Dy.CIT, Circle-16(2), Hyderabad V. M/s Microsoft Global Services Center (I) Pvt. Ltd., Hyderabad

ITA 1245/HYD/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82557 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 25-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Keywords: Business income
• Section: 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1245/HYD/2014 ASSESSMENT YEAR 2009-2010 DCIT, CIRCLE 16(2) HYDERABAD. VS. M/S. MICROSOFT GLOBAL SERVICES CENTER (I) P. LTD., HYDERABAD. PAN AAECM2477L (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. JAYESH SANGHVI, MR. ADITYA BAJORIA, MR. SUMANT KARLAPUDI & MR. RAVI BHARADWAJ FOR REVENUE : MR.RAJAT MITRA DATE OF HEARING : 13.11.2014 DATE OF PRONOUNCEMENT : 19.11.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-V, HYDERABAD DATED 10.01.20 14 ON THE ISSUE OF EXCLUDING PROFESSIONAL FEES, COMMUNICATION EXPENSES, INSURANCE AND FOREIGN EXCHANGE GAIN FROM THE TOTAL TURNOVER. 2. BRIEFLY STATED, ASSESSEE IS ENGAGED IN THE BUSI NESS OF SOFTWARE CONSULTANCY SERVICES. FOR A.Y. 2009-201 0 ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2009 ADMITTING TOTAL INCOME OF RS.2,34,42,624 AFTER CLAIMING DEDUCTION OF RS.39 ,86,52,981 UNDER SECTION 10A OF THE ACT. IN THE SCRUTINY ASSES SMENT, A.O. EXCLUDED PROFESSIONAL CHARGES, COMMUNICATION CHARGE S AND INSURANCE CHARGES FROM THE EXPORT TURNOVER AND INCL UDED 2 ITA.NO.1245/HYD/2014 M/S. MICROSOFT GLOBAL SERVICES CENTER (I) P. LTD., HYDERABAD. FOREIGN EXCHANGE FLUCTUATION GAIN TO THE TOTAL TURN OVER. THUS AO RESTRICTED DEDUCTION UNDER SECTION 10A TO RS.37, 99,48,970. 3. LD. CIT(A) AFTER CONSIDERING THE DETAILED SUBMISSIONS OF ASSESSEE AND FOLLOWING THE DECISIONS OF ITAT ON THE ISSUE DIRECTED THE A.O. TO EXCLUDE THE ABOVE AM OUNTS FROM THE TOTAL TURNOVER TO MAINTAIN THE PARITY. REVENUE IS AGGRIEVED ON THE ABOVE ISSUES. 4. WE HAVE HEARD THE LD. COUNSEL AND LD. D.R. THIS ISSUE IS COVERED BY THE COORDINATE BENCH DECISION I N ASSESSEES OWN CASE FOR A.Y. 2007-08 IN ITA.NO.2124/HYD/2010 DATED 18 TH MAY, 2012 REPORTED AT 74 DTR HYD. (TRIBU.) 145, WHEREIN IT WAS HELD AS FOLLO WS : IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SA ME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TUR NOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR . THE REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TUR NOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERA TOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE, THOUGH THERE IS NO DEFINITION OF THE TERM TERM TUR NOVER IN SECTION 10A, THERE IS NOTHING IN THE SAID SECTION T O MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR T HAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. SIMILARLY, SPECIAL BENCH OF THE TRIBUNAL IN M/S. SAK SOFT LIMITED HAS HELD THAT WHILE COMPUTING THE DEDU CTION U/S 10A OR 10B OF THE ACT, FREIGHT, TELECOM CHARGES , INSURANCE ATTRIBUTABLE TO DELIVERY OF ARTICLES OR T HINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE FOR PROVIDING TECHNICA L SERVICES OUTSIDE INDIA ARE TO BE EXCLUDED FROM BOTH EXPORT TURNOVER AND FROM THE TOTAL TURNOVER WHICH ARE NUME RATOR OR DENOMINATOR IN THE FORMULA. THE ITAT HYDERABAD BENCH IN CASE OF PATNI TELECOM (P) LTD VS. ITO REPO RTED IN (2009) 120 ITD 105 ALSO HELD SIMILAR VIEW. RESPECTF ULLY FOLLOWING THE AFORESAID DECISIONS, PROFESSIONAL FEE , 3 ITA.NO.1245/HYD/2014 M/S. MICROSOFT GLOBAL SERVICES CENTER (I) P. LTD., HYDERABAD. COMMUNICATION CHARGES AND INSURANCE EXPENDITURE ONC E ARE EXCLUDED FROM THE EXPORT TURNOVER, FOR MAINTAIN ING PRINCIPLE OF PARITY, THE SAME ALSO HAS TO BE EXCLUD ED FROM TOTAL TURNOVER. THEREFORE, THE ORDER PASSED BY THE CIT (A) WAS UPHELD AND THE GROUNDS RAISED BY THE REVENUE WE RE REJECTED. 5. DURING THE ARGUMENTS LD. D.R. HOWEVER, SUBMITTED THAT LD. CIT(A) IN PARA 5.3 WAS OF THE OP INION THAT FOREIGN EXCHANGE GAIN SHOULD BE INCLUDED AS PART OF EXPORT TURNOVER AS A.O. HAS INCLUDED THE SAME IN THE TOTAL TURNOVER. BUT LD. CIT(A) FINALLY IN PARA-6 DIRECTED THE A.O. TO EXCLUDE FOREIGN EXCHANGE GAIN FROM THE TOTAL TURNOVER. IT W AS THE SUBMISSION THAT THERE WAS NO CONSISTENCY IN THE OBS ERVATION OF THE LD. CIT(A). 6. WE HAVE CONSIDERED THE CONTENTION AND NOTICED THAT ASSESSEE HAS EARNED FOREIGN EXCHANGE GAIN WHIC H WAS TREATED AS BUSINESS INCOME. THERE IS NO DISPUTE ON THAT AS THE A.O. HIMSELF HAS ADDED THE AMOUNTS OF GAIN AS PART OF TOTAL TURNOVER WHILE COMPLETING ASSESSMENT. LD. CIT(A) IN DEED OBSERVED THAT ON AN ISSUE OF PARITY THE AMOUNT ADDE D IN DENOMINATOR SHOULD ALSO BE INCLUDED IN THE NUMERATO R I.E., EXPORT TURNOVER. HOWEVER, WHILE FINALLY GIVING A DE CISION IN PARA-6, HE DIRECTED TO EXCLUDE THE FOREIGN EXCHANGE GAIN FROM THE TOTAL TURNOVER AS THE SAME IS NOT INCLUDED IN E XPORT TURNOVER. WE DO NOT SEE ANY MERIT IN REVENUE CONTEN TION AS THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT FOREIGN EXCHANGE FLUCTUATION GAIN IS BUSINESS INCOME AND IS ELIGIBLE FOR DEDUCTION. WHETHER THE FOREIGN EXCHANGE GAIN IS INC LUDED IN BOTH EXPORT TURNOVER AND TOTAL TURNOVER OR EXCLUDED FROM THE EXPORT TURNOVER AND TOTAL TURNOVER, THE RESULTANT D EDUCTION WILL BE SAME BECAUSE SAME AMOUNT BEING ADDED IN BOTH THE PLACES. 4 ITA.NO.1245/HYD/2014 M/S. MICROSOFT GLOBAL SERVICES CENTER (I) P. LTD., HYDERABAD. THEREFORE, WE DO NOT FIND ANY MERIT IN REVENUE CONT ENTION. SINCE, IN EARLIER YEAR SIMILAR CHARGES, WHICH WERE EXCLUDED FROM THE EXPORT TURNOVER WERE ALSO DIRECTED TO BE E XCLUDED FROM TOTAL TURNOVER FOR MAINTAINING THE PRINCIPLE O F PARITY FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10 A, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DIRECTION OF THE LD. CIT(A) TO EXCLUDE THE FOREIGN EXCHANGE FLUCTUATION GAIN FROM THE TOTAL TURNOVER AS THE SAME IS NOT INCLUDED AS P ART OF EXPORT TURNOVER. IN VIEW OF THIS, REVENUE GROUNDS ARE REJE CTED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.11.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 19 TH NOVEMBER, 2014 VBP/- COPY TO 1. DCIT, CIRCLE 16(2), HYDERABAD. 2. M/S. MICROSOFT GLOBAL SERVICES CENTER (I) P. LTD ., BUILDING-1, MICROSOFT CAMPUS, GACHIBOWLI, HYDERABAD 500 046. 3. CIT(A)-V, HYDERABAD 4. CIT-IV, HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD.