICER HELD UNDERTAKINGS LOCATED AT M.G. ROAD, KORAMANGALA 1, LAXMI BUILDING, MADHAPUR AND MADIWAL A 1 ARE NOT IN ANY CASE ELIGIBLE FOR DEDUCTION UNDER SECTION 10A AS THE PERIOD OF 10 YEA RS HAS ELAPSED. IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT CITING SIMIL AR REASONS AS IN THE EARLIER YEARS ASSESSMENT ORDERS, THE ASSESSING OFFICER DISALLOWED THE CLAIM FOR DEDUCTION UNDER 37 ITA NO.972/BANG/11 SECTION 10A IN RESPECT OF OTHER UNDERTAKINGS IN BAN GALORE FORMED AT VARIOUS POINTS IN TIME AS A RESULT OF EXPANSION OF BUSINESS AS IF THEY WER E FORMED IN 1993 FOR ALL THE UNDERTAKINGS WERE LOCATED IN STPS WITH ORIGINAL LIC ENCES ISSUED IN 1992. IN THIS MANNER, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS, THE A SSESSING OFFICER CONCLUDED THAT THE ASSESSEE HAD ONLY TWO UNDERTAKINGS AT BANGALORE AND SINCE THESE UNDERTAKINGS COMMENCED OPERATIONS PRIOR TO 1.4.1993, THEY WERE NOT ELIGIBL E FOR DEDUCTION UNDER SECTION 10A OF THE ACT. IT IS SUBMITTED THAT THE ASSESSING OFFICER AL SO WAS OF THE VIEW THAT THE UNDERTAKINGS ARE NOT INDEPENDENT SINCE COMMON EXPEN SES WERE ALLOCATED ON THE BASIS OF TURNOVER TO ALL THE UNITS AS PER THE METHOD OF ACC OUNTING FOLLOWED BY THE ASSESSEE AND THAT THE SOFTWARE DEVELOPMENT CENTRES SITUATED IN V ARIOUS COUNTRIES EXECUTED THE WORK OF ALL UNITS. THE ASSESSING OFFICER OBSERVED THAT THE APPELLATE ORDERS GRANTING RELIEF TO THE ASSESSEE WERE CONTESTED BY THE DEPARTMENT BEFORE TH E HIGH COURT UNDER SECTION 260A AND AS THE OUTCOME THEREOF WAS NOT KNOWN, IN ORDER TO KEEP THE MATTER/ISSUES ALIVE, HE IS FOLLOWING THE DECISIONS TAKEN BY THE ASSESSING OFFI CER ON THE SAME ISSUE IN EARLIER YEARS. WITH THESE REASONS, THE ASSESSING OFFICER ALLOWED A GGREGATE DEDUCTION UNDER SECTION 10A/10AA/10B OF THE ACT OF RS. 756,44,19,580 AS WOR KED OUT IN ANNEXURE E OF THE ASSESSMENT ORDER OUT OF AN AGGREGATE DEDUCTION OF R S. 15,47,20,16,045 COMPUTED BY HIM AT ANNEXURE D OF THE SAID ASSESSMENT ORDER. IT IS CONTENDED THAT THE DRP MERELY AGREED WITH THE ORDER OF THE ASSESSING OFFICER NOTING THAT THOUGH THE ASSESSEE COMPANY HAD OBTAINED RELIEF FROM THE TRIBUNAL IN EARLIER YEARS ON THIS ISSUE, THE MATTER HAD BEEN TAKEN UP BY THE DEPARTMENT UNDER SECTION 260A BEFORE THE HON'BLE HIGH COURT. 38 ITA NO.972/BANG/11 17.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE O N HIS PART SUPPORTED THE FINDINGS AND ORDERS OF THE AUTHORITIES BELOW. 17.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREFU LLY 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 SUBM ISSIONS AND ALSO CRITICALLY ANALYSED THE FACTS AND CIRCUMSTANCES UNDER WHICH TH E LD. CIT(A) HAD FORMED AN OPINION AND ARRIVED AT A DECISION THAT THE UNDER TAKINGS AT BANGALORE ARE ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. WE HAVE ALSO PERUSED THE HONBLE TRIBUNALS DECISION REFERRED SUPRA. THE HONBLE TR IBUNAL HAD DEALT WITH THE ISSUE OF APPLICABILITY OF SECTION 10A OF THE ACT COMPREHENSIVELY AND ALSO EXTENSIVELY QUOTED THE DECISIONS OF HONBLE BOMBAY TRIBUNAL IN THE CASE OF JCIT V. ASSOCIATED CAPSULES (P) LTD MUMBAI (2008) 2 1 SOT 420, HONBLE DELHI HIGH COURT IN THE CASE OF DI(EXEMPTIONS) V. ESCORTS CARDIAC ASSISTANCE HOSPITAL SOCIETY REPORTED IN 300 ITR 75 AND HONBL E SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG V.CIT REPORTED IN 193 IT R 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 WIL L BE PERMISSIBLE FOR TEN YEARS TO THE EXISTING UNDERTAKINGS WHICH WERE EARLI ER ALLOWED EXEMPTION U/S 10B, BUT THAT WILL BE EQUALLY APPLICABLE FOR SECTIO N 10A BECAUSE BOTH THE SECTIONS ARE SIMILAR. HENCE, WE CONFIRM THE FINDIN G OF THE LEARNED CIT (A) THAT THE ASSESSEE IS ENTITLED DEDUCTION U/S 10A. 17.4. CONSIDERING THE FACTS AND CIR CUMSTANCES OF THE ISSUE AND RESPECTFULLY FOLLOWING THE VERDICT OF THE HONBLE T RIBUNAL REFERRED SUPRA, WE 39 ITA NO.972/BANG/11 ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE COMPAN Y IS ENTITLED FOR DEDUCTION U/S 10A AND, HENCE, WE CONFIRM THE FINDING OF THE L D. CIT(A) ON THIS COUNT. 