M/s. Vinove Software & Services Pvt. Ltd., New Delhi V. ITO, New Delhi

CO 114/DEL/2011

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9555 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 23-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GAGAN SOOD
• Assessee Lawyers: S C GARG
• Keywords: Services rendered outside India; Competent authority
• Section: 10AA; 10B

Judgement Text

ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H NEW DELHI BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.4185/DEL/2010 ASSESSMENT YEAR : 2007-08 INCOME TAX OFFICER, VS M/S VINOVE SOFTW ARE & SERVICES PVT. LTD., WARD-17(3), F-2, UDYO G NAGAR, NEW DELHI. NEW DELH I-110041 (PAN: AABCV9147M) C.O. NO.114/DEL/2011 (IN I.T.A.NO.4185/DEL/2010) ASSESSMENT YEAR : 2007-08 M/S VINOVE SOFTWARE & SERVICES PVT. LTD., VS IN COME TAX OFFICER, NEW DELHI. WARD 17(3), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI S.C. GARG RESPONDENT BY : SHRI GAGAN SOOD, SR. DR O R D E R PER CHANDRAMOHAN GARG, J.M. THE ABOVE CAPTIONED APPEAL BY THE REVENUE AND C.O. BY THE ASSESSEE HAVE BEEN FILED AGAINST THE ORDER OF THE CIT(A)-XIX , NEW DELHI DATED 16.06.2010 IN APPEAL NO. 195/2009-10 FOR AY 2007-08 . 2. THE SOLE GROUND RAISED BY THE REVENUE IN THIS AP PEAL READS AS UNDER:- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW B Y ALLOWING THE DISALLOWANCE OF DEDUCTION UNDER SECTIO N 10A, BY IGNORING AND NOT DECIDING ON MERITS, THE FINDING S BY THE ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 2 ASSESSING OFFICER THAT, MOST OF THE OLD ASSETS ALRE ADY IN USE PRIOR TO THE PERIOD RELEVANT FOR WHICH DEDUCTION UN DER SECTION 10A WAS CLAIMED, WAS USED IN THE NEW BUSINE SS OF DEVELOPMENT AND EXPORT OF SOFTWARE. 3. BRIEFLY STATED THE FACTS GIVING RISE TO THIS APPEAL ARE THAT THE ASSESSEE COMPANY IS STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF SOFTWARE UNDER SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI). THE ASSESSEE COMPANY FILED A RETURN ON 30.10.2007 D ECLARING TOTAL INCOME OF RS.13,42,510 WHICH WAS PROCESSED UNDER SE CTION 143(1) OF THE INCOME TAX ACT, 1961. SUBSEQUENTLY, THE CASE WAS S ELECTED FOR SCRUTINY UNDER CASS AND A NOTICE WAS SERVED ON THE ASSESSEE. DURING THE ASSESSMENT, THE ASSESSING OFFICER OBSERVED THAT FRO M AUDITED ACCOUNTS, IT WAS SEEN THAT IN THE PRECEDING FINANCIAL YEAR I.E. FY 2005-06 RELEVANT TO AY 2006-07, THE ASSESSEE HAS DECLARED SALES AT RS.3 ,98,112. THE ASSESSEE WAS ASKED TO SUBMIT EXPLANATION ON THE SAL ES SHOWN IN THE P&L ACCOUNT FOR AY 2005-06 AND 2006-07. THE ASSESSEE S UBMITTED ITS REPLY ON 27.11.2009 AS UNDER:- 1. THE ASSESSEE COMPANY DID NOT MAKE ANY SALE DURING FINANCIAL RELEVANT TO ASSESSMENT YEAR 2005-0 6. 2. THE UNDERTAKING OF ASSESSEE COMPANY WAS APPROVED BY SOFTWARE TECHNOLOGY PARK OF INDIA, NOID A, UP, AN AUTONOMOUS SOCIETY OF GOVT. OF INDIA ON 22.03.2005. THE SAID SOCIETY IS COMPETENT AUTHORITY TO APPROVE AN UNDERTAKING FOR THE PURPOSE OF SECTION L 0A OF INCOME TAX ACT, 1961. ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 3 3. THE FIRST SALE WAS MADE BY THE ASSESSEE 011 14 . 10.2005. SALE DURING FY 2005-06 AMOUNTED TO RS 398112/-. THE UNDERTAKING OF ASSESSEE HAS BEEN ELIG IBLE FOR EXEMPTION U/S 10A SINCE INCEPTION. THE MANUFACTURING OF PRODUCT SOLD BY ASSESSEE WAS CARRI ED OUT BY PLANT & MACHINERY PURCHASED BY ASSESSEE DURI NG FY 04-05 & 05-06. HOWEVER, THE ASSESSEE DID NOT CLA IM ANY EXEMPTION FOR FY 05-06 RELEVANT TO A Y 06-07 SI NCE THERE WAS NO POSITIVE INCOME. CLAIM OF EXEMPTION U/ S L0A HAS BEEN MADE FOR THE FIRST TIME. THE PRODUCT MANUFACTURED / SOLD DURING FY 05-06 IS THE SAME, BE ING SOFTWARE AS DURING THE YEAR UNDER CONSIDERATION. 