DCIT, CHENNAI V. Data Software Research Company (P) Ltd., CHENNAI

ITA 1837/CHNY/2014

• Counselvise Citation: 183721714 RSA 2014
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 21-05-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 26-06-2014
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: VIKARAM VIJAYARAGHAVAN
• Keywords: Depreciation
• Section: 14A; 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NOS.1837 & 1838/MDS/2014 / ASSESSMENT YEARS : 2006-07 AND 2009-10 THE DY. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(4) CHENNAI VS. M/S DATA SOFTWARE RESEARCH COMPANY (P) LTD KASTURI TOWERS NO.6, SMITH ROAD CHENNAI 600 002 [PAN AAACD 1271 H] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI N. MADHAVAN, JCIT /RESPONDENT BY : SHRI VIKARAM VIJAYARAGHAVAN, ADVOCATE / DATE OF HEARING : 21 - 05 - 2015 ! / DATE OF PRONOUNCEMENT : 17 - 0 7 - 2015 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAI NST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, CHENNAI, DATED 17.3.2014, AND PERTAIN TO ASSESSMEN T YEARS 2006-07 AND 2009-10. SINCE COMMON ISSUES ARISE FOR CONSID ERATION IN BOTH THE ITA NOS.1837 & 1838/14 :- 2 -: APPEALS, WE HEARD THEM TOGETHER AND DISPOSE OF THE SAME BY THIS COMMON ORDER. 2. THE FIRST GROUND OF APPEAL IS WITH REGARD TO CLAIM OF THE ASSESSEE U/S 10B OF THE ACT. 3. SHRI N. MADHAVAN, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE MADE A CLAIM U/S 10B OF THE ACT IN THE RETURN OF INCOME. THE ASSESSING OFFICER FOUND THAT NO CERTIFICATE WAS PRODUCED FROM THE BOARD OF APPROVAL FOR CLAIMING DE DUCTION U/S 10B OF THE ACT. THEREFORE, THE ASSESSING OFFICER DISAL LOWED THE CLAIM OF THE ASSESSEE. HOWEVER, THE CIT(A), ON THE BASIS OF THE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS HEA RTLAND KG INFORMATION LTD, [2013]359 ITR 1, ALLOWED THE CLAIM OF THE ASSESSEE. ACCORDING TO THE LD. DR, IN VIEW OF THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF M/S GOETZE (INDIA) LTD VS CIT, 284 ITR 323, THE DEDUCTION WHICH WAS NOT CLAIMED IN THE RETURN OF IN COME OUGHT NOT TO HAVE BEEN ALLOWED BY THE CIT(A). 4. ON THE CONTRARY, SHRI VIKRAM VIJAYARAGHAVAN, LD. CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE CLAIM OF THE ASSES SEE U/S 10B WAS DISALLOWED BY THE ASSESSING OFFICER, THEREFORE, THE ASSESSEE MADE AN ALTERNATIVE CLAIM U/S 10A BEFORE THE CIT(A). THE CIT(A) BY FOLLOWING THE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT IN HE ARTLAND KG ITA NOS.1837 & 1838/14 :- 3 -: INFORMATION LTD(SUPRA) ALLOWED THE CLAIM OF THE AS SESSEE. BY PLACING RELIANCE ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN CIT VS VALIANT COMMUNICATIONS LTD. IN I.T.A.NO.438/2012 DA TED 4.1.2013, THE LD. COUNSEL SUBMITTED THAT ON IDENTICAL CIRCUMSTANC ES, THE HON'BLE DELHI HIGH COURT DIRECTED THE TRIBUNAL TO CONSIDER THE ALTERNATIVE CLAIM OF THE ASSESSEE U/S 10A OF THE ACT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. T HE CLAIM OF THE ASSESSEE THAT DEDUCTION U/S 10B WAS REJECTED BY TH E ASSESSING OFFICER ON THE GROUND THAT THE APPROVAL FROM THE BOARD AS REQUIRED UNDER THE PROVISIONS OF SECTION 10B WAS NOT OBTAINED. THEREF