ACIT, CHENNAI V. M/s. Transys Technologies Pvt. Ltd., CHENNAI

ITA 2021/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57955 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-02-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 01-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR; SHRI ANIRUDH RAI
• Assessee Lawyers: S SRIDHAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENN AI BEFORE SHRI ABARAHAM P.GEORGE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER .. ITA NO.2021/MDS./2010 ASSESSMENT YEAR:2003-04 ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(2), CHENNAI -14. VS. M/S.TRANSYS TECHNOLOGIES PVT LTD., ( NOW MERGED WITH QUINTEGRA SOLUTIONS LTD .) NO.140,MARSHALLS ROAD, EGMORE,CHENNAI 600 008. PAN AAACT 4042 J (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI SHRI ANIRUDH RAI C.I.T.DR & SHRI K.E.B.RENGARAJAN, JR.STANDING COUNSEL ASSESSEE BY : SHRI S.SRIDHAR ADVOCATE DATE OF HEARING : 16.02.12 DATE OF PRONOUNCEMENT : 16. 02.12 O R D E R PER ABARAHAM P.GEORGE ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY REVENUE, IT HAS TAKEN F OUR GROUNDS FOR WHICH THE GROUNDS NOS.1 & 4 ARE GENERAL NEEDING NO ADJUDICATION. PAGE OF 7 ITA.2021 /MDS/10 2 2. VIDE ITS GROUND NO.2, GRIEVANCE RAISED BY THE R EVENUE IS THAT THE COMMISSIONER OF INCOME TAX (A) DIRECTED TH E ASSESSING OFFICER TO ACCEPT THE EXPENSES AS SHOWN B Y THE ASSESSEE WITH RESPECT TO ITS EXPORT ORIENTED UNIT ( EOU) AND NON-EXPORT ORIENTED UNIT (NON-EOU) FOR THE PURPOSE OF WORKING OUT THE PROFITS ON WHICH ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S.10A OF THE ACT. AS PER REVENUE, ASSESSEE WAS USING A COLOURABLE DEVICE OF TAX PLANNING, WHICH WENT AGAIN ST THE LAW LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF MCDOWEL COMPANY LTD. V.CTO IN 154 ITR 148. 3. SHORT FACTS APROPOS ARE THAT ASSESSEE-COMPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND ALSO EXPORT OF SOFTWARE HAD CLAIMED A SUM OF ` 1,43,90,931/- AS DEDUCTION U/S.10A OF THE ACT. AS PER THE PROFIT AN D LOSS ACCOUNT FILED BY THE ASSESSEE SEPARATELY FOR THE EO U AND NON-EOU, EXPENDITURE OF THE EOU CAME TO ` 6,05,11,303/- AGAINST GROSS RECEIPTS OF ` 7,60,06,383/-. ASSESSING OFFICER NOTED THAT FOR NON-EOU UNIT AGAINST GROSS RECEIPTS OF ` 4,22,640/-, THE EXPENDITURE WAS ` 14,75,148/-. IN O THER WORDS, IN RESPECT OF EOU, THERE WAS A PROFIT WHEREA S IN RESPECT OF NON-EOU THERE WAS A LOSS. ASSESSEE WAS REQUIRED TO EXPLAIN HOW THE EXPENSES WERE ALLOCATED BETWEEN EOU & NON-EOU WHEREUPON REPLY OF THE ASSESSEE WAS THAT THE ALLOCATION WAS DONE ON ACTUAL BASIS. ASSESSING OFFICER WAS OF THE OPINION THAT EXPENDITURE OF THE EOU CAME TO 79% OF THE RECEIPT WHEREAS THE EXPENDITURE OF NON-EOU WAS ABOUT 349% PAGE OF 7 ITA.2021 /MDS/10 3 OF ITS RECEIPTS. HE THEREFORE, DID NOT ACCEPT THE EXPENDITURE ALLOCATION SHOWN BY THE ASSESSEE AND PROCEEDED TO RE-ALLOCATE THE EXPENDITURE BASED ON T HE TURNOVER. THE RESULT WAS THAT AGAINST THE DEDUCTION OF ` 1,43,90,931/- CLAIMED BY THE ASSESSEE, WHAT WAS ACT UALLY ALLOWED WAS ` 38,65,085/-. 4. IN ITS APPEAL BEFORE THE COMMISSIONER OF INCOME TAX(A), ARGUMENT OF THE ASSESSEE WAS THAT IT WAS CHARGING EXPENDITURE BASED ON ACTUAL INCURRING TO THE RESPEC TIVE UNITS AND THERE WAS NO ALLOCATION OF EXPENDITURE BETWEEN EOU & NON-EOU. AS PER THE ASSESSEE, 99.44% OF ITS BUSINE SS WAS FROM EOU WHEREAS NON-EOU REPRESENTED ONLY 0.6% OF ITS BUSINESS. COMMISSIONER OF INCOME TAX(A) WAS APPRECI ATIVE OF THESE CONTENTIONS. ACCORDING TO HIM, EXPENSES WER E DULY ACCOUNTED SEPARATELY BY BOTH UNITS AND WITHOUT ANY EVIDENCE, ASSESSING OFFICER SHOULD NOT HAVE RESORTED TO A REA LLOCATION ON THE BASIS OF TURNOVER. HE THEREFORE, DIRECTED THE ASSESSING OFFICER TO ACCEPT THE EXPENSES AS SHOWN BY THE ASSE SSEE IN ITS P&L ACCOUNT AND RE-WORK THE DEDUCTION CLAIMED U/S.1 0A OF THE ACT. 5. NOW BEFORE US, LD.DR STRONGLY ASSAILING THE ORD ER OF THE COMMISSIONER OF INCOME TAX(A), SUBMITTED THAT THE A SSESSEE COULD NOT GIVE THE RATIONALE BEHIND THE ALLOCATION OF EXPENSES. THERE WAS NO OTHER MEASURE THAT THE ASSESSING OFFIC ER COULD HAVE ADOPTED FOR THE ALLOCATION BUT THE TURNOVER. ACCORDING TO LD.DR, THE RE-ALLOCATION BASED ON THE TURNOVER COUL D NOT BE OBJECTED BY THE ASSESSEE, SINCE THE BUSINESS DONE B Y THE PAGE OF 7 ITA.2021 /MDS/10 4 ASSESSEE BOTH IN ITS EOU & NON-EOU WERE SUBSTANTIA LLY SIMILAR. PER CONTRA LD. AR SUBMITTED THAT ASSESSE E HAD MAINTAINED SEPARATE BOOKS OF ACCOUNT AND THERE WERE SEPARATE PROFIT AND LOSS ACCOUNTS PREPARED FOR ITS EOU AND NON-EOU. WITHOUT FINDING ANY FAULT WITH SUCH BOOKS OF ACCOUNT SEPARATELY MAINTAINED, ASSESSING OFFICER OU GHT NOT HAVE PROCEEDED WITH THE ARBITRARY RE-ALLOCATION. A CCORDING TO HIM, DISTRIBUTING THE ALLOCATION BASED ON ACTUAL OU TGOES WAS AN EXERCISE DONE ONLY TO DENY THE ASSESSEE ITS LEGITIM ATE CLAIM FOR DEDUCTION U/S.10A OF THE ACT. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. ASSESSING OFFICER HAS HIMSELF REPRODU CED P&L ACCOUNT OF EOU AND NON-EOU SEPARATELY. AGAINST GRO SS INCOME OF ` 7.60,06,383/- FROM EOU, THE GROSS RECEIPTS OF NON- EOU WAS ` 4,22,640/- ONLY. AGAINST THE GROSS RECEIPTS OF ` 4,22,640/- IN NON-EOU, ASSESSEE HAD CLAIMED EXPENDI TURE TO ` 14,75,148/-. THERE IS NOTHING IN THE ASSESSMENT OR DER WHICH CAN SHOW WHY THE ASSESSING OFFICER REALLOCATE D THE EXPENSES WHEN ASSESSEE HAD PRODUCED SEPARATE P&L ACCOUNT AND WHEN THE ASSESSEE ALL ALONG MAINTAINED THAT SUCH EXPENSES WERE CHARGED ON ACTUAL BASIS. IF WE LOOK AT THE INCOME OF THE ASSESSEE, IT IS CLEAR THAT BUSINESS OF THE ASSESSEE FROM ITS NON-EOU WAS MINUSCULE WHEN COMPA RED TO THE BUSINESS FROM EOU. ASSESSING OFFICER IN OUR OPINION WENT OFF TANGENT WHEN HE TOOK THE MINUSCULE NON-EO U OPERATION AND THE EXPENSES INCURRED THERE UNDER AS A BASIS FOR REALLOCATION OF THE TOTAL EXPENSES. WHEN RESULTS O F EOU AND NON-EOU WERE SEPARATELY AVAILABLE, THERE WAS NO REA SON TO PAGE OF 7 ITA.2021 /MDS/10 5 RESORT TO SUCH A REALLOCATION OF EXPENSES, ESPECIAL LY SINCE ASSESSEE HAD MAINTAINED SEPARATE BOOKS OF ACCOUNT A ND WHERE SUCH BOOKS OF ACCOUNT WAS NEVER FOUND TO BE INCORRECT OR FOUND TO BE DEFECTIVE. NO DOUBT THE ASSESSING OF FICER COULD HAVE PROCEEDED WITH A REALLOCATION OF EXPENSES BASE D ON AN APPROPRIATE CRITERIA, IF THE BOOKS WERE FOUND TO BE DEFECTIVE. WHEN THE CLAIM OF THE ASSESSEE THAT EXPENSES WERE D EBITED ON ACTUAL BASIS WAS NOT FOUND TO BE INCORRECT, SUCH A REALLOCATION OUGHT NOT HAVE BEEN RESORTED TO. WE A RE THEREFORE, OF THE OPINION THAT COMMISSIONER OF INCO ME TAX(A) HAD PROPERLY APPRECIATED THE SITUATION AND DIRECTED THE ASSESSING OFFICER TO ACCEPT THE EXPENSES AS SHOWN BY THE ASSESSEE IN ITS P&L ACCOUNT FOR WORKING OUT THE DED UCTION U/S.10A OF THE ACT. GROUND NO.2 OF THE REVENUE STA NDS DISMISSED. 7. GROUND NO.3 OF THE REVENUE IS THAT THE COMMISS IONER OF INCOME TAX(A) DIRECTED THE ASSESSING OFFICER TO REDUCE EXPENSES INCURRED IN FOREIGN EXCHANGE FROM BOTH EX PORT TURNOVER AS WELL AS TOTAL TURNOVER FOR WORKING OUT THE DEDUCTION U/S.10A OF THE ACT. 8. ADMITTEDLY THE COMMISSIONER OF INCOME TAX(A) HA D FOLLOWED THE DECISION OF SPECIAL BENCH OF THE TRIBU NAL IN THE CASE OF ITO VS. SAK SOFT LTD., [2009] 20 DTR 514. NO DECISION OF THE ANY HIGHER AUTHORITY WAS BROUGHT BE FORE US BY THE LD. DR TO SHOW THAT THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SAK SOFT LTD. HAS BEEN REVERSED. WE THEREFORE, CANNOT FIND ANY ERROR IN THE ORDER OF THE PAGE OF 7 ITA.2021 /MDS/10 6 COMMISSIONER OF INCOME TAX(A) FOLLOWING THE DECISIO N OF THE SPECIAL BENCH IN SAK SOFT LTD. GROUND NO.3 OF THE REVENUE STANDS DISMISSED. 9. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED ON 16 TH FEBRUARY, 2012. SD/- SD/- ( GEORGE MATHAN ) (ABRAHAM P. GEORGE ) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 16 TH FEBRUARY, 2012. K S SUNDARAM COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE PAGE OF 7 ITA.2021 /MDS/10 7 DATE INITIALS 1. DRAFT DICTATED ON 2. DRAFT PLACED BEFORE AUTHORITY 3. DRAFT PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S. 6. KEEP FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE 9. DATE OF DISPATCH OF ORDER