4. IT IS REITERATED THAT THE UNDER1AKING OF THE A SSESSEE WAS FORMED WITH BRAND NEW MACHINERY AND NO OLD MACHINERY WAS PURCHASED. THE UNDERTAKING HAS BEEN ELIGIBLE SINCE THE DATE OF ESTABLISHMENT. THE MACH INERY INSTALLED BY THE ASSESSEE HAS BEEN USED SINCE BEGIN NING FOR THE PURPOSE OF ELIGIBLE UNDERTAKING OF THE ASSE SSEE AND FOR NO OTHER PURPOSE. 4. THE ASSESSING OFFICER DENIED DEDUCTION UNDER SEC TION 10A OF THE ACT WITH FOLLOWING OBSERVATIONS AND FINDINGS:- 8.2 THE ASSESSEE HAS STARTED MANUFACTURE OR PRODUCE ARTICLE OR THING W.E.F THE ASSESSMENT YEAR 2005-06. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE IS A NEWLY ESTABLISHED UNDERTAKING. REFERENCE IS ALSO INVITED TO THE REPLY DATED 27.11.2009 WHEREIN IN RESPONSE TO THE Q UERY REGARDING SALES MADE DURING THE FINANCIAL YEAR 2005 -06 , IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE HAS COMPANY THAT 'THE PRODUCT MANUFACTURED/SOLD DURING THE FINANCIAL YEAR 2005-06 IS THE SAME BEING SOFTWARE AS DURING THE YE AR UNDER CONSIDERATION. ' 8.3 FURTHER THE PROVISIONS OF SECTION 1OA(2) STIPU LATES THAT:- ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 4 THIS PROVISION APPLIES 10 ANY UNDERTAKING WHICH FULFILLS ALL THE FOLLOWING CONDITIONS NAMELY 1. . (II) IT IS NOR FORMED BY THE SPLITTING UP OR THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RES PECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THER E RE- ESTABLISHMENT. RECONSTRUCTION OR REVIVAL BY THE ASS ESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKINGS AS IS REFERRE D TO IN SECTION 33B.,IN THE CIRCUMSTANCES AND WITHIN THE PE RIOD SPECIFIED IN THAT SECTION: (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW B USINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. 8.4 IT IS APPARENT FROM THE ABOVE THAT THE ASSESSE E HAS CONTINUED IN THE NEW BUSINESS WITH OLD BUSINESS AND MOST OF THE OLD ASSETS IN NEW BUSINESS OF EXPORT OF SOFT WARE, THE ASSETS OF WHICH WERE ALREADY IN USE PRIOR TO THE PE RIOD RELEVANT FOR WHICH DEDUCTION U/S L0A WAS CLAIMED, DEDUCTION IN THE CASE OF ASSESSEE COMPANY HAS BEEN WORKED OUT AT RS. 3,00,894/-UNDER PARA 5 ABOVE. BUT THE ASSESSEE DOES NOT FULFILL THE CRITERION TO BE ELIGI BLE FOR DEDUCTION U/S L0A AS MENTIONED ABOVE. I N VIEW OF T HE ABOVE THE ASSESSEE IS TOTALLY INELIGIBLE FOR DEDUCT ION U/S L0A. ACCORDINGLY, THE CLAIM OF DEDUCTION U/S L0A IS DENIED IN THIS CASE. 5. THE AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL BE FORE THE CIT(A) WHICH WAS PARTLY ALLOWED ON GROUND NO.1 [RAISED BY THE AS SESSEE BEFORE CIT(A)]. NOW, THE AGGRIEVED REVENUE IS BEFORE THIS TRIBUNAL CHALLENGING THE ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 5 IMPUGNED ORDER ON THE ISSUE OF ALLOWABILITY OF DISA LLOWANCE OF DEDUCTION UNDER SECTION 10A OF THE ACT. 6. WE HAVE HEARD RIVAL ARGUMENTS OF BOTH THE PARTIE S AND CAREFULLY PERUSED THE RECORD. LD. DR SUBMITTED THAT THE ASSE SSING OFFICER WAS RIGHT IN HOLDING THAT THE ASSESSEE CAN BE SAID TO HAVE CO MMENCED ITS ELIGIBLE BUSINESS ONLY AFTER ACCEPTANCE OF AGREEMENT BY STPI W.E.F. 01.09.2006. THE DR FURTHER POINTED OUT THAT UNTIL AND UNLESS RELEVA NT AGREEMENT IS SIGNED AND ACCEPTED BY THE ASSESSEE AND AUTHORITIES OF THE STP I, IT CANNOT BE SAID THAT THE ASSESSEE HAD BEEN GRANTED STATUS OF 100% EOU W. E.F. 22.03.2005. THE DR SUPPORTED THE ASSESSMENT ORDER AND CONTENDED THA T THE CIT(A) ALLOWED RELIEF FOR THE ASSESSEE BY IGNORING AND NOT DECIDIN G THE CASE ON MERITS. THE DR VEHEMENTLY CONTENDED THAT THE FINDINGS BY THE AS SESSING OFFICER THAT MOST OF THE OLD ASSETS ALREADY IN USE PRIOR TO THE PERIOD RELEVANT FOR WHICH DEDUCTION UNDER SECTION 10AA WAS CLAIMED WAS USED I N THE NEW BUSINESS OF DEVELOPMENT AND EXPORT OF SOFTWARE. THE DR ALSO CO NTENDED THAT WHILE AS PER ASSESSEES CLAIM, THE ASSESSEE COMPANY WAS APPR OVED BY STPI, NOIDA ON 22.03.2005 AND ASSESSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 10A OF THE ACT, THEN WHY ASSESSEE DID NOT MAKE A CLAIM DURING F.Y. 2005-06 AND 2006- 07. THE DR FURTHER CONTENDED THAT WHEN THE ASSESSE E STARTED MANUFACTURING OR PRODUCTION W.E.F. AY 2005-06, THEN THE CLAIM OF DEDUCTION UNDER SECTION ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 6 10A OF THE ACT FOR THE FIRST TIME IN AY 2007-08 WAS NOT ACCEPTABLE BECAUSE THE OLD ASSETS, ALREADY IN USE PRIOR TO THE PERIOD RELEVANT FOR WHICH DEDUCTION UNDER SECTION 10A OF THE ACT WAS CLAIMED, WAS USED IN THE SAID NEW BUSINESS OF DEVELOPMENT AND EXPORT OF SOFTWARE. TH E DR ALSO SUBMITTED THAT IN THIS ABOVE FACTS, IT CANNOT BE SAID THAT TH E ASSESSEE IS A NEWLY ESTABLISHED UNDERTAKING. THE DR SUPPORTED THE ASSE SSMENT ORDER AND SUBMITTED THAT IMPUGNED ORDER MAY BE SET ASIDE BY R ESTORING THAT OF THE ASSESSING OFFICER. 7. THE LEARNED AR REPLIED THAT THE ASSESSEE IN HIS LETTER DATED 27.11.2009 (AS REPRODUCED HEREINABOVE) ALREADY STATED TO THE A SSESSING OFFICER THAT THE ASSESSEE DID NOT MAKE ANY SALE DURING FY 2004-05 RE LEVANT TO AY 2005-06 AND DURING F.Y. 2005-06 RELEVANT TO AY 2006-07, THE ASSESSEE MADE SALE OF RS.3,98,112/- ONLY. HOWEVER, THE ASSESSEE DID NOT MAKE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT SINCE THERE WAS NO POS ITIVE INCOME. THE AR FURTHER SUBMITTED THAT IN THE ABOVE SITUATION, THE ASSESSEE MADE CLAIM OF EXEMPTION UNDER SECTION 10A OF THE ACT FOR THE FIRS T TIME. THE AR HAS DRAWN OUR ATTENTION TOWARDS PARA 4 OF LETTER DATED 27.11.2009 (SUPRA) AND SUBMITTED THAT THE UNDERTAKING OF THE ASSESSEE WAS FORMED WITH BRAND NEW MACHINERY AND NO OLD MACHINES WERE PURCHASED AND SI NCE THE UNDERTAKING HAS BEEN ELIGIBLE SINCE THE DATE OF ESTABLISHMENT I .E. 22.03.2005, THE ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 7 EXEMPTION UNDER SECTION 10A OF THE ACT CANNOT BE DE NIED ON THIS GROUND THAT THE ASSESSEE USED THE OLD ASSETS FOR ESTABLISH MENT OF NEW BUSINESS OF SOFTWARE DEVELOPMENT EXPORT WHICH WERE ALREADY IN U SE PRIOR TO THE PERIOD FOR WHICH EXEMPTION UNDER SECTION 10A OF THE ACT WA S CLAIMED. THE AR VEHEMENTLY CONTENDED THAT THE ASSESSING OFFICER COU LD HAVE EXAMINED THE ISSUE OF USE OF NEW OR OLD ASSETS IN FIRST AY 2005- 06 BUT IN THE RELEVANT YEAR UNDER CONSIDERATION I.E. 2007-08 THIS ISSUE CANNOT BE EXAMINED BECAUSE THE FACT FINDING OF FIRST YEAR WILL BE APPLICABLE TO AL L SUBSEQUENT YEARS OF THE EXEMPTION CLAIM. THE AR SUPPORTED THE IMPUGNED ORD ER AND SUBMITTED THAT THE APPEAL OF THE REVENUE IS BASELESS WHICH IS NOT SUSTAINABLE. 8. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS AN D CONTENTIONS, AT THE OUTSET, WE OBSERVE THAT THE AUTHORITIES BELOW HAVE NOT DISPUTED THE FACT THAT THE ASSESSEE WAS APPROVED BY STPI, NOIDA ON 22.03.2 005 AND THE ASSESSEE HAD BEEN GRANTED APPROVAL TO SET UP A UNIT UNDER SO FTWARE TECHNOLOGY PARK OF INDIA (STPI). THE LOWER AUTHORITIES HAVE ALSO N OT DISPUTED THE FACT THAT THE ASSESSEE SUBMITTED A LEGAL AGREEMENT FOR EXPORT OBLIGATION VIDE LETTER DATED 21.8.2006 AND ACCEPTED TERMS AND CONDITIONS O F APPROVAL AND STPI COMMUNICATED ACCEPTANCE OF LEGAL AGREEMENT ON 01.09 .2006. THE ASSESSING OFFICER IN PARA 4.3 OF ASSESSMENT ORDER HELD THAT U NDER ABOVE FACTS, IT CANNOT BE SAID THAT THE ASSESSEE HAD COMMENCED ITS 100% EX PORT SALES PRIOR TO ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 8 ACCEPTANCE OF LEGAL AGREEMENT THAT WAS ONLY ON 01.0 9.2006. FROM THE ASSESSMENT ORDER PARA 8.2, WE OBSERVE THAT THE ASSE SSING OFFICER DENIED EXEMPTION UNDER SECTION 10A OF THE ACT. THE ASSESS EE HAS STARTED MANUFACTURE OR PRODUCTION W.E.F. AY 2005-06, THEREF ORE, IT CANNOT BE SAID THAT THE ASSESSEE IS A NEWLY ESTABLISHED UNDERTAKIN G. THEREFORE, THE ASSESSING OFFICER MENTIONED ABOUT THE REPLY OF THE ASSESSEE DATED 27.11.2009 BUT FACTS AND CONTENTS OF THIS LETTER/RE PLY HAVE NOT BEEN DEALT PROPERLY. IN PARA 8.3 AFTER REPRODUCTION OF PROVIS IONS OF SECTION 10A(2) OF THE ACT, THE ASSESSING OFFICER JUMPED TO DRAW A CON CLUSION THAT THE ASSESSEE HAS CONTINUED IN THE NEW BUSINESS WITH OLD BUSINESS AND MOST OF THE OLD ASSETS IN NEW BUSINESS OF EXPORT OF SOFTWARE. THE ASSESSING OFFICER HELD THAT THE ASSETS WHICH WERE ALREADY IN USE PRIOR TO THE PERIOD RELEVANT FOR WHICH DEDUCTION UNDER SECTION 10A WAS CLAIMED. THE ASSESSING OFFICER DENIED THE CLAIM OF THE ASSESSEE BY FURTHER HOLDING THAT THE ASSESSEE DOES NOT FULFILL CRITERION TO BE ELIGIBLE FOR DEDUCTION UNDE R SECTION 10A OF THE ACT. 9. WHILE ALLOWING FIRST APPEAL OF THE ASSESSEE, THE CIT(A) GRANTED RELIEF FOR THE ASSESSEE WITH FOLLOWING OBSERVATIONS AND FI NDINGS IN THE IMPUGNED ORDER:- 7.5 AFTER CAREFUL CONSIDERATION OF THE FACTS BROU GHT ON RECORD, THE PROVISIONS OF S.10A(2) ARE NOT APPLICAB LE AND THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10 A IN RESPECT OF PROFITS DERIVED IN THE PERIOD FROM 01.09 .2006 TO ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 9 31.03.22007 SINCE THE APPROVAL OF STPI IS AVAILABLE FROM 1.09.2006 CONSEQUENT TO THE AGREEMENT ENTERED WITH STPI ON 21.08.2006 (PAGES 119 TO 123 OF THE PAPER BOOK F ILED). 10. IN VIEW OF ABOVE, WE OBSERVE THAT THE CIT(A) HE LD THAT PROVISIONS OF SECTION 10A(2) ARE NOT APPLICABLE AND ASSESSEE IS E LIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF PROFITS DERIVED DURING THE PERIOD FROM 1.9.2006 TO 31.3.2007 SINCE APPROVAL OF STPI W AS ON 1.9.2006 CONSEQUENT TO THE AGREEMENT ENTERED WITH STPI. FRO M ASSESSMENT ORDER WE OBSERVE THAT PERHAPS THE ASSESSING OFFICER DID NOT CONSIDER THE FACT THAT THE ASSESSEE WAS GRANTED APPROVAL BY STPI ON 22.3.2005 AND THE ASSESSEE SUBMITTED AGREEMENT ON 21.8.2006 WHICH WAS AGREED A ND SIGNED BY COMPETENT AUTHORITY OF STPI ON 1.9.2006 AND THE ASS ESSING OFFICER HAS NOT DECIDED THE SUBMISSIONS AND CONTENTIONS OF THE ASSE SSEE DATED 27.11.2009 (AS REPRODUCED ABOVE IN PARA 7). FROM RELEVANT PAR T OF THE ASSESSMENT ORDER, WE ALSO OBSERVE THAT THE ASSESSING OFFICER IN PARA 8.4 HAS DRAWN A CONCLUSION WITHOUT ANY BASIS THAT THE ASSESSEE CONT INUED IN THE NEW BUSINESS WITH OLD ASSETS IN NEW BUSINESS OF EXPORT OF SOFTWA RE. THE ASSESSING OFFICER DENIED DEDUCTION UNDER SECTION 10A OF THE ACT BY HO LDING THAT THE ASSETS WHICH WERE ALREADY IN USE PRIOR TO THE PERIOD RELEV ANT FOR WHICH DEDUCTION UNDER SECTION 10A OF THE ACT WAS CLAIMED, THEREFORE , ASSESSEE DOES NOT FULFILL THE CRITERION TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 10 THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING ON THE LETTER OF ASSESSEE DATED 27.11.2009 WHICH CLEARLY STATES THAT