ORE, THE ASSESSEE MADE AN ALTERNATIVE CLAIM U/S 10A OF THE ACT. TH E ONLY CONTENTION OF THE LD. DR IS THAT THE ASSESSEE CANNOT MAKE A CLAI M UNLESS THE SAME WAS MADE IN THE RETURN OF INCOME. WE HAVE GONE THR OUGH THE JUDGMENT OF THE APEX COURT IN M/S GOETZE (INDIA) L TD (SUPRA). THE APEX COURT FOUND THAT FOR THE PURPOSE OF MAKING A C LAIM, THE SAME HAS TO BE MADE IN THE RETURN OF INCOME. IN THE VER Y SAME JUDGMENT, THE APEX COURT FOUND THAT HOWEVER, IT WILL NOT DEPR IVE THE AUTHORITY OF THE TRIBUNAL TO ENTERTAIN ADDITIONAL GROUND OR ALTE RNATIVE GROUND. THEREFORE, WHEN THE ASSESSEE IS ELIGIBLE FOR ALTER NATIVE CLAIM U/S 10A, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. THIS TRIBUNAL DO NOT FIND ANY ITA NOS.1837 & 1838/14 :- 4 -: INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THE SAME IS CONFIRMED. 6. THE NEXT ISSUE IS WITH REGARD TO SETTING OFF OF LOS SES OF NON 10B UNIT AGAINST PROFITS OF 10B UNIT. 7. SHRI N. MADHAVAN, LD. DR SUBMITTED THAT BY PLACING RELIANCE ON THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL I N THE CASE OF SCIENTIFIC ATLANDA TEC P. LTD., 129 TTJ 273, THE CI T(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE. ACCORDING TO THE LD. DR, T HIS TRIBUNAL IN SWORD GLOBAL (I) P. LTD, 306 ITR (AT) 286, CONSIDERED AN IDENTICAL ISSUE AND FOUND THAT BROUGHT FORWARD LOSSES AND DEPRECIATION WERE FIRST REQUIRED TO BE SET OFF AGAINST THE BUSINESS PROFITS OF THE C URRENT YEAR BEFORE COMPUTING ANY DEDUCTION U/S 10A/10B OF THE ACT. I N VIEW OF THE DECISION OF THIS TRIBUNAL IN SWORD GLOBAL (I) P. LTD. (SUPRA), ACCORDING TO THE LD. DR, THE BROUGHT FORWARD LOSSES AND DEPRE CIATION ARE TO BE FIRST SET OFF. 8. ON THE CONTRARY, SHRI VIKRAM VIJAYARAGHAVAN, LD. CO UNSEL FOR THE ASSESSEE SUBMITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE SPECIAL BENCH OF THIS TRIBUNAL IN SCIENTIFIC ATLAND A TEC P. LTD. (SUPRA) AND FOUND THAT FOR ALLOWING DEDUCTION U/S 10B BROU GHT FORWARD LOSSES AND DEPRECIATION NEED NOT BE SET OFF. ITA NOS.1837 & 1838/14 :- 5 -: 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE SPECIAL BENCH OF THIS TRIBUNAL IN SCIENTIFIC ATLANDA TEC P. LTD.(SU PRA) FOUND THAT THE BROUGHT FORWARD LOSSES AND DEPRECIATION NEED NOT BE SET OFF FOR COMPUTING DEDUCTION U/S 10B OF THE ACT. WE HAVE A LSO GONE THROUGH THE ORDER OF THIS TRIBUNAL IN SWORD GLOBAL (I) P. L TD. (SUPRA). THIS DECISION WAS DELIVERED BY A DIVISION BENCH OF THIS TRIBUNAL. THEREFORE, THIS TRIBUNAL HAS TO PREFER A LARGER BENCH DECISION IN THE CASE OF SCIENTIFIC ATLANDA TEC P. LTD(SUPRA). SINCE THE CI T(A) HAS FOLLOWED THE DECISION OF LARGER BENCH, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONF IRMED. 10. THE NEXT ISSUE IS WITH REGARD TO EXCLUSION OF FOREI GN TRAVEL AND COMMUNICATION EXPENSES FROM THE EXPORT TURNOVER . 11. SHRI N. MADHAVAN, THE LD. DR SUBMITTED THAT THE ASS ESSING OFFICER EXCLUDED THE FOREIGN TRAVEL AND COMMUNICATI ON EXPENSES FROM THE EXPORT TURNOVER. HOWEVER, ON APPEAL BY THE AS SESSEE, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE SAME FROM THE TOTAL TURNOVER ALSO BY PLACING RELIANCE ON THE DECISION O F THE SPECIAL BENCH OF THIS TRIBUNAL IN SAK SOFT LTD, 121 TTJ 865. ACC ORDING TO THE LD. DR, THE REVENUE HAS ALREADY FILED AN APPEAL BEFORE THE HON'BLE MADRAS ITA NOS.1837 & 1838/14 :- 6 -: HIGH COURT AGAINST THIS ORDER OF THE SPECIAL BENCH AND THE SAME IS PENDING. 