Renault Technology & Business Centre India Pvt,. Ltd., Kancheepuram V. DCIT, CHENNAI

CO 138/CHNY/2016

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3405 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 24-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 16-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAILENDRA MAMIDI PR
• Assessee Lawyers: SRIRAM SESHADRI CA ITA NOS MD
• Keywords: Business expenditure; Services rendered outside India; Revenue expenditure; Capital expenditure
• Section: 10AA; 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NOS. 2260 & 3418/MDS/2016 / ASSESSMENT YEARS : 2010-11 & 2011-12 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -5(1), CHENNAI 34. VS. M/S. RENAULT NISSAN TECHNOLOGY & BUSINESS CENTRE INDIA (P) LTD., ASCENDS MAHINDRA IT PARK, NATHAM SUB POST OFFICE, MAHINDRA WORLD CITY, KANCHIPURAM DISTRICT, TAMIL NADU 603 002. [PAN: AADCR 7253E] ( / APPELLANT) / RESPONDENT) /. I.T.A. NOS. 2500 & 3464/MDS/2016 / ASSESSMENT YEARS : 2010-11 & 2011-12 & CO 138 OF 2016 AGAINST THE ORDER IN ITA NO. 2260 /M DS/2016. M/S. RENAULT NISSAN TECHNOLOGY & BUSINESS CENTRE INDIA (P) LTD., ASCENDS MAHINDRA IT PARK, NATHAM SUB POST OFFICE, MAHINDRA WORLD CITY, KANCHIPURAM DISTRICT, TAMIL NADU 603 002. [PAN: AADCR 7253E] VS . DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -5(1), CHENNAI 34. ( / APPELLANT) ( / RESPONDENT) REVENUE BY : SHRI. SAILENDRA MAMIDI, PR. CIT ASSESSEE BY : SHRI. SRIRAM SESHADRI, CA :-2-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 * /DATE OF HEARING : 27.10.2017 * /DATE OF PRONOUNCEMENT : 24.01.2018 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THESE APPEALS IN ITA NOS. 2260 & 3418 /MDS/2016 AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TA X (APPEALS)- 3, CHENNAI IN ITA NOS. 04/2014-15/CIT(A)-3 & 59 /2015-16/ CIT( A)-3 DATED 28.03.2016 & 28.09.2016 FOR ASSESSMENT YEARS 2010-11 & 2011-12 , RESPECTIVELY. THE ASSESSEE FILED CROSS APPEALS AGAINST THEM IN ITA NOS. 2500 & 3464/MDS/2016, RESPECTIVELY. FURTHER, THE ASSESSEE FILED A CROSS OBJECTION IN CO 138 OF 2016 AGAINST THE ORDER IN ITA NOS. 2260 / MDS/2016. 2. M/S RENAULT NISSAN TECHNOLOGY & BUSINESS CENTRE INDIA PRIVATE LIMITED, THE ASSESSEE, IS ENGAGED IN THE BUSINESS OF RENDER ING ENGINEERING DESIGN SERVICES, SOFTWARE SERVICES, SOURCING SUPPORT SERVI CES, BACK OFFICE ACCOUNTING AND CONTRACT R & D SERVICES REQUIRED FOR RENAULT A ND NISSAN GROUP COMPANIES, SPREAD ACROSS THE GLOBE. IN THE ASSESSM ENT MADE FOR ASSESSMENT YEAR 2010-11, FOR THE PURPOSES OF COMPUTING DEDUCTI ON U/S. 10AA , THE A O EXCLUDED THE EXPENDITURE INCURRED IN FOREIGN CURREN CY ON COMMUNICATION AND INSURANCE EXPENSES FROM EXPORT TURNOVER ALONE AND N OT FROM THE TOTAL TURNOVER. FURTHER, HE HAS EXCLUDED THE EOU TURNOVE R ALONE FROM THE EXPORT :-3-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 TURNOVER. THE ASSESSE TREATED THE PROVISIONS NO LONGER REQUIRED AND OTHER INCOME AT RS. 77,56,520/- & RS. 98,956/-, RESPECTIV ELY , AS INCOME FROM BUSINESS FOR THE PURPOSE OF COMPUTATION OF DEDUCTIO N U/S. 10AA. THE AO EXCLUDED THEM. THE ASSESSEE , OUT OF THE ADVANCE P AID BY IT AT RS. 14,47,57,200/- TO VELANKANNI INFORMATION SYSTEMS PRIVATE LIMITED (VISPL) TO DEVELOP FACTORIES SPACES FOR MANUFACTURING INDUS TRY INCLUDING ENGINEERING DESIGN STUDIO AND ENGINEERING WORKSHOP FACILITY, R& D FACILITY AND SOFTWARE DEVELOPMENT LAB FOR IT, CLAIMED RS. 4,10,97,345/-, THE IRRECOVERABLE AMOUNT AS A DEDUCTION. THE A O HELD THAT IT IS AN INVESTM ENT MADE TO START A NEW BUSINESS , SO IT IS A CAPITAL LOSS AND HENCE DISAL LOWED IT HOLDING THAT IT IS NOT DEDUCTIBLE. 