Diksha Technologies Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1064/BANG/2010

• Counselvise Citation: 106421114 RSA 2010
• Duration Of Justice: 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Services rendered outside India
• Section: 143(3); 10B; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.1064/B/2010 (ASSESSMENT YEAR : 2006-07) M/S DIKSHA TECHNOLOGIES PVT.LTD., NO.508, FLAT NO.14, 5 TH FLOOR, H.M.GENEVA HOUSE, CUNNINGHAM ROAD, BANGALORE. APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(1), BANGALORE. RESPONDENT AND ITA NO.1113/ B/2010 (ASSESSMENT YEAR : 2006-07) THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(1), BANGALORE. APPELLANT VS M/S DIKSHA TECHNOLOGIES PVT. LTD., NO.508, FLAT NO.14, 5 TH FLOOR, H.M.GENEVA HOUSE, CUNNINGHAM ROAD, BANGALORE. RESPONDENT ASSESSEE BY : SHRI PADAM CHAND KHINCHA, CA REVENUE BY : SMT JACINTA ZIMIK VASHAI, ADDL.C IT O R D E R PER SMT P. MADHAVI DEVI, JM BOTH OF THESE ARE CROSS APPEALS FOR THE ASSESSMENT YEARS 2006-07. ITA NOS.1064& 1113(B)/10 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF DEVELOPM ENT AND EXPORT OF COMPUTER SOFTWARE. IT IS ALSO REGISTERED UNDER THE STPI/EOU SCHEME. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 22-11-2006 DECLARING A T OTAL INCOME OF RS.59,90,038/-. THE ASSESSEE ALSO CLAIMED DEDUC TION U/S 10B OF THE IT ACT. DURING THE ASSESSMENT PROCEEDINGS U/ S 143(3) OF THE ACT, THE AO OBSERVED THAT OUT OF THE TOTAL EXPORT T URNOVER OF RS.2,68,55,904/-, A SUM OF RS.58,62,211/- IS RECEIV ED TOWARDS PROVIDING CONSULTANCY SERVICES OUTSIDE INDIA. A SUM OF RS.4,93,972/- WAS RECEIVED TOWARDS TRAVELING EXPENS ES FOR PROVIDING CONSULTANCY SERVICES/TECHNICAL SERVICES O UTSIDE INDIA AND ALSO A SUM OF RS.1,00,54,416/- WAS RECEIVED AFTER S IX MONTHS FROM THE END OF THE FINANCIAL YEAR ENDING ON 31-03-2006. 3. THE AO OBSERVED THAT A SUM OF RS.58,62,211/- WA S RECEIVED FROM DAEMON ENTERPRISES, SINGAPORE TOWARDS PROJECT CONSULTANCY CHARGES PROVIDED OUTSIDE INDIA. HE ALS O OBSERVED FROM THE DETAILS OF INVOICES RAISED BY THE COMPANY THAT THE AMOUNT RECEIVED FROM FOREIGN CUSTOMER IS AGAINST THE EXPOR T OF SOFTWARE AND CONSULTANCY CHARGES. HE HELD THAT THE PROJECT C ONSULTANCY CHARGES ARE NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S 10B OF THE IT ACT. ACCORDINGLY, HE REDUCED THE EXPORT TURNOVER B Y THIS AMOUNT. ITA NOS.1064& 1113(B)/10 3 HE OBSERVED THAT AN AMOUNT OF RS.1,00,54,416/- HAS BEEN RECEIVED BY THE ASSESSEE AFTER THE EXPIRY OF SIX MONTHS FROM THE DATE OF INVOICE AND THEREFORE, THE SAME IS NOT ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. HE ACCORDINGLY, REDUCED THE EXPORT TURNOVER BY THIS AMOUNT ALSO. 4. FURTHER, THE AO OBSERVED THAT WHILE ADOPTING TH E EXPORT TURNOVER, THE ASSESSEE HAS NOT EXCLUDED THE INTERNE T CHARGES AMOUNTING TO RS.1,74,722/- AND EXPENSES INCURRED IN FOREIGN CURRENCY AMOUNTING TO RS.3,73,075/- AND TRAVELING E XPENSES OF RS.4,93,972/-. ON ENQUIRY BY THE AO, THE ASSESSEE IN ITS LETTER DATED 27-11-2008 HAS STATED THAT THE EXPENSES TOWAR DS INTERNET AND THE EXPENSES INCURRED IN FOREIGN CURRENCY ARE A TTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDIA. HOWEVER, THE AO OBSERVED THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE DETAILS S UCH AS AT WHAT PERCENTAGE OR PROPORTION OF THESE EXPENSES HAD BEEN EXPENDED FOR DELIVERY OF SOFTWARE OUTSIDE INDIA. THEREFORE, HE HELD THAT A SUM OF RS.10,41,769/- IS THE AMOUNT ATTRIBUTABLE TO THE DE LIVERY OF SOFTWARE OUTSIDE INDIA AND FOR PROVIDING CONSULTANC Y SERVICES AND ACCORDINGLY, HE REDUCED THIS AMOUNT FROM THE EXPORT TURNOVER FOR PURPOSE OF COMPUTING THE DEDUCTION U/S 10B OF THE I T ACT AND THEREAFTER ASSESSED THE INCOME OF THE ASSESSEE. ITA NOS.1064& 1113(B)/10 4 5. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT(A), WHO CONFIRMED THE ADDITION OF RS.58,62,211/ - AND ALSO RS.4,93,92/- AND RS.5,48,297/- INCURRED ON FOREIGN TRAVEL EXPENSES AND INTERNET CHARGES RESPECTIVELY, AFTER O BSERVING THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS RELATING TO THESE EXPENDITURES. ALTERNATIVELY, THE ASSESSEES CONTEN TION WAS THAT IF THE SAME IS EXCLUDED FROM THE EXPORT TURNOVER THAN IT SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER. ON THIS ALTER NATE PRAYER, THE CIT(A) HELD AGAINST THE ASSESSEE BY FOLLOWING HIS O WN ORDER IN THE CASE OF M/S JAIPURIA SILK MILLS (P)LTD., AND M/S IB M GLOBAL SERVICES INDIA PVT. LTD., 6. AS REGARDS THE REALIZATION OF EXPORT SALE PROCE EDS AMOUNTING TO RS.1,00,54,416/- RECEIVED AFTER A PERI OD OF SIX MONTHS FROM THE END OF THE RELEVANT FINANCIAL YEAR. THE CIT(A) DELETED THE ADDITION BY HOLDING THAT SUB-SEC.11A OF SEC.155 OF THE IT ACT EMPOWERS THE AO TO DEAL WITH THE RECEIPT OF EXPORT PROCEEDS AFTER EXPIRY OF SIX MONTHS AND TO TREAT THE SAME AS PART AND PARCEL OF THE EXPORT TURNOVER AND TO ALLOW THE DEDUCTION A CCORDINGLY U/S 10A AND 10B OF THE IT ACT. BUT SINCE, IN THE REMAN D REPORT THE AO HAD CONSIDERED SUCH ISSUE AND HAD DENIED THE ASSESS EE THE BENEFIT OF CONSIDERATION, THE CIT(A) DIRECTED THE AO TO INC LUDE THE SUM OF RS.1,00,54,416/- RECEIVED IN CFE WITHIN A PERIOD O F SIX MONTHS ITA NOS.1064& 1113(B)/10 5 FROM THE END OF THE PREVIOUS YEAR IN EXPORT TURNOVE R AND RE- COMPUTE THE ELIGIBLE DEDUCTION. AGAINST THE RELIEF GIVEN BY THE LEARNED CIT(A), THE REVENUE IS IN APPEAL BEFORE US AND AGAINST THE REDUCTION OF INTERNET CHARGES AND EXPENSES INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER AND AGAINST THE R EDUCTION OF RECEIPT OF CONSULTANCY CHARGES FOR SERVICES OUTSIDE INDIA RENDERED FROM THE EXPORT TURNOVER, THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 7. WITH REGARD TO ASSESSEES APPEAL, LEARNED COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A EXPORT OR IENTED UNDERTAKING ENGAGED IN THE BUSINESS OF DESIGNING AN D DEVELOPING OF COMPUTER SOFTWARE AND EXPORT OF THE SAME. HE SU BMITTED THAT THE NATURE OF ASSESSEES BUSINESS DEMANDS THAT AFTE R DESIGNING AND DEVELOPING THE COMPUTER SOFTWARE, THE ASSESSEE HAS TO EXPORT THE SAID SOFTWARE AND ALSO HAS TO RENDER THE CONSULTANC Y SERVICES AT THE LOCATION OF THE CLIENT OUTSIDE INDIA, IN ORDER TO FACILITATE ITS IMPLEMENTATION AND FUNCTIONING. THUS, ACCORDING TO HIM, THE CONSULTANCY SERVICES RENDERED OUTSIDE INDIA IS ONLY WITH REGARD TO DESIGN DEVELOPED BY THE ASSESSEE IN INDIA AND IT IS NOT FOR ANY INDEPENDENT CONSULTANCY SERVICES RENDERED OUTSIDE I NDIA. IN SUPPORT OF HIS CONTENTION THAT THE CONSULTANCY SERV ICES DELIVERED AT THE LOCATION OF FOREIGN CLIENT OUTSIDE INDIA IS ALS O ELIGIBLE FOR ITA NOS.1064& 1113(B)/10 6 DEDUCTION U/S 10B OF THE ACT, HE PLACED RELIANCE ON THE CBDT CIRCULAR NO.621 DATED 19-12-1991 REPORTED IN 195 IT R(ST.) 154 WHEREIN, IT HAS BEEN CLEARLY MENTIONED THAT WITH A VIEW TO PROVIDE FISCAL INCENTIVE FOR PROMOTING EXPORT OF COMPUTER S OFTWARE, A NEW SEC.80HHE HAS BEEN INSERTED IN THE INCOME-TAX ACT F OR PROVIDING TAX CONCESSIONS SIMILAR TO THOSE AVAILABLE U/S 80HH C OF THE IT ACT IN RELATION TO COMMODITY EXPORTS. PARA 34.2 OF THE SAID CIRCULAR LISTS OUT THE BROAD FEATURES OF THE NEW PROVISION AND CLA USE-(I) OF THAT PART PROVIDES THAT THE TAX CONCESSION WILL BE AVAIL ABLE WITH REGARD TO EXPORT PROFITS FROM EXPORT OF SOFTWARE NOT ONLY THROUGH MAGNETIC MEDIA OR ON PAPER BUT ALSO THROUGH SATELLITE DATA L INK AND CONSULTANCY DELIVERED AT THE LOCATION OF FOREIGN CL IENT OUTSIDE INDIA (EMPHASIS SUPPLIED BY US) . THUS ACCORDING TO HIM, THE SAME IS NOT TO BE EXCLUDED FROM THE EXPORT TURNOVER. SIMILARLY , IN SUPPORT OF HIS CONTENTION THAT INTERNET CHARGES AND EXPENDITUR E INCURRED IN FOREIGN CURRENCY AND TRAVEL EXPENSES ARE FOR THE PU RPOSES OF DELIVERY OF SOFTWARE OUTSIDE INDIA AND THE SAME IS NOT TO BE EXCLUDED FROM THE EXPORT TURNOVER, HE PLACED RELIAN CE UPON THE DEFINITION OF EXPORT TURNOVER GIVEN IN CLAUSE-III TO EXPLANATION -2 OF SEC.10B OF THE IT ACT. 7.1 THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW. HAVING HEARD BOTH THE PARTIES A ND HAVING ITA NOS.1064& 1113(B)/10 7 CONSIDERED THE RIVAL CONTENTIONS, WE FIND THAT THE ASSESSEES CONTENTION IS THAT CONSULTANCY CHARGES RECEIVED ARE FOR THE CONSULTANCY PROVIDED BY THE ASSESSEE WITH REGARD TO THE SOFTWARE DEVELOPED BY IT IN INDIA AND EXPORTED OUTSIDE INDIA . HOWEVER, THIS FACT HAS NOT BEEN VERIFIED BY ANY OF THE AUTHORITIE S BELOW. FURTHER, IT HAS BEEN CONTENDED THAT THE CONSULTANCY SERVICES HAVE BEEN RENDERED OUTSIDE INDIA BY THE ASSESSEE IN ORDER TO SUFFICIENTLY IMPLEMENT THE SOFTWARE DESIGN DEVELOPED BY IT AND T HEREFORE, THE SAME CANNOT BE EXCLUDED FROM THE EXPORT TURNOVER FO R THE PURPOSE OF COMPUTING DEDUCTION U/S 10B OF THE IT ACT. THIS CONTENTION ALSO WAS NOT CONSIDERED BY THE AUTHORITIES BELOW. IN V IEW OF THE SAME, THE AO IS DIRECTED TO VERIFY WHETHER IT IS FOR INDE PENDENT CONSULTANCY SERVICES RENDERED OUTSIDE INDIA OR IF I T IS FOR CONSULTANCY RENDERED AT THE SITE OF THE ASSESSEES CUSTOMER FOR THE PROPER IMPLEMENTATION AND USE OF SOFTWARE DESIGN DE VELOPED BY THE ASSESSEE IN INDIA AND IF IT IS FOUND THAT IT IS FOR INDEPENDENT CONSULTANCY SERVICES RENDERED OUTSIDE INDIA ONLY TH EN CAN IT BE EXCLUDED FROM THE EXPORT TURNOVER AND NOT OTHERWISE . WITH THESE DIRECTIONS, THE ISSUE IS REMANDED TO THE FILE OF TH E ASSESSING OFFICER. 8. AS REGARDS THE INTERNET CHARGES ARE CONCERNED, THE SAME CANNOT BE INCLUDED IN THE EXPORT TURNOVER, IF THEY ARE ATTRIBUTABLE ITA NOS.1064& 1113(B)/10 8 TO THE DELIVERY OF THE ARTICLES OR SOFTWARE OUTSIDE INDIA. SINCE THE INTERNET CHARGES CANNOT BE SAID TO BE FOR ANY OTHER PURPOSES OTHER THAN DELIVERY OF SOFTWARE OUTSIDE INDIA, THE SAME H AVE TO BE EXCLUDED FROM THE TOTAL TURNOVER. HOWEVER, THE CONT ENTION OF THE ASSESSEE IS THAT THEY ARE NOT FORMING PART OF EXPOR T TURNOVER AND CANNOT BE EXCLUDED FROM THE SAME. THIS FACT NEEDS TO BE VERIFIED BY THE AO. THEREFORE, WE DIRECT THE AO TO VERIFY IF THE EXPORT TURNOVER INCLUDES THE INTERNET CHARGES AND OTHER EX PENSES CLAIMED BY THE ASSESSEE AND ONLY IF THEY ARE FOUND TO BE IN CLUDED THEY ARE TO BE EXCLUDED. FURTHER, WHERE ANY AMOUNT IS EXCLUD ED FROM THE EXPORT TURNOVER, THE SAME IS ALSO TO BE REDUCED FRO M THE TURNOVER AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL AT CHE NNAI IN THE CASE OF M/S SAKSOFT LTD., REPORTED IN 313 ITR (AT). RESPECTFULLY, FOLLOWING THE SAME, WE DIRECT THAT TH E AO SHALL EXCLUDE ALL THE AMOUNTS EXCLUDED FROM THE EXPORT TU RNOVER, ALSO FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTIN G DEDUCTION U/S 10B OF THE ACT. AS REGARDS THE TRAVELING EXPENSES AND EXPENDITURE I NCURRED IN FOREIGN CURRENCY IS CONCERNED, WE FIND THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS OF THE PURPOSE FOR WHICH THIS EXPENDITURE WAS INCURRED. THEREFORE, THE SAME ALSO HAS TO BE EXCL UDED FROM THE EXPORT AND TOTAL TURNOVER. ITA NOS.1064& 1113(B)/10 9 9. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. 10. AS REGARDS THE REVENUES APPEAL, THE LEARNED DR PLACED RELIANCE UPON THE ORDER OF THE AO WHILE THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDERS OF THE CIT(A) AND ALS O PLACED RELIANCE UPON VARIOUS JUDICIAL PRECEDENTS ON THE IS SUE. SHE ALSO FILED PAPER BOOK CONTAINING THE COPIES OF THE FOLLO WING JUDICIAL PRECEDENT WHICH IS AS UNDER; M/S WIPRO LTD., VS DCIT,CIRCLE-1(3),BANGALORE M/S TAXCORP E-PRACTICE MEGA DVD (2009) 30 SOT 1(MUM .) 10.1 IN THE CASE OF M/S WIPRO LTD., REPORTED IN (20 09) TIOL 72 ITAT, BANGALORE AND IN THE CASE OF M/S TAXCORP E -PRACTICE MEGA DVD REPORTED IN (2009) 30 SOT 1(MUM.), IT HAS BEEN HELD THAT WHERE THE ASSESSEE HAS MADE AN APPLICATION TO THE AUTHORITY SEEKING EXTENSION FOR RECEIPT OF REMITTANCE AS PER FEMA REGULATION AND THE RBI HAS TAKEN THE REMITTANCE ON RECORD THEN IT SHOULD BE ASSUMED THAT RBI HAS GIVEN DEEMED APPROVAL AND SUCH RECEIPT IS TO BE CONSIDERED FOR DEDUCTION U/S 10B OF THE IT AC T. 10.2 HAVING HEARD BOTH THE PARTIES AND HAVING GONE THROUGH THE MATERIAL ON RECORD AND ALSO JUDICIAL PRECEDENTS CITED SUPRA, WE FIND THAT THE ORDER OF THE CIT(A) IS IN CONSONANCE WITH THE ABOVE DECISIONS. RESPECTFULLY, FOLLOWING THE DECISION OF THE CO-ORDINATE ITA NOS.1064& 1113(B)/10 10 BENCHES, WE DO NOT FIND ANY REASON TO INTERFERE WIT H THE ORDER OF CIT(A), HENCE THE REVENUES APPEAL IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVE NUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE (A. MOHAN ALANKAMONY ) (SMT. P. MADHA VI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE: BANGALORE DATED: 05-08-2011 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) BY ORDER AR, ITAT, BANGALORE