Deputy Commissioner of Income tax, Bangalore V. M/s timken India Manufacturing P Ltd, Bangalore

ITA 1632/BANG/2014

• Counselvise Citation: 163221114 RSA 2014
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 23-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DHIVAHAR JT
• Assessee Lawyers: BHARATH AGARWAL
• Section: 10AA; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IT(TP)A NO.1632/BANG/2014 ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(1), BANGALORE. VS. M/S. TIMKEN INDIA MANUFACTURING PVT. LTD., NO.39-42, ELECTRONICS CITY, PHASE-II, HOSUR ROAD, BANGALORE 560 100. PAN : AACCT 5280C APPELLANT RESPONDENT APPELLANT BY : SHRI P. DHIVAHAR, JT. CIT(DR) RESPONDENT BY : SHRI BHARATH AGARWAL, CA DATE OF HEARING : 11.05.2015 DATE OF PRONOUNCEMENT : 26.05.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER D ATED 3.9.2014 OF THE CIT(APPEALS)-III, BENGALURU RELATING TO ASSESSM ENT YEAR 2009-10. ITA NO.1632/BANG/2014 PAGE 2 OF 6 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURE AND SALE OF TAPERED ROLLER BEARINGS AND ITS COMPONENTS FROM A UNIT REGISTERED UNDER THE SPECIAL ECONOMIC ZONES ACT AT MAHINDRA WORLD CI TY SPECIAL ECONOMIC ZONE AT KANCHIPURAM DISTRICT AND ENTITLED FOR DEDUCTION UNDER SECTION 10AA OF THE ACT. THE ASSESSEE HAS COMPLIED WITH ALL THE PROVISIONS OF SECTION 10AA OF THE ACT AND THEREFORE, IS ELIGIB LE TO CLAIM DEDUCTION UNDER SECTION 10AA OF THE ACT. THE ASSESSING OFFICE R, HOWEVER, IN THE ASSESSMENT ORDER HAS WRONGLY PROCEEDED UNDER THE IM PRESSION THAT THE BUSINESS OF THE ASSESSEE WAS DEVELOPMENT OF SOFTWAR E AND EXPORT THEREOF, THEREBY COMPUTED DEDUCTION UNDER SECTION 10A INSTEA D OF SECTION 10AA OF THE ACT. 3. THE AO HAS RECOMPUTED DEDUCTION UNDER SECTION 10 A OF THE ACT BY REDUCING TRAVEL EXPENSES INCURRED IN FOREIGN CURREN CY AMOUNTING TO RS 90,044,900 FROM THE EXPORT TURNOVER ON THE GROUND THAT THE COMPANY IS ENGAGED IN THE BUSINESS OF RENDERING TECHNICAL SERV ICES OUTSIDE INDIA/DELIVERY OF SOFTWARE SERVICES OUTSIDE INDIA W ITHOUT CONSIDERING THE FACT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFAC TURE AND EXPORT OF TAPERED ROLLER BEARINGS AND ITS COMPONENTS. 4. ACCORDING TO THE ASSESSEE, IT WAS ENGAGED IN TH E MANUFACTURE AND EXPORT OF TAPERED ROLLER BEARINGS AND ITS COMPONENT S AND NOT ENGAGED IN THE BUSINESS OF RENDERING SERVICES OUTSIDE INDIA/ D ELIVERY OF SOFTWARE SERVICES OUTSIDE INDIA AND AS SUCH, TRAVEL EXPENSES INCURRED IN FOREIGN ITA NO.1632/BANG/2014 PAGE 3 OF 6 CURRENCY SHOULD NOT BE REDUCED FROM THE EXPORT TURN OVER WHILE COMPUTING THE ELIGIBLE DEDUCTION UNDER SECTION 10AA OF THE AC T. 5. THE ASSESSEE HAD INCURRED EXPENDITURE TOWARDS TE LECOMMUNICATION, FREIGHT AND INSURANCE AMOUNTING TO RS. 7,024,483, R S. 3,810,473 AND RS. 2,341,410 RESPECTIVELY. THE AO HAS REDUCED THE SAID AMOUNTS IN COMPUTING THE EXPORT TURNOVER OF THE ASSESSEE BY HO LDING THAT THE SAME IS ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE IN DIA, AND CONSEQUENTLY REDUCED THE AMOUNT OF DEDUCTION CLAIMED UNDER SECTI ON 10AA OF THE ACT. ACCORDING TO THE ASSESSEE, THE TELECOMMUNICATION, F REIGHT AND INSURANCE EXPENSES WERE NOT INCURRED FOR THE PURPOSE OF DELIV ERY OF THE ARTICLES OR THINGS OUTSIDE INDIA. THEREFORE, THERE SHOULD BE NO REQUIREMENT TO REDUCE SUCH EXPENSES FROM THE EXPORT TURNOVER OF THE COMPA NY AS SUCH EXPENSES ARE NOT ATTRIBUTABLE TO DELIVERY OF ARTICLES OR THI NGS OUTSIDE INDIA. 6. WITHOUT PREJUDICE TO THE ABOVE STAND, THE ASSESS EE SUBMITTED THAT ANY ADJUSTMENT ON ACCOUNT OF SAID EXPENSES FROM EXP ORT TURNOVER, SHOULD ALSO BE MADE FROM THE TOTAL TURNOVER FOR THE PURPOS E OF COMPUTING DEDUCTION UNDER SECTION 10AA OF THE ACT. THE ASSESS EE SUBMITTED THAT PARITY SHOULD BE MAINTAINED WITH REGARD TO ITEMS OF INCLUSIONS AND EXCLUSIONS BETWEEN NUMERATOR AND DENOMINATOR, I.E., EXPORT TURNOVER AND TOTAL TURNOVER, IN THE FORMULA PRESCRIBED UNDER SEC TION 10AA OF THE ACT. THE ASSESSEE PLACED RELIANCE ON THE RECENT DECISION S OF THE OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. TATA ELXSI (17 TAXMANN.COM ITA NO.1632/BANG/2014 PAGE 4 OF 6 100) (KAR.) WHEREIN IT WAS HELD THAT EXPENSES SHOULD BE REDUCED FROM THE TOTAL TURNOVER IF THE SAME IS REDUCED FROM EXPORT T URNOVER, WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 7. THE CIT(APPEALS) AGREED WITH THE SUBMISSIONS OF THE ASSESSEE AND HELD AS FOLLOWS:- 7.1 I HAVE CONSIDERED THE ISSUE BEFORE ME. IT IS SEEN FROM THE COPIES OF THE STATEMENT OF ACCOUNTS ENCLOSED WITH T HE SUBMISSIONS THAT THE ASSESSEE IS MANUFACTURING TAPERED ROLLER B EARINGS, CUPS AND CONES IN A UNIT ESTABLISHED IN MAHINDRA WORLD C ITY, SEZ KANCHIPURAM. THE STATEMENTS OF ACCOUNTS ALSO CONTAI NS DETAILS OF THE INVENTORIES OF OPENING AND CLOSING STOCK AND CO NSUMPTION OF RAW MATERIALS AND COMPONENTS IN THE SAID MANUFACTUR ING PROCESS. IT IS THEREFORE NOT CLEAR AS TO WHAT WAS THE FACTUA L BASIS FOR THE AOS OBSERVATION THAT THE ASSESSEE IS ENGAGED IN TH E BUSINESS OF EXPORT OF SOFTWARE. APPELLANT HAS ALSO STATED THAT THE VALUE OF GOODS EXPORTED IS THE FOB VALUE AND THEREFORE IT CA NNOT BE SAID THAT THE TELECOMMUNICATION FREIGHT AND INSURANCE EX PENSES HAVE BEEN INCURRED FOR THE PURPOSE OF EXPORT OF ARTICLES OUTSIDE INDIA. THE APPELLANTS CONTENTIONS ARE BORNE OUT FROM THE DOCUMENTARY EVIDENCE OF THE STATEMENTS OF ACCOUNTS. IN MY VIEW SINCE THE AOS OBSERVATIONS REGARDING THE BUSINESS OF THE APP ELLANT ARE MISPLACED, THERE IS NO FACTUAL JUSTIFICATION FOR TR EATING THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FOR TELECO MMUNICATION, FREIGHT, INSURANCE AND FOREIGN TRAVEL AS AMOUNTS RE QUIRED TO BE REDUCED FROM THE EXPORT TURNOVER. ALTERNATIVELY APP ELLANT HAS CONTENDED THAT IF THE AMOUNTS ARE REDUCED FROM THE EXPORT TURNOVER THEY ARE ALSO REQUIRED TO BE PROPORTIONATE LY REDUCED FROM THE TOTAL TURNOVER. THIS CONTENTION OF THE APP ELLANT IS SUPPORTED BY THE DECISION OF THE JURISDICTIONAL HIG H COURT IN TATA ELXSI REPORTED IN 349 ITR 98, WHICH HAS HELD AS FOL LOWS: IN OTHER WORDS, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTA IN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. THE REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. ITA NO.1632/BANG/2014 PAGE 5 OF 6 THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE, THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TURNOVER IN SECTION 10A, THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT WHAT IS EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR 7.2 CONSIDERING THE FACT THAT AO HAS ACTED UPON CE RTAIN ERRONEOUS PRESUMPTIONS AND THE DECISION CITED ABOVE , THESE GROUNDS ARE ALLOWED. AO IS DIRECTED TO REWORK THE D EDUCTION U/S.10AA ACCORDINGLY. 8. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WHO REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE GROUNDS OF APPEAL, WHICH READ AS FOLLOW:- 2. THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE AO TO REDUCE THE EXPENDITURE INCURRED IN FOREIGN CURRENCY , BOTH FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR T HE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 10AA AND ALLOWED DEDU CTION OF RS.36,065,831/- AS CLAIMED BY THE ASSESSEE. 3. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE STATUTE ALLOWS EXCLUSION OF SUCH EXPENDITURE ON LY FROM THE ETO BY WAY OF SPECIFIC DEFINITION OF EXPORT TURNOVE R AS ENVISAGED BY SUB-CLAUSE(I) OF EXPLANATION 1 BELOW S UB-SECTION 9 OF SECTION 10A. 10. WE ARE OF THE VIEW THAT THE ARGUMENTS ADVANCED BY THE LD. DR ARE CONTRARY TO THE FACTS AS RECORDED BY THE CIT(APPEAL S), ABOUT WHICH THERE IS ITA NO.1632/BANG/2014 PAGE 6 OF 6 NO DISPUTE. THE ARGUMENTS ARE ALSO CONTRARY TO THE PRINCIPLES LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) . WE ARE THEREFORE OF THE VIEW THAT THE ORDER OF THE CIT(APPEALS) IS JUST AND PROPER AND CALLS FOR N O INTERFERENCE. ACCORDINGLY THE APPEAL BY THE REVENUE IS DISMISSED. 11. IN THE RESULT THE APPEAL BY THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF MAY, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 26 TH MAY, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.