17.5 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 COM PANY IS ENTITLED FOR DEDUCTION UNDER SECTION 10A AND THEREFORE DIRECT THE ASSESSING OFFI CER TO ALLOW THE SAME IN ACCORDANCE WITH LAW. 18.1 THE GROUNDS RAISED AT 75 TO 77 ARE AS UNDER : DEDUCTION UNDER SECTION 80IB (ALLOCATION OF CORPO RATE OVERHEADS TO 80 IB UNIT) 75. THE LEARNED AO ERRED IN NOT ALLOWING THE DEDUCTION UNDER SECTION 80-IB IN RESPECT OF THE ELIGIBLE UNDERTAKING AT PONDICHERRY FOR MANU FACTURE OF COMPUTER EVEN THOUGH THE APPELLANT COMPLIED IN ALL RESPECTS WITH THE PRO VISIONS OF THE SAID SECTION. 76. THE LEARNED DRP HAS ERRED IN GIVING ITS DIRECTIONS ON THE PREMISE THAT THE EXPENSES WIPRO CORPORATE ULTIMATELY BENEFIT ALL THE DIVISION S AND THE UNITS THOUGH THE DRP HAS NOT RECORDED ANY FINDING IN THIS REGARD. 77. THE LEARNED AUTHORITIES BELOW ERRED IN MAKING ADHOC ALLOCATION OF UNRELATED EXPENSES AS INDIRECT EXPENSES, WITHOUT ADDUCING ANY REASON A S TO WHY EVEN INDIRECT EXPENSES SHOULD BE ALLOCATED AT ALL WHEN IT IS INCONSISTENT WITH THE REQUIREMENT OF COMPUTING THE PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKIN G. 18.2 IT IS SUBMITTED BY THE LEARNED COUNSEL FO R THE ASSESSEE THAT THE ASSESSEE COMPANY HAD CLAIMED DEDUCTION UNDER SECTION 80 IB TO THE EX TENT OF RS. 4,11,25,611 BEING 30% OF THE PROFITS OF RS. 13,70,85,371 DERIVED BY THE INDU STRIAL UNDERTAKING AT PONDICHERRY MANUFACTURING COMPUTERS, WHICH COMES UNDER THE WIPR O INFOTECH DIVISION AND THIS WAS THE 7 TH YEAR OF CLAIM. IT IS SUBMITTED THAT THE ASSESSEE RUNS EACH BUSINESS UNIT / UNDERTAKING 40 ITA NO.972/BANG/11 AS AN INDEPENDENT PROFIT CENTRE ANDTHAT SEPARATE AC COUNTS ARE MAINTAINED FOR EACH UNIT AND UNDERTAKING. EACH UNIT HAS RETAINED ALL SUCH I NCOME AND EXPENSES PERTAINING TO THE BUSINESS CARRIED ON BY IT AND THE TRANSACTIONS BETW EEN THE UNITS WERE RECORDED ON AN ARMS LENGTH BASIS AND HENCE IT IS SUBMITTED THAT THERE I S NO NEED FOR ALLOCATION OF EXPENSES OF WIPRO CORPORATE TO OTHER BUSINESS UNITS. THE ASSES SING OFFICER WAS, HOWEVER, OF THE VIEW THAT THE PROFITS OF THE UNITS ARE APPARENTLY OVER S TATED AND THE PROFIT IS ARRIVED AT WITHOUT CONSIDERING THE CORPORATE EXPENSES ALLOCABL E TO THE UNIT AND THEREFORE ALLOCATED A SUM OF RS.1,34,98,879 TO THE UNIT AS PROPORTIONATE EXPENDITURE. THE DRP CONCURRED WITH THE VIEW OF THE A.O. AND REJECTED THE ASSESSEES OB JECTION. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEES GROUND BE AL LOWED AS THE ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ITS ORDER FOR A.Y. 2004-05 (SUPRA) AND EARLIER YEARS AND WAS HELD IN ITS FAVOUR. 18.3 THE LEARNED DR ON HIS PART SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND PRAYED THAT THEIR ORDERS BE UPHELD. 18.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREF ULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE OF ALLOC ATION OF CORPORATE OVERHEADS TO VARIOUS BUSINESS UNITS HAS ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2004-05 (SUPRA) AND EARLIER YEARS AND HAS DELE TED THE ADDITION MADE BY THE A.O. ON THIS COUNT. AT PARA 20.3 ON PAGE 38 OF THE SAID OR DER THE TRIBUNAL HAS HELD AS UNDER : 20.3. WE HAVE CAREFULLY CONSIDERED THE IR SUBMISSIONS. WE HAVE RESPECTFULLY PERUSED THE DECISION OF HONBLE TRIBUN AL REFERRED SUPRA. THE HONBLE TRIBUNAL, AFTER ANALYZING AN IDENTICAL ISSU E EXHAUSTIVELY WITH REFERENCE 41 ITA NO.972/BANG/11 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 ALLOCA TED THE OVERHEADS AND SUCH ALLOCATION HAS BEEN MADE ON THE BASIS OF SALES TURN OVER. ONCE SUCH AN ALLOCATION HAS BEEN MADE BY THE ASSESSEE, THEN IT W AS 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 A LLOCATION THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISTURBING THE ALLOCATION. HE NCE, THE FINDING OF THE LEANED CIT(A) ON THIS ISSUE IS CONFIRMED. 20.4. RESPECTFULLY, FOLLOWING THE ABOVE RULIN G, WE CONFIRM THE LD.CIT(A)S ACTION. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THIS TRIBUNAL DECISION FOR A.Y. 2004- 05 (SUPRA), ON THE ISSUE OF ALLOCATION OF CORPORATE OVERHEADS, DIRECT THE A.O. NOT TO ALLOCATE ANY CORPORATE OVERHEADS TO THE 80 IB UNIT BY DISTURBING THE ALLOCATION MADE BY THE ASSESSEE COMPANY. 19.1 THE GROUNDS RAISED AT S.NOS.78 TO 80 ARE AS UNDER : (TRADING ACTIV ITY OF MONITORS & PRINTERS ) 78. THE LEARNED AO ERRED IN TREATING SALE OF MONITORS A LONG WITH COMPUTERS AS TRADING ACTIVITY IN DETERMINING THE PROFITS ELIGIBL E FOR DEDUCTION UNDER SECTION 80-IB FOR UNDERTAKINGS AT PONDICHERRY. 79. THE LEARNED AO ERRED IN CONCLUDING THAT SINCE BOTH CPU AND MONITORS ARE SUCH DEVICES WHICH CAN BE SOLD INDEPENDENTLY AND TH ERE ARE MANY TRADERS IN THIS LINE FROM WHOM THE CUSTOMERS CAN AS WELL PURCH ASE, THE PROFIT DERIVED FROM SALE OF MONITORS HAS TO BE REDUCED FOR COMPUTI NG DEDUCTION U/S 80- IB. 80. THE LEARNED AUTHORITIES BELOW FAILED TO APPRECIATE THE FACT THAT THE APPELLANT IS ENGAGED IN THE MANUFACTURE OF COMPUTER SYSTEMS AND MONITORS ARE AN INTEGRAL PART OF A COMPUTER SYSTEM. THE LEA RNED DRP IN ISSUING ITS DIRECTIONS FAILED TO NOTE THAT THE RATIO OF THE DEC ISION OF THE HONBLE SUPREME COURT IN 317 ITR 218 REFERRED TO BY IT TO D ENY THE DEDUCTION ACTUALLY SUPPORTED THE CLAIM OF THE APPELLANT. 42 ITA NO.972/BANG/11 19.2 IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE SOLD COMPUTERS MANUFACTURED FROM ITS INDUSTRIAL UNDERTAK ING 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 PROFIT S ON SALE OF MONITORS AND PRINTERS PROCURED FROM OUTSIDE WHICH WERE SOLD ALONG WITH TH E COMPUTERS MANUFACTURED BY IT AT ITS PONDICHERY UNDERTAKING. THE LEARNED COUNSEL FOR TH E ASSESSEE SUBMITTED THAT A MONITOR IS AN OUTPUT DEVICE FOR THE COMPUTER, THE VALUE OF WHI CH IS INCLUDED IN THE VALUE OF COMPUTERS ON WHICH EXCISE DUTY IS CHARGED AND THAT THE ASSESS EE HAS NOT RECOVERED ANY SEPARATE CONSIDERATION FOR THE MONITOR. THE ASSESSING OFFICE R 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 B OTH 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 S UBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE DRP UPHELD THE VIEW OF THE ASSESS ING OFFICER WHILE DISPOSING OFF THE ASSESSEES OBJECTIONS. 19.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE ON HIS PART SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND PRAYED THAT THEY BE UPHELD. 19.4 WE HAVE HEARD BOTH PARTIES AND HAVE CARE FULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT A SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2004-05 (SUPRA) WHEREI N THE TRIBUNAL FOLLOWING ITS EARLIER 43 ITA NO.972/BANG/11 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 HONBLE TRIBUNAL IN ITS ORDER REFERRED SUPRA, HAS DEALT WITH A SIMIL AR ISSUE IN THE ASSESSEES OWN CASE FOR THE AYS.01-02 & 02-03, COMPREHENSIVELY. AF TER TAKING INTO ACCOUNT THE LD.AOS ACTION, THE FINDINGS OF THE LD. CIT(A) AND ALSO A DETAILED REBUTTAL SUBMITTED BY THE ASSESSEE, THE HONBLE TRIBUNAL HA S OBSERVED THUS 33.5. WE HAVE HEARD BOTH THE PARTIES. AS PER SECTI ON 80IB(3), THE DEDUCTION IS AVAILABLE AS A PERCENTAGE OF PROFIT AN D GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE INDUSTRIAL UNDERTAKING HAS NOT BEEN DEFINED U/S 80IB OF THE I.T.ACT. INDUSTRIAL UNDERTAKING HAS BE EN 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 A NY UNDERTAKING, WHICH IS ENGAGED IN THE MANUFACTURE OR PROCESSING OF GOODS. THERE IS NO DISPUTE THAT PONDICHERRY UNITS ARE INDUSTRIAL UNDERTAKINGS. IN RESPECT OF ELECTRONIC GOODS, THE SALES CAN TAKE PLACE IN TWO WAYS AS MENTIONED B Y THE AR, EITHER THE AMOUNT IS INCLUDED IN THE SALES INVOICE AND WARRANTIES PRO VIDED OR THE ITEM IS SOLD AND SEPARATE AMOUNT IS CHARGED FOR ANNUAL MAINTENANCE C HARGES. THE ASSESSING OFFICER IN HIS ORDER HAS MENTIONED THAT ENTIRE CONT ROL AND MANAGEMENT OF POST SALES AND SERVICE IS RENDERED BY WIPRO INFOTECH. I F THE AMOUNT IS INCLUDED IN THE SALES INVOICE AND WARRANTY IS PROVIDED, THEN TH E 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 U NDERTAKING. 