12. WE HEARD SHRI VIKRAM VIJAYARAGHAVAN, LD. COUNSEL AL SO. 13. IT IS NOT IN DISPUTE THAT THE FOREIGN TRAVEL AND CO MMUNICATION EXPENSES WERE INCLUDED IN THE TOTAL TURNOVER. ONCE IT WAS INCLUDED IN THE TOTAL TURNOVER, IN VIEW OF THE DECISION OF SPEC IAL BENCH IN SAK SOFT LTD. (SUPRA), THE SAME ARE ALSO TO BE INCLUDED IN T HE EXPORT TURNOVER. THE SPECIAL BENCH IN SAK SOFT LTD FOUND THAT THE DE NOMINATOR AND NUMERATOR SHALL BE OF THE SAME FACTOR. THE CIT(A) HAS FOLLOWED THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL, THE REFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LOWER AUTHORITY. ACC ORDINGLY, THE SAME IS CONFIRMED. 14. THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE U/S 14A OF THE ACT. 15. SHRI N. MADHAVAN, LD. DR SUBMITTED THAT THE ASSESSI NG OFFICER DISALLOWED 10% OF THE DIVIDEND INCOME U/S 14A ON THE GROUND THAT THE EXPENDITURE WAS RELATABLE TO EXEMPTED INCO ME. HOWEVER, THE CIT(A) HAS DELETED THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER. ACCORDING TO THE LD. DR, THE EXPENDITURE RELATABLE TO EXEMPTED INCOME HAS TO BE COMPUTED UNDER RULE 8D. ITA NOS.1837 & 1838/14 :- 7 -: 16. ON THE CONTRARY, SHRI VIKRAM VIJAYARAGHAVAN, LD. CO UNSEL SUBMITTED THAT RULE 8D WAS INCORPORATED IN THE STAT UTE FROM ASSESSMENT YEAR 2008-09. THEREFORE, RULE 8D IS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER DISALLOWED 10% OF THE EXPENDITURE RELATING TO EXEMP TED INCOME. REFERRING TO THE JUDGMENT OF THE HON'BLE MADRAS HIG H COURT IN M/S SIMPSON & CO. LTD VS THE DY. CIT, TAX CASE (APPEA L) NO.2621 OF 2006 DATED 15.10.2012, THE LD. COUNSEL SUBMITTED TH AT ON IDENTICAL CIRCUMSTANCES, THE HON'BLE MADRAS HIGH COURT DISALL OWED 2% OF THE DIVIDEND INCOME. THEREFORE, THE LD. COUNSEL SUBMIT TED THAT 2% OF THE DIVIDEND INCOME MAY BE DISALLOWED INSTEAD OF 10% DI SALLOWED BY THE ASSESSING OFFICER. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER ADMITTEDLY, DISALLOWED 10% OF THE DIVIDEND INCOME. HOWEVER, THE CIT(A) DELETED THE SAME . BY PLACING RELIANCE ON T HE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT IN M/S SIMPSON & CO. LTD. (SUPRA), THE LD. COUNSEL SUBMITTED THAT 2% OF THE DIVIDEND INCOME MA Y BE DISALLOWED. BY FOLLOWING THE JUDGMENT OF THE HON'BLE MADRAS HIG H COURT IN SIMPSON & CO. LTD(SUPRA), THE ASSESSING OFFICER IS DIRECTED TO DISALLOW 2% OF THE DIVIDEND INCOME AS EXPENDITURE RELATABLE TO EXEMPTED ITA NOS.1837 & 1838/14 :- 8 -: INCOME. THE ORDER OF THE CIT(A) IS SET ASIDE AND T HE ASSESSING OFFICER IS DIRECTED TO DISALLOW ONLY 2% INSTEAD OF 10% OF T HE DIVIDEND INCOME. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IN I.T.A.N O. 1837/MDS/2014 IS PARTLY ALLOWED WHEREAS I.T.A.NO.18 38/MDS/2014 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH OF JULY, 2015, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 17 TH JULY, 2015 RD &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF