The Income Tax Appellate Tribunal (ITAT), Mumbai bench has recently allowed a deduction claim of Tech Mahindra and held that the export profits kept in the EEFC account are the income of the business undertaking for which, deduction under section 10A of the Income Tax Act, 1961.
The assessee has earned interest income on fixed deposits kept with HSBC Bank for issuing bank guarantee in favor of the Commissioner of Customs on behalf of the assessee for a sum of Rs.56,63,000/-. The assessee, while filing the income tax return for the relevant period, argued that the fixed deposits were placed with the bank as part of business purposes of the undertaking of the assessee and out of business receipts and consequently, eligible for deduction under section 10A of the Income Tax Act, 1961.
The Assessing Officer rejected the claim and held that these fixed deposits were placed by the assessee out of surplus funds lying with it and hence, the interest earned thereon would be liable to be separately taxed under the head “income from other sources” and consequently not eligible for deduction under section 10A of the Act.
Allowing the plea of the assessee, the Tribunal bench comprising Judicial Member Amarjith Singh and Accountant Member M. Balaganesh observed that “this issue is also no longer res-Integra in view of the decision of this Tribunal in assessee’s own case for A.Y.2011-12 in ITA No.766/Mum/2016 dated 30/06/2021 wherein it was held that the action of the lower authorities in placing reliance on the decision of the Jurisdictional High Court in the case of CIT vs. Shah Originals was totally misconceived as the said decision was rendered in the context of deduction claimed u/s.80HHC of the Act whereas in the present case, the assessee has claimed deduction u/s.10A of the Act, wherein deduction is available on the profits derived by the assessee on the entire profits and gains derived by the undertaking engaged in the business of export of articles or things. This Tribunal had also placed reliance on the decision of the Karnataka High Court in the case of CIT vs, Motorola India Electronics Pvt. Ltd., wherein it was held that what is exempted is not merely the profits and gains of the export of articles but also the income from the business of the undertaking. Proceeding further, the High Court also observed that export profits kept in the EEFC account are the income of the business undertaking, hence the assessee would be entitled to deduction u/s.10A of the Act for the same.”
“Respectfully following the aforesaid decision, the ground Nos. 14-16 raised by the assessee are hereby allowed,” the bench said.
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