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 TH E ASSESSEE IS DERIVING INCOME FROM THE SERVICE CONTRACT, THEN IT CANNOT BE SAID THAT IT IS DERIVING INCOME FROM THE INDUSTRIAL UNDERTAKING. THE DEDUCT ION U/S 80-IB COMMENCES FROM THE YEAR IN WHICH THE INDUSTRIAL UNDERTAKING B EGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS. HENCE, THE INTENTION O F THE LEGISLATURE IS QUITE CLEAR THAT THE DEDUCTION SHOULD BE ALLOWED TO AN IN DUSTRIAL UNDERTAKING WHICH THE PROFIT IS DERIVED FROM THE MANUFACTURING OR PRO DUCTION 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 COMPUTIN G DEDUCTION U/S 80IB. 33.6. IN RESPECT OF MONITORS, IT WAS SUBMITTED BE FORE THE LEARNED CIT(A) THAT THE MONITORS ARE SOLD ALONG WITH THE CO MPUTER MANUFACTURE BY THE UNDERTAKING. IT MAY BE AN INTEGRATED COMPONENT OF THE COMPUTER. IF THERE IS NO VALUE ADDITION WITHOUT ANY CHANGE IN NAME, CHARA CTER OR AND USE, THEN SUCH AN ACTIVITY CANNOT CONSTITUTE MANUFACTURE OR PRODUC TION. IF THE MONITORS HAVE BEEN SOLD AS PART OF THE COMPUTER WITHOUT MAKING AN Y VALUE ADDITION BY THE 44 ITA NO.972/BANG/11 INDUSTRIAL UNDERTAKING, THEN THE PROFIT DERIVED FRO M SALE OF SUCH MONITORS CANNOT BE CONSIDERED AS PROFIT DERIVED FROM THE IND USTRIAL UNDERTAKING. THEREFORE, THE LEARNED CIT (A) WAS JUSTIFIED IN HOL DING THAT PROFIT FROM SALE OF MONITOR IS NOT INCLUDIBLE FOR COMPUTATION OF DEDUCT ION 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 COMPUT ATION OF DEDUCTION U/S 80- IB. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSESSEES CASE FOR A.Y. 2004-05 (SUPRA) AND EARLIER YEARS (SUPRA), WE ARE OF THE CO NSIDERED OPINION AND HOLD THAT THE PROFIT FROM SALE OF MONITORS AND PRINTERS ARE NOT TO BE IN CLUDED IN COMPUTATION OF DEDUCTION U/S.80 IB OF THE ACT. THESE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY DISMISSED. 20.1 THE GROUNDS OF APPEAL RAISED AT S.NO.81 IS AS UNDER : (OTHER INCOME NOT CONSIDERED AS INCOME ELIG IBLE FOR DEDUCTION U/S.10A ) 81. THE LEARNED AO ERRED IN EXCLUDING OTHER INCOM E FROM THE PROFITS OF 80-IB UNITS BY STATING THAT DEDUCTION IS NOT ALLOWED ON O THER INCOME. THE LEARNED AO OUGHT TO HAVE APPRECIATED THAT THE SAID INCOME IS P ART AND PARCEL OF THE ELIGIBLE BUSINESS CARRIED ON BY THE APPELLANT. THE LEARNED DRP ALSO ERRED IN ACCEPTING THE STAND OF AO. 20.2 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED 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 R S.1,49,85,568 REPORTED AS OTHER INCOME WHICH COMPRISED OF RENTAL INCOME OF RS.33,5 1,860 AND PROVISION NO LONGER REQUIRED OF RS.1,61,33,716. IT WAS SUBMITTED THAT THIS SUM OF RS.1,49,85,568 IS ALSO ELIGIBLE PROFIT FOR CLAIMING DEDUCTION U/S. 80 IB AND RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE 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 45 ITA NO.972/BANG/11 NOT ALLOWABLE ON OTHER INCOME AND EXCLUDED THE SA ME WHILE COMPUTING THE DEDUCTION U/S. 80 IB OF THE ACT. IT IS SUBMITTED BY THE LEARNED C OUNSEL FOR THE ASSESSEE THAT THE DRP CONCURRED WITH THE VIEW OF THE ASSESSING OFFICER ST ATING 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 DRP RE LIED ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT REPORTE D IN 317 ITR 218. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFIC ER HAS PROCEEDED MERELY ON THE BASIS OF NOMENCLATURE AND THAT THE DECISION OF THE HON'BL E APEX COURT IN THE CASE OF LIBERTY INDIA (SUPRA) ACTUALLY SUPPORTS ITS CLAIM. 20.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE ON HIS PART SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND PRAYED FOR CONFIRMATION OF TH E SAME. 20.