Polaris Financial Technology Limited, CHENNAI V. DCIT, CHENNAI

ITA 12/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4604 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 13-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 02-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: DR ANITHA SUMANTH
• Keywords: Earning of tax free income; Reasonable cause
• Section: 80HHC; 234B; 14A; 10; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NOS.12 & 13 /MDS/2013 (ASSESSMENT YEARS: 2007-08 & 2008-09) M/S. POLARIS FINANCIAL TECHNOLOGY LIMITED (FORMERLY KNOWN AS POLARIS SOFTWARE LAB LTD.) 244, CAREX CENTER, POLARIS HOUSE, ANNA SALAI, CHENNAI-600 006. PAN:AAACP4341E VS. DEPUTY COMMISSIONER OF INCOME TAX COMPANY CIRCLE V(2), AAYAKAR BHAVAN, CHENNAI-34. (APPELLANT) (RESPONDENT) APPELLANT BY : DR. ANITHA SUMANT H, ADVOCATE RESPONDENT BY : MR. ANIRUDH RAI, CIT DATE OF HEARING : 29 TH AUGUST, 2013 DATE OF PRONOUNCEMENT : 30 TH AUGUST, 2013 O R D E R PER BENCH: BOTH THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDERS PASSED UNDER SECTION 143( 3) READ WITH SECTION 144C(5) OF THE ACT FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09 RESPECTIVELY. 2. THE APPEAL FOR THE ASSESSMENT YEAR 2007-08 IN IT A NO.12/MDS/2013 WAS FILED BY THE ASSESSEE WITH DELAY OF 31 ITA NOS. 12 & 13/MDS/2013 2 DAYS FOR WHICH CONDONATION PETITION WAS FILED EXPL AINING THE REASONS AS TO WHY THE APPEAL WAS FILED BELATEDLY. H AVING GONE THROUGH THE PETITION FILED BY THE ASSESSEE FOR CONDONATION OF DELAY, WE FIND THERE IS A REASONABLE CAUSE IN NOT FILING THE APPEAL IN TIME. THEREFORE, IN THE IN TEREST OF JUSTICE, WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR DISPOSAL. 3. FOR THE SAKE OF CONVENIENCE, FIRST WE DEAL WITH THE APPEAL FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO.13/MDS/2013. THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS IN THIS APPEAL:- 1. THE ORDER OF THE DEPUTY COMMISSIONER OF INCOM E TAX, COMPANY CIRCLE-V(2), CHENNAI PASSED PURSUANT TO TH E ORDER OF THE DISPUTE RESOLUTION PANEL TO THE TO THE EXTEN T PREJUDICIAL TO THE APPELLANT IS ERRONEOUS, BAD IN LAW AND CONTR ACT TO FACTS AND CIRCUMSTANCES OF THE CASE. 2. REDUCTION OF EXPENDITURE INCURRED IN FOREIGN CUR RENCY FROM EXPORT TURNOVER: 2.1 THE DPO & ASSESSING OFFICER HAS ERRED IN REDU CING THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM EXPO RT TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A WHE N SUCH EXPENDITURE HAS NOT BEEN INCLUDED IN EXPORT TURNOVE R IN THE FIRST PLACE. 2.2 WITHOUT PREJUDICE TO 2.1 ABOVE, THE DRP & ASS ESSING OFFICER HAS ERRED IN EXCLUDING THE EXPENDITURE INCU RRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER BY STATING TH AT THE ITA NOS. 12 & 13/MDS/2013 3 FOREIGN CURRENCY EXPENDITURE HAS BEEN INCURRED FOR RENDERING TECHNICAL SERVICES OUTSIDE INDIA. 2.3 WITHOUT PREJUDICE TO THE ABOVE, THE DRP AND AS SESSING OFFICER HAVING EXCLUDED THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER SHOULD HAVE EXCLUDED THE SAME FROM TOTAL TURNOVER AS WELL FOR THE PURPOSE OF COM PUTING DEDUCTION U/S.10A IN LIGHT OF THE DECISION OF THE H ONBLE SPECIAL BENCH OF THE CHENNAI TRIBUNAL IN THE CASE O F ITO VS. SAK SOFT LTD., 121 TTJ 865. 3. REDUCTION OF EXPORT PROCEEDS FROM EXPORT TURNOVE R AS THE SAME WAS NOT BROUGHT INTO INDIA WITHIN THE PRESCRIB ED TIME LIMIT. 3.1 THE DRP AND ASSESSING OFFICER HAVING REDUCED TH E EXPORT PROCEEDS AS THE SAME WAS NOT BROUGHT INTO INDIA WIT HIN THE PRESCRIBED TIME LIMIT EXPORT TURNOVER HAS ERRED IN NOT EXCLUDING THE SAME FROM TOTAL TURNOVER FOR THE PURP OSE OF COMPUTING DEDUCTION UNDER SECTION 10A. 4. DISALLOWANCE OF INTEREST UNDER SECTION 14A 4.1 THE DRP AND ASSESSING OFFICER WITHOUT APPRECI ATING THE LAW, FACTS AND CIRCUMSTANCES APPLICABLE TO THE CASE OF THE APPELLANT, HAS ERRED IN DISALLOWING EXPENDITURE AMO UNTING TO RS 3,088,512 U/S.14A HAS ERRED IN DISALLOWING THE E XPENDITURE UNDER RULE 8 OF THE ACT WITHOUT RECORDING A FINDING THAT THE EXPENDITURE RELATES TO EARNING EXEMPT INCOME. 4.2 THE DRP AND ASSESSING OFFICER HAS FAILED TO AP PRECIATE THAT PROVISIONS OF SECTION 14A HAVE NO APPLICATION IN THE FACTS OF THE APPELLANTS CASE AS NO EXPENDITURE HAS BEEN INCURRED WITH RESPECT TO EARNING OF EXEMPT INCOME. 4.3 WITHOUT PREJUDICE TO THE ABOVE, HAVING MADE THE DISALLOWANCE THE DRP AND ASSESSING OFFICER OUGHT TO HAVE GRANTED DEDUCTION UNDER SECTION 10A ON THE ENHANCED INCOME ON ACCOUNT OF THE AFORESAID DISALLOWANCE. 4. THE FIRST ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT THE DISPUTE RESOLUTION PANEL (HEREINAFTER R EFERRED TO AS ITA NOS. 12 & 13/MDS/2013 4 DRP) AND ASSESSING OFFICER HAVE ERRED IN REDUCING THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM EXPOR T TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT WHEN SUCH EXPENDITURE HAS NOT BEEN INCLUDED IN EXPORT TU RNOVER IN THE FIRST PLACE. IN THE ALTERNATIVE, HAVING EXCLUD ED THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM EXPOR T TURNOVER, THE ASSESSING OFFICER SHOULD HAVE EXCLUDED THE SAME FROM TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCT ION UNDER SECTION 10A OF THE ACT. THE ASSESSING OFFICER IN T HE DRAFT ASSESSMENT ORDER PROPOSED TO EXCLUDE THE EXPENDITUR E INCURRED IN FOREIGN CURRENCY TOWARDS EXPORT OF SOFT WARE PRODUCTS AS THE AMOUNT WAS INCURRED FOR PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THE ASSESSEE OBJECTED BEF ORE DRP THAT THIS EXPENDITURE SHOULD NOT BE EXCLUDED FROM T HE EXPORT TURNOVER AS THE EXPENDITURE WAS NOT INCURRED TOWAR DS PROVIDING ANY TECHNICAL SERVICES. THIS CONTENTION O F THE ASSESSEE WAS REJECTED BY THE DRP UPHOLDING THE ACTI ON OF THE ASSESSING OFFICER IN EXCLUDING THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER. ITA NOS. 12 & 13/MDS/2013 5 5. THE COUNSEL FOR THE ASSESSEE CONTENDS BEFORE US THAT THIS EXPENDITURE WAS NOT INCURRED FOR RENDERING ANY TECHNICAL SERVICES AND THEREFORE, THE SAID EXPENDITURE SHOULD NOT BE EXCLUDED FROM EXPORT TURNOVER. REFERRING TO PAGE 18 OF THE DRP ORDER, THE COUNSEL SUBMITS THAT THE EXPENDITURE S WERE INCURRED TOWARDS PROJECT, TRAVEL, COMMUNICATION EXP ENSES, OVERSEAS PROJECT DIRECT EXPENSES, SALARY AND SOFTW ARE DEVELOPMENT. IN THE ALTERNATIVE, THE COUNSEL SUBM ITS THAT THE EXPENDITURE HAS TO BE EXCLUDED FROM TOTAL TURNOVER ALSO FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10 A OF THE ACT, IN VIEW OF THE DECISION OF THE SPECIAL BENCH I N THE CASE OF ITO VS. SAK SOFT LTD., [313 ITR (TRIB) 353 (CHENNAI ) (SB)]. 6. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE OR DERS OF THE LOWER AUTHORITIES. 7. HEARD BOTH SIDES. PERUSED THE ORDERS OF THE LOWE R AUTHORITIES AND THE CASE RELIED ON BY THE COUNSEL F OR THE ASSESSEE. THE ASSESSING OFFICER HAS GIVEN A FINDIN G THAT THE ASSESSEE HAS INCURRED THESE EXPENSES IN THE PROCES S OF ITA NOS. 12 & 13/MDS/2013 6 EXPORTS OF SOFTWARE. THIS EXPENDITURE INCURRED WAS IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THEREFO RE, THIS EXPENDITURE WAS EXCLUDED FROM THE EXPORT TURNOVER B Y THE ASSESSING OFFICER WHICH WAS AFFIRMED BY THE DRP. TH E ASSESSEE COULD NOT ABLE TO SUBSTANTIATE ITS CLAIM T HAT SUCH EXPENDITURE WAS NOT INCURRED IN RENDERING ANY TECH NICAL SERVICES. IN THE CIRCUMSTANCES, THE CONTENTION OF T HE ASSESSEE THAT THIS EXPENDITURE SHOULD NOT BE EXCLUDED FROM T HE EXPORT TURNOVER IS REJECTED. HOWEVER, WE AGREE WITH THE A SSESSEE THAT THIS EXPENDITURE HAVING EXCLUDED FROM THE EXP ORT TURNOVER, IT SHOULD ALSO BE EXCLUDED FROM THE TOTA L TURNOVER, IN VIEW OF THE DECISION OF THE SPECIAL BENCH TRIBUNAL IN THE CASE OF SAK SOFT LTD. (SUPRA). THEREFORE, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE EXPENDITURE INCURRED IN FORE IGN CURRENCY WHICH WAS EXCLUDED FROM EXPORT TURNOVER FROM THE TO TAL TURNOVER FOR THE PURPOSE OF COMPUTING RELIEF UNDER SECTION 10A OF THE ACT. THEREFORE, THE ALTERNATIVE GROUND RAIS ED BY THE ASSESSEE IS ALLOWED. ITA NOS. 12 & 13/MDS/2013 7 8. THE NEXT ISSUE IN THE APPEAL IS THAT THE DRP AND ASSESSING OFFICER HAVING REDUCED THE EXPORT PROCEED S WHICH WAS NOT BROUGHT INTO INDIA WITHIN THE PRESCRIBED TI ME LIMIT FROM EXPORT TURNOVER HAVE ERRED IN NOT EXCLUDING FROM TO TAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTIO N 10A OF THE ACT. 9. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER AND THE DRP EXCLUDED THE UNREALIZ ED SALE PROCEEDS IN FOREIGN EXCHANGE NOT BROUGHT INTO INDIA WITHIN THE TIME SPECIFIED FROM EXPORT TURNOVER. THE COUNSEL S UBMITS THAT THE SAID FOREIGN EXCHANGE WHICH WAS NOT BROUGHT INT O INDIA SHALL ALSO BE EXCLUDED FROM THE TOTAL TURNOVER ON A PARITY OF REASON. SHE RELIED ON THE DECISION OF THE HONBLE K ERALA HIGH COURT IN THE CASE OF CIT VS. ABAD FISHERIES ( 258 ITR 641) IN SUPPORT OF HER CONTENTION. 10. THE DEPARTMENTAL REPRESENTATIVE PLACING RELIANC E ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. AFTEK INFOSYS LTD. IN ITA NOS. 6533/MUM /2007, ITA NOS. 12 & 13/MDS/2013 8 3584 & 5058/MUM/2008 DATED 20.04.2011 (2011-TIOL-39 9- ITAT-MUM) SUBMITS THAT IN VIEW OF THIS DECISION THE DRP AND THE ASSESSING OFFICER WERE RIGHT IN EXCLUDING THE U NREALIZED PROCEEDS IN FOREIGN EXCHANGE NOT BROUGHT INTO INDIA WITHIN THE TIME STIPULATED FROM EXPORT TURNOVER FOR THE PURPOS E OF COMPUTING RELIEF UNDER SECTION 10A OF THE ACT. THE DEPARTMENTAL REPRESENTATIVE SUBMITS THAT THE STATUT E ITSELF MAKES IT CLEAR THAT UNREALIZED EXPORTS TURNOVER WHI CH WAS NOT BROUGHT INTO INDIA WITHIN THE TIME STIPULATED HAS T O BE EXCLUDED FROM EXPORT TURNOVER AS PER THE DEFINITIO N. 11. HEARD BOTH SIDES. PERUSED THE ORDERS OF THE LOW ER AUTHORITIES AND THE CASE LAW RELIED ON BY THE PART IES. THE ASSESSING OFFICER AND THE DRP HAVE EXCLUDED THE EXP ORT PROCEEDS NOT BROUGHT INTO INDIA WITHIN THE PRESCRIB ED TIME LIMIT FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTI NG DEDUCTION UNDER SECTION 10A OF THE ACT. THE HONBL E KERALA HIGH COURT WHILE DECIDING THE APPEAL FILED BY THE R EVENUE IN THE CONTEXT OF DEDUCTION UNDER SECTION 80HHC HELD T HAT EXPORT SALE PROCEEDS WHICH COULD NOT BE BROUGHT INT O INDIA, IN ITA NOS. 12 & 13/MDS/2013 9 CONVERTIBLE FOREIGN EXCHANGE WITHIN SIX MONTHS AS P ROVIDED IN SUB-SECTION (2) OF SECTION 80HHC CANNOT BE CONSIDER ED FOR ALLOWING DEDUCTION UNDER SECTION 80HHC OF THE ACT. HOWEVER, AT THE SAME TIME, IT WAS HELD THAT SUCH EXPORT SALE PROCEEDS WHICH WERE NOT BROUGHT INTO INDIA IN CONVERTIBLE FO REIGN EXCHANGE HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVE R ALSO AFFIRMING THE DECISION OF THE TRIBUNAL. 12. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF AFTEK INFOSYS LTD. (SUPRA) EVEN THOUGH HELD THAT THE UNR EALIZED EXPORT PROCEEDS NOT BROUGHT INTO INDIA WITHIN SIX M ONTHS SHOULD BE EXCLUDED FROM EXPORT TURNOVER AND IT SHO ULD NOT BE EXCLUDED FROM TOTAL TURNOVER. WE ARE INCLINED TO F OLLOW THE DECISION OF THE HONBLE KERALA HIGH COURT CITED ABO VE AND HOLD THAT FOREIGN EXCHANGE WHICH WAS NOT BROUGHT I NTO INDIA WITHIN THE STIPULATED TIME SHOULD BE EXCLUDED FROM TOTAL TURNOVER ALSO AS HAVING EXCLUDED THE SAME FROM EXPO RT TURNOVER. THUS, THE GROUNDS RAISED BY THE ASSESSE E ARE ALLOWED ON THIS ISSUE. ITA NOS. 12 & 13/MDS/2013 10 13. THE LAST ISSUE IN THE APPEAL OF THE ASSESSEE F OR THE ASSESSMENT YEAR 2008-09 IS THAT THE DRP AND THE ASS ESSING OFFICER HAS ERRED IN DISALLOWING EXPENDITURE UNDER SECTION 14A OF THE ACT. IN THE ALTERNATIVE, THE GROUND RAIS ED BY THE ASSESSEE IS THAT HAVING MADE THE DISALLOWANCE UNDER SECTION 14A, THE DRP AND THE ASSESSING OFFICER OUGHT TO HA VE GRANTED DEDUCTION UNDER SECTION 10A ON THE ENHANCED INCOME ON ACCOUNT OF THE AFORESAID DISALLOWANCE. 14. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT DURIN G THE ASSESSMENT YEAR 2008-09 THE ASSESSEE HAS NOT INVEST ED ANY AMOUNTS WHICH WERE BORROWED FROM OUTSIDE. ALL THE INVESTMENTS WERE MADE OUT OF OWN FUNDS. THEREFORE, THE ASSESSING OFFICER AND THE DRP ARE NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE ACT. IN THE ALTERNATIVE, THE COUNSEL SUBMITS THAT ON ACCOUNT OF ENHANCEMENT OF INCOME ON ACCOUNT OF DISALLOWANCE, T HE ASSESSING OFFICER SHOULD HAVE GRANTED DEDUCTION UND ER SECTION 10A ON SUCH ENHANCED INCOME. THE COUNSEL PL ACES RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH O F THIS ITA NOS. 12 & 13/MDS/2013 11 TRIBUNAL IN THE CASE OF M/S. COGNIZANT TECHNOLOGY S OLUTIONS INDIA PVT. LTD. VS. ACIT IN ITA NO.114 & 2100/MDS/2 011 DATED 23.01.2013. 15. THE DEPARTMENTAL REPRESENTATIVE SUPPORTING THE ORDERS OF THE LOWER AUTHORITIES SUBMITS THAT SINCE THE PROVISIONS OF SECTION 14A READ WITH RULE 8D ARE MAN DATORY FOR THE ASSESSMENT YEAR 2008-09 AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD., VS. DCIT., REPORTED AS 328 ITR 81(BOM), THE ASSESSING OFFICER IS JUSTIFIED IN MAKING DISALLOWANCE UNDER S ECTION 14A OF THE ACT. THE ASSESSING OFFICER ON A PERUSAL OF RECORDS CAME TO KNOW THAT THE ASSESSEE HAS RECEIVED AN AMOU NT OF ` 1,21,97,449/-AS DIVIDEND AND CLAIMED THE ENTIRE D IVIDEND AS EXEMPT UNDER SECTION 10(34). THE ASSESSEE CLAIME D THAT NO EXPENDITURE WAS INCURRED ON EARNING EXEMPT INCOM E. HOWEVER, THE ASSESSING OFFICER IN THE DRAFT ORDER P ROPOSED TO DISALLOW THE EXPENDITURE BY INVOKING THE PROVISION S OF SECTION 14A(2) READ WITH RULE 8D . THE ASSESSEE CONTENDED B EFORE THE DRP THAT HE HAD NOT INCURRED ANY EXPENDITURE IN EARNING ITA NOS. 12 & 13/MDS/2013 12 EXEMPT INCOME. THE DRP DIRECTED THE ASSESSING OFFI CER TO VERIFY THE CONTENTION OF THE ASSESSEE AND SEE WHET HER ANY PART OF THE EXPENDITURE WAS INCURRED TOWARDS EARNIN G EXEMPT INCOME. THE ASSESSING OFFICER WHILE PASSING THE ORD ER OBSERVED THAT THE ASSESSEE DID NOT SATISFACTORILY P ROVE ITS CONTENTION THAT NO EXPENDITURE WAS INCURRED IN EARN ING THE EXEMPT INCOME INVOKING THE PROVISIONS OF SECTION 14 A READ WITH RULE 8D AND MADE DISALLOWANCE OF EXPENDITURE ATTRIBUTABLE FOR EARNING INCOME. THOUGH THE COUNSEL FOR THE ASSESSEE SUBMITS THAT DURING THIS YEAR THERE WERE N O BORROWINGS AND ALL THE INVESTMENTS WERE MADE OUT OF OWN FUNDS, THEREFORE, THE PROVISIONS OF SECTION 14A CA NNOT BE INVOKED AS IT BECOMES ACADEMIC, IN VIEW OF THE ALTE RNATIVE GROUND OF THE ASSESSEE THAT DEDUCTION UNDER SECTION 10A HAS TO BE GRANTED ON THE ENHANCED INCOME ON ACCOUNT OF DISALLOWANCE MADE UNDER SECTION 14A. AS WE INCLINE TO ACCEPT THE ALTERNATIVE GROUND OF APPEAL THAT THE DE DUCTION UNDER SECTION 10A HAS TO BE GRANTED ON ENHANCED INC OME ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A, IN VIEW OF THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE ITA NOS. 12 & 13/MDS/2013 13 OF M/S. COGNIZANT TECHNOLOGY SOLUTIONS INDIA PVT. L TD.(SUPRA), THE QUESTION OF WHETHER THE ASSESSEE HAS INCURRED A NY EXPENDITURE OR NOT FOR EARNING THE EXEMPT INCOME BE COMES ACADEMIC. THE CO-ORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF M/S. COGNIZANT TECHNOLOGY SOLUTIONS INDIA PVT. L TD. (SUPRA) HAD CONSIDERED SIMILAR ISSUE AND HELD AS UNDER:- 6.8. THE NEXT ISSUE RAISED BY THE ASSESSEE IS REGARDING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. THE ASSESSING OFFICER HAS INVOKED RULE 8D AND WE CONFIRM THE DISALLOWANCE MADE BY HIM. THIS ISSUE IS DECIDED AGAINST THE ASSESSEE. 6.9 BUT, WE ACCEPT THE ALTERNATE CONTENTION OF THE ASSESSEE THAT THE DISALLOWANCE SHALL GO TO ENHANCE THE PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ENHANCE THE DISALLOWANCE MADE UNDER SECTION 14A AS PART OF THE ELIGIBLE PROFIT FOR THE PURPOSE OF SECTION 10A. 16. RESPECTFULLY FOLLOWING THE SAID DECISION, WE DI RECT THE ASSESSING OFFICER TO ALLOW DEDUCTION UNDER SECTION 10A ON THE ENHANCED INCOME ON ACCOUNT OF DISALLOWANCE MADE UND ER SECTION 14A OF THE ACT. THE ALTERNATIVE GROUND RA ISED BY THE ASSESSEE IS ALLOWED. ITA NOS. 12 & 13/MDS/2013 14 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09 IS PARTLY ALLOWED. 18. THE ASSESSEE FILED THE APPEAL FOR THE ASSESSMEN T YEAR 2007-08 RAISING THE FOLLOWING GROUNDS:- 1. THE GIVING EFFECT ORDER OF THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE- V(2), CHENNAI PASSED PURSUANT TO THE ORDER OF THE HONBLE HIGH COURT TO THE EXTENT PREJUDICIAL TO THE APPELLANT IS ERRONEOUS, BAD IN LAW AND CONTRACT TO FACTS AND CIRCUMSTANCES OF THE CASE. 2. EXCLUSION OF EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER: 2.1 THE ASSESSING OFFICER HAS ERRED IN REDUCING THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A WHEN SUCH EXPENDITURE HAS NOT BEEN INCLUDED IN EXPORT TURNOVER IN THE FIRST PLACE. 2.2 THE ASSESSING OFFICER HAS ERRED IN EXCLUDING EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER SINCE THE ASSESSEE IS ONLY INVOLVED IN SOFTWARE DEVELOPMENT ACTIVITIES AND SOFTWARE DEVELOPMENT DOES NOT AMOUNT TO RENDERING OF TECHNICAL SERVICES. 2.3 WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSING OFFICER HAVING EXCLUDED THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER, HAS ERRED IN NOT EXCLUDING THE SAME FROM TOTAL TURNOVER FOR THE PURPOSE OF ITA NOS. 12 & 13/MDS/2013 15 COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT, 1961. 3. EXCLUSION OF EXPORT PROCEEDS NOT REALIZED IN TIME FROM EXPORT TURNOVER 3.1 THE ASSESSING OFFICER HAS ERRED IN EXCLUDING EXPORT PROCEEDS NOT REALIZED IN TIME FROM THE EXPORT TURNOVER ALONE AND NOT EXCLUDING THE SAME FROM TOTAL TURNOVER ALSO FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. 3.2 THE ASSESSING OFFICER HAS ERRED IN NOT MAINTAINING THE PARITY OF REASONING BETWEEN THE NUMERATOR AND DENOMINATOR. 4. DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A BY ATTRIBUTING THE SAME TOWARDS EARNING OF DIVIDEND INCOME. 4.1 THE ASSESSING OFFICER HAS ERRED IN DISALLOWING THE EXPENDITURE UNDER RULE 8D WITHOUT PROVIDING ANY REASONS FOR THE SAME AND WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME. 4.2 THE ASSESSING OFFICER HAS ERRED IN DISALLOWING EXPENDITURE ON ESTIMATE BASIS AS SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE. HERE IT IS FOUND THAT EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, HENCE DISALLOWANCE UNDER SECTION 14A CANNOT WITHSTAND. 5. LEVY OF INTEREST U/S.234B OF THE ACT. 5.1 CONSEQUENTIALLY THE ASSESSING OFFICER HAS ERRED IN LEVYING INTEREST OF ` 2,69,16,890/- UNDER SECTION 234B OF THE ACT. ITA NOS. 12 & 13/MDS/2013 16 19. AS FAR AS THE APPEAL FOR THE ASSESSMENT YEAR 20 07-08 IS CONCERNED, THE COUNSEL FOR THE ASSESSEE SUBMITS THA T THE IMPUGNED ORDER DATED 26.09.2012 IN APPEAL HAS BEEN WITHDRAWN BY THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(2), CHENNAI BY ORDER DATED 27.05. 2013 PASSED UNDER SECTION 154 OF THE ACT. THE COUNSEL A LSO ENDORSED THAT THE APPEAL WAS FILED AGAINST THE IMPU GNED ORDER DATED 26.09.2012. THE COUNSEL SUBMITS THAT B Y VIRTUE OF ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOM E TAX, COMPANY CIRCLE-V(2), CHENNAI UNDER SECTION 154 DATE D 27.05.2013 WITHDRAWING THE IMPUGNED ORDER DATED 26.09.2012 WHICH IS IN APPEAL, THE APPEAL FILED BY THE ASSESSEE BECOMES INFRUCTUOUS. 20. THE DEPARTMENTAL REPRESENTATIVE ACCEPTS THE PO SITION AS SUBMITTED BY THE COUNSEL FOR THE ASSESSEE. 21. IN THE CIRCUMSTANCES, THE APPEAL FILED BY THE A SSESSEE IN ITA NO.12/MDS/2013 FOR THE ASSESSMENT YEAR 2007- 08 IS DISMISSED AS INFRUCTUOUS. ITA NOS. 12 & 13/MDS/2013 17 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.12/MDS/2013 IS DISMISSED AND THAT OF ITA NO.13/MDS/2013 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, T HE 30 TH DAY OF AUGUST, 2013, CHENNAI. SD/- SD/- (ABRAHAM P.GEORGE) (CHALLA NAGE NDRA PRASAD) ACCOUNTANT MEMBER J UDICIAL MEMBER CHENNAI, DATED THE 30 TH AUGUST, 2013. SOMU COPY TO: (1) APPELLANT (4) CIT (A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.