M/s. Steer Engineering Pvt. Ltd., Bengaluru V. Additional Commissioner of Income-tax, Range-12, Bengaluru

ITA 2070/BANG/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0071 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-07-2021
• Assessment Year: 2010-2011
• Appeal Filed On: 21-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Assessee Lawyers: NARENDRA JAIN
• Keywords: Capital asset; Question of law; Revenue expenditure; Capital expenditure
• Section: 10B; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.2070/BANG/2018 ASSESSMENT YEAR : 2010 11 M/S STEER ENGINEERING PVT. LTD., NO.290, 4 TH MAIN, 4 TH PHASE, PEENYA INDUSTRIAL AREA, NAGWARA, BENGALURU-560 058. PAN AABCS 8840 E VS. THE ADDL. COMMISSIONER OF INCOME-TAX, RANGE-12, BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI NARENDRA JAIN, ADVOCATE RESPONDENT BY : SHRI PRIYADARSHI MISHRA, ADDL. CIT DATE OF HEARING : 05-07-2021 DATE OF PRONOUNCEMENT : 22-07-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN PLACED BEFORE US FOR ADJUDICATING FOLLOWING GROUNDS: 3. THE LEARNED CIT(A), HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER ('AO') IN : II) CONCLUDING THAT FOREIGN EXCHANGE GAIN EARNED FR OM EOU UNIT IS NOT PART OF PROFIT OF THE UNDERTAKING AND THEREBY REDUCING D EDUCTION U/S L0B. (III) NOT APPRECIATING THAT UNDER SIMILAR FACTS AND CIRCUMSTANCES OF THE EASE, THE HONORABLE KARNATAKA HIGH COURT HAS HELD T HAT FOREIGN EXCHANGE GAIN SHOULD FORM PART OF PROFIT OF THE BUSINESS, EX PORT TURNOVER AND TOTAL TURNOVER. 4. THE LEARNED CIT(A), HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER ('AO') IN : PAGE 2 OF 6 ITA NO.2070/BANG/2018 (II) DISALLOWING PROFESSIONAL AND CONSULTANCY CHAR GES OF RS. 1,20,820/- INCURRED TOWARDS ACQUISITION OF BUSINESS ON THE GRO UND THAT IT IS CAPITAL EXPENDITURE. ON THE FACT AND CIRCUMSTANCES OF THE C ASE THE ADDITION IS BAD IN LAW AND LIABLE TO BE QUASHED. 2. IT HAS BEEN SUBMITTED BY THE LD.AR THAT THE ABOV E REFERRED GROUNDS WERE INADVERTENTLY NOT ADJUDICATED WHILE PA SSING THE ORDER DATED 23/10/2019. ASSESSEE FILED MISCELLANEO US PETITION POINTING OUT THIS INADVERTENT MISTAKE. THIS TRIBUNAL VIDE ORDER DATED 14/09/2020 REFIXED THE APPEAL FOR HEARING FOR LIMITED ISSUE TO ADJUDICATE GROUND NO.3 (II) - (III) AND GROUND 4 (II) REPRODUCED HEREINABOVE. GROUND NO. 3(II)-(III) 3. THE LD.AR SUBMITTED THAT, AUTHORITIES BELOW ERR ED IN ADOPTING INCORRECT FIGURES OF PROFIT OF BUSINESS OF UNDERTAKING FOR PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. HE SUBMITTED THAT, AUTHORITIES BELOW HELD THAT FOREIGN EXCHANGE GAIN EARNED FROM EXPORT ORIENTED UNIT IS NOT PART OF PRO FIT OF UNDERTAKING THEREBY REDUCING THE SAID AMOUNT WHILE COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. THE LD.AR I N SUPPORT OF HIS ARGUMENTS PLACED RELIANCE ON DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS INFOSYS TECHNOLOGIES LTD ., REPORTED IN (2012) 18 TAXMANN.COM 169 AND DECISION OF HONBLE MADRAS HIGH COURT IN CASE OF CIT VS. PENTASOFT TECHNOLOGIES LTD. , REPORTED IN (2013) 33 TAXMANN.COM 570 . 3.1 THE LD.AR SUBMITTED THAT, FOREIGN EXCHANGE HAS A DIRECT NEXUS FROM EXPORT SALES MADE AND THEREFORE NEEDS TO BE CONSIDERED AS A PART OF PROFITS OF BUSINESS, EXPORT TURNOVER AND TOTAL TURNOVER. PAGE 3 OF 6 ITA NO.2070/BANG/2018 4. ON THE CONTRARY THE LD.SR.DR COULD NOT CONTROVER T THE ABOVE SUBMISSIONS OF LD.AR. 5. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SID ES IN THE LIGHT OF RECORDS PLACED BEFORE US. THE DECISION RELIED BY THE LD.AR OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS INFOSYS TECHNOLOGIES LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE. HONBLE COURT WHILE DECIDING THE ISSUE HELD AS UNDER: 8. WE HAVE HEARD THE LD.COUNSEL APPEARING FOR THE PARTIES AND SCRUTINISE THE MATERIAL ON RECORD. BOTH THE FIRST A PPELLATE AUTHORITY AND THE APPELLATE TRIBUNAL ANSWERED THE ABOVE SAID SUBS TANTIAL QUESTION OF LAW IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. THE SAID CONCURRENT FINDINGS ARRIVED AT BY THE AUTHORITIES IS JUSTIFIED AS THE FLUCTUATION IN THE VALUATION OF CURRENCY WHICH HAS TO BE CONVERTED TO FOREIGN CURRENCY HAS DIRECT NEXUS TO THE EXPORT OF SOFTWARE AND CAN NEVE R BE INCLUDED AS INCOME FROM OTHER SOURCES. WHEREFORE, THE SAID FIND ING DOES NOT SUFFER FROM ANY ERROR OR ILLEGALITY AS TO CALL FOR INTERFE RENCE IN THIS APPEAL. 5.1 IT IS NOT THE CASE OF THE REVENUE THAT THE SAID FOREIGN EXCHANGE GAIN DOES NOT ARISE OUT OF THE EXPORT ORIE NTED UNDERTAKING AND THEREFORE THE BENEFIT OF SUCH GAIN FORMING PART OF THE PROFITS OF THE UNDERTAKING CANNOT BE DENIED TO ASSESSEE. 5.2 RESPECTFULLY FOLLOWING THE VIEW TAKEN BY HONBLE JURISDICTIONAL HIGH COURT AND HONBLE MADRAS HIGH COURT, REFERRED TO AND RELIED BY LD.AR HEREINABOVE, WE DIRECT THE L D.AO TO RECOMPUTE THE DEDUCTION UNDER SECTION 10A OF THE AC T BY INCLUDING THE FOREIGN EXCHANGE GAIN AS A PART OF PR OFITS EARNED FROM THE EXPORT ORIENTED UNDERTAKING. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED. GROUND NO. 4 (II) 6. THE LD.AR SUBMITTED THAT ASSESSEE DURING THE YEA R UNDER CONSIDERATION ACQUIRED BUSINESS OF TWO COMPANIES CA LLED CONCORD UNITED PRODUCTS PVT.LTD., AND M/S.ADITYA PRECISION DEPOSITION PAGE 4 OF 6 ITA NO.2070/BANG/2018 MOULDING PVT.LTD. TOWARDS THIS ACQUISITION, ASSESSE E INCURRED RS.1,20,820/- AS PROFESSIONAL FEES, FOR DRAFTING BU SINESS TRANSFER AGREEMENTS AND OTHER PROFESSIONAL FEE ON LEGAL OPIN IONS. THE ASSESSEE CLAIMED IT AS REVENUE EXPENDITURE WHICH WA S DISALLOWED BY THE LD.AO BY HOLDING IT TO BE CAPITAL IN NATURE. 6.1 THE VIEW OF LD.AO WAS UPHELD BY THE LD.CIT(A) A GAINST WHICH ASSESSEE WAS IS IN APPEAL BEFORE THIS TRIBUNAL . 6.2 BEFORE US, THE LD.AR SUBMITTED THAT THESE EXPEN SES ARE REVENUE IN NATURE AND THEREFORE ARE TO BE ALLOWED. 6.3 ON THE CONTRARY THE LD.SR.DR SUBMITTED THAT THE ACQUISITION RESULTED INTO ENDURING BENEFITS TO ASSESSEE. 6.4 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. THE INCURRING O F EXPENDITURE RESULTED INTO ACQUISITION OF TWO COMPANIES BY ASSES SEE, THEREBY RESULTING IN ACQUISITION OF CAPITAL ASSETS. 6.5 IN OUR VIEW RATIO LAID DOWN BY HONBLE SUPREME COURT IN ALEMBIC CHEMICAL WORKS CO. LTD., VS. CIT REPORT IN (1989) 177 ITR 377 IS APPLICABLE. THE PROFESSIONAL AND CONSULTANCY CHA RGES INCURRED BY ASSESSEE FOR ACQUISITION OF THE TWO COM PANIES CANT BE TREATED AS REVENUE IN NATURE. ACCORDINGLY, GROUNDS RAISED BY ASSESSEE STANDS DISM ISSED. IN THE RESULT APPEAL FILED BY REVENUE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JULY, 2021 SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 22 ND JULY, 2021. /VMS/ PAGE 5 OF 6 ITA NO.2070/BANG/2018 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE