ACIT, CHENNAI V. M/s. Scientific Publishing Services Pvt Ltd., CHENNAI

ITA 1023/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58076 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 21-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 06-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR YOGESH KAMAT
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business income; Transfer pricing; International transaction
• Section: 143(3); 14A; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1023/MDS/2011 (ASSESSMENT YEAR: 2006-07) THE ASSISTANT COMMISSIONER OF INCOME TAX, COM.CIRCLE VI(1), AAYAKAR BHAVAN, NEW BLOCK, 7 TH FLOOR, 121, M.G. ROAD, NUNGAMBAKKAM, CHENNAI-600 034. VS. M/S. SCIENTIFIC PUBLISHING SERVICES PVT. LTD., NO.6 & 7, V STREET, DR.RADHAKRISHNAN SALAI, MYLAPORE, CHENNAI-600 004. PAN:AAACS6707R (APPELLANT) (RESPONDENT) APPELLANT BY : DR. YOGESH KAMAT, JCIT RESPONDENT BY : MR. R.VI JAYARAGHAVAN, ADVOCATE DATE OF HEARING : 21 ST MARCH, 2012 DATE OF PRONOUNCEMENT : 21 ST MARCH, 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE DEPART MENT IMPUGNING ORDER DATED 22 ND MARCH, 2011 PASSED BY CIT(A). 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF PROVIDING TYPESE TTING AND PREPRESS SERVICES AND SOLUTION PROVIDER FOR THE PUBLISHING INDUSTRY. THE ASSESSEE FILED ITS RETURN FOR THE AS SESSMENT YEAR 2006-07 DECLARING TOTAL INCOME OF ` 1,41,223/-. THE ASSESSEE IN ITS RETURN DECLARED BUSINESS INCOME OF ` ITA NO.1023/MDS /2011 2 59,65,07,993/- AND CLAIMED ENTIRE INCOME AS DEDUCTI ON UNDER SECTION 10B OF THE INCOME TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT). THE CASE OF THE ASSESSEE WAS TAK EN UP FOR SCRUTINY UNDER CASS AND NOTICE UNDER SECTION 143(2 ) WAS ISSUED ON 8.10.2007. THE CASE OF THE ASSESSEE WAS A LSO REFERRED TO THE TRANSFER PRICING OFFICER UNDER SECT ION 92CA OF THE ACT FOR COMPUTATION OF ARMS LENGTH PRICE IN REL ATION TO INTERNATIONAL TRANSACTIONS. 3. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U NDER SECTION 143(3) AND VIDE ORDER DATED 18.12.2009 ASSE SSED TOTAL OF THE ASSESSEE AS ` 17,60,890/- BY MAKING THE FOLLOWING ADJUSTMENTS/DISALLOWANCES:- 1. REDUCING THE INTERNET CHARGES AMOUNTING TO ` . 26,04,839/- FROM THE EXPORT TURNOVER WHILE COMPUTIN G THE DEDUCTION U/S.10B OF THE ACT. 2. DISALLOWANCE OF EXPENDITURE INCURRED FOR EARNING THE DIVIDEND INCOME U/S.14A AMOUNTING TO ` 1,26,379/-. 4. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSE SSEE PREFERRED AN APPEAL BEFORE THE CIT(A) IMPUGNING THE ADJUSTMENTS/DISALLOWANCES MADE BY THE ASSESSING OFF ICER. ITA NO.1023/MDS /2011 3 5. THE LEARNED CIT(A) AFTER TAKING INTO CONSIDERATI ON THE GROUNDS OF APPEAL, WRITTEN SUBMISSIONS, DOCUMENTS F URNISHED AND THE CASE LAWS CITED BY THE PARTIES, REMITTED TH E ISSUE NO.1 TO THE ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION UNDER SECTION 10B BY EXCLUDING THE AMOUNT OF ` 26,04,839/- AS TELECOMMUNICATION EXPENDITURE FROM THE EXPORT TURNO VER AND TOTAL TURNOVER AS WELL. THE CIT(A) WHILE REMITTING THE ISSUE TO THE ASSESSING OFFICER RELIED UPON THE DECISION OF T HE SPECIAL BENCH OF THE ITAT., CHENNAI IN THE CASE OF SAK SOFT LTD. REPORTED AS 20 DTR 514. AS REGARDS ISSUE NO.2 RELA TING TO DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A OF TH E ACT, THE LEARNED CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASS ESSEE BY RESTRICTING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A TO 2% OF THE EXEMPTED INCOME 6. LEARNED D.R. SUBMITTED THAT THE CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO RECOMPUTE THE DE DUCTION UNDER SECTION 10B BY EXCLUDING TELECOMMUNICATION EXPENDITURE BOTH FROM THE EXPORT TURNOVER AND TOTAL TURNOVER. HE FURTHER SUBMITTED THAT THE DECISION OF THE SPECI AL BENCH OF THE TRIBUNAL IN THE CASE OF M/S. SAK SOFT LTD. HAS NOT BECOME ITA NO.1023/MDS /2011 4 FINAL AND THE DEPARTMENT HAS PREFERRED AN APPEAL UN DER SECTION 260A. HE ALSO IMPUGNED THE FINDING OF THE LEARNED CIT(A) IN RESTRICTING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A TO 2% OF THE EXEMPTED INC OME. 7. ON THE OTHER HAND, SHRI R.VIJAYARAGHAVAN, ADVOCA TE APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT LEARNED CIT(A) HAS PASSED WELL REASONED AND DETAILED ORDER . HE SUBMITTED THAT AS FAR AS THE ISSUE REGARDING EXCLUS ION OF TELECOMMUNICATION CHARGES FROM EXPORT TURNOVER WHIL E COMPUTING DEDUCTION UNDER SECTION 10B IS CONCERNED, THERE IS NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN REMITTING BACK THE ISSUE TO THE ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION UNDER SECTION 10B OF THE ACT BY EXCLUDING THE AMOUN T OF ` 26,04,839/- AS TELECOMMUNICATION EXPENDITURE FROM EXPORT TURNOVER AND TOTAL TURNOVER. LEARNED COUNSEL FOR T HE ASSESSEE FURTHER SUBMITTED THAT LEARNED CIT(A) AFTE R RELYING UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO.LTD., VS. D CIT., HAS HELD THAT RULE 8D IS NOT APPLICABLE FOR THE ASS ESSMENT ITA NO.1023/MDS /2011 5 YEAR 2006-07 AS RULE 8D WAS NOTIFIED ON 24.03.2008 AND CAN BE APPLIED TO THE PROSPECTIVE ASSESSMENT YEAR. 8. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES, PE RUSED THE DOCUMENTS ON RECORD, THE ORDERS PASSED BY THE L OWER AUTHORITIES AND THE CASE LAWS REFERRED TO. WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE NO.1 RELATING TO EXCLUSION OF TELECOMMUNICATION CHARGES FROM EXPORT TURNOVER HAS BEEN RIGHTLY REMITTED BACK TO THE ASSESSING OFFICER BY T HE FIRST APPELLATE AUTHORITY TO RECOMPUTE THE DEDUCTION UNDE R SECTION 10B OF THE ACT. THE LEARNED CIT(A) HAS REMITTED THE MATTER BACK TO THE ASSESSING OFFICER AFTER RELYING UPON TH E DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S. SAK SOFT LTD.(SUPRA) WHEREIN IT HAS BEEN SPECIFICALLY H ELD THAT FOR THE PURPOSE OF APPLYING THE FORMULA UNDER SUB-SECTI ON (4) OF SECTION 10B, THE FREIGHT, TELECOM CHARGES OR INSURA NCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INC URRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICE S OUTSIDE INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNO VER AND ITA NO.1023/MDS /2011 6 FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AN D THE DENOMINATOR RESPECTIVELY IN THE FORMULA. 9. AS REGARDS ISSUE NO.2 RELATING TO EXPENDITURE UN DER SECTION 14A IS CONCERNED, WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE ASSESSING OFFICER TO RECOMPUTE T HE AMOUNT AFTER TAKING ALL THE RELEVANT FACTORS INTO CONSIDER ATION AND THE WELL SETTLED LAW. BEFORE PARTING WITH THE ORDER, WE WOULD LIKE TO CLARIFY THAT THE PROVISIONS OF RULE 8D WILL NOT BE APPLICABLE IN THE ASSESSMENT YEAR UNDER REFERENCE IN VIEW OF THE LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MANUFACTURING CO.LTD., REPORTED AS 3 28 ITR 81. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2012. SD/- SD/- (ABRAHAM P.GEORGE) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 21 ST MARCH, 2012. SOMU ITA NO.1023/MDS /2011 7 COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F .