ACIT, CHENNAI V. M/s. Ontrack Systems Ltd., CHENNAI

ITA 2110/CHNY/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0849 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-02-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 23-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: PHILIP GEORGE ITA NO M DS
• Keywords: Capital asset
• Section: 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ------- ITA NO. 2110/MDS/2011 ASSESSMENT YEAR : 2005-06 THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(1), CHENNAI. V. M/S. ONTRACK SYSTEMS LTD., BHARAT TOWERS, OFFICE NO.1, 3 RD FLOOR, NO. 30, WEST COTT ROAD, ROYAPETTAH, CHENNAI-600 014. (PAN : AAACO0679E) (APPELLANT) (RESPONDENT) A N D C.O. NO. 130/MDS/2012 (IN ITA NO. 2110/MDS/2011) ASSESSMENT YEAR 2005-06 M/S. ONTRACK SYSTEMS LTD., V. THE ASST. COMMISSIONER BHARAT TOWERS, OF INCOME TAX, OFFICE NO.1, 3 RD FLOOR, CO. CIRCLE-V(1), NO. 30, WEST COTT ROAD, CHENNAI. ROYAPETTAH, CHENNAI-600 014. (CROSS OBJECTOR) (RES PONDENT) DEPARTMENT BY : DR. S. MOHARANA, CIT ASSESSEE BY : SHRI PHILIP GEORGE, ADV OCATE ITA NO.2110/MDS /2011 & CO 130/MDS/2012 : 2 : DATE OF HEARING : 06.02.2013 DATE OF PRONOUNCEMENT : 13.02.2013 O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTIO N BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-VI, CHENNAI DATED 30-09-2011 FOR THE ASSESSMENT YEAR 2005-06. 2. ITA NO. 2110/MDS/2011: BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND FILED A RETURN OF INCOME ADMITTING TOTAL INCOME OF ` 36,28,637/-. THE ASSESSEE IN THE RETURN OF INCOME WHILE CLAIMING DEDUCTION U/S 10A OF THE INCOME-TAX ACT, 1961 ('THE ACT' FOR SHORT), HAD INCLUDED IN THE EXPORT T URNOVER TELECOMMUNICATION CHARGES AND INSURANCE. IN THE AS SESSMENT ORDER, THE ASSESSING OFFICER OBSERVED THAT THE TELECOMMUNICATION CHARGES CLAIMED BY THE ASSESSEE H AVE TO BE EXCLUDED FROM THE TOTAL TURNOVER AND ACCORDINGLY HE EXCLUDED THE SAME. INSOFAR AS THE INSURANCE CLAIM IS CONCERNED, THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE PARTICULARS IN REGARD TO THE NATURE AND DET AILS OF THE ITA NO.2110/MDS /2011 & CO 130/MDS/2012 : 3 : INSURANCE CLAIM. THE ASSESSEE DID NOT RESPOND. TH EREFORE, THE INSURANCE EXPENDITURE ALSO WAS EXCLUDED FROM TH E TOTAL TURNOVER FOR THE PURPOSE OF CALCULATION OF DEDUCTIO N U/S 10A OF THE ACT. 3. ON BEING AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). THE CIT(APPEALS) OBSERVED THAT T HE ASSESSEE COMPANY BEING IN THE BUSINESS OF DEVELOPME NT OF COMPUTER SOFTWARE FOR OVERSEAS CLIENTS ESSENTIALLY REQUIRE INTERNET AND TELECOMMUNICATION INFRASTRUCTURE TO CA RRY ON ITS CORE BUSINESS ACTIVITIES AND HENCE THEY DO NOT FALL UNDER THE EXPLANATION 2 TO SECTION 10 OF THE ACT AND DIRECTED THE ASSESSING OFFICER NOT TO EXCLUDE THESE EXPENDITURE WHILE COMPUTING THE EXPORT TURNOVER TO ARRIVE AT DEDUCTIO N U/S 10A OF THE ACT. INSOFAR AS THE INSURANCE CLAIM IS CONC ERNED, HE OBSERVED THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE INSURANCE EXPENDITURE AND THEREFORE CONFIRMED THE O RDER OF THE ASSESSING OFFICER. 4. ON BEING AGGRIEVED, THE REVENUE HAS FILED THE PR ESENT APPEAL AND THE ASSESSEE HAS FILED THE CROSS OBJECTI ON BEFORE THE TRIBUNAL. AT THE TIME OF HEARING THE LEARNED D R SUBMITTED THAT THE ISSUE IN THIS APPEAL IS CLEARLY COVERED BY THE DECISION ITA NO.2110/MDS /2011 & CO 130/MDS/2012 : 4 : OF THE TRIBUNAL IN THE CASE OF RR DONNELLEY INDIA O UTSOURCE PRIVATE LTD. IN ITA NO. 1302/MDS/2008 AND C.O. NO. 16/MDS/2009 DATED 19-08-2011. 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE FAIRLY CONCEDED THAT THE ISSUE IS COVERED AGAINST T HE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE CASE OF RR D ONNELLEY INDIA OUTSOURCE PRIVATE LTD. (SUPRA). HOWEVER, HE SUBMITTED THAT ONCE THE TELECOMMUNICATION CHARGES ARE EXCLUDE D FROM THE EXPORT TURNOVER, THE SAME HAS TO BE EXCLUDED FR OM TOTAL TURNOVER ALSO. 6. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECORD S AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE TRIBUNAL IN THE CASE OF RR DONNELLEY INDIA OUTSOURC E PRIVATE LIMITED (SUPRA) HAS OBSERVED AS UNDER : TELECOMMUNICATION CHARGES WHICH ADMITTEDLY WERE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA, HAD TO BE EXCLUDED FROM THE EXPORT TURNOVER WHETHER OR NOT BILLINGS OF THE ASSESSEE SPECIFICALLY INCLUDED SUCH TELECOMMUNICATION EXPENSES. EFFECT OF ANY EXCLUSIO N FROM A GIVEN SUM WILL BE REDUCTION OF SUCH SUM AND THE STRENUOUS EFFORT TO DIFFERENTIATE BETWEEN EXCLUSION AND REDUCTION IS, IN OUR OPINION, AN ITA NO.2110/MDS /2011 & CO 130/MDS/2012 : 5 : ENDEAVOUR TO STRETCH INTERPRETATION OF ORDINARY WOR DS TO OUT OF ORDINARY MEANING. SPECIAL BENCH IN THE CASE OF SAK SOFT LTD. (SUPRA) HELD AS UNDER AT PARA 27 OF ITS ORDER :- 27. AT THIS JUNCTURE, IT IS NECESSARY TO REFER TO ONE ASPECT OF THE MATTER. IT MAY BE AN EASY TASK TO EXCLUDE THE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA FROM THE EXPORT TURNOVER AND THE TOTAL TURNOVER IF THEY ARE SEPARATELY MENTION3ED IN THE INVOICE RAISED BY THE ASSESSEE. IN THE COURSE OF THE ARGUMENTS ADDRESSED ON BEHALF OF M/S SAK SOFT LTD. A QUESTION AROSE AS TO WHAT WOULD HAPPEN IF THESE ITEMS ARE NOT SEPARATELY SHOWN IN THE INVOICE AND ARE INCLUDED IN THE TOTAL AMOUNT RAISED BY THE INVOICE. IT WAS CONCEDED ON BEHALF OF THE ASSESSEE BY ITS LEARNED REPRESENTATIVE THAT IN SUCH A CASE, THE A.O. WILL HAVE THE POWER TO GO BEHIND THE INVOICE AND FIND OUT HOW MUCH OF THE INVOICE AMOUNT PERTAINS TO THE RECOVERY OF THE AFORESAID ITEMS. WE ARE ALSO OF THE VIEW THAT IN AN APPROPRIATE CASE IT WOULD BE OPEN TO THE A.O. TO EXERCISE SUCH A POWER IN ORDER TO APPLY THE FORMULA IN MEANINGFUL MANNER. AS ALREADY MENTIONED BY US, IN THE CASE BEFORE US I T IS AN ADMITTED POSITION THAT TELECOMMUNICATION CHARGES , WHICH WAS NOT CONSIDERED BY THE A.O. FOR WORKING OU T DEDUCTION UNDER SECTION 10B OF THE ACT, WERE ATTRIBUTABLE TO DELIVERY OF COMPUTER SOFTWARE OUTSI DE INDIA. HENCE, THERE WAS NO NECESSITY TO GO BEHIND THE ITA NO.2110/MDS /2011 & CO 130/MDS/2012 : 6 : INVOICES RAISED BY THE ASSESSEE AT ALL. WITH REGAR D TO THE EXPENSES INCURRED IN FOREIGN EXCHANGE FOR PROVIDING TECHNICAL SERVICES OUTSIDE INDIA, LEARNED COUNSEL FOR THE ASSESSEE, AS EARLIER STATED BY US, DID NOT PRESS THE RELATED GROUND IN THE CROSS-OBJECTION . COMING TO THE CASE OF THE REVENUE THAT SUCH AMOUNTS SHOULD NOT HAVE BEEN EXCLUDED FROM TOTAL TURNOVER, WE ARE UNABLE TO ACCEPT. THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF SAK SOFT LTD. (SUPRA) HAS C LEARLY HELD THAT WHATEVER HAS BEEN EXCLUDED FROM EXPORT TURNOVER HAD TO BE EXCLUDED FROM TOTAL TURNOVER ALS O SINCE TOTAL TURNOVER INCLUDED EXPORT TURNOVER AS WE LL. 7. IN VIEW OF THE ABOVE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL, THIS GROUND OF APPEAL RAISED BY THE REVENUE IS ALLOWED. HOWEVER, WE DIRECT THE ASSESSING OFFICER THAT WHATEVER HAS BEEN EXCLUDED FROM THE EXPORT TURNOVER HAS TO BE EXCLUDED FROM THE TOTAL TURNOVER ALSO SINCE THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER AS WELL AND DIREC T THE ASSESSING OFFICER TO CALCULATE THE DEDUCTION U/S 10 A ACCORDINGLY. 9. C.O. NO. 130/MDS/2012: THE FIRST GROUND IN THE ASSESSEES CROSS OBJECTION RELATES TO THE ADDIT ION OF ` 8,60,000/- IN RESPECT OF LOSS OF ADVANCE FOR PURCHA SE OF LAND. ITA NO.2110/MDS /2011 & CO 130/MDS/2012 : 7 : THE ASSESSING OFFICER OBSERVED THAT ALTHOUGH THE AS SESSEE COMPANY HAD ENTERED INTO A MOU AND POSSESSED A RIGH T OVER THE RELEVANT LAND REFERRED TO IN THE MOU, FOR SOME REASONS IT HAS NOT PURCHASED THE SAME LAND BUT HAS DECIDED TO PURCHASE ANOTHER PIECE OF LAND/BUILDING. THE ASSESSING OFFI CER OBSERVED THAT THE SAME EXPENDITURE INCURRED BY THE ASSESSEE BY ENTERING INTO THE MOU CANNOT BE TREATED AS A REVENU E EXPENDITURE BUT ONLY AS A CAPITAL LOSS. 10. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MA TTER IN APPEAL BEFORE THE CIT(APPEALS) AND THE CIT(APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBS ERVING THAT THE ASSESSEE COMPANY HAD ADVANCED CERTAIN AMOUNTS F OR THE PURCHASE OF THE LAND FOR THE PURPOSE OF ACQUISITION OF ASSET AND ANY LOSS ON ACCOUNT OF THAT IS TO BE TREATED AS A CAPITAL LOSS. 11. ON BEING AGGRIEVED, THE ASSESSEE HAS FILED THE PRESENT CROSS OBJECTION BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADVANCE WAS GIVEN BY TH E ASSESSEE TO ACQUIRE THE LAND FOR THE PURPOSE OF BUS INESS AND THEREFORE IT IS A BUSINESS LOSS AND THE SAME HAS TO BE ALLOWED. ITA NO.2110/MDS /2011 & CO 130/MDS/2012 : 8 : 12. ON THE OTHER HAND, THE LEARNED DR STRONGLY SUPP ORTED THE ORDERS PASSED BY THE AUTHORITIES BELOW. 13. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECOR DS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAD ADVANCED AN AMO UNT OF ` 8,60,000/- TO AN AGENT TO PURCHASE THE LAND. DUE T O CERTAIN DIFFERENCES AND REASONS BEST KNOWN TO THE ASSESSEE THE LAND WAS NOT ACQUIRED AND THE SAME AMOUNT WAS NOT RECEIV ED BACK. THUS THE AMOUNT ADVANCED BY THE ASSESSEE WAS FOR THE PURPOSE OF ACQUIRING A CAPITAL ASSET AND THEREFORE THE LOSS SUFFERED HAS TO BE CONSIDERED AS CAPITAL LOSS. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE CIT(APPEALS). THE GROUND RAISED BY THE ASSESSEE IN THE CROSS OBJECTION IS THEREFORE DISMISSED. 14. THE NEXT GROUND IN THE CROSS OBJECTION RELATES TO THE EXCLUSION OF INSURANCE EXPENSES FROM EXPORT TURNOVE R FOR CALCULATION OF DEDUCTION UNDER SECTION 10A OF THE A CT. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT INCLUDED INSURANCE EXPENSES IN THE TOTAL TURNOVER FOR THE PURPOSE OF C ALCULATING SECTION 10A DEDUCTION. THE ASSESSING OFFICER WHEN ASKED TO ITA NO.2110/MDS /2011 & CO 130/MDS/2012 : 9 : PRODUCE NATURE AND DETAILS, THE DETAILS WERE NOT FI LED BY THE ASSESSEE. BEFORE THE CIT(APPEALS) ALSO NO DETAILS W ERE FURNISHED. THEREFORE, THE CIT(APPEALS) CONFIRMED T HE ORDER OF THE ASSESSING OFFICER IN THIS REGARD. EVEN BEFORE US ALSO NO SUCH DETAILS ARE FILED. THE LEARNED COUNSEL FOR TH E ASSESSEE SUBMITTED THAT THE INSURANCE AMOUNT MAY BE EXCLUDED FROM THE TOTAL TURNOVER. 15. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECOR DS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FOR THE SAKE OF CLARITY, SUB-CLAUSE (IV) OF EXPLANATION 2 T O SECTION 10A OF THE ACT IS EXTRACTED AS UNDER : (IV) EXPORT TURNOVER MEANS THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB-SECTION (3), BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA; ITA NO.2110/MDS /2011 & CO 130/MDS/2012 : 10 : 16. ACCORDING TO THE ABOVE SUB-CLAUSE (IV), INSURAN CE IS SPECIFICALLY EXCLUDED FROM THE EXPORT TURNOVER. TH EREFORE, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE C IT(APPEALS). THIS GROUND RAISED BY THE ASSESSEE IN THE CROSS OBJ ECTION IS THEREFORE DISMISSED. HOWEVER, WE DIRECT THE ASSESS ING OFFICER THAT IF THE INSURANCE IS INCLUDED IN THE TOTAL TURN OVER, THE SAME SHOULD BE EXCLUDED AND CALCULATE THE DEDUCTION UNDE R SECTION 10A OF THE ACT. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 13 TH OF FEBRUARY, 2013, AT CHENNAI. SD/- SD/- (ABRAHAM P. GEORGE) (V.DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 13 TH FEBRUARY, 2013. H. COPY TO: ASSESSEE/AO/CIT(A)/CIT/D.R./GUARD FILE