Magick Woods Exports P Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2105/CHNY/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4186 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 02-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R CLEMENT RAMESH KUMAR IRS
• Assessee Lawyers: S SRIDHAR; SRIRAMAN S
• Keywords: Depreciation; Retrospective amendment
• Section: 43B; 10B; 10; 139

Judgement Text

, .. , IN THE INCOME TAX APPELLATE TRIBUNAL , SMC B BENCH, CHENNAI . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2105/MDS/2015 ( / ASSESSMENT YEAR: 2007-08) M/S. MAGICK WOODS EXPORTS P LTD., C/O. S. SRIDHAR, ADVOCATE, NEW NO.14, OLD NO.82, FLAT NO.5, 1 ST AVENUE, INDIRA NAGAR, ADYAR, CHENNAI 600 020. VS THE DCIT, SALARY CIRCLE III, CHENNAI PAN: AADCM6228N ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR & SRIRAMAN, ADVOCATES /RESPONDENT BY : SHRI R. CLEMENT RAMESH KUMAR, IRS /DATE OF HEARING : 08.06.2017 !' /DATE OF PRONOUNCEMENT : 21.06.2017 / O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)- 8, CHENNAI DATED 18.09.2015 IN ITA NO.29/2014-15 FOR T HE ASSESSMENT YEAR 2007-08 PASSED U/S.250(6) R.W.S.143 (3) & 254 OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL; HOWEVER THE CRUX OF THE ISSUE IS THAT:- 2 ITA NO.2105/MDS/2015 I. THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ORDER O F LD.AO, WHO HAD DISALLOWED THE AMOUNT OF RS.2,69,590/- , IN VOKING THE PROVISIONS OF SECTION 36(1)(VA) OF THE ACT, BEI NG THE EMPLOYEES CONTRIBUTION TO PROVIDENT FUND REMITTED BEYOND THE PERIOD STIPULATED UNDER THE RELEVANT PF ACT. II. THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF LD.AO, WHO HAD DISALLOWED THE AMOUNT OF RS.32,654/- , INVO KING THE PROVISIONS OF SECTION 36(1)(VA) OF THE ACT, BEI NG THE EMPLOYEES CONTRIBUTION TO ESI REMITTED BEYOND THE DUE DATE PRESCRIBED UNDER THE RELEVANT P.F ACT. III. THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF LD.AO, WHO HAD DISALLOWED THE PROFESSIONAL CONSULTANCY CHA RGES PAID TO M/S. MANOHAR CHOWDHRY & ASSOCIATES AND TO M /S. SAP BPO SERVICES PVT. LTD. FOR RS.1,21,648/- & RS.1,57,404/- RESPECTIVELY DUE TO SHORT DEDUCTION O F TAX AT SOURCE INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. IV. THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF LD.AO, WHO HAD EXCLUDED THE GAIN ON FOREIGN EXCHANGE FLUCTUATIONS FROM EXPORT TURNOVER WHILE COMPUTING D EDUCTION U/S.10B OF THE ACT. 3 ITA NO.2105/MDS/2015 V. THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ORDER O F LD.AO, WHO HAD DISALLOWED THE EXCESS CLAIM OF DEPRECIATION AMOUNTING TO RS.13,45,141/-. 3. WITH RESPECT TO GROUND NO.V, SUPRA, VIZ., DEPREC IATION, THE LD.AR DID NOT PRESS THE GROUND; ACCORDINGLY THE GRO UND IS DISMISSED AS NOT PRESSED. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING DOORS & FRAMES AND OTHER PRODUCTS HAV ING BOTH DOMESTIC AND EXPORT SALES, FILED ITS RETURN OF INCO ME FOR THE ASSESSMENT YEAR 2007-08 ON 29.10.2007, ADMITTING N IL INCOME. SUBSEQUENTLY ASSESSMENT WAS COMPLETED. THEREAFTER I N THE APPELLATE PROCEEDING THE TRIBUNAL SET ASIDE THE ENT IRE ASSESSMENT AND REMITTED BACK THE MATTER TO THE FILE OF THE LD.A.O. FINALLY, THE LD.A.O PASSED ORDER U/S.143( 3) R.W.S. 254 OF THE ACT DATED 28.03.2014, WHEREIN HE MADE SEVER AL DISALLOWANCES WHICH WAS FURTHER CONFIRMED BY THE LD .CIT(A). AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE ASSESSE E IS NOW IN APPEAL BEFORE US. 4 ITA NO.2105/MDS/2015 5. GROUND NO.I: BELATED REMITTANCE OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND:- DURING THE COURSE OF SCRUTINY ASSESSMENT, IT WAS NOTICED BY THE LD.AO THAT THE ASSESSEE HAD REMITTED THE EMPLOYEES CONTRIBUTION TO RECOGNIZED PROVIDENT FUND FOR RS.2,69,590/- BEYOND THE PERIOD SPECIFIED UNDER THE P.F ACT, THER EBY VIOLATING THE PROVISIONS OF SECTION 36(1)(VA) OF THE ACT. TH EREFORE, THE LD.AO DISALLOWED THE AMOUNT OF RS.2,69,590/-. ON A PPEAL, THE LD.CIT(A) CONFIRMED HIS ORDER BY OBSERVING AS ORDER :- I HAVE CONSIDERED THE APPELLANT'S SUBMISSIONS. THE APPELLANT HAS ENTIRELY RELIED ON CASE LAW WHICH IS RELEVANT T O DISALLOWANCE UNDER SECTION 438 AND IS BASED ON THE DECISION OF APEX COURT IN THE CASE OF COMMISSIONER OF INCOME TA X VS. VINAY CEMENT LTD. (2007) 213 CTR 0268 WHEREIN THE H ONBLE SUPREME COURT OBSERVED THAT CONTRIBUTION MADE TO PR OVIDENT FUND BEFORE FILING OF THE RETURN COULD NOT BE DISAL LOWED UNDER SEC.43B AS IT STOOD PRIOR TO THE AMENDMENT W.E.F. 1 ST APRIL, 2004. WITH THE DELETION OF THE SECOND PROVISO TO SE CTION 43B THE DUE DATE FOR EMPLOYER'S CONTRIBUTION TO PF, ESI, ET C., HAS CHANGED BUT FOR EMPLOYEES CONTRIBUTIONS IT REMAINS TO BE AS PER THE EXPLANATION BELOW CLAUSE (VA) OF SUB-SECTION 10 F SECTION 36. CLAUSE (VA) OF SUB-SECTION 1 OF SECTION 36 OF THE I NCOME TAX ACT READS AS UNDER: (VA) ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF H IS EMPLOYEES TO WHICH THE PROVISIONS OF SUB-CLAUSE (X) OF CLAUSE (24) OF SECTION 2 APPLY, IF SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. EXPLANATION: FOR THE PURPOSES OF THIS CLAUSE, 'DUE DATE' MEANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED-AS AN EM PLOYER TO CREDIT AN EMPLOYEE'S CONTRIBUTION TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND UNDER ANY ACT, RULE, ORDER OR NOTIFICATION 5 ITA NO.2105/MDS/2015 ISSUED THEREUNDER OR UNDER ANY STANDING ORDER, AWAR D, CONTRACT OF SERVICE OR OTHERWISE; (EMPHASIS SUPPLIED) THUS, THE DUE DATE FOR FILING OF THE RETURN OF INCO ME HAS NOTHING TO DO WITH THE DUE DATE UNDER SECTION 36(1)(VA). NO CHANGE HAS BEEN BROUGHT ABOUT UNDER THIS CLAUSE. THE ASSESSING OFFICER NOWHERE MENTIONS THAT THE DISALLOWANCE HAS BEEN MAD E UNDER SECTION 43B. IN FACT, THE ASSESSING OFFICER HAS RIG HTLY DENIED THE DEDUCTION AS PER CLAUSE (VA) OF SUB-SECTION 1 OF SE CTION 36. THE DISALLOWANCE MADE U/S 36(1)(VA) IS IN ORDER AND IS CONFIRMED. THE APPELLANT FAILS ON THIS GROUND. 