The Single Judge Bench of Justice T.S.Sivagnanam in the light of the circulars and instructions which are binding on the Department held that the conclusion of the PCIT that it is necessary to maintain separate books of account is not sustainable.

Sec 80IB does not mandate Separate Books of Accounts for claiming Deduction: Madras High Court [Read Judgment]

Sec 80IB - Books of Accounts - Madras High Court - Taxscan

The Madras High Court ruled that Section 80IB of the Income Tax Act, 1961 does not mandate separate books of accounts for claiming the deduction.

The assessee, M/s.Virtusa Consulting Services Pvt. Ltd. is a company engaged in the business of software development. For the assessment year under consideration 2010-11, they filed their return of income declaring a taxable income of Rs.52,87,83,933/- under normal provisions, after claiming deduction of Rs.79,13,24,379/- under Section 10A of the Act and book profit of Rs.1,37,13,42,888/-.

The case was selected for scrutiny and notice was issued under Section 143(2) of the Act. A reference was made to the Transfer Pricing Officer(TPO) under Section 92CA of the Act for determining the Arm’s Length Price (ALP) of the international transactions entered into by the assessee with its Associated Enterprises (AEs).

The Tribunal observed that when the assessee submits, no separate books were maintained for eligible 10 units and non-10A units, the PCIT was right in holding that average profit has to be applied for the purpose of allowing deduction under Section 10A of the Act.

The two questions before the Court was that whether the ingredients for invoking the power under Section 263 of the Act were available and invoking such power was proper and valid; and whether it is necessary to maintain separate books of accounts for 10A units and if not maintained, whether the deduction should be computed based on over all average profit margin.

With regard to the maintenance of separate books of accounts, as submitted by the assessee has stated that it is not mandatory to maintain separate books of account for expenses incurred in the different units for the purpose of claiming deduction under Section 10A of the Act.

The assessee stated that they have maintained separate statements of profit and loss for each of its units and the same has been submitted to the Assessing Officer during the course of assessment proceedings. Further, the assessee has also furnished a report of the Chartered Account in Form 56F certifying the computation of deduction under Section 10A of the Act.

The Single Judge Bench of Justice T.S.Sivagnanam in the light of the circulars and instructions which are binding on the Department held that the conclusion of the PCIT that it is necessary to maintain separate books of account is not sustainable.

You may also like...