Hewlett Packard GlobalSoft Private Limited, Bangalore V. ACIT, Bangalore

ITA 162/BANG/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0294 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-06-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 31-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS NEERA MALHOTRA CITII
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Depreciation; Transfer pricing; Principle of natural justice; Services rendered outside India; Revenue expenditure
• Section: 143(3); 10B; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER IT (TP) A NO.162(BANG) 2012 (ASSESSMENT YEAR 2005-06) M/S HEWLETT PACKARD GLOBALSOFT PVT.LTD 39/40, ELECTRONIC CITY, PHASE-II, HOSUR ROAD, BANGALORE-560 030 PAN NO.AAACD4078L APPELLANT VS THE ASST. COMMISSIONER OF INCOME TAX OFFICER, CIRCLE-11(4), BANGALORE RESPONDENT ASSESSEE BY: SHRI T.SURYANARAYANA, ADVOCATE REVENUE BY: MRS NEERA MALHOTRA, CIT-II DATE OF HEARING : 21-06-2016 DATE OF PRONOUNCEMENT: : 24-06-2016 O R D E R PER SHRI A.K.GARODIA, AM THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORDE R OF CIT(A)-I DATED 18-10-2011 FOR THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1.THE ORDER PASSED BY THE LEARNED COMMISSIONER OF I NCOME- TAX (APPEALS ) -I , BANGALORE [ ' CIT(A) 'J UNDER SECTION 250 OF THE INCOME-TAX ACT , 1961 (' ACT ' ) IS BAD I N LAW AND ON FACTS ON MO R E THAN ONE OF THE FOLLOWING GROUNDS : ITA NO.162/BANG/2012 PAGE 2 OF 13 1 . ASSESSMENT ORDER BAD IN LAW AS DUE PROCESS OF LAW NOT FOLLOWED NO FRESH ASSESSMENT FRAMED 1 . 1 THE ASSISTANT COMMISSIONER OF INCOME-TAX , C IR CLE- 1 1 ( 4 ) ( ' AO ') ERRED I N NOT FRAMING A FRESH ASSESSMENT UNDER SECT I ON 143 ( 3 ) OF THE ACT I N ACCORDANCE WITH THE D I RECT I ONS CONTAINED IN THE ORDER UNDER SECT I ON 263 OF THE ACT , PASSED BY THE COMM I SSIONER OF INCOME-TAX ( ' CIT ' ) . WHEREIN THE CIT(A) HAD SET ASIDE THE OR I GINAL ASSESSMENT ORDER ( ' OAO') PASSED UNDER SECTION 143(3 ) OF THE ACT AND HAD D IR ECTED THE AO TO FRAME A FRESH ASSESSMENT . . 1 . 2 THE LEARNED CIT(A) ERRED IN UPHOLDING THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) READ WITH SECT I ON 263 OF THE ACT ( ' IMPUGNED ASSESSMENT ORDER ' OR ' IAO ') , WITHOUT TAKING COGNIZANCE OF THE FACT THAT THE AO O UGHT TO HAVE CARRIED OUT A FRESH ASSESSMENT I N ACCORDANCE WITH THE PROVIS I ONS OF THE ACT , AS THEY STOOD AT THE TIME OF FRAM I NG OF THE ASSESSMENT , H AVING REGARD TO THE FACT THAT THE CIT HAD SE T AS I DE THE O RI G I NAL ORDER OF ASSESSMENT PASSED UNDER SECT I ON 143(3 ) OF THE ACT ( OAO ) . 1 . 3 THE LEARNED CIT(A) ERRED IN NOT UPHOLDING THE APPELLANT ' S CONTENTION THAT THE AO HAS NOT FRAMED A FRESH ASSESSMENT SINCE , ALTHOUGH THE IAO CONTA I NS TRANSFER PRIC I NG ( ' TP ' ) ADJUSTMENTS , NEITHER A REFERENCE WAS MADE TO THE T R ANSFER PR I C I NG OFF I CER ( ' TPO ' ) NOR WAS A DRAFT ASSESSMENT ORDER (' DAO ' ) PASSED AS PER THE PROV I S I ONS OF SECT I ON 1 44C OF THE ACT , WHICH EX I STED ON THE STATUTE ON THE DAY OF PASSING T HE IAO AND CONSEQUENT L Y THE IAO I S IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE AND OUGHT TO RESE T ASIDE. 1 . 4 THE LEARNED CIT(A ) ERRED IN UPHOLD I NG THE I AO WH I CH WAS FRAMED BY THE AO WITHOUT APPLICATION OF M I ND AND MERE L Y BY I NCORPORAT I NG ADJUSTME N TS . CAR R IED OU T I N THE OAO , WH I CH ITSELF WAS SET AS I DE BY THE CIT ( A ) , AND IN DO I NG SO , O N OPPORTUN I TY WAS PROV I DED T O THE APPELLANT TO PART I C I PATE I N FRESH ASSESSMENT PROCEED I NGS AND PROV I D I NG OBJECTIONS SPECIFICALLY AS I NDICATED AS PER THE PROVISIONS OF SECTION 144C OF THE ACT . 1.5 WITHOUT PREJUD I CE , THE CIT(A ) ERRED IN DISM I SSING THE APPELLANT ' S GROUNDS OF APPEAL ON MERITS AGAINST THE LAO , ON THE BASIS THAT THE IAO WAS PASSED PURSUANT TO THE DIRECTI ONS ISSUED BY THE CIT, WITHOUT APPRECIATING THE FACT THAT THE DIRECTIONS OF THE CIT WAS TO FRAME A FRESH ASSESSMENT A FTER EXAMINING THE ISSUES ON MERITS AND FACTS . I. INCORPORATING ADJUSTMENTS MERELY ON THE BASIS OF A ' SET ASIDE ORDER ' IS VOID-AB-INITIO AND CANNOT BE HELD TO BE A ' FRESH ASSESSMENT ' 1.6 THE CIT(A) ERRED IN UPHOLD I NG THE LAO , CONTAINING THE TP ITA NO.162/BANG/2012 PAGE 3 OF 13 ADJUSTMENTS FORM I NG PART OF THE OAO , WHICH I TSELF DID NOT SURVIVE , PURSUANT TO THE D I RECT I ONS OF THE CIT UNDER SECTION 263 OF THE ACT . 1.7 THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT SINCE THE OAO ITSELF WAS SET ASIDE WITH D I RECTIONS FOR FRAMING FRESH ASSESSMENT , NO TP ADJUSTMENTS COULD HAVE BEEN CARR I ED OUT, MERELY ON THE BASIS OF THE OAO . 1.8 WITHOUT PREJUDICE , THE CIT(A) OUGHT TO HAVE CONSIDERED AND ADJUDICATED ON THE GROUND IN RELATION TO NOT FOL LOWING THE PROCEDURE UNDER SECTION 144C OF THE ACT , IN FRAMING A FRESH ASSESSMENT AND IN DOING SO , FAILED TO APPRECIATE THAT THE TP ADJUSTMENTS INCORPORATED ON THE BASIS 1.9 WITHOUT PREJUDICE, EVEN IF THE IAO PASSED BY TH E AO IS HELD TO BE VALID IN LAW , THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE APPELLANT'S GROUND THAT NO ADJUSTMENTS CAN BE MADE BY THE AO THE LEARNED CIT(A) ERRED IN NOT TAKING COGNIZANCE OF THE FACT THAT THE APPEAL FILED AGAINST THE OAO WAS H ELD AS BEING INFRUCTUOUS , AND I N DOING SO ERRED IN NOT ADJUDICATING SPEC I FICALLY ON THE TP GROUNDS, WHICH BECOMES A PART OF T HE LAO , ALBEIT BY NOT CARRYING OUT A FRESH ASSESSMENT , PURSUANT TO THE D I RECTIONS OF THE CIT UNDER SECT I ON 263 OF THE ACT . FO R THE CONVENIENCE OF YOUR GOOD SELF , A COPY OF THE GROUNDS . OF APPEAL FILED AGAINST THE ORIGINAL ASSESSMENT ORDER SHOWIN G THE TRANSFER PRICING GROUNDS RAISED BY THE APPELLANT IS ENCLOSED HEREWITH AS ATTACHMENT . 1 . 10 THE LEA R NED CIT ( A) HAS ERRED IN LAW AND ON FACTS I N UPHO L D I NG THE IAO WH I CH HAS INCORPORATED ALL ADJUSTMENTS MADE IN THE OAO (INCLUDING THE TRANSFER PR I C I NG ADJUSTMENT ) DESP I TE THE FACT THAT THE DIRECTIONS BY THE CIT UNDER SECT I ON 263 OF THE ACT WAS TO SET ASIDE THE OAO AND CARRY OUT A FRESH ASSESSMENT . 2 . OTHER GROUNDS 2.1 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FAC TS BY NOT ADJUDICATING ON ALL THE GROUNDS RAISED BY THE APPEL LANT AND BY PASSING AN ADVERSE ORDER TO THE PREJUDICE OF THE AP PELLANT WITHOUT CONSIDERING THE SUBMISSIONS FILED BY THE AP PELLANT . 2 . 2 THE LEARNED CIT(A) HAS FURTHER ERRED IN NOT ACCE PTING THE TRANSFER PRICING GROUNDS SUBMITTED BEFORE HIM ON NO VEMBER 11, 2011 IN GOOD FAITH EVEN BEFORE THE RECEIPT OF THE A PPELLATE ORDER DATED OCTOBER 18, 2011 (SERVED ON THE APPELLANT ON DECEMBER 3,2011) PASSED BY HIM. 2 . 3 WITHOUT PREJUDICE THAT THE CIT'S ORDER UNDER SEC TION 263 OF THE ACT SET ASIDE THE DAD WITH DIRECTIONS TO FRA ME A FRESH ASSESSMENT, THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS THAT IN DISMISSING THE APPELLANT'S GROUNDS OF APPEA L (ON MERITS) AGAINST THE LAO , BY HOLDING THAT 'THE ISSUES DECIDED IN THE ORDER PASSED UNDER SECTION 263 OF THE ACT CANNOT BE DECID ED BY CIT(A) ITA NO.162/BANG/2012 PAGE 4 OF 13 UNDER SECTION 246A OF THE ACT', WITHOUT APPRECIATIN G THAT THE CIT'S DIRECTIONS UNDER SECTION 263 TO THE AO IN THE INSTANT CASE , WAS NOT CONCLUSIVE BUT WAS MERELY A DIRECTION TO FU RTHER EXAMINE THE ISSUES ON MERIT AND FACTS. 3. COMPUTATION` OF RELIEF U/S 10A F THE ACT 3.1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FATS IN UPHOLDING THE AOS COMPUTATION OF RELIEF UNDER SECTION 10A OF THE ACT AT RS.742,562,786 (AS AGAINST THE AMOUNT OF RS.,348,02 7,117 CLAIMED BY THE APPELLANT IN ITS RETURN OF INCOME). INTER UNIT SET OFF OF LOSSES 3.2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN U PHOLDING THAT RELIEF UNDER SECTION 10A OF THE ACT IS O BE COMPUTE D ON THE BASIS OF CONSOLIDATED PROFITS OF ALL THE ELIGIBLE UNDERTAKINGS (AFTER SETTING OFF INTER UNIT LOSSES OF RS.191,091,28 6), INSTEAD OF THE SAME BEING COMPUTED UNDERTAKING WISE, AND IN DOING SO, DISREGARDED THE PROVISIONS OF SECTION 10A(4) OF THE ACT. EXCLUSION OF TELECOMMUNICATION CHARGES 3.3. THE LD. CIT(A )HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE AOS CONCLUSION THAT THE COMMUNICATION EXPENSES AMOUNTING TO RS.164,163,227 INCURRED BY THE APPELLANT SHOULD BE EXCLUDED FROM THE AMOUNT OF EXPORT TURNOVE R FOR THE PURPOSES OF COMPUTATION OF RELIEF UNDER SECTION 1 0A OF THE ACT. THE LD. CIT(A FURTHER ERRED IN NOT REDUCING TH E SAME ALTHOUGH, IT WAS SUBMITTED THAT THE COMMUNICATION EXPE NSES DO NOT FORM PART OF THE EXPORT TURNOVER DURING THE ASSESSMENT PROCEEDINGS. 3.4 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN H OLDING THAT AFTER EXCLUSION OF COMMUNICATION EXPENDITURE/FOREIGN CURRENCY EXPENDITURE FROM THE EXPORT TURNOVER SUCH AM OUNT SHOULD NOT BE REDUCED FROM THE AMOUNT OF TOTAL TUR NOVER FOR THE PURPOSE OF COMPUTATION OF RELIEF UNDER SECTION 10 A OF THE ACT AND THEREBY IGNORING THE RECENT RULING OF THE JURI SDICTIONAL KARNATAKA HIGH COURT IN THIS REGARD, IN THE CASE OF M/S TATA ELXSI LTD., (ITA NO.70 OF 2009), WHICH WAS BROUGHT TO HIS NOTICE. PROVISION OF TECHNICAL SERVICES 3.5 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN U PHOLDING THE AOS CONCLUSION THAT HPGS IS INVOLVED IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA AND THEREFORE, THE EXPENDITURE INCURRED IN FOREIGN CURRENCY OF RS.2,630,1 80,361, WOULD HAVE TO BE REDUCED FROM EXPORT TURNOVER. 3.6 (A) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY REJECTING THE EXPLANATIONS OFFERED BY THE APPELLANT TH AT IT IS ENGAGED IN THE EXPORT OF COMPUTER SOFTWARE FROM ITS OF-SHORE DEVELOPMENT CENTRES AND ONLY A PORTION OF THE SOFTWAR E DEVELOPMENT IS SOMETIMES NECESSITATED TO BE CARRIED ON AT THE CLIENTS LOCATION OUTSIDE INDIA AS ENVISAGED BY EXPLAN ATION 3 TO SEC.10A OF THE ACT, AND INSTEAD UPHOLDING THE CON TENTION OF THE AO THAT THE APPELLANTS EMPLOYEES VISIT TO ITS CLIENTS ITA NO.162/BANG/2012 PAGE 5 OF 13 LOCATIONS AND PROVISION OF SOFTWARE DEVELOPMENT SERVICE S BY THE APPELLANT AMOUNTS TO PROVISION TECHNICAL SERVICES O UTSIDE INDIA AND THEREFORE, EXPENDITURE INCURRED IN FOREIGN CURRENCY IS TO BE REDUCED FROM EXPORT TURNOVER. (B) THE LD.CIT(A) HAS ALSO FAILED TO FOLLOW THE PRI NCIPLES OF THE JURISDICTIONAL BANGALORE TRIBUNAL IN ITS ORDER BEARING ITA NO.333(BANG)/2008 IN THE APPELLANTS OWN CASE ON SIM ILAR FACTS, WHICH WAS BROUGHT TO HIS NOTICE. 4 . SOFTWARE PURCHASES TREATED AS CAPITAL E X PENDITURE 4 . 1 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT GIVING ANY . FINDING ON WHETHER THE EXPENDITURE INCURRED TOWARDS SOFTWARE PURCHASES SHALL BE TREATED A S CAPITAL IN NATURE . THE LEARNED CIT(A) HAS ALSO ERRED IN DISREGARDING THE APPELLANT'S CONTENTION THAT EXPENSE S NEED TO BE CLASSIFIED AS CAPITAL OR REVENUE EXPENDITURE BEFORE DECIDING ON ' WHETHER THEY NEED TO BE MADE PART OF DEPRECIABLE BLOCK . 4 . 2 THE LEARNED CIT(A) HAS HENCE ERRED IN LAW BY DISREGARD I NG THE RECENT RUL I NG OF THE JURISDICTIONAL KARNATAKA HIGH COURT IN THE CASE OF ADDL CIT VS TOYOTA KIRLOSKAR MOTORS PRIVATE LIMITED (ITA NO 174/2009) WHEREIN THE NATURE OF EXPENDITURE , I.E. , CAPITAL OR REVENUE , HAS BEEN HELD TO SUPERSEDE THE I NSERTION MADE IN THE DEPRECIATION SCHEDULE UNDER THE INCOME-TAX RULES , 1962 . 4 . 3 THE LEARNED CIT(A) HAS THEREFORE ERRED I N LAW AND ON FACTS IN IMPLIEDLY UPHOLD I NG THE ADDITION OF RS 6 , 526 , 112 TO TOTAL INCOME AFTER PROVIDING DEPRECIATION AT T HE RATE OF 60 PERCENT 1 30 PERCENT (DEPENDING ON NUMBER OF DAYS FROM DATE OF PURCHASE ) ON THE ABOVE AND THEREBY IGNORING THE ACTUAL NATURE OF SOFTWARE EXPENSES INCURRED BY THE APPELLA NT . 5 . INTEREST INCOME 5 . 1 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS I N IMPLIEDLY UPHOLDING THE AO ' S . FINDING , THAT THE AMOUNT OF INTEREST ON INCOME TAX REFUNDS AMOUNTING TO RS 5 , 561 , 436 RECEIVED BY THE APPELLANT IS TAXABLE AS INCOME IN THE RELEVANT ASSESSMENT YEAR . 5 . 2 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS BY NOT ACCEPTING THE CONTENTIONS OF THE APPELLANT THAT MERE RECE I PT OF THE SAID INTEREST DOES NOT ENSURE THAT THE SAME IS IRREVOCABLY MADE AVAILABLE TO IT , G I VEN THAT THE MATTERS ON WHICH THE ADJUSTMENTS HAVE BEEN MADE HAVE N OT YET REACHED F I NALITY AND THEREFORE SUCH REFUND CANNOT BE TREATED AS ITS INCOME . ITA NO.162/BANG/2012 PAGE 6 OF 13 6 . CHARGE OF TA X AND INTEREST 6 . 1 THE LEARNED CIT(A) HAS ERRED I N UPHOLDING THE LEVY OF INTEREST UNDER SECTION 234D OF THE ACT . 6.2 THE LEARNED CIT(A ) HAS ERRED IN SUSTAINING THE ABOVE ADDIT I ONS 1 DISALLOWANCES MADE BY THE AO , RESULTING IN A TAX DEMAND OF RS 219 , 900 , 993 , AGA I NST THE APPELLANT . 6.3 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE PENALTY PROCEEDINGS INITIATED BY THE A O UNDER SECTION 271(1)(C) OF THE ACT EACH OF THE ABOVE GROUNDS IS INDEPENDENT TO ADD, ALTE R, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL , AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL , SO AS TO ENABLE THE HONBLE INCOME TAX APPELLATE TRIBUNAL TO DECIDE THIS APPEAL ACCORDING TO LAW. 3. AT THE VERY OUTSET, IT WAS SUBMITTED BY THE LD . AR OF THE ASSESSEE THAT IN THE PRESENT CASE, INITIAL ASSE SSMENT ORDER PASSED BY THE AO WAS SET ASIDE BY THE LD. CIT U/S 2 63 OF THE IT ACT, 1961 AND CONSEQUENT TO THAT ORDER PASS BY THE LD. CIT, THE PRESENT ASSESSMENT WAS FRAMED BY THE AO ON 24-12- 2010 AGAINST WHICH THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A) BUT IN THE IMPUGNED ORDER, IT IS NOTED BY THE LD. CIT(A) AT PARA -9 OF HIS ORDER THAT FIVE IS SUES WERE RAISED BEFORE HIM. THEREAFTER, IT WAS POINTED OUT BY HIM THAT THE LD. CIT(A) HAS STATED IN PARA-10 OF HIS ORDER T HAT THE FIFTH ISSUE REGARDING THE LEVY OF INTEREST U/S 234D IS MA NDATORY AND IS CONSEQUENTIAL. THEREFORE, NO INTERFERENCE I S CALLED FOR. 4. REGARDING INITIATION OF PENALTY U/S 271(1)(C ) O F THE IT ACT BEING PART OF THE FIFTH ISSUE ALSO, HE HAS DECI DED THE ISSUE AGAINST THE ASSESSEE AND THE ASSESSEE HAS NO GRIEVA NCE ON ITA NO.162/BANG/2012 PAGE 7 OF 13 THESE TWO ISSUES. THEREAFTER, HE POINTED OUT THAT REGARDING THE ISSUES RAISED IN SL. NO.1,2 & 3 AS NOTED BY THE LD. CIT(A) IN PARA-9 OF HIS ORDER, THE LD.CIT(A) HAS NOT DECID ED THE ISSUE BY SAYING THAT THESE ISSUE WERE DECIDED IN THE ASSE SSMENT ORDER AS PER THE DIRECTION IN THE ORDER PASSED BY T HE LD. CIT U/S 263 OF THE IT ACT, 1961. THEREFORE, THESE ISSU ES CANNOT BE DECIDED BY THE LD.CIT(A) U/S 246A OF THE IT ACT, 1961. HE SUBMITTED THAT AS PER ORDER OF LD. CIT U/S 263 OF T HE ACT, THESE ISSUE WERE RESTORED TO THE AO AS AN OPEN REMA ND AS THERE WAS NO SPECIFIC DIRECTION TO THE AO. THEREF ORE, THESE ISSUES CAN BE RAISED BY THE ASSESSEE BEFORE THE LD. CIT(A) AND HE SHOULD DECIDE THE SAME AND SINCE HE HAS NOT DONE SO, THE MATTER MAY BE RESTORED BACK TO HIS FILE FOR DECISIO N ON THESE ASPECTS. 5. REGARDING THE ISSUE NO.4 NOTED BY THE LD. CIT(A) IN PARA-9 OF HIS ORDER HE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONB LE KARNATAKA HIGH COURT RENDERED IN THE CASE OF M/S TA TA ELXSI LTD., 349 ITR 78. 6. THE LD. DR OF THE REVENUE SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW. ITA NO.162/BANG/2012 PAGE 8 OF 13 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE REPRODUCE PARA-9 TO 14 FROM THE ORDER OF TH E LD. CIT(A) FOR READY REFERENCE; .9. IN TOTO THIS APPEAL HAS BEEN PREFERRED AGAINST THE (I) REDUCTION OF RS.26,30,180,361/- SPENT IN FOREIGN CURRENCY HOLDING THE SAME ATTRIBUTABLE TO PROVIDE TECHNICAL SERVICE OUTSIDE INDIA FROM THE E.T. (II) ADDITION OF RS.55,61,436/- BEING INTEREST RECEIVED AS INCOME FROM OTHER SOURCES (III) DISALLOWANCE AND ADDITION OF EXPENDITURE INCURRED FOR PURCHASE OF SOFTWARE AMOUNTING RS.95,66,525/- (RS.LL,54,534/- + RS.84,1L,987 1-) AND (IV) WRONG COMPUTATION OF 10A DEDUCTION AT RS.74,25,62,786/- INSTEAD OF THE CLAIM OF RS.134,80,27,117/ - (V) LEVY OF INTEREST U/S.234D OF I.T.ACT AND INITIATION OF PENALTY U/S.271(1)(C) OF I.T.ACT. 10. SO FAR ISSUE RAISED AT (V) ABOVE IS CONCERNED T HE LEVY OF INTEREST U/S.234D OF I.T.ACT IS MANDATORY AND ITS QUANTIFICATION BEING CONSEQUENTIAL NO INTERFERENCE IS CONSIDERED NECESSARY. SO FAR INITIATION OF PENALTY U/S.271(1)(C) IS CONCERNED. I FIND NO LEGAL FLAW IN TH E ACTION OF A.O. BECAUSE S.271(LB) INTRODUCED BY F.A. 2008 W. R.E.F. 01-04-1989 EMPOWERS TO INITIATE SUCH PROCEEDING EVEN O N A PRIMA FACIE SATISFACTION OF ANY ADDITION/DISALLOWANC E. HENCE GROUNDS OF APPEAL ARE DISMISSED. 11. SO FAR THE ISSUE RAISED AT (I) (II) & (III) ABOVE IS CONCERNED THE A.O. HAS ORIGINALLY NOT TOUCHED UPON OR H AD MADE INCORRECT COMPUTATION BUT NOW AS PER THE DIRECTI ONS OF CIT CONTAINED IN THE ORDER U/S.263 OF I.T.ACT HAS MADE PROPER ADDITIONS. IT MAY BE POINTED OUT THAT NO APPE AL HAD BEEN PREFERRED AGAINST THE ORDER PASSED U/S. 263 OF I. T.ACT DATED 21-12-2009. UNDER SUCH CIRCUMSTANCES I HOLD THAT , EVEN IF APPEAL HAS BEEN RAISED ON SUCH ISSUES I HAVE NO AUTHORITY TO TROD UPON SUCH MATTERS. IN THE CASES OF - SEASON RUBBER LTD., VS. CIT (2003) 263 ITR 385 (KER) AND ITA NO.162/BANG/2012 PAGE 9 OF 13 DR. A. NARESH BABU VS. ITO (2009) 123 TTJ (HYD.-TRIB) 836 THE ASSESSES HAVE NOT PREFERRED ANY APPEAL AGAINST SUCH DIRECTION OF THE LEARNED CIT TO THE ITAT. IT HAD BEE N HELD THEREIN THAT, THEREFORE IT HAS REACHED FINALITY. TH EREFORE I HAVE NO AUTHORITY TO DISTURB THE SAME. THE RATIO OF CA SE OF - SADHURAM PATEL & SONS VS. ITO (2009) 120 ITD 291 (MUM) IS NOT APPLICABLE HERE BECAUSE IN THAT CASE THE DIRECTION OF THE CIT U/S.263 OF I.T.ACT WAS NOT IN CERTAIN TERMS. THE LEARNED CIT THEREIN HAD DIRECTED THE AO TO EXAMINE WHETHER SHORT TERM CAPITAL GAINS LIABLE FOR TAXATION H AD BEEN OMITTED OR NOT? WHILE COMPLETING THE ORIGINAL ASSESSMENT AND IT OMITTED TO ADD THE SAME IN THE SET ASIDE ASSESSMENT THUS GIVING A LATITUDE TO THE AO WHICH IS CAPABLE OF BEING QUESTIONED IN AN APPEAL BEFORE THE CIT(A). IN THIS CASE IT CAN BE INFERRED, FROM THE LE ARNED CIT'S ORDER U/S.263 QUOTED, IN THE ASSESSMENT ORDER VIDE PARA 2 & 3 THAT HE IS NOT PROVIDING ANY SUCH FREEDOM TO THE A.O. AND ALSO HAD DECIDED SOME OF THE GROUNDS OF APPEA L RAISED BEFORE ME HEREIN, AGAINST THE ASSESSEE. IN VIEW OF THE ABOVE I HOLD THAT I HAVE NO AUTHORITY TO ADJUDI CATE THE ISSUE INVOLVED' AT (I) (II) AND (III) ABOVE. IN TOTO IT IS HELD THAT THE ISSUE DECIDED IN A ORDER PASSED U/S. 263 OF I.T. ACT CANNOT BE DECIDED BY A CIT(A) U/S.246A OF IT.ACT. FOLLOWING THE SAME I AM ONLY LEFT WITH THE ISSUES. WHETHER THE A.O. IS CORRECT I N REDUCING THE TELECOMMUNICATION EXPENDITURE FROM AND WHETHER THE PROFITS OF THE 10A UNIT CAN BE SET OFF AGAINST THE LOSS OF ANOTHER 10A UNIT BEFORE COMPUTATION OF DEDUCTION U/S.10A OF IT.ACT OF THE UNIT EARNING 12. SO FAR ISSUE RAISED AT (A) ABOVE IN PARA 11 IS CONCERNED, NOW THERE IS A PLETHORA OF DECISIONS OF JURISDICTIONAL ITAT AGAINST THE APPELLANT. SOME OF T HE CASES ARE - (A) I GATE GLOBAL SOLUTIONS LTD., VS. ACIT (2008) 24 SOT (BANG) 3 (B) RELQ SOFTWARE (P) LTD., VS. ITO (2009) 123 TTJ (BANG) 356 AND (C) M/S. AXA BUSINESS SERVICES PVT. LTD., IN ITA.NO.749 & 750/ BANG/2007 (A.YS. 2003-04 & 2004-05) 13. SO FAR ISSUE RAISED AT (B) OF PARA 11 ABOVE IS CONCERNED I FOLLOW MY DECISION IN THE CASE OF - M/S. CROSSDOMAIN SOLUTIONS PVT LTD ITA NO.162/BANG/2012 PAGE 10 OF 13 ITA NO. 52IDC-11/(2)/A-IL08-09 (A.Y.2006-07) DATE OF ORDER: 12-9-2011 TO DISMISS THIS ISSUE AGAINST THE APPELLANT. THE RELEVANT PORTION IS EXTRACTED BELOW 7.3. I FIND THE AR'S CONTENTION NOT ACCEPTABLE BECAUSE THE DECISION OF THE HON'BLE HIGH COURT IS YET TO BE RECEIVED AND THEREFORE, ITS NATURE AND CONTEXT IS NOT KNOWN AND THEREFORE, IT IS BETTER TO GO BY ONE'S OW N WISDOM. I FIND THE A.O. HAS ARRIVED AT THE DESTINATION BUT THROUGH A VERY CLUMSY AND NARROW ZIG ZAG PATH. THEREFORE, I WILL TAKE A VERY STRAIGHT AND SIMPLE P ATH. FOR THIS, I DEPEND SOLELY ON THE ANALYSIS OF PROVISIONS OF SUB-SECTION (1) OF SEC 10B OF LT. ACT QUOTED BELOW:- SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTIO N OF SUCH PROFIT AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERI OD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OF THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE' PROVISIONS OF SUB-SECTION (1) OF SEC10B PRESUMES THAT IN ORDER TO BE GIVEN DEDUCTION U/S.10B - (I) THERE MUST BE AN EXPORT ORIENTED UNDERTAKING (II) SUCH UNDERTAKING MUST BE DOING BUSINESS OF EXPORT (III) SUCH BUSINESS OF EXPORT MUST BE OF ARTICLES OR THINGS OR COMPUTERS SOFTWARE MANUFACTURED OR DEVELOPED. (IV) SUCH BENEFIT OF DEDUCTION IS FOR 10 CONSECUTIVE YEARS, ETC. (V) THE DEDUCTION SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE (UNDER LINED FOR EMPHASIS. THUS, THE GIST IS THAT THE DEDUCTION U/S. 10B IS TO BE COMPUTED UNDERTAKING WISE ONLY. PROBABLY BECAUSE OF SUCH RESTRICTION, THE TRIBUNALS HAD ALLOWED THE SET OFF OF EARLIER YEAR'S LOSS TO ARRIVE AT PRESENT YEAR'S PBU TO COMPUTE THE ELIGIBLE DEDUCTION AND HORIZONTAL SET OFF AMONGST EVEN THE ELIGIBLE STPI UNDERTAKINGS IS NOT ACCEPTED. HOWEVER, THE CRUCIAL AND CLINCHING PROVISION IS AT (V) ABOVE WHICH STATES THAT THE DEDUCTION EVEN IF COMPUTED U/S. L0B(4), IT HAS TO BE ALLOWED FROM THE TOTAL INCOME ONLY. IN OTHER WORDS, THE ALLOWANCE OF SEC. 10B CLAIM REQUIRES PASSING THROUGH THREE DISTINCT STAGES. THE FIRST STAGE IS THE COMPUTATION OF THE L0B DEDUCTION APPLYING THE FORMULAE PRESCRIBED IN SEE 10B(4) OF THE I.T.ACT. THE SECOND STAGE IS THE COMPUTATION OF TOTAL INCOME OF THE ASSESSEE. THE THIRD STAGE ONLY COMES INTO PLAY IF THE ITA NO.162/BANG/2012 PAGE 11 OF 13 TOTAL INCOME IS POSITIVE ONLY. IF THE TOTAL INCOME IS NEGATIVE OR NIL, THE PROCEDURE STOPS HERE BECAUSE IN SUCH CASES THE DEDUCTION IS NOT ALLOWABLE. HOWEVER, IF THE TOTAL INCOME IS POSITIVE, THEN THE COMPUTED DEDUCTION GETS THE ELIGIBILITY OF ALLOWANCE. THE ABO VE CONCLUSION IS DERIVED FROM THE WORDINGS 'SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE' IT DOES NOT SAY THAT THE DEDUCTION IS TO BE ALLOWED OR REDUCED FROM THE PROFITS OF EXPORT BUSINESS OF THE UNDERTAKING BUT A QUESTION MAY ARISE WHETHER AN ASSESSEE CAN HAVE TWO TOTAL INCOMES I.E. THE ONE COMPUTED AS PER PROVISIONS OF THE ACT AND THEN, IF IT IS POSITIVE A TOTAL TAXABLE INCOME AFTER REDUCTION THERE FROM THE ELIGIBLE L0B CLAIM. OBVIOUSLY, SUCH PROPOSITION WOULD BE AGAINST THE SCHEME OF DETERMINATION OF ASSESSABLE INCOME AND CALCULATION OF TAX THEREON PROVIDED IN THE IT.ACT THEREFORE, THE BEST WAY OR THE SOLUTION TO AVOID SUCH ABSURD SITUATION, IT WOULD BE BETTER AND APPROPRIATE, IF TH E TOTAL INCOME IS POSITIVE ONLY, TO REDUCE THE ELIGIBL E DEDUCTION FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING WHICH WILL SPILL OUT THE INCOME OF THE ASSESSEE UNDER THE HEAD 'BUSINESS'. HOWEVER, IN THIS CASE, THE TOTAL INCOME AS COMPUTED BY THE A.O. REPRODUCED FROM THE ASSESSMENT ORDER IN PAGE 36 OF THIS ORDER IS NEGATIVE AND THEREFORE, THERE IS NO SCOPE FOR PROCEEDING FURTHER, TO THIRD STAGE OF ALLOWANCE OF ELIGIBLE DEDUCTION U/S 10B OF IT ACT. 14. IN VIEW OF THE ABOVE, APPEAL IS DECIDED AGAINST THE APPELLANT GROUNDS OF APPEAL ARE DISMISSED. 8. FROM PARA-9 OF THE ORDER OF LD. CIT(A), IT IS S EEN THAT FIVE ISSUES WERE RAISED BY THE ASSESSEE BEFORE HIM. OUT OF THIS, FOR THE FIFTH ISSUE I.E. LEVY OF INTEREST U/S 234D OF THE ACT AND INITIATION OF PENALTY U/S 271(1)(C ) OF THE ACT, NO GRIEVANCE IS RAISED BY THE ASSESSEE BEFORE US. FOR THE FIRST TH REE ISSUES AS NOTED BY THE LD. CIT(A) IN PARA-9 OF HIS ORDER, NO DECISION WAS RENDERED BY THE CIT(A) BY STATING THAT SINCE NO APP EAL HAS BEEN PREFERRED AGAINST THE ORDER PASSED U/S 263 OF THE ACT, THESE ISSUES CANNOT BE DECIDED IN AN APPEAL FILED U /S 246A OF THE ACT, 1961. ITA NO.162/BANG/2012 PAGE 12 OF 13 9. WE HAVE GONE THROUGH THE ORDER PASSED BY THE LD. CIT U/S 263 OF THE ACT AND AS PER THE SAME, HE H AS SET ASIDE THE ORIGINAL ASSESSMENT ORDER IN RESPECT OF TWO ISS UES I.E. ALLOWABILITY OF DEPRECIATION ON THE SOFTWARE EXPEND ITURE AND ALLOWABILITY OF DEDUCTION U/S 10A AND U/S 80HHE OF THE ACT IN RESPECT OF PROFIT DERIVED FROM THE EXPORT OF COMPUT ER SOFTWARE. THEREFORE, IN RESPECT OF THESE TWO ISSUES ONLY, AO CAN PASS FRESH ASSESSMENT ORDER CONSEQUENT TO ORDER PASSED B Y THE LD. CIT U/S 263 OF THE IT ACT, 1961 AND AS A CONSEQUENC E, ONLY THESE TWO ISSUES CAN BE RAISED IN AN APPEAL BEFORE THE LD. CIT(A) AND BEFORE THE TRIBUNAL IN THE PROCEEDINGS U /S 143(3) OF THE IT ACT, R.W.S.263 OF THE IT ACT, 1961. 10. IN THE PRESENT APPEAL, THE ASSESSEE HAS RA ISED BEFORE US SOME TP ISSUES ALSO WHICH IN OUR CONSIDER ED OPINION, CANNOT BE RAISED BEFORE US, IN THE PRESENT PROCEEDINGS. HENCE, THESE GROUNDS OF ASSESSEE ARE REJECTED. 11. REGARDING THE ISSUE IN RESPECT OF ALLOWABILI TY OF DEDUCTION 10A OF THE IT ACT, WE FEEL IT PROPER THAT THIS ISSUE SHOULD GO BACK TO THE FILE OF THE LD.CIT(A) FOR A F RESH DECISION IN THE LIGHT OF THE JUDGMENT OF THE HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF M/S TATA ELXSI LTD., (SUPRA). 12. REGARDING THE ISSUE NO.1,2 & 3 NOTED BY THELD.C IT(A) IN PARA-9 OF HIS ORDER, THESE WERE NOT DECIDED BY T HE LD. CIT(A). WE REMAND THE MATTER BACK TO THE FILE OF THE LD. CI T(A) FOR A ITA NO.162/BANG/2012 PAGE 13 OF 13 FRESH DECISION ON THIS ISSUE BECAUSE THESE ISSUES W ERE SET ASIDE BY THE LD.CIT TO THE FILE OF THE AO FOR A FRE SH DECISION AND THEREFORE, THESE ISSUES HAD TO BE DECIDED BY THE LD . CIT(A) IN THE PRESENT PROCEEDINGS. WE ORDER ACCORDINGLY. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. (VIJAYPAL RAO) (A.K.GARODIA) JUDICIAL MEMER ACCOUNTANT MEMBER BANGALORE: D A T E D : 06-2016 AM COPY TO : 1 APPELLANT 2 RESPONDENT 3. CIT(A), BANGALORE 4. CIT, BANGALORE 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER AR, ITAT, BANGALORE