SECOVA eServices Pvt Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1035/CHNY/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7674 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 06-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Bad and doubtful debts; Capital expenditure
• Section: 115JB; 10B; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO. 1035/MDS/2015 / ASSESSMENT YEAR : 2010-11 M/S. SECOVA ESERVICES PVT. LTD., RR TOWER III, SECOND FLOOR, TVK INDUSTRIAL ESTATE GUINDY, CHENNAI 600 032. PAN : AAHCS3174R V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI 600 034. ( /APPELLANT) ( !' /RESPONDENT) ./ ITA NOS. 1171 & 1172/MDS/2015 / ASSESSMENT YEARS : 2010-11 & 2011-12 & CO NO. 76/MDS/2015 / ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI 600 034. V. M/S. SECOVA ESERVICES PVT. LTD., RR TOWER III, SECOND FLOOR, TVK INDUSTRIAL ESTATE GUINDY, CHENNAI 600 032. PAN : AAHCS3174R ( /APPELLANT) ( !' /RESPONDENT) /ASSESSEE BY : SHRI R. VIJAYARAGHAVAN, ADVOCAT E /REVENUE BY : SHRI N. MADHAVAN, JCI T # /DATE OF HEARING : 30.01.2017 # /DATE OF PRONOUNCEMENT : 28.02.2017 2 I.T.A. NO.1035/MDS/2015 I.T.A. NOS.1171 & 11 72 /MDS/2015 CO. NO.76 /MDS/2015 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THE ASSESSEE AND THE REVENUE FILED THE APPEALS FOR T HE ASSESSMENT YEAR 2010-11 AND THE REVENUE HAS ALSO FI LED THE APPEAL FOR THE ASSESSMENT YEAR 2011-12. THE ASSESSEE FILED CROSS OBJECTION FOR THE YEAR 2011-12. SINCE COMMON ISSUE ARISES FO R CONSIDERATION IN ALL THE APPEALS, WE HEARD THE SAME TOGETHER AND DIS POSING OFF THE SAME BY THIS COMMON ORDER. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IN ALL T HE THREE APPEALS IS WITH REGARD TO COMMUNICATION EXPENSES AND FOREIG N TRAVEL EXPENSES. 2.1. SHRI R. VIJAYARAGHAVAN, THE LD. COUNSEL FOR TH E ASSESSEE SUBMITTED THAT COMMUNICATION EXPENSES AND FOREIGN T RAVEL EXPENSES ARE PART OF THE EXPORT TURNOVER AND THE ASSESSING O FFICER HAS INCLUDED THE SAME AS SUCH. ACCORDING TO THE LD. COUNSEL, TH E COMMUNICATION CHARGES ARE INCLUDED IN INDIAN CURRENCY AND NOT IN FOREIGN CURRENCY. THE EXPORT TURNOVER MAY NOT INCLUDE THE COMMUNICATIO N CHARGES SO AS TO WARRANT THE EXCLUSION OF THE SAME FROM THE EXPOR T TURNOVER. 3 I.T.A. NO.1035/MDS/2015 I.T.A. NOS.1171 & 11 72 /MDS/2015 CO. NO.76 /MDS/2015 2.2. ON THE CONTRARY, SHRI N. MADHAVAN, THE LD. DEP ARTMENTAL REPRESENTATIVE SUBMITTED THAT THE FOREIGN TRAVEL EX PENSES AND COMMUNICATION EXPENSES ARE RELATED TO PROVIDING TEC HNICAL SERVICES OUTSIDE INDIA. THEREFORE, THE ASSESSING OFFICER RE DUCED BOTH COMMUNICATION EXPENSES AND FOREIGN TRAVEL EXPENSES FROM EXPORT TURNOVER AND INCLUDE THE SAME IN THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING ELIGIBLE DEDUCTION UNDER SECTION 10B OF T HE ACT. ACCORDING TO THE LD. D.R., EXPENSES LIKE FREIGHT, TELECOMMUNI CATION CHARGES, INSURANCE CHARGES AND OTHER CHARGES INCURRED IN FOR EIGN CURRENCY IN THE COURSE OF PROVIDING TECHNICAL SERVICES OUTSIDE INDIA CANNOT FORM PART OF EXPORT TURNOVER. THEREFORE, THE CIT (APPEALS ) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R. 2.3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESS ING OFFICER EXCLUDED THE TELECOMMUNICATION CHARGES AND FOREIGN TRAVEL EXPENDITURE FROM EXPORT TURNOVER WHILE COMPUTING DE DUCTION UNDER SECTION 10B OF THE ACT, HOWEVER, INCLUDED THE SAME IN TOTAL TURNOVER. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE EXPORT TURNOVER AND THE TOTAL TURNOVER SHALL BE OF THE SAME FACTORS, WH AT WAS EXCLUDED IN EXPORT TURNOVER CANNOT BE INCLUDED IN THE TOTAL TUR NOVER. OTHERWISE THE 4 I.T.A. NO.1035/MDS/2015 I.T.A. NOS.1171 & 11 72 /MDS/2015 CO. NO.76 /MDS/2015 RESULTANT FIGURE MAY NOT RESULT THE CORRECT RESULT. MOREOVER, THE SPECIAL BENCH OF THIS TRIBUNAL EXAMINED THE SAME IN ITO V M/S. SAK SOFT LIMITED 313 ITR 353 AND FOUND THAT BOTH THE EXP ORT TURNOVER AND THE TOTAL TURNOVER SHALL BE OF THE SAME FACTORS. TH EREFORE, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSE SSING OFFICER IS DIRECTED TO EXCLUDE THE TELECOMMUNICATION CHARGES A ND FOREIGN TRAVEL CHARGES BOTH FROM THE EXPORT TURNOVER AND TOTAL TUR NOVER AND THEREAFTER COMPUTE THE ELIGIBLE DEDUCTION UNDER SECTION 10B OF THE ACT. 3. THE NEXT ISSUE ARISES FOR CONSIDERATION IS SET OF F OF EARLIER LOSS AGAINST THE ELIGIBLE PROFIT BEFORE GRANTING DEDUCTI ON UNDER SECTION 10B OF THE ACT. 3.1 SHRI R. VIJAYARAGHAVAN, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE WAS EXAMINED BY THE APEX COURT IN CIT V YOKOGAWA INDIA LIMITED 2016-TIOL-228-SC-IT. THE SUPRE ME COURT FOUND THAT THE AGGREGATE OF THE INCOMES UNDER THE OTHER HEADS AND THE PROVISIONS OF SET OFF AND CARRY FORWARD CONTAINED U NDER SECTIONS 70, 72 AND 74 OF THE ACT WOULD BE PREMATURE FOR APPLICATION. T HE DEDUCTIONS UNDER SECTION 10A THEREFORE WOULD BE PRIOR TO COMMENCEMENT OF THE EXERCISE TO BE UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INCOME OF THE 5 I.T.A. NO.1035/MDS/2015 I.T.A. NOS.1171 & 11 72 /MDS/2015 CO. NO.76 /MDS/2015 ASSESSEE FROM THE GROSS TOTAL INCOME . IN VIEW OF THIS JUDGMENT OF THE APEX COURT, THE LD. COUNSEL SUBMITTED THAT BROUGHT FORWA RD LOSSES CANNOT BE SET OFF BEFORE COMPUTING ELIGIBLE DEDUCTION UNDER S ECTION 10A OF THE ACT. THEREFORE ACCORDING TO THE LD. COUNSEL, BOTH THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN SETTING OFF THE BROUGHT FORWARD LOSSES BEFORE ALLOWING DEDUCTION UNDER SECTION 10B OF THE ACT. 3.2 WE HEARD SHRI N. MADHAVAN, THE LD. DEPARTMENTAL REPRESENTATIVE ALSO. IN VIEW OF THE JUDGMENT OF TH E APEX COURT IN YOKOGAWA INDIA LIMITED SUPRA, THE BROUGHT FORWARD LOSSES CANNOT BE SET OFF BEFORE COMPUTING DEDUCTION UNDER SECTION 10 B OF THE ACT. THEREFORE, WE ARE UNABLE TO UPHOLD THE ORDER OF THE LOWER AUTHORITIES. ACCORDINGLY, THE ORDER OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE ELIGIB LE DEDUCTION UNDER SECTION 10B OF THE ACT BEFORE SETTING OFF THE BROUG HT FORWARD LOSSES AS HELD BY THE APEX COURT IN YOKOGAWA INDIA LIMITED SUPRA. 4. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISAL LOWANCE OF ADVANCE WRITTEN OFF TO THE EXTENT OF 8,06,134/-. 6 I.T.A. NO.1035/MDS/2015 I.T.A. NOS.1171 & 11 72 /MDS/2015 CO. NO.76 /MDS/2015 4.1 SHRI R. VIJAYARAGHAVAN, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WRITTEN OFF 8,06,134/- UNDER THE HEAD PROVISION FOR DOUBTFUL DEBTS UNDER THE NORMAL PROVI SIONS OF THE INCOME TAX ACT. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THESE ARE ALL NOT ALLOW ABLE AS DEDUCTIONS. ACCORDING TO THE LD. COUNSEL EVEN THOUGH IT IS A PR OVISION FOR DOUBTFUL DEBTS, IT WAS WRITTEN IN THE BOOKS OF ACCOUNT. THERE FORE IT HAS TO BE ALLOWED WHILE COMPUTING TAXABLE INCOME. 4.2 ON THE CONTRARY, SHRI N. MADHAVAN, THE LD. DEPA RTMENTAL REPRESENTATIVE SUBMITTED THAT WHAT WAS WRITTEN OFF BY THE ASSESSEE IS A CAPITAL LOSS AND NOT AN ACTUAL EXPENDITURE. SINC E IT IS A CAPITAL LOSS, EVEN THOUGH IT WAS WRITTEN OFF THE SAME CANNOT BE A LLOWED AS DEDUCTION. 4.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NO T IN DISPUTE THAT WHAT WAS WRITTEN OFF BY THE ASSESSEE IS A CAPITAL LOSS A ND NOT THE EXPENDITURE. THEREFORE, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT THE CIT (APPEALS) HAS RIGHTLY CONFIRMED THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER. ACCORDINGLY THE SAME IS CONFIRM ED. 7 I.T.A. NO.1035/MDS/2015 I.T.A. NOS.1171 & 11 72 /MDS/2015 CO. NO.76 /MDS/2015 5. NOW COMING TO THE PROVISION FOR DOUBTFUL DEBTS. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E SHIFTED THE PREMISES TO THE NEW LOCATION. THE ADVANCE GIVEN BY THE ASSESSEE TO THE LESSOR WAS NOT RETURN BY THE LESSOR. SINCE, THE ADVANCE COULD NOT BE RECOVERED THE SAME WAS WRITTEN OFF IN THE BO OKS OF ACCOUNTS. 5.1 ON THE CONTRARY, SHRI N. MADHAVAN, THE LD. DEP ARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE ADVANCED THE MONEY FOR THE PURPOSE OF ACQUIRING A PROPERTY BY LEASE. THERE FORE IT IS A CAPITAL EXPENDITURE. WHEN THE ASSESSEE INCURRED A CAPITAL EXPENDITURE FOR THE PURPOSE OF ACQUIRING A BUSINESS PREMISES AND TH E SAME COULD NOT BE RECOVERED, THE LOSS WOULD BE ON THE CAPITAL ACCO UNT. THEREFORE, IT WOULD ALSO NOT BE ALLOWED. 5.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTED LY, THE ADVANCE WAS MADE BY THE ASSESSEE FOR ACQUIRING THE LEASE PR EMISES FOR THE PURPOSE OF BUSINESS. THEREFORE, THE LOSS SUFFERED B Y THE ASSESSEE IS ONLY ON THE CAPITAL ACCOUNT. THEREFORE IT CANNOT BE ALLOWED WHILE COMPUTING THE TAXABLE INCOME. THEREFORE, THIS TRIBU NAL DO NOT FIND ANY 8 I.T.A. NO.1035/MDS/2015 I.T.A. NOS.1171 & 11 72 /MDS/2015 CO. NO.76 /MDS/2015 REASON TO INTERFERE WITH THE ORDERS OF THE LOWER AU THORITIES. ACCORDINGLY, THE SAME IS CONFIRMED. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO SET O FF EARLIER LOSSES WHILE COMPUTING INCOME UNDER SECTION 115JB O F THE ACT. 6.1 SHRI R. VIJAYARAGHAVAN, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER MAY BE DIRECTE D TO RECOMPUTED THE PROFIT UNDER SECTION 115JB OF THE ACT, WHILE GI VING EFFECT TO THE ORDER OF THIS TRIBUNAL. 6.2 SHRI N. MADHAVAN, THE LD. DEPARTMENTAL REPRESEN TATIVE ALSO FIRMLY SUBMITTED THAT THE ASSESSING OFFICER MAY REC OMPUTED THE INCOME UNDER SECTION 115JB OF THE ACT. 6.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS RIGHT LY SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. DEPARTMENT AL REPRESENTATIVE, THE ASSESSING OFFICER SHALL RECONSI DER THE ISSUE AFRESH WITH REGARD TO SET OFF OF EARLIER YEAR LOSSE S WHILE COMPUTING PROFIT UNDER SECTION 115JB OF THE ACT. ACCORDINGLY , THE ORDERS OF THE 9 I.T.A. NO.1035/MDS/2015 I.T.A. NOS.1171 & 11 72 /MDS/2015 CO. NO.76 /MDS/2015 LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE IS RE MITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHA LL RECONSIDER THE ISSUE AFRESH WITH LAW AFTER GIVING REASONABLE OPPOR TUNITY TO THE ASSESSEE. 7. THE NEXT ISSUE ARISES FOR CONSIDERATION IS LEVY O F INTEREST UNDER SECTION 234C OF THE ACT. 7.1 WE HEARD SHRI R. VIJAYARAGHAVAN, THE LD. COUNSE L FOR THE ASSESSEE AND SHRI N. MADHAVAN, THE LD. DEPARTMENTAL REPRESENTATIVE. IT IS NOT IN DISPUTE THAT LEVY OF INTEREST UNDER SECTION 234C OF THE ACT IS MANDATORY UNDER THE SCHEME OF IN COME TAX ACT. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO RECO MPUTE THE INTEREST UNDER SECTION 234C OF THE ACT, AFTER GIVING A REASO NABLE OPPORTUNITY TO THE ASSESSEE IN ACCORDANCE WITH LAW. 8. NOW COMING TO THE REVENUES APPEAL, THE FIRST GR OUND OF APPEAL IS WITH REGARD TO EXCLUSION OF COMMUNICATION CHARGES AND FOREIGN TRAVEL EXPENSES FROM THE EXPORT TURNOVER AN D THE TOTAL TURNOVER. 10 I.T.A. NO.1035/MDS/2015 I.T.A. NOS.1171 & 11 72 /MDS/2015 CO. NO.76 /MDS/2015 8.1 WE HEARD SHRI N. MADHAVAN, THE LD. DEPARTMENTAL REPRESENTATIVE AND SHRI R. VIJAYARAGHAVAN, THE LD. COUNSEL FOR THE ASSESSEE. WHILE DISCUSSING THE ASSESSEES APPEAL F OR THE ASSESSMENT YEAR 2010-11, THIS TRIBUNAL AFTER REFERRI NG TO THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN M/S. SAK SO FT LIMITED AND FOUND THAT BOTH TELECOMMUNICATION CHARGES AND TRAVE L CHARGES SHALL BE EXCLUDED FROM THE EXPORT TURNOVER AND THE TOTAL TURNOVER. THIS TRIBUNAL FOUND THAT THE TOTAL TURNOVER AND THE EXPOR T TURNOVER SHALL BE OF THE SAME FACTORS. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND THE SAME IS CONFIRMED. 9. THE REVENUE HAS TAKEN ONE MORE GROUND FOR THE ASS ESSMENT YEAR 2010-11, WITH REGARD TO SET OFF OF BUSINESS LO ANS AND DEPRECIATIONS FROM THE ELIGIBLE PROFIT. THE APEX CO URT IN YOKOGAWA INDIA LIMITED EXAMINED THIS ISSUE AND FOUND THAT AT THE TIME OF COMPUTING ELIGIBLE DEDUCTION UNDER SECTION 10A OF T HE ACT, APPLICATION OF SECTION 70, 72 & 74 OF THE ACT WOULD BE PREMATUR E. THE APEX COURT FURTHER FOUND THAT THE STAGE OF DEDUCTION OF LOSSES WOULD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UN DERTAKING UNDER CHAPTER IV OF THE ACT AND NOT AT THE STAGE OF COM PUTING TOTAL INCOME 11 I.T.A. NO.1035/MDS/2015 I.T.A. NOS.1171 & 11 72 /MDS/2015 CO. NO.76 /MDS/2015 UNDER CHAPTER VI OF THE ACT. IN VIEW OF THE ABOV E DECISION OF THE APEX COURT, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITIES AND THE SAME IS CONF IRMED. 10. TO SUM UP THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.1035 OF 2015 IS PARTLY ALLOWED WHILE THE REVENUE APPEALS IN ITA NOS. 1171 & 1172 OF 2015 ARE DISMISSED. THE CROSS O BJECTION OF THE ASSESSEE IS ONLY TO SUPPORT THE ORDER OF THE CIT (AP PEALS) FOR THE ASSESSMENT YEAR 2011-12. THIS TRIBUNAL IS OF THE CO NSIDERED OPINION THAT TO SUPPORT THE ORDER OF THE CIT (APPEALS), CROS S OBJECTION IS NOT MAINTAINABLE. THEREFORE, THE CROSS OBJECTION OF TH E ASSESSEE IN CO NO.76 OF 2015 BECOMES INFRUCTUOUS. ACCORDINGLY THE SAME IS DISMISSED. ORDER PRONOUNCED ON 28 TH FEBRUARY, 2017 AT CHENNAI. SD/- SD/- ( . . ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) /ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, /DATED, THE 28 TH FEBRUARY, 2017. JR. 12 I.T.A. NO.1035/MDS/2015 I.T.A. NOS.1171 & 11 72 /MDS/2015 CO. NO.76 /MDS/2015 # ! $ % $ /COPY TO: 1. /APPELLANT 2. !' /RESPONDENT 3. &' ( )/CIT(A) 15, CHENNAI 4. &' /CIT 5. ! $ /DR 6. () /GF.