Income Tax Officer, Ward-2(2)., Hyderabad V. Trendyworks Technologies Private Limited., Hyderabad

ITA 1269/Hyd/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2204 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-12-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 21-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: M CHANDRAMOULESWARA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1269/HYD/2017 ASSESSMENT YEAR: 2011-12 INCOME TAX OFFICER, WARD 2(2), HYDERABAD. VS. TRENDY WORKS TECHNOLOGY P. LTD., HYDERABAD. PAN AACCT 3184 B (APPELLANT) (RESPONDENT) REVENUE BY : SHRI B. KURMI NAIDU ASSESSEE BY : SHRI M. CHANDRAMOULESWARA RAO DATE OF HEARING 28-12-2017 DATE OF PRONOUNCEMENT 29-12-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - 11, HYD ERABAD FOR AY 2011-12. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY ENGAGED IN DEVELOPMENT, SALE OF SOFTWARE PRODUCTS T HROUGH WORLD WIDE WEB, FILED ITS RETURN OF INCOME FOR THE AY 201 1-12 ON 18/08/2011 DECLARING INCOME AT RS. NIL AFTER CLAIMING DEDUCTIO N U/S 10A AND BOOK PROFITS OF RS. 2,21,02,826/- U/S 115JB. 2.1 THE AO WHILE EXAMINING THE RETURN AND COMPUTATI ON OF INCOME FILED BY THE ASSESSEE, IT WAS FOUND THAT THE ASSESS EE CLAIMED DEDUCTION OF RS. 2,14,24,756/- U/S 10A. AS PER THE 3CD REPORT FILED, THE ASSESSEE HAS SHOWN FOREIGN EXCHANGE OUTGO AT RS . 370.88 LAKHS, 2 ITA NO. 1269/H/17 TRENDY WORKS TECHNOLOGIES P. LTD. AND THIS FIGURE REPRESENTS EXPENSES INCURRED IN FOR EIGN EXCHANGE TOWARDS ADVERTISEMENT EXPENSES, WEB HOSTING CHARGES , IMAGE CHARGES ETC. WHILE CALCULATING THE ABOVE ALLOWABLE DEDUCTION U/S 10A, THE ASSESSEE HAD NOT REDUCED THE EXPORT TURNOVER BY THE EXPENSES INCURRED AT RS. 370.88 LAKHS IN FOREIGN CURRENCY. A O OBSERVED THAT AS PER CLAUSE (IV) OF EXPLANATION 2 TO SECTION 10A, TH E EXPENDITURE INCURRED IN FOREIGN CURRENCY NEED TO BE REDUCED FRO M THE EXPORT TURNOVER FOR THE PURPOSE OF CALCULATION OF DEDUCTIO N U/S 10A. WHEN IT WAS PUT FORTH BEFORE THE ASSESSEE, THE ASSESSEE REL YING ON THE DECISION OF THE COORDINATE BENCH OF ITAT HYDERABAD IN THE CASE OF M/S PATNI TELECOM PVT. LTD. VS. ITO, [2009] 120 TTJ 967 (HYD.) SUBMITTED THAT IF THE FOREIGN OUTGO IS TO BE REDUCE D FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER. 3.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE AO HELD THAT THE DEPARTMENT HAD NOT ACCEPTED THE DECISION O F VARIOUS HONBLE HIGH COURTS IN TREATING THE NUMERATOR AND DENOMINAT OR EQUALLY IN THE FORMULA FOR THE PURPOSE OF CALCULATING 10A DEDUCTIO N AND THE ISSUE IS PENDING BEFORE THE HONBLE SUPREME COURT, THE RELIA NCE PLACED BY THE ASSESSEE ON THE DECISION IN THIS REGARD IS NOT CONS IDERED AND THE FOREIGN OUTGO IS REDUCED FROM THE EXPORT TURNOVER F OR THE PURPOSE OF 10A. ACCORDINGLY, THE ALLOWABLE DEDUCTION U/S 10A W AS ARRIVED AT RS. 90,69,762/- AGAINST RS. 2,14,24,756/- CLAIMED BY TH E ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A), IT WAS CONTENDED BY THE ASSES SEE THAT THE AO HAS ERRED IN REDUCING ADVERTISEMENT, WEBHOSTING CHARGES ETC., INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOV ER IGNORING THE FACT THAT THE SAME WERE NOT CLAIMED SEPARATELY IN THE IN VOICES AND HENCE THE AO IS NOT JUSTIFIED IN REDUCING THE EXPENDITURE INCURRED IN FOREIGN CURRENCY ONLY FROM THE EXPORT TURNOVER AND HE OUGHT TO HAVE REDUCED THE FOREIGN CURRENCY EXPENDITURE ALSO FROM THE TOTA L TURNOVER. 3 ITA NO. 1269/H/17 TRENDY WORKS TECHNOLOGIES P. LTD. 6. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF M/S PATNI TELECOM P. LTD. (SUPRA) DIRECTED THE AO TO REDUCE T HE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVE R ALSO. 7. AGGRIEVED WITH THE ORDER OF THE CIT(A), THE REVE NUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1) THE CIT(A) ERRED IN LAW AND ON FACTS WHILE DECID ING THE ISSUES RAISED IN THE APPEAL. 2) THE CIT(A) ERRED IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN DIRECTING THE ASSESSING OFFICER THAT THE EXPENDITUR E INCURRED IN FOREIGN EXCHANGE TOWARDS ADVERTISEMENT EXPENSES, WE B HOISTING CHARGES AND IMAGE CHARGES ETC., ARE TO BE EXCLUDED FROM BOTH EXPORT TURNOVER AND TOTAL TURNOVER THOUGH EXPLANATI ON 2 TO SECTION 10A OF THE INCOME TAX ACT, 1961, CLEARLY ST ATES THAT THEY NEED TO BE EXCLUDED FROM EXPORT TURNOVER AND NO SUC H PROVISION IS AVAILABLE FOR TOTAL TURNOVER?' 3) ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIM E OF HEARING. 8. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE AROSE BEFORE THE COORDINATE BENCH OF THIS TRI BUNAL IN ASSESSEES OWN CASE FOR AY 2010-11 IN ITA NO. 478/HYD/2016 ORD ER DATED 27/07/2016 WHEREIN THE BENCH UPHELD THE ORDER OF TH E CIT(A) IN DIRECTING THE AO TO REDUCE THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVER ALSO. HE, THEREFOR E, SUBMITTED THAT THE ORDER OF THE CIT(A) MAY BE UPHELD IN THIS AY AL SO. 9. THE LD. DR ON THE OTHER HAND NEITHER CONTROVERTE D THE SUBMISSION OF THE LD. AR NOR BROUGHT ANY CONTRARY D ECISION IN THIS REGARD. 10. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE US IN AY 2010-11 WHEREIN THE COORDINATE BENCH HAS OBSERVED A S UNDER: 4 ITA NO. 1269/H/17 TRENDY WORKS TECHNOLOGIES P. LTD. 8. CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PE RUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORITIES. THE ISSUE IN DISPUTE IS SQUARELY COVER ED BY THE DECISION OF THE COORDINATE BENCH IN THE CASE OF M/S PATNI TELECOM P. LTD. (SUPRA) WHEREIN IT WAS HELD THAT T HE DEDUCTION OF EXPENSES INCURRED IN FOREIGN EXCHANGE BOTH FROM THE AMOUNT OF TOTAL TURNOVER AND ALSO FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF THE AMOUNT OF DEDUCTION U /S 10A. THE SPECIAL BENCH OF THE CHENNAI TRIBUNAL IN THE CASE O F ITO VS SAKSOFT LTD (313 ITR AT 353) HELD THAT EXPENSES EXCLUDED FROM EXPORT TURNOVER SHOULD ALSO BE EXCLUD ED FROM THE TOTAL TURNOVER . THE HONBLE KARNATAKA HIGH COURT HAS ALSO TAKEN SIMILAR VIEW IN THE CASE OF CIT VS. TATA ELXSI LTD. & OTHERS, 247 CTR 334 (KAR.). RESPECTFULLY FOLLOWIN G THE SAID DECISIONS CITED SUPRA, WE UPHOLD THE ORDER OF THE C IT(A) IN DIRECTING THE AO TO REDUCE THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVER ALSO AND ACCORDINGLY, DISMISS THE GROUNDS RAISED BY THE REVE NUE ON THIS ISSUE. AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDEN TICAL TO THAT OF AY 2010-11, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THAT YEAR, WE UPHOLD THE ORDER OF THE CIT(A) AND DI SMISS THE GROUNDS RAISED BY THE REVENUE. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2017 SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 29 TH DECEMBER, 2017 KV 5 ITA NO. 1269/H/17 TRENDY WORKS TECHNOLOGIES P. LTD. COPY TO:- 1) ITO, WARD 2(4), ROOM NO. 509, 5 TH FLOOR, SIGNATURE TOWERS, OPP. BONTANICAL GARDENS, KON DAPUR, HYDERABAD. 2) M/S TRENDY WORKS TECHNOLOGIES PVT. LTD., FLOOR N O. 3, HASEEN PLAZA, PATIGADDA ROAD, BEGUMPET, HYD 50 0 016 3) CIT(A) - 11, HYDERABAD 4) PR. CIT - 2 , HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER