ACIT, CHENNAI V. Bahwan Cybertek Ltd., CHENNAI

ITA 1460/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9447 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 24-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 28-05-2014
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A; 10B

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER I.T.A.NO S . 1467/MDS/201 3 AND 1460/MDS/2014 ASSESSMENT YEAR S :2007 - 08 AND 2006 - 07 & C.O. NO. 65 /MDS/2014 [IN I.T.A. NO. 1460 /MDS/2014] THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE 1(2), CHENNAI - 34. . VS. M/S. BAHWAN CYBER TEK LTD., BAHWAN CYBERTEK IT PARK, 148, RAJIV GANDHI SALAI [OMR], OKKIYAM THORAIPAKKAM, CHENNAI 600 097 [PAN: AABCB2020P] ( APPELLANT ) ( R ESPONDENT /CROSS OBJECTOR ) DEPARTMENT BY : SHRI PATHLAVATH PEERYA, CIT ASSESSEE BY : SHRI S. SRIDHAR, A DVOCATE / DATE OF HEARING : 24 . 03 .201 6 / DATE OF P RONOUNCEMENT : 29 .04 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : BOTH THE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)VI, CHENNAI DATED 25.03.2013 FOR THE ASSESSMENT YEAR 2007 - 08 AND FOR THE ASSESSMENT YEAR 2006 - 07 DATED 26.02.2014 BY THE LD. CIT(A) I, CHENNAI. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION FOR THE ASSESSMENT YEAR 2006 - 07. SINCE COMMON I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 2 ISSUES ARE RAISED IN THESE APPEALS, HEARD TOGETHER AND BEING DISPOSED OFF BY THIS ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST COMMON ISSUE RAISED IN THE APPEALS OF THE REVENUE IS WITH REGARD TO DELETION OF DISALLOWANCE OF DEPR ECIATION ON INTANGIBLE ASSET. IN BOTH THE APPEALS ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. BRIEF FACTS LEADING TO THE ISSUE RAISED IN THE APPEALS ARE THAT UNDER THE CLASSIFICATION INTANGIBLE ASSETS IN TH E FIXED ASSET SCHEDULE, THE ASSESSEE HAS CLAIMED DEPRECIATION OF .1,84,27,017/ - @ 25% TREATING THE PRODUCT SOFTWARE AS AN INTANGIBLE ASSET. THE WDV AS ON 01.04.2006 WAS .6,67,29,523/ - AND ADDITION FOR THE YEAR WAS RS.1,39,57,087/ - TOTALLING TO .8,06,86,610/ - . FOR THIS TOTAL VALUE, THE ASSESSEE HAS CLAIMED DEPRECIATIO N. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSEE DID NOT PROVIDE THE CORRECT INFORMATION AS TO HOW THIS PRODUCT SOFTWARE HAS BEEN EXPLOITED. THE NATURE OF PRODUCT DEVELOPED AND THE WAY IT WAS PUT TO USE HAS NEVER BEEN EXPLAINED BY THE ASSESSEE. D URING THE YEAR, OUT OF TOTAL EXPENDITURE OF .16.59 CRORES, THE ASSESSEE HAS EXCLUDED .1.39 CRORES AS TRANSFER TO PRODUCT DEVELOPMENT EXPENSES. THE SCIENTIFIC BASIS FOR SEGREGATING AN EXPENDITURE OF THIS PROPORTION FROM THE TOTAL EXPENDITURE COULD NOT BE VERIFIABLE FROM THE RECORDS SINCE THE ASSESS EE HAS NOT PRODUCED DETAILS AT THE TIME OF SCRUTINY PROCEEDINGS. THOUGH THE DEPARTMENT HAS BEEN CONSISTENTLY DISALLOWING THIS CLAIM, THE AR OF THE I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 3 ASSESSEE DID NOT EMPHASIZE THE CORRECTNESS OF THE CLAIM BY PROVIDING RELEVANT DOCUMENTS DURING THE COURSE OF SCRUTINY PROCEEDINGS. WHEN A PRODUCT IS DEVELOPED AS A PLATFORM FOR MULTIPLE AND VARIED USE, IT IS SAID TO ATTAIN TOTALITY ONLY WHEN THE PRODUCT IS COMPLETE, TESTED AND PUT TO USE WITH NO MAJOR DEVELOPMENTS TO IT. HOWEVER, IN THE INSTANT CASE, THE ASSESSIN G OFFICER HAS OBSERVED THAT YEAR AFTER YEAR SUBSTANTIAL INPUTS IN VALUE IS BEING MADE WHICH GOES TO SHOW THAT THE ITEMS OF EXPENDITURE ARE TOWARDS CAPITAL WORK IN PROGRESS, BUT IT WAS NOT PROVED THAT THE SAME HAS BEEN PUT TO USE BY THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER HAS HELD THAT THE CLAIM OF DEPRECIATION IS INCORRECT. HE FURTHER HELD THAT THE CLAIM WOULD NOT STAND THE TEST OF SCRUTINY SINCE THE EXPENDITURE HAS EVOLVED INTO A CAPITAL WIP, WHICH CAN BE SET OFF AGAINST INCOME WHEN THIS PROJECT GEN ERATES SUCH INCOME. THUS, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEPRECIATION OF . 1,84,27,017/ - FOR THE ASSESSMENT YEAR 2007 - 08 & .1,65,23,773/ - FOR THE ASSESSMENT YEAR 2006 - 07 AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. ON APPEAL, AFTER CONSIDERING THE WRITTEN ARGUMENTS FILED BY THE AR OF THE ASSESSEE, THE LD. CIT(A) ALLOWED THE CLAIM OF DEPRECIATION. 4. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL FOR BOTH THE ASSESSMENT YEARS. 5. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. SINCE THE ASSESSEE COULD NOT FURNISH I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 4 THE CORRECT INFORMATION AS TO HOW THIS PRODUCT SOFTWARE HAS BEEN EXPLOITED. FURTHER, THE NATURE OF PRODUCT DEVELOPED AND THE WAY IT WAS PUT TO USE HAS NEVER BEEN EXPLAINED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER DURING THE COURSE OF SCRUTINY PROCEEDINGS. WITHOUT OFFERING PROPER EXPLANATION AND FURNISHING THE DETAILS BY THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEPRECIATION FOR THE ASSESSMENT YEAR 2007 - 08 . WITH REGARD TO THE CLAIM OF DEPRECIATION OF .1,65,23,773/ - FOR THE ASSESSMENT YEAR 2006 - 07, THE ASSESSING OFFICER HAS HELD AS UNDER: FOR THE REASONS ELABORATELY DISCUSSED IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2005 - 06, THE SUM OF RS.1,65,23,773/ - IS DISALLOWED AND ADDED TO THE TOTAL INCOM E OF THE ASSESSEE. NO COPY OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2005 - 06 WAS PLACED ON RECORD. BUT, IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2007 - 08, WE FIND THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS AS REQUIRED BY THE ASSESSING O FFICER TO ADMIT THE CLAIM OF DEPRECIATION. 6. AFTER CONSIDERING THE SAME WRITTEN ARGUMENTS FOR THE ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 FILED BEFORE THE LD. CIT(A), THE LD. CIT(A) HAS HELD THAT: SINCE THE EXPENSES INCURRED ON PRODUCT DEVELOPMENT TEAM AR E SEGREGATED AND THE TEAM IS WORKING TOWARDS MAKING CONTINUOUS UPGRADATION IN THE VERSIONS OF SOFTWARE AND ALSO PRODUCTS EMANATING FROM THIS UPGRADATION ARE BEING SOLD IT IS RIGHT THAT THE EXPENDITURE BE TREATED AS AN INTANGIBLE ASSET AND DEPRECIATION BE A LLOWED AS CLAIMED BY THE ASSESSEE. I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 5 IN THE WRITTEN ARGUMENTS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 FILED BEFORE THE LD. CIT(A), IT WAS MENTIONED THAT THE CAPITALIZATION HAS BEEN DONE IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNT ING PRINCIPLES AND ACCOUNTING STANDARDS RELATING TO THE PRODUCT AND IT CANNOT BE DISPUTED THAT ACCOUNTS HAVE BEEN DRAWN UPON IN ACCORDANCE WITH THE ACCOUNTING STANDARDS AND DEPRECIATION HAS BEEN CLAIMED ACCORDINGLY . FOR CAPITALIZATION, IF THE ASSESSEE HAS FOLLOWED GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND ACCOUNTING STANDARDS, THEN WHAT PREVENTED THE ASSESSEE TO FURNISH THE EVIDENCE AS REQUIRED BY THE ASSESSING OFFICER TO ADMIT THE CLAIM OF DEPRECIATION? MOREOVER, WHAT ARE THE DETAILS REQUIRED BY THE AS SESSING OFFICER AND WHAT ARE THE DETAILS NOT FILED BY THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS ARE NOT AVAILABLE ON RECORD. IN THE ABSENCE OF COMPLETE PARTICULARS ON RECORD, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE FOR BOTH THE ASSES SMENT YEARS 2006 - 07 AND 2007 - 08 AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW BY PASSING A DETAILED SPEAKING ORDER AFTER CONSIDERING THE EVIDENCE AND DETAILS AS MAY BE FILED BY THE ASSESSEE . THE ASSESSEE IS ALSO DIRECTED TO FURNISH ALL DETAILS AND EVIDENCE FOR CLAIMING DEPRECIATION BEFORE THE ASSESSING OFFICER. THUS, THE GROUND RAISED BY THE REVENUE FOR BOTH THE ASSESSMENT YEARS IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 6 7. THE NEXT COMMON GROU ND RAISED IN BOTH THE APPEALS OF THE REVENUE IS WITH REGARD TO DEDUCTION UNDER SECTION 10A OF THE ACT BY EXCLUDING FREIGHT, TELECOMMUNICATION CHARGES, ETC. INCURRED IN FOREIGN CURRENCY BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER. IT WAS THE C ONTENTION OF THE ASSESSEE THAT THE SOFTWARE DEVELOPMENT MADE BY THE ASSESSEE NEEDS TO BE INSTALLED AT VARIOUS CLIENTS PLACES AND ALSO REQUIRED TO PROVIDE NECESSARY AFTER SALES SERVICES TO THE CLIENTS AT THEIR RESPECTIVE SITES ABROAD. HOWEVER, THE ASSESSIN G OFFICER HAS OBSERVED THAT NO FOREIGN EXCHANGE RELATING TO THIS EXPENDITURE HAS BEEN REPATRIATED INTO INDIA AND THEREFORE THESE ITEMS ARE TO BE EXCLUDED FROM THE EXPORT TURNOVER FOR COMPUTATION OF DEDUCTION UNDER SECTION 10B OF THE ACT. ACCORDINGLY, THE A SSESSING OFFICER EXCLUDED TRAVELLING EXPENSES [ . 62,06,928/ - ] AND SERVICE CHARGES PAID TO OTHERS [ .5,49,759/ - ] TOTALLING TO .67,56,687/ - . 8. FOR THE ASSESSMENT YEAR 2006 - 07, THE ASSESSING OFFICER HAS EXCLUDED TRAINING INCOME, TELECOMMUNICATION EXPENS ES FROM EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. 9. ON APPEAL, THE LD. CIT(A), BY FOLLOWING THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE SAKSOFT LTD. [2009] 30 SOT 55, DIRECTED THE ASSESSING OFFICER THAT THE SAID AMOUNT OF FOREIGN EXCHANGE BE EXCLUDED FROM THE TOTAL TURNOVER AS WELL AS EXPORT TURNOVER. I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 7 10. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. DR HAS CONTENDED THAT THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF S AKSOFT LTD. HAS NOT BECOME FINAL. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY RELIED ON THE ORDER PASSED BY THE LD. CIT(A) FOR BOTH ASSESSMENT YEARS. 11. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT THE LD. CIT(APPEALS) , BY FOLLOW ING THE DECISION OF THE CHENNAI SPECIAL BENCH IN THE CASE OF ITO V. SAK SOFT LTD. (SUPRA) , DIRECTED THE ASSESSING OFFICER TO REDUCE THE TELECOMMUNICATION EXPENSES , TRAVEL EXPENSES, S ERVICE CHARGES PAID TO OTHERS INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA BOTH FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER. THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THE ITAT, CHENNAI SPECIAL BENCH IN THE CASE OF M/S. SAK SOFT LTD , WHEREIN, IT WAS HELD AS UNDER: ' .... WE HOLD THAT FOR THE PURPOSE OF APPLYING THE FORMULA UNDER SUB - S (4) OF S.10B, THE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSI DE INDIA OR THE EXPENSES, IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FO RMULA. .. .. ' THE LD. DR HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ABOV E DECISION OF THE TRIBUNAL HAS BEEN EITHER MODIFIED OR REVERSED BY ANY HIGHER COURT S . THEREFORE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 8 CIT(APPEALS) ON THI S ISSUE FOR BOTH THE ASSESSMENT YEARS AND THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 12. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2007 - 08 IS WITH REGARD TO DELETION OF DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W.R. 8D. AFTER EXAMINING THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HOLDS INVESTMENTS AMOUNTING TO .59,44,91,029/ - AS ON 31.03.2007. EXCLUDING THE INVESTMENTS IN STANDARD CHARTERED MUTUAL FUND OF .11,64,372/ - AND BIRLA SUNLIFE MUTUAL FUND OF .23,57,111/ - , SUMMING UP TO .35,21,483/ - , ALL OTHER INVESTMENTS ARE OUTSIDE THE PURVIEW OF SECTION 14A OF TH E ACT BECAUSE RETURN ON INVESTMENTS FROM SUBSIDIARIES BY PARTICIPATION IN ITS EQUITY IS TAXABLE IN INDIA. IN ITS WRITTEN SUBMISSION MADE BEFORE THE ASSESSING OFFICER, IT WAS STATED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF .9,10,266/ - FROM THE STAND ARD CHARTERED MUTUAL FUND AND BIRLA SUN LIGHT MUTUAL FUND AND THE SAME IS TAX FREE. HOWEVER, TO EARN THIS INCOME, THE ASSESSEE HAS NOT ADMITTED ANY EXPENDITURE IN ANY FORM BUT FOR A FEW TELEPHONE CALLS AND COURIER OF DOCUMENTS TO MUTUAL FUND. THEREFORE, TH E ASSESSEE HAS CONTENDED THAT DISALLOWANCE UNDER SECTION 14A IS NOT WARRANTED. THOUGH THERE WAS NO OUTGOING INTEREST COMPONENT, SINCE THE ASSESSEE HAS MADE THE INVESTMENT OUT OF OWN FUNDS, BUT, THE ASSESSING OFFICER WAS OF THE OPINION THAT DISALLOWANCE IS REQUIRED TO BE MADE ON INDIRECT COST BY APPLYING I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 9 THE THIRD LIMB OF THE RULE 8D. ACCORDINGLY, BY APPLYING (III) LIMB OF RULE 8D, THE ASSESSING OFFICER WORKED OUT DISALLOWANCE OF .1,34,972/ - BEING EXPENDITURE RELATABLE TO INVESTMENTS IN TAX FREE TERRITORY A ND ADDED TO THE TAXABLE INCOME OF THE ASSESSEE. 13. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED THAT SINCE THE MONIES ARE RECEIVED FROM MUTUAL FUNDS, WHERE THE INVESTMENTS ARE MADE OUT OF OWN FUNDS, IT CAN B E INFERRED THAT NO EXPENSES ARE LAID OUT TO EARN THIS DIVIDEND AND SECTION 14A OF THE ACT CANNOT BE APPLIED. THUS, HE HELD THAT NO DISALLOWANCE UNDER RULE 8D IS CALLED FOR AND DIRECTED TO DELETE THE DISALLOWANCE. 14. ON BEING AGGRIEVED, THE REVENUE IS I N APPEAL BEFORE THE TRIBUNAL. 15. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CASE, THE ASSESSEE HAS EARNED DIVIDEND INCOME OF .9,10,266/ - AND THE SAME IS TAX FREE. HOWEVER, TO EAR N THIS INCOME, THE ASSESSEE HAS NOT ADMITTED ANY EXPENDITURE. THE ASSESSING OFFICER APPLIED (III) LIMB OF RULE 8D AND MADE DISALLOWANCE OF .1,34,972/ - BEING EXPENDITURE RELATABLE TO INVESTMENTS IN TAX FREE TERRITORY. THE LD. CIT(A) DIRECTED TO DELETE THE DISALLOWANCE ON THE GROUND THAT THE MONIES ARE RECEIVED FROM MUTUAL FUNDS, WHERE THE INVESTMENTS ARE MADE OUT OF OWN FUNDS, IT CAN BE INFERRED THAT NO EXPENSES ARE LAID OUT TO EARN THIS I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 10 DIVIDEND AND SECTION 14A OF THE ACT CANNOT BE APPLIED. HE ALSO HELD TH AT NO DISALLOWANCE UNDER RULE 8D IS CALLED FOR. WE FIND THAT F ROM THE DECISION OF T HE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD V. DCIT (320 ITR 81) , IT IS VERY CLEAR THAT THE APPLICATION OF PROVISIONS OF R ULE 8D, WHICH HAS BEEN NOTIFIED WITH EFFECT FROM 24.03.2008, SHALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008 - 09 ONWARDS . IN THE PRESENT CASE, THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2007 - 08 AND THEREFORE, RULE 8D HAS NO APPLICATION. HOWEVER, THE HON BLE MUMBAI HIGH COURT I N THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DCIT (SUPRA) STATES THAT APPLICATION OF PROVISIONS OF 14A ARE 'CONSTITUTIONALLY VALID' AND PROVISIONS OF S ECTION 14A ARE STILL APPLICABLE FOR EARLIER ASSESSMENT YEARS AND THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE EXPENDITURE BY ADOPTING A REASONABLE BASIS OR METHOD . THE TRIBUNAL IN MANY CASES DIRECTED THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE @ 2% OF GROSS EXEMPT INCOME, WHICH WOULD BE MORE REASONABLE BY FOLLOWING THE DECISION OF THE HON BLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF SIMPSON & CO. LTD. IN TCA NO. 2621 OF 2006. IN VIEW OF THE ABOVE DECISION OF HON BLE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 2% OF GROSS TAX FREE INCOME EARNED BY THE ASSESSEE BEING EXPENDITURE RELATABLE TO INVESTMENTS IN TAX FREE TERRITORY. THUS, THE GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 11 16. IN THE CROSS OBJECTION FILED FOR THE ASSESSMENT YEAR 2006 - 07, THE ASSESSEE HAS RAISED DIFFERENT EFFECTIVE GROUND AGAINST THE GROUND RAISED BY THE REVENUE IN ITS APPEAL. THEREFORE, THE GROUND RAISED BY THE ASSESSEE I N ITS CO IS NOT MAINTAINABLE. THE ASSESSEE SHOULD HAVE RAISED T HE GROUND BY WAY OF FILING APPEAL AND NOT IN CO. HOWEVER, THE ASSESSEE HAS RAISED THE LEGAL ISSUE; WE PROCEEDED TO DECIDE THE ISSUE ON MERITS. THE GROUND RAISED IN THE CROSS OBJECTION IS WITH REGARD TO SUSTAINING THE ADDITION OF .22,01,524/ - BEING FOREIGN EXCHANGE EARNINGS FROM CALL CENTRE TRAINING PROGRAMME CONDUCTED BY THE ASSESSEE FOR THE STUDENTS FROM SULTANATE OF OMAN. 17. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE HAS EARNED EXPORT REVENUE OF . 22,01,524/ - THROUGH A TRAINING PROGRAMME CONDUCTED B Y IT FOR PROVIDING CALL CENTRE TRAINING TO THE MINISTRY OF MANPOWER, SULTANATE OF OMAN. BEFORE T HE ASSESSING OFFICER, THE ASSESSEE HAS SUBMITTED THAT THE CB D T HAVING SPECIFIED THAT REVENUE FROM CALL CENTRES AND SUPPORT CENTRES WILL BE C OUNTED AS INFORMATIO N TECHNOLOGY ENABLED PRODUCTS OR SERVICE. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSIONS OF THE ASSESSEE AND EXCLUDED THE SAID REVENUE FROM THE EXPORT TURNOVER. 18. ON APPEAL, BY DISMISSING THE GROUND RAISED BY THE ASSESSEE, THE LD. CIT (A) HAS OBSERVED AS UNDER: I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 12 5.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. SIMILAR ISSUE HAS BEEN DEALT WITH IN THE APPELLANT'S OWN CASE FOR THE AY 2005 - 06 BY THE AO WHEREIN THE AO HAS GIVEN A CLEAR FINDING ON THIS ISSUE WHICH IS REPROD UCED AS UNDER: - IT IS VERY CLEAR THAT THE ASSESSEE ONLY IMPARTED TRAINING IN CALL C ENTRES TO THE FOREIGN STUDENTS AND RECEIVED THE REMITTANCE IN FOREIGN CURRENCY. BUT IMPARTING TRAINING TO FOREIGN STUDENTS IN CALL CENTRES OR IT FIELD DOES NOT AMOUNTS TO INFORMATION TECHNOLOGY ENABLED CALL CENTRE SERVICES OR HUMAN RESOURCE SERVICES. HAD I T BEEN THE CASE THAT THE ASSESSEE INDULGED IN CALL CENTRE ACTIVITIES OR MANAGING THE HUMAN RESOURCE OF FOREIGN OFFICE BY HAVING BACK OFFICE IN INDIA, THE ASSESSEE MAY CLAIM THAT THEY CAME IN THE PURVIEW OF EXPLANATION 2(I) OF SECTION 10B. MERELY BY INCULCA TING TRAINING IN IT FIELD TO FOREIGN STUDENTS AND RECEIVING REMITTANCES IN FOREIGN CURRENCY DOES NOT AMOUNTS TO EXPORT OF COMPUTER SOFTWARE OR IT ENABLED SERVICES NOTIFIED BY THE CENTRAL BOARD OF DIRECT TAXES. IN VIEW OF THE ABOVE DISCUSSION, THE AMOUNT EA RNED BY THE ASSESSEE THROUGH IMPARTING TRAINING TO FOREIGN STUDENTS SHOULD NOT FORM PART OF EXPORT TURNOVER OF THE ASSESSEE AND THEREFORE THE SAME IS EXCLUDED FROM THE EXPORT TURNOVER OF THE ASSESSEE' 5.2.1 IT IS NOTICED FROM THE ABOVE FACTS THAT THE AP PELLANT HAS EARNED FOREIGN EXCHANGE OF RS.20,01,524 DURING THE YEAR FROM SULTANATE OF OMAN, OVER AND ABOVE THE AMOUNT OF RS.10,98,57,556 TOWARDS EXPORT OF COMPUTER SOFTWARE PRODUCTS I SERVICES. THE APPELLANT HAS IMPARTED TRAINING TO OMANIS IN INDIA WITH RE GARD TO HANDLING OF CALL CENTRE ACTIVITIES. THEREFORE, I FULLY AGREE WITH THE AO THAT THE FOREIGN EXCHANGE EARNED FROM OMAN IS NOT OUT OF EXPORT OF COMPUTER SOFTWARE TO OMAN THUS, THE FOREIGN EXCHANGE RECEIVED WILL NOT FORM PART OF EXPORT TURNOVER AND NOT ELIGIBLE FOR 10A DEDUCTION. THE ADDITION MADE BY THE AO IS SUSTAINED AND THE GROUND RAISED BY THE APPELLANT IS DISMISSED. 19. ON BEING AGGRIEVED, THE ASSESSEE HAS RAISED THE GROUND IN ITS CROSS OBJECTION. I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 13 20. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF COMPUTER SOFTWARE PRODUCTS/SERVICES. AS DEFINED UNDER CLAUSE (IV) TO EXPLANATION 2 TO SECTION 10A OF THE ACT, 'EXPORT TURNOVER' MEANS THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB - SECTION (3), BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELI VERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA. THUS, IT CAN BE SEEN THAT THE CONSIDERATION HAS TO BE RECEIVED OR BROUGHT INTO INDIA TO B E INCLUDED IN THE EXPORT TURNOVER. HOWEVER, IMPARTING TRAINING TO FOREIGN STUDENTS IN CALL CENTRES OR IT FIELD DOES NOT AMOUNTS TO INFORMATION TECHNOLOGY ENABLED CALL CENTRE SERVICES OR HUMAN RESOURCE SERVICES. HAD IT BEEN THE CASE THAT THE ASSESSEE INDULG ED IN CALL CENTRE ACTIVITIES OR MANAGING THE HUMAN RESOURCE OF FOREIGN OFFICE BY HAVING BACK OFFICE IN INDIA, THE ASSESSEE MAY CLAIM THAT THEY CAME IN THE PURVIEW OF EXPLANATION 2(I) OF SECTION 10B. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY HELD THAT M E RELY BY INCULCATING TRAINING IN IT FIELD TO FOREIGN STUDENTS AND RECEIVING REMITTANCES IN FOREIGN CURRENCY DOES NOT AMOUNTS TO EXPORT OF COMPUTER SOFTWARE OR IT ENABLED SERVICES NOTIFIED BY THE CENTRAL BOARD OF DIRECT TAXES. THUS, THE FOREIGN EXCHANGE EARN ED FROM OMAN IS NOT OUT OF EXPORT OF COMPUTER SOFTWARE TO OMAN THUS, THE I.T.A. NO S . 1467 /M/1 3, 1460/M/14 & C.O. NO. 65/M/14 14 FOREIGN EXCHANGE RECEIVED WILL NOT FORM PART OF EXPORT TURNOVER AND NOT ELIGIBLE FOR 10A DEDUCTION. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE CONFIRM THE ORDER PASSED BY THE LD. CIT (A) AND DISMISS THE GROUND RAISED BY THE ASSESSEE IN THE CROSS OBJECTION. 21. IN THE RESULT, BOTH APPEALS FILED BY THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION FILED BY THE ASSESSEE STANDS DISMISSED . ORDER PRONOUNCED ON THE 29 TH APRIL, 201 6 AT CHENNAI. SD/ - SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 29 .04 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.