ITO, Bangalore V. M/s Exilant Technologies Pvt. Ltd., Bangalore

ITA 1768/BANG/2013

• Counselvise Citation: 176821114 RSA 2013
• Duration Of Justice: 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 22-09-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 16-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR K SHANKAR PRASAD J
• Keywords: Business income; Question of law
• Section: 143(3); 80HHC; 115JB; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C : BANGALORE BEFORE SHRI N.V.VASUDEVAN , JUDICIAL MEMBER A ND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NO. 1768 / BANG/20 13 (ASSESSMENT YEAR: 2010 - 11) INCOME - TAX OFFICER, WARD 11(1), BANGA LORE. APPELLANT VS. M/S.EXILANT TECHNOLOGIES PVT. LTD., NO.46, SUBBARAMA CHETTY ROAD, BASAVANAGUDI, BANGALORE - 560004. PAN : AABCE3070A RESPONDENT APPELLANT BY: DR.K.SHANKAR PRASAD, JCIT(DR). RESPONDENT BY: NONE. DATE OF HEARING : 22 - 09 - 2014. DATE OF PRONOUNCEMENT: 26 - 09 - 2014. O R D E R PER JASON P BOAZ, AM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) - I, BANGALORE, DATED 6/9/2013 FOR ASSESSMENT YEAR 2010 - 11. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: ITA NO . 1768 /BANG/20 13 M/S.EXILANT TECHNOLOGIES PVT.LTD. PAGE 2 OF 6 2.1 THE ASSESSEE - COMPANY, ENGAGED IN THE BUSINESS OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2010 - 11 ON 14/9/2010 DECLARING TOTAL INCOME OF NIL AFTER CLAIMING DEDUCTION O F RS.9,97,18,095/ - U/S 10A OF THE INCOME - TAX ACT, 1961[HEREINAFTER REFERRED TO AS 'THE ACT']. THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY ORDER DATED 28/2/2013, WHEREIN THE INCOME OF THE ASSESSEE WAS DETERM INED AT RS.5,30,09,026/ - UNDER NORMAL PROVISIONS AFTER RESTRICTING THE DEDUCTION U/S 10A OF THE ACT TO RS.4,67,09,069/ - . THE BOOK PROFITS U/S 115JB OF THE ACT WERE COMPUTED AT RS.9,35,99,274/ - . 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESSMENT Y EAR 2010 - 11 DATED 28/2/2013, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) - I, BANGALORE, WHO BY ORDER DATED 6/9/2013 ALLOWED THE ASSESSEE S APPEAL. 3. REVENUE IS AGGRIEVED WITH THE ORDER OF THE CIT(A) - I, BANGALORE DATED 6/9/2013 FOR ASSESSMENT YEAR 2010 - 11 AND HAS PREFERRED THIS APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT(APPEALS) IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) ERRED IN DIRECTING THE GIVE RELIEF FOLLOWING THE RATIO LAID DOWN BY THE HON BLE COURT IN THE CASE OF TATA ELXSI LTD., 349 ITR 98 AND EXCLUDE RS.40,37,20,023 BEING THE FOREIGN CURRENCY EXPENDITURE FROM THE TOTAL TURNOVER ALSO WHILE COMPUTING THE DEDUCTION U/S 10A OF ITA NO . 1768 /BANG/20 13 M/S.EXILANT TECHNOLOGIES PVT.LTD. PAGE 3 OF 6 THE IT ACT AS THE DECISION OF THE HIGH COURT IS BINDING, WITHOUT APPRECIATING THE FACT THAT THERE IS NO PROVISION IN SECTION 10A THAT SUCH EXPENSES SHOULD BE REDUCED FROM THE TOTAL TURNOVER ALSO, AS CLAUSE (IV) OF THE EXPLANATION TO SECTION 10A PROVIDES THAT SUCH EXPENSES ARE TO BE REDUCED ONLY FROM THE EXPORT TURNOVER. 3. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE JURISDICTIONAL HIGH COURT S DECISION IN THE CASE OF TATA ELXSI LTD. 349 ITR 98 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL HAS BEEN FILED BEFORE THE HON BLE SUPREME COURT. 4. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, TO ATLER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 4. THE GROUNDS RAISED AT SL.NOS.1, 4 AND 5 ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 5.0 DEDUCTION U/S 10A OF THE ACT. 5.1 IN THE GROUNDS AT SL.NO.2 AND 3, REVENUE CHALLENGES THE ACTION OF THE LD.CIT(A) IN GRANTING RELIEF TO THE ASSESSEE, BY FOLLOWING THE RATIO OF THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. TATA ELXI LTD. REPORTED IN 349 ITR 98 AND DIRECTI NG THE ASSESSING OFFICER TO EXCLUDE EXPENDITURE OF RS.40,37,20,023/ - INCURRED IN FOREIGN CURRENCY FOR SERVICES PROVIDED ABROAD FROM BOTH EXPORT TURNOVER AS WELL AS TOTAL TURNOVER. IT WAS CONTENDED THAT THE LD.CIT(A) OUGHT NOT TO HAVE DONE SO IN VIEW OF T HE FACT THAT THE DEPARTMENT HAS NOT ACCEPTED ITA NO . 1768 /BANG/20 13 M/S.EXILANT TECHNOLOGIES PVT.LTD. PAGE 4 OF 6 THE DECISION OF THE HON BLE HIGH COURT IN THE CASE OF TATA ELXI LTD (SUPRA) AND HAS PREFERRED AN APPEAL BEFORE THE HON BLE APEX COURT. 5.2 NONE WAS PRESENT ON BEHALF OF THE ASSESSEE . WE HAVE HEARD THE LD. DR AND HAVE PERUSED AND CAREFULLY CONSIDERED T HE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISION CITED ON THE ISSUE OF DEDUCTION OF EXPENSES INCURRED IN FOREIGN CURRENCY FROM BOTH EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S 10A OF THE ACT. THIS ISSUE I S PRESENTLY SETTLED BY THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF TATA ELXI LTD REPORTED IN 349 ITR 98 , WHEREIN IT HAS BEEN HELD THAT IF ANY EXPENSES ARE SOUGHT TO BE EXCLUDED FROM EXPORT TURNOVER FOR THE PURPOSES OF COMPUTING THE DEDU CTION U/S 10A OF THE ACT, SUCH EXPENSES SHOULD ALSO BE DEDUCTED FROM TOTAL TURNOVER, SINCE EXPORT TURNOVER FORM PART OF TOTAL TURNOVER. THE RELEVANT PORTION OF THE HON BLE HIGH COURT S ORDER AT PARAS.17 TO 18 THEREOF ARE EXTRACTED HEREUNDER: FROM THE AF ORESAID JUDGMENTS, WHAT EMERGES IS THAT, THERE SHOULD BE UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA, SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10 - A IS A BENEFICIAL SECTION. IT IS INTEN DED TO PROVIDE INCENTIVES TO PROMOTE SECTION. IT IS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. THE INCENTIVE IS TO EXEMPT PROFITS RELATABLE TO EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS, T HE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON THE BASIS OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT E XPORT PROFITS. IN THE CASE OF SECTION 80HHC, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSESSEE, WHEREAS IN SECTION 10 - A, THE EXPORT PROFIT IS ITA NO . 1768 /BANG/20 13 M/S.EXILANT TECHNOLOGIES PVT.LTD. PAGE 5 OF 6 TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSI NESS OF AN UNDERTAKING, IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS, IN OTHER WORDS, EXPORT TURNOVER AND DOMESTIC TURNOVER. THE EXPORT TURNOVER WOULD BE A COMPONENT OR PART OF A DENOMINATOR, THE OTHER COMPONENT BEING THE DOMESTIC TURNOVER. IN OTHE R WORDS, TO THE EXTENT OF EXPORT TURNOVER, THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IN VIEW OF THE COMMONALITY, THE UNDERSTANDING SHOULD ALSO BE THE SAME. IN OTHER WORDS IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN 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. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR & THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE, THOUGH THERE IS NO DEFINITION OF THE TERM T OTAL TURNOVER IN SECTION 10 - A, THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR THAT I S EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICULAR WORD IS NOT DEFINED BY THE LEGISLATURE AND AN ORDINARY MEANING IS TO BE ATTRIBUTED TO THE SAME THE SAID ORDINARY MEANING TO BE ATTRIBUTED TO SUCH WORD IS TO BE IN C ONFORMITY WITH THE CONTEXT IN WHICH IT IS USED. WHEN THE STATUTE PRESCRIBES A FORMULA AND IN SAID FORMULA, EXPORT TURNOVER IS DEFINED, AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGIS LATURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE TOTAL TURNOVER, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER, WHEN THE EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. IF THAT WERE THE INTENTION OF THE LEGISLATURE, THEY WOULD HAVE EXPRESSLY STATED SO. IF THEY HAVE NOT CHOSE TO EXPRESSLY DEFINE WHAT THE TOTAL TURNOVER MEANS, THEN, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE MEANING ASSIGNED BY THE LEGISLATURE TO THE EXPORT TURNOVER IS TO BE RESPECTED AND GIVEN EFFECT TO, WHILE INTERPRETING THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TUR NOVER. THEREFORE THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECTION 10 - A, WOULD BE AS UNDER: PROFITS OF THE BUSINESS OF THE X UNDERTAKING EXPORT T URN OVER (EXPORT TURNOVER + DOMESTIC TURNOVER) TOTAL TURNOVER 11. IN T HAT VIEW OF THE MATTER, WE DO NOT SEE ANY ERROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGMENTS RENDERED IN THE CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10 - A WHEN THE PRINCIPLE UNDERLYING BOTH THESE ITA NO . 1768 /BANG/20 13 M/S.EXILANT TECHNOLOGIES PVT.LTD. PAGE 6 OF 6 PROVISIONS IS ONE AND THE SAME. THEREFORE, W E DO NOT SEE ANY MERIT IN THESE APPEALS. THE SUBSTANTIAL QUESTION OF LAW FRAMED IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 5.3 RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HON BLE HIGH COURT OF KARNATAKA IN THE CASE OF TATA ELXI LTD (SUPRA), WE UPHOLD THE ORDER OF THE LD.CIT(A) IN DIRECTING THE ASSESSING OFFICER TO REDUCE EXPENDITURE OF RS.40,37,20,023/ - INCURRED IN FOREIGN CURRENCY FOR SERVICES PROVIDED ABROAD FROM BOTH EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S 10A OF THE ACT. CONSEQUENTLY, THE GROUNDS RAISED AT SL.NO.2 AND 3 BY REVENUE ARE DISMISSED. 6. IN THE RESULT, REVENUE S APPEAL FOR ASSESSMENT YEAR 2010 - 11 IS DISMISSED. PRON OUNCED IN THE OPEN COURT ON 26 TH SEP TEMBER , 201 4. S D/ - SD/ - ( N.V.VASUDEVAN ) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORD ER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE