ACIT, CHENNAI V. SQS India BFSI Ltd., CHENNAI

ITA 1550/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81292 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 05-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: MR SAROJ KUMAR PARIDA
• Section: 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 1550/MDS/2014 ( / ASSESSMENT YEAR: 2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(2), NEW BLOCK 4 TH FLOOR, 121, MG ROAD, CHENNAI-600 034. VS M/S. SQS INDIA BFSI LTD., [FORMERLY KNOWN AS THINKSOFT GLOBAL SERVICES LTD.] 6A, 6 TH FLOOR, PRINCE INFOCITY-II 283/3 & 283/4, RAJI GANDHI SALAI, KANDANCHAVADI, CHENNAI-600 096. PAN: AABCT0976G ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. A.V.SREEKANTH, JCIT /RESPONDENT BY : MR. MR. SAROJ KUMAR PARIDA, ADVOCATE / DATE OF HEARING : 2 ND DECEMBER, 2014 /DATE OF PRONOUNCEMENT : 5 TH DECEMBER, 2014 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENN AI DATED 24.3.2014 FOR THE ASSESSMENT YEAR 2007-08. TH E ONLY ISSUE IN THE APPEAL OF THE REVENUE IS THAT COMMISSI ONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT FOREIGN EXCHANGE GAIN ARISING ON EXPORTS ARE ELIGIBLE FOR INCLUSION IN EXPORT TURNOVER FOR THE PURPOSE OF DEDUCTION UNDER SECTION 10A OF THE ACT. 2 ITA NO.1550/MDS/2014 2. BRIEF FACTS ARE THAT THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT COMPUTED THE DEDUCTION U NDER SECTION 10A OF THE ACT EXCLUDING FOREIGN EXCHANGE F LUCTUATION ON SALE PROCEEDS. ON APPEAL, COMMISSIONER OF INCOM E TAX (APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWI NG THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF URJITA ELECTONICS PVT.LTD. IN ITA NO.8806/MDS/2 012 AND THE DECISION OF THIS TRIBUNAL IN THE CASE OF ACIT V S. INAUTIX TECHNOLOGIES INDIA (P) LTD., IN ITA NO.1054/MDS/200 6. THE REVENUE IS IN APPEAL BEFORE US. 3. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF THE ASSESSING OFFICER IN EXCLUDING FOREIGN EXCHANGE GAIN FROM EXPORT TURNOVER FOR THE PURPOSE OF COMPUT ATION OF DEDUCTION UNDER SECTION 10A OF THE ACT. 4. COUNSEL FOR THE ASSESSEE PLACES RELIANCE ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THIS ISSUE HAS BEEN CO NSIDERED 3 ITA NO.1550/MDS/2014 BY THE COMMISSIONER OF INCOME TAX (APPEALS) AND ALL OWED THE CLAIM OF THE ASSESSEE FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL OBSERVING AS UNDER: - 9. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION OF THE ID. AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE AO AND AR. THE HON'BLE JURISDICTIONAL ITAT IN THE CASE OF ACIT V. INAUTIX TECHNOLOGIES INDIA (P) LTD (SUPRA) HAS CLEARLY HELD THAT FOREIGN EXCHANGE GAIN ARISING OUT OF TRADING TRANSACTIONS HAS A DIRECT NEXUS WITH BUSINESS OF ELIGIBLE UNIT. THE HON'BLE ITAT HAD HELD AS UNDER: 'IN THE BUSINESS OF EXPORT, THE ASSESSEE- COMPANY RAISES BILLS AGAINST THE CUSTOMER. THE RATES MENTIONED IN THE BILL, TO RAISED, ARE RECORDED IN THE BOOKS OF ACCOUNT AND AT THE SAME TIME, THE COMPANY DEBITS THE ACCOUNT OF THE FOREIGN BUYER WITH EQUAL AMOUNT. AT THE END OF THE YEAR, IF THE SALE PROCEEDS ARE NOT RECEIVED BY THE ASSESSEE COMPANY, THE FOREIGN BUYER IS SHOWN AS 'SUNDRY DEBTOR'. IF THE PROCEEDS ARE NOT RECEIVED IN THE SAME FINANCIAL YEAR AND RECEIVED AFTER ONE OR TWO YEARS, THE FLUCTUATION ARISING AT THAT TIME WILL HAVE ANY RELEVANCE TO THE TURNOVER REPORTED FOR THE PREVIOUS YEAR IN WHICH THE SALE TOOK PLACE OR NOT IS THE PUZZLE OF THIS ISSUE. IN THE OPINION OF THE ASSESSING OFFICER, THE ASSESSEE LOSES ITS RIGHTS OVER THE SOLD ITEMS ON THE VERY DESPATCH OF THE SAME AND AS PER ACCOUNTING STANDARD PRESCRIBED BY THE ICA!, FOREIGN CURRENCY TRANSACTIONS ARE TO BE RECORDED AT THE DATE OF THE TRANSACTIONS APPLYING THE EXCHANGE RATE BETWEEN THE REPORTING CURRENCY AND THE FOREIGN CURRENCY AS ON SUCH DATE OF TRANSACTION(S). 4 ITA NO.1550/MDS/2014 THUS ACCORDING TO THE REVENUE THE SALE PROCEEDS SHOULD BE THE VALUE RECORDED IN THE BOOKS AND ANY INCREASE OR DECREASE IN EXCHANGE FLUCTUATION ON THE BILL AMOUNT IS ONLY A SUBSEQUENT EVENT AFTER THE COMPLETION OF THE TRANSACTION; IT IS ONLY AN ACCRETION TO THE AMOUNT DUE TO BE RECEIVED BY THE ASSESSEE AND NOT AN ACCRETION TO THE SALE PRICE OF ITEMS EXPORTED. IN THIS CONTEXT} IT WAS ARGUED BY THE ID. CIT/ DR THAT IT MAY BE A TREASURY INCOME AND ALTHOUGH THIS GAIN ARISES IN THE COURSE OF EXPORT BUSINESS YET IT HAS NO DIRECT NEXUS WITH THE BUSINESS OF THE UNDERTAKING AND HENCE} NEEDS TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING FOR THE PURPOSE OF COMPUTING EXEMPTION U/ S. L0A. AS AGAINST THIS THE CASE OF THE ID.AR IS THAT FOR-EX GAIN ARISES OUT OF TRADING TRANSACTIONS FOR SUPPLY OF SOFTWARE AND HENCE} HAS A DIRECT NEXUS WITH BUSINESS OF ELIGIBLE UNIT. WE HAVE EXAMINED THE RIVAL STANDS OF THE PARTIES. OUR ATTENTION WAS INVITED BY THE ID.AR TO THE OBSERVATION MADE BY BOTH THE AUTHORITIES BELOW THAT THESE TRANSACTIONS ARE ON 'REVENUE ACCOUNT'. WE HAVE ALSO NOTICED THAT BOTH ASSESSING OFFICER AND THE ID. CIT(A) HAVE ACCEPTED THESE TRANSACTIONS ON REVENUE SIDE. IF IT IS SO THE DECISIONS RELIED BY THE ID.AR WOULD SUPPORT HER CONTENTION. THE ID. CIT / DR HAS STATED THAT THE DECISIONS RELIED ON BY THE ID. CIT(A) IN THE CASE OF M/S COGNIZANT TECHNOLOGY SOLUTIONS INDIA PVT. LTD AND M/ S CONVANSYS (INDIA) PVT. LTD HAVE NOT BEEN ACCEPTED BY THE DEPARTMENT. BUT IN ANY CASE} THIS DECISION HAS GOT A BINDING EFFECT BEING A DECISION OF THE CO-ORDINATE BENCH AND THEREFORE} THIS ISSUE STANDS COVERED IN 5 ITA NO.1550/MDS/2014 FAVOUR OF THE ASSESSEE. 10. IN VIEW OF THE FACTS OF THE CASE AS WELL AS CA SE LAWS CITED (SUPRA) RELYING ON THE SAME, THE ISSUE INVOLVED IS ALLOWED IN FAVOUR OF THE APPELLANT AND THE GROUND IS ALLOWED. 6. AS THE COMMISSIONER OF INCOME TAX (APPEALS) FOLL OWED THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN ALLOWING THE CLAIM OF THE ASSESSEE UNDER SECTION 10 A OF THE ACT ON THE FOREIGN EXCHANGE FLUCTUATION ON SALE PRO CEEDS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE COMMI SSIONER OF INCOME TAX (APPEALS) AND UPHOLD THE SAME. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY , THE 5 TH DAY OF DECEMBER, 2014 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED, 5 TH DECEMBER, 2014 SOMU 12 32 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .