CGI INFORMATION SYSTEMS V. DEPUTY COMMISSIONER

ITA/822/2017

AI Insights

The case involves CGI Information Systems and Management Consultants Private Limited, which appealed against the order of the Income Tax Appellate Tribunal (ITAT) regarding the inclusion of Rs.6,21,943/- advances received from customers written back in the 'total turnover' while computing the deduction under Section 80HHE of the Income Tax Act, 1961. The ITAT had confirmed the Assessing Officer's decision to include this amount in the total turnover. The appellant argued that since the sale did not occur, the advance should not be included in the turnover. The Revenue contended that without clarity on whether the advance was for domestic or international sales, a definitive finding could not be made. The High Court of Karnataka, referencing the Supreme Court's decision in Punjab Stainless Steel Industries, agreed with the appellant's position.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 691885 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 24-01-2023
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-tax-VII, New Delhi Vs. Punjab Stainless Steel Industries, Commissioner of Income-tax, Central-III Vs. HCL Technologies Ltd.
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: E I SANMATHI
• Assessee Lawyers: T SURYANARAYAN; TANMAYEE RAJKUMAR
• Keywords: Deduction under section 80HHE; Export Turnover; Foreign Exchange Fluctuation loss; Income tax appeal; Total Turnover
• Section: 80HHE; 260-A

Judgement Text

"- 1 - ITA No. 822/2017 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH DAY OF JANUARY, 2023 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE G BASAVARAJA INCOME TAX APPEAL NO.822 OF 2017 BETWEEN: CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PRIVATE LIMITED PRESENTLY ELECTRONIC CITY TOWER II NO.95/1 AND 95/2 ELECTRONIC CITY PHASE I (WEST) BANGALORE-560 100 REPRESENTED HEREIN BY ITS DIRECTOR MS. BABALUSHA ESTHER ALEXANDER PAN NO: AAACI 1994C. …APPELLANT (BY SHRI. T. SURYANARAYAN, SENIOR ADVOCATE FOR MS. TANMAYEE RAJKUMAR, ADVOCATE) AND: 1. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 11(2) (PRESENTLY ASSISTANT COMMISSIONER CIRCLE 2(1)(1)) BMTC BUILDING 80 FEET ROAD KORAMANGALA BANGALORE-560 095 Digitally signed by YASHODHA N Location: HIGH COURT OF KARNATAKA - 2 - ITA No. 822/2017 2. COMMISSIONER OF INCOME TAX BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095 …RESPONDENTS (BY SHRI. E.I. SANMATHI, STANDING COUNSEL) THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 16.06.2017 PASSED IN ITA NO.415/BANG/2011, FOR THE ASSESSMENT YEAR 2003-2004, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED THEREIN AND ALLOW THE APPEAL BY SETTING ASIDE THE ORDER OF THE TRIBUNAL DATED 16.06.2017 PASSED IN ITA NO.415/BANG/2011 (ANNEXURE-E), TO THE EXTENT QUESTIONED HEREIN AND ETC., THIS APPEAL, COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING: JUDGMENT This appeal by the assessee challenging the order dated July 16, 2017 in ITA No.415/Bang/2011 for the A.Y.2003-04 has been admitted to consider following questions of law: “1. The Tribunal was right in holding that Rs.6,21,943/- being advances received from customers written back forms part of the ‘total turnover’ of the Appellant whilst computing the deduction under Section 80HHE of the Act? 2. The Tribunal was correct in rejecting the alternate contention that, in computing the deduction under Section 80HHE, if the ‘total turnover’ is to be increased by the aforesaid amount of advances received from customers written back, the - 3 - ITA No. 822/2017 ‘export turnover’ ought to also be increased by similar amounts? 3. The Tribunal committed an error in not adjudicating on the Appellants’ contention that foreign exchange fluctuation loss ought not to be reduced from the ‘export turnover’ in computing the deduction under Section 80HHE of the Act? and 4. The Tribunal committed an error in not also adjudicating the alternate contention that, in computing the deduction under Section 80HHE, if foreign exchange fluctuation loss is to be reduced from the ‘export turnover’, the same ought to also be reduced from the ‘total turnover’?” 2. Heard Shri T.Suryanarayana, learned Senior Advocate for the appellant and Shri E.I.Sanmathi, learned standing counsel for the Revenue. 3. Briefly stated the facts of the case are, during the course of business, assessee has received a sum of Rs.6,21,943/- as advance sale consideration. The business deal was not completed. Resultantly, assessee wrote back the advance and appropriated the same and claimed benefit under Section 80HHE of the Income Tax Act, 19611. The AO2, while computing the 1 ‘The Act’ for short - 4 - ITA No. 822/2017 total turnover, included advance amount written back by the assessee. CIT(A)3 and ITAT4 have confirmed AO’s order. Hence, this appeal. 4. Shri Suryanarayana, placing reliance on Commissioner of Income-tax-VII, New Delhi Vs. Punjab Stainless Steel Industries,5 submitted that the Turnover means, the sale proceeds of the goods. In the instant case, the sale has not taken place and the advance money has remained with the assessee. He argued that the said amount may be at best treated as assessee’s income but cannot be included in total turnover while computing deduction under Section 80HHE. 5. Shri Sanmathi for the Revenue submitted that ITAT has noticed that it is not clear as to whether the advance amount received is on account of domestic sale or international sale. Unless the said amount is ascertained, a definite finding cannot be recorded. 2 Assessing Officer 3 Commissioner of Income Tax(Appeals) 4 Income Tax Appellate Tribunal 5 [2014] 46 taxmann.com 68 (SC) (para 19-21) - 5 - ITA No. 822/2017 Accordingly, he prayed for remitting the matter to the ITAT. 6. We have carefully considered rival contentions and perused the records. 7. The formula to compute the deduction under Section 80HHE is as follows: Profit of the Export Turnover Business x ------------------- Total Turnover 8. It requires three components, profit of the business, export turnover and total turnover. Assessee’s grievance is, the advance amount written back by the assessee has been included in the total turnover. Therefore, what is to be determined at first, is ‘what is turnover’. In Punjab Stainless Steel Industries, the Apex Court was examining the sale of scrap of stainless steel by assessee therein and it has been held that ‘turnover’ would mean only the amount of sale proceeds received in respect of goods in which the assessee is dealing in. Here is the case where the - 6 - ITA No. 822/2017 assessee has received some money as advance; the sale has not taken place; and the amount has remained with the assessee. Therefore, Shri Suryanarayana is right in his submission that the amount appropriated by the assessee can be treated as ‘income’ but not ‘turnover’. Accordingly, we answer the first question in favour of the assessee and against the Revenue. 9. Shri Suryanarayana submits that as the first question has been answered in favour of the assessee, the second question does not arise for consideration. He does not press the third question. He submits that the fourth question is covered by decision of the Apex Court in Commissioner of Income-tax, Central-III Vs. HCL Technologies Ltd.6 and the said submission is not disputed by Shri Sanmathi. 10. In view of the above, following; ORDER (i) Appeal is allowed; 6 [2018] 93 taxmann.com 33 (SC) - 7 - ITA No. 822/2017 (ii) First question is answered in favour of the assessee and against the Revenue; (iii) Second question does not arise for consideration; (iv) Third question is not pressed; and (v) Fourth question is answered in favour of the assessee and against the Revenue. No costs. Sd/- JUDGE Sd/- JUDGE AV List No.: 1 Sl No.: 31 "