Relief for Genpact: ITAT Allows S.10AA Deduction on Interest from FDs and Staff Loans [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) granted relief to Genpact India Pvt. Ltd. by allowing deduction under Section 10AA of Income Tax Act,1961 on interest income earned from fixed deposits and staff loans.

Genpact India Pvt.Ltd.,appellant-assessee,was engaged in providing business process outsourcing services such as finance and accounting, collections, insurance, IT services, software solutions, and e-learning. It filed its return of income on 29.09.2010, declaring income of ₹24.73 lakhs, and later revised it to ₹6.55 lakhs on 27.12.2011 after excluding unrealized export proceeds and recomputing deduction under Section 10AA.

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During assessment, the Assessing Officer (AO) issued notices under Sections 143(2) and 142(1), and the assessee responded by submitting the required details. The AO questioned why freight and telecommunication charges related to export services should not be excluded from export turnover and also proposed to treat interest on term deposits as “Income from Other Sources.”

After considering the submissions, the AO held that interest income was not eligible for deduction under Section 10AA and excluded related expenses from export turnover. The Commissioner of Income Tax( Appeals)[ CIT(A)] upheld this view and dismissed the appeal. The assessee then filed the present appeal before the tribunal.

The assessee counsel argued that interest earned on fixed deposits and loans given to employees qualified for deduction under Section 10AA, relying on several judicial decisions. These included rulings in favour of the assessee from High Courts in the cases of Motorola India Electronics, Hewlett Packard Global Soft, Reviera Home Furnishing, and Camiceraia Apparels India.

It was also submitted that in the case of the assessee’s group company, the ITAT had allowed similar claims in ITA No. 6773/Del/2019 for AY 2010-11, holding that such interest income was eligible for deduction under Section 10AA.

On the other hand, the departmental representative supported the findings of the AO and CIT(A), and referred to decisions of the Supreme Court and High Courts in the cases of Conventional Fasteners, Jyoti Apparels, Mareena Creations, and Pandian Chemicals Ltd. to argue that such income was not eligible for deduction.

The two member bench comprising Mahavir Singh (Vice President) and Manish Agarwal (Accountant Member) heard both sides and examined the records. It held that the interest income earned from fixed deposits and staff loans should be treated as business income for the purpose of deduction under Section 10AA of the Act.

The appellate tribunal relied on the Karnataka High Court’s decision in Hewlett Packard Global Soft Ltd., which held that interest income earned by SEZ units on temporarily parked funds or staff loans was incidental to the export business and eligible for deduction under Section 10A. The Court had also clarified that provisions under Sections 10A and 10B were different from those under Chapter VI-A and allowed a broader scope for such deductions.

Based on this, the ITAT directed the AO to allow the assessee’s claim for deduction under Section 10AA on interest income. Accordingly the appeal was allowed.

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