3. IN THE ASSESSMENT MADE FOR ASSESSMENT YEAR 2011- 12 ALSO, THE AO EXCLUDED THE EXPENDITURE INCURRED IN FOREIGN CURR ENCY ON COMMUNICATION AND INSURANCE EXPENSES FROM THE EXPORT TURNOVER ALONE AND NOT FROM THE TOTAL TURNOVER. FURTHER, HE HAS EXCLUDED THE EOU TURNOVER ALONE FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF D EDUCTION U/S. 10AA. AGGRIEVED, THE ASSESSE FILED APPEALS BEFORE THE CIT(A)-3 CHENNAI. IN THE ORDER PASSED IN ITA NO 04/2014-15/CIT(A)-3 DATED 28 .03.2016 FOR ASSESSMENT YEAR 2010-11, THE CIT(A) DIRECTED THE AO NOT TO EXCLUDE TELECOMMUNICATION CHARGES AND INSURANCE COST FROM THE EXPORT TURNOVER AS THEY WERE INCURRED IN INDIAN RUPEES AND NOT IN FOR EIGN CURRENCY. IN RESPECT OF :-4-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 ALL OTHER ADDITIONS, THE CIT (A) DISMISSED THE AS SESSEES APPEALS. THE CIT (A) FOLLOWED THE SAME DECISION AGAINST THE ASSESS EES APPEAL FOR ASSESSMENT YEAR 2011-12 IN HIS ORDER ITA NO. 59/2 015-16/CIT(A) DATED 28.09.2016. AGGRIEVED AGAINST SUCH DECISIONS, TH E REVENUE FILED THESE APPEALS AND THE ASSESSEE FILED THE ABOVE C ROSS APPEALS, BOTH OF THEM, FOR THE ASSESSMENT YEARS 2010-11 & 2011-12. 4. FOR CONVENIENCE SAKE, LET US FIRST TAKE THE ASSESSEES APPEAL. IN RESPECT OF EXCLUSION OF EXPENDITURE INCURRED IN FOR EIGN CURRENCY FROM THE EXPORT TURNOVER, THE ASSESSEE RAISED COMMON G ROUNDS FOR BOTH AYS AND HENCE ITS GROUNDS FOR AY 2010-11 IS EXTRACTED AS UNDER : 1. THE ORDER OF THE LD. AO AND THE LD. CIT(A) , TO THE EXTENT PREJUDICIAL TO THE APPELLANT, ARE CONTRARY TO LAW, FACTS, AND CIRCUMST ANCES OF THE CASE. 2. EXCLUSION OF EXPENDITURE INCURRED IN FOREIGN CUR RENCY FROM THE EXPORT TURNOVER 2.1. THE LD. CIT(A) AND THE LD. AO ERRED IN EXCLUDI NG EXPENSES INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER FOR THE PURPO SE OF COMPUTATION OF DEDUCTION UNDER SECTION 10AA OF THE ACT BY ERRONEOU SLY HOLDING THAT IT IS INCURRED FOR RENDERING SERVICES OUTSIDE INDIA. 2.2. THE LD. CIT(A) AND THE LD. AO FAILED TO CONSID ER THE FAVORABLE DECISION OF DRP ON THE IDENTICAL ISSUE IN APPELLANT'S OWN CASE FOR THE EARLIER AY 2009-10, BY FACTUALLY DISTINGUISHING IT ON SOME FRIVOLOUS GR OUNDS. 2.3. THE LD. CIT(A) AND THE LD. AO HAVE FAILED TO A PPRECIATE THAT THE EXPORT TURNOVER EARNED BY THE APPELLANT DOES NOT INCLUDE A NY RECEIPTS SEPARATELY RECOVERED TOWARDS EXPENDITURE INCURRED IN FOREIGN C URRENCY FOR RENDERING SERVICES OUTSIDE INDIA. :-5-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 2.4. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) AND THE LD. AO HAVE ERRED IN LAW AND FACTS IN EXCLUDING THE ABOVE EXPENSES ON LY FROM THE EXPORT TURNOVER WITHOUT EXCLUDING THE SAME FROM THE TOTAL TURNOVER FOR THE COMPUTATION OF DEDUCTION UNDER SECTION 10AA OF THE ACT. 4.1 THE A R SUBMITTED THAT THE ASSESSEE HAD INCUR RED TRAVEL EXPENSES , IT & TECHNICAL SUPPORT SERVICES, PROFES SIONAL & CONSULTANCY FEES, REIMBURSEMENT OF RENAULT GLOBAL MANAGEMENT AN D REIMBURSEMENT TO NISSAN MOTOR CO. LTD IN FOREIGN CU RRENCY. WHILE DETERMINING THE DEDUCTION UNDER SECTION 10AA, IT DI D NOT REDUCE THESE EXPENDITURES FROM THE EXPORT TURNOVER AS THEY WERE NOT INCURRED FOR RENDERING ANY SERVICES OUTSIDE INDIA AND THEY REPR ESENTED EXPENDITURE INCURRED BY THE ASSESSE FOR AVAILING CERTAIN SERVI CES FROM ITS GROUP CONCERN AND THE CROSS CHARGE OF EXPENDITURE INCURRE D BY THE GROUP COMPANIES ON BEHALF OF IT. THE AO EXCLUDED TH E ABOVE EXPENDITURES FROM THE EXPORT TURNOVER FOR THE PURPO SE OF COMPUTING DEDUCTION UNDER SECTION 10AA BY PLACING RELIANCE ON THE DEFINITION OF 'EXPORT TURNOVER'. THE AO HAS ALSO DECLINED THE ASSESSEE'S ALTERNATE PLEA OF REDUCING THE SAID EXPENDITURES FROM TOTAL T URNOVER BASED ON THE PARITY PRINCIPLE . THE CIT (A) UPHELD THE ABOVE EX CLUSION STATING THAT THE DEDUCTION UNDER SECTION 10AA WAS PROVIDED WIT H AN INTENTION TO BRING IN MORE CONVERTIBLE FOREIGN EXCHANGE IN TO TH E COUNTRY AND HENCE, PLACING RELIANCE ON THE DEFINITION OF EXPORT TURNOV ER, THE CIT (A) HELD THAT ANY EXPENDITURE INCURRED IN FOREIGN CURRENCY , APART FROM FREIGHT, :-6-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 INSURANCE , TELECOMMUNICATION CHARGES , OUGHT TO BE EXCLUDED FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 10AA . THE AR SUBMITTED THAT THE LD. CIT(A) AND THE LD. AO FAILED TO CONSID ER THE FAVORABLE DECISION OF THE DRP ON THE IDENTICAL ISSUE IN APPEL LANT'S OWN CASE FOR THE EARLIER AY 2009-10, BY FACTUALLY DISTINGUISHING IT ON SOME FRIVOLOUS GROUNDS. IN THE FACTS AND CIRCUMSTANCES, LET US EXA MINE HOW THE DRP DECIDED THE MATTER IN THE EARLIER YEAR IN ITS DIREC TIONS U/S 144C (5) RW 144C (8) DT 20.12.2013 , BY EXTRACTING THE RELEVANT PORTION AS UNDER: DIRECTION SOUGHT BY THE ASSESSEE: IN THE LIGHT OF THE ABOVE JUDICIAL PRECEDENTS AND I NTERPRETATION OF LAW, THE ASSESSEE PLEADS THAT NECESSARY DIRECTION MAY BE GIV EN TO THE ASSESSING OFFICER TO DELETE THE EXCLUSION OF THE FOREIGN EXCHANGE EXP ENDITURE OF RS. 261,572,828 FROM THE EXPORT TURNOVER OF THE BUSINESS AND THE DE DUCTION UNDER SECTION 10AA BE RECOMPUTED ACCORDINGLY. DIRECTION OF THIS PANEL: EXPLANATION 1(I) TO SECTION 10AA DEFINES THE TERM EXPORT TURNOVER AS CONSIDERATION IN RESPECT OF EXPORT RECEIVED IN OR B ROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE BUT DOES N OT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE IND IA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN RENDERING OF SERVIC ES (INCLUDING COMPUTER SOFTWARE) OUTSIDE INDIA. THIS PANEL, THEREFORE CON SIDERS IT NECESSARY THAT ANY EXPENSE INCURRED IN FOREIGN EXCHANGE BY THE ASSESSE E SHOULD BE IN RESPECT OF SERVICES OUTSIDE INDIA. THEREFORE, WHAT IS PERTINE NT TO DECIDE IN THIS REGARD IS AS TO WHETHER THE EXPENSES INCURRED BY THE ASSESSEE IN FOREIGN CURRENCY ARE IN RESPECT TO RENDERING OF SERVICES OUTSIDE INDIA. SE EN FROM THIS PERSPECTIVE, THIS PANEL FINDS THAT FOLLOWING EXPENSES INCURRED BY THE ASSESSEE ARE NOT IN RESPECT TO SERVICES RENDERED BY THE ASSESSEE OUTSIDE INDIA. :-7-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 4. TRAVEL EXPENSES THE TRAVEL EXPENSE PERTAINS TO ADVANCE GIVEN FOR T RAVEL AND STAY EXPENSES OF THESE EMPLOYEES. THE EMPLOYEES ARE SEN T TO FRANCE FOR TRAINING PURPOSES AND ALSO FOR BUSINESS VISITS. 5. IT & TECHNICAL SUPPORT SERVICES RENAULT SAS FRANCE HAS INCURRED CERTAIN COST PERTA INING TO ALCOR IMPLEMENTATION ON BEHALF OF THE ASSESSEE. THE COST INCURRED BY RENAULT SAS FRANCE IS SUBSEQUENTLY REIMBURSED BY THE ASSESSEE O N COST TO COST BASIS. 6. REIMBURSEMENT TO RGM AND NML/ PROFESSIONAL AND C ONSULTATION FEES RGM AND NML HAD DEPUTED ITS EMPLOYEES IN INDIA. T HE SOCIAL SECURITY CONTRIBUTION OF THESE EXPATRIATES, DURING THEIR TEN URE IN INDIA, WAS PAID BY RGM AND NML IN THE RESPECTIVE HOME COUNTRIES. AN AMOUNT OF RS. 6,98,81,671 AND RS. 2,96,35,976 W AS PAID AS SOCIAL SECURITY CHARGES BY RGM AND NML RESPECTIVELY. THES E AMOUNTS WERE LATER RECOVERED FROM THE ASSESSEE BY RGM AND NML ON A COS T TO COST BASIS. THEREFORE THIS PANEL CONCLUDES THAT ABOVE MENTIONE D EXPENSES THE ASSESSEE HAS INCURRED EITHER TO REIMBURSEMENT ITS A ES OR AS ADVANCE TO ITS EMPLOYEES TOWARDS TRAVEL EXPENSES CANNOT BE EXCLUDE D FROM EXPORT TURNOVER. THEREFORE THE AO IS DIRECTED TO DELETE THE EXCLUSIO N OF FOLLOWING FOREIGN EXCHANGE EXPENDITURE FROM THE EXPORT TURNOVER OF TH E BUSINESS AND THE DEDUCTION UNDER SECTION 10AA BE RECOMPUTED ACCORDIN GLY. PARTICULARS AMOUNT (INR) TRAVEL EXPENSES 41,199,254 IT & TECHNICAL SUPPORT SERVICES 115,521,782 REIMBURSEMENT TO RENAULT GLOBAL MANAGEMENT 69,851,671 REIMBURSEMENT TO NISSAN MOTOR COMPANY LTD 29,635,976 :-8-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 FROM THE ABOVE, IT IS CLEAR THAT ALTHOUGH THE DRP D ECIDED THIS ISSUE ELABORATELY IN THE IMMEDIATE EARLIER AY AND ALLOW ED IN FAVOUR OF THE ASSESSEE, NEITHER THE AO NOR THE CIT(A) HAS EXAMIN ED THIS ISSUE AS IS REQUIRED FOR THESE A YS AND HENCE WE DEEM IT FIT TO RESTORE THIS ISSUE BACK TO THE AO FOR A FRESH EXAMINATION. AFTER AFFORDING AD EQUATE OPPORTUNITY TO THE ASSESSEE, THE AO SHALL PASS APPROPRIATE ORDERS. T HE CORRESPONDING APPEAL GROUNDS ARE TREATED AS ALLOWED FOR BOTH THE AYS. 5. THE NEXT ISSUE IS EXCLUSION OF 'PROVISION NO LON GER REQUIRED WRITTEN BACK AND OTHER INCOME' FROM COMPUTATION OF PROFITS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 1 0AA : 5.1 DURING THE AY 2010-11, THE ASSESSEE HAD TREA TED PROVISIONS NO LONGER REQUIRED WRITTEN BACK & OTHER INCOME ATTRIBUTABLE T O EXCESS INSURANCE PREMIUM RECEIVED AT INR 77,56,520 & INR 98,956 , R ESPECTIVELY , AS INCOME FROM BUSINESS FOR THE PURPOSE OF COMPUTATION OF DED UCTION UNDER SECTION 10AA . THE AO EXCLUDED THEM FROM THE 'PROFITS OF T HE BUSINESS' FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 1 0AA BY STATING THAT THE DEDUCTION UNDER SECTION 10AA IS AVAILABLE ONLY FOR THE PROFITS 'DERIVED' BY THE ELIGIBLE UNDERTAKING, WHICH IS A NARROWER TERM AND THE SAID INCOME WOULD NOT FALL WITHIN THE SAID TERM. BEFORE THE CIT (A), THE ASSESSEE PLEADED THAT IT HAS INADVERTENTLY CONSIDERED THE EXPORT TURNOVER AND TO TAL TURNOVER WITHOUT :-9-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 INCLUDING THESE SUMS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10AA AND HENCE PLEADED THE CIT(A) TO DIRECT THE AO TO INCLUDE THEM IN THE EXPORT TURNOVER AND TOTAL TURNOVER FOR THE P URPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10AA AS THEY WERE PART AND PARCEL OF THE BUSINESS UNDERTAKING. HOWEVER, THE CIT (A) UPHELD THE ACTION OF THE A O STATING THAT PROVISION WRITTEN BACK AND OTHER INCOME DOES NOT YI ELD ANY FOREIGN EXCHANGE AND HENCE WOULD NOT BE CONSIDERED FOR CLAIMING DEDU CTION UNDER SECTION 10AA. IN THIS REGARD, THE ASSESSEES GROUNDS ARE AS UNDER : 3. EXCLUSION OF 'PROVISION NO LONGER REQUIRED WRIT TEN BACK AND OTHER INCOME' FROM COMPUTATION OF PROFITS FOR THE PURPOSE OF COMP UTATION OF DEDUCTION UNDER SECTION 10AA 3.1. THE LD. CIT(A) AND THE LD. AO ERRED IN EXCLUDI NG PROVISIONS NO LONGER REQUIRED WRITTEN BACK AND OTHER INCOME FROM PROFITS FOE COMPUTATION DEDUCTION UNDER SECTION 10AA BY ERRONEOUSLY CONCLUD ING THE SAME ARE NOT PROFITS DERIVED BY THE ELIGIBLE UNDERTAKING 3.2. THE LD. CIT(A) ERRED IN CONFIRMING THE LD. AO' S ORDER FOR EXCLUDING THE PROVISIONS WHICH HAD BEEN WRITTEN BACK FROM THE 'PR OFITS OF THE BUSINESS' FOR THE PURPOSE OF CALCULATING THE DEDUCTION UNDER SECT ION 10AA OF THE ACT WITHOUT APPRECIATING THE FACT THAT NO DISALLOWANCE WAS MADE IN REGARD TO THE PROVISION CREATED IN THE PREVIOUS YEAR. 5.2 DURING AY 2011-12, THE ASSESSEE EARNED INCOME F ROM DEPOSITS AT RS.1,55,08,365/-, ON OTHERS RS.32,35,845 & OTHERS AT RS8,67,313/-. WHILE COMPUTING THE DEDUCTION U/S 10AA, THE AO RELYING ON THE SC DECISION IN PANDIAN CHEMICALS 262 ITR 270 EXCLUDED THESE ITEMS FROM THE PROFITS OF BUSINESS FOR THE REASON THAT THEY ARE NOT DERIVED FROM THE ELIGIBLE :-10-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 UNDERTAKING FROM EXPORT OF ARTICLE . THE CIT(A) UP HELD THE AOS ACTION. IN THIS REGARD, THE ASSESSEES GROUNDS ARE AS UNDE R : 3. EXCLUSION OF 'OTHER INCOME' FROM COMPUTATION OF PROFITS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10AA 3.1. THE LD. CIT(A) AND THE LD. AO ERRED IN EXCLUDI NG OTHER INCOME FROM PROFITS FOR COMPUTATION DEDUCTION UNDER SECTION 10A A OF THE ACT BY ERRONEOUSLY CONCLUDING THE SAME ARE NOT PROFITS DER IVED BY THE ELIGIBLE UNDERTAKING. 5.3 THE A R SUBMITTED THAT THE AO FAILED TO APPRE CIATE THE FACT THAT NO ADD-BACK WAS MADE IN THIS REGARD AT THE TIME OF CRE ATION OF THE PROVISION IN THE PREVIOUS YEAR AND EXCESS INSURANCE PREMIUM RECE IVED IS PART AND PARCEL OF THE BUSINESS UNDERTAKING AND HENCE PLEADED TO DI RECT THE AO TO INCLUDE THEM IN THE EXPORT TURNOVER AND TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10AA. RELYING ON THE KAR NATAKA HIGH COURT DECISION IN THE CASE CIT VS M/S MOTOROLA INDIA ELEC TRONICS P LTD IN IT APPEAL NOS. 428 OF 2007 & 447 OF 2007 DT 11.12.2013, WHERE IN IT IS HELD THAT IN VIEW OF DEFINITION OF INCOME FROM PROFITS AND GAINS IN CORPORATED IN SUBSECTION (4), THE ASSESSEE IS ENTITLED TO THE BENEFIT OF EXEMPTIO N CONTEMPLATED UNDER SECTION 10B AS THE PROFITS OF THE BUSINESS OF THE U NDERTAKING INCLUDES THE PROFITS AND GAINS FROM EXPORT OF ARTICLES AS WELL A S ALL OTHER INCIDENTAL INCOME DERIVED FROM THE BUSINESS OF THE UNDERTAKING. IN VI EW OF THAT THE AR PLEADED THAT THE EXCLUSION MADE BY THE AO NEEDS TO DELETED. PER CONTRA, THE DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. :-11-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 6. WE HEARD THE RIVAL SUBMISSIONS AND FIND ME RIT IN THE ASSESSEES SUBMISSIONS WHICH IS BASED ON THE KARNATAKA HIGH CO URT DECISION ,SUPRA . THE RELEVANT PORTION IS EXTRACTED AS UNDER . BY FINANCE ACT, 2001, WITH EFFECT FROM 01.04.2001 , THE PRESENT SUBSECTION (4) IS SUBSTITUTED IN THE PLACE OF OLD SUBSECTION (4). NO DOUBT SUBSECTION 10(B) SPEAKS ABOUT DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVES FROM 100% EOU FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER S OFTWARE. THEREFORE, IT EXCLUDES PROFIT AND GAINS FROM EXPORT OF ARTICLES. BUT SUBSECTION (4) EXPLAINS WHAT IS THE PROFIT DERIVED FROM EXPORT OF ARTICLES AS MENTIONED IN SUBSECTION (1). THE SUBSTITUTED SUBSECTION (4) SAYS THAT PROF ITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE TH E ACCOUNT WHICH BARES TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING AND NOT THE PROFITS AND GAINS FROM EXPORT OF ARTICLES. THEREFORE, PROFITS AND GAINS D ERIVED FROM EXPORT OF ARTICLES IS DIFFERENT FROM THE INCOME DERIVED FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING. THE PROFITS OF THE BUSINESS OF THE UN DERTAKING INCLUDES THE PROFITS AND GAINS FROM EXPORT OF THE ARTICLES AS WELL AS AL L OTHER INCIDENTAL INCOMES DERIVED FROM THE BUSINESS OF THE UNDERTAKING. IT I S INTERESTING TO NOTE THAT SIMILAR PROVISIONS ARE NOT THERE WHILE DEALING WITH COMPUTATION OF INCOME UNDER SECTION 80HHC. ON THE CONTRARY, THERE IS SPECIFIC PROVISIONS LIKE SECTION 80HHB WHICH EXPRESSLY EXCLUDES THIS TYPE OF INCOMES. THE REFORE, IN VIEW OF THE AFORESAID PROVISIONS, IT IS CLEAR THAT, WHAT IS EXE MPTED IS NOT MERELY THE PROFITS AND GAINS FROM THE EXPORT OF ARTICLES BUT ALSO THE INCOME FROM THE BUSINESS OF THE UNDERTAKING. HENCE , WE DIRECT THE A O NOT TO EXCLUDE THE IMPUGN ED THESE ITEMS FROM THE PROFITS OF BUSINESS. WITH REGARD TO THE PR OVISIONS NO LONGER REQUIRED IS WRITTEN BACK AND OFFERED AS INCOME NOW AND I F IT WAS NOT ADDED BACK AT THE TIME OF CREATION OF SUCH PROVISION IN THE E ARLIER PREVIOUS YEAR, THEN SUCH INCOME SHOULD BE TREATED AS INCOME OF THE ASS ESSEE IN THE YEAR OF WRITE BACK. SIMILARLY, THE EXCESS INSURANCE PRE MIUM RECEIVED. IN THE FACTS :-12-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 AND CIRCUMSTANCES, THESE TWO ISSUES REQUIRE RE-EX AMINATION AND HENCE WE DEEM IT FIT TO RESTORE THEM BACK TO THE A O FOR A FRESH EXAMINATION AND TO PASS APPROPRIATE ORDERS, ON BOTH ISSUES, AFTER AFFO RDING ADEQUATE OPPORTUNITY TO THE ASSESSEE . ON SUCH EXAMINATION, IF THEY ARE FOUND CORRECT AS CANVASSED BY THE ASSESSEE , THE AO SHALL CONSIDER THEM AS PRO FITS OF BUSINESS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 1 0AA, IN ACCORDANCE WITH LAW. THE CORRESPONDING APPEAL GROUNDS ARE TREAT ED AS ALLOWED FOR BOTH AYS. 7 THE NEXT ISSUE IS DISALLOWANCE OF DEPOSITS AND OT HER COSTS WRITTEN OFF : 7.1 IN THIS REGARD , THE ASSESSEES GROUNDS A RE AS UNDER : 4.1. THE LD. CIT (A) AND THE LD. AO ERRED IN DISALL OWING THE DEPOSITS WRITTEN OFF ALONG WITH REGISTRATION CHARGES AND LIQUIDATED DAMAGES, WITHOUT APPRECIATING THE FACT THAT THE SAME HAD BEEN INCURR ED FOR THE PURPOSE OF BUSINESS OF THE APPELLANT AND HAD BEEN WRITTEN OFF DUE TO BUSINESS AND COMMERCIAL REASONS. 4.2. FURTHER, THE LD. CIT (A) ERRED IN DENYING THE ALTERNATE PLEA OF THE APPELLANT THAT THE SAID DISALLOWANCE OUGHT TO BE AD JUSTED WITH THE PROFITS AND GAINS FROM BUSINESS OF THE UNDERTAKING COMPUTED FOR CLAIMING DEDUCTION UNDER SECTION 10AA OF THE ACT. 7.2 THE AR SUBMITTED THAT DURING THE AY 2010-11 , T HE ASSESSE HAD ENTERED INTO A TRIPARTITE AGREEMENT WITH MAHINDRA W ORLD CITY AND VELANKANNI INFORMATION SYSTEMS PRIVATE LIMITED (VISPL) FOR LEA SE OF A PLOT OF LAND FOR :-13-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 CONSTRUCTION OF A FACILITY TO BE USED FOR ESTABLISH ING AN ENGINEERING DESIGN STUDIO / RESEARCH AND DEVELOPMENT FACILITY. THE A SSESSEE HAD PAID DEPOSIT MONEY TO VISPL PURSUANT TO THE ABOVE AGREEMENT, HO WEVER, THE PROJECT WAS CANCELLED DUE TO ADVERSE ECONOMIC CONDITIONS. IN TH E MEANTIME, VISPL HAD SPENT INITIAL EXPENDITURE AT INR 2,95,57,200 TOWA RDS DEVELOPMENT OF THE LAND AS PER THE PROJECT DESIGN, INR 46,13,120 TOWAR DS REGISTRATION CHARGES AND INR 59,80,707 TOWARDS LIQUIDATED DAMAGES. THE A SSESSEE HAD TO COMPENSATE VISPL FOR SUCH AMOUNTS / ADJUST THE SAME AGAINST THE DEPOSIT MONEY THAT WAS RECOVERED, AS THE CASE MAY BE. SINCE , THESE EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS THEY WERE CLAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD PROVIDED DETAILED SUBMISSIONS TO THE AO TOWARDS THE ABOVE CLAIM AND PLEADED THAT THERE SHOULD NOT BE PERMANEN T DISALLOWANCE FOR THE LEGITIMATE BUSINESS EXPENDITURE MERELY BECAUSE THE SAME WAS INCURRED FOR THE PURPOSE OF BRINGING INTO EXISTENCE AN ASSET WHI CH NEVER CAME INTO EXISTENCE. THE AO, HOWEVER, DISREGARDED OUR SUBMISS IONS AND DISALLOWED THE ABOVE EXPENDITURE BY TREATING THEM AS CAPITAL I N NATURE. THE CIT (A) FOUND CONCURRENCE WITH THE FINDING OF AO THAT THE D EPOSIT IS UTILISED FOR THE DEVELOPMENT OF LAND AND BUILDING OF THE FACTORY AND CONSEQUENTLY BECOMES A CAPITAL EXPENDITURE. FURTHER, THE CIT (A) ALSO DEN IED THE ALTERNATE CLAIM OF THE ASSESSEE TO ADJUST THE SAID DISALLOWANCE WITH THE PROFITS AND GAINS FROM BUSINESS OF THE UNDERTAKING COMPUTED FOR CLAIMING D EDUCTION UNDER SECTION :-14-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 10AA , BY HOLDING THAT THE SAID ITEM DOES NOT RESUL T IN ANY FOREIGN EXCHANGE AND HENCE NOT ELIGIBLE FOR DEDUCTION. IN SUPPORT OF HIS PLEA, THE AR RELIED ON CERTAIN CASE LAWS. PER CONTRA, THE DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. THE AO SIMPLY RECORDS THAT THE ASSESSEE HAS MADE A CAPITAL EXPENDITURE FOR BUILDING / DEVELOPING A FACTORY PREMISE BUT CLAIMED THE SAME AS REVENUE EXPENDITURE. THE AO HAS NOT EXAMINED WHETHER SUCH A CTIVITIES ARE IN CONNECTION WITH EXISTING BUSINESS OR IN NEW AREA . FURTHER, THE COPIES OF AGREEMENT PRODUCED IN SUPPORT OF THE ASSESSEES CLAIM CONTAIN CERTAIN CONDITIONS. IT APPEARS THAT THE AO HAS NOT EXAMINED THEM AS TO WHETHER THE TERMS AND CONDITIONS STIPULATED ARE COMPLIED AND ITS CONSEQUENCES ETC. IN THE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT TO RE STORE THIS MATTER BACK TO THE A O FOR A FRESH EXAMINATION AND TO PASS APPR OPRIATE ORDERS, AFTER AFFORDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. THE CORRESPONDING APPEAL GROUNDS ARE TREATED AS ALLOWED FOR STATISTICAL PURP OSES. REVENUES APPEALS IN ITA NOS. 2260 & 3418/MDS/2016 FOR A SSESSMENT YEARS : 2010-11 & 2011-12 & ASSESSEES CO 138 OF 2016 FOR AY 2010-11. 9. FOR THESE AYS, THE ASSESSEE HAD INCURRED TRAVEL EXPENSES , IT & TECHNICAL SUPPORT SERVICES, PROFESSIONAL & CONSULTA NCY FEES , REIMBURSEMENT :-15-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 OF RENAULT GLOBAL MANAGEMENT AND REIMBURSEMENT TO N ISSAN MOTOR CO. LTD IN FOREIGN CURRENCY. WHILE DETERMINING THE DEDUCTIO N UNDER SECTION 10AA, IT DID NOT REDUCE THESE EXPENDITURES FROM THE EXPORT TURNOVER AS THEY WERE NOT INCURRED FOR RENDERING ANY SERVICES OUTSIDE IND IA AND THEY REPRESENTED EXPENDITURE INCURRED BY THE ASSESSEE FOR AVAILING CERTAIN SERVICES FROM ITS GROUP CONCERN AND THE CROSS CHARGE OF EXPENDITURE I NCURRED BY THE GROUP COMPANIES ON BEHALF OF IT. THE AO EXCLUDED THE ABOVE EXPENDITURES FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING D EDUCTION UNDER SECTION 10AA BY PLACING RELIANCE ON THE DEFINITION OF 'EXPO RT TURNOVER'. THE AO ALSO DECLINED THE ASSESSEE'S ALTERNATE PLEA OF REDUC ING THE SAID EXPENDITURES FROM TOTAL TURNOVER BASED ON THE PARITY PRINCIPLE . THE CIT (A) UPHELD THE ABOVE EXCLUSION STATING THAT THE DEDUCTION UNDER S ECTION 10AA WAS PROVIDED WITH AN INTENTION TO BRING IN MORE CONVERTIBLE FORE IGN EXCHANGE IN TO THE COUNTRY AND HENCE, PLACING RELIANCE ON THE DEFINITI ON OF EXPORT TURNOVER, THE CIT (A) HELD THAT ANY EXPENDITURE INCURRED IN FORE IGN CURRENCY , APART FROM FREIGHT, INSURANCE , TELECOMMUNICATION CHARGES , OU GHT TO BE EXCLUDED FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 10AA. H OWEVER, WITH REGARD TO COMMUNICATION COST AND INSURANCE , ON THE BASIS OF ARS SUBMISSION THAT THE ASSESSEE IS ENGAGED IN EXPORT OF SERVICES AND NOT P RODUCING ANY ARTICLE OR THING AND THE TELECOMMUNICATION CHARGES AND INSURAN CE WERE INCURRED IN INDIAN RUPEES AND NOT IN FOREIGN EXCHANGE AND THERE FORE THEY COULD NOT BE :-16-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 EXCLUDED FROM THE EXPORT TURNOVER, THE CIT(A) DIREC TED THE AO NOT TO EXCLUDE TELECOMMUNICATION CHARGES AND INSURANCE COST FROM T HE EXPORT TURNOVER. 10. THE REVENUE IS AGGRIEVED THAT THE CIT (A) HAS ERRED IN DIRECTING THE AO NOT TO EXCLUDE TELECOMMUNICATION CHARGES AND INSURA NCE COST , WHEN EXPLANATION 1(I) TO SECTION 10AA WHEREIN EXPORT TUR NOVER HAS BEEN DEFINED AS DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARG ES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THI NGS OUTSIDE INDIA. IT FURTHER PLEADED THAT THE CIT (A) HAS ERRED IN FOLLOWING T HE DECISION OF THE HONBLE ITAT IN THE CASE OF M/S. COGNIZANT TECHNOLOGIES SOL UTIONS INDIA (P) LTD., AGAINST WHICH THE DEPARTMENT HAS PREFERRED FURTHER APPEAL. THE ASSESSEE FILED A CO IN SUPPORT OF THE ORDER OF THE CIT(A). 11. THE D R SUBMITTED THAT EXPORT TURNOVER HAS BEEN SPECIFICALLY DEFINED IN THE EXPLANATION 1 TO SEC. 10AA TO EXCLUDE FREIGHT , TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY O F THE ARTICLES OR THINGS OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FORE IGN EXCHANGE IN RENDERING OF SERVICES (INCLUDING COMPUTER SOFTWARE) OUTSIDE INDI A. THEREFORE, THEY ARE REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER FO R THE PURPOSE OF DEDUCTION U/S. 10AA. PER CONTRA, THE A R SUBMITTED THAT THE ASSESSEE BEING A SERVICE EXPORTER, RAISES INVOICES ON ITS CUSTOMERS ONLY FOR THE FEE FOR SERVICES. IT DOES NOT CHARGE ANY AMOUNT IN RESPECT OF FREIGHT , TELECOMMUNICATION OR :-17-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 INSURANCE. HENCE, THERE IS NO REQUIREMENT FOR REDU CING TELECOMMUNICATION EXPENSES AND INSURANCE COST INCURRED IN FOREIGN EXC HANGE FROM THE EXPORT TURNOVER. IN THIS REGARD, THE A R RELIED ON THE DE CISION OF ITAT IN THE CASE OF CIT VS. SAKSOFT LTD., THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF CIT, CENTRAL CIRCLE, BANGALORE VS M/S. MOTOROLA IND IA ELECTRONICS (P) LTD., BANGALORE IN ITA NO. 447 OF 2007 AND THE SPECIAL BE NCH DECISION IN THE CASE OF ZYLOG SYSTEMS VS. ITO, COMPANY WARD-III REPORTED IN [2010] 8 TAXMANN.COM 276 (CHENNAI) (SB)ETC . 12. WE HEARD THE RIVAL SUBMISSIONS. IN THE ASSESSME NT ORDER, THE AO EXCLUDED THE TELECOMMUNICATION EXPENSES AND INSURAN CE COST FROM THE EXPORT TURNOVER ON A FINDING THAT THEY WERE INCURRED IN FO REIGN EXCHANGE . HOWEVER, ON THE BASIS OF ARS SUBMISSION THAT THE ASSESSEE IS ENGAGED IN EXPORT OF SERVICES AND NOT PRODUCING ANY ARTICLE OR THING AND THE TELECOMMUNICATION CHARGES AND INSURANCE WERE INCURRED IN INDIAN RUPEE S AND NOT IN FOREIGN EXCHANGE AND THEREFORE THEY COULD NOT BE EXCLUDED F ROM THE EXPORT TURNOVER, THE CIT(A) DIRECTED THE AO NOT TO EXCLUDE TELECOM MUNICATION CHARGES AND INSURANCE COST FROM THE EXPORT TURNOVER. THE REVE NUE FILED THESE APPEALS. FOR DECIDING THE ISSUE, IN WHICH CURRENCY THE IMPUGNED EXPENDITURES ARE INCURRED IS AN ESSENTIAL FACT ON WHICH THERE ARE APPARENT CONTRADICTORY FINDINGS. FURTHER, IN THE ASSESSEES CROSS APPEALS IN ITS NOS. 2500 & 3464/MDS/2016 IN PARA 4.1, SUPRA, THE CONNE CTED ISSUE IS RESTORED TO :-18-: ITA NOS: 2260, 2500, 3418, 3464/MDS/2016 & CO NO: 138/MDS/2016 THE AO FOR A FRESH EXAMINATION. IN THE FACTS AND CI RCUMSTANCES, WE DEEM IT FIT TO RESTORE THIS MATTER BACK TO THE A O FOR A FRESH EXAMINATION AND TO PASS APPROPRIATE ORDERS, AFTER AFFORDING ADEQUATE O PPORTUNITY TO THE ASSESSEE. THE CORRESPONDING REVENUES GROUNDS AND THE ASSESSE ES CO ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, REVENUES APPEAL IN ITA NO. 2260 & 3418/MDS/2016, ASSESSEES APPEAL IN ITA NO. 2500 & 3464/MDS/2016 AND CROSS OBJECTIONS IN CO NO. & CO 138 OF 2016 AGAINST THE ORDER IN ITA NO. 2260 /M DS/2016 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON WEDNESDAY, THE 24 TH DAY OF JANUARY, 2018 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) ' ( /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ( /ACCOUNTANT MEMBER /CHENNAI, / /DATED: 24 TH JANUARY, 2018 JPV * 012 32 /COPY TO: 1. 5/ APPELLANT 2. 075 /RESPONDENT 3. 8 ) (/CIT(A) 4. 8 /CIT 5. 2 0 /DR 6. ; /GF