Dy.CIT, Circle-3(3), Hyderabad V. M/s. Wells Fargo India Solutions Pvt., Ltd., Hyderabad

ITA 1418/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74666 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 28-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAMPATH RAGHUNATHAN
• Section: 43B; 10AA; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. AHSA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1418/HYD/2013 ASSESSMENT YEAR 2009-10. DCIT, CIR-3(3), VS. M/S W ELLS FARGO INDIA SOLUTIONS, HYDERABAD. PVT L TD., RR DIST., HYDERABAD . PAN:AAACW 6592N (APPELLANT) (RESPONDENT) APPELLANT BY SHRI JEEVAN LAL LAVIDIYA (DR) RESPONDENT BY SHRI SAMPATH RAG HUNATHAN DATE OF HEARING 03-03-2014 DATE OF PRONOUNCEMENT 03-03-2014 ORDER PER CHANDRA POOJARI, A.M: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER DATED 01/08/2013 OF CIT (A)-IV, HYDERABAD PERTAINING TO A SSESSMENT YEAR 2009-10. THE EFFECTIVE GROUNDS I.E., GROUNDS 2, 3 AND 4 RAISED BY THE DEPARTMENT READ AS UNDER:- 2. THE CIT (A) OUGHT TO HAVE UPHELD THE EXCLUSION OF T HE STATUTORY DISALLOWANCES LIKE PROVISION FOR GRATUITY PROVISION FOR LEAVE ENCASHMENT, BONUS PAYABLE, EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND WHILE COMPUTING ELIGIBLE PROFITS U/S 10A AND SEC.10AA. 3. THE CIT (A) OUGHT TO HAVE APPRECIATED THE FAST T HAT THE ABOVE DISALLOWANCES ARE COVERED BY THE DECISION OF THE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT IN 2 ITA NO.1418 OF 2013 M/S WELLS FARGO IN DIA SOLUTIONS PVT. LTD., HYD. CIVIL APPEAL NO.5271/07 DATED 31-8-2009 WHICH WAS ALSO REAFFIRMED IN THE CASE OF CIT VS. STERLING FOO DS (SC) (237 ITR 579) WHERE IT WAS HELD THAT THE INCOM E HAS TO BE DERIVED FROM ELIGIBLE BUSINESS FOR CLAIMI NG DEDUCTION UNDER CHAPTER IVA. 4. THE CIT (A) OUGHT NOT HAVE DIRECTED THE ASSESSIN G OFFICER TO REDUCE COMMUNICATION CHARGES BOTH FROM THE EXPORT TURNER AS WELL AS THE TOTAL TURNOVER, AS SUCH ON ADJUSTMENT TO THE TOTAL TURNOVER PROVISIONS LAID DOWN BELOW SEC. 10A OR SEC. 10AA. 2. AS REGARDS GROUNDS NO. 2 & 3 RELATING TO THE CLA IM OF DEDUCTION U/S 10A AND 10AA, THE ASSESSEE CLAIMED DEDUCTION U/S 10 A ON THE FOLLOWING AMOUNTS: SL.NO. TYPE OF DISALLOWANCE AMOUNT 1. PROVISION FOR GRATUITY DISALLOWED U/S 40A(7) 33,24, 353 2 PROVISION FOR LEAVE ENCASHMENT DISALLOWED U/S 43B 63,60,959 3 DELAY IN REMITTANCE OF PF DISALLOWED U/S 43B 34, 07,663 4 BONUS PAYABLE DISALLOWED U/S 43B 87,05,012 TOTAL 2,17,97,987 2.1 THE ASSESSING OFFICER HELD THAT THE INCOME ARIS ING ON ACCOUNT OF STATUTORY DISALLOWANCES, AS MENTIONED ABOVE, IS NO T DERIVED THE FROM THE EXPORT OF SOFTWARE AND, THEREFORE, IS NOT ELIGIBLE FOR DEDUCTION U/S 10A AND, ACCORDINGLY, THESE AMOUNTS CANNOT BE PART OF THE PR OFIT/INCOME TAKEN FOR CALCULATING 10A DEDUCTION. 3. ON APPEAL, THE CIT(A) OBSERVED THAT THE INCOME F ROM BUSINESS ELIGIBLE FOR DEDUCTION U/S 10A AND 10AA IS THE INCO ME AS COMPUTED UNDER THE ACT AND OBVIOUSLY IS TO BE ARRIVED AT AFTER THE SE STATUTORY DISALLOWANCES AS PER THE ACT ITSELF. THE CIT(A) FOLLOWING FEW DEC ISIONS OF THE ITAT, WHICH WERE MENTIONED AT PAGE 6 OF HIS ORDER, ALLOWED THE CLAIM OF THE ASSESSEE. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US BY WAY OF GROUND NOS. 2 & 3 (SUPRA). 3 ITA NO.1418 OF 2013 M/S WELLS FARGO IN DIA SOLUTIONS PVT. LTD., HYD. 5. WE HAVE HEARD THE ARGUMENT OF BOTH THE PARTIES A ND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE IN DISPU TE IN GROUND NOS. 2 & 3 IS SQUARELY COVERED BY THE FOLLOWING DECISIONS: I) VIRTUSA INDIA (P) LTD. VS. DCIT (41 TAXMANN.COM 244) (HYD.) II) PATNI TELECOM SOLUTIONS (P) LTD. (23 ITR 534) (HYD) III) BARTRONICS INDIA LTD. VS. ACIT (52 SOT 188 (H YD.) IV) DCIT VS. PLANET ONLINE PVT. LTD. (ITA 1016/H/0 7) (HYD.) V) CIT VS. GEMPLUS JEWELLERY MFG. CO. LT D. VS. ITO (330 ITR 175) (BOMB.) VI) SANGHVI JEWELLERY MFG. CO.LTD. V S. ITO (19 TAXMAN.COM 55 (MUM.) VII) GALILEO INDIA PRIVATE LIMITED VS. CIT (2011-TIOL-79-INCOME-TAX APPELLATE TRIBUNAL-DEL) 5.1 IN THE CASE OF GEMPLUS JEWELLERY MFG. CO. LTD., VS. ITO, 330 ITR 175, THE HONBLE BOMBAY HIGH COURT, HELD AS FOLLOWS: THAT IT WAS AN ADMITTED POSITION THAT THE ASSESSEE HAD DEPOSITED BOTH THE EMPLOYERS AND THE EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND AND ESIC, THOUGH BEYOND THE DUE DATE INCLUDING THE GRACE PERIOD. THE AO ADDED THESE PAYMENTS TO THE TO TAL INCOME OF THE ASSESSEE. THE DISALLOWANCE WHICH WAS EFFECTED B Y THE AO HAD NOT BEEN CHALLENGED BY THE ASSESSEE. THE PLAIN CONS EQUENCE OF THE DISALLOWANCE AND THE ADD BACK THAT HAD BEEN MADE BY THE AO WAS AN INCREASE IN THE BUSINESS PROFITS OF THE ASSESSEE. T HE CONTENTION OF THE REVENUE THAT IN COMPUTING THE DEDUCTION UNDER S ECTION 10A THE ADDITION MADE ON ACCOUNT OF THE DISALLOWANCE OF THE PROVIDENT FUND/ESIC PAYMENTS OUGHT TO BE IGNORED COULD NOT BE ACCEPTED. NO STATUTORY PROVISION TO THAT EFFECT HAVING BEEN MADE , THE PLAIN CONSEQUENCE OF THE DISALLOWANCE MADE BY THE AO MUST FOLLOW. THE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE AO TO GRANT THE EXEMPTION U/S 10A OF THE ACT ON THE ASSESSED INCOME, WHICH WAS EN HANCED DUE TO DISALLOWANCE OF THE EMPLOYERS AS WELL AS EMPLOYEES CONTRIBUTION TOWARDS PF/ESIC. 5.2 RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY T HE HONBLE BOMBAY HIGH COURT IN THE SAID CASE AND ALSO FOLLOWING THE CITED DECISIONS, WE ARE INCLINED TO CONFIRM THE ORDER OF THE CIT (A) ON THI S ISSUE AND DISMISS THE GROUNDS 2 & 3 RAISED BY THE REVENUE. 3. AS REGARDS GROUND NO.4, THE ASSESSING OFFICER EX CLUDED THE COMMUNICATION CHARGES FROM THE EXPORT TURNOVER, BUT , THE SAME WERE INCLUDED IN THE TOTAL TURNOVER. THE CIT(A) FOLLOWIN G THE DECISIONS OF THE ITAT, WHICH WERE MENTIONED AT PAGE 6 OF HIS ORDER, DIRECTED THE ASSESSING 4 ITA NO.1418 OF 2013 M/S WELLS FARGO IN DIA SOLUTIONS PVT. LTD., HYD. OFFICER TO EXCLUDE THE COMMUNICATION CHARGES FROM T HE EXPORT TURNOVER AS WELL AS THE TOTAL TURNOVER ALSO FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A AND 10AA OF THE ACT. AGGRIEVED, THE REVENU E IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ISSUE IN DISPUTE IS COVERE D BY THE FOLLOWING DECISIONS: 1. DCIT VS. MENTOR GRAPHICS (I)P. LTD. (ITA696/H/0 9 (HYD.) 2. ITO VS. DE BLOCK INDIA SOFTWARE (P) LTD. (ITA NO S. 983 & 984/2006 (HYD.) 3. ADP (P) LTD. VS. DCIT (ITA 106 & 155/H/09 (HYD.) 4. ITO VS. SAK SOFT LTD. (33 SOT 55 (CHENNAI SB) 5. EXBAND (INDIA) (P) LTD. VS. ITO (ITA 30 OF 2007) (HYD.) 6. FOURSOFT PVT. LTD. VS. ACIT (2009 TIOL-18ITAT-HY D.) 7. DCIT VS. BINARY SEMATICS LIMITED (109 TTJ 556) 8. CIT VS. CHLORIDE INDIA LIMITED (256 ITR 625) 9. CIT VS. SUARSHAN CHEMICALS INDUSTRIES LTD (245 I TR 769) 10. CIT VS. KANTILAL CHHOTALAL (246 ITR 439) 11. ACIT VS. TATA ELXSI LIMITED (201-TIOL-684-HC-KA R-IT) 4.1 THE SPECIAL BENCH OF THE CHENNAI TRIBUNAL IN T HE CASE OF ITO VS SAKSOFT LTD (313 ITR AT 353) + HELD THAT EXPENSES EXCLUDED FROM EXPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM THE TO TAL TURNOVER . THE HONBLE KARNATAKA HIGH COURT HAS ALSO TAKEN SIMILAR VIEW IN THE CASE OF CIT VS. TATA ELXSI LTD. & OTHERS, 247 CTR 334 (K AR.). RESPECTFULLY FOLLOWING THE SAID DECISIONS CITED SUPRA THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND GROUND NO. 4 RAISED IN T HIS REGARD IS DISMISSED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 03-03-2014 . SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 3 RD MARCH, 2014. 5 ITA NO.1418 OF 2013 M/S WELLS FARGO IN DIA SOLUTIONS PVT. LTD., HYD. KV COPY TO:- 1) DCIT, CIR-3(3), 7 TH FLOOR, B- BLOCK, IT TOWERS, AC GUARDS, HYDERABAD. 2) M/S. WELLS FARGO INDIA SOLUTIONS PVT. LTD., SERI LINGAMPALLI MANDAL, RR DISTRICT, HYDERABAD. 3) CIT(A)-IV,HYDERABAD. 4) CIT-III, HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D.