M/s. MPS Limited, CHENNAI V. ACIT, CHENNAI

ITA 1972/CHNY/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68869 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 08-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Keywords: Transfer pricing; Rectification of order; International transaction; Avoidance of tax
• Section: 143(3); 92E; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. 1972/MDS/2011 (ASSESSMENT YEAR: 2007-08) M/S. MPS LIMITED, (FORMERLY KNOWN AS MACMILAN INDIA LTD.) 27, G.N.CHETTY ROAD,T.NAGAR, CHENNAI-600 017. PAN: AAACM2432L VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-IV(1) CHENNAI-600 034. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. VIKRAM VIJAYARAG HAVAN, ADVOCATE RESPONDENT BY : MR. P.B.SEKARAN, CIT DATE OF HEARING : 29 TH OCTOBER, 2013 DATE OF PRONOUNCEMENT : 10 TH DECEMBER, 2013 O R D E R PER CHALLA NAGENDRA PRASAD, JM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPAN Y CIRCLE, CHENNAI PASSED UNDER SECTION 143(3) READ WI TH SECTION 144C(8) READ WITH SECTION 92CA(3) OF THE AC T ON THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL. 2. THE FIRST ISSUE IN THE GROUNDS OF APPEAL NO.2.1 TO 2.4 IS WITH REGARD TO CHALLENGING THE VALIDITY OF DRAFT AS SESSMENT ITA NO.1972/MDS//2011 2 ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT. 3. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT IT WA S THE CONTENTION OF THE ASSESSEE THAT SINCE THERE IS NO T RANSFER PRICING ADJUSTMENT PROPOSED BY THE TRANSFER PRICIN G OFFICER IN HIS ORDER, THE ASSESSING OFFICER CANNOT PASS DRA FT ASSESSMENT ORDER UNDER SECTION 144C READ WITH SECTI ON 143(3) OF THE ACT. THE COUNSEL FOR THE ASSESSEE FAI RLY CONCEDES THAT THIS ISSUE IS COVERED AGAINST THE ASS ESSEE BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN THE CASE OF VISUAL GRAPHICS COMPUTING SERVICES (INDIA) P.LTD. VS. ACIT (15 ITR (TRIB) 393 (CHENNAI). RESPECTFULLY FOL LOWING THE ABOVE ORDER OF THE COORDINATE BENCH OF THIS TRIBUNA L, WE DISMISS GROUNDS 2.1 TO 2.4 OF THE ASSESSEE CHALLENG ING THE VALIDITY OF DRAFT ASSESSMENT ORDER UNDER SECTION 14 3(3) READ WITH SECTION 144C OF THE ACT. 4. GROUNDS 3.1 TO 3.2 ARE GENERAL GROUNDS OBJECTING TO THE RESTRICTION OF DEDUCTION UNDER SECTION 10B OF THE A CT. GROUNDS ITA NO.1972/MDS//2011 3 3.3.1 TO 3.3.9 ARE RAISED OBJECTING TO THE ACTION O F THE ASSESSING OFFICER IN ADJUSTING/RESTRICTING THE CLAI M OF DEDUCTION UNDER SECTION 10B ON THE BASIS OF ARMS L ENGTH PRICE DETERMINED BY THE TRANSFER PRICING OFFICER. 5. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT ARMS LENGTH PRICE CANNOT BE A BASIS TO INVOKE SECTION 10B(7) R EAD WITH SECTION 80IA(10) OF THE ACT AS HELD BY THE CO-ORDI NATE BENCH OF THIS TRIBUNAL IN THE CASES OF TWEEZERMAN (INDIA ) P.LTD. VS. ACIT., (4 ITR (TRIB) 130) AND VISUAL GRAPHICS COMPU TING SERVICES (INDIA) P.LTD. (SUPRA). THE COUNSEL SUBMIT S THAT THIS ISSUE IS SQUARELY COVERED BY THE AFORESAID DECISION S. THE COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT TRANS FER PRICING PROVISIONS ARE A SEPARATE CODE AND RESTRICTED TO C HAPTER X. HE SUBMITS THAT THE ASSESSEE HAS NOT ARRANGED ITS BUSINESS NOR EARNED EXTRAORDINARY PROFITS AS CONTEMPLATED UN DER SECTION 10B(7) READ WITH SECTION 80IA(10). HE ALSO SUBMITS THAT THE ASSESSING OFFICER HAS NOT SUBSTANTIATED OR SPECIFICALLY ESTABLISHED THAT THE ASSESSEE HAS EARNED SUPER PRO FITS. THE COUNSEL SUBMITS THAT IN FACT THE ASSESSEE HAS EARNE D A ITA NO.1972/MDS//2011 4 MARGIN OF 34.51% AS PER RECTIFICATION ORDER DATED 24.2.2011 WHICH IS LESSER THAN THAT OF COMPARABLE COMPANIES M ARGINS (MAPLE ESOLUTIONS LTD. 36%) . HE FURTHER SUBMITS T HAT ALLSEC TECHNOLOGIES LTD., ANOTHER COMPARABLE COMPANY HAS E ARNED 31.1% WHICH IS ALSO IN THE RANGE OF MARGIN EARNED B Y THE ASSESSEE . THEREFORE, HE SUBMITS THAT IT IS ERRONEO US TO STATE THAT THE ASSESSEE HAS EARNED SUPER PROFITS. 6. THE DEPARTMENTAL REPRESENTATIVE ACCEPTS THAT THE ISSUE BEFORE US IS DECIDED BY THE CHENNAI BENCH OF THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE HOLDING THAT ARM S LENGTH PRICE CANNOT BE A BASIS TO INVOKE PROVISIONS OF SEC TION 10B(7) READ WITH SECTION 80IA(10) OF THE ACT SO AS TO RES TRICT THE DEDUCTION UNDER SECTION 10B OF THE ACT. 7. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE DECISION OF THIS TRIBUNAL PLACE D BEFORE US. DURING THE YEAR THE ASSESSEE COMPANY HAS PROVIDED S OFTWARE DEVELOPMENT AND TYPESETTING SERVICES TO ASSOCIATE D ENTERPRISES. THE ASSESSEE HAS DECLARED ITS ARMS LE NGTH PRICE ITA NO.1972/MDS//2011 5 FOR THE SALES TO ASSOCIATED ENTERPRISES AT ` 19,60,38,865/-. THE ASSESSEE HAS ADOPTED TNMM AS MOST APPROPRIATE METHOD. THE ASSESSEE HAS GIVEN 13 COMPARABLE COMPAN IES. THE TRANSFER PRICING OFFICER DETERMINED THE ARMS LENGTH PRICE FOR SALE OF ASSESSEE COMPANY INITIALLY AT ` 15,43,83,731/- VIDE ORDER UNDER SECTION 92CA(3) DATED 29.01.2010 WHICH WAS SUBSEQUENTLY MODIFIED TO ` 14,90,51,116/- VIDE ORDER DATED 24.2.2011. THE TRANSFER PRICING OFFICER HAS N OT MADE ANY ADJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSA CTIONS OF THE ASSESSEE COMPANY WHILE PASSING THE ORDER UNDER SECTION 92CA(3) DATED 29.10.2010 AND MODIFICATION ORDER DAT ED 24.02.2011. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE ASSESSEE HAS OVERSTATED ITS SALES AT ` 19,60,38,865/- TO CLAIM EXCESS DEDUCTION UNDER SECTION 10B OF THE ACT AS AGAINST ALP OF SALES AT ` 14,90,51,116/- AS DETERMINED BY THE TRANSFER PRICING OFFICER. THEREFORE, ON THE DIRECT IONS OF DRP, ASSESSING OFFICER REDUCED THE DIFFERENCE OF ` 4,69,87,704/- (19,60,38,865 14,90,51,116) FROM THE TOTAL TURNOV ER, EXPORT TURNOVER AND THE PROFIT OF UNDERTAKING IN COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. THE CONTENTION OF THE ASSESSEE ITA NO.1972/MDS//2011 6 WAS THAT THE ASSESSING OFFICER HAS ERRED IN RECKONI NG THE ARITHMETIC MEAN OF THE MARGINS REPORTED BY THE COMP ARABLE COMPANIES AS AGAINST THE ACTUAL PROFITS EARNED BY T HE ASSESSEE, AS THE PROFITS ELIGIBLE FOR DEDUCTION UND ER SECTION 10B OF THE ACT. THE CONTENTION OF THE ASSESSEE WA S THAT THE ASSESSING OFFICER AND THE DRP ERRED IN INVOKING PRO VISIONS OF SECTION 10B(7) READ WITH SECTION 80IA(10) OF THE AC T WITHOUT ESTABLISHING THAT BUSINESS TRANSACTED BETWEEN THE A SSESSEE AND ITS ASSOCIATED ENTERPRISES ARE ARRANGED SO AS T O YIELD TO MORE THAN ORDINARY PROFITS. IT WAS ALSO THE CONTEN TION OF THE ASSESSEE THAT THE ASSESSING OFFICER FAILED TO DEMON STRATE THE DIFFERENCE BETWEEN THE ARMS LENGTH PRICE AND MARG IN REPORTED BY THE ASSESSEE CONSTITUTES MORE THAN ORDI NARY PROFITS AS CONTEMPLATED UNDER SECTION 10B(7) READ WITH SECTION 80IA(10) OF THE ACT. THE ASSESSEE CONTENDE D THAT IN THE ABSENCE OF ANY ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER TO ARMS LENGTH PRICE, ARMS LENGTH PRICE CANNOT BE THE BASIS FOR INVOKING THE PROVISIONS OF SECTION 10B(7) READ WITH SECTION 80IA(10) OF THE ACT SO AS TO RESTRICT THE D EDUCTION UNDER SECTION 10B OF THE ACT. ON GOING THROUGH T HE ORDER OF ITA NO.1972/MDS//2011 7 THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF VISUAL GRAPHICS COMPUTING SERVICES (INDIA) P. LTD. VS. ACI T (SUPRA), WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. THE CO-ORDINATE BENCH OF THIS TRIBUNA L HELD THAT IT IS NOT PERMISSIBLE FOR THE ASSESSING OFFICE R TO WORK OUT DEDUCTION UNDER SECTION 10A ON THE BASIS OF ARMS L ENGTH PRICE PROFIT GENERATED OUT OF THE ORDER OF THE TRAN SFER PRICING OFFICER. WHILE HOLDING SO, THE TRIBUNAL HAS OBSERV ED AS UNDER:- 24. WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED THE ISSUE. AS FAR AS THE PRESENT CASE IS CONCERNED, THE TPO HAS MADE A CATEGORICAL FINDING THAT THE OPERATING PROFIT REPORTED BY THE ASSESSEE IS HIGHER THAN THE PROFIT WORKED OUT ON THE BASIS OF ALP. THE TPO, THEREFORE, CONCLUDED THAT NO TP ADJUSTMENT IS CALLED FOR IN THE PRESENT CASE. THE ASSESSING OFFICER HAS MADE THE REFERENCE TO THE TPO UNDER SEC.92CA. THE REFERENCE IS MADE FOR THE PURPOSE OF COMPUTING INCOME ARISING FROM AN INTERNATIONAL TRANSACTION WITH REGARD TO ALP AS PROVIDED IN SEC.92. THEREFORE, IT IS TO BE SEEN THAT THE SCOPE AND EXTENT OF REFERENCE MADE BY THE ASSESSING OFFICER TO THE TPO IS CONFINED TO THE SINGULAR PURPOSE STATED IN SEC.92. SECTIONS 92A, 92B, 92C, 92CB, 92D, 92E AND SEC.92F ARE ALL, PRECISELY DEFINING AND FACILITATING PROVISIONS ULTIMATELY FOR THE PURPOSE OF COMPUTING THE INCOME AS STATED IN SEC.92. ALL THE ABOVE STATED SECTIONS PROVIDED IN CHAPTER X OF THE INCOME-TAX ACT, 1961 BELONG TO A SEPARATE CODE AS SUCH, ENACTED FOR THE PURPOSE ITA NO.1972/MDS//2011 8 OF COMPUTING INCOME FROM INTERNATIONAL TRANSACTIONS HAVING REGARD TO ALP SO AS TO CONFIRM THAT THERE IS NO AVOIDANCE OF TAX BY AN ASSESSEE. THEREFORE, WHERE IN A CASE, THE TPO SUGGESTS THAT THE OPERATING PROFIT DECLARED BY AN ASSESSEE IS COMPATIBLE TO ALP NORMS AND NO ADJUSTMENT IS NECESSARY, THE OPERATION OF ALL THOSE PROVISIONS COME TO AN END. IF THE ASSESSING OFFICER HAS TO MAKE ANY OTHER ADJUSTMENT TOWARDS COMPUTING DEDUCTION AVAILABLE UNDER SEC.10A, THE COMPUTATION HAS TO BE MADE IN THE CONTEXT OF SEC.10A(7) READ WITH SEC.80IA(10). 25. IT IS CLEAR THAT IN A CASE OF TRANSFER PRICING ASSESSMENT, IT HAS GOT TWO SEGMENTS. THE FIRST SEGMENT CONSISTS OF RULES AND PROCEDURES FOR COMPUTING THE INCOME OTHER THAN THE INCOME ARISING OUT OF INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISE. THE SECOND SEGMENT CONSISTS OF RULES AND PROCEDURES IN CONNECTION WITH COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTIONS WITH AE ON THE BASIS OF ALP. THE SECOND SEGMENT RELATING TO COMPUTATION OF ALP, IS A SET OF RULES FOR THE PURPOSES OF TRANSFER PRICING MATTERS AND THOSE PROCEDURES AND RULES CAN BE USED ONLY FOR THE PURPOSE SERVING THE OBJECT OF SEC.92. WHEN THE TPO STATES THAT THERE IS NO NEED OF TP ADJUSTMENT, THE MATTER SHOULD END THERE AND ANY OTHER ADJUSTMENT THAT THE ASSESSING OFFICER WOULD LIKE TO MAKE WITH REFERENCE TO THE FIRST SEGMENT MUST BE MADE INDEPENDENT OF THE ORDER OF THE TPO UNDER SEC.92CA. 26. TO STATE IN SIMPLE TERMS, THE TP REGIME IS DIFFERENT FROM REGULAR COMPUTATION OF INCOME. SEC.10A BELONGS TO THAT PART OF REGULAR COMPUTATION OF INCOME AND IT SHOULD BE COMPUTED INDEPENDENT OF TP REGULATIONS AND TP ORDERS. IT IS NOT THEREFORE, PERMISSIBLE FOR THE ASSESSING ITA NO.1972/MDS//2011 9 OFFICER TO WORK OUT SEC.10A DEDUCTION ON THE BASIS OF ALP PROFIT GENERATED OUT OF THE ORDER OF THE TPO. 27. IN FACT THESE ISSUES HAVE ALREADY BEEN CONSIDERED IN VARIOUS ORDERS OF THE TRIBUNAL. THE ITAT, CHENNAI A BENCH IN THE CASE OF TWEEZERMAN (INDIA) (P) LTD. V. ACIT (133 TTJ 308) HAS CONSIDERED THE MATTER IN DETAIL AND HELD THAT THE REDUCTION OF ELIGIBLE PROFITS OF AN ASSESS EE AS DONE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC.80IA(10) READ WITH SEC.10B(7), IN THE CONTEXT OF TPOS ORDER IS UNSUSTAINABLE. THE TRIBUNAL HAS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED TO INVOKE THE PROVISIONS OF SEC.80IA(10) READ WITH SEC.10B(7) SO AS TO REDUCE THE ELIGIBLE PROFITS ON THE BASIS OF THE ALP COMPUTED BY THE TPO WITHOUT SHOWING HOW HE DETERMINED THAT THE ASSESSEE HAD SHOWN MORE THAN ORDINARY PROFITS. 28. AS RIGHTLY ARGUED BY THE LEARNED SENIOR COUNSEL, ALP IS DETERMINED ON THE BASIS OF THE MOST APPROPRIATE METHOD. MOST APPROPRIATE METHOD IS CHOSEN EITHER ON PROFIT BASIS METHOD OR PRICE BASIS METHOD. IN THE LATTER CASE, PROFITS ARE NOT AT ALL CONSIDERED. IN THAT METHOD, PROFIT IS ON LY A DERIVATIVE OF PRICES. WHEN PROFITS ITSELF NOT WORKED OUT, HOW IT IS JUSTIFIED TO ADOPT ALP PROFIT S TO DETERMINE WHAT IS ORDINARY PROFITS FOR THE PURPOSE OF SEC.10A(7)? 29. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT THE ASSESSING OFFICER HAS ERRED IN REDUCING ` 4,48,50,795/- FROM THE ELIGIBLE PROFITS OF THE ASSESSEE UNDER SEC.10A. THE SAID ADJUSTMENT MADE BY THE ASSESSING AUTHORITY IN COMPUTING THE DEDUCTION UNDER SEC.10A IS ACCORDINGLY, DELETED. ITA NO.1972/MDS//2011 10 30. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE . 8. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL, WE ALLOW THE GROUN DS OF APPEAL OF THE ASSESSEE ON THIS ISSUE. 9. THE NEXT ISSUE IN GROUND NO. 3.4.1 TO 3.4.3 OF THE ASSESSEE IS AS UNDER:- 3.4.1 THE ASSESSING OFFICER ERRED IN CONSIDERING ONLY ` 91,12,33,096/- AS EXPORT TURNOVER AS AGAINST THE EXPORT TURNOVER OF ` 92,92,13,203/- DECLARED BY THE APPELLANT. 3.4.2 THE ASSESSING OFFICER ERRED IN EXCLUDING ` 1,79,80,107/- FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. 3.4.3 WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSING OFFICER ERRED IN NOT EXCLUDING EXPORT SALE PROCEEDS NOT REALIZED FROM THE TOTAL TURNOVER WHEN HE HAS EXCLUDED THE SAME FROM THE EXPORT TURNOVER, WHILE COMPUTING THE DEDUCTION UNDER SECTION 10B OF THE ACT. 10. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER EXCLUDED FOREIGN EXCHANGE LOSS FR OM THE ITA NO.1972/MDS//2011 11 EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCT ION UNDER SECTION 10B OF THE ACT. HE SUBMITS THAT FOLLOWING T HE ANALOGY IN THE CASE OF SPECIAL BENCH DECISION OF THIS TRIBU NAL IN THE CASE OF SAK SOFT LTD. (30 SOT 55), THE ASSESSING OF FICER SHOULD HAVE ALSO REDUCED FOREIGN EXCHANGE LOSS FROM THE TOTAL TURNOVER. 11. GROUND NO. 3.5.1 TO 3.5.5 RAISED BY THE ASSESSE E ARE AGAINST THE ACTION OF THE ASSESSING OFFICER AND THE DRP IN HOLDING THAT FOREIGN EXCHANGE GAIN SHOULD BE EXCLUD ED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF ALLOWING DED UCTION UNDER SECTION 10B OF THE ACT. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT FOREIGN EXCHANGE GAIN IS INEXTRICABLY CONNECTED WITH THE SALES AND THEREFORE THE SAME SHOULD BE CO NSIDERED AS PART OF EXPORT TURNOVER. HE PLACES RELIANCE ON T HE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CIT VS. PENTASOFT TECHNOLOGIES LTD. (347 ITR 578) AND CO-OR DINATE BENCH DECISION IN THE CASE OF CHANGEPOND TECHNOLOGI ES (P) LTD. VS. ACIT (22 SOT 220). ITA NO.1972/MDS//2011 12 12. IN THE ALTERNATIVE, THE COUNSEL SUBMITS THAT SU CH FOREIGN EXCHANGE GAIN WHICH WAS EXCLUDED FROM EXPORT TURNOV ER HAS TO BE EXCLUDED FROM THE TOTAL TURNOVER ALSO FOLLOWI NG THE DECISION OF THE SPECIAL BENCH DECISION OF THIS TRIB UNAL IN THE CASE OF SAK SOFT LTD. (SUPRA). 13. THE DEPARTMENTAL REPRESENTATIVE SUBMITS THAT ON LY THE NET GAIN OR LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLU CTUATION HAS TO BE CONSIDERED FOR THE PURPOSE OF EXCLUSION F ROM THE EXPORT TURNOVER AND SUCH GAIN/LOSS CANNOT BE REDUCE D FROM THE TOTAL TURNOVER IN COMPUTING DEDUCTION UNDER SEC TION 10B OF THE ACT. 14. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE DECISIONS RELIED ON. INSOFAR AS GROUNDS 3.5.1 TO 3.5.5 ARE CONCERNED, I.E. IN RESPECT OF FO REIGN EXCHANGE GAIN, WHETHER IT SHOULD BE TAKEN AS PART O F EXPORT TURNOVER OR NOT, WE FIND THAT THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT VS. PENTASOFT TECHNOLOGIES LTD. (SUPRA) HAS HELD THAT GAINS DUE TO FLUCTUATION IN F OREIGN ITA NO.1972/MDS//2011 13 EXCHANGE IS DIRECTLY RELATED TO EXPORT SALES OF THE ASSESSEE AND THEREFORE, IT CANNOT BE TREATED AS OTHER THAN P ART OF PROFIT FROM EXPORT. SIMILAR VIEW HAS BEEN EXPRESSED BY TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA P. LTD. (330 ITR 175) (BOM). HERE I N THE CASE OF THE ASSESSEE THE GAIN IN FOREIGN EXCHANGE IS ALS O IN CONNECTION WITH THE EXPORT SALES, RESPECTFULLY FOLL OWING THE ABOVE DECISION OF THE HONBLE JURISDICTIONAL HIGH C OURT, WE HOLD THAT FOREIGN EXCHANGE GAIN HAS TO BE CONSIDERE D AS PART OF EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DED UCTION UNDER SECTION 10B OF THE ACT AND AT THE SAME TIME F OLLOWING THE SAME ANALOGY, FOREIGN EXCHANGE LOSS CANNOT BE CONSIDERED AS PART OF EXPORT TURNOVER FOR THE PURPO SE OF SECTION 10B OF THE ACT. 15. WITH REGARD TO THE ALTERNATIVE SUBMISSION OF TH E COUNSEL FOR THE ASSESSEE THAT FOREIGN EXCHANGE LOSS HAV ING EXCLUDED FROM EXPORT TURNOVER IT HAS TO BE EXCLUDED FROM THE TOTAL TURNOVER ALSO, APPLYING THE SPECIAL BENCH D ECISION OF THIS TRIBUNAL IN THE CASE OF SAK SOFT LTD., (SUPRA) WE ARE OF ITA NO.1972/MDS//2011 14 THE VIEW THAT THE RATIO OF THE SPECIAL BENCH DECISI ON HAS NO APPLICATION IN RESPECT OF LOSSES ARISING DUE TO FOR EIGN EXCHANGE. THE RATIO OF THE SAID DECISION CAN BE AP PLIED ONLY IN CASE WHERE CERTAIN EXPENDITURES ARE INCURRED IN FOREIGN CURRENCY / INDIAN RUPEE AND NOT FOR LOSSES DUE TO EXCHANGE FLUCTUATION. THEREFORE, GROUNDS 3.4.1 TO 3.4.3 RAIS ED BY THE ASSESSEE ARE DISMISSED AND THAT OF GROUNDS 3.5.1 T O 3.5.5 ARE ALLOWED. 16. THE ISSUE IN GROUNDS 3.6.1 TO 3.6.4 ARE WITH R EGARD TO EXCLUSION OF UNREALIZED EXPORT PROCEEDS OF ` 17,21,397/- FROM EXPORT TURNOVER. THE COUNSEL FOR THE ASSESSEE SUBM ITS THAT THE ASSESSING OFFICER EXCLUDED THIS AMOUNT FROM THE EXPORT TURNOVER IGNORING THE FACT THAT THE ASSESSEE HAS AL READY EXCLUDED SUCH UNREALIZED EXPORT PROCEEDS FROM THE E XPORT TURNOVER WHILE COMPUTING DEDUCTION ALLOWABLE UNDER SECTION 10B OF THE ACT. WE RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE WHETHER THE ASSESSEE H AS REDUCED SUCH UNREALIZED EXPORT PROCEEDS OF ` 17,21,397/- FROM THE EXPORT TURNOVER OR NOT AS THE CONTENTION O F THE ITA NO.1972/MDS//2011 15 ASSESSEE WAS THAT THE SAME WERE ALREADY EXCLUDED BY THE ASSESSEE HIMSELF. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THIS ISSUE AND DECIDE ACCORDINGLY. THE AF ORESAID GROUNDS I.E. 3.6.1 TO 3.6.4 ARE ALLOWED FOR STATIS TICAL PURPOSES. 17. GROUND NO.3.7.1 IS RAISED WITH REGARD TO NON- CONSIDERATION OF CORRECT QUANTUM OF PROFITS AND GA INS OF BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UN DER SECTION 10B OF THE ACT. THE COUNSEL SUBMITS THAT F OR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10B, P ROFITS AND GAINS OF UNDERTAKING HAS TO BE CONSIDERED AND N OT THE PROFIT AS PER THE PROFIT AND LOSS ACCOUNT. THE CO UNSEL FOR THE ASSESSEE REFERRING TO PAGE 11 OF THE PAPER BOOK FIL ED BEFORE US, WHICH IS THE MEMO OF INCOME ADJUSTED FOR INCOME -TAX PURPOSES FOR THE ASSESSMENT YEAR 2007-08, SUBMITS T HAT THE ASSESSING OFFICER HAS ERRONEOUSLY ADOPTED THE BOOK PROFIT OF ` 30,85,21,693/- WHICH IS THE FIGURE OF PROFIT AS PE R PROFIT AND LOSS ACCOUNT WHILE COMPUTING DEDUCTION UNDER SECT ION 10B OF THE ACT INSTEAD OF ADOPTING THE PROFITS AND GAI NS OF BUSINESS OF ` 31,09,15,618/- AS REQUIRED UNDER SECTION 10B ITA NO.1972/MDS//2011 16 OF THE ACT. THEREFORE, HE PLEADED THAT THE ISSUE MA Y BE SENT BACK TO THE ASSESSING OFFICER FOR REWORKING OUT OF DEDUCTION ALLOWABLE UNDER SECTION 10B OF THE ACT TO WHICH THE DEPARTMENTAL REPRESENTATIVE HAS NO SERIOUS OBJECTIO N. 18. ON READING OF THE PROVISIONS OF SECTION 10B OF THE ACT, PRIMA-FACIE , WE FEEL THAT THE DEDUCTION IS ALLOWABLE ON THE PROFITS AND GAINS OF THE UNDERTAKING AND NOT ON T HE PROFITS AS PER THE PROFIT AND LOSS ACCOUNT, AS RIGHTLY CONTEND ED BY THE COUNSEL FOR THE ASSESSEE. THEREFORE, WE REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THI S ISSUE AND DECIDE IN ACCORDANCE WITH LAW. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE ARE ALLOWED FOR STATISTICAL PURPOSES. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY, THE 10 TH DAY OF DECEMBER 2013 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY ) (CHALLA NAGENDRA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI. DATED THE 10 TH DECEMBER, 2013. SOMU ITA NO.1972/MDS//2011 17 COPY TO: (1) APPELLANT (4 ) CIT(A) (2) RESPONDENT (5 ) D.R. (3) CIT (6 ) G.F.