5.1 BEFORE US, THE LD.AR SUBMITTED THAT THOUGH THE RE WAS VIOLATION OF SECTION 36(1)(VA) OF THE ACT BY THE AS SESSEE, HE HAD REMITTED THE AMOUNT WITHIN THE DUE DATE OF FILING O F THE INCOME TAX RETURN. THEREFORE IT WAS ARGUED THAT BY VIRTUE OF THE PROVISIONS OF SECTION 43 OF THE ACT, THE BELATED RE MITTANCE SHOULD BE ALLOWED AS DEDUCTION. THE LD.DR ON THE OTHER HAN D RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 5.2 I HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. WE DO NOT FIND A NY MERIT IN THE SUBMISSION OF THE ASSESSEE ON THIS ISSUE. SECTION 3 6(1)(VA) OF THE ACT SPECIFICALLY PROVIDES THAT IF THE ASSESSEE REMITS THE EMPLOYEES CONTRIBUTION TO PROVIDENT FUND WITHIN THE DUE DATE MENTIONED IN THE RELEVANT ACT P.F ACT , THEN THE DEDUCTION 6 ITA NO.2105/MDS/2015 WILL BE ALLOWABLE. THE RELEVANT PORTIONS OF SECTIO N 36(1)(VA) IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 36(1)(VA) ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF HIS EMPLOYEES TO WHICH THE PROVISIONS OF SUB-CLAUSE (X) OF CLAUSE (24) OF SECTION 2 APPLY, IF SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. EXPLANATION:- FOR THE PURPOSES OF THIS CLAUSE, DUE DATE MEANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EM PLOYER TO CREDIT AN EMPLOYEES CONTRIBUTION TO THE EMPLOYEES ACCOUN T IN THE RELEVANT FUND UNDER ANY ACT, RULE, ORDER OR NOTIFIC ATION ISSUED THERE-UNDER OR UNDER ANY STANDING ORDER, AWARD, CON TRACT OF SERVICE OR OTHERWISE; FURTHER SECTION 43B OF THE ACT, ONLY PROV IDES THAT DEDUCTION WILL BE ALLOWED WITH RESPECT TO EMPLOYERS CONTRIBUTION TO PROVIDENT FUND IF THE SAME IS REMITTED WITHIN T HE DUE DATE OF FILING THE RETURN OF INCOME. THE RELEV ANT PORTION OF SECTION 43B IS EXTRACTED HEREIN BELOW FOR REFERENCE :- [CERTAIN DEDUCTION TOBE ONLY ON ACTUAL PAYMENT.] 43B NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISIONS OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF --- (A)------------------- (B) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY W AY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUITY FUND OR ANY OTHER FUND FOR THE WELFARE OF THE EMPLOYEES ------------------ ------------------ ------------------- 7 ITA NO.2105/MDS/2015 PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHA LL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE A SSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR F URNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTI ON 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF S UCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUC H RETURN. THUS SECTION 36(1)(VA) OF THE ACT REFERS TO EMPLOYEES CONTRIBUTION TO P.F WHILE AS SECTION 43B OF THE ACT REFERS TO EMPLOYERS CONTRIBUTION TO P.F, HENCE SECTION 43B OF THE ACT HAS NO APPLICATION WITH RESPECT TO EMPLOYEES CONTR IBUTION TO P.F. THEREFORE SECTION 43B OF THE ACT WILL NOT OVERRIDE THE PROVISIONS OF SECTION 36(1)(VA) OF THE ACT WITH RESPECT TO EMP LOYEES CONTRIBUTION TO PROVIDENT FUND. IT IS PERTINENT TO MENTION THAT THOUGH EMPLOYEES & EMPLOYERS CONTRIBUTION TO P.F ARE REMITTED BY THE EMPLOYER, THEY ARE SEPARATE AND DISTINCT FOR WHICH INDEPENDENT PROVISIONS HAVE BEEN CAST UNDER THE ACT . EMPLOYEES CONTRIBUTION TO P.F., IS NOTHING BUT APP ROPRIATION OF A PORTION OF THE SALARY WHICH IS LEGITIMATELY DUE TO THE EMPLOYEE AND REMITTED BY THE EMPLOYER IN THE GOVERNMENT TREA SURY ON BEHALF OF THE EMPLOYEE IN ACCORDANCE WITH THE PROVI SIONS OF THE RELEVANT P.F., ACT. HENCE IT IS CRYSTAL CLEAR FROM SECTION 36(1)(VA) OF THE ACT THAT WITH RESPECT TO REMITTANCE OF EMPLOYEES CONTRIBUTION TO RECOGNIZED PROVIDENT FUN D, 8 ITA NO.2105/MDS/2015 DEDUCTION WILL BE ALLOWABLE TO THE ASSESSEE ONLY IF THE SAME IS REMITTED WITHIN THE DUE DATE MENTIONED IN THE RELEVANT P.F. ACT AND WITH RESPECT TO EMPLOYERS CONTRIBUTION TO RECOGNIZED PROVIDENT FUND , SECTION 43B OF THE ACT MAKES IT CLEAR THAT DEDUCTION WILL BE ALLOWABLE IF THE REMITTANCE IS MA DE WITH IN THE DUE DATE OF FILING THE RETURN OF INCOME. FOR THE AB OVE STATED REASONS I DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. REVENUE AUTHORITIES. ACCORDINGLY, I CONFIRM THE ORDER OF T HE REVENUE AUTHORITIES ON THIS ISSUE. 6. GROUND NO.II: BELATED REMITTANCE OF EMPLOYEES CONTRIBUTION TOWARDS ESI:- SINCE WITH RESPECT TO EMPLOYEES CONTRIBUTION TO E SI, PROVISIONS OF SECTION 36(1)(VA) OF THE ACT APPLY BY VIRTUE OF SECTION 2(24)(X) OF THE ACT, THE DECISION WITH RESP ECT TO EMPLOYEES CONTRIBUTION TOWARDS PF SUPRA WILL HOLD GOOD. ACCORDINGLY, THIS ISSUE IS ALSO HELD AGAINST THE AS SESSEE. 7. GROUND NO.III: PROFESSIONAL CONSULTANCY CHARGES PAI D WITHOUT DEDUCTING TDS:- IT WAS REVEALED THAT THE ASSESSEE HAD NOT DEDUCT ED TAX AT SOURCE AT THE SPECIFIED RATE PROVIDED UNDER THE ACT TOWARDS THE 9 ITA NO.2105/MDS/2015 PROFESSIONAL AND CONSULTANCY CHARGES PAID TO M/S. M ANOHAR CHOWDHRY ASSOCIATES AND M/S. SAP BPO SERVICES PVT. LTD. THEREFORE, THE LD.AO INVOKING THE PROVISIONS OF SEC TION 40(A)(IA) OF THE ACT, DISALLOWED THE EXPENDITURE OF RS.1,21,6 48/- AND RS.1,57,404/- PAID TO M/S. MANOHAR CHOWDHRY ASSOCIA TES AND M/S. SAP BPO SERVICES PVT. LTD., TOWARDS SHORT DEDU CTION OF TAX. ON APPEAL, THE LD.CIT(A) UPHELD THE ORDER OF THE LD .AO BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE APPELLANTS SUBMISSIONS.THE JURISDICTIONAL BENCH OF THE HONBLE ITAT ON A SIMIL AR ISSUE IN THE CASE OF FRONTIER OFFSHORE EXPLORATION (INDIA) L TD. VS. DEPUTY COMMISSIONER OF INCOME TAX (2009) 118 ITD 04 94 OBSERVED AS FOLLOWS: THE ARGUMENT OF ASSESSEE THAT S. 40(A)(I) SHALL NOT APPLY IN CASE OF SHORT DEDUCTION OF TAX IS NOT TENABLE, ONCE IT IS S HOWN THAT TAX HAS NOT BEEN DEDUCTED IN ACCORDANCE WITH PROVISIONS OF CHAPTER XVII-B, THE BURDEN IS ON THE ASSESSEE TO SHOW THAT EITHER T AX HAS BEEN DEDUCTED OR ASSESSEE WAS NOT REQUIRED TO DO SO. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE CHENNA I A BENCH IN THE ABOVE CASE, I HOLD THAT THE PROVISIONS 40(A) (IA) ARE APPLICABLE IN THE CASE OF SHORT DEDUCTION OF TAX AS WELL. AS FAR AS THE ARGUMENT OF PAID AND PAYABLE IS CONCE RNED I.E., PROVISIONS OF SECTION 40 (A) (IA) OF THE ACT WOULD GET ATTRACTED FOR MAKING DISALLOWANCE OF DEDUCTION CLAIMED ONLY O N THE AMOUNTS SHOWN AS PAYABLE AS AT THE END OF THE PREVI OUS YEAR RELATING TO THE ASSESSMENT YEAR IS CONCERNED THE AR GUMENT OF THE APPELLANT IS ON A WEAK GROUND. THE CONTENTION O F THE APPELLANT THAT THE PROVISIONS OF S.40(A)(IA) ARE NO T APPLICABLE 10 IT A NO.2105/MDS/2015 WITH REGARD TO EXPENSES PAYABLE IS ALSO NOT IN ORDE R. AS OBSERVED BY THE AO, AS PER THE TDS PROVISIONS, THE LIABILITY TO DEDUCT TAX ARISES EITHER AT THE TIME OF CREDIT TO D EDUCTEE'S ACCOUNT OR AT THE TIME OF PAYMENT, WHICHEVER IS EAR LIER. IT IS A BASIC ACCOUNTING PRINCIPLE THAT CREDIT TO AN ACCOUN T PRECEDES ACTUAL PAYMENT. THEREFORE, ONLY THE PAYABLE WILL AT TRACT 'THE PROVISIONS OF 40(A)(IA) AND NOT THE PAID AMOUNT, HA S NO MEANING. THAT WOULD DEFINITELY NOT THE INTENTION OF THE LEGISLATURE. THIS VIEW IS SUPPORTED BY THE DECISION S IN THE FOLLOWING CASES, (I) CIT V. CRESCENT EXPORT SYNDICATE, 216 TAXMAN 2S 8 (CAL.HC) (II) CIT V. SEKANDERKHAN N TANVAR (ITA NO.90S OF 20 12) (GUJ.HC) ON THE OTHER HAND, THE CASE OF MERILYN SHIPPING & T RANSPORTS V. ADDL.CIT (136 ITD 23) (VIZAG.) (SB) THE DECISION OF THE ITAT VIZAG. (SB) WAS STAYED BY THE HIGH COURT OF ANDHRA PRADESH. THERE IS A DIFFERENCE BETWEEN THE WORD 'PAID' AND ' PAYABLE'. THE LEGISLATURE HAS USED THE WORD 'PAYABLE' VERY CAREFU LLY IN SEC. 40(A)(IA). AS NO TAX CAN BE DEDUCTED AFTER THE AMOU NT IS ACTUALLY PAID, THE LEGISLATURE HAS USED THE WORD 'P AYABLE' AND NOT THE WORD 'PAID'. THE AMOUNT OF TAX IS REQUIRED TO BE DEDUCTED BEFORE THE PAYMENT AND NOT AFTER THE PAYME NT, AS IT IS NOT POSSIBLE TO DEDUCT AFTER THE PAYMENT HAS BEEN M ADE. DEDUCTION CAN BE MADE TILL THE AMOUNT IS IN THE HAN DS OF THE PAYER AND NOT WHEN IT REACHES THE HANDS OF THE PAYE E. THE LITERAL MEANING OF THE WORD DEDUCTION IN THE CONTEX T OF THE PROVISIONS OF SEC 40(A)(IA.) COULD BE 'SUBTRACTION' WHICH CAN BE MADE ONLY TILL THE TIME THE AMOUNT IS IN THE HANDS OF THE PAYER. IN VIEW OF THE ABOVE DISCUSSIONS, I AM OF THE CONSI DERED OPINION THAT THE PROVISIONS OF 40(A)(IA) WILL ATTRACT BOTH THE SITUATIONS OF PAID AND PAYABLE, THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS IN ORDER. THE GROUND RAISED BY THE APPELLANT IS DISMISSED. 11 IT A NO.2105/MDS/2015 7.1 BEFORE US, THE LD.AR SUBMITTED THAT THE RECIPIE NT OF THE PROFESSIONAL CHARGES VIZ., M/S. MANOHAR CHOWDHRY AS SOCIATES AND M/S. SAP BPO SERVICES PVT. LTD., HAD FILED THEI R RETURN OF INCOME AND PAID TAX BY INCLUDING THE PROFESSIONAL & CONSULTANCY CHARGES RECEIVED FROM THE ASSESSEE AS INCOME. HE F URTHER SUBMITTED THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, IS AMENDED BY FINANCE ACT, 2012 W.E.F. 01.04.2013, WHE REIN IT WAS STIPULATED THAT THE ASSESSEE WILL NOT BE HELD TO BE IN DEFAULT IF THE RECIPIENT HAS DISCLOSED IN THEIR RETURN OF INCOME A ND PAID TAX ACCORDINGLY. HE FURTHER RELIED IN THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE CIT VS. ANSAL LANDMARK TOWNS HIP PVT. LTD. REPORTED IN 377 ITR 635, WHEREIN IT WAS HELD T HAT SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT IS DECLARAT ORY AND CURATIVE IN NATURE AND THEREFORE HAS RETROSPECTIVE EFFECT FR OM 01.04.2005. HE THEREFORE ARGUED THAT THE MATTER MAY BE REMITTED BACK TO THE FILE OF LD.AO FOR VERIFYING WHETHER THE RECIPIENTS OF THE PROFESSIONAL & CONSULTANCY CHARGES HAVE INCLUDED TH E PROFESSIONAL & CONSULTANCY CHARGES AS INCOME IN THE IR RETURN OF INCOME AND PAID TAX ACCORDINGLY AND IF FOUND SO, DE LETE THE DISALLOWANCE MADE BY THE LD.AO. THE LD.DR ON THE O THER HAND RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 12 IT A NO.2105/MDS/2015 7.2 I HAVE HEARD THE RIVAL SUBMISSION AND CAREFULLY PERUSED THE MATERIAL ON RECORD. I FIND MERIT IN THE SUBMISSION OF THE LD.AR. THEREFORE, I HEREBY REMIT BACK THE MATTER TO THE FI LE OF THE LD.AO TO DECIDE THE ISSUE IN THE LIGHT OF THE DECISION OF THE HONBLE DELHI HIGH COURT SUPRA, AFTER DULY VERIFYING THE RE TURN OF INCOME FILED BY M/S. MANOHAR CHOWDHRY ASSOCIATES AND M/S. SAP BPO SERVICES PVT. LTD WHICH SHALL BE PRODUCED BY THE ASSESSEE BEFORE THE REVENUE AUTHORITIES WITH ALL REQUISITE P ARTICULARS . THIS ISSUE IS ACCORDINGLY DISPOSED OFF. 8. GROUND NO.IV: DEDUCTION U/S.10B OF THE ACT WITH RES PECT TO INTEREST INCOME:- ON PERUSING THE PROFIT & LOSS ACCOUNT, IT WAS REV EALED THAT THE ASSESSEE HAD DISCLOSED INTEREST INCOME OF RS.20 ,48,746/-. THE LD.AO OPINED THAT THE INTEREST INCOME CANNOT BE TREATED AS INCOME ELIGIBLE FOR DEDUCTION U/S.10B OF THE ACT. THEREFORE, HE EXCLUDED THE INTEREST INCOME WHILE COMPUTING DEDUCT ION U/S.10B OF THE ACT. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD.AO, BY OBSERVING AS UNDER:- 4.3. RE-WORKING OF DEDUCTION U/S.10B: THE NEXT GRO UND OF APPEALS RELATES TO THE RE-COMPUTATION OF DEDUCTION U/S.1OB BY 13 IT A NO.2105/MDS/2015 THE ASSESSING OFFICER. ON THIS GROUND, TILE RELEVAN T PORTION OF THE ASSESSMENT ORDER IS AS UNDER: 4. DEDUCTION U/ S 10B 4.1. EXPORT TURNOVER: THE EXPORT REALIZATION DETAILS FURNISHED BY THE ASS ESSEE SHOWS THAT THE REALIZED VALUE INCLUDES GAIN ARISING OUT OF FOR EIGN EXCHANGE FLUCTUATION. IN THE BUSINESS OF EXPORT THE ASSESSEE RAISES BILLS AGAINST THE CUSTOMER. THE RATES MENTIONED IN THE BILL RAISE D IS RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. AT THE SAME TIME HE DEBITS THE ACCOUNT OF THE FOREIGN BUYER. AT THE YEAR END ALSO IF THE SALE PROCEEDS ARE NOT RECEIVED BY THE ASSESSEE THE FOREI GN BUYER IS SHOWN AS SUNDRY DEBTOR. IF THE PROCEEDS ARE NOT RECEIVED THE SAME FINANCIAL YEAR AND RECEIVED AFTER ONE OR TWO YEARS THE FLUCTU ATION ARISING AT THAT TIME MAY NOT HAVE ANY RELEVANCE TO THE TURNOVE R REPORTED FOR THE PREVIOUS YEAR IN WHICH THE SALE OCCURRED. FURTHER T HE ASSESSEE LOOSES ITS RIGHTS OVER THE SOLD ITEMS ON DESPATCH OF THE S AME. THE SALE PROCEEDS SHOULD BE VALUE RECORDED ON THE BOOKS AND THE INCREASE OR DECREASE IN EXCHANGE FLUCTUATION ON THE BILL AMOUNT IS ONLY A SUBSEQUENT ACCRUAL AFTER THE COMPLETION OF THE TRAN SACTION. THE INCREASE/DECREASE IN EXCHANGE FLUCTUATION ARISES OU T OF MARKET FORCES. THUS THE INCREASE IN EXCHANGE FLUCTUATION IS ONLY A N ACCRETION TO THE AMOUNT DUE TO BE RECEIVED BY THE ASSESSEE AND NOT A N ACCRETION TO THE SALE PRICE OF ITEMS EXPORTED. IT IS A TREASURY INCO ME. THOUGH THIS GAIN ARISES IN THE COURSE OF THE EXPORT BUSINESS IT HAS NO DIRECT NEXUS WITH THE BUSINESS OF THE UNDERTAKING AND HENCE NEEDS TO BE EXCLUDED FROM THE EXPORT TURNOVER. 4.2. PROFIT OF THE UNDERTAKING: ON SIMILAR FOOTING DISCUSSED ABOVE THE EXCHANGE GAI N IS EXCLUDED FROM THE PROFIT OF THE UNDERTAKING IN THE COMPUTATI ON OF ELIGIBLE DEDUCTION U/S 10B. 4.3. INTEREST: THE PROFIT & LOSS ACCOUNT INCLUDES OTHER INCOME ALS O WHICH INCORPORATES INTEREST OF RS. 20,48,7461-. INTEREST INCOME CANNOT BE TREATED AS INCOME ELIGIBLE FOR DEDUCTION U/S 10B. A S PER SEC. 10B IT IS AN INCOME DERIVED FROM THE UNDERTAKING WHICH IS ELI GIBLE FOR DEDUCTION. ANY INCOME WHICH IS INCIDENTAL TO OR ATT RIBUTABLE TO THE MAIN BUSINESS OF THE ASSESSEE CANNOT BE TREATED AS INCOME DERIVED 14 IT A NO.2105/MDS/2015 FROM THE UNDERTAKING FOR THE PURPOSE OF DEDUCTION U /S 10B. THEREFORE, THE INTEREST INCOME IS EXCLUDED IN THE COMPUTATION OF DEDUCTION U/S 10B. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT SUB MITTED AS UNDER: THE THIRD ISSUE IN THE PRESENT APPEAL RELATES TO TH E RE-WORKINQ OF THE DEDUCTION CLAIMED IN TERMS OF SECTION 10B OF THE AC T BY EXCLUDING THE EXCHANGE GAIN FROM THE PROFIT OF THE ELIGIBLE U NDERTAKING. THE APPELLANT IN THIS REGARD SUBMITS THAT THE SAID FORE IGN EXCHANGE GAIN WAS DIRECTLY RELATED TO THE EXPORT ACTIVITY AND HAS A CLOSE NEXUS WITH THE EXPORT SALE OF THE ASSESSEE THEREBY MAKING IT P ART OF THE PROFIT OF THE EXPORT UNDERTAKING ELIGIBLE FOR DEDUCTION IN TE RMS OF SECTION 10B OF THE ACT. THE SAID VIEW OF THE APPELLANT IS SUPPORTED BY THE DECISION OF THE JURISDICTIONAL MADRAS HIGH COURT IN THE CASE OF C1T VS PENTASOFT TECHNOLOGIES LTD AND ALSO THE DECISIONS OF THE JURI SDICTIONAL BENCH OF THE INCOME TAX APPELLATE TRIBUNALIN THE CASE OF M/S.CHANGEPOND TECHNOLOGIES VS THE ACIT & IN THE CASE OF M/S. MPS LTD VS THE ACIT (COPIES OF DECISIONS ENCLOSED) WHEREIN THE COU RT HAS HELD THAT WHEN THE FLUCTUATION IN FOREIGN. EXCHANGE RATE WAS SOLELY ATTRIBUTABLE TO THE EXPORT BUSINESS OF THE ASSESSEE AND THE HIGH ER RUPEE VALUE EARNED BY VIRTUE OF SUCH EXPORTS CARRIED OUT BY THE ASSESSEE, THE BENEFIT OF SUCH DEDUCTION WOULD ALSO BE EXTENDED TO SUCH GAINS. THE DECISION OF THE MUMBAI BENCH OF THE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF M/ S RENAISSANCE JEWELLERY P LTD VS THE ITO, THE DECISION OF THE AHMEDABAD BENCH OF THE INCOME T AX: APPELLATE TRIBUNAL IN THE CASE OF THE DCIT VS HARSHA ENGINEER S P LTD. & DECISION OF THE DELHI BENCH OF THE INCOME TAX APPEL LATE TRIBUNAL IN THE CASE OF THE ACIT VS M/ S HEADSTRONG SERVICES IN DIA P LTD (COPIES OF DECISIONS ENCLOSED) WHILE FOLLOWING THE DECISION OF THE MADRAS HIGH COURT EARLIER REFERRED TO HAVE AFFIRMED THE ARGUMENTS OF THE APPELLANT. THE CALCUTTA HIGH COURT IN THE CA SE, REPORTED IN 330 ITR 57 (COPY OF DECISION ENCLOSED) WHILE DEALIN G WITH AN IDENTICAL ISSUE IN THE CONTEXT OF DEDUCTION U/S 80H HC OF THE ACT HAS AFFIRMED THE ARGUMENTS OF THE APPELLANT. ON THE CUM ULATIVE CONSIDERATION OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLANT PRAYS FOR NEGATING THE RE-WORKING OF THE COMPUTATION OF DEDUCTION U/S 10B OF THE ACT IN ALLOWING THE RELATE D GROUNDS OF APPEAL IN THE INTEREST OF JUSTICE. 15 IT A NO.2105/MDS/2015 ALTERNATIVELY, THE APPELLANT BY PLACING RELIANCE ON THE DECISION OF THE SPECIAL BENCH DECISION OF THE JURISDICTIONAL IN COME TAX APPELLATE TRIBUNAL IN THE CASE OF THE ITO VS M/S SA K SOFT LTD (COPY OF DECISION ENCLOSED) PRAYS FOR EXCLUSION OF THE SA ID SUM FROM THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNOVER IN TH E INTEREST OF JUSTICE. THIS ISSUE OF FOREIGN EXCHANGE GAIN IS COVERED BY T HE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF C IT V PENTASOFT TECHNOLOGIES LTD.(347 ITR 578). RESPECTFU LLY FOLLOWING THE JURISDICTIONAL HIGH COURT'S DECISION, THE APPELLANT'S PLEA IS ALLOWED. THE APPELLANT SUCCEEDS ON THIS ACCOUNT. 8.1 BEFORE US THE LD.AR SUBMITTED THAT THE INTEREST INCOME SHOULD BE EXCLUDED NOT ONLY FROM THE EXPORT TURNOVE R BUT ALSO FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U /S.10B OF THE ACT, FOLLOWING THE RATIO IN THE CASE DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT IN CIT V. PENTASOFT TECHN OLOGIES LTD. REPORTED IN 347 ITR 578, WHICH WAS FOLLOWED BY THE LD.CIT(A) IN THE ASSESSEES CASE WHILE DECIDING THE ISSUE ON FOR EIGN EXCHANGE FLUCTUATIONS WITH RESPECT TO SUNDRY DEBTOR S FOR THE RELEVANT ASSESSMENT YEAR. THE LD.DR COULD NOT CONTR OVERT TO THE SUBMISSIONS OF THE LD.AR. 8.2 AFTER HEARING BOTH SIDES, I FIND MERIT IN THE S UBMISSION OF THE ASSESSEE BECAUSE THE INTEREST INCOME WILL NEITH ER FORM PART OF EXPORT TURNOVER NOR TOTAL TURNOVER AS IT HAS TO BE TAXED UNDER 16 IT A NO.2105/MDS/2015 THE HEAD INCOME FROM OTHER SOURCES. THEREFORE TH E RATIO LAID DOWN IN THE CASE PENTASOFT TECHNOLOGIES LTD., SUPRA WILL APPLY IN THE CASE OF THE ASSESSEE. HENCE, I HEREBY DIRECT T HE LD.AO TO DELETE THE INTEREST INCOME FROM THE EXPORT TURNOVER AND TOTAL TURNOVER IF THE SAME IS SO INCLUDED IN THE EXPORT T URNOVER &/OR TOTAL TURNOVER, WHILE COMPUTING DEDUCTION U/S.10B O F THE ACT. IT IS ORDERED ACCORDINGLY. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON THE 21 ST JUNE, 2017. SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER #$ /CHENNAI, %& /DATED 21 ST JUNE, 2017 JR & () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 /GF