DCIT, Bangalore V. M/s Torry Harris Business Solutions Pvt. Ltd., Bangalore

ITA 1470/BANG/2010

• Counselvise Citation: 147021114 RSA 2010
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 20-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.1470/ BANG/2010 (ASST. YEAR - 2006-07) THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-12(4), BANGALORE. . APPELLANT VS. M/S TORRY HARRIS BUSINESS SOLUTIONS PVT. LTD., NO.71, SONA TOWERS, MILLERS ROAD, BANGALORE-560 052. . RESPONDENT PAN NO.AAACT7287M. AND CO NO.9/BANG/2011 ITA NO.1470/ BANG/2010 (BY ASSESSEE) REVENUE BY : SMT. ARCHANA CHOWDHRY ASSESSEE BY : SHRI R SRINIVASAN DATE OF HEARING : 29-08-2011 DATE OF PRONOUNCEMENT : -08-2011 ITA NO.1470/B/10 CO NO.09/BANG/2011 2 O R D E R PER P MADHAVI DEVI, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE REVENUE AND THE CROSS-O BJECTION IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEA R IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME- TAX (APPEALS) III AT BANGALORE DATED 04.08.2010. THE APPEAL ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE I NCOME-TAX ACT, 1961. 2. THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT (A) IN DIRECTING THE AO TO EXCLUDE TELECOMMUNICATION EXPEN SES, INSURANCE CHARGES AND FOREIGN CURRENCY EXPENDITURE ON CONSULT ING CHARGES, ON SITE MARKETING, TRAVELING AND TRAINING EXPENSES ATT RIBUTABLE TO EXPORT OF SOFTWARE FROM TOTAL TURNOVER FOR COMPUTING DEDUC TION U/S 10A OF THE INCOME-TAX ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND CONSULTANCY. THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10A OF T HE INCOME-TAX ACT. ITA NO.1470/B/10 CO NO.09/BANG/2011 3 WHILE CONSIDERING THE ASSESSEES CLAIM FOR DEDUCTIO N U/S 10A OF THE INCOME-TAX ACT, THE AO OBSERVED THAT THERE WERE VAR IOUS EXPENSES WHICH NEEDS TO BE EXCLUDED FROM THE EXPORT TURNOVER . ACCORDINGLY THE AO EXCLUDED THE SAME FROM THE EXPORT TURNOVER B UT DID NOT EXCLUDE FROM THE TOTAL TURNOVER. 4. AGGRIEVED BY THIS, THE ASSESSEE PREFERRED AN APP EAL BEFORE THE CIT(A) WHO BY FOLLOWING THE DECISIONS IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR DIRECTED THE AO TO EXCLUDE THESE EXPENSES FROM EXPORT TURNOVER AND ALSO FROM THE TOTAL TURNOV ER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 6. AT THE TIME OF HEARING, THE LEARNED DR RELIED UP ON THE ORDER OF THE AO, WHILE THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE ORDER OF THE CIT(A) AND PLACED BEFORE US A COPY OF THE ORDER OF THE TRIBUNAL IN ITA NO.860/BANG/2010 IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2005-06, WHEREIN THE ORDER OF T HE CIT(A) HAS BEEN UPHELD BY FOLLOWING THE DECISION OF THE HONBL E CHENNAI SPECIAL BENCH IN THE CASE OF SAK SOFT LTD., 313 ITR 353 (AT ) AND THE DECISION ITA NO.1470/B/10 CO NO.09/BANG/2011 4 OF HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S GEM PLUS JEWELLERY INDIA LTD, 2010-TIOL-456-HC-MUM-IT). 7. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, THIS APPEAL OF THE REVENUE IS DISMISSED. 8. IN THE CROSS OBJECTION, THE ASSESSEE IS CHALLENG ING THE ORDER OF THE CIT(A) IN TREATING THE FOREIGN EXCHANGE GAIN A RISING OUT OF THE EXCHANGE FLUCTUATION AS OTHER INCOME AND DENYING TH E DEDUCTION U/S 10A/10B ON THE SAID AMOUNT. 9. THE BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSEE HAS RECEIVED THE EXPORT SALE PROCEEDINGS IN FOREIGN EX CHANGE AND HAS DEPOSITED THEM IN THE EEFC ACCOUNT. THE ASSESSEE R ETAINED THE SAID AMOUNT IN EEFC ACCOUNT UNTIL THE FUNDS ARE REQUIRED FOR THE BUSINESS AND THERE WAS A GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. THEREFORE, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE GAIN ON ACCOUNT OF EXCHANGE FLUCTUATION HAS ARISEN ONLY ON ACCOUNT OF BUSINESS ACTIVITIES OF THE ASSESSEE AND HAS TO BE A LLOWED AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES. TH E LEARNED DR, HOWEVER SUPPORTED THE ORDERS OF THE AUTHORITIES BEL OW. ITA NO.1470/B/10 CO NO.09/BANG/2011 5 10. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS, WE FIND THAT THE CIT(A) HAS RELIED UP ON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF CIT(A) VS. STERLING FOODS LTD. 237 ITR 571, PANDIAN CHEMICALS VS. CIT IN 262 ITR 278 AND LIBERTY INDIA AND OTHERS VS. CIT(A) 317 ITR 218 TO COME TO THE CONCLUSION THAT THE SAID AMOUNT CANNOT BE SAID TO H AVE BEEN DERIVED FROM THE EXPORT BUSINESS OF THE ASSESSEE. WE AGREE WITH THE FINDINGS OF THE CIT(A) THAT THE FOREIGN EXCHANGE GAIN ON EEF C ACCOUNT WHEN IT IS WITHDRAWN CANNOT BE SAID TO HAVE BEEN DERIVE D FROM THE EXPORT BUSINESS OF THE ASSESSEE. THE IMMEDIATE SALE PROCE EDINGS ARE DEPOSITED INTO THE EEFC ACCOUNT AND ON WHATEVER IS THE GAIN ON THE DATE OF SAID DEPOSIT ONLY, THE ASSESSEE WILL BE ENT ITLED TO CLAIM DEDUCTION U/S 10A OF THE INCOME-TAX AS BUSINESS IN COME. THEREAFTER, ONCE AMOUNT IS DEPOSITED INTO EEFC ACCO UNT, THE GAIN OR LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION ARI SING AT THE TIME OF WITHDRAWING OF THE DEPOSITS CANNOT BE SAID TO BE D ERIVED FROM THE EXPORT BUSINESS OF THE ASSESSEE AND, THEREFORE, SAM E IS NOT TO BE CONSIDERED WHILE COMPUTING THE DEDUCTION U/S 10A OF THE INCOME-TAX ACT. IN VIEW OF THE SAME, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE. ITA NO.1470/B/10 CO NO.09/BANG/2011 6 11. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE AS WELL AS THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9TH SEPT, 2011. SD/- SD/- (A MOHAN ALANKAMONY) (P MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 9/09/2011 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, I TAT, BANGALORE.