Wipro Ltd. v. Deputy CIT - Taxpublishers.in

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers2005 TaxPub(DT) 1673 (Bang-Trib) : (2006) 007 (II) ITCL 0321 : (2005) 096 TTJ 0211 : (2006) 005 SOT 0805 Wipro Ltd. v. Dy. Commissioner of Income Tax INCOME TAX --Business deduction under section 36(1)(vii)----Bad debts--Provision for bad debts and doubtful debts and advances--Assessee's contention was that the Commissioner (Appeals) erred in directing the AO to verify the correctness of the claims regarding the provision for bad and doubtful debts and to decide the issue in accordance with the directions given by the Tribunal, for assessment year 1997-98 and Commissioner (Appeals) ought to have appreciated that the deduction claimed by the assessee was disallowed by the AO as section 36 does not provide for such deduction. As the assessee's case was not covered by rule 46A(1), the Commissioner (Appeals) should not have permitted further evidence to be filed. Further the Commissioner (Appeals) failed to note that under section 251(1)(a), in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment but cannot remit the matter back to the AO. *Held:* Issue regarding provision for bad debts, the Commissioner (Appeals) has only remitted the issue to the AO for a fresh decision and adjudication. No grievance could arise to the department on such a course of action, hence this ground was not sustainable. However, in relation to bad and doubtful advances the Commissioner (Appeals) had remitted back the issue to the AO with a direction to verify the claim made by the assessee after going through the details of the advances. As no grievance could arise to the department on such a course of action, hence this ground was not sustainable. Income Tax Act, 1961 s.80HHE INCOME TAX --Income----Accrual--Interest under 244A--*Held:* Interest of certain amount under section 244A was received and the same was considered for addition under the head 'Income from other sources. Authorities below considered interest under section 244A as an income liable to tax even though the interest had not accrued irrevocably. Income Tax Act, 1961 s.5 Income Tax Act, 1961 s.244A INCOME TAX --Exemption under section 10A----Eligible business--Income from sale of scrap--Assessee company was engaged in business of software export. It had shown income from sale of scrap, etc., under the head 'miscellaneous income' from section 10A units for the assessment years under consideration. AO excluded the said income as not derived from business of export relating to section 10A. According to AO, source of particular income on which exemption was sought must directly emerge from the running of industrial undertaking yielding profit. Commissioner (Appeals) confirmed the exclusion holding that amount received from sale of scrap, etc., could not be construed as profit derived from industrial undertaking eligible under section 10A. In appeal, Tribunal, *Held:* Though it could not be held that income from sale of scrap, etc., was income arising from industrial undertaking eligible under section 10A, however, the income had to be calculated on net income basis. Therefore, amount from sale of scrap was allowed as profit derived from section 10A. Income Tax Act, 1961 s.10A INCOME TAX --Exemption under section 10A----Free trade zone--Computerization of software--Assessee had business of software. He had shown income in respect of liquidated damages, write back for retention money, sale tax recoveries, etc., as related to the industrial undertaking coming under section 10A. AO had considered it as income derived from software business and not from industrial undertaking yielding profits. Commissioner (Appeals), confirmed the exclusion done by the AO. *Held:* Prior to the amendment w.e.f. 1-4-2001, the entire profit of such undertaking was to be excluded. Since, the assessment years under consideration were 1998-99 and 1999-2000, therefore, the receipts/income in relation to liquidated damage, write back of retention money, sale tax recoveries, write back of credit balances and foreign exchange gains were not to be excluded for assessment years under consideration. Income Tax Act, 1961 s.10A INCOME TAX --Deduction under section 80HHC----Total turnover--Sales-tax and excise duty--The assessee-company excluded sales-tax and excise duty from the total turnover while computing the deduction under section 80HHC. The AO included the same in the total turnover while computing deduction under section 80HHC for the reason that there was no decision of the jurisdictional High Court on this point. Since the issue was covered, Commissioner (Appeals) held that keeping in view the decision of the Calcutta High Court in the case of CIT v. Chloride India Ltd. (2002) 256 ITR 625 (Cal), that the AO was to exclude the sales-tax and excise duty from the total turnover and recompute the deduction under section 80HHC. On appeal. *Held:* The issue stands covered by the decision of the Karnataka High Court in the case of CIT v. Bharat Earth Movers Ltd. (2004) 268 ITR 232 (Karn). Therefore, Commissioner (Appeals) was right in excluding sales-tax and excise duty from total turnover. Income Tax Act, 1961 s.80HHC INCOME TAX --Business deduction under section 36(1)(vii)----Bad debts--Debt written off being irrecoverable--Assessee while carrying on business incurred loss due to discontinuance of distributorship activity and claimed its set-off as business loss which was allowed. He had also written off bad debts in books of account and claimed the same as bad debts. *Held:* What was claimed by the assessee was bad debts and not the provision of debtor. Hence, same was allowed. AO was directed to allow the claim of bad debts to the assessee. Income Tax Act, 1961 s.36(1)(vii) INCOME TAX --Exemption under section 10A----Income from export of computers--Computerization software--Royalty from licencing software products--*Held:* Where assessee received royalty from software products which the assessee had developed and licenced during the course of software exports business, such royalty income was part of the export turnover of the undertaking and was entitled to relief under section 10A. Income Tax Act, 1961 s.10A INCOME TAX --Business income----Business loss--Operational loss from closure of assessee's business segment--Assessee-company was distributor of computers and related product. Later on it discontinued the distributorship and consequently suffered loss. Authorities below, disallowed the loss incurred by the assessee. *Held:* Assessee was entitled to set off of operational loss as business loss of the year, even if business was discontinued. There was no prohibitive condition in section 70. AO disallowed the loss for not furnishing details of valuation of inventory loss. AO was not correct on this ground. Since loss was genuine and AO had not assigned any other reasons except he wanted certain details, therefore, operation loss incurred during the course of carrying the business be allowed to be set-off as business loss. Income Tax Act, 1961 s.70 INCOME TAX --Deduction under section 80-IA----Profit and gains derived from industrial undertaking--Receipt of supplier discount--Assessee claimed deduction of certain amount under section 80-IA in respect of computer factory. AO did not consider the sum received by the assessee from its franchisor towards contribution credit which was in the nature of suppliers discount in arriving at profit and gains from eligible industrial undertaking under section 80-IA for the reasons that no firm basis was furnished by the assessee for receipts of such huge amount. Commissioner (Appeals) confirmed the action of AO. *Held:* Assessee had received the sum as contribution credit from its franchisor which was in the nature of supplier's discount and goes to reduce the cost of raw-materials of the industrial undertaking. Tribunal allowed the issue of supplier's discount in earlier year, therefore, assessee's claim under section 80-IA was allowable and authorities below are directed to consider the same as profit and gains derived from the industrial undertaking eligible for deduction under section 80-IA. Income Tax Act, 1961 s.80-IA INCOME TAX --Deduction under section 80-IA----Profit and gains from industrial undertaking--Allocation of expenditure in one unit out of five--Assessee claimed deduction which was analysed by AO and he made certain allocation of expenditure pertaining to peripherals unit. Commissioner (Appeals) directed deletion of allocation. *Held:* Allocation made by AO was without any rational basis and was made only on surmise and suspicion. Therefore, Commissioner (Appeals) was justified in deleting the allocation made by the AO. Income Tax Act, 1961 s.80-IA INCOME TAX --Business disallowance under section 43B----Gratuity and provident fund--Payment not deposited within 'due date' as per Explanation to section 36(1)(va)--Assessee claimed expenditure under section 43B towards payment of gratuity and provident fund. AO disallowed the claim on account of delay in payment during the year. *Held:* The payment of gratuity was not covered under sub-clause (x) of clause (24) of section 2 and section 36(1)(va). Since the payment of gratuity was otherwise allowable under section 43B, hence, same could not be disallowed. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2005 TaxPub(DT) 1673 (Bang-Trib) : (2006) 007 (II) ITCL 0321 : (2005) 096 TTJ 0211 : (2006) 005 SOT 0805

Wipro Ltd. v. Dy. Commissioner of Income Tax

INCOME TAX

--Business deduction under section 36(1)(vii)----Bad debts--Provision for bad debts and doubtful debts and advances--Assessee's contention was that the Commissioner (Appeals) erred in directing the AO to verify the correctness of the claims regarding the provision for bad and doubtful debts and to decide the issue in accordance with the directions given by the Tribunal, for assessment year 1997-98 and Commissioner (Appeals) ought to have appreciated that the deduction claimed by the assessee was disallowed by the AO as section 36 does not provide for such deduction. As the assessee's case was not covered by rule 46A(1), the Commissioner (Appeals) should not have permitted further evidence to be filed. Further the Commissioner (Appeals) failed to note that under section 251(1)(a), in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment but cannot remit the matter back to the AO. Held: Issue regarding provision for bad debts, the Commissioner (Appeals) has only remitted the issue to the AO for a fresh decision and adjudication. No grievance could arise to the department on such a course of action, hence this ground was not sustainable. However, in relation to bad and doubtful advances the Commissioner (Appeals) had remitted back the issue to the AO with a direction to verify the claim made by the assessee after going through the details of the advances. As no grievance could arise to the department on such a course of action, hence this ground was not sustainable.

Income Tax Act, 1961 s.80HHE

INCOME TAX

--Income----Accrual--Interest under 244A--Held: Interest of certain amount under section 244A was received and the same was considered for addition under the head 'Income from other sources. Authorities below considered interest under section 244A as an income liable to tax even though the interest had not accrued irrevocably.

Income Tax Act, 1961 s.5

Income Tax Act, 1961 s.244A

INCOME TAX

--Exemption under section 10A----Eligible business--Income from sale of scrap--Assessee company was engaged in business of software export. It had shown income from sale of scrap, etc., under the head 'miscellaneous income' from section 10A units for the assessment years under consideration. AO excluded the said income as not derived from business of export relating to section 10A. According to AO, source of particular income on which exemption was sought must directly emerge from the running of industrial undertaking yielding profit. Commissioner (Appeals) confirmed the exclusion holding that amount received from sale of scrap, etc., could not be construed as profit derived from industrial undertaking eligible under section 10A. In appeal, Tribunal, Held: Though it could not be held that income from sale of scrap, etc., was income arising from industrial undertaking eligible under section 10A, however, the income had to be calculated on net income basis. Therefore, amount from sale of scrap was allowed as profit derived from section 10A.

Income Tax Act, 1961 s.10A

INCOME TAX

--Exemption under section 10A----Free trade zone--Computerization of software--Assessee had business of software. He had shown income in respect of liquidated damages, write back for retention money, sale tax recoveries, etc., as related to the industrial undertaking coming under section 10A. AO had considered it as income derived from software business and not from industrial undertaking yielding profits. Commissioner (Appeals), confirmed the exclusion done by the AO. Held: Prior to the amendment w.e.f. 1-4-2001, the entire profit of such undertaking was to be excluded. Since, the assessment years under consideration were 1998-99 and 1999-2000, therefore, the receipts/income in relation to liquidated damage, write back of retention money, sale tax recoveries, write back of credit balances and foreign exchange gains were not to be excluded for assessment years under consideration.

Income Tax Act, 1961 s.10A

INCOME TAX

--Deduction under section 80HHC----Total turnover--Sales-tax and excise duty--The assessee-company excluded sales-tax and excise duty from the total turnover while computing the deduction under section 80HHC. The AO included the same in the total turnover while computing deduction under section 80HHC for the reason that there was no decision of the jurisdictional High Court on this point. Since the issue was covered, Commissioner (Appeals) held that keeping in view the decision of the Calcutta High Court in the case of CIT v. Chloride India Ltd. (2002) 256 ITR 625 (Cal), that the AO was to exclude the sales-tax and excise duty from the total turnover and recompute the deduction under section 80HHC. On appeal. Held: The issue stands covered by the decision of the Karnataka High Court in the case of CIT v. Bharat Earth Movers Ltd. (2004) 268 ITR 232 (Karn). Therefore, Commissioner (Appeals) was right in excluding sales-tax and excise duty from total turnover.

Income Tax Act, 1961 s.80HHC

INCOME TAX

--Business deduction under section 36(1)(vii)----Bad debts--Debt written off being irrecoverable--Assessee while carrying on business incurred loss due to discontinuance of distributorship activity and claimed its set-off as business loss which was allowed. He had also written off bad debts in books of account and claimed the same as bad debts. Held: What was claimed by the assessee was bad debts and not the provision of debtor. Hence, same was allowed. AO was directed to allow the claim of bad debts to the assessee.

Income Tax Act, 1961 s.36(1)(vii)

INCOME TAX

--Exemption under section 10A----Income from export of computers--Computerization software--Royalty from licencing software products--Held: Where assessee received royalty from software products which the assessee had developed and licenced during the course of software exports business, such royalty income was part of the export turnover of the undertaking and was entitled to relief under section 10A.

Income Tax Act, 1961 s.10A

INCOME TAX

--Business income----Business loss--Operational loss from closure of assessee's business segment--Assessee-company was distributor of computers and related product. Later on it discontinued the distributorship and consequently suffered loss. Authorities below, disallowed the loss incurred by the assessee. Held: Assessee was entitled to set off of operational loss as business loss of the year, even if business was discontinued. There was no prohibitive condition in section 70. AO disallowed the loss for not furnishing details of valuation of inventory loss. AO was not correct on this ground. Since loss was genuine and AO had not assigned any other reasons except he wanted certain details, therefore, operation loss incurred during the course of carrying the business be allowed to be set-off as business loss.

Income Tax Act, 1961 s.70

INCOME TAX

--Deduction under section 80-IA----Profit and gains derived from industrial undertaking--Receipt of supplier discount--Assessee claimed deduction of certain amount under section 80-IA in respect of computer factory. AO did not consider the sum received by the assessee from its franchisor towards contribution credit which was in the nature of suppliers discount in arriving at profit and gains from eligible industrial undertaking under section 80-IA for the reasons that no firm basis was furnished by the assessee for receipts of such huge amount. Commissioner (Appeals) confirmed the action of AO. Held: Assessee had received the sum as contribution credit from its franchisor which was in the nature of supplier's discount and goes to reduce the cost of raw-materials of the industrial undertaking. Tribunal allowed the issue of supplier's discount in earlier year, therefore, assessee's claim under section 80-IA was allowable and authorities below are directed to consider the same as profit and gains derived from the industrial undertaking eligible for deduction under section 80-IA.

Income Tax Act, 1961 s.80-IA

INCOME TAX

--Deduction under section 80-IA----Profit and gains from industrial undertaking--Allocation of expenditure in one unit out of five--Assessee claimed deduction which was analysed by AO and he made certain allocation of expenditure pertaining to peripherals unit. Commissioner (Appeals) directed deletion of allocation. Held: Allocation made by AO was without any rational basis and was made only on surmise and suspicion. Therefore, Commissioner (Appeals) was justified in deleting the allocation made by the AO.

Income Tax Act, 1961 s.80-IA

INCOME TAX

--Business disallowance under section 43B----Gratuity and provident fund--Payment not deposited within 'due date' as per Explanation to section 36(1)(va)--Assessee claimed expenditure under section 43B towards payment of gratuity and provident fund. AO disallowed the claim on account of delay in payment during the year. Held: The payment of gratuity was not covered under sub-clause (x) of clause (24) of section 2 and section 36(1)(va). Since the payment of gratuity was otherwise allowable under section 43B, hence, same could not be disallowed.