Appeal details
Counselvise Citation
[2019] 116 COUNSELVISE.COM (IT) 2018 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 3 month(s) 18 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
06-09-2019
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
C
Assessment Year
2009-2010
Appeal Filed On
19-05-2017
Judgement Text
IT A NO. 1108 (B)/201 7 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES : C , BANGALORE BEFORE SHRI B.R.BASKARAN , ACCOUNTANT MEMBER AND SMT.BEENA PILLAI, JUDIC I AL MEMBER ITA NO. 1108( BANG)/201 7 (ASSESSMENT YEAR : 20 09 - 10 ) THE ASST. COMMISSIONER OF INCOME TAX, CIRLE - 5 (1)(1), R.NO.233 , 2 ND FLOOR, BMTC COMPLEX, 80 FT. ROAD, KORAMANGALA, BANGALORE - 560 095 APPELLANT VS M/S NEOBYTES SOFTWARE SOLUTIONS PVT.LTD., NO.50, 1 ST MAIN ROAD, 9 TH CROSS, 3 RD PHASE, JP NAGAR, BANGALORE RESPONDENT REVENUE BY : DR.P.V.PRADEEP KUMAR, ADDL.CIT APPELLANT BY : SHRI S.V.RAVISHANKAR, ADVOCATE DATE OF HEARING : 0 1 - 0 8 - 2019 DATE OF PRONOUNCEMENT : 06 - 09 - 2019 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER : PRESEN T APPEAL PREFERRED BY REVENUE AGAINST ORDER DATED 28/02/2017 PASSED BY LD.CIT(A) - 12, FOR ASSESSMENT YEAR 2009 - 10 ON F OLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(A)_5, BANGALORE IS OPPOSED TO THE LAW AND NOT ON THE FACTS AND CIRCUMSTANCES OF THE C A SE. 2. WHETHER ON THE FACTS A ND CIRCUMSTANCES O F THE CASE, THE CIT(A) IS JUSTIFIED IN DELETING THE DISALLOWANCE OF IT A NO. 1108 (B)/201 7 2 RS.3,18,86,593/ - AS DEDUCTION U/S 10A OF THE IT ACT, 1961 AS MADE BY THE AO ON ACCOUNT OF NON - CHARGING OF DIRECTORS REMUNERATION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN LAW IN DIRECTING THE AO TO REDUCE THE EXPENDITURE INCURRED IN TRAVEL, TELECOMMUNICATION ETC. BOTH FROM THE ETO AS WELL AS THE TTO FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A OF THE IT ACT, WITHOUT APPRECIATING THE FACT THAT THE STATUTE ALLOWS EXCLUSION OF SUCH EXPENDITURE ONLY FROM THE ETO BY WAY OF SPECIFIC DEFINITION OF ETO AS ENVISAGED BY SUB - CLAUSE(4) OF EXPLANATION 2BELOW SUB - SECTION 8 OF S E CTION 10A. O N THE OTHER HAND, T HERE IS NO SPECIFIC PROVISION IN SECTION 10A WARRANTING EXCLUSION OF ABOVE EXPENSES FROM TTO ALSO. 4. FOR THESE AND OTHER GROUNDS HA MAY BE URGED UPON, THE ORDER OF THE CIT(A) MAY BE REVERSED AND THAT ASSESSMENT ORDER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER, AMEND OR DELETE ANY OTHER GROUNDS ON OR BEFORE HEARING OF THE APPEAL. 2. BRIEF FACTS OF THE CASE ARE AS UNDER THE ASSES S EE COMPANY FILED RETURN OF INCOME FOR AY: 2009 - 10 ON 23 - 09 - 2009 DECLA R ING TOTAL INCOME OF RS.9,42,810/ - . THE RETURN WAS PROCESSED U/S 143(1). THIS CASE WAS SELECTED FOR SCRUTINY AS PER CASS AND NOTICE U/S 143(2) WAS DU LY SERVED ON 13.09.2010. A SSESSEE WAS ASKED TO FURNISH DETAILS AS PER NOTICE U/S142(1). LD.AO OBSERVED THAT ASSESSEE DECLARED PROFIT OF RS.11,12 ,31,614/ - ON A TOTAL TURNOVER OF RS.12,75,46,172/ - FOR AY: 2009 - 10 AND NECESSARY ADJUSTMENTS TO NET PROFIT AS PER PROVISIONS OF THE IT ACT, ASSESSEE HAS CLAIMED DEDUCTION OF RS.10,93,62,500/ - U/S 10A AND OFFERED RS.9,42,806/ - AS TAXABLE INCOME. IN SUPPO RT OF CLAIM U/S IT A NO. 1108 (B)/201 7 3 10A, ASSESSEE PRODUCED FORM - 56F DULY CERTIFIED BY CHARTERED ACCOUNTANT. 2.1 IT WAS OBSERVED THAT A SSESSEE DERIVED INCOME FROM ITS ASSOCIATED ENTERPRISE NEOBYTES LLC IN US AND ASSESSEE IS ELIGIB LE TO CLAIM DEDUCTION U/S 10A. ON EXAMINATION OF PROFIT AND LOSS ACCOUNT LD.AO OBSERVED THAT ASSESSEE DECLARED HIGH RATE OF NET PROFIT AMOUNTING TO RS.11,12,31,614/ - ON TURNOVER. THE ASSESSEE WAS THEREFORE, ASKED TO SUBSTANTIATE THE CLAIM OF HIGHER PROFIT FOR AY: 2009 - 10. THE ASSESSEE HO WEVER, SUBMITTED THAT OPERATIONS STATED TOWARDS THE END OF FY : 2007 - 08 AND FROM AY:2009 - 10 TO AY: 2011 - 12, RETURN OF INCOME WE RE FILED CONSISTEN TLY DECLARING HIGHER PROFITS. FURTHER, NOTWITHSTANDING THE FACT THAT DEDUCTION U/S10A WAS NO LONGER AVAILABLE AS PER LAW, ASSESSEE SUBMITTED THAT IT PAID ADVANCE TAX FOR AY: 2012 - 13 ON SIMILAR RA TE OF PROFIT AS DECLARED IN EARLIER ASSESSMENT YEARS. IN SUPPORT OF ITS CONTENTION ASSESSEE PRODUCED COPIES OF P R OFIT AND LOSS ACCOUNT OF SUBSEQUENT ASSESSMENT YEARS AND DE T A ILS OF ADVANCE TAX PAID IN FY: 2011 - 12 BEFORE LD.AO . ACCO R DINGLY, A S SESSEE SUBMITTED THAT PROFIT DECLARED DURING AY: 2009 - 10 WAS BA S ED ON ACTUAL TRANSACTIONS. WHILE FRAMING THE ASSESSMENT, THE LD.AO MADE FOLLOWING DISALLOWANCES: A) THE AO REWORKED THE ELIGIBLE DEDUCTION UNDER SECTION 10A OF THE ACT, FROM RS.10,93,62,500/ - CLAIMED BY THE APPELLANT TO RS.7,74,75,907/ - ALLOWED BY THE AO THEREBY NOT GRANTING AN AMOUNT OF RS.3,18,86,593/ - . B) RE - COMPUTING THE DEDUCTION UNDER SECTION 10A BY MAKING ADJUSTMENT FOR EXPORT TURNOVER AND CONSEQUENTLY, TREATING A SUM OF IT A NO. 1108 (B)/201 7 4 RS.9,49,350/ - AS AMOUNT NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A.. 3. AGGRIEVED BY ADDITIONS MADE, ASSESSEE PREFERRED APPEAL BEFORE LD.CIT(A), WHO ALLOWED CLAIM OF ASSESSEE. 4. AGGRIEVED BY ORDER OF LD.CIT(A) REVENUE IS IN APPEAL BEFORE US NOW. 5. GROUND NO.1, 4 - 5 ARE GENERAL IN NATURE AND DO NOT REQUIRE ADJUDICATION. 6. GROUND NO.2 REVENUE IS AGGRIEVED BY IMPUGNED ORDER AS LD.CIT(A) DELETED ADDITION MADE ON ACCOUNT OF DIRECTORS REMUNERATION. 7. A T THE OUTSET , LD.AR SUBMITTED THAT IT IS OUT OF DOMAIN OF LD.AO TO NOTIONALLY CHARGE DIRECTORS REMUNERATION, WHICH IS CONTRARY TO LAW. IT HAS BEEN SUBMITTED THAT LD.AO CHARGED 25 % OF EXPORT TURN OVER FOR A.Y:2011 - 12 AS REMUNERATION PAYABLE TO DIRECTORS FO R YEAR UNDER CON SIDERATION, THEREBY INFLATED 10 A DEDUCTION. HE SUBMITTED THAT ASSESSEE COMMENCED ITS OPERATIONS DURING AY 2009 - 10 AND SINCE IT WAS THE FIRST YEAR, NO REMUNERATION WAS PAID TO DIRECTORS KEEPING IN VIEW THE UNCERTAIN NATURE OF OPERATIONS AND FUTURE PROSPECTS OF COMPANY. IT HAS BEEN SUBMITTED THAT DIRECTORS WERE PAID REMUNERATION FROM AY: 2011 - 12 AS PER PROVISIONS OF COMPANIES ACT, 1956. LD.CIT , DR PLACED RELIANCE ON ORDERS PASSED BY LD.AO. 8. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 9. LD.CIT(A) DELETED ADDITION BY OBSERVING AS UNDER: 6. FOR THE SERVICES BY A DIRECTOR, THE REMUNERATION PAYABLE HAS TO BE DETERMINED BY THE ARTICLES OF THE COMPANY OR BY A RESOLUTION OR BY A IT A NO. 1108 (B)/201 7 5 SPECIAL RESOLUTION PASSED BY THE COMPANY IN A GENERAL MEETING. IF THE ARTICLES SO REQUIRE. THUS, THE REMUNERATION PAYABLE TO A DIRECTOR MAY VARY FROM YEAR TO YEAR BASED ON THE ARTICLES OR A RESOLUTION PASSED BY THE COMPANY IN A GENERAL MEETING. IT WAS NOT MANDATED UNDER STATUTE THAT REMUNERATION MUST BE PAID TO THE DIRECTORS. THE AO HAS REFERRED TO THE FACT OF REMUNERATION PAID IN AY: 2011 - 12 AND HELD THAT BY NOT DEBITING DIRECTORS REMUNERATION IN THE PROFIT AND LOSS ACCOUNT FOR AY: 2009 - 10, IT HAD CLAIMED HIGHER DEDUCTION U/S 10A. THE AO HAS HELD, THIS IS AGAINST THE PROVISIONS OF LAW. HOWEVER, AS SEEN ABOVE, THERE IS NO SUCH LEGAL PROVISION WHICH REQUIRED CHARGING OF DIRECTORS REMUNERATION. IT IS SETTLED LAW THAT NO EXPENDITURE COULD BE FORC E D ON AN ASSESSEE. THE AO HAS NOT BROUGHT ON RECORD AS TO WHICH SERVICES WERE PROVIDED BY THE DIRECTORS AND FOR WHICH NO REMUNERATION AS P A ID SO AS TO ENABLE THE APPELLANT TO EARN MORE THAN ORDINARY PROFITS. THEREFORE, THE PROVISIONS OF SECTION 801A(10) AND 10A(7) ARE ALSO NOT ATTRAC TED IN THE PRESENT C A SE. UNDER THE CIRCUMSTANCES, THE DISALLOWANCE OF RS.3,18,86,593/ - AS DEDUCTION UNDER SECTION 10A AS MADE BY THE AO ON ACCOUNT OF NOON - CHARGING OF DIRECTORS REMUNERATION IS DELETED. THE G R OUND NOS.3,4,5,6 & 7 ARE ALLOWED. WE ARE OF CONSIDERED OPINION THAT COMMERCIAL EXPEDIENCY OF A COMPANY CANNOT BE QUESTIONED BY REVENUE AND DECISION TO PAY REMUNERATION TO DIRECTORS OR NOT IS WITHIN THE REALM O F MANAGEMENT DECISIONS AND LD.AO HAS NO ROLE TO PLAY IN IT. WE THEREFOR E DO NOT FIND ANY IN FIRMITY IN VIEW OF LD.CIT(A) AND THE SAME IS UPHELD. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS DISMISSED. IT A NO. 1108 (B)/201 7 6 10. GROUND NO.3 IS IN RESPECT OF COMPUTATION OF DEDUCTION UNDER SECTION 10 A OF THE ACT. REVENUE IS AGITATED THAT LD.CIT (A) BY FOLLOWING DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS TATA ELXSI LTD REPORTED IN 349 ITR 98 DIRECTED LD.AO TO COMPUTE DEDUCTION UNDER SECTION 10 A, A S PER RATIO LAID DOWN BY SAP LABS INDIA PVT. LTD. VS A CIT REPORTED IN (2010) 8 TAXMANN.COM 207 AND TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT LTD. VS DCIT HONBLE COURT. IT HAS BEEN AGITATED BY THE LD.CIT, DR THAT TELECOMMUNICATION EXPENSES AND EXPENSES INCURRED IN FOREIGN CURRENCY CANNOT BE REDUCED FROM TOTAL TU RNOVER FOR COMPUTING SECTION 10 A OF THE ACT, AS THERE IS NO SUCH PROVISION. IT HAS BEEN SUBMITTED THAT SECTION 10 A (IV) IS VERY CLEAR THAT SUCH EXPENSES ARE TO BE REDUCED ONLY FROM EXPORT TURNOVER. 11. ON THE CONTRARY, LD.AR SUBMITTED THAT TOTAL TURNOVER IS SUM TOTAL OF EXPORT TURNOVER AND DOMESTIC TURNOVER AND IF AN AMOUNT IS REDUCED FROM EXPORT TURNOVER THEN THE TOTAL TURNOVER ALSO GOES DOWN BY THE SAME AMOUNT AUTOMATICALLY. 12. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. IT IS OBSERVED THAT HONBLE SUPREME COURT WHILE DECIDING CASE OF CIT VS HCL TECHNOLOGIES LTD (2018) 93 TAXMANN.COM 33 HELD AS UNDER: 19. IN THE INSTANT CASE THE DEDUCTION OF RIGHT, TELECOMMUNICATION AND INSURANCE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFT WARE UNDER SECTION 10 A OF THE A CT ARE ALLOWED ONLY INTO EXPORT TURNOVER BUT NOT FROM THE TOTAL TURNOVER THEN, IT WOULD GIVE RISE TO AN INADVERTENT, UNLAWFUL, MEANINGLESS AND ILLOGICAL RESULT WHICH WOULD CAUSE GRAVE INJUSTICE TO THE RESPONDENT WHICH COULD HAVE NEVER BEEN THE INTENTION OF THE LEGISLATURE. IT A NO. 1108 (B)/201 7 7 20. EVEN IN COMMON PARLANCE, WHEN THE OBJECT OF THE FORMALISED TO ARRIVE AT THE PROFIT FROM EXPORT BUSINESS, EXPENSES EXCLUDED FROM EXPORT TURNOVER HAVE TO BE EXCLUDED FROM TOTAL TURN OVER ALSO. OTHERWISE, ANY OTHER INTERPRETATION MAKES THE FORMULA UNWORKABLE AND APPS ERRED. HENCE, WE ARE SATISFIED THAT SUCH DEDUCTION SHALL BE ALLOWED FROM THE TOTAL TURNOVER IN SAME PROPORTION AS WELL. 21. ON THE ISSUE OF EXPENSES OF TECHNICAL SERVICES PROVIDED OUTSIDE, WE HAVE TO FOLLOW THE SAME PRINCIPLE OF INTERPRETATION AS FOLLOWED IN THE CASE OF EXPENSES OF RIGHT, TELECOMMUNICATION ETC, OTHERWISE THE FORMULA OF CALCULATION WOULD BE FUTILE. HENCE, IN THE SAME BE, EXPENSES INCURRED IN FOREIGN EXCHANGE FOR PROVIDING TECHNICAL SERVICES OUTSIDE INDIA SHALL BE ALLOWED TO EXCLUDE FROM THE TOTAL TURNOVER. WE THEREFORE DO NOT FIND ANY INFIRMITY IN VIEW OF LD.CIT(A) AND THE SAME IS UPHELD. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS DISMISSED. 13. IN TH E RESULT APPEAL FILED BY REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 - 09 - 2019 SD/ - SD/ - ( B.R.BASKARAN ) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 6 TH SEPTEMBER, 2019. *AM COPY OF THE OR DER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7.GUARD FILE BY ORDER ASST.REGISTRAR
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