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREF ULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. UNLESS RENTAL INCOME REPRESEN TS A RECOVERY OF THE RENT PAID BY THE UNDERTAKING, IT CANNOT BE REGARDED AS PROFIT DERIVE D BY THE INDUSTRIAL UNDERTAKING. SINCE THE RENTAL INCOME IN THE ASSESSEE COMPANYS CASE DO ES NOT MEET THIS REQUIREMENT, WE CONFIRM THE ORDER OF THE ASSESSING OFFICER THAT REN TAL INCOME SHOULD BE EXCLUDED IN COMPUTING THE DEDUCTION U/S. 80 IB OF THE ACT. 20.5 AS REGARDS THE ISSUE OF PROVISION NO LONGE R REQUIRED, IT IS THE CLAIM OF THE ASSESSEE THAT IT ARISES ON ACCOUNT OF THE METHOD OF ACCOUNTI NG FOLLOWED BY THE ASSESSEE COMPANY AND IT CANNOT BE THE CASE THAT A PROVISION WILL RE DUCE THE PROFITS OF AN UNDERTAKING BUT ITS SUBSEQUENT REVERSAL WILL NOT ENHANCE SUCH PROFITS. IN THE FACTS AND CIRCUMSTANCES OF THIS 46 ITA NO.972/BANG/11 CASE, WE ARE OF THE VIEW THAT NO DETAILS OF THE SAI D PROVISION HAVE BEEN BROUGHT ON RECORD BY THE ASSESSEE TO ESTABLISH THAT IT WAS IN FACT DE RIVED BY THE INDUSTRIAL UNDERTAKING AND HOW IT WAS SO DERIVED. THE FACT THAT IT WOULD REDU CE 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 DER IVED BY THE INDUSTRIAL UNDERTAKING AND THEREFORE WOULD NOT BE INCLUDED IN THE PROFITS ELIG IBLE IN COMPUTATION OF THE DEDUCTION U/S. 80 IB OF THE ACT. IT IS ORDERED ACCORDINGLY. 21.1 THE GROUNDS RAISED AT S.NOS.82 TO 84 ARE AS UNDER : DEDUCTION UNDER SECTION 80IC COMPUTING THE DEDU CTION 82. THE LEARNED AO ERRED IN NOT ALLOWING THE CLAIMED DE DUCTION UNDER SECTION 80-IC IN RESPECT OF THE ELIGIBLE UNDERTAKINGS FOR MANUFAC TURE OF TOILET SOAPS AT BADDI, HIMACHAL PRADESH AND GLUCOVITA FACTORY EVEN THOUGH THE APPELLANT COMPLIED IN ALL RESPECTS WITH THE PROVISIONS OF THE SAID SECTION. 83. THE LEARNED DRP HAS ERRED IN GIVING ITS DIRECTIONS ON THE PREMISE THAT THE EXPENSES WIPRO CORPORATE DIVISION CONSTITUTE INDIRE CT EXPENSES FOR THE ABOVE UNDERTAKINGS AS WELL AS OTHER BUSINESS CENTRES OF T HE ASSESSEE THOUGH THE DRP HAS NOT RECORDED ANY FINDING IN THIS REGARD. 84. THE AUTHORITIES BELOW ERRED IN MAKING ADHOC ALLOCAT ION OF UNRELATED EXPENSES AS INDIRECT EXPENSES, WITHOUT ADDUCING ANY REASON AS T O WHY EVEN INDIRECT EXPENSES SHOULD BE ALLOCATED WHEN IT IS INCONSISTEN T WITH THE REQUIREMENT OF COMPUTING THE PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING. 21..2 THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE ASSESSEE COMPANY HAD CLAIMED DEDUCTION U/S.80 IC OF THE ACT EQUAL TO 100 % OF THE PROFITS OF RS.40,87,89,837 DERIVED FROM ITS INDUSTRIAL UNDERTAKING AT BADDI, HIMACHAL PRADESH WHERE TOILET SOAPS ARE MANUFACTURED AND RS.30,72,006 ON PROFITS FROM ITS U NDERTAKING MANUFACTURING GLUCOVITA. THE UNDERTAKINGS, IT IS SUBMITTED, COMES UNDER WIPR O CONSUMER CARE DIVISION. IT IS SUBMITTED THAT THE ASSESSEE RUNS EACH BUSINESS UNIT / UNDERTAKING AS AN INDEPENDENT 47 ITA NO.972/BANG/11 PROFIT CENTRE AND THAT SEPARATE ACCOUNTS ARE MAINTA INED FOR EACH. IT WAS FURTHER SUBMITTED THAT SINCE EACH UNIT HAS RETAINED ALL SUC H INCOME AND EXPENSES PERTAINING TO THE BUSINESS CARRIED ON BY IT AND THE TRANSACTIONS BETW EEN THE UNITS ARE RECORDED AT ARMS LENGTH BASIS, THERE IS NO NEED FOR ALLOCATION OF EX PENSES ON WIPRO CORPORATE TO OTHER BUSINESS UNITS. THE ASSESSING OFFICER, HOWEVER, WA S OF THE VIEW THAT THE PROFIT OF THESE UNITS WERE APPARENTLY OVER STATED AND THE PROFIT HA S BEEN ARRIVED AT WITHOUT CONSIDERING THE CORPORATE EXPENSES ALLOCABLE TO THEM AND PROCEE DED TO ALLOCATE A SUM OF RS.69,58,576 TO THE TOILET SOAP UNIT AND RS.1,95,142 TO THE GLUC OVITA UNIT. IT IS SUBMITTED THAT THE DRP CONCURRED WITH THE VIEWS OF THE ASSESSING OFFICER A ND REJECTED THE ASSESSEES OBJECTIONS. 21.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE SU PPORTED THE ORDERS OF THE AUTHORITIES BELOW. 21.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREFU LLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT AN IDENTICAL ISS UE OF ALLOCATION OF CORPORATE OVER HEADS TO VARIOUS BUSINESS UNITS / UNDERTAKINGS FOR DETERM INING THE PROFITS FOR COMPUTING THE DEDUCTION U/S. 80 IB OF THE ACT HAS ALREADY BEEN CO NSIDERED BY THE TRIBUNAL IN AN EARLIER YEAR IN THE ASSESSEES 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 ALL OCATION OF CORPORATE OVERHEADS MADE BY THE ASSESSING OFFICER. RESPECTFULLY FOLLOWING T HIS DECISION OF THE TRIBUNAL ON THE ISSUE OF ALLOCATION OF CORPORATE OVERHEADS, WE DELE TE THE ALLOCATION OF CORPORATE OVERHEADS MADE BY THE ASSESSING OFFICER TO THE SOAP UNIT AT BADDI, HIMACHAL PRADESH AND THE GLUCOVITA UNIT WHILE COMPUTING THE DEDUCTION U/ S. 80 IC OF THE ACT. 48 ITA NO.972/BANG/11 22.1 IN THE GROUND RAISED AT S.NO.85 , THE ASSESSEE HAS CHALLENGED THE ASSESSING OFFICERS ACTION IN EXCLUDING OTHER INCOME OF RS. 11,91,013 FROM FORMING A PART OF THE INCOME DERIVED FROM THE MANUFACTURING ACTIVITY AT I NDUSTRIAL UNDERTAKING AT BADDI, H.P. FOR THE PURPOSES OF COMPUTING THE DEDUCTION U/S.80 IC O F THE ACT. 22.2 WE HAVE HEARD BOTH THE LEARNED COUNSEL FOR THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE POINT. ON CAREF UL PERUSAL AND CONSIDERATION OF THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE COMPA NY HAD NOT FILED ANY OBJECTION AGAINST THE ASSESSING OFFICERS FINDING BEFORE THE DRP ON T HIS ISSUE. FURTHER, IT IS SEEN THAT THERE ARE NO DETAILS OF THIS ISSUE ON RECORD. SINC E THERE IS NO CAUSE OF GRIEVANCE ON THIS ISSUE TO THE ASSESSEE AS NO DISPUTE ON THIS ISSUE A RISES OUT OF THE ORDER OF THE DRP, THIS GROUND OF APPEAL IS FOUND TO BE INFRUCTUOUS AND IS ACCORDINGLY DISMISSED. 23.1 THE GROUNDS RAISED AT S.NOS.86 TO 89 ON THE ISSUE OF DEDUCTION U/S. 80 AB ARE AS UNDER : DEDUCTION U/S 80-IAB 86. THE LEARNED AO ERRED IN NOT ALLOWING THE CLAIM ED DEDUCTION UNDER SECTION 80- IAB IN RESPECT OF THE APPELLANT BEING A SEZ DEVELOP ER EVEN THOUGH THE APPELLANT COMPLIED IN ALL RESPECTS WITH THE PROVISIONS OF THE SAID SECTION. 87. THE LEARNED DRP HAS ERRED IN GIVING ITS DIRECT IONS ON THE PREMISE THAT THE EXPENSES WIPRO CORPORATE DIVISION CONSTITUTE INDIRE CT EXPENSES FOR THE ABOVE UNDERTAKINGS AS WELL AS OTHER BUSINESS CENTRES OF T HE ASSESSEE. 88. THE AUTHORITIES BELOW ERRED IN MAKING ADHOC AL LOCATION OF UNRELATED EXPENSES AS INDIRECT EXPENSES INCURRED AT CORPORATE LEVEL, WITH OUT ADDUCING ANY REASON AS TO WHY EVEN INDIRECT EXPENSES SHOULD BE ALLOCATED WHEN IT IS INCONSISTENT WITH THE REQUIREMENT OF COMPUTING THE PROFIT DERIVED FROM THE DEVELOPER UNIT. 89. THE LEARNED AO ERRED IN EXCLUDING OTHER INCOME OF RS. 60,83,424/- FROM THE PROFITS OF 80-IAB UNITS BY STATING THAT DEDUCTION I S ALLOWED ONLY ON PROFITS DERIVED FROM ACTIVITY OF DEVELOPING SEZ. THE LEARNED AO OUG HT TO HAVE APPRECIATED THAT THE 49 ITA NO.972/BANG/11 SAID INCOME IS PART AND PARCEL OF THE ELIGIBLE BUSI NESS CARRIED ON BY THE APPELLANT. THE LEARNED DRP ALSO ERRED IN ACCEPTING THE STAND OF AO . 23.2 THE LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THIS ISSUE WAS IN RESPECT OF ALLOCATION OF CORPORATE EXPENSES TO SEZ UNDERTAKING KOLKATA AND EXCLUSION OF OTHER INCOME WHILE COMPUTING THE DEDUCTION U/S.80AB OF T HE ACT. IT IS SUBMITTED THAT THE ASSESSEE COMPANY HAD CLAIMED DEDUCTION U/S.80IAB/90 IA EQUAL TO 100% OF THE PROFITS IN RESPECT OF THE SEZ UNDERTAKING AT THE KOLKATA. SAL T LAKE SEZ WHICH COMES UNDER THE WIPRO TECHNOLOGIES DIVISION. IT WAS SUBMITTED BEFO RE THE ASSESSING OFFICER THAT THE COMPANY RUNS EACH BUSINESS UNIT AS AN INDEPENDENT P ROFIT CENTRE AND THAT SEPARATE ACCOUNTS ARE MAINTAINED FOR EACH UNIT RETAINING AL L SUCH EXPENSES PERTAINING TO THE BUSINESS CARRIED ON BY IT AND THEREFORE THERE IS NO NEED FOR ALLOCATION OF EXPENSES OF WIPRO CORPORATE TO OTHER BUSINESS UNITS. THE ASSES SING OFFICER, HOWEVER, WAS OF THE VIEW THAT THE PROFIT OF THE UNIT IS APPARENTLY OVER STAT ED AND THE PROFIT IS ARRIVED AT WITHOUT CONSIDERING THE CORPORATE EXPENSES ALLOCABLE TO IT AND IN ACCORDANCE WITH THIS VIEW ALLOCATED A SUM OF RS.8,23,157 TO THE SEZ UNIT. IT IS SUBMITTED THAT THE DRP CONCURRED WITH THE VIEW OF THE ASSESSING OFFICER AND DISMISSE D THE ASSESSEES OBJECTIONS. 23.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPO RTED THE ORDERS OF THE AUTHORITIES BELOW AND PRAYED THAT THESE ORDERS BE UPHELD. 23.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREF ULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE OF ALLOC ATION OF CORPORATE OVERHEADS TO VARIOUS BUSINESS UNITS HAS ALREADY BEEN CONSIDERED BY A BEN CH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN THE EARLIER YEARS IN ITA NO.1072/BANG/2 007 (SUPRA) AT PARA 11 TO 11.4 AT PAGES 50 ITA NO.972/BANG/11 15 TO 17 THEREOF AND HAS HELD IN FAVOUR OF THE ASSE SSEE DELETING THE ALLOCATION OF CORPORATE OVERHEADS MADE BY THE ASSESSING OFFICER. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL ON THE ISSUE OF ALLOCATION OF CORPO RATE OVERHEADS, WE DIRECT THE ASSESSING OFFICER NOT TO ALLOCATE CORPORATE EXPENDITURE TO TH E SEZ UNIT WHILE CONSIDERING THE ASSESSEES CLAIM FOR DEDUCTION U/S.80IAB OF THE ACT . 24.1 THE GROUND OF APPEAL AT S.NO.90 IS AS UNDER : CREDIT FOR FOREIGN TAXES PAID 90. THE LEARNED AO ERRED IN NOT ALLOWING FULL CREDI T OF FOREIGN TAXES IN RESPECT OF UNITS ELIGIBLE FOR DEDUCTION U/S 10A IGNORING THE P RINCIPLES SET IN APPELLANTS OWN CASE BY THE CIT(A) WHILE GRANTING DEDUCTION U/S 80-O IN AY 1990-91, WHICH HAS ATTAINED FINALITY. THE LEARNED AO ERRED IN OVERLOOKING THE SPECIFIC PROVISIONS OF SECTION 90, 90(1), DTAA, APPELLATE ORDERS IN APPELLANTS OWN CA SE AND THE DECISION OF THE HONBLE SUPREME COURT IN 263 ITR 706 WHILE GRANTING FOREIGN TAX CREDIT. 24.2 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT WHEN THE ASSESSEE COMPANY HAD SOUGHT CREDIT FOR FOREIGN TAXES PAID, THE ASSES SING OFFICER GRANTED RELIEF OF FOREIGN TAX PAID ONLY IN RESPECT OF UNITS AT BANGALORE FOR WHICH DEDUCTION U/S.10A WAS NOT ALLOWABLE FOLLOWING THE EXPIRY OF THE TAX HOLIDAY P ERIOD. IT IS SUBMITTED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE CLAIMED THA T IT WAS ELIGIBLE FOR CREDIT OF AGGREGATE FOREIGN TAXES OF RS.15,17,63,021 PAID IN VARIOUS COUNTRIES AND SUBMITTED COPIES OF TAX RETURNS FILED IN THOSE COUNTRIES. IT IS SUB MITTED 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 SUBMITTE D, IS ENGAGED IN THE DEVELOPMENT OF COMPUTER SOFTWARE FOR ITS CUSTOMERS SPREAD ACROSS T HE GLOBE, WHICH INHERENTLY INVOLVES 51 ITA NO.972/BANG/11 ON-SITE DEVELOPMENT AS WELL, AND WHICH RESULTS IN L IABILITY TO TAX IN THE RESPECTIVE FOREIGN JURISDICTIONS. THE ASSESSEE COMPANY SUBMITTED THAT IT HAS CONSIDERED ALL ITS INCOME AS INCOME OF VARIOUS SEZ/STP UNDERTAKINGS FOR COMPUTIN G ITS INCOME UNDER THE HEAD PROFITS & GAINS FROM BUSINESS & PROFESSION IN THE TAX RETU RN FILED IN INDIA. IT IS SUBMITTED THAT IN VIEW OF THIS, THE ENTIRE FOREIGN TAX PAYMENTS IS EL IGIBLE FOR CREDIT AS PER THE PROVISIONS OF THE RESPECTIVE DOUBLE TAX AVOIDANCE AGREEMENTS (DTA A), THE DECISION OF THE HON'BLE APEX COURT IN 263 ITR 706 AND AS PER THE APPELLATE ORDERS IN THE ASSESSEES 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 HELD THAT FOREIGN T AX 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.62,85,17,644 . THE DRP CONCURRED WITH THE VIEW OF THE ASSESSING OFFICER AND REJECTED THE ASSESSEES O BJECTION. 24.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE SU PPORTED THE ORDERS OF THE AUTHORITIES BELOW. 24.4 WE HAVE HEARD BOTH PARTIES AND HAVE CAREF ULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT A SIMILAR ISSUE W AS CONSIDERED BY THIS TRIBUNAL IN ITA NO.1072/BANG/2007 (SUPRA) IN THE ASSESSEES OWN CAS E AT PARAS 18 TO 18.5 ON PAGES 32 TO 34 THEREOF. THE FINDING OF THE TRIBUNAL ON THIS IS SUE IS AT PARA 18.3 TO PARA 18.5 OF THE SAID ORDER AND IS AS UNDER : 18.3. WE HAVE CAREFULLY CONSIDERED TH E 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- 52 ITA NO.972/BANG/11 03 TOO. WHILE CONSIDERING THE SAME, THE HONBLE TR IBUNAL WAS OF THE OPINION THAT - 22.6.. THOUGH THE LEARNED CIT(A) HAS DISC USSED THE REASONS AS TO WHY THE ASSESSING OFFICER HAS NOT ALLOWED THE DEDU CTION CLAIMED BY THE ASSESSEE, BUT HE HAS NOT GIVEN FINDING AS TO HOW T HE ORDER OF THE ASSESSING OFFICER IS NOT LEGALLY CORRECT. THE ASSESSING OFFIC ER 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 C LAIM IS ADMISSIBLE ONLY FOR THE TAX PAID UNDER INCOME-TAX ACT IN INDIA AND FEDE RAL TAX IN USA AND CANADA. IT IS CLEAR THAT THE LD.CIT(A) HAS NOT DISPOSED OFF THIS ISSUE ON MERITS 18.4. THE HONBLE TRIBUNAL ANALYZIN G THE ISSUE IN DEPTH, WAS, FURTHER, OPINED THAT 22.8CREDIT 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 GOVER NMENT 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 COUNTR Y. 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 D ETAIL IN HIS ORDER, BUT THE LEARNED CIT(A) HAS NOT CONSIDERED THE ARGUMENTS ADV ANCED BY THE ASSESSING OFFICER IN NOT ALLOWING THE TAX CREDIT. HENCE, WE FEEL THAT THIS ISSUE REQUIRES TO BE RECONSIDERED BY THE LEARNED CIT(A) IN VIEW OF TH E 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 HONBLE TRIBUNAL HAS DELIBERATED AND A RRIVED AT A CONCLUSION CITED SUPRA, WE ARE OF THE CONSIDERED OPINION THAT THIS I SSUE SHOULD GO BACK TO CIT(A) FOR RECONSIDERATION. ACCORDINGLY, THE ISSUE IS RESTORED ON THE FILE OF THE LD. CIT(A) FOR RECONSIDERATION. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE AFORESAID ORDER (SUPRA), WE RESTORE THE MATTER TO THE FILE OF THE CIT(A) FOR RE CONSIDERATION IN ACCORDANCE WITH THE DIRECTIONS CONTAINED THEREIN. 25.1 THE GROUND AT S.NO.92 STATES THAT THE ASSESSEE COMPANY IS AGGRIEVED WITH THE ASSESSING OFFICER IN NOT FOLLOWING THE DIRECTION OF THE DRP IN GRANTING TDS CREDIT 53 ITA NO.972/BANG/11 AMOUNTING TO RS. 20,53,76,403 EVEN THOUGH THE ORIGI NAL CERTIFICATES HAVE BEEN SUBMITTED BY THE ASSESSEE COMPANY. 25.2 THIS GROUND RAISED BY THE ASSESSEE COMPAN Y HAS BEEN PERUSED, AS HAS BEEN THE ORDER OF THE DRP. THE DRP DIRECTIONS WERE THAT TH E ASSESSING OFFICER WAS TO EXAMINE AND VERIFY THE TDS CLAIM OF THE ASSESSEE AND AFTER DUE VERIFICATION ALLOW THE ELIGIBLE TDS TO THE ASSESSEE. WE, ACCORDINGLY, DIRECT THE ASSES SING OFFICER TO EXAMINE AND VERIFY THE TDS CLAIMS OF THE ASSESSEE AND TO ALLOW ELIGIBLE TD S TO THE ASSESSEE. 26.1 THE GROUND RAISED AT S.NO.93 TO 96 ARE AS UNDER : INTEREST UNDER SECTIONS 234B / 234D 93. THE APPELLANT DENIES THE LIABILITIES FOR INTEREST U NDER SECTION 234B. FURTHER PRAYS THAT THE INTEREST, IF ANY, SHOULD BE LEVIED O NLY ON THE RETURNED INCOME AND THE LEVY SHOULD BE LIMITED TO THE DATE OF REGUL AR ASSESSMENT. 94. THE APPELLANT DENIES LIABILITIES FOR INTEREST UNDER SECTION 234D AS NO REFUND WAS ACTUALLY GRANTED TO THE APPELLANT AS PER THE PR OVISIONS OF THE ACT. 95. NO OPPORTUNITY HAS BEEN GIVEN BEFORE THE LEVY OF IN TEREST U/S 234B AND 234D OF THE ACT. 96. WITHOUT PREJUDICE TO THE APPELLANTS RIGHT OF SEEKI NG WAIVER BEFORE APPROPRIATE AUTHORITY, THE APPELLANT PRAYS FOR CONSEQUENTIAL RE LIEF IN THE LEVY OF INTEREST UNDER SECTION 234B AND SECTION 234D. 26.2 THE ASSESSEE COMPANY DENIES ITS LIABILITY TO THE INTEREST CHARGED UNDER SECTION 234B AND 234D OF THE ACT. THE CHARGING OF INTEREST IS CONSEQUENTIAL AND MANDATORY AND IS TO BE CHARGED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE ASSESSING OFFICER HAVING NO DISCRETION IN THE MATTER, HIS ACTION IN C HARGING THE SAME IS HELD TO BE IN ORDER. THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE INTEREST CHARGEABLE UNDER SECTIONS 234B AND 234D, IF ANY, WHILE GIVING EFFECT TO THIS ORDER. 54 ITA NO.972/BANG/11 27. THE GROUNDS RAISED AT S.NOS.97 & 98 ARE GENERAL IN NATURE AND NO ADJUDICATION IS CALLED FOR THEREON. 28. IN THE RESULT, THE ASSESSEES APPEAL IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JUNE, 2012. SD/- SD/- (GEORGE GEORGE K) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER BANGALORE, DATED: 15.6.2012. *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 ORDE R SR. PRIVATE SECRETARY, ITAT, BANGALORE