ACIT, CHENNAI V. M/s. Polaris Software Labs Ltd., CHENNAI

ITA 1827/CHNY/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0883 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-01-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 27-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH CHENNAI BEFORE DR. O. K. NARAYANAN, VICE PRESIDENT AND SHRI V. DURGA RAO, JUDICIAL MEMBER ------- ITA NOS. 1703 & 1731/MDS/2010 ASSESSMENT YEARS : 2004-05 & 2005-06 M/S. POLARIS SOFTWARE LAB LTD., POLARIS HOUSE, 244, ANNA SALAI, CHENNAI-600 006. V. THE ADDL. COMMISSIONER OF INCOME-TAX, COMPANY RANGE-V, CHENNAI. (PAN : AAACP4314E) A N D ITA NOS. 1826 & 1827/MDS/2010 ASSESSMENT YEARS : 2004-05 & 2005-06 THE ASST. COMMISSIONER V. M/S. POLA RIS SOFTWARE LAB OF INCOME TAX, LTD. , POLARIS HOUSE, COMPANY CIRCLE-V(2), 244, AN NA SALAI, CHENNAI. C HENNAI 600 006. (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE DEPARTMENT BY : SHRI GURU BASHYAM, JCIT DATE OF HEARING : 21.0 1.2013 DATE OF PRONOUNCEMENT : 21.01.201 3 ITA NOS. 1703,1731,1826 & 1827/MDS/2010 : 2 : O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THESE CROSS APPEALS BY THE ASSESSEE AND THE REVEN UE ARE DIRECTED AGAINST THE ORDERS OF THE CIT(APPEALS) -V, CHENNAI FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06. AS C OMMON ISSUES ARE INVOLVED IN THESE APPEALS, THEY WERE HEA RD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. IN THE APPEALS FILED BY THE ASSESSEE THE FACTS I N BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINES S OF SOFTWARE DEVELOPMENT. THE ASSESSEE FILED A RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004-05 DECLARING 19,09,26, 230/-. INITIALLY THE RETURN WAS PROCESSED U/S 143(1) OF TH E INCOME TAX ACT, 1961 ('THE ACT' FOR SHORT). SUBSEQUENTLY, A NOTICE UNDER SECTION 143(2) WAS ISSUED AND THE CASE WAS RE FERRED TO THE TRANSFER PRICING OFFICER IN ACCORDANCE WITH THE PROVISIONS OF SEC. 92CA OF THE ACT. THE ASSESSMENT WAS COMPLE TED ON 29-12-2006 COMPUTING THE TOTAL INCOME AT ` 46,64,59,708/-. 3. FOR THE ASSESSMENT YEAR 2005-06 THE ASSESSEE FIL ED ITS RETURN OF INCOME ON 24-10-2005 DECLARING TOTAL INCO ME OF ` 15,01,40,760/-. THE RETURN WAS PROCESSED U/S 143(1 ) OF THE ITA NOS. 1703,1731,1826 & 1827/MDS/2010 : 3 : ACT AND SUBSEQUENT NOTICE U/S 143(2) WAS ISSUED. T HE CASE WAS REFERRED TO THE TRANSFER PRICING OFFICER IN ACC ORDANCE WITH THE PROVISIONS OF SECTION 92CA OF THE ACT. THE ASS ESSMENT WAS COMPLETED ON 26.12.2008 COMPUTING THE TOTAL INC OME AT ` 25,68,43,267/-. 4. THE ISSUE RAISED BY THE ASSESSEE IN BOTH THE APP EALS RELATES TO THE EXCLUSION OF FOREIGN CURRENCY FROM E XPORT TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTIO N 10A AND 80HHE OF THE ACT. THE CONTENTION OF THE ASSESS EE BEFORE THE ASSESSING OFFICER AS WELL AS THE CIT(APPEALS) W AS THAT THE ASSESSEE WAS NOT ENGAGED IN RENDERING TECHNICAL SER VICES AND THE BUSINESS WAS PURELY IN THE NATURE OF SOFTWARE D EVELOPMENT AND THEREFORE THE FOREIGN EXPENDITURE SHOULD NOT HA VE BEEN EXCLUDED FROM THE EXPORT TURNOVER. THE CIT(APPEALS ) BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSES SEES OWN CASE FOR THE ASSESSMENT YEARS 2001-02 TO 2003-04 DE CIDED THE ISSUE AGAINST THE ASSESSEE AND DISMISSED THE GROUND S RAISED BY THE ASSESSEE. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE F AIRLY CONCEDED THAT THE ISSUE RAISED BY HIM IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE WHICH WAS ITA NOS. 1703,1731,1826 & 1827/MDS/2010 : 4 : AGAINST THE ASSESSEE. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL, FIND NO INFIRMITY IN THE ORDERS PASSED BY THE CIT(APPEALS). ACCORDINGLY, THIS GROUND RAIS ED BY THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS UNDER CONSID ERATION IS DISMISSED. 6. THE NEXT GROUND RAISED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 RELATES TO THE TREATMENT OF INTEREST INCOME. THE ASSESSEE HAS RECEIVED INTEREST INCOME EARNED FROM THE DEPOSITS AND THE ASSESSING OFFICER HAS TRE ATED THE SAME AS INCOME FROM OTHER SOURCES. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(APPEALS) AND SU BMITTED THAT THE INTEREST INCOME HAD ACCRUED ON FIXED DEPOS ITS WHICH HAD BEEN MADE AS PER THE INSISTENCE OF BANKERS AS A COLLATERAL SECURITY FOR OVERDRAFT FACILITY. IT WAS SUBMITTED THAT THE DEPOSITS HAVING BEEN MADE FOR THE REASON OF COMMERC IAL EXPEDIENCY, HAVE A DIRECT AND IMMEDIATE NEXUS WITH THE BUSINESS ACTIVITY AND THIS BEING THE CASE, THE BENE FIT OF DEDUCTION U/S 10A OUGHT TO BE GIVEN TO THE INTEREST INCOME ALSO. THE CIT(APPEALS) AFTER CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE OBSERVED THAT THERE WAS NO DIRECT NEXU S BETWEEN THE INTEREST INCOME EARNED BY THE ASSESSEE AND THE BUSINESS ITA NOS. 1703,1731,1826 & 1827/MDS/2010 : 5 : OF THE ASSESSEE. HE ACCORDINGLY DISMISSED THIS GR OUND RAISED BY THE ASSESSEE. 7. ON BEING AGGRIEVED THE ASSESSEE HAS CARRIED THE MATTER BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT EVEN IF THERE IS NO NEXUS BETWEEN TH E INTEREST INCOME EARNED BY THE ASSESSEE AND THE BUSINESS OF T HE ASSESSEE, AT LEAST THE EXPENSES INCURRED TO EARN TH E INTEREST INCOME MAY BE ALLOWED. 8. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECORD S AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ASSESSEE HAS KEPT THE DEPOSITS WITH THE BAN K AND EARNED SOME INTEREST INCOME. THIS INTEREST HAS NOT HING TO DO WITH THE BUSINESS OF THE ASSESSEE. THEREFORE, WE F IND NO INFIRMITY IN THE ORDER OF THE CIT(APPEALS) THAT THE RE IS NO NEXUS BETWEEN THE INTEREST INCOME AND THE BUSINESS OF THE ASSESSEE. HOWEVER, IF THE ASSESSEE IS IN A POSITIO N TO PRODUCE EVIDENCE TO SHOW THAT IT HAD INCURRED SOME EXPENDIT URE TO EARN THE INTEREST INCOME, THE ASSESSING OFFICER MAY CONSIDER THE SAME AND DECIDE THE ISSUE ACCORDINGLY. THIS GRO UND OF ITA NOS. 1703,1731,1826 & 1827/MDS/2010 : 6 : APPEAL RAISED BY THE ASSESSEE IS THEREFORE PARTLY A LLOWED FOR STATISTICAL PURPOSES. 10. COMING TO THE APPEALS FILED BY THE REVENUE FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06, THE GROUND RA ISED BY THE REVENUE RELATES TO EXCLUSION OF FOREIGN CURRENC Y EXPENSES NOT RELATED TO ONSITE SOFTWARE DEVELOPMENT FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A AND 80HHE OF THE ACT. THE CASE OF THE ASSESSEE IS THAT FOREIGN EXPENDITURE WHICH HAS BEEN INCURRED ON ON-SITE SOFT WARE DEVELOPMENT ACTIVITY SHOULD NOT BE EXCLUDED FROM TH E EXPORT TURNOVER. FOR THE ASSESSMENT YEAR 2004-05 THE ASSE SSEE HAS CLAIMED THAT THE FOLLOWING EXPENSES ARE NOT DIRECTL Y CONNECTED WITH THE SOFTWARE DEVELOPMENT AND EXPORT AND THEREF ORE SHOULD NOT BE EXCLUDED FROM EXPORT TURNOVER. THE N ATURE OF THE EXPENDITURE IS GIVEN BELOW AS GIVEN BY THE CIT( APPEALS) IN PARA 5.2 AT PAGE NO.4 OF HIS ORDER: NATURE OF EXPENSE RELATING TO RELATING TOTAL 10A TO 80HHE CONSULTANCY AND PROFESSIONAL CHARGES 30,043,747 22,247,579 52,291,326 TRAINING EXPENSES 1,685,777 1,248,328 2, 934,105 SPONSORSHIP EXPENSES 12,095,474 8,956,773 21,052,247 MEMBERSHIP AND SUBSCRIPTION CHARGES 280,914 208,0 19 488,933 ITA NOS. 1703,1731,1826 & 1827/MDS/2010 : 7 : BUSINESS PROMOTION 6,251,467 4,629,250 10,880,717 EXPENSES THE CIT(APPEALS) BY FOLLOWING THE DECISION IN THE C ASE OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2001-02, 2002-03 AND 2003-04 ALLOWED THE SAME. WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE CIT(APPEALS). ACCORDINGLY, THE REVEN UES APPEALS ON THIS GROUND FOR THE ASSESSMENT YEARS 200 4-05 AND 2005-06 ARE DISMISSED. 11. IN THE RESULT, ASSESSEES APPEAL FOR ASSESSMENT YEAR 2004-05 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2005-06 I S DISMISSED. THE REVENUES APPEALS FOR BOTH THE ASSE SSMENT YEARS UNDER CONSIDERATION STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON THE 21 ST OF JANUARY, 2013, AT CHENNAI. SD/- SD/- (DR. O. K. NARAYANAN) (V.DURGA RAO) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 21 ST JANUARY, 2013. H. COPY TO: ASSESSEE/AO/CIT(A)/CIT/D.R./GUARD FILE