DCIT 15(3)(1), MUMBAI V. ROAMWARE (INDIA) P.LTD, MUMBAI

ITA 1951/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3278 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 06-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANDHIR GUPTA
• Keywords: Question of law
• Section: 43B; 143(3); 148; 10

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI R.C. SHARMA(AM) AND SHRI SANDEEP GOSAIN (JM) ITA NO. 1951/MUM/2015 ASSESSMENT YEAR: 2007-08 DCIT 15(3)(1) VS. ROAMWARE (INDIA) P. LTD. R.NO. 451 4 TH FLOOR, 7 TH FLOOR, SIGMA HIRANANDANI AAYAKAR BHAVAN, GARDENS, TECHNOLOGY STREET POWA I M.K. ROAD MUMBAI - 400076 MUMBAI- 400020 PAN NO. AAACU4234H & CROSS OBJECTION NO. 107/MUM/2016 (IN ITA NO. 1951/MUM/2015) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. PARAS SARLA MS. KEERTHIGA SHARMA REVENUE BY : SHRI. RANDHIR GUPTA DATE OF HEARING : 28/07/201 6 DATE OF PRONOUNCEMENT : 09/09/2016 O R D ER PER SANDEEP GOSAIN, JM : THE PRESENT APPEAL HAS BEEN FILED BY THE RE VENUE AGAINST THE ORDER OF LD. CIT(A)-24, MUMBAI DT. 05/01/2015 AS WELL AS CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE REVENUE. 2 2. FIRSTLY WE DEAL WITH THE APPEAL OF REVENUE I.E; ITA NO. 1951/MUM/2015. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF COMPUTER SOFTWARE DEVELOPMENT AND SOFTWARE CONSULTA NCY. THE RETURN OF INCOME WAS E-FILED ON 31/10/2007, THE SAME WAS PROC ESSED UNDER SECTION 143(1) OF THE ACT, THEREAFTER ASSESSMENT PROCEEDING UNDER SECTION 143(3) OF THE INCOME TAX ACT WAS COMPLETED ON 12/10/2009, TAKING THE TOTAL INCOME AT RS. 1,44,33,480. FURTHER REASSESSMENT PROCEEDING WERE I NITIATED BY ISSUANCE OF NOTICE UNDER SECTION 148 DT. 29/03/2012 AFTER RECOR DING REASONS FOR REOPENING OF THE ASSESSMENT AND AFTER SERVING STATUTORY NOTICES AND SEEKING REPLY OF THE ASSESSEE, AO PASSED ORDER OF ASSESSMENT UNDER SECTI ON 143(3)(II)R.W.S 147 OF THE INCOME TAX ACT, 1961 ON 28/03/2013 AND ACCORDINGLY RS. 1,49,88,246/- WAS TREATED AS UNREALIZED FOREIGN EXCHANGE AND THE DEDU CTION UNDER SECTION 10A WAS RESTRICTED BY RS. 18,40,104/- FROM THE ACTUAL D EDUCTION UNDER SECTION 10A ALLOWED WHILE PASSING THE ORDER UNDER SECTION 143(3 ) OF THE INCOME TAX ACT DT. 12/10/2009. 4. AGGRIEVED BY THE ORDER OF AO ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) AND THE CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES HAS PARTLY ALLOWED THE APPEAL THEREBY DIRECTING THE AO TO RE C ONSIDER THE DEDUCTION 3 UNDER SECTION 10A ON THE ENHANCED INCOME IN RESPECT OF TWO ITEMS VIS--VIS LEAVE ENCASHMENT AND BONUS. 5. AGGRIEVED BY THE ORDER OF LD. CIT(A) REVENUE HAS FILED THE PRESENT APPEAL BEFORE US ON THE GROUND MENTIONED BELOW: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING THE A.O. TO REWORK THE DEDUCTION U/S 10 A ON THE ENHANCED INCOME ON ACCOUNT OF DISALLOWANCE MADE IN RESPECT OF LEAVE EN CASHMENT AND BONUS. 6. LD. DR APPEARING ON BEHALF OF THE REVENUE SUBMIT TED THAT THE LD. CIT ERRED IN DIRECTING THE AO TO RECONSIDER THE DEDUCTI ON UNDER SECTION 10A ON THE ENHANCED INCOME ON ACCOUNT OF DISALLOWANCE MADE IN RESPECT OF LEAVE ENCASHMENT AND BONUS. LD. DR FURTHER SUBMITTED THAT ON VERIFICATION OR RE CORD AND DETAILS ANNEXED TO THE RETURN OF INCOME FILED UNDER SECTION 139(1) OF THE ACT, THE AO FOUND THAT THE ASSESSEE COMPANY HAS PROVIDED DETAILS OF FOREIGN IN WARD REMITTANCE FROM VARIOUS OVERSEAS PARTIES AND HAS SUBMITTED THAT THE TOTAL AMOUNT RECEIVED AS PER FIRCS STANDS AT RS. 26,50,34,349/-. THE SAID AM OUNT WAS DULY AUDITED THEREFORE THE SAME WAS RELIED UPON. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER PAS SED UNDER SECTION 143(3) R.W.S 147 AND SUBMITTED THAT THE ASSESSEE CLAIMED THAT TH E ENTIRE EXPORT PROCEED HAVE BEEN REALIZED WITH IN THE STIPULATED TIME AS P ER ACT REMAINS UNSUBSTANTIATED. IT WAS FURTHER ARGUED BY LD. DR TH AT THE AO HAS RIGHTLY TREATED 4 THE SUM OF RS. RS. 1,49,88,246/- UNREALIZED FOREIGN REMITTANCE AND RIGHTLY RESTRICTED DEDUCTION UNDER SECTION 10A BY RS. 18,40 ,104/-. 7. ON THE OTHER HAND LD. AR APPEARING ON BEHALF OF THE ASSESSEE AND SUPPORTING THE ORDER PASSED BY THE LD. CIT(A). 8. WE HAVE HEARD LD. REPRESENTATIVE OF BOTH THE PAR TIES AND PERUSED THE MATERIAL ON RECORD PLACED BEFORE US. 9. WE FIND THAT THE LD. CIT(A) HAS DECIDED THE SAID ISSUE IN HIS DETAILED ORDER. THE OPERATIVE PORTION OF THE ORDER IS AS FOLLOWS: 4.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE IMPUGNED ASSESSMENT ORDER. IT IS THE CONTENTION OF THE APPELLANT THAT TO THE EXTENT OF DISALLOWANCE MADE ON ACCOUNT OF ABOVE 2 I TEMS, THE TOTAL INCOME OF THE APPELLANT GOES UP AND CONSEQUENTLY IT IS ENTITL ED FOR ENHANCED DEDUCTION U/S 10A IN VIEW OF ENHANCED PROFITS. IN SUPPORT OF THIS , THE AR OF THE APPELLANT RELIED ON ORDER OF GEM PLUS JEWELLERY INDIA LTD. REPORTED IN 330 ITR 175 AND THE DECISION OF ITAT, HYDERABAD IN THE CASE OF VIRTUSA INDIA PVT . LTD. REPORTED IN 41 TAXAMNN.COM 244. 4.4 THE CIT(A) WHILE ADJUDICATING GROUND OF APPEAL NO. 3 HAD DIRECTED THE AO TO ALLOW ENHANCED DEDUCTION U/S 10A ON THE INCREA SED PROFIT ON ACCOUNT OF DISALLOWANCE MADE BY THE AO TOWARDS CAPITAL EXPENSES AND PROVISION FOR GRATUITY. 4.5 THE QUESTION REFERRED BEFORE THE JURISDICTIONAL HC AND THE RELEVANT PORTION OF THE FINDING IN THE CASE OF GEM PLUS JEWELLERY IN DIA LTD. (SUPRA)IS REPRODUCED HEREUNDER FOR BETTER UNDERSTANDING AND CLARITY. B WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED N DIRECTING THE ASSESSING OFFICER TO GRAN T THE EXEMPTION U/S 10A OF THE ACT ON THE ASSESSED INCOME, WHICH WAS ENHANCED DUE TO D ISALLOWANCE OF EMPLOYERS AS WELL AS EMPLOYEES CONTRIBUTION TOWAR DS PF/ESIC. RE QUESTION B: 11. FOR THE PURPOSES OF THE APPEAL IT IS NECESSARY OT REFER TOT EH ADMITTED POSITION WHICH IS THAT THE ASSESSEE HAD DEPOSITED B OTH THE EMPLOYERS AND THE EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND AND ESIC, THOUGH BEYOND THE DUE DATE INCLUDING THE GRACE PERIOD. THE ASSESSING OFFICER ADDED THESE PAYMENTS TO THE TOTAL INCOME OF THE ASSESSEE AND MA DE AN ADDITION IN TH AMOUNT OF RS. 71.59 LACS. HOWEVER, FOR THE DEDUCTIO N UNDER SECTION 10A, THE ADDITION MADE ON ACCUNT OF THE EMPLOYEES CONTRIBUT ION WAS IGNORED IN CALCULATING THE PROFITS ELIGIBLE FOR DEDUCTION ON T HE GROUND THAT THESE RECEIPTS WERE NOT GENERATED OUT OF THE MANUFACTURING ACTIVIT Y OF THE ASSESSEE COMPANY. 5 12. BY REASON OF THE JUDGMENT OF THE SUPREME COURT IN COMMISSIONER OF INCOME TAX V. ALOM EXTRUSIONS LIMITED THE EMPLOYER S CONTRIBUTION WAS LIABLE TO BE ALLOWED, SINCE IT WAS DEPOSITED BY THE DUE DATE FOR THE FILING OF THE RETURN. THE PECULIAR POSITION, HOWEVER, AS IT OBTAINS IN THE PR ESENT CASE ARISES OUT OF THE FACT THAT THE DISALLOWANCE WHICH WAS EFFECTED BY THE ASS ESSING OFFICER HAS NOT, THE COURT IS INFORMED, BEEN CHALLENGED BY THE ASSESSEE. AS A MATTER OF FACT THE QUESTION OF LAW WHICH IS FORMULATED BY THE REVENUE PROCEEDS ON THE BASIS THAT THE ASSESSED INCOME WAS ENHANCED DUE TO THE DISALLO WANCE OF THE EMPLOYERS AS WELL AS THE EMPLOYEES CONTRIBUTION TOWARDS PROV IDENT FUND / ESIC AND THE ONLY QUESTION WHICH IS CANVASSED ON BEHALF OF THE R EVENUE IS WHETHER ON THAT BASIS THE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE A SSESSING OFFICER TO GRANT THE EXEMPTION UNDER SECTION 10A. ON THIS POSITION IN THE PRESENT CASE IT CANNOT BE DISPUTED THAT THE NET CONSEQUENCE OF THE DISALLOWAN CE OF THE EMPLOYERS AND THE EMPLOYEES CONTRIBUTION IS THAT THE BUSINESS PR OFITS HAVE TO THAT EXTENT BEEN ENHANCED. THERE WAS, AS WE HAVE ALREADY NOTED, AN A DD BACK BY THE ASSESSING OFFICER TO THE INCOME. ALL PROFITS OF THE 4(2009) 31 9 ITR 306 UNIT OF THE ASSESSEE HAVE BEEN DERIVED FROM MANUFACTURING ACTIVITY. THE SALARIES PAID BY THE ASSESSEE, IT HAS NOT BEEN DISPUTED, RELATE TO TEH MANUFACTURING ACTIVITY. THE DISALLOWANCE OF THE PRO VIDENT FUND / ESIC PAYMENTS HAS BEEN MADE BECAUSE OF THE STATUTORY PROVISIONS SECTION 43B IN THE CASE OF THE EMPLOYERS CONTRIBUTION AND SECTN 36(V) READ WI TH SECTION 2(24)(X) IN THE CASE OF THE EMPLOYEES CONTRIBUTION WHICH HAS BEEN DEEME D TO BE THE INCOME OF THE ASSESSEE. THE PLAIN CONSEQUENCE OF THE DISALLOWANCE AND THE ADD BACK THAT HAS BEEN MADE BY THE ASSESSING OFFICER IS AN INCREASE IN THE BUSINESS PROFITS OF THE ASSESSEE. THE CONTENTION OF THE REVENUE THAT IN COM PUTING THE DEDUCTION UNDER SECTION 10A THE ADDITION MADE ON ACCOUNT OF THE DIS ALLOWANCE OF THE PROVIDENT FUND / ESIC PAYMENTS OUGHT TO BE IGNORED CANNOT BE ACCEPTED. NO STATUTORY PROVISION TO THAT EFFECT HAVING BEEN M ADE, THE PLAIN CONSEQUENCE OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER MU ST FOLLOW. THE SECOND QUESTION SHALL ACCORDINGLY STAND ANSWERED AGAINST T HE REVENUE AND IN FAVOUR OF THE ASSESSEE. 4.6 SINCE THE ISSUE IS COVERED BY THE DECISION OF J URISDICTIONAL HC, I DIRECT THE AO TO REWORK THE DEDUCTION U/S 10A ON THE ENHANCED I NCOME ON ACCOUNT OF DISALLOWANCES MADE IN RESPECT OF THE 2 ITEMS VIZ. L EAVE ENCASHMENT AND BONUS. THIS GROUND OF APPEAL IS ALLOWED. FROM THE PERUSAL OF THE AFOREMENTIONED DETAILED ORD ER PASSED BY THE LD. CIT(A) WE FIND THAT THE LD. CIT(A) AFTER CONSIDERING THE F ACT OF THE CASE RELIED UPON THE ORDER OF HIS PREDECESSORS FOR ASSESSMENT YEAR 2007- 08 AND ALSO WHILE RELYING UPON THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF M/S GEM PLUS JEWELLERY INDIA LTD. REPORTED IN 330 ITR 175 AND THE DECISION OF HONBLE HYDERABAD BENCH 6 IN CASE OF VIRTUSA INDIA PVT. LTD. REPORTED IN 41 TAXMANN.COM 244. SINCE THE FACT OF THE PRESENT CASE ARE IDENTICAL WITH THE FACT DIS CUSSED IN THE CASE OF M/S GEM PLUS JEWELLERY INDIA LTD. (SUPRA) DECIDED BY HONBL E JURISDICTIONAL HIGH COURT. FOLLOWING THE ABOVE DISCUSSION WE DISMISSED THE APP EAL OF REVENUE AND CO IS ALSO DISMISSED BY US. 10. IN THE RESULT APPEAL OF THE REVENUE AND CO BY T HE ASSESSEE BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH SEPTEMBER, 2016. SD/- SD/- (R.C. SHARMA) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 09/09/2016 AG (ON TOUR) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY OR DER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI