Ita/315/2012 Of M/S Wipro Limited v. The Additional Commissioner Of Income-Tax

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9 DAY OF DECEMBER 27070 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD BETWEEN: ILT.A. NO.315 OF 2012 M/S. WIPRO LIMITED.76R & 80P, DODDAKANNELLISARJAPUR ROADBENGALURU-5600 35 (BY SRI. S. GANESH, SR. COUNSEL FOR|SRI. SANDEEP HUILGOL, ADV., FOR)SRI. R.B. KRISHNA, ADV.,) ... APPELLAN| AND* THE ADDITIONAL COMMISSIONEROF INCOME-TAX, CIRCLE 12(5)_14/3, 4TH FLOOR, RASTROTHANA BHAVAN(OPP.) RBI, NRUPATHUNGA ROADBANGALORE - 560 O0OO1 ~. RESPONDENT (BY SRI. E.I.SANMATHI, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961L ARISING OUT OF ORDER DATED 18.0/7.20L2 PASSED IN ITNO.1349/BANG/2010 FOR THE ASSESSMENT YEAR 2006-07,ANNEXURE-E, PRAYING TO (I) FORMULATE THE SUBSTNATIAL.QUESTIONS OF LAW AS STATED THEREIN, (II) ALLOW THE.APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT,BANGALORE IN ITA NO.1349/BANG/2010 DATED 18.07.2012(ANNEXURE-E), IN THE INTEREST OF JUSTICE AND EQUITY.| THIS ITA COMING ON FOR FINAL HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (nereinafter referred to as the Act for short)has been preferred by the assessee. The subject matter|of the appeal pertains to the Assessment year 2006-07.The appeal was admitted by a bench of this Court videorder dated 05.02.2013 on the following substantialquestions of law:| (1) Whether the tribunal was right in.making an adhoc disallowance of 2.5% oOfdividend income as expenditure incurred onexempt income when the assessee hadidentified expenditure to be disallowed? (ii) Whether the tribunal was right in)airecting that losses of a 10A/10AA unit,which are already set-off against otherbusiness income of the appellant, should beagain carried forward and set-off againsteligible profits of tne same unit in asubsequent year? (iii) Whether the Tribunal was rignt in)airecting the respondent to disailow thedeferred compensation claimed by appellant.as the claim does not fall within theparameters of sec.36(1)(iv) & (Vv) Fr.w.s40A(9)? (iv) Whether the tribunal was right itnexcluding the computer software sales made.to STP/SEZ units in India from “exportturnover for tne purpose of computingdeduction under Section 10A/10AA of theAct? (v) Whether the tribunal was right itn excluding the VAT / GST from_ exportturnover and total turnover for the purposeofcomputingdeduction|UnderSection1OA/10AA of the Act? (vi) Whether the tribunal was right tn concluding that 80% of the uplinking chargeshad to be excluded from the definition ofturnover, wnen even the first responded NaalimitedsSuUCexclusionto.5%|ofthetelecommunication charges?| (vil) Whether the tribunal was right tn concluding that purchase and_ sales ofmonitors constituted a trading activity andthus excludible from the profits of thePondicherryUnitfor.theDUFDOSES ofcomputing deduction under Section 80-IB ofthe Act, when such monitors were part of thecomputers manufacture and sold by theunits2 2.|The factual background in which the aforesaidsubstantial questions of law arise for consideration in.this appeal need mention. The assessee is a publiclimited company and is engaged in numerous business.and industrial activity including computer softwaredevelopment and exports and computer hardwaremanufacture and sale. The assessee filed its return of.income on 30.11.7006 for Assessment Year 2006-07. A.draft order of assessment was passed on 31.12.2009.The assessee thereupon filed objections before DisputeResolution Panel, which upheld the order of theAssessing Officer by an order dated 27.09.2010. On the| basis of directions issued by before Dispute ResolutionPanel, the Assessing Officer passed a final order ofassessment on 28.10.2010. The assessee thereuponfiled an appeal, before the Income Tax AppellateTribunal (hereinafter referred to as the tribunal’ forshort). | basis of directions issued by before Dispute ResolutionPanel, the Assessing Officer passed a final order ofassessment on 28.10.2010. The assessee thereuponfiled an appeal, before the Income Tax AppellateTribunal (hereinafter referred to as the tribunal’ forshort). | 3The tribunal by an order dated 18.07.2010inter alia disallowed the claim of the assessee under.Section 14A of the Act. The tribunal in respect of lossesincurred by the units eligible for deduction under Section10A / LOAA of the Act held that the assessee could not!pe compelled to seek deduction under Section 10A in.respect of an undertaking in which there Is a oss.However, it was held that brougnt forward losses of 10A.unit should be set off against profits before allowing the|deduction.Thetribunal disallowedtheclaimfor.deduction of deferred compensation amount paid from.the trust. Tne tribunal also disallowed tne claim for'/qgeduction under Section 1LOA/1OAA of the Act wit respect of exports nomenclature as deemed export andclaim for exclusion of VAT / GST _ collected frocustomers against bills raised in foreign jurisdiction was|also disallowed. The tribunal also directed exclusion otf80% of uplinking charges and upheld the disallowance|on computation of deduction under Section 80IB of theAct with reference to computer hardware at Pondicherry. In the aforesaid factual background, the assessee is in|appeal before us. 4Learned Senior counsel for the assesseesubmitted that the tribunal erred in disallowing 2.5% of the dividend income as disallowance when tne assessee|nad identified the expenditure attributable Dased on.estimated time spent by functionaries responsible for.managing companies investments and cash surpluses. It is also submitted that the finding recorded by the|tribunal In importing the concept of Section 8OIA(5) to.Section 10A /10AA is perverse and the tribunal grosslyerred in not allowing the claim of deferred compensation. paid by the trust on behalf of the assessee as expenseeligible for deduction under Section 3/7(1) of the Act. Itis also contended that the tribunal erred in concluding|that export nomenclatures as deemed export does notconstitute export turnover as defined in Section 10A /10AA of the Act and is therefore, not eligible for,deduction. It is also argued that tribunal grossly erred inholding that VAT / GST cannot be included in export|turnover and in total turnover as there is no requirement.to exclude the same as per provisions of Section 10A /10AA of the Act. The tribunal also misdirected itself in/concluding that 80% of the uplinking charges should be|excluded from the turnover. It was also urged thattribunal erred in concluding that purchase and sales of.monitors constituted trading activity although suchmonitors are an integral part of computers which are|sold. 5.|On the other hand, learned counsel for therevenue submitted that assessing authority has rightly estimated 5% of the dividend income as expenditurerelating to earning of dividend according a sum of.Rs.4,33,78,265/- was rightly disallowed under Section|14A of the Act and was upheld by the Dispute ResolutionPanel and the tribunal rightly reduced it to 2.5%. _ It isalso pointed out that the assessee itself has worked outthe same at 2%. It is also urged that losses of non STP|units, profits of taxable Units cannot be set off against|profits of 10A / 10B units since, such loss can be.considered and set off and carried forward only under.Section 70, 7/72 and 74 which falls within Chapter VI ofthe Act and therefore, the assessing authority has|rightly assessed the set off losses of M.G.Road Unit since10A tenure had been expired. It is also submitted that|issue pertaining to exclusion of VAT / GST, eligibility ofmonitor sold as part of main computer for deduction.under Section 80IB, deduction under Section 10A /10AA|with regard to deemed export and eligibility of ForeignTax Credit is pending adjudication before the Supreme. Court. Learned counsel for the revenue has supportedthe order passed by the Assessing Officer as well as thedirections issued by Dispute Resolution Panel as well as—the tribunal and has submitted that the substantial|questions of law which arise for consideration in this.appeal deserves to be answered in favour of the revenue.and the appeal is therefore, required to be dismissed. 6.|We have considered the submissions made.by learned counsel for the parties and have perused therecord.From perusal of substantial question of lawNo.1, we find that the aforesaid substantial question oflaw Is no longer res integra and nas already been.answered in favour of the assessee py the Supreme.Court In/'GODREJ & BOYCE MANUFACTURING|COMPANYLTD.VS.DY,COMMISSTONER|OFINCOME-TAX AND ANR.', 394 ITR 449 (SC)In viewof aforesaid enunciation of law, the first substantialquestion of law is answered in favour of the assesseeand against the revenue.| J.Now we may advert to the second substantialquestion of law. From perusal of para 1/7 of thejudgmentrenderedby theSupremeCourtIn‘COMMISSIONER OF INCOME-TAX VS. YOKOGAWAINDIA LTD.*, 391 ITR 274, we find that the secondsubstantial question of law is also no longer res integra|and has been answered in favour of the assessee by the.Supreme Court. Therefore, the second _ substantiaquestion of law is also answered in favour of theassessee and against the revenue. Insofar as third.substantial question of law is concerned, from perusal of.paragraphs 14/7 of the judgment rendered by a bench ofthis court In‘WIPRO LTD. VS. DCIT, (2016) 383 ITR179 (KAR),we find that tne aforesaid substantial|question of law is also no longer res integra and Nas|been answered in favour of the assessee. Therefore, the|third substantial question of law is also answered in.favour of the assessee and against the revenue. From.perusal of paragraph 128 of the judgment rendered by a bench of this court In"WIPRO LTD. VS. DCIT', (2016)383 ITR 179 (KAR),we find that the fourth substantialquestion of law is alSo required to be answered in favour.of the assessee. Therefore, the fourth substantialquestion of law is also answered in favour of theassessee and against the revenue. From perusal ofparagraph 106 of the judgment rendered by a bench of this court In|"WIPRO LTD. VS. DCIT', (2016) 383 ITR179 (KAR),we find that tne fifth substantial question oflaw is alSo no longer res integra and has been answeredin favour of the assessee. Therefore, the fifth substantial question of law is also answered in favour of theassessee and against the revenue. | 8.|We nave perused paragrapns 12 to 18 of thedecision of this court tn 'COMMISSIONER OF INCOME-TAX & ANOTHER VS, TATA ELXSI LTD.’ 382 ITR654 (KAR)as well aS para 21 of the Supreme Court in"‘COMMISSINOEROFINCOME-TAXYS,HCLTECHNOLOGIES LTD., 404 ITR 719 (SC),we find that the sixth substantial question of law is also requiredto be answered in favour of the assessee and againstthe revenue. However, in view of submission made bylearned Senior counsel for assessee that he does not.intend to press substantial question of law No./, it isnot necessary to answer the aforesaid substantialquestion of law. oiLearned counsel for the revenue submits that.all the remaining issues covered by decisions of this|court in.M/S WIPRO LTD. VS. DCIT, 383 ITR 179(KAR) and|;COMMISSIONER OF INCOME-TAX &)ANOTHER VS. TATA ELXSI LTD. 382 ITR 654|(KAR)are pending adjudication at the instance of therevenue before the Supreme Court. In view of aforesaidsubmission needless to state that the Assessing Officer|Shall decide the issues In accordance with the decision|which may be rendered by the Supreme Court. In view of preceding analysis, the order dated18.07.2012 except insofar as it pertains to substantial|question of law No.7 is hereby quashed. In the result, the appeal is disposed of in terms of the judgment passed by us today in I.T.A.No.464/2017. Sd/-—JUDGE. SS| Sd/-—JUDGE.