Appeal details
Counselvise Citation
[2019] 116 COUNSELVISE.COM (IT) 6837 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 1 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-07-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Assessment Year
2011-2012
Appeal Filed On
04-06-2018
Judgement Text
, , IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER & SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 1867/CHNY/2018 / ASSESSMENT YEAR: 2011-12 M/S. HARLAND CLARKE HOLDING SOFTWARE INDIA PRIVATE LIMITED, SUITE 305, DELTA WING, 3 RD FLOOR, RAHEJA TOWERS, 177 ANNA SALAI, CHENNAI 600 002. [PAN:AAHCS4742D] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(2), CHENNAI. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI VIKRAM VIJAYARAGHAVAN, ADVOCATE / RESPONDENT BY : SHRI GURU BASHYAM, JCIT / DATE OF HEARING : 26.06.2019 /DATE OF PRONOUNCEMENT : 26.07.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 13, CHENNAI, DATED 10.11.2017 RELEVANT TO THE ASSESSMENT YEAR 2011-12. THE GROUNDS RAISED IN THE APPEAL OF THE ASSESSEE RELATE TO (I) EXCLUSION OF EXCHANGE FLUCTUATION LOSSES FROM THE EXPORT TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT, (II) EXCLUSION OF OTHER EXPENSES FROM THE EXPORT TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT AND (III) EXCLUSION OF OTHER INCOME IN COMPUTING PROFIT OF THE BUSINESS UNDER SECTION 10A OF THE ACT. I.T.A. NO. 1867/CHNY/18 2 2. THE APPEAL FILED BY THE ASSESSEE IS DELAYED BY 55 DAYS, FOR WHICH, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED A PETITION IN SUPPORT OF AN AFFIDAVIT FOR CONDONATION OF THE DELAY, TO WHICH; THE LD. DR HAS NOT RAISED ANY SERIOUS OBJECTION. CONSEQUENTLY, SINCE THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE, THE DELAY OF 55 DAYS IN FILING OF THE APPEAL STANDS CONDONED AND THE APPEAL IS ADMITTED FOR ADJUDICATION. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 28.11.2011 ADMITTING AN INCOME OF .2,91,51,602 /- UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961[ACT IN SHORT]. THE CASE WAS SELECTED FOR SCRUTINY. FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS SHOWN FOREIGN EXCHANGE LOSS FOR .25,63,249/- AND THE SAME IS NOT EXCLUDED FROM THE EXPORT TURNOVER. THE ASSESSING OFFICER OBSERVED THAT SUCH LOSS DO NOT CONSTITUTE EXPORT TURNOVERS. MOREOVER, DEDUCTION UNDER SECTION 10A OF THE ACT IS DIRECTLY LINKED TO THE FOREIGN EXCHANGE EARNED AND THEREFORE, IF THERE IS ANY REDUCTION IN THE REALIZATION OF FOREIGN EXCHANGE, THE SAME HAS TO BE REDUCED FROM EXPORT TURNOVER. AT THE SAME TIME, THE TOTAL TURNOVER IS BASED ON THE BOOKS, NO CORRESPONDING DEDUCTION WAS ALLOWED FROM THE TOTAL TURNOVER IN VIEW OF THE DECISION IN THE CASE OF M/S. FINANCIAL SOFTWARE SYSTEMS (P) LIMITED V. DCIT, ITA NO.2199/MDS/2013. THE ASSESSING OFFICER ALSO DISALLOWED FOREIGN TRAVEL EXPENSES OF .12,11,167/- AND COMMUNICATION I.T.A. NO. 1867/CHNY/18 3 EXPENSES OF .16,78,745/- AND THE SAME HAS BEEN REDUCED FROM THE EXPORT TURNOVER ON THE GROUND THAT SUCH EXPENSES ARE ATTRIBUTABLE TO DEVELOPMENT OF BUSINESS AND TECHNICAL SERVICES PROVIDED OUTSIDE INDIA. THE SAME HAS BEEN NOT REDUCED FROM THE TOTAL TURNOVER IN COMPUTING THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT AND ASSESSED THE INCOME AT .16,68,297/- UNDER THE NORMAL TAX RATE AND ARRIVED TO A BOOK PROFIT AT .2,91,51,602/- UNDER SECTION 115JB OF THE ACT. THE ASSESSEE CARRIED THE MATTER IN APPEAL. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) DISMISSED THE APPEAL. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. WITH REGARD TO THE ISSUE OF EXCLUSION OF EXCHANGE FLUCTUATION LOSS FROM EXPORT TURNOVER, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT IF EXCHANGE FLUCTUATION LOSSES ARE EXCLUDED FROM THE EXPORT TURNOVER, THEN SUCH LOSSES SHOULD BE EXCLUDED FROM THE TOTAL TURNOVER AS WELL IN VIEW OF THE DECISION IN THE CASE OF CIT V. HCL TECHNOLOGIES LTD. [93 TAXMANN.COM 33](SC). THUS, THE LD. COUNSEL FOR THE ASSESSEE HAS PRAYED THAT BOTH THE EXCHANGE FLUCTUATION LOSSES AS WELL AS OTHER EXPENSES EXCLUDED FROM THE EXPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. I.T.A. NO. 1867/CHNY/18 4 5. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WITH REGARD TO THE EXCLUSION OF EXCHANGE FLUCTUATION LOSSES FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER, WE HAVE PERUSED THE CASE LAW RELIED ON BY THE LD. COUNSEL IN THE CASE OF CIT V. HCL TECHNOLOGIES LTD. (SUPRA), WHEREIN, THE HONBLE SUPREME COURT HAS OBSERVED AND HELD THAT I F DEDUCTIONS ON FREIGHT, TELECOMMUNICATION AND INSURANCE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE UNDER SECTION 10A OF THE ACT ARE ALLOWED ONLY IN EXPORT TURNOVER BUT NOT FROM THE TOTAL TURNOVER THEN, IT WOULD GIVE RISE TO INADVERTENT, UNLAWFUL, MEANINGLESS AND ILLOGICAL RESULT WHICH WOULD CAUSE GRAVE INJUSTICE TO THE ASSESSEE WHICH COULD HAVE NEVER BEEN THE INTENTION OF THE LEGISLATURE AS THE OBJECT OF THE FORMULA IS TO ARRIVE AT THE PROFIT FROM EXPORT BUSINESS, EXPENSES EXCLUDED FROM EXPORT TURNOVER HAVE TO BE EXCLUDED FROM TOTAL TURNOVER ALSO. OTHERWISE, ANY OTHER INTERPRETATION MAKES THE FORMULA UNWORKABLE AND ABSURD. HOWEVER, WE FIND THAT IN THAT CASE THE CLAIM WAS MADE UNDER NORMAL PROVISIONS ONLY AND NOT UNDER SECTION 115JB OF THE ACT. 5.1 ADMITTEDLY, IN THIS CASE THE ASSESSEE HAS SHOWN FOREIGN EXCHANGE LOSS AND THE SAME WERE NOT EXCLUDED FROM THE EXPORT TURNOVER. ACCORDING TO THE ASSESSING OFFICER SUCH LOSS DOES NOT CONSTITUTE EXPORT TURNOVERS. MOREOVER, DEDUCTION UNDER SECTION 10A OF THE ACT IS DIRECTLY LINKED TO THE FOREIGN EXCHANGE EARNED AND THEREFORE, IF THERE IS ANY REDUCTION IN THE I.T.A. NO. 1867/CHNY/18 5 REALIZATION OF FOREIGN EXCHANGE, THE SAME HAS TO BE REDUCED FROM EXPORT TURNOVER. HOWEVER, SINCE THE TOTAL TURNOVER WAS BASED ON THE BOOKS, THE ASSESSING OFFICER HAS NOT ALLOWED CORRESPONDING DEDUCTION FROM THE TOTAL TURNOVER, WHICH WAS CONFIRMED BY THE LD. CIT(A). THOUGH IT IS AN ALLOWABLE CLAIM AS A DEDUCTION WHILE COMPUTING THE TOTAL INCOME UNDER NORMAL PROVISION, IT SHOULD BE ADDED BACK TO COMPUTE BOOK PROFITS, IF DEBITED TO P&L ACCOUNT. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND THUS, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 6. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CARRIED ON THE BUSINESS OF EXPORT OF COMPUTER SOFTWARE AT ITS STPI UNIT AND CLAIMED DEDUCTION OF THE PROFITS EARNED UNDER SECTION 10A OF THE ACT AT .3,42,21,204/-. THE ASSESSEE HAS INCURRED AN EXPENDITURE OF .12,11,167/- TOWARDS FOREIGN TRAVEL EXPENSES AND .16,78,745/- TOWARDS COMMUNICATION EXPENSES PERTAINING TO DEVELOPMENT OF BUSINESS. THE ASSESSING OFFICER HAS HELD THAT THE EXPENSES INCURRED IN FOREIGN CURRENCY ATTRIBUTABLE TO THE DELIVERY OF BUSINESS HAS TO BE REDUCED FROM THE EXPORT TURNOVER ONLY AND NOT FROM THE TOTAL TURNOVER FOR THE PURPOSES OF CALCULATING EXEMPTION UNDER SECTION 10A OF THE ACT AND WHILE HOLDING SO, THE ASSESSING OFFICER HAS NOT FOLLOWED THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ITO V. SAK SOFT LTD. 313 ITR 353 (SB) ON THE GROUND I.T.A. NO. 1867/CHNY/18 6 THAT THE DEPARTMENT PREFERRED FURTHER APPEAL BEFORE THE HIGH COURT. IN THE CASE OF ITO V. SAK SOFT LTD. (SUPRA), THE TRIBUNAL HAS HELD THAT THE FOREIGN TRAVEL EXPENDITURE, WHICH HAS BEEN REDUCED FROM THE EXPORT TURNOVER, IS ALSO TO BE REDUCED FROM THE TOTAL TURNOVER. AGAINST THE ORDER OF THE TRIBUNAL, THE LD. DR COULD NOT CONTROVERT BY FILING ANY HIGHER COURT ORDER HAVING MODIFIED OR REVERSED THE ORDER OF THE TRIBUNAL. MOREOVER, THE DISALLOWANCE OF COMMUNICATION EXPENSES IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DECISION IN THE CASE OF CIT V. HCL TECHNOLOGIES LTD. (SUPRA). ACCORDINGLY, IN VIEW OF THE ABOVE DECISIONS, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE FOREIGN TRAVEL EXPENDITURE AS WELL AS COMMUNICATION EXPENSES BOTH FROM EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 7. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS NOT ADJUDICATED THE ISSUE OF EXCLUDING OTHER INCOME AMOUNTING TO .1,69,761/- FROM THE PROFIT OF THE BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. BEFORE THE LD. CIT(A), THE ASSESSEE HAS RAISED FOLLOWING SPECIFIC GROUNDS, WHICH WERE REPRODUCED AT PAGE 15 & 16 OF THE APPELLATE ORDER AND THE SAME ARE REPRODUCED HEREUNDER: GROUND NO. 9: THE LEARNED AO HAS ERRED IN EXCLUDING OTHER INCOME AMOUNTING TO .1,69,761 FROM PROFIT OF THE BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. I.T.A. NO. 1867/CHNY/18 7 GROUND NO. 10: ON ACCOUNT OF THE ADJUSTMENT MADE TO THE RETURNED INCOME, THE LEARNED AO HAS ERRED IN REDUCING THE MAT CREDIT TO BE CARRIED FORWARD. GROUND NO. 11: THE LEARNED AO OUGHT TO HAVE GRANTED THE MINIMUM ALTERNATE TAX CREDIT UNDER SECTION 115JAA OF THE ACT ON THE AMOUNT OF TAX INCLUDING SURCHARGE AND CESS. 8. HOWEVER, WE FIND THAT THE LD. CIT(A) HAS NOT ADJUDICATED THE ABOVE GROUNDS RAISED BY THE ASSESSEE. ACCORDINGLY, WE REMIT THE MATTERS BACK TO THE FILE OF THE LD. CIT(A) FOR ADJUDICATION IN ACCORDANCE WITH LAW AFTER ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 26 TH JULY, 2019 IN CHENNAI. SD/ - SD/ - (S. JAYARAMAN) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 26.07.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.
