M/s. Changepond Technologies Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

CO 81/CHNY/2009

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7951 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 6 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-11-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 26-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: H PADANCHAND KHINCHA
• Keywords: Depreciation; Bad and doubtful debts
• Section: 143(3); 115JB; 10B; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NOS. 2222 & 2223/MDS/2008 ASST. YEARS : 2004-05 & 2005-06 THE ASST. COMMISIONER OF INCOME TAX, COMPANY CIRCLE-I(3), CHENNAI. (APPELLANT) V. M/S. CHENGEPOND TECHNOLOGIES PVT. LTD., 7, II CRESCENT PARK ROAD, GANDHI NAGAR, ADYAR, CHENNAI 600 020. PAN : AAABCC3252G. (RESPONDENT) C.O. NOS. 81 & 82/MDS/2009 IN ( ITA NOS. 2222 & 2223/MDS/2008 ) ASST. YEARS : 2004-05 & 2005-06 M/S. CHENGEPOND TECHNOLOGIES PVT. LTD., 7, II CRESCENT PARK ROAD, GANDHI NAGAR, ADYAR, CHENNAI 600 020. PAN : AAABCC3252G. (CROSS OBJECTOR) V. THE ASST. COMMISIONER OF INCOME TAX, COMPANY CIRCLE-I(3), CHENNAI. (RESPONDENT) DEPARTMENT BY : SHRI SHAJI P. JACOB, ADDL.CIT ASSESSEE BY : SHRI H. PADANCHAND KHINCHA , CA DATE OF HEARING : 07 NOV 2012 DATE OF PRONOUNCEMENT : 30 NOV 20 12 ITA 2222 & 2223/M/08 & 81&82/MDS/09 2 O R D E R PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER : THESE APPEALS BY THE DEPARTMENT AND THE CROSS OBJECTIONS BY THE ASSESSEE ARISE OUT OF THE COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENNAI, DATED 14.08.2008 IN ITA NO.462/06-07 & 234/07-08/A-III UN DER SEC. 143(3) OF THE I.T. ACT. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS ON COMMON FACTS, THESE ARE CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON CONSOLIDATED O RDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST COMMON ISSUE IN THE GROUNDS OF APPEAL OF THE REVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN DIRECTING THE ASSESSING OFFICER NOT TO REDUCE EXPEN SES INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER FOR THE P URPOSE OF COMPUTING RELIEF ALLOWABLE UNDER SEC.10A OF THE I.T . ACT. 3. AT THE TIME OF HEARING, THE COUNSEL FOR THE AS SESSEE SUBMITS THAT THIS ISSUE HAS BEEN DECIDED IN ASSESSE ES OWN CASE IN ITS FAVOUR FOR THE ASST. YEAR 2003-04 BY THIS TRIBUNAL IN ITA NO.731/MDS/2007 DATED 15.2.2008 WHICH WAS FOLLOWED BY THE ITA 2222 & 2223/M/08 & 81&82/MDS/09 3 COMMISSIONER OF INCOME TAX (APPEALS) IN DECIDING TH E APPEALS FOR THE ASST. YEARS 2004-05 & 2005-06. THE DEPARTMENTA L REPRESENTATIVE RELIED ON THE GROUNDS OF APPEAL. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THIS TRIBUNAL IN ASSESSEE S OWN CASE REPORTED IN 119 TTJ 18 DECIDED THE ISSUE IN FAVOUR OF THE AS SESSEE IN PARA NOS.10 TO 14. WE ALSO FIND THAT RECENTLY THIS ISS UE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1169/MDS/2007 FOR THE ASST. YEAR 2003-2004 DATED 03.10.2012 BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL WHEREIN T HE REVENUES GROUNDS WERE REJECTED ON SIMILAR ISSUE. THIS TRIBU NAL, WHILE DISMISSING THE REVENUES APPEAL HELD AS UNDER :- 2. THE FIRST GROUND RAISED BY THE REVENUE IS THAT T HE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN HO LDING THAT ESTABLISHMENT AND MAINTENANCE EXPENSES PERTAINING T O FOREIGN BRANCH ARE NOT EXCLUDIBLE FROM EXPORT TURNOVER WHIL E COMPUTING RELIEF UNDER SEC.10A. THIS ISSUE WAS CONSIDERED BY INCOME-TAX APPELLATE TRIBUNAL, CHENNAI IN ASSESSEES OWN CASE, IN THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2003- 04 REPORTED IN 119 TTJ 18 (CHENNAI). IN THE SAID APPEAL, THE THIR D GROUND RAISED BY THE ASSESSEE WAS THAT THE COMMISSIONER OF INCOME - TAX(APPEALS) HAS ERRED IN CONCLUDING THAT THE EXPEN SES INCURRED OUTSIDE INDIA ON SALARIES, TRAVELLING AND OTHER PER QUISITES IN RESPECT ITA 2222 & 2223/M/08 & 81&82/MDS/09 4 OF EMPLOYEES ARE INCURRED IN CONNECTION WITH PROVID ING TECHNICAL SERVICES OUTSIDE INDIA. THE FOURTH GROUND WAS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN NO T APPRECIATING THAT THE ASSESSEE IS NOT ENGAGED IN PROVIDING ANY TECHNICAL SERVICES OUTSIDE INDIA AND, THEREFORE, THE QUESTION OF EXCLUSION OF EXPENSES FROM EXPORT TURNOVER DOES NOT ARISE. 3. THESE GROUNDS WERE CONSIDERED BY THE TRIBUNAL IN PARAGRAPHS 10 TO 14 OF THEIR ORDER DATED 15.2.2008. THE TRIBUNAL HELD THAT THE TECHNICAL SERVICES PROVIDED OUTSIDE I NDIA BY THE ASSESSEE WAS FOR DEVELOPMENT OF COMPUTER SOFTWARE W HICH WAS ALSO A PART OF THE REQUIREMENT OF THE ASSESSEE IN D EVELOPMENT OF SOFTWARE AS PER THE REQUIREMENTS AND SPECIFICATIONS OF THE CLIENTS. THEREFORE, THE TRIBUNAL HELD THAT THE SAID ACTIVITY OF THE ASSESSEE COMES UNDER THE DEFINITION OF ON SITE DEVELOPMENT O F COMPUTER SOFTWARE INCLUDING SERVICES FOR DEVELOPMENT OF SOFT WARE OUTSIDE INDIA AS PROVIDED IN EXPLANATION 3 TO SUB-SEC.(8) O F SEC.10A OF THE ACT. ACCORDINGLY, THE TRIBUNAL HELD THAT THE EXPEN SES INCURRED ON SALARIES, TRAVELLING AND OTHER PERQUISITES SHALL BE INCLUDED IN THE EXPORT TURNOVER OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE CO-OR DINATE BENCH, WE REJECT THE GROUNDS OF APPEAL OF THE REVENUE ON THIS ISSUE. 5. THE NEXT COMMON ISSUE IN THE GROUNDS OF APPEAL IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN D IRECTING THE ASSESSING OFFICER NOT TO EXCLUDE 50% OF TELECOMMUNI CATION CHARGES ITA 2222 & 2223/M/08 & 81&82/MDS/09 5 IE., TELEPHONE CHARGES AND INTER-NET CHARGES FROM E XPORT TURNOVER FOR THE PURPOSE OF COMPUTING RELIEF UNDER SEC.10A OF TH E ACT. 6. BOTH THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT 50% OF TELECOMMUNICA TION CHARGES ARE ATTRIBUTABLE FOR DELIVERY OF GOODS OUTSIDE INDI A AND, THEREFORE, THE SAME ARE TO BE EXCLUDED FROM EXPORT TURNOVER. THE COMMISSIONER OF INCOME TAX (APPEALS), IN HIS ORDER HELD AS UNDER :- THE NEXT COMMON GROUND OF APPEAL FOR BOTH THE ASSESSMENT YEARS IS REGARDING EXCLUSION OF 50% OF TELECOMMUNICATION CHARGES FOR BOTH THE ASSESSMENT Y EARS FROM THE FIGURE OF EXPORT TURNOVER. THE LEARNED ASS ESSING OFFICER IN HIS ORDER OF THE AY 200405 HAS HELD THA T 50% OF THE TELECOMMUNICATION CHARGES OF RS. 6,78,750/ ARE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE O UTSIDE INDIA. SIMILAR CONCLUSION WAS MADE IN THE ORDER PAS SED FOR THE AY 200506 OF I .14,89,526/-. ACCORDINGLY, TELECOMMUNICATION CHARGES TO THE EXTENT OF 50% WERE REDUCED FROM THE EXPORT TURNOVER. I HAVE CONSIDERED THE SUBMISSIONS AND THE ARGUMENTS RELATING TO THE IMPUGNED ISSUE. THE DEFINITION OF ' EXPORT TURNOVER' IN SECTION 10A MANDATES THE EXCLUSION OF, INTER ALIA, THE 'TELECOMMUNICATION CHARGES' ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. THE LANGUAGE EMPLO YED IN THE SAID DEFINITION IS 'ATTRIBUTABLE' AND NOT THE E XPRESSION 'DERIVED'. IT IS A SETTLED LEGAL PRINCIPLE THAT THE EXPRESSION 'DERIVED' IS MORE RIGOROUS THAN THE TERM 'ATTRIBUTA BLE' AS HELD IN THE CASE OF THE SUPREME COURT'S DECISIONS IN STE RLING FOODS'S CASE (237 ITR 79). IN THE PRESENT CASE, IT IS NOT A CASE .WHERE THE LEARNED ASSESSING OFFICER HAS REDUC ED THE ENTIRE TELECOMMUNICATION EXPENSES FROM THE EXPORT T URNOVER. ONLY 50% OF THE IMPUGNED EXPENDITURE HAS BEEN EXCLU DED ITA 2222 & 2223/M/08 & 81&82/MDS/09 6 FROM EXPORT TURNOVER. IT ALSO CANNOT BE SAID THAT N O EXPENDITURE WAS INCURRED FOR THE DELIVERY OF COMPUT ER SOFTWARE OUTSIDE INDIA. THE ORDER PASSED BY THE CIT (A) - III FOR THE ASSESSMENT YEAR 200304 IN APPELLANTS OWN C ASE HAS UPHELD THE EXCLUSION OF 50% OF TELECOMMUNICATION CH ARGES FROM THE EXPORT TURNOVER. THE ORDER OF THE ITAT, CH ENNAI FOR THE AY 2003-04 ALSO DOES NOT RECORD A CONTRARY FIND ING TO THE ORDER OF THE CIT (A) - III. HOWEVER, THE LEARNED AR SUBMITS THAT THE TELECOMMUNICATION EXPENDITURE INCLUDES TEL EPHONE CHARGES AND INTERNET ACCESS CHARGES WHICH ARE NOT A T ALL INCURRED IN RELATION TO DELIVERY OF COMPUTER SOFTWA RE OUTSIDE INDIA. THE CONTENTIONS OF THE APPELLANT ARE FOUND T O BE JUSTIFIED TO SOME EXTENT ONLY. I HAVE CONSIDERED TH E ISSUE AND SUBMISSION OF THE AR CAREFULLY AND I AM OF THE OPIN ION THAT EXCLUSION OF TELECOMMUNICATION CHARGES FROM THE EXP ORT TURNOVER TO THE EXTENT OF 50% IS JUSTIFIED IN THE P RESENT CASE. HOWEVER, THE LEARNED ASSESSING OFFICER IS DIRECTED NOT TO EXCLUDE THE TELEPHONE CHARGES AND INTERNET ACCESS C HARGES WHICH ARE NOT INCURRED IN RELATION TO DELIVERY OF C OMPUTER SOFTWARE OUTSIDE INDIA. THE REMAINING PART OF THE TELECOMMUNICATION CHARGES IS TO BE EXCLUDED ONLY TO THE EXTENT OF 50%. IN THE RESULT, THIS GROUND OF APPEAL IS PARTLY ALLOWED IN THE AFORESAID MANNER. ON GOING THROUGH THE ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS), WE FIND THAT THERE IS NO INFIRMITY IN HO LDING THAT 50% OF TELECOMMUNICATION CHARGES ARE NOT TO BE EXCLUDED FR OM EXPORT TURNOVER. 7. THE NEXT COMMON ISSUE IN THE APPEAL OF THE REVE NUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO SET OFF THE BROUGHT FORWARD LO SS OF EARLIER YEARS AGAINST INCOME OF THE CURRENT YEAR ONLY AFTER ALLOW ING DEDUCTION UNDER SEC.10A OF THE ACT. ITA 2222 & 2223/M/08 & 81&82/MDS/09 7 8. AT THE TIME OF HEARING, THE COUNSEL FOR THE ASS ESSEE SUBMITS THAT THIS TRIBUNAL IN ASSESSEES OWN CASE F OR THE ASST. YEAR 2003-04 AS WELL AS IN EARLIER YEARS DECIDED THE ISS UE IN ITS FAVOUR VIDE ORDER DATED 15.2.2008 IN ITA NO.731/MDS/2007 WHICH IS REPORTED IN 119 TTJ 18 AND IN ITA NO.1169/MDS/2007 DATED 03.10. 2012 (COPIES PLACED ON RECORD). THE DEPARTMENTAL REPRESENTATIV E SUBMITS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IN FACT FO LLOWED THE ORDER OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN HOLD ING THAT DEDUCTION UNDER SEC.10A SHOULD BE ALLOWED BEFORE SETTING OFF OF CARRY FORWARD LOSS. 9. WE HAVE GONE THROUGH THE ORDERS OF THE CO-ORDIN ATE BENCH AND FIND THAT THIS TRIBUNAL HELD THAT DEDUCTI ON UNDER SEC.10A OF THE ACT SHOULD BE ALLOWED BEFORE SET OFF OF CARR Y FORWARD LOSS. THE CO-ORDINATE BENCH RECENTLY IN ITA NO.1169/MDS/2007 DATED 03.10.2012 HELD AS UNDER :- 5. THE SECOND GROUND RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DI RECTING THE ASSESSING OFFICER TO RE-COMPUTE BUSINESS PROFITS AF TER SETTING OFF ITA 2222 & 2223/M/08 & 81&82/MDS/09 8 BROUGHT FORWARD LOSSES AND DEPRECIATION AND ALLOW D EDUCTION UNDER SEC.10A. 6. IN THE VERY SAME ORDER CITED ABOVE, THE CO-ORDIN ATE BENCH OF THE TRIBUNAL HAS ALLOWED THE DEDUCTION TO THE AS SESSEE UNDER SEC.10A WITHOUT SETTING OFF OF THE BROUGHT FORWARD LOSSES AND THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE A BOVE ORDER OF THE CO-ORDINATE BENCH IS IN CONFORMITY TO THE JUDGM ENT OF THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE O F CIT V. YOKOGAWA INDIA LTD. AND OTHERS (246 CTR 226), WHERE IN THE HONBLE KARNATAKA HIGH COURT HAS HELD THAT AS THE D EDUCTION UNDER SEC.10A HAS TO BE EXCLUDED FROM THE TOTAL INC OME OF THE ASSESSEE, THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFITS AND GAINS OF THE UNDERTAKING W OULD NOT ARISE. 7. IN VIEW OF THE ABOVE POSITION AND IN THE LIGHT O F THE DECISION OF THE CO-ORDINATE BENCH, WE FIND THAT THIS GROUND IS ALSO TO BE DISMISSED. WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME- TAX(APPEALS) ON THIS POINT. RESPECTFULLY FOLLOWING THE ABOVE DECISION IN THE CA SE OF THE ASSESSEE WE UP HOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE GROUNDS FILED BY THE REVENUE ARE REJECTED O N THIS ISSUE. 10. THE DEPARTMENT HAS TAKEN ONE MORE GROUND FOR THE ASST. YEAR 2004-05 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT FOR THE PURPOSE OF COMPUTING PROFITS, DEDUCTION ITA 2222 & 2223/M/08 & 81&82/MDS/09 9 UNDER SEC.10A OF THE I.T. ACT SHOULD BE CONSIDERED AS PER BOOKS OF ACCOUNTS AND NOT AS PER REGULAR COMPUTATION OF INCO ME. 11. THE FACTS OF THIS GROUND ARE THAT THE ASSESSIN G OFFICER WHILE COMPLETING THE ASSESSMENT ALLOWED DEDUCTION U NDER SEC.10A OF THE ACT FROM BOOK PROFITS AS COMPUTED UNDER NORMAL PROVISIONS OF THE ACT. THE ASSESSEE CONTENDED BEFORE THE COMMISS IONER OF INCOME TAX (APPEALS) THAT AS PER THE PROVISIONS OF SEC.115JB OF THE I.T. ACT, IT IS THE INCOME OF 10A UNITS AS PER BOOK S OF ACCOUNTS THAT IS TO BE EXCLUDED FROM BOOK PROFIT AND NOT DEDUCTION A S COMPUTED UNDER SEC.10A OF THE ACT AS PER NORMAL COMPUTATION OF INCOME UNDER THE I.T. ACT. THE ASSESSEE MADE ITS SUBMISSIONS B EFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AS UNDER :- ' TH E CONC LU SIO N OF T H E ASS E SSING OFFI C ER S O AS TO RESTRICT THE DEDUCTION UND E R SECTION LOA T O THE FIGURE AS CO M PUTED UNDER THE NORM A L PR O VISI O NS OF THE ACT , WHILE COMPUTING BOO K P ROFITS IS D E VO I D AND BEREFT O F MER I TS AND AS AGAINST THE PROVISION S O F THE LAW . AS PER THE C OMPUTATION MECHANISM OF BOOK PR O FITS U N DER EXPLANATION TO SECT I ON 115JB , IT I S TH E IN C OM E AND E X PENDITUR E OF L OA UN I TS AS PER T HE BO OKS OF ACCOUNTS TH A T IS TO BE ELIMINAT E D FR O M TH E N E T PR O FIT S . THE AMOUNT OF D E DUCTION AVAILABLE UNDER SE C TION LOA SH O ULD NOT BE R E DUCED IN TH E PRO CESS OF DETERMINING THE BOOK PROFITS . THE AMOUNT OF DEDUCT I ON UNDER S E CTION LOA CANNOT BECOME THE GUIDIN G PRINCIPLE FOR T H E PURPOSE O F C OMPUT I NG BOOK PROFITS UNDER SECTION 115 J B . THE BO O K PROFITS ARE COMPUTED IN AC CO RDANCE WITH THE PROVISION S OF S ECTION 115JB . THE SUPREME COURT IN TH E C A S E OF APO L LO TYRES VS CI T 2 55 ITR 273 HAS HELD THAT THE ASSESSING OFF I CER DOES NO T H AVE THE JURISDI C T I ON TO GO BEHIND THE NET PROFIT SH O WN IN TH E PROFIT AND LOS S AC COUNT EXCEPT TO THE EXTENT PROVIDED IN THE E X PLANATION TO SECTION 115J . ITA 2222 & 2223/M/08 & 81&82/MDS/09 10 THE REDUCTION OF ACTUAL AMOUNT OF D ED UCTION UNDER SECTION LOA I S NOT PROVIDED IN ANY OF TH E CLAUSES OF EXPLANATIONTOSECTIONL15JB . O N THE CONTRARY THE RELEVANT ADJUSTMENTS AR E A S FOLLOWS: 'EXPLANATION - FOR THE PURPOSES OF THIS S EC TION, 'BOOK PROFIT' MEAN S THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S AC CO UNT FOR THE RELEVANT PREVIOU S Y EAR PREPARED UNDER SUB-SECTION (2) AS INCREAS ED B Y (F ) THE AMOUNT OR AMOUNT S OF EXPENDITUR E RELATABLE TO ANY IN C OME T O WHI C H S ECTION 10 (OTHER THAN THE PROVISION S CON TA INED IN CLAUSE (38 ) TH E REOF ) O R SECTION L OA OR SECTION LOB OR SECTION 11 OR SEC TION 12 APPLY. IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (G) I S DEBITED TO THE PROFIT AND LOSS ACCOUNT AND AS REDUCED BY THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIO NS OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF OR SECTION 10A OR SECTION 10B OR SECTION 11 OR SECTION 12 APPLY, I F ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT AS MAY BE SEEN FROM THE ABOVE, THE ADDITIONS AND DELETIONS/REDUCTION IS WITH REFERENCE TO THE FIGURE S AS APPEARING IN THE PROFIT AND LOSS ACCOUNT. THUS, TH E ACTUAL AMOUNT OF DEDUCTION UNDER SECTION 10A CANNOT BE RED UCED IN COMPUTING THE BOOK PROFITS UNDER SECTION 115JB. IN BUSHAN STEEL AND STRIPS (P) LTD. VS. DCIT 292 ITR AT 144, IT WAS HELD THAT TAX ON BOOK PROFITS BEING SPECIAL PROVISIONS UNDER SECTION 115JB, HAS A O VERRIDING EFFECT AND BE I NG A S PEC I AL DEDUCTION IS TO B E C AL C ULATED ON ADJUST E D BOOK PROFI T S A N D N O T ON PR O FITS AS CA LC ULAT E D A S PER OTH E R PROVISIONS OF TH E ACT . THE ITO VS AMALGAMAT ED B EAN COF FE E T RA D I NG C O (P) LTD 19 SOT 1 T HE ITAT , B A NGALORE HAS HELD T HAT T AX U N DE R SEC T IO N 115J B I S TO BE WOR K E D OUT O N THE BASI S OF ADJUSTED B O OK P R OFIT AN D NOT ON TH E BAS IS O F PRO F IT COMPUTED UND E R REGULAR PROVIS IO NS OF L A W . THE APPELLANT PRAYS THAT THE CO M P UTATION OF BOOK PROFITS A S DONE BY TH E LEARNED ASSESSING OFFICER BE Q UA S HED AND A DIRECTION BE GIVEN TO THE L EARNED ASSESSING OFFICE R FOR T HE CORRECT COMPUTATI O N OF BOOK PROF I TS UNDER SECT I ON LOA . ' ITA 2222 & 2223/M/08 & 81&82/MDS/09 11 12. THE COMMISSIONER OF INCOME TAX (APPEALS), AFTE R CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD TH AT BOOK PROFIT UNDER SEC.115JB OF THE ACT IS TO BE COMPUTED BY ADJ USTING INCOME AND EXPENDITURE AS PER BOOKS OF ACCOUNTS OF THE ASS ESSEE RELATING TO INCOME EXEMPT UNDER SEC.10A OF THE ACT. THIS CONCL USION WAS ARRIVED AT BY COMMISSIONER OF INCOME TAX (APPEALS) AFTER EXAMINING THE PROVISIONS OF SEC.10A OF THE ACT AS IT STOOD AT THAT POINT OF TIME AND RELEVANT TO ASST. YEAR 2004-05. THE COMMISSION ER OF INCOME TAX (APPEALS) HELD THAT BOOK PROFITS CANNOT BE COMP UTED BY REDUCING THE ACTUAL AMOUNT OF DEDUCTION ALLOWED UNDER SEC.10 A OF THE ACT AS CLAUSE (G) AND (II) OF EXPLANATION TO SEC.115JB OF THE I.T. ACT CATEGORICALLY USED THE WORDS EXPENDITURE AND INCOME RELATING TO SEC.10A. THUS, THE COMMISSIONER OF INCOME TAX (APPEALS) ON EXAMINING THE PROVISIONS OF SEC.10A APPLICABLE FOR THE ASST. YEAR 2004-05 CAME TO THE CONCLUSION THAT WHILE COMPUTING BOOK PROFITS, DEDUCTION UNDER SEC.10A AS COMPUTED UNDER THE NORMA L PROVISIONS OF THE ACT IS NOT THE AMOUNT WHICH CAN BE ALLOWED AS D EDUCTION. ITA 2222 & 2223/M/08 & 81&82/MDS/09 12 THEREFORE, HE DIRECTED THE ASSESSING OFFICER TO COR RECTLY COMPUTE THE BOOK PROFITS BY ADJUSTING THE INCOME AND EXPENDITUR E AS PER BOOK OF ACCOUNTS OF THE ASSESSEE RELATING TO INCOME EXEMPT UNDER SEC.10A OF THE ACT. 13. ON GOING THROUGH THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) WE SEE THAT THERE IS NO INFIRMITY IN HIS ORDER IN DIRECTING THE ASSESSING OFFICER TO COMPUTE THE BOOK PROFITS BY ADJUSTING THE INCOME AND EXPENDITURE AS PER BOOKS O F ACCOUNTS OF THE ASSESSEE RELATING TO INCOME EXEMPT UNDER SEC.10 A FOR THE PURPOSE OF ALLOWING BOOK PROFITS UNDER SEC.115JB OF THE ACT. THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED ON THIS ISSUE. 14. THE DEPARTMENT HAS ALSO TAKEN ONE MORE GROUND FOR THE ASST. YEAR 2005-06 CONTENDING THAT THE COMMISSIONE R OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT MISCELLANEOUS INCOM E COMPRISING OF RECOVERY OF BAD DEBTS AND THE REVERSAL OF PROVISION FOR CONSULTANCY CHARGES ARE TO BE REGARDED AS PROFITS OF THE BUSINE SS OF UNDERTAKING AND ELIGIBLE FOR DEDUCTION UNDER SEC.10A OF THE I.T . ACT. ITA 2222 & 2223/M/08 & 81&82/MDS/09 13 15. THE FACTS OF THIS ISSUE ARE THAT THE ASSESSEE CLAIMED DEDUCTION UNDER SEC.10A OF THE ACT ON AN AMOUNT OF I.19,378/- AND I.7,91,636/- TOWARDS RECOVERY OF BAD DEBT WRITTEN O FF AND REVERSAL OF PROVISION FOR CONSULTANCY CHARGES PAYABLE TO DSM IN FO SYSTEMS. THE ASSESSING OFFICER EXCLUDED THE SAID INCOME FROM PRO FITS ELIGIBLE FOR DEDUCTION UNDER SEC.10A RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTR IAL CO. LTD V. CIT (113 ITR 84) AND CIT V. STERLING FOODS (237 ITR 579 ). ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER HEAR ING THE AUTHORISED REPRESENTATIVE THE COMMISSIONER OF INCO ME TAX (APPEALS) FOUND THAT THE RECOVERY OF BAD DEBT AND R EVERSAL OF PROVISION FOR CONSULTANCY CHARGES HAVE BEEN OFFERE D TO TAX AND THE EXPENDITURE INCURRED ON THE ABOVE HEADS HAVE BEEN A LLOWED AS DEDUCTION IN THE EARLIER YEARS. THUS, THE COMMISSI ONER OF INCOME TAX (APPEALS) HELD THAT THE SAID INCOME IS PART OF BUSINESS PROFITS CHARGEABLE TO TAX UNDER THE HEAD PROFITS & GAINS O F BUSINESS. TO ARRIVE AT THIS OPINION, THE COMMISSIONER OF INCOME TAX (APPEALS) DERIVED SUPPORT FROM THE DECISION OF BANGALORE BENC H OF THE ITAT IN THE CASE OF SASKEN COMMUNICATION TECHNOLOGIES LTD., DATED ITA 2222 & 2223/M/08 & 81&82/MDS/09 14 27.2.2007 AND THE JUDGMENT OF HON'BLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT V. ABDUL RAHMAN INDUSTRIES (293 IT R 475). ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER NOT TO EXCLUDE MISCELLANEOUS INCOME FROM PROFITS ELIGIBLE FOR DEDU CTION UNDER SEC.10A OF THE ACT. 16. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE GROUNDS OF APPEAL AND STRONGLY SUPPORTED THE ORDER OF THE A SSESSING OFFICER. THE COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, S UPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) A ND PLEADED THAT SINCE THE COMMISSIONER OF INCOME TAX (APPEALS) WHIL E DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE, DREW SUPPORT FROM THE DECISIONS OF THE I.T.A.T. AND THE HIGH COURT, THE ORDER OF THE C OMMISSIONER OF INCOME TAX (APPEALS) NEEDS NO INTERFERENCE. 17. WE HAVE GONE THROUGH THE ORDERS OF THE AUTHORI TIES BELOW AND CAREFULLY CONSIDERED THE ARGUMENTS PUT FORTH BY THE PARTIES. WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS DISCUSSED THE ISSUE IN DETAIL AND DREW SUPPORT FROM THE ORDER OF THE BANGALORE BENCH OF THIS TRIBUNAL AND THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT AMONGST OTHERS IN HOLDING THAT THE MISCE LLANEOUS INCOME ITA 2222 & 2223/M/08 & 81&82/MDS/09 15 COMPRISING OF RECOVERY OF BAD DEBT AND THE REVERSAL OF PROVISIONS FOR CONSULTANCY CHARGES WOULD BE PROFITS OF HE BUSINESS OF THE UNDERTAKING AND WOULD BE ELIGIBLE FOR DEDUCTION UND ER SEC.10A OF THE ACT. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. ACCORDINGLY , WE UPHOLD HIS ORDER AND REJECT THE GROUNDS TAKEN BY THE DEPARTMEN T ON THIS ISSUE. 18. IN THE CROSS OBJECTIONS FILED BY THE ASSESSEE FOR BOTH THE ASST. YEARS UNDER CONSIDERATION, THE ASSESSEE IS AG ITATED AGAINST THE DECISION OF THE COMMISSIONER OF INCOME TAX (APPEALS ) IN HOLDING THAT ONLY 50% OF THE OF THE TELECOMMUNICATION CHARGES A RE TO BE EXCLUDED FROM EXPORT TURNOVER FOR THE PURPOSE OF C OMPUTING DEDUCTION UNDER SEC.10A OF THE ACT. 19. THE COUNSEL FOR THE ASSESSEE RELYING ON THE D ECISION OF HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF PATN I TELECOM P. LTD. V. ITO (308 ITR (AT) 414) ARGUED THAT NO PART OF TE LECOMMUNICATION CHARGES ARE TO BE EXCLUDED FOR THE PURPOSE OF ALLOW ING RELIEF UNDER SEC.10A OF THE ACT. IN THE ALTERNATIVE HE SUBMITS THAT THE TELECOMMUNICATION CHARGES ARE ALSO TO BE EXCLUDED F ROM THE TOTAL ITA 2222 & 2223/M/08 & 81&82/MDS/09 16 TURNOVER IN VIEW OF SPECIAL BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF ITO V. SAK SOFT LTD. [313 ITR (AT) 535]. THE DE PARTMENTAL REPRESENTATIVE RELIED ON GROUNDS OF APPEAL. 20. WE HAVE HEARD THE PARTIES. WE ARE NOT IN AGRE EMENT WITH THE ARGUMENT OF THE COUNSEL FOR THE ASSESSEE THAT NO PART OF TELECOMMUNICATION CHARGES ARE TO BE EXCLUDED FROM E XPORT TURNOVER FOR THE PURPOSE OF ALLOWING RELIEF UNDER SEC.10A OF THE ACT. HOWEVER, WE AGREE WITH THE ALTERNATIVE SUBMISSION OF THE CO UNSEL FOR THE ASSESSEE THAT IN VIEW OF THE SPECIAL BENCH DECISION IN THE CASE OF SAK SOFT LTD. (SUPRA), THE TELECOMMUNICATION CHARGES AR E TO BE EXCLUDED FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR THE PURPOSE OF ALLLOWING RELIEF UNDER SEC.10A OF THE I.T. ACT. 21. IN THE RESULT, THE APPEALS FILED BY THE REVENU E ARE DISMISSED AND THE COS FILED BY THE ASSESSEE ARE PAR TLY ALLOWED. ITA 2222 & 2223/M/08 & 81&82/MDS/09 17 22. ORDER PRONOUNCED ON FRIDAY, THE 30 TH OF NOVEMBER 2012, AT CHENNAI . SD/- SD/- (DR. O.K. NARAYANAN) (CHALLA NAGENDR A PRASAD) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED : 30 TH NOVEMBER 2012. JLS. COPY TO:- (1) APPELLANT (2) RESPONDENT (3) CIT(APPEALS) CHENNAI (4) C.I.T., CHENNAI (5) D.R. (6) GUARD FILE