THE MANU FACTURING OF PRODUCT SOLD BY THE ASSESSEE WAS CARRIED OUT BY PLANT AND MACHIN ERY PURCHASED BY THE ASSESSEE DURING F.Y. 2004-05 AND 2005-06 AND THE AS SESSING OFFICER HAS NOT ALSO GIVEN ANY FINDING TO THIS SUBMISSION OF THE AS SESSEE THAT UNIT OF ASSESSEE WAS FORMED WITH BRAND NEW MACHINERY AND NO OLD MACH INERY WAS PURCHASED. WE ALSO OBSERVE THAT THE ASSESSING OFFI CER HAS NOT BROUGHT ANY FACT OR FINDING ON RECORD THAT THE ASSESSEE USED AS SETS OF OLD BUSINESS IN THE NEW SET UP AND FACTS STATED IN LETTER DATED 27.11.2 009 ARE FOUND TO BE FALSE OR INCORRECT. IN THE ABSENCE OF ANY POSITIVE FINDINGS ADVERSE TO THE ASSESSEE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DENYING THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. 11. ON THE OTHER HAND, THE CIT(A) CONSIDERED THE IM PUGNED ASSESSMENT ORDER AS WELL AS SUBMISSIONS OF THE ASSESSEE AND HE LD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT SINCE THE APPROVAL OF STPI IS AVAILABLE I.E. 1.9.2006. WE ARE UNABLE TO SEE ANY AMBIGUITY OR PERVERSITY IN THE IMPUGNED ORDER OF THE CIT(A). AC CORDINGLY, SOLE GROUND OF THE REVENUE BEING DEVOID OF MERITS IS DISMISSED. ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 11 CROSS OBJECTIONS OF THE ASSESSEE 12. IN ITA NO. 114/DEL/2011 THE ASSESSEE HAS RAISED FOLLOWING CROSS OBJECTIONS:- 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN R EDUCING THE EXPORT TURNOVER BY RS.429170/- BEING THE EXPEND ITURE INCURRED BY THE ASSESSEE IN FOREIGN CURRENCY IN THE FACTS AND CIRCUMSTANCES OF THE CASE PARTICULARLY WHEN THE EXPENDITURE WAS NOT INCURRED IN PROVIDING THE TECHN ICAL SERVICE OUTSIDE INDIA. 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF THE ASSESSING OFFICER IN REDUCING THE EXPORT TURNOVER BY RS.429170/- BEING THE EXPENDITURE INCUR RED BY THE ASSESSEE IN FOREIGN CURRENCY WHILE THE EXPORT T URNOVER CLAIMED BY THE ASSESSEE WAS NOT INCLUSIVE OF ANY IT EMS MENTIONED IN EXPLANATION 2(IV) OF SECTION 10A. THE ASSESSEE RECEIVED FOREIGN EXCHANGE IN ACCORDANCE WITH SUB-SE CTION 3 OF SECTION 10A. 3. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF THE ASSESSING OFFICER IN REDUCING THE EXPORT TURNOVER BY RS.494053/- BEING THE AMOUNT OF FOREIGN EXCHANGE FLUCTUATION IN THE FACTS AND CIRCUMSTANCES OF THE CASE PARTICULARLY WHEN THE FULL AMOUNT OF FOREIGN C URRENCY AS MENTIONED IN THE INVOICE WAS RECEIVED BY THE ASS ESSEE. 13. APROPOS CROSS OBJECTIONS NO. 1 AND 2, LD. AR SU BMITTED THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE FINDINGS OF THE ASSESSING OFFICER IN REDUCING THE EXPORT TURNOVER BY RS.42917 0/- BEING THE EXPENDITURE INCURRED BY THE ASSESSEE IN FOREIGN CUR RENCY, PARTICULARLY WHEN THE EXPENDITURE WAS NOT INCURRED IN PROVIDING TECHN ICAL SERVICE OUTSIDE ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 12 INDIA. THE AR FURTHER POINTED OUT THAT THE ASSESSI NG OFFICER WRONGLY REDUCED THE EXPORT TURNOVER BEING THE EXPENDITURE I NCURRED BY THE ASSESSEE IN FOREIGN CURRENCY WHILE THE EXPORT TURNOVER CLAIM ED BY THE ASSESSEE WAS NOT INCLUSIVE OF ANY ITEMS AS STIPULATED IN EXPLANA TION 2(IV) OF SECTION 10A OF THE ACT. THE AR FURTHER POINTED OUT THAT THE AS SESSEE RECEIVED FOREIGN EXCHANGE IN ACCORDANCE WITH SUB-SECTION 3 OF SECTIO N 10A, THEREFORE, EXPORT TURNOVER DECLARED BY THE ASSESSEE CANNOT BE REDUCED BY THE AMOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE IN FOREIGN CUR RENCY OUT OF SALE PROCEEDS RECEIVED ABROAD IN FOREIGN CURRENCY. THE AR HAS DR AWN OUR ATTENTION TOWARDS DECISION OF HONBLE SUPREME COURT IN THE CASE OF J.B. BODA AND COMPANY PVT. LTD. VS CBDT(S.C.) AND DECISION OF ITAT CHENNAI C SPECIAL BENCH IN THE CASE OF ZYLOG SYSTEMS LTD. VS ITO (2011) 135 TTJ (CHENNAI)(SB) 129. LD. DR HAS DRAWN OUR ATTENTION TOWARDS EXPLANATIO N 2(IV) OF SECTION 10A OF THE ACT AND SUBMITTED THAT FROM THE NOTES OF ACCOUNTS, IT WAS OBSERVED THAT THE ASSESSEE INCURR ED EXPENSES IN FOREIGN CURRENCY ABROAD ON WEB AND SOFTWARE SERVICES OF RS. 2,53,353/-, REALIZATION CHARGES PAID TO M/S PAYPAL WHICH ACTS AS COLLECTION AND REMITTANCE AGENCY AMOUNTING TO RS.1,45,082/- AND SOFTWARE EXPENSES AM OUNTING TO RS.31,735/- WHICH COULD NOT BE INCLUDED IN THE EXPORT TURNOVER AS EXPENSE TO THE EXTENT WHICH WERE INCURRED IN FOREIGN CURRENCY. ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 13 14. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISS IONS, WE OBSERVE THAT THE SPECIAL BENCH, ITAT, CHENNAI IN THE CASE OF ZYL OG SYSTEMS LTD. VS ITO (SUPRA) FOLLOWING THE DECISION OF HONBLE APEX COUR T IN THE CASE OF J.B. BODA & CO. PVT. LTD. VS CBDT (SUPRA) HELD AS UNDER:- 27 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERED THE FACTS AND MATERIALS ON RECORD. THE L D. CIT(A) WHILE ALLOWING THE ASSESSEE'S CLAIM IN RESPE CT OF THIS ISSUE, HAS OBSERVED AS UNDER: '2.2 I HAVE CAREFULLY PERUSED THE FACTS AND EXAMINE D ALL THE SUBMISSIONS OF THE APPELLANT ON THIS ISSUE. I A M OF THE CONSIDERED VIEW THAT ONE LIMB OF THE GOVERNMENT CAN NOT BE ALLOWED TO DEFEAT THE OPERATIONS OF THE OTHER LI MB. SECTION 10B OF THE ACT REQUIRES THAT FOREIGN EXCHAN GE IN LIEU OF THE EXPORTS SHOULD BE BROUGHT TO INDIA WITH IN THE PRESCRIBED TIME. HOWEVER, THE RBI ALLOWS THE ASSESS EE TO RETAIN THE SAID FOREIGN EXCHANGE IN FOREIGN COUNTRI ES FOR THE SPECIFIC PURPOSES AND DUE APPROVAL IS ALSO GRAN TED FOR THAT PURPOSE. THE RBI AND FEMA ALSO MONITOR THE UTILIZATION OF SUCH FOREIGN EXCHANGE AND THE ASSESS EES ARE REQUIRED TO FILE PERIODIC REPORTS TO THOSE AUTHORIT IES. IN SUCH SITUATION, THE CIRCULARS OF THE RBI ALLOWING I TS RETENTION, UTILIZATION OR CAPITALIZATION ABROAD CAN NOT BE IGNORED. THIS BECOMES MORE IMPORTANT WHEN PROVISION S OF SECTION 10B(3) ARE CONSIDERED WHICH PROVIDE THAT TH E SALE PROCEEDS OF THE ARTICLES OR COMPUTER SOFTWARE EXPOR TED OUT OF INDIA ARE REQUIRED TO BE BROUGHT IN INDIA IN CON VERTIBLE FOREIGN EXCHANGE WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR WITHIN SUCH FURTHER TIM E AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. EXPL ANATION (1) TO SECTION 10B PRESCRIBES THE COMPETENT AUTHORI TY TO BE THE RBI OR ANY OTHER AUTHORITY AS AUTHORIZED UNDER ANY LAW ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 14 FOR THE TIME BEING IN FORCE FOR REGULATING PAYMENTS AND DEALING IN FOREIGN EX CHANGE. IN THE PRESENT CASE, THE COMPETENT AUTHORITY INVOLVED IS RBI UNDER WHOSE SCH EMES AND CIRCULARS THE APPELLANT HAS CAPITALIZED THE FOR EIGN EXCHANGE EARNING AND INVESTED THE SAME IN APPROVED JOINT VENTURES IN USA. THEREFORE, THE SAID REINVESTMENT O F EXPORT EARNING IS DEEMED TO HAVE BEEN RECEIVED IN INDIA. I N OTHER WORDS, IT IS JUST LIKE BRINGING THE FOREIGN EXCHANG E IN INDIA AND THEREAFTER REMITTING THE SAME ABROAD FOR INVEST MENT IN THE JOINT VENTURE. THE HON'BLE SUPREME COURT IN THE CASE OF J.B. BODA & CO (SUPRA) WHILE DECIDING SIMILAR IS SUE RELATING TO DEDUCTION U/S 80-O HAD HELD THAT 'TWO W AY TRAFFIC OF RECEIVING FOREIGN EXCHANGE HERE AND SEND ING IT BACK IS A RITUAL WHICH IS UNNECESSARY'. THE HON'BLE COURT HAD RELIED ON THE BOARD'S CIRCULAR NO.731 DATED 20.12.2005, 217 ITR (ST) 5 TO DECIDE THIS MATTER IN FAVOUR OF THE ASSESSEE. 2.3 KEEPING IN VIEW THE DISCUSSIONS HELD ABOVE, I A M OF THE CONSIDERED VIEW THAT ASSESSING OFFICER WAS NOT JUST IFIED IN EXCLUDING A PART TO THE EXPORT PROCEEDS RETAINED B Y THE APPELLANT ABROAD IN ACCORDANCE WITH THE RBI GUIDELI NES WHILE COMPUTING DEDUCTION U/S 10B OF THE ACT. THE S AID EXPENSES HAVE BEEN INCURRED B Y THE APPELLANT FOR T HE ON- SITE DEVELOPMENT OF PRODUCTS ABROAD THROUGH ITS BRA NCH OFFICE AND THE UTILIZATION OF THE SAID PROCEEDS B Y THE APPELLANT ABROAD FOR SPECIFIC EXPENSES RELATED TO E XPORTS HAVE NOT BEEN DOUBTED BY THE ASSESSING OFFICER. THE APPELLANT IS REQUIRED TO FILE PERIODIC REPORTS TO T HE RBI REGARDING THE EXPORTS AND THE UTILIZATION OF THE FO REIGN EXCHANGE IN ACCORDANCE WITH THE GUIDELINES ISSUED B Y THE RBI. NO SPECIFIC INSTANCE HAVE BEEN BROUGHT ON RECO RD B Y THE ASSESSING OFFICER TO PROVE THAT THE SAID FOREIG N EXCHANGE HAD NOT BEEN REALIZED BY THE APPELLANT WIT HIN THE DUE DATE ABROAD FROM THE CONTRACTING PARTIES. ONCE THE APPELLANT RECEIVES THE EXPORT PROCEEDS IN FOREIGN E XCHANGE ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 15 ABROAD WITHIN DUE DATES AND THE SAME ARE UTILIZED B Y THE APPELLANT FOR THE PURPOSE OF ITS OWN BUSINESS THROU GH ITS BRANCH OFFICE ABROAD, THE SAID SALE PROCEEDS ARE RE QUIRED TO BE CONSIDERED AS DEEMED RECEIPTS IN INDIA. I AM OF THE VIEW THAT THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF J.B. BODA & CO (SUPRA) AND THE BOARD'S CIRC ULAR NO. 731 IS DIRECTLY APPLICABLE IN FAVOUR OF THE APP ELLANT. ALTHOUGH THE SAID DECISION AND CIRCULAR IS WITH REF ERENCE TO SEC 80-O BUT THE RATIO AND THE REASONING IS APPL ICABLE FOR THE PURPOSE OF DECIDING THIS ISSUE U/S 10B ALSO . IN VIEW OF THE ABOVE, THE ASSESSING OFFICER IS DIRECTED TO INCLUDE THE EXPORT PROCEEDS OF RS. 15,14,20,226/- RETAINED B Y THE APPELLANT ABROAD IN ACCORDANCE WITH RBI GUIDELINES WHILE COMPUTING DEDUCTION U/S 10B OF THE ACT. THIS GROUND OF APPEAL IS ALLOWED.' AS SUCH WE CONCUR WITH THE LD. CIT(A) FOR THE REASO NS RECORDED BY HIM AS ABOVE AND DISMISS THE REVENUE'S APPEAL. WE ARE ALSO OF THE OPINION THAT THE DECISIO N OF THE HON'BLE SUPREME COURT IN THE CASE OF J.B. BODA & CO . PVT LTD V. CBDT, 223 ITR 271 (S.C) WOULD APPLY TO THIS CASE ALSO EVEN THOUGH THE PRESENT CASE IS ON SEC 10B OF IT ACT. 15. IN VIEW OF ABOVE, IT HAS BEEN HELD THAT WHEN NO SPECIFIC INSTANCE HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO PROVE THAT THE SAID FOREIGN EXCHANGE HAD NOT BEEN REALIZED BY THE ASSES SEE WITHIN DUE DATE ABROAD FROM THE CONTRACTING PARTIES. THE SPECIAL B ENCH FURTHER HELD THAT ONCE THE ASSESSEE RECEIVES THE EXPORT PROCEEDS IN F OREIGN EXCHANGE ABROAD WITHIN THE DUE DATE AND THE SAME ARE UTILIZED BY TH E ASSESSEE FOR THE PURPOSE OF ITS OWN BUSINESS THROUGH ITS BRANCH OFFICE ABROA D, THE SAID SALE PROCEEDS ARE REQUIRED TO BE CONSIDERED AS DEEMED RECEIPTS IN INDIA. ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 16 16. IN THE PRESENT CASE, THE ASSESSEE HAS MET SOFTW ARE EXPENSES, REALIZATION CHARGES AND EXPENSES AND SOFTWARE EXPEN SES OUT OF COLLECTION OF EXPORT PROCEEDS AND REMAINING AMOUNT WAS REMITTED T O THE ASSESSEE COMPANY. WE ALSO OBSERVE THAT THE ASSESSING OFFICE R HAS NOT DISPUTED THIS FACT THAT THE EXPORT PROCEED WAS RECEIVED IN FOREIG N EXCHANGE AND EXPENSES WERE ALSO MADE IN FOREIGN EXCHANGE OUT OF SALE PROC EEDS. THE ASSESSEE HAS NOT PROVIDED ANY TECHNICAL SERVICES OUTSIDE INDIA A ND IN THIS SITUATION, DECISION OF ZYLOG SYSTEMS LTD. VS ITO ENLIGHTEN US WHEREIN THE HONBLE SPECIAL BENCH HELD THAT WHEN THE ASSESSEE RECEIVES EXPORT PROCEEDS FOREIGN EXCHANGE ABROAD WITH DUE DATE AND THE SAME ARE UTIL IZED BY THE ASSESSEE FOR THE PURPOSE OF ITS OWN BUSINESS THROUGH ITS BRANCH OFFICE ABROAD, THEN THE SAID SALE PROCEEDS ARE REQUIRED TO BE CONSIDERED AS DEEMED RECEIPTS IN INDIA WHICH CANNOT BE REDUCED FROM THE EXPORT TURNOVER OF THE ASSESSEE BY TAKING AID OF EXPLANATION 2(IV) OF SECTION 10A OF THE ACT. ACCORDINGLY, C.O.NO.1 & 2 OF THE ASSESSEE ARE ALLOWED. C.O. NO. 3 17. APROPOS C.O. NO. 3, LD. AR SUBMITTED THAT THE A SSESSEE CLAIMED LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION OF RS.3, 66,777/- IN ITS P&L ACCOUNT MEANING THEREBY THAT THE FOREIGN REMITTANCE IS IN FOREIGN EXCHANGE CORRESPONDING TO INDIAN RUPEES WERE NOT RECEIVED IN CONVERTIBLE FOREIGN ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 17 EXCHANGE. THE AR FURTHER SUBMITTED THAT THE ASSESS ING OFFICER WRONGLY REDUCED THE EXPORT TURNOVER OF RS.94,053/- BEING TH E AMOUNT OF FOREIGN EXCHANGE FLUCTUATION, PARTICULARLY WHEN THE FULL AM OUNT OF FOREIGN CURRENCY AS MENTIONED IN THE INVOICE WAS RECEIVED BY THE ASS ESSEE. THE LD. AR VEHEMENTLY CONTENDED THAT THE CIT(A) SIMPLY PICKED UP AN AMOUNT OF FOREIGN EXCHANGE LOSS DEBITED TO P&L ACCOUNT OF THE ASSESSEE WHICH CANNOT BE INCLUDED IN THE EXCHANGE TURNOVER. 18. REPLYING TO THE ABOVE, THE DR SUBMITTED THAT TH E ASSESSING OFFICER WAS JUSTIFIED IN COMING TO THE CONCLUSION THAT THE LOSS ON ACCOUNT OF FOREIGN EXCHANGE FURNISHED WAS TO BE REDUCED FROM EXPORT TU RNOVER. THE DR FURTHER CONTENDED THAT THE COMMISSIONER OF INCOME TAX(A) WA S JUSTIFIED AND REASONABLE WHILE GRANTING PART RELIEF TO THE ASSESS EE AND ACCEPTING THE AMOUNT OF FOREIGN EXCHANGE LOSSES DEBITED TO THE P& L ACCOUNT OF THE ASSESSEE AND BY REDUCING THE DEDUCTION TO RS.94,053 /-. THE DR PLACED RELIANCE ON THE DECISIONS OF ITAT MUMBAI SPECIAL BENCH IN THE CASE OF ACIT VS PRAKASH L. SAHA 115 ITD 167 (MUMBAI) (SB) AND DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX, PATIALA VS ROADMASTER INDUSTRIES OF IND IA DTL ONLINE 48 (P&H). ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 18 19. ON CAREFUL CONSIDERATION OF ABOVE CONTENTIONS A ND SUBMISSIONS, WE ARE OF THE CONSIDERED VIEW THAT THE RATIO LAID DOWN BY THE SPECIAL BENCH OF ITAT, MUMBAI IN THE CASE OF ACIT VS PRAKASH L. SAHA (SUPRA) CLARIFIES THAT THE FOREIGN EXCHANGE FLUCTUATION GAIN/LOSS IN RESPE CT OF SALE PROCEEDS ON ACCOUNT OF EXPORT WHICH IS RELATED TO SALES IS TO B E EITHER INCLUDIBLE OR EXCLUDIBLE IN THE EXPORT TURNOVER OF THE ASSESSEE. WHILE THE ASSESSEE HIMSELF DEBITED AN AMOUNT OF RS.94,053/- TO ITS P&L ACCOUNT AS FOREIGN EXCHANGE FLUCTUATION LOSS WHICH WAS RELATED TO EXPORT SALES, THEN CERTAINLY IT WAS EXCLUDIBLE OR REDUCIBLE FROM THE EXPORT TURNOVER. ACCORDINGLY, WE ARE INCLINED TO HOLD THAT THE AUTHORITIES BELOW DECIDED THE ISSUE AGAINST THE ASSESSEE ON PROPER AND JUSTIFIED REASONING. WE ARE UNABLE TO SEE ANY INFIRMITY OR PERVERSITY IN THE IMPUGNED ORDER, THER EFORE, C.O.NO. 3 OF THE ASSESSEE IS DISMISSED. 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND C.O. OF THE ASSESSEE STANDS PARTLY ALLOWED IN THE MANNER AS IND ICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 16/05/2014. SD/- SD/- (B.C. MEENA) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 16 TH MAY 2014 GS ITA NO.4185/DEL/2011 & CO 114/D/2011 ASSTT.YEAR: 2007-08 19 COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR