ACIT, Circle-1(2), Hyderabad V. M/s. DQ Entertainment (International) Ltd., Hyderabad

ITA 1484/HYD/2013

• Counselvise Citation: 148422514 RSA 2013
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 08-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: D SUDHAKAR RAO
• Keywords: Revised return
• Section: 133A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1484/HYD/2013 ASSESSMENT YEAR 2009-10 THE ASST. CIT CIRCLE-1(2) HYDERABAD VS. M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD. HYDERABAD PAN: AACCD8731C APPELLANT RESPONDENT APPELLANT BY: SRI P.V.S.S. PRASAD RESPONDENT BY: SRI D. SUDHAKAR RAO DATE OF HEARING: 01.07.2014 DATE OF PRONOUNCEMENT: 09 .07.2014 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-II, HYDERABAD DATED 13.08.2013 FOR ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PRODUCTION OF ANIMATED FILMS. IT HAD FILED RETURN OF INCOME ON 30.9.2009 DECLARING TOTAL INCOME OF RS. 70,61,684 UNDER NORMAL PROVISIONS AND RS. 20,34,97, 536 U/S. 115JB OF THE ACT. IN THE RETURN DEDUCTION U/S . 10A OF INCOME-TAX ACT, 1961 AT RS. 11,43,06,038 WAS CLA IMED. THE ASSESSEE DERIVED MUCH OF ITS INCOME FROM EXPORT SALES FROM ITS FOREIGN CLIENTS. IN THE COURSE OF ITS BUS INESS OPERATIONS, THE ASSESSEE INCURRED EXPENDITURE OF RS . 37,75,28,906 ABROAD. THE GROSS RECEIPTS MINUS EXPE NSES 2 ITA NO. 1484/HYD/2013 M/S. DQ ENTERTAINMENT (INTL.) LTD. ========================= INCURRED ABROAD I.E., NET RECEIPTS WERE REMITTED T O INDIA THROUGH PROPER BANKING CHANNELS. IN ORDER TO CLAIM DEDUCTION U/S. 10A ON THIS AMOUNT OF RS. 37,75,28,9 06 THE ASSESSEE HAD TO RECEIVE APPROVAL FROM THE RESER VE BANK OF INDIA (RBI). SINCE ON THE DATE OF FILING O F RETURN OF INCOME SUCH PERMISSION WAS NOT RECEIVED THE CLAIM O F DEDUCTION U/S. 10A WAS RESTRICTED TO THE NET RECEIP T OF RS. 78,80,30,073. THE RBI VIDE ITS LETTER DATED 19.8.2 011 HAD GIVEN THE PERMISSION FOR NETTING OFF OF PAYABLES AB ROAD AGAINST IMPORT RECEIVABLES TO THE ASSESSEE. ON REC EIPT OF SUCH PERMISSION FROM THE RBI THE ASSESSEE FILED A R EVISED COMPUTATION BEFORE THE AO REQUESTING FOR DEDUCTION U/S. 10A AT RS. 37,75,28,906 ALSO. 3. THE AO DID NOT ALLOW DEDUCTION U/S. 10A ON THIS ADDITIONAL AMOUNT OF RD. 37,75,28,906 FOR THE FOLLO WING REASONS: A) THAT FOR A.Y. 2008-09, SIMILAR CLAIM BY THE ASSESSEE WAS NOT ACCEPTED. B) THAT FOR THE A.Y. 2009-10, THE ASSESSEE ITSELF DID NOT CONSIDER THE RECEIVABLES OF RS. 37,75,28,906 FOR THE PURPOSE OF CLAIM OF DEDUCTION U/S. 10A. HENCE, GRANTING OF DEDUCTION U/S. 10A ON SUCH AMOUNT DOES NOT ARISE. 4. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED T HAT THERE WAS A SURVEY OPERATION U/S. 133A ON 23.01.2009 AND MUCH OF THE PAPERS AND RECORDS, BOOKS OF ACCOUNT, COMPUTERS WERE SEIZED BY THE DEPARTMENT. HENCE, THE DETAILS FOR OBTAINING THE PERMISSION FRO M RBI COULD NOT BE SUBMITTED IN TIME. THEREFORE, RESULTING IN DELAY IN OBTAINING PERMISSION FROM RBI, THE PERMISS ION WAS RECEIVED VIDE ORDER DATED 19.08.2011 WHEREAS TH E 3 ITA NO. 1484/HYD/2013 M/S. DQ ENTERTAINMENT (INTL.) LTD. ========================= TIME TO FILE THE REVISED RETURN HAD LAPSED BY 31.03 .2011 AS PER SECTION 139(5). SINCE THE PERMISSION FROM RB I WAS RECEIVED LATE, BY THAT TIME, THE TIME TO FILE REVIS ED RETURN HAD ALREADY LAPSED. THE REVISED 10 A CLAIM WAS MADE THROUGH REVISED COMPUTATION. THE ASSESSEE IS ENTITL ED TO CLAIM THE DEDUCTION BEFORE THE APPELLATE AUTHORITY, WHICH WAS NOT CLAIMED IN THE ORIGINAL OR REVISED TAX RETU RNS. THE AR RELIED ON THE DECISION IN THE CASE OF CIT VS. PR UTHVI BROKERS & SHAREHOLDERS (2012) 23 TAXMAN.COM 23 (BOM ). RELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE ITAT, MUMBAI, IN THE CASE OF PRADEEP KUMAR HARLALKA VS. A CIT WHERE IT WAS HELD THAT 'WHILE THE APEX COURT IN THE CASE OF GOETZ (INDIA) APPLIES ON A O , THE APPELLATE AUTHORITIES CAN ENTERTAIN CLAIM WITHOUT REVISED RETURN. IT WAS SUBM ITTED THAT UNLESS THE ASSESSEE SEEKS APPROVAL FROM RBI, T HE ASSESSEE IS NOT STATUTORILY ENTITLED TO NETTING OFF OR SETTING OFF OF THE AMOUNTS PAYABLE BY THE ASSESSEE TO THE F OREIGN CLIENT AGAINST RECEIVABLES DUE TO THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE GROSS BILLS RAISED BY TH E ASSESSEE IS PAID BY THE FOREIGN CLIENT IN CONVERTIB LE FOREIGN EXCHANGE AND THEN ONLY THE ASSESSEE MAKES PAYMENT T O THE FOREIGN CLIENT FROM THE SAME AMOUNT WHICH IN ACCOUNTING TERMS IS KNOWN AS SETTING OFF OR NETTING OFF AND SINCE THE SAME IS DONE WITH APPROVAL FROM RBI, THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S. 10 A OF THE ACT ON THE TOTAL AMOUNT OF GROSS BILL RAISED BY THE ASS ESSEE AS THE SAME WAS RECEIVED IN CONVERTIBLE FOREIGN EXCHAN GE. IT WAS POINTED OUT THAT THE NETTING OFF OF PAYABLES AG AINST RECEIVABLES FOR THE PURPOSE OF' SECTION 10 A WAS ALLOWED BY THE MUMBAI TRIBUNAL IN THE CASE OF CORE JEWELLERY P VT. LTD. VS. ITO IN ITA NO. 715/ MUM/ 2010. IT WAS FURTHER POINTED OUT THAT THE TRIBUNAL DECIDED THIS ISSUE RE LYING ON 4 ITA NO. 1484/HYD/2013 M/S. DQ ENTERTAINMENT (INTL.) LTD. ========================= THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF J.B. BODA & CO. PVT. LTD., 223 ITR 271. 5. THE CIT(A) OBSERVED THAT THE ASSESSEE COULD NOT FIL E THE REVISED RETURN AS THE TIME FOR FILING THE REVIS ED RETURN HAD ELAPSED BY 31.3.2011 AND SINCE NO REVISED RETUR N COULD BE FILED THE ENHANCED 10A DEDUCTION WAS CLAIM ED BY FILING A REVISED COMPUTATION. THE CIT(A) FURTHE R OBSERVED THAT FOR A.Y. 2008-09 THE DRP IN ITS ORDER DATED 14.9.2012 HAD ALLOWED NETTING OFF OF AMOUNTS THAT W ERE VALIDLY RECEIVED IN INDIA FOR THE PURPOSE OF DEDUCT ION U/S. 10A OF THE ACT. THE CIT(A) NOTED THAT THE ASSESSEE WAS DOING WORK FOR FOREIGN CLIENTS AND IN THE PROCESS H AD TO INCUR CERTAIN EXPENSES ABROAD. THE CIT(A) POINTED OUT THAT INSTEAD OF RECEIVING THE ENTIRE GROSS AMOUNT F ROM THE FOREIGN CLIENTS AND THEN REMITTING PART OF SUCH AMO UNT TO MEET ITS EXPENSES, IN THE PRESENT CASE THE FOREIGN CLIENTS HAD REMITTED THE NET AMOUNT. 6. THE CIT(A) HELD THAT IN SIMILAR CIRCUMSTANCES, THE HON'BLE SUPREME COURT IN THE CASE OF J.B. BODA & CO. PVT. LTD. VS. CBDT (1997) 223 ITR 271, HAD CLEARLY HELD THAT RECEIVING THE GROSS AMOUNTS AND THEN PAYING BA CK THE EXPENSES, THIS TWO WAY TRAFFIC IS AN EMPTY FORM ALITY AND A MEANINGLESS RITUAL. IT WAS FURTHER HELD THAT THE ENTIRE G ROSS AMOUNT SHALL BE TREATED AS RECEIVED FOR THE PURPOSE OF DEDUCTION U/S. 10 A. THE CIT(A) FURTHER HELD THAT T HE NETTING OFF OF EXPORTS AGAINST IMPORTS FOR THE P URPOSE OF 10 A WAS ALLOWED BY HON'BLE ITAT, MUMBAI, IN THE CASE OF CORE JEWELLERY PVT. LTD. V S. ITO IN ITA. NO. 715/MUM/2010 AND T HE TRIBUNAL HAD FOLLOWED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF J. B. 5 ITA NO. 1484/HYD/2013 M/S. DQ ENTERTAINMENT (INTL.) LTD. ========================= BODA & CO. PVT. LTD. (SUPRA) . FURTHER, THE CIT(A) POINTED OUT THAT SINCE THE CLAIM MADE BY THE ASSESSEE WAS A LAWFUL CLAIM FOR WHICH HE WAS LEGALLY ENTITLED TO, THE SAM E CANNOT BE DENIED MERELY ON THE GROUND THAT THE CLAI M WAS NOT MADE IN THE RETURN OF INCOME. MORE PARTICULARLY , WHEN THE ASSESSEE HAD SATISFACTORILY EXPLAINED THE REASO NS AS TO WHY SUCH CLAIM COULD NOT BE MADE IN THE ABSENCE OF APPROVAL FROM THE RBI. THE CIT(A) DIRECTED THE AO TO ALLOW THE CLAIM OF DEDUCTION U/S. 10 A ON RS. 37,75,28,906/- ALSO. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US AND RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS IN LAW AND ON FACTS AND LAW. 2. THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 3. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE AO DECISION IN DENYING THE ASSESSEE'S REVISED COMPUTATION WHICH IS NOT A VALID CLAIM OF DEDUCTION U/S. 10A AND COMPLETED THE ASSESSMENT WITHIN THE MEANING AND PROVISIONS OF THE INCOME-TAX ACT, 1961. 4. THE CIT(A) FAILED TO APPRECIATE THE FACTS WHILE DECIDING THE APPEAL THAT THERE IS NO ORIGINAL CLAIM IN THE ORIGINAL RETURN ITSELF. 5. THE LEARNED CIT(A) OUGHT TO HAVE NOTICED THAT THE FACTS NARRATED IN THE APEX COURT'S CASE LAW I.E., M/S. J.B. BODA & CO. PVT. LTD. VS. CBDT WERE SQUARELY NOT APPLICABLE IN THE ASSESSEE'S CASE. 7. THE LEARNED DR RELIED ON THE ORDER OF THE AO. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE CONTENTIONS MADE BEFORE THE CIT(A) AND STATED THAT THE 6 ITA NO. 1484/HYD/2013 M/S. DQ ENTERTAINMENT (INTL.) LTD. ========================= ISSUE IS COVERED BY THE DECISION OF THE SUPREME COU RT IN THE CASE OF J.B. BODA & CO. PVT. LTD., 223 ITR 271. 9. WE HAVE HEARD BOTH THE PARTIES. IN THE CASE OF J.B . BODA AND CO. PVT. LTD. (SUPRA) THE HONBLE APEX COU RT HELD AS UNDER: 'HELD, ALLOWING THE APPEAL, THAT THE REMITTANCE TO THE FOREIGN REINSURANCE COMPANY WAS MADE THROUGH THE RESERVE BANK OF INDIA IN CONFORMITY WITH THE AGREEMENT BETWEEN THE APPELLANT AND THE FOREIGN REINSURERS, AND THAT THE REMITTANCE STATEMENT FILED ALONG WITH THE APPLICATION TO THE RESERVE BANK SHOWED THAT THE AMOUNT DUE TO THE FOREIGN REINSURERS AS ALSO THE BROKERAGE DUE TO THE APPELLANT AND THE BALANCE DUE TO THE FOREIGN REINSURERS WERE EXPRESSED AND REMITTED IN U.S. DOLLARS. THE ENTIRE TRANSACTION EFFECTED THROUGH THE MEDIUM OF THE RESERVE BANK OF INDIA WAS EXPRESSED IN FOREIGN EXCHANGE AND IN EFFECT THE RETENTION OF THE FEE DUE TO THE APPELLANT FOR THE SERVICES RENDERED WAS IN U. S. DOLLARS. THIS WAS RECEIPT OF INCOME IN CONVERTIBLE FOREIGN EXCHANGE. A FORMAL REMITTANCE TO THE FOREIGN REINSURERS FIRST AND THEREAFTER RECEIPT OF THE COMMISSION FROM THE FOREIGN REINSURER WAS NECESSARY. MOREOVER, THE CENTRAL BOARD HAD BY CIRCULAR DATED DECEMBER 20, 1995, CLARIFIED THE REAL SCOPE AND IMPACT OF SECTION 80-O STATING THAT THE RECEIPT OF BROKERAGE BY A REINSURANCE AGENT IN INDIA FROM THE GROSS PREMIA BEFORE REMITTANCE TO HIS FOREIGN PRINCIPAL WOULD ALSO BE ENTITLED TO THE DEDUCTION UNDER SECTION 80-O OF THE ACT. THIS WAS BINDING ON THE BOARD. 10. FURTHER THE SUPREME COURT HELD AS FOLLOWS: 'B Y THE COURT : ' A TWO-WAY TRAFFIC IS UNNECESSARY. TO INSIST ON A FORMAL REMITTANCE FIRST AND THEREAFTER TO RECEIVE THE COMMISSION FROM THE FOREI GN REINSURER, WILL BE A N EMPTY 7 ITA NO. 1484/HYD/2013 M/S. DQ ENTERTAINMENT (INTL.) LTD. ========================= FORMALITY AND A MEANINGLESS RITUAL , ON THE [ACT S OF THIS CASE .' 11. WE FIND THAT THE ISSUE IN THE PRESENT CASE BEFORE U S IS THAT THE GROSS BILLS RAISED BY THE ASSESSEE ARE PAID BY THE FOREIGN CLIENTS IN CONVERTIBLE FOREIGN EXCHANGE AND THEN ONLY THE ASSESSEE MAKES THE PAYMENT TO THE FOR EIGN CLIENT FROM THE SAME AMOUNT WHICH IN ACCOUNTING TER MS IS KNOWN AS SETTING OFF OR NETTING OFF. SINCE THE SAME IS DONE WITH THE APPROVAL OF THE RBI THE ASSESSEE IS O NLY TO CLAIM DEDUCTION U/S. 10A OF THE ACT ON THE TOTAL AM OUNT OF GROSS BILLS RAISED BY THE ASSESSEE AS THE SAME W AS RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE. THE ISSU E IN THE PRESENT APPEAL IS SIMILAR TO THAT OF J.B. BODA & CO . PVT. LTD. (SUPRA) AND, THEREFORE, WE FIND NO INFIRMITY I N THE ORDER OF THE CIT(A) IN FOLLOWING THE JUDGEMENT OF H ONBLE SUPREME COURT AND THE SAME IS UPHELD. 12. IN THE RESULT, ASSESSEE'S APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 9 TH JULY, 2014 SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 9 TH JULY, 2014 TPRAO COPY TO: 1. THE ASST. CIT, CIRCLE - 1( 2 ), 4 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., 644, AURORA COLONY, ROAD NO. 32, BANJARA HILLS, HYDERABAD. 3. THE CIT(A) - II , HYDERABAD. 4. THE CIT - I, HYDERABAD. 5. THE DR, B - BENCH, ITAT, HYDERABAD.