DCIT, CHENNAI V. APA Engineering (P) Ltd., CHENNAI

ITA 1294/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6225 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 22-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VENI S RAJ
• Assessee Lawyers: T BANUSEKAR
• Keywords: Revised return
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , J UDICIAL MEMBER ./ I.T.A.NO. 1 2 94 /MDS/2017 / ASSESSMENT YEAR :201 1 - 1 2 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1 (1) , CHENNAI 600 0 34. VS. M/S. APA ENGINEERING (P) LTD., UNIT 1, JEM & JEWELLERY COMPLEX, MEPZ - SEZ T AMBARAM, CHENNAI 600 0 45 . [PAN:A A CC A 9455C ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : S MT. VENI S. RAJ, J CIT / RESPONDENT BY : SHRI T. BANUSEKAR , C.A. / DATE OF HEA RING : 0 2 . 0 8 .201 7 / DATE OF P RONOUNCEMENT : 31 . 0 8 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 5 , CHE NNAI DATED 2 1 . 0 3 .201 7 RELEVANT TO THE ASSESSMENT YEAR 20 1 1 - 1 2 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION TO THE TUNE OF .49.64 LAKHS UNDER SECTION 10A OF THE INCOME TAX ACT, 19 61 [ ACT IN SHORT] . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE I.T.A. NO. 12 94 /M /17 2 BUSINESS OF E - COMMERCE, SOFTWARE CONSULTANTS, TRADING & MANUFACTURE OF AUTO PARTS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 08 .09.201 1 ADMITTING TOTAL INCOME OF . 2, 03,900 / - . SUBSEQUENTLY, THE ASSESSEE HAS FILED A REVISED RETURN ADMITTING AN INCOME OF .51,44,922/ - THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 2 1.03.201 4 BY ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT .1, 00 , 94 , 0 7 3 / - . THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED THE DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT AS WELL AS DISALLOWANCE UNDER SECTION 14A R.W.S. RULE 8D. 3. AGAINST THE DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). BY ACCEPTING THE SUBMISSIONS OF THE ASSESSEE AND FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR EARLIER ASSESSMENT YEAR S , THE LD. CIT(A) ALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT AND RESTRICTED THE ALLOWANCE TO 50% IN VIEW OF THE PROVISIONS OF SECTION 10A(1A) OF THE ACT. 4. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. DR HAS CONTENDED THAT THE ASSESSEE IS NOT CARRYING OUT ANY MANUFACTU RING ACTIVITY AND THE ENTIRE MANUFACTURING ACTIVITY HAS BEEN CARRIED OUT BY AN OUTSIDER. HE ALSO CONTENDED THAT THE ASSESSEE UNDERTAKES FINAL ASSEMBLY AND PACKING BEFORE THEY ARE EXPORTED OUTSIDE INDIA AND THEREFORE, THE ASSESSEE CANNOT BE TERMED AS A MANU FACTURE R TO CLAIM DEDUCTION UNDER I.T.A. NO. 12 94 /M /17 3 SECTION 10A OF THE ACT AND PLEADED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE REVERSED AND RESTORED THAT OF THE ASSESSING OFFICER. 5. ON THE OTHER HAND, BY FILING VARIOUS DECISIONS INCLUDING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR EARLIER ASSESSMENT YEAR S , THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND PRAYED FOR ITS FURTHER CONFIRMATION. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO PERUSED VARIOUS DECISIONS FILED IN THE FORM OF PAPER BOOK. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE IS INVOLVED IN PREPARATION OF DRAWIN GS AS PER THE SPECIFICATIONS OF THE OVERSEAS CUSTOMER AND PLACING PURCHASE ORDER WITH THE MANUFACTURERS , SO THAT THE SAID MANUFACTURER PRODUCES THE GOODS AS PER SUCH SPECIFICATIONS. TO BE PRECISE, THE, ASSESSEE COMPANY RECEIVES ORDERS FROM ITS OVERSEAS CUS TOMERS WHICH ARE PASSED ON TO OTHER MANUFACTURERS IN INDIA. THE ASSESSEE COMPANY ONLY ACTS AS AN INTERMEDIARY BETWEEN THE OVERSEAS CUSTOMER AND THE INDIAN MANUFACTURER. IT ONLY FACILITATES THE ENTIRE PROCESS THROUGH WHICH THE OVERSEAS CUSTOMERS SOURCE AUTO PARTS IN INDIA. THE OVERSEAS CUSTOMERS DO NOT HAVE AN E STABLISHMENT IN THE FORM OF A BRANCH, ETC. IN INDIA TO IDENTIFY A RELIABLE AND A DEPENDABLE MANUFACTURER FOR THEIR ORDERS. FOR SUCH PURPOSES, THEY UTILIZE THE SERVICES OF THE ASSESSEE COMPANY. AFTER G ETTING THE GOODS I.T.A. NO. 12 94 /M /17 4 MANUFACTURED THROUGH OTHER MANUFACTURERS IN INDIA, THE ASSESSEE COMPANY UNDERTAKES FINAL ASSEMBLY AND PACKING BEFORE THEY ARE EXPORTED OUTSIDE INDIA. THIS PROCESS CANNOT BE SAID TO BE A MANUFACTURING PROCESS AND THEREFORE, THE ASSESSING OF FICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE D EDUCTION U NDER SECTION 10A OF THE ACT SHOULD NOT BE DENIED IN ITS CASE. THE ASSESSEE C OMPANY IN ITS SUBMISSION RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF PENWAIT INDIA LIMITED AND EXPLA INED THAT IT HAS BEEN HELD IN THAT CASE THAT AN UNDERTAKING WOULD BE SAID TO BE ENGAGED IN MANUFACTURING ACTIVITY, IF IT IS DOING A PART OF THE MANUFACTURING ACTIVITY BY ITSELF AND FOR THE REST OF IT, ENGAGES THE SERVICES OF SOMEBODY ELSE. 6.1 AFTER CON SIDERING THE SUBMISSION OF THE ASSESSEE, THE ASSESSING OFFICER WAS OF THE OPINION THAT I T MAY BE TRUE THAT A PART OF THE MANUFACTURING ACTIVITY CAN BE OUTSOURCED. HOWEVER, IN THE ASSESSEE'S CASE, THE ASSESSING OFFICER HAS OBSERVED THAT THE ENTIRE MANUFACTU RING ACTIVITY IS CARRIED OUT BY AN OUTSIDER AND THE ASSESSEE COMPANY IS NOT INVOLVED IN ANY OF THE MANUFACTURING ACTIVITIES. AS HAS BEEN BROUGHT OUT IN THE INITIAL PARAGRAPH, T HE ASSESSEE COMPANY DOES NOT HAVE BED INFRASTRUCTURE TO MANUFACTURE THE GOODS. T HE ASSESSEE COMPANY DOES NOT HAVE THE PLANT AND MACHINERY TO MANUFACTURE SUCH GOODS IN INDIA. FOR PRODUCING A PRODUCT, IF A MANUFACTURER CARRIES OUT SOME MANUFACTURING ACTIVITY IN HIS FACTORY AND FOR A PORTION, HE GETS THE ASSISTANCE FROM AN OUTSIDER; HE W OULD STILL BE CALLED A MANUFACTURER AND BE ENTITLED TO DEDUCTION U NDER SECTION 10A OF THE ACT . HOWEVER, THIS I.T.A. NO. 12 94 /M /17 5 BENEFIT CANNOT BE CONFERRED ON A TRADER WHO JUST PROCURES GOODS FROM A MANUFACTURER AND EXPORTS THEM. THE ASSESSEE , IN THE INSTANT CASE, SHOULD ONL Y BE TERMED AS A TRADER WHO PROCURES GOODS FROM OUTSIDERS AND EXPORTS THEM TO OVERSEAS ENTITIES. THEREFORE, THE DECISION OF THE HON'BLE HIGH COURT OF BOMBAY CITED BY THE ASSESSEE IS NOT APPLICABLE TO THE ASSESSEE. EVEN WITH REGARD TO IT & ITES ACTIVITIES C ARRIED ON BY THE ASSESSEE, THERE IS NO MANUFACTURING OR PRODUCTION OF SOFTWARE CARRIED OUT BY THE ASSESSEE. THE ASSESSEE COMPANY ONLY EXPORTS THE SOFTWARE DEVELOPED BY OTHERS. AS HAS BEEN EXPLAINED ABOVE, THE ASSESSEE HAS GOT THE EXPERTISE IN SOURCING AUTO PARTS IN INDIA. 6.2 FURTHER, THE ASSESSING OFFICER HAS NOTICED THAT T HROUGH A WEB - BASED INTERACTIVE TOOL, THE ASSESSEE COMPANY COMMUNICATES WITH ITS CLIENTS SITUATED OVERSEAS THE DETAILS OF THE INDIAN MANUFACTURERS AND THEIR MANUFACTURING SCHEDULES. SOME OF THE OVERSEAS CLIENTS PLACE DIRECT ORDERS ON THE INDIAN MANUFACTURERS. T HE ASSESSEE COMPANY ACTING AS A FACILITATING AGENT, INTERNATIONAL COMMISSION AND INTERNATIONAL INSPECTION CHARGES ARE PAID TO IT BY THE OVERSEAS ENTITIES. SUCH COMMISSION CANNOT BE SAID TO HAVE BEEN DERIVED FROM RENDERING SERVICES IN ITES FIELD OR THROUGH DEVELOPMENT OF COMPUTER SOFTWARE. THE SERVICES RENDERED ARE BASICALLY SOURCING OF AUTO PARTS. IN RENDERING SUCH SERVICES, THE ASSESSEE COMPANY UTILIZES INTERNET BASED TOOLS IN INTER ACTING WITH ITS OVERSEAS CUSTOMERS. IT ONLY FACILITATES LOCATING A MANUFACTURER, INSPECTS THE PARTS MANUFACTURED AND GETS A I.T.A. NO. 12 94 /M /17 6 COMMISSION FOR THE SAME. THEREFORE, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE CAN NOT BE SAID TO BE ENGAGED IN DEVEL OPMENT OF COMPUTER SOFTWARE OR RENDERING ITES SERVICES AS ENVISAGED IN 10 A OF THE ACT. ON THE BASIS OF THE ABOVE DISCUSSION, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT IN CONSISTENT WITH THE STAND TAKEN ON SIMILAR ISSUE IN THE EARLIER ASSESSMENT YEARS 2 006 - 07 TO 2010 - 11. 6.3 BY FOLLOWING THE CONSOLIDATED DECISION IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2006 - 07, 2007 - 08, 2008 - 09 AND 2009 - 10 IN I . T . A . NO S. 2306/MDS/2013 & 505, 506 & 1354/MDS/2014, DATED 30 .4. 2015 , THE LD. CIT(A) HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION UNDER SECTION 10A OF THE ACT. WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIBUNAL . WHILE ADJUDICATING THE GROUND IN EARLIER ASSESSMENT YEARS, AFTER ELABORATELY DISCUSSING VARIOUS AS PECTS, THE COORDINATE BENCHES OF THE TRIBUNAL HAS CONCLUDED AS UNDER: 'FROM THE ABOVE DISCUSSIONS, INVOICES RAISED BY THE ASSESSEE AND THE ORDER OF THE JURISDICTIONAL HIGH COURT, IT IS APPARENT THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING ACTIVITY/ASSEMBL ING THE PRODUCTS FOR EXPORTS, AND ALSO RENDERING INFORMATION TECHNOLOGY ENABLED SERVICES WHICH ENTITLES THE ASSESSEE TO CLAIM DEDUCTION U/S 10A OF THE ACT. THUS THIS GROUND IS ANSWERED IN FAVOUR OF THE ASSESSEE FOR ALL THE ASSESSMENT YEARS IN APPEAL BEFORE US.' FURTHER, IN THE SUBSEQUENT ASSESSMENT YEAR 2010 - 11 ALSO, THE TRIBUNAL IN I . T . A . NO 1623/MDS/2015, DATED 16 . 12 . 2015 BY REPRODUCING THE ENTIRE ORDER IN PARA 2 TO 4.9.1, AT PARA 6, THE TRIBUNAL HAS HELD AS UNDER: I.T.A. NO. 12 94 /M /17 7 6. AS THE FACTS AND CIRCUMSTANCES BE ING IDENTICAL FOR THIS YEAR ALSO, RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 10A OF THE ACT. HOWEVER THE CLAIM SHALL BE RESTRICTED TO 50% IN VIEW OF THE PROVISIONS OF SECTION 10A(1A) OF THE ACT.' 6.4 AS THE FACTS AND CIRCUMSTANCES ARE IDENTICAL FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, RESPECTFULLY FOLLOWING THE ABOVE STATED DECISIONS OF THE ITAT, CHENNAI IN ASSESSEE'S OWN CASE, THE LD. CIT(A) HAS H E LD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 10 A OF THE ACT AND RESTRICTED THE CLAIM TO 50% IN VIEW OF THE PROVISIONS OF SECTION 10A( 1 A) OF THE ACT. THE LD. DR COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE TRIBUNAL IN ASSESSEE S OWN CASE OR FILED ANY HIGHER COURT DECISION HAVING MODIF IED OR REVERSED THE FINDINGS OF THE TRIBUNAL. THUS, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) HAS RIGHTLY FOLLOWED THE ABOVE DECISIONS OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. ACCORDINGLY, THE GRO UND RAISED BY THE REVENUE IS DISMISSED. 7 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED ON THE 31 ST AUGUST , 201 7 AT CHENNAI. SD/ - SD/ - ( SANJAY ARORA ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATE D, THE 31 . 0 8 .201 7 VM/ - / COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) / CIT(A), 4. / CIT, 5. / DR & 6. / GF.