Compute Sciences Corporation India Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 1508/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7904 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 25-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 25-06-2015
• Court: TRIBUNAL
• Department Lawyers: MSVM PRASADCIT
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , ! , ' #$ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO.1413 /MDS./2015 ( / ASSESSMENT YEAR :2009-10) DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-I(2), CHENNAI 600 034. VS. M/S.COMPUTER SCIENCES CORPORATION (I) PVT. LTD., (FORMERLY KNOWN AS CONVANSYS (I) PVT. LTD.) 7 TH FLOOR, BLOCK 1B, DLF IT PARK, SIVAJI GARDEN, MOON LIGHT STOP, NANDAMBAKKAM POST, RAMAPURAM CHENNAI 600 089. PAN AABCC 5820 A ( () / APPELLANT ) ( %*() / RESPONDENT ) ./ I.T.A.NOS.1507 & 1508 /MDS./2015 ( / ASSESSMENT YEAR :2005-06 & 2009-10) M/S.COMPUTER SCIENCES CORPORATION (I) PVT. LTD., (FORMERLY KNOWN AS CONVANSYS (I) PVT. LTD.) 7 TH FLOOR, BLOCK 1B, DLF IT PARK, SIVAJI GARDEN, MOON LIGHT STOP, NANDAMBAKKAM POST, VS. DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE- I(2), CHENNAI 600 034. ITA NO.1413,1508,1508 /MDS/2015 2 RAMAPURAM CHENNAI 600 089. PAN AABCC 5820 A ( () / APPELLANT ) ( %*() / RESPONDENT ) ASSESSEE BY : MR.R.VIJAYARAGHAVAN,ADVOCATE REVENUE BY : MR.MSVM PRASAD,CIT, D.R / DATE OF HEARING : 18.02.2016 /DATE OF PRONOUNCEMENT : 19.02.2016 + / O R D E R PER CHALLA NAGENDRA PRASAD, ACCOUNTANT MEMBER: THESE CROSS APPEALS FILED BY THE ASSESSEE IN 1508 /MDS./15 & FILED BY THE REVENUE IN ITA NO.1413/MDS./2015 AND T HE OTHER APPEAL FILED BY THE ASSESSEE IN ITA NO.1507/MDS,.2015 AR E FILED AGAINST THE DIFFERENT ORDERS OF CIT(A)-1,CHENNAI DATED 25.02.20 15 ARISING OUT OF ORDERS PASSED U/S.143(3) RWS 92CA OF THE ACT FOR TH E ASSESSMENT YEAR 2009-10 AND 143(3) OF THE ACT FOR THE ASSESS MENT YEAR 2005- 06. 2. THE ASSESSEE HAS RAISED COMMON GROUNDS IN BOTH THE APPEALS FOR THE ASSESSMENT YEARS 2005-06 & 2009-10. ITA NO.1413,1508,1508 /MDS/2015 3 3. THE FIRST COMMON GROUND IS THE EXCLUSION OF EXP ENSES INCURRED IN FOREIGN EXCHANGE AND TELECOMMUNICATION EXPENDITU RE INCURRED IN INDIAN CURRENCY FROM EXPORT TURNOVER. 4. THE LD.A.R SUBMITS THAT THE TRIBUNAL FOR ASSESS MENT YEARS 2002-03 & 2008-09 IN ASSESSEE'S OWN CASE ACCEPTED T HE PARITY OF REASONING FOLLOWING THE DECISION OF SPECIAL BENCH OF CHENNAI TRIBUNAL IN THE CASE OF ITO VS. SAK SOFT LTD.( 313 ITR (AT) 353)(CHENNAI)(SB), AND DIRECTED TO EXCLUDE THESE E XPENSES FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER. COPY OF THE TRIBUNAL ORDER OF THE CO-ORDINATE BENCH IS PLACED ON RECORD. 5. THESE ISSUES HAVE CONSIDERED ELABORATELY BY THE CIT(A) AND FOLLOWING THE DECISION OF SPECIAL BENCH OF CHENNAI TRIBUNAL IN THE CASE OF ITO VS. SAK SOFT LTD.( SUPRA),CIT(A) DIRECT ED THE AO TO REDUCE SUCH EXPENSES FROM BOTH THE EXPORT TURNOVER AND TOTAL TURNOVER BY OBSERVING AS UNDER:- 6. THE THIRD ISSUE IS EXCLUSION OF RS2134,02,740L- TOWARDS EXPENSES INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER BUT NOT FR OM TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U!S.IOB. DURING F.V. 2004-05 RELEVANT TO A.Y.05-06) THE APPELLANT HAD INCURRED EXPENDITURE O F RS.18,2993,186/- IN THE CHENNAL UNIT-IL AND RS.3,04,09,544I- IN THE BANGALO RE PEOPLESOFT UNIT, IN FOREIGN CURRENCY, FOR RENDERING TECHNICAL SERVICE OUTSIDE I NDIA. THE AO HAS DEDUCTED THE ITA NO.1413,1508,1508 /MDS/2015 4 EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM EXPOR T TURNOVER, BUT NO CORRESPONDING DEDUCTION WAS MADE FROM TOTAL TURNOVE R. THE AO HAS RELIED ON THE REASONS ENUNCIATED IN THE ASSESSMENT ORDER FOR AY 2 003-04, WHICH COMPRISES AS UNDER: (I) THE TERM EXPORT TURNOVER FOR THE PURPOSE OF DE DUCTION UNDER SECTION 10B HAS BEEN DEFINED IN EXPLANATION 2(IV) TO SECTION 10B. (II) THERE IS NO DEFINITION OF TOTAL TURNOVER IN SECTION 10B. WHEREVER, A TERM IS NOT DEFINED IN THE SECTION, ONLY ITS PLAIN MEANING SHOULD BE CONSIDERED. (III) THE TERM TOTAL TURNOVER IS USED IN THE ACT AT VARIOUS PLACES AND THE TERM IS DEFINED DIFFERENTLY UNDER VARIOUS SECTIONS IN SOME SECTIONS, THEREBY MAKING IT CLEAR THAT THE NORMAL MEANING OF THE TERM IS REQUIR ED TO BE ADOPTED IN THOSE CIRCUMSTANCES. 6.1 THE ID. AR HAS GIVEN HIS SUBMISSIONS WITH REGAR D TO THIS GROUND AS UNDER: (A) SINCE THE EXPENDITURE INCURRED HI IBREN CURRENC Y HAS NOT BEEN INCLUDED IN EXPORT TURNOVER OF THE APPELLANT IN THE FIRST PLACE , THE SAME IS NOT TO BE REDUCED FROM THE EXPORT TURNOVER. (B) ALTERNATIVELY, THE APPELLANT HAS SUBMITTED THAT WHAM THE AO HAS SOUGHT TO EXCLUDE THE EXPENDITURE IN FOREIGN CURRENCY HORN TH E EXPORT TURNOVER (IE NUMERATOR), THE SAME SHOULD BE EXCLUDED FROM THE TO TAL TURNOVER AS WELL (IE DENOMINATOR). 6.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ID.AR RAISED TWO ISSUES WITH REGARD TO DISALLOWANCE OF EX PENDITURE INCURRED IN FOREIGN CURRENCY. FIRSTLY, HE HAS ARGUED THAT AS THE EXPEND ITURE INCURRED IN FOREIGN CURRENCY HAS NOT BEEN INCLUDED IN EXPORT TURNOVER, THE REDUCTION OF SUCH EXPENDITURE FROM EXPORT TURNOVER IS UNCALLED FOR. W HEN THE ID.AR WAS ASKED TO JUSTIFY HIS STAND HOW SUCH EXPENDITURE WAS NOT INCL UDED IN EXPORT TURNOVER, HE WAS UNABLE TO GIVE A SATISFACTORY EXPLANATION. THER EFORE, THE ARGUMENT OF THE LD.AR ON THE FIRST ISSUE WAS DISCOUNTED. HOWEVER, W ITH REGARD TO ALTERNATE CLAIM THAT WHEN SUCH EXPENDITURE INCURRED IN FOREIGN CURR ENCY WAS REDUCED FROM EXPORT TURNOVER IT SHOULD ALSO BE REDUCED FROM TOTAL TURNO VER TO KEEP PARITY, THE SAME IS ACCEPTED IN VIEW OF DECISION IN THE CASE OF SAKSOFT LTD (SUPRA). THE HONBLE ITAT, CHENNAL IN APPELLANTS OWN CASE FOR AY 2003-0 4 VIDE ORDER IN ITA NO. 4I41MDS12007 DATED 18.3.2011, UPHELD THE PRINCIPLE OF PARITY AND HELD THAT FOREIGN CURRENCY EXPENDITURE EXCLUDED FROM EXPORT T URNOVER SHOULD ALSO BE EXCLUDED FROM TOTAL TURNOVER FOR CLAIMING DEDUCTION UIS. LOB. RESPECTFULLY FOLLOWING THE SAME, THE GROUND IS ALLOWED. 7. THE FOURTH ISSUE IS EXCLUSION OF TELECOMMUNICATI ON EXPENDITURE FROM EXPORT TURNOVER BUT NOT FROM TOTAL TURNOVER RS.33849,169 1-. THE APPELLANT HAS SUBMITTED THAT AS THE TELECOMMUNICATION EXPENSES AR E NOT INCLUDED IN THE EXPORT TURNOVER IN THE FIRST PLACE, THE SAME SHOULD NOT BE EXCLUDED FROM EXPORT TURNOVER. ALTERNATIVELY, THE APPELLANT HAS ARGUED THAT WHEN T HE TELECOMMUNICATION EXPENDITURE INCURRED IN FOREIGN CURRENCY IN CONNECT ION WITH THE DELIVERY OF COMPUTER SOFTWARE WAS EXCLUDED FROM EXPORT TURNOVER THE SAME SHOULD ALSO BE EXCLUDED FROM TOTAL TURNOVER. ITA NO.1413,1508,1508 /MDS/2015 5 7.1 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION FILED BY THE ID.AR OF THE APPELLANT I HAVE ALSO GONE THROUGH THE DECIS IONS RELIED ON BY THE ID.AR. FIRSTLY, HE HAS ARGUED THAT AS THE EXPENDITURE INCU RRED IN FOREIGN CURRENCY TOWARDS TELECOMMUNICATION CHARGES HAS NOT BEEN INCL UDED IN EXPORT TURNOVER, THE REDUCTION OF SUCH EXPENDITURE FROM EXPORT TURNO VER IS UNCALLED FOR. WHEN THE ID.AR WAS ASKED TO JUSTIFY HIS STAND HOW SUCH EXPEN DITURE WAS NOT INCLUDED IN EXPORT TURNOVER, HE WAS UNABLE TO GIVE A SATISFACTO RY EXPLANATION. THEREFORE, THE ARGUMENT OF THE LD.AR ON THE FIRST ISSUE WAS DISCOU NTED. HOWEVER, WITH REGARD TO HIS ALTERNATE LINE OF ARGUMENT THAT WHEN SUCH EXPEN DITURE INCURRED IN FOREIGN CURRENCY WAS REDUCED FROM EXPORT TURNOVER IT SHOULD ALSO BE REDUCED FROM TOTAL TURNOVER TO KEEP PARITY, I AM OF THE OPINION THAT I F ANY EXPENDITURE IS TO BE REDUCED FROM THE EXPORT TURNOVER AS PER THE EXPLANA TION 2(W) OF THE SECTION LOB OF THE ACT, THE SAME HAS TO BE REDUCED FROM THE TOT AL TURNOVER ALSO. SIMILAR DECISION HAD EARLIER BEEN GIVEN BY THE HONBLE SPEC IAL BENCH OF CHENNAL TRIBUNAL IN THE CASE OF ITO V. SAK SOFT LTD. 313 IT R (AT) 353(CHENNAL). RESPECTFULLY FOLLOWING THE RULINGS OF THE BOMBAY HI GH COURT AND JURISDICTION SPECIAL BENCH, IT IS HELD THAT TELECOMMUNICATION EX PENDITURE SHOULD BE REDUCED BOTH FROM EXPORT TURNOVER AND THE TOTAL TURNOVER. T HIS GROUND IS ALLOWED. WE ALSO FIND FROM THE CO-ORDINATE BENCH OF THE ORDE R IN ASSESSEE'S OWN CASE THAT SIMILAR ISSUE HAS BEEN AGITATED IN T HE ASSESSMENT YEAR 2008-09 IN ITA NO.1205/MDS./13 DATED 03.03.201 4 WHEREIN IT WAS HELD AS UNDER:- A PERUSAL OF THE AFORESAID FINDINGS MAKES IT CLEAR THAT WHATEVER WAS ARGUED BY THE ASSESSEE IN THE RELEVANT GROUNDS BEFORE THE CIT (A) STANDS ACCEPTED. IN OTHER WORDS, THERE IS NO JUSTIFICATION ON ASSESSEE S PART TO RAISE THE GROUND SIN QUESTION BEFORE THE TRIBUNAL THE PURPOSE OF REPRODU CING THE ENTIRE RELEVANT PORTION OF THE CIT(A)S ORDER IS TO SUPPORT OUR OBS ERVATIONS THAT THERE IS NO RELEVANT ARGUMENT WHICH REMAINS TO BE ACCEPTED. TH E ASSESSEE RAISES NO PLEA BEFORE US THAT THE RELEVANT ARGUMENTS WERE EITHER N OT CONSIDERED OR ACCEPTED BY THE CIT(A) . IN THESE CIRCUMSTANCES, WE FIND THESE GROUNDS TO BE ENTIRELY MISCONCEIVED. THE SAME ARE ACCORDINGLY REJECTED. ITA NO.1413,1508,1508 /MDS/2015 6 RESPECTFULLY FOLLOWING THE SAID ORDER, WE DISMISS T HE GROUND RAISED BY THE ASSESSEE. 6. THE NEXT ISSUE IN THE APPEAL OF ASSESSEE FOR AS SESSMENT YEAR 2005-06 IS DISALLOWANCE OF EXPENDITURE ATTRIBUTABLE FOR EARNING EXEMPT INCOME U/S.14A OF THE ACT. LD.A.R SUBMITS TH AT THE CIT(A) DIRECTED THE AO TO DISALLOW 5% OF EXEMPT INCOME AS THE EXPENSES ATTRIBUTABLE FOR EARNING EXEMPT INCOME IN SO FAR AS THE ASSESSMENT YEAR 2005-06 IS CONCERNED. LD.A.R SUBMITS THAT FOR ASSESSMENT YEAR 2009-10, CIT(A) UPHELD THE DISALLOWANCE U/S.14A TO BE COMPUTED WITH REFERENCE TO RULE 8D OF THE IT RULES. REFERING TO THE CO-ORDINATE BENCH OF THE TRIBUNAL ORDER FOR ASSESSMENT YEAR 20 08-09, THE LD.A.R SUBMITS THAT EXPENDITURE WAS ESTIMATED FOR ASSESSM ENT YEAR 2008- 09 BY THE TRIBUNAL. HE FURTHER SUBMITS THAT FOR ASS ESSMENT YEAR 2002- 03 DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. LD.D.R SUPPORTS THE ORDER OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE CIT(A) ESTIMATED THE EXPEN DITURE AT 5% OF GROSS EXEMPT INCOME AS THE EXPENDITURE ATTRIBUTABLE TO EARNING ITA NO.1413,1508,1508 /MDS/2015 7 EXEMPT INCOME FOR ASSESSMENT YEAR 2005-06 AND WE FI ND THAT THIS IS QUITE REASONABLE. IN SO FAR AS ASSESSMENT YEAR 2009 -10 IS CONCERNED, THE CIT(A) HELD AS UNDER:- 7.2.3 AS PER THE DECISION IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD VS. DCIT (328 ITR 81), THE BOMBAY HIGH COURT HAS HE LD THAT THE PROVISIONS OF THE SECTION 14A ARE CONSTITUTIONALLY VALID AND DISALLOWANCES AS PER RULE 8D CAN BE MADE FROM ASSESSMENT YEAR 200 8-09 ONWARDS. AFTER CAREFUL CONSIDER OF THE SUBMISSIONS MADE BY H E LD.A.R, THE AO HAS NOT INVOKED DISALLOWANCE UNDER LIMB(I) & (II) OF RU LE 8D(2). HOWEVER, HE FELT THAT DISALLOWANCE UNDER LIMB(III) IS ATTRACTED IN THIS CASE. WITH REGARD TO WORKING OF IIMB(III) OF RULE 8D(2) THE DECISION IN THE CASE OF ESCORTS LTD, 102 TTJ 522, THE ITAT DELHI HAS CLEARLY HELD T HAT INDIRECT MANAGEMENT AND ADMINISTRATION EXPENSES QUALIFY FOR DISALLOWANCE ULS 14A AND THERE IS NO DECISION SO FAR BY ANY SIMILAR FORUM CONTRADICTING THE ABOVE FINDINGS. SIMILAR VIEW WAS ALSO TAKEN BY ITAT CHENNAI IN THE CASE OF SOUTHERN PETROCHEMICAL INDUSTRIES (93 TTJ 161) A S UNDER ...WHETHER TO INVEST OR NOT TO INVEST AND WHETHER TO RETAIN THE INVESTMENTS OR TO LIQUIDATE THE SAME ARE VERY STRAT EGIC DECISIONS WHICH THE MANAGEMENT IS CALLED UPON TO TAKE. THESE ARE MI ND-BOGGLING DECISIONS AND TOP MANAGEMENT IS INVOLVED IN TAKING THESE DECISIONS. THIS DECISION-MAKING PROCESS IS VERY COMPLICATED AN D REQUIRES VERY CAREFUL ANALYSIS. MOREOVER, THE ASSESSEE HAD TO KEE P TRACK OF VARIOUS DIVIDEND INCOMES DECLARED BY THE LNVESTEE COMPANIES AND ALSO TO KEEP TRACK OF THE DIVIDEND INCOME HAVING BEEN REGULARLY RECEIVED BY THE ASSESSEE. THAT ACTIVITY ITSELF CALLED FOR CONSIDERA BLE MANAGEMENT ATTENTION AND COULD NOT BE LEFT TO A JUNIOR CLERK. THIS VIEW HAS BEEN HAS BEEN FURTHER SUPPORTED BY TH E DECISION OF.HONBLE KERALA HIGH COURT IN THE CASE OF SMT. LEENA RARNACH ANDRAR, (2011) (339 ITR 293) (KERALA HC). 7.2.4 IN VIEW OF THE ABOVE DISCUSSION, 1 FULLY AGRE E WITH THE AO THAT LIMB(I) & (II) WILL NOT ATTRACT IN THE INSTANT CASE BUT LIMB(III) WILL ATTRACT AND I ALSO FULLY AGREE WITH THE DISALLOWANCE MADE UNDER I IMB(III) OF RULE 8D(2). THE GROUND IS DISMISSED. ITA NO.1413,1508,1508 /MDS/2015 8 ON GOING THROUGH THE ORDER OF THE CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) IN CONFIRMING HE DISA LLOWANCE MADE U/S.14A R.W RULE 8D(2)(III) OF INCOME TAX RULES. 8. THE NEXT ISSUE IN THE APPEALS OF THE ASSESSEE IS WITH REGARD TO DISALLOWANCE OF EXPENDITURE INCURRED CURRENT REPAI RS. THE LD.A.R SUBMITS THAT THE ISSUE IS DECIDED AGAINST THE ASSES SEE BY THE CO- ORDINATE BENCH FOR ASSESSMENT YEAR 2008-09. FOLLO WING THE ORDER OF THE CO-ORDINATE BENCH IN ITA NO.1205/MDS./2013 DAT ED 03.03.2014 WE DISMISS THIS GROUND. 9. THE NEXT ISSUE OF THE APPEAL IS WITH REGARD TO DISALLOWANCE OF SOFTWARE EXPENSES. THE LD.A.R SUBMITS THAT THE ISSU E IS DECIDED AGAINST THE ASSESSEE BY THE CO-ORDINATE BENCH FOR ASSESSMENT YEAR 2008-09. FOLLOWING THE ORDER OF THE CO-ORDINATE BE NCH IN ITA NO.1205/MDS./2013 (SUPRA) WE DISMISS THIS GROUND. 10. COMING TO THE APPEAL OF THE REVENUE, THE ONLY ISSUE IS CIT(A) ERRED IN HOLDING THAT EXPENDITURE INCURRED IN FOREI GN EXCHANGE WHICH ITA NO.1413,1508,1508 /MDS/2015 9 HAS BEEN SPECIFICALLY EXCLUDED FROM EXPORT TURNOVER WOULD ALSO NOT FORM PART OF TOTAL TURNOVER FOR THE PURPOSE OF SEC. 10B OF THE ACT. AS WE HAVE CONFIRMED THE ORDER OF THE LD.CIT(A) FOLLOW ING THE CO- ORDINATE BENCH DECISION IN ASSESSEE'S OWN CASE CIT ED SUPRA, THE GROUNDS RAISED IN REVENUES APPEAL IS ALSO DISMISSE D. 11. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED AND BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY , THE 19 TH OF FEBRUARY,2016 AT CHENNAI. SD/- SD/- ( . ) (A.MOHAN ALANKAMONY) ( ' #$ % ) ((CHALLA NAGENDRA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 19 TH FEBRUARY,2016 . K S SUNDARAM. !' #' /COPY TO: 1. $% /APPELLANT 2. &$% /RESPONDENT 3. ' () /CIT(A) 4. ' /CIT 5. '*+ , /DR 6. +- . /GF