ITO (OSD), CHENNAI V. M/s. RR Donelley India Outsource P. Ltd., CHENNAI

ITA 2145/CHNY/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51960 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R VIJAYARAGHAVAN
• Assessee Lawyers: P R RAVIKUMAR
• Keywords: Search and seizure
• Section: 80HHC; 10B; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NOS. 1989/MDS/2010 I.T.A. NO. 1990/MDS/2010 (ASSESSMENT YEARS : 2003-04 & 2005-06) M/S RR DONNELLEY INDIA OUTSOURCE PVT. LTD., (FORMERLY ASTRON DOCUMENT MANAGEMENT PVT. LTD.), 43A, 1 ST MAIN ROAD, RA PURAM, CHENNAI 600 028. PAN : AABCH2814B (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(4), CHENNAI 600 034. (RESPONDENT) I.T.A. NO. 2145/MDS/2010 (ASSESSMENT YEAR : 2005-06) THE INCOME TAX OFFICER (OSD), COMPANY CIRCLE V(4), CHENNAI 600 034. (APPELLANT) V. M/S RR DONNELLEY INDIA OUTSOURCE PVT. LTD., (FORMERLY ASTRON DOCUMENT MANAGEMENT PVT. LTD.), 43A, 1 ST MAIN ROAD, RA PURAM, CHENNAI 600 028. (RESPONDENT) APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE RESPONDENT BY : SHRI P.R. RAVIKUMAR , CIT-D.R. DATE OF HEARING : 04.10.2011 DATE OF PRONOUNCEMENT : 14.10.2011 I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 2 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : FIRST OF THE ABOVE APPEALS OF THE ASSESSEE IS FOR ASSESSMENT YEAR 2003-04, WHEREAS OTHER TWO ARE CROSS APPEALS F OR ASSESSMENT YEAR 2005-06. 2. APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2003- 04 IN I.T.A. NO. 1989/MDS/2010 IS TAKEN UP FIRST FOR DISPOSAL. 3. SOLE ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING NON-CONSIDERATION OF ITS CLAIM FOR DEDUCTION, OF 10 % PROFITS FROM EXPORT BUSINESS UNDER SECTION 80HHE OF INCOME-TAX A CT, 1961 (IN SHORT THE ACT), BEING THE BALANCE LEFT AFTER ITS CLAIM FOR DEDUCTION UNDER SECTION 10B OF THE ACT. 4. ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10B OF THE ACT FOR ITS EXPORT BUSINESS AND SUCH DEDUCTION WAS ALLO WED TO THE EXTENT 90%. THE ASSESSMENT YEAR INVOLVED BEING 2003-04, T HE DEDUCTION AVAILABLE UNDER SECTION 10B WAS ONLY 90% OF THE TOT AL ELIGIBLE PROFITS. HOWEVER, FOR THE BALANCE 10%, ASSESSEE CLAIMED DEDU CTION UNDER I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 3 SECTION 80HHE OF THE ACT. BOTH THE A.O., AS WELL A S LD. CIT(APPEALS) IN THE SUBSEQUENT APPEAL OF THE ASSESSEE, HELD THAT SIMULTANEOUS DEDUCTION UNDER SECTIONS 10B AND 80HHE COULD NOT BE ALLOWED AND FOR THIS PURPOSE, RELIANCE WAS PLACED ON THE DECISI ON OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SAMTEX FASHIO N LTD. V. ACIT (92 ITD 535) (DELHI) AND ACIT V. MAHAVIR SPINNING MILLS LTD. (110 ITD 211) (CHANDIGARH). 5. NOW BEFORE US, ASSAILING THE ORDERS OF AUTHORITI ES BELOW, LEARNED A.R. SUBMITTED THAT SIMILAR ISSUE WAS CONSI DERED BY ANOTHER CO-ORDINATE BENCH OF THIS TRIBUNAL IN I.T.A. NOS. 4 14 & 593/MDS/2007 IN THE CASE OF COVANSYS (INDIA) PVT. LTD. AND VIDE ITS ORDER DATED 18.3.2011, IT WAS HELD THAT EXEMPTION UNDER SECTION 80HHE COULD NOT BE DENIED TO ASSESSEE SIMPLY BECAUSE IT HAD AVAILED DEDUCTION UNDER SECTION 10B OF THE ACT. 6. PER CONTRA, LEARNED D.R. ONCE AGAIN RELIED ON TH E DECISION OF CHANDIGARH BENCH OF THIS TRIBUNAL IN THE CASE OF MA HAVIR SPINNING MILLS LTD. (SUPRA). I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 4 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. IN THE CASE OF MAHAVIR SPINNING MILLS LTD. (SUPRA) CON SIDERED BY THE CHANDIGARH BENCH OF THIS TRIBUNAL, PLEA OF ASSESSEE -CONCERNED WAS FOR SIMULTANEOUS DEDUCTIONS UNDER SECTION 10B AND S ECTION 80HHE OF THE ACT, WHEN FOR THE RELEVANT ASSESSMENT YEAR T HERE, RATE OF DEDUCTION UNDER SECTION 10B ITSELF WAS 100%. HOWEV ER, HERE BY VIRTUE OF AMENDMENT IN SECTION 10B OF THE ACT WITH EFFECT FROM 1.4.2003 BY FINANCE ACT, 2002, DEDUCTION AVAILABLE UNDER SECTION 10B HAS BEEN CURTAILED TO 90%. THEREFORE, THE QUES TION WHETHER, BALANCE OF THE PROFITS REMAINING AFTER SUCH DEDUCTI ON, COULD BE CONSIDERED UNDER SECTION 80HHE OR SECTION 80HHC WAS NEVER EXAMINED BY THE CHANDIGARH BENCH. SIMILAR ARE THE FACTS IN THE CASE DECIDED BY DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF SAMTEX FASHION LTD. (SUPRA). ON THE OTHER HAND, WE FIND T HAT IN THE CASE OF COVANSYS (INDIA) PVT. LTD. (SUPRA), THIS BENCH HAD EXAMINED ISSUE AND HELD AS UNDER AT PARAS 6 TO 9 IN ITS ORDER: - 6. THERE IS NO DISPUTE REGARDING ELIGIBILITY OF THIS ASSESSEE FOR DEDUCTIONS UNDER BOTH THESE SECTIONS. THE ASSE SSEE IS ELIGIBLE TO CLAIM DEDUCTION U/S 10B AS WELL AS UNDER SECTION 80HHE. BUT STILL THE QUESTION REMAINS IF THE ASSESSEE CAN SIMU LTANEOUSLY CLAIM DEDUCTIONS UNDER BOTH THESE SECTIONS OR IT CAN CLAI M UNDER EITHER ONE OR THE OTHER. WHEN THE ASSESSEE IS ENTITLED T O DEDUCTION UNDER BOTH THESE SECTIONS, CAN IT CLAIM DEDUCTION U /S 80HHE OUT OF THE REMNANT, WHICH REMAINED BEHIND AFTER ALLOWAN CE OF 90% DEDUCTION U/S 10B. THE CONJOINT READING OF THESE S ECTIONS IN OUR CONSIDERED OPINION CLEARLY ESTABLISHES THAT THE ASSE SSEE IS ELIGIBLE UNDER BOTH SECTIONS TO CLAIM RESPECTIVE DEDUCTIONS. OTHERWISE, THE PROVISIONS OF SECTION 80HHE WOULD NOT BE IN HAR MONY WITH THE PROVISIONS OF SECTION 10B AND WOULD BECOME REDUNDAN T OR OTIOSE, IN SO FAR AS ELIGIBILITY OF ANY UNDERTAKING FALLING UNDE R BOTH THESE SECTIONS. EARLIER WHEN SUCH ELIGIBLE UNITS WERE EN TITLED FOR 100% DEDUCTION U/S 10B, SUCH A SITUATION WOULD HAVE NEVE R ARISEN. THE LEGISLATURE IN ITS WISDOM HAS REDUCED 100% DEDUCTIO N U/S 10B TO 90% AND HAS RETAINED 10% PROFIT OF SUCH UNIT TO BE CHARGED TO TAX. IT SEEMS THE LEGISLATURE WAS CONSCIOUS ABOUT SUCH A SITUATION AS THAT IS WHY IT HAS SPECIFICALLY EXCLUDED DEDUCTIONS U/S I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 5 80HH, 80-I, 80-IA AND 80-IB BUT HAS NOT EXCLUDED UN DER SECTION 80HHE. SECTION 10B(6)(III) HAS SPECIFICALLY MENTION ED ABOUT CERTAIN SECTIONS UNDER WHICH NO SIMULTANEOUS DEDUC TION CAN BE CLAIMED AND ALLOWED AFTER CLAIMING DEDUCTION U/S 10 B OF THE ACT FROM SUCH PROFITS. BUT PROVISIONS OF SECTION 80HHE HAVE NOT BEEN INCLUDED AND OR TO SAY HAS BEEN SPECIFICALLY EXCLUDE D MEANING THEREBY THE ASSESSEE IS PERMITTED TO CLAIM SIMULTANE OUS DEDUCTIONS UNDER BOTH SECTIONS. IT WOULD NOT BE A CASE OF DOUBLE DEDUCTION AT ALL, AS HAS BEEN CANVASSED BY THE LD.DR . LET US NOW TREAD THROUGH THE PRECEDENTS, IF ANY, AVAILABLE IN R EGARD TO OUR ABOVE FINDING. THE LD.AR HAS PLACED RELIANCE ON TH E DECISION OF THE HON'BLE MADRAS HIGH COURT RENDERED IN THE CASE OF CIT VS M/S AMBATTURE CLOTHING LTD, IN TAX CASE (APPEAL) NO .695 OF 2010, JUDGMENT DATED 2.8.2010, WHICH IS UNREPORTED JUDGMENT, A COPY OF WHICH WAS FILED BEFORE THE BENCH. IN THIS D ECISION, IN OUR OPINION, THE ISSUE INVOLVED IS EXACTLY IDENTICAL TO THE ISSUE INVOLVED IN THE PRESENT APPEAL. IN THE CASE BEFORE THE HON' BLE MADRAS HIGH COURT, THE ASSESSEE, AN EXPORT CONCERN, CLAIME D THE BENEFITS U/S 10A/10B APART FROM CLAIMING DEDUCTION U/S 80HHC OF THE ACT, FOR THE REMAINING 10% OF THE PROFITS. ACCORDING TO THE ASSESSING OFFICER, SUCH A CLAIM U/S 80HHC IN RESPECT OF REMA INING 10% OF THE PROFIT AMOUNTED TO DOUBLE DEDUCTION, WHICH IS NOT PERMISSIBLE. SO, HE RECTIFIED THE ORDER AFTER INVO KING SECTION 154 OF THE ACT WHEN ORIGINALLY THE ASSESSING OFFICER HAD ALLOWED SUCH A DEDUCTION. THE TRIBUNAL HAD STRUCK DOWN THE CONF IRMATION OF 154 ORDER MADE BY THE LD. CIT(A) BY OBSERVING THAT WH EN TWO POSSIBLE VIEWS WERE AVAILABLE ON THE ISSUE, RECTIFI CATION U/S 154 CANNOT BE PASSED. BUT THE HON'BLE HIGH COURT HAS D ECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE APART FROM THE CONC LUSION OF THE TRIBUNAL BY OBSERVING AS UNDER: 4. WHEN WE EXAMINE THE ISSUE RAISED IN THIS APPEA L, AT THE VERY OUTSET, IT WILL HAVE TO BE POINTED OUT THAT EVEN UN DER SECTION 10A(6)(II) OF THE ACT, THERE IS A SPECIFIC PROVISIO N, WHICH READS AS UNDER : NO DEDUCTION SHALL BE ALLOWED UNDER SECTIO N 80HH OR SECTION 80HHA OR SECTION 80-I OR SECTION 80-IA OR S ECTION 80-IB IN RELATION TO THE PROFITS AND GAINS OF THE UNDERTAKIN G; AND I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 6 5. THE VERY STATUTORY PROVISION PRESCRIBING A PROH IBITION IN RESPECT OF THE DEDUCTIONS IN RELATION TO THE PROFITS AND GAINS ITSELF, HAS NOT SPECIFICALLY INCLUDED SECTION 80HHC. APPARENTLY, I T THEREFORE WOULD ONLY MEAN THAT THERE WAS NO PROHIBITION FOR CLAIMIN G ANY DEDUCTION UNDER SECTION 80HHC WHILE APPLYING THE BENEFITS PRO VIDED UNDER SECTION 10A OF THE ACT. IF THAT IS THE STATUTORY P RESCRIPTION, BY WHICH THE ASSESSEE WAS ENTITLED TO CLAIM A BENEFIT UNDER SECTION 80HHC IN RELATION TO THE PROFITS AND GAINS WHILE INVOKING SE CTION 10A, IT WILL HAVE TO BE CONCLUDED THAT THE ASSESSMENT ORDER IN H AVING ALLOWED SUCH A DEDUCTION OF THE REMAINING 10% OF THE PROFIT S EARNED BY THE ASSESSEE, WAS NOT ERRONEOUS. IN ANY EVENT, HAVING REGARD TO SUCH A STATUTORY PRESCRIPTION AVAILABLE FOR THE ASSESSEE T O CLAIM THE BENEFIT UNDER SECTION 80HHC IN RESPECT OF THE PROFITS EARNE D FROM SECTION 10A OF THE ACT, THERE IS ABSOLUTELY NO SCOPE FOR TH E ASSESSING AUTHORITY TO HAVE INVOKED SECTION 154 OF THE ACT, I N ORDER TO STATE THAT, THAT CAN BE CONSIDERED AS AN ERROR APPARENT, INASMUCH AS, THERE WAS NO ERROR AT ALL, MUCH LESS, APPARENT ERROR TO B E RECTIFIED BY THE ASSESSING AUTHORITY. 7. THUS, THE HON'BLE MADRAS HIGH COURT HAS SPECIFIC ALLY HELD THAT THERE IS NO SCOPE FOR INVOKING THE PROVISIONS OF SECTION 154 WHEN THE DEDUCTION UNDER BOTH THE SECTIONS IS SPECI FICALLY AVAILABLE TO THE ASSESSEE. WE ARE NOT IN AGREEMENT WITH THE OBJECTION OF THE LD.DR THAT THE DECISION RENDERED B Y THE HON'BLE HIGH COURT WAS IN THE CONTEXT OF RECTIFICATORY PROVI SION OF SECTION 154. THE REASON FOR THE SAME ARE SELF-EXPLANATORY A S CONTAINED IN PARAGRAPHS 4 & 5 OF THE DECISION OF HON'BLE MADRAS HIGH COURT. HENCE, THE HON'BLE MADRAS HIGH COURTS DECISION SUP PORTS OUR ABOVE FINDING. 8. FURTHER, THE DECISION OF THE ITAT, KOLKATA, IN T HE CASE OF HINDUSTAN GUM AND CHEMICALS LTD VS ITO, [2008] 23 S OT 143, AGAIN IS ON THE SAME ISSUE, IN WHICH IT HAS BEEN HE LD THAT THE REMAINING 10% TAXABLE INCOME IS PART OF PROFITS AN D GAINS OF BUSINESS OR PROFESSION. THIS FINDING SUPPORTS THE CONCLUSION TAKEN IN THIS REGARD. 9. ANOTHER DECISION IS OF ITAT, DELHI BENCH, IN THE CASE OF DY. CIT VS INTERRA SOFTWARE (INDIA) (P) LTD, [2007] 112 TTJ (DEL) I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 7 982 [COPY ON RECORD] ALSO SUPPORTS OUR ABOVE FINDING BECAUSE IN THAT CASE IT HAS BEEN SPECIFICALLY HELD THAT SUB-SEC TION (5) OF SECTION 80HHC DOES NOT DEBAR CLAIM FOR DEDUCTION UN DER ANY OTHER PROVISION IN RESPECT OF PROFITS OF THE ELIGI BLE BUSINESS FOR ANY OTHER ASSESSMENT YEAR AND THEREFORE, EXEMPTION U/ S 10A CANNOT BE DENIED TO THE ASSESSEE SIMPLY BECAUSE IT H AS AVAILED THE DEDUCTION U/S 80HHE IN AN EARLIER YEAR. THIS DECISI ON ALSO SUPPORTS OUR CONCLUSION THAT CLAIMING DEDUCTION UN DER SECTIONS 10B AND 80HHE WOULD NOT AMOUNT TO DOUBLE DEDUCTION IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. AS A RESULT, WE ALLOW GROUND NO.1 OF ASSESSEES APPEAL. WE ARE, THEREFORE, OF THE OPINION THAT THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF COVANSYS (IND IA) PVT. LTD. (SUPRA) IS SQUARELY APPLICABLE ON FACTS HERE. HENC E, THE APPEAL OF THE ASSESSEE HAS TO SUCCEED. ASSESSEE CANNOT BE DENIED DEDUCTION OF 90% OF ITS EXPORT PROFITS UNDER SECTION 10B OF THE ACT AND DEDUCTION UNDER SECTION 80HHE OF THE ACT ON THE BALANCE 10% L EFT AFTER ITS CLAIM FOR DEDUCTION UNDER SECTION 10B OF THE ACT. 8. NOW WE TAKE UP ASSESSEES APPEAL AND CROSS APPEA L OF THE REVENUE FOR ASSESSMENT YEAR 2005-06. 9. ASSESSEE IN ITS APPEAL HAS RAISED THREE ISSUES. FIRST ONE IS REGARDING FOREIGN EXCHANGE FLUCTUATION GAIN ON EEFC ACCOUNT WHETHER ELIGIBLE TO BE CONSIDERED FOR DEDUCTION UND ER SECTION 10B OF I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 8 THE ACT, SECOND ONE IS REGARDING EXCLUSION OF TELEC OMMUNICATION EXPENDITURE FROM EXPORT TURNOVER AND THE THIRD ONE IS REGARDING EXCLUSION OF EXPENDITURE IN FOREIGN CURRENCY FROM E XPORT TURNOVER. 10. AS AGAINST THIS, REVENUE IN ITS APPEAL IS AGGRI EVED THAT THE CIT(APPEALS) DIRECTED EXCLUSION OF TELECOMMUNICATIO N EXPENSES AND FOREIGN CURRENCY EXPENSES FROM TOTAL TURNOVER AND A LSO REGARDING HIS DIRECTION FOR DIVIDING THE TELECOMMUNICATION CHARGE S IN PROPORTION OF EXPORT SALES TO THE LOCAL SALES. SINCE THESE ISSUE S ARE RELATED, WE ARE CONSIDERING IT TOGETHER. 11. VIS--VIS THE FIRST ISSUE RAISED BY THE ASSESSE E REGARDING FOREIGN EXCHANGE FLUCTUATION GAIN TO BE CONSIDERED AS PART OF ELIGIBLE PROFITS FOR WORKING OUT DEDUCTION UNDER SECTION 10B OF THE ACT, WE FIND THAT CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASS ESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 IN I.T.A. NO. 1302/MDS/ 2008 AND C.O. NO. 16/MDS/2009 DATED 19 TH AUGUST, 2011 HAD NEGATIVED THIS CONTENTION. IT WAS HELD AT PARA 8 AS FOLLOWS:- 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. DEDUCTION UNDER SECTION 10B OF THE AC T, AS PER SUB- I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 9 SECTION (1) THEREOF, IS ON THE PROFITS AND GAINS DE RIVED BY A 100% EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTI CLES OR THINGS OR COMPUTER SOFTWARE. IF WE HAVE A LOOK AT SECTION 80HHC OF THE ACT, SUB-SECTION (1) THEREOF CLEARLY ME NTIONS THAT DEDUCTION THEREUNDER IS AVAILABLE ONLY ON THE PROFIT S DERIVED BY THE ASSESSEE FROM EXPORT OF GOODS OR MERCHANDISE. SO, BOTH THE SECTIONS 10B AND 80HHC OF THE ACT SPECIFICALLY STIPU LATE THAT THE PROFIT FOR BEING ELIGIBLE FOR DEDUCTION, SHOULD BE DERIVED FROM THE EXPORT. IN THIS RESPECT, THERE IS NO DIFF ERENCE BETWEEN THESE TWO SECTIONS. HENCE, WE CANNOT ACCEPT THE AR GUMENT OF THE LEARNED A.R. THAT THE DECISION OF HON'BLE BOMBA Y HIGH COURT IN SHAH ORIGINALS (SUPRA) GIVEN IN THE CONTEXT OF S ECTION 80HHC WOULD NOT HAVE ANY APPLICABILITY. IT WAS CLEARLY HELD BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF SHAH ORIGINALS (SUP RA) THAT EXCHANGE FLUCTUATION IN EEFC ACCOUNT ARISING AFTER COMPLETION OF EXPORT ACTIVITY, DID NOT BEAR A PROXIMATE AND DIRECT NEXUS WITH THE EXPORT TRANSACTION SO AS TO FALL WITHIN THE EXP RESSION DERIVED BY THE ASSESSEE. NO DIFFERENTIATION HAS B EEN MADE OUT AS TO THE POINT OF CONVERSION OF BALANCE IN EEFC AC COUNT TO INDIAN RUPEE ACCOUNT. WHATSOEVER, THIS POINT MAY BE , WHETHER IN THE PREVIOUS YEAR OR SUBSEQUENT YEAR, THE SITUATION R EMAINS VERY SAME. CONVERSION GAINS WERE NOT ARISING ON ACCOUNT OF THE EXPORT ACTIVITY AND DID NOT HAVE ANY PROXIMATE OR DIRECT NEX US WITH EXPORT TRANSACTION. WE ARE, THEREFORE, OF THE OPIN ION THAT THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN THE CA SE OF M/S RISHABH INTERNATIONAL RELIED ON BY LD. CIT(APPEALS), DID NOT HAVE ANY APPLICABILITY IN VIEW OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF SHAH ORIGINALS (SUPRA). THUS GAINS DERIVED BY THE ASSESSEE ON CONVERSION OF FUNDS LIKE EEFC ACC OUNT TO INDIAN RUPEE ACCOUNT, WOULD NOT BE ELIGIBLE FOR DED UCTION UNDER SECTION 10B OF THE ACT. GROUND NO.2, THEREFORE, ST ANDS ALLOWED. 12. FOLLOWING THIS DECISION, WE ARE OF THE OPINION THAT ASSESSEE CANNOT SUCCEED ON THIS GROUND. I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 10 13. SECOND ISSUE RAISED BY THE ASSESSEE WHICH IS RE GARDING EXCLUSION OF TELECOMMUNICATION EXPENDITURE FROM EXP ORT TURNOVER, HAS ALSO BEEN DECIDED BY THIS TRIBUNAL IN ASSESSEES OW N CASE IN I.T.A. NO. 1302/MDS/2008 AND C.O. NO. 16/MDS/2009 VIDE ITS ORDER DATED 19 TH AUGUST, 2011. IT WAS HELD AT PARA 15, AS UNDER:- 15. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THOUGH THE A.O. HAS CONSIDERED DEFINI TION OF EXPORT TURNOVER AS GIVEN IN SUB-CLAUSE (IV) OF EX PLANATION 2 TO SECTION 10A OF THE ACT, ASSESSEE HERE HAD CLAIMED D EDUCTION UNDER SECTION 10B, AND THEREFORE, DEFINITION OF THE SAID TERM AS GIVEN IN SECTION 10B WILL BE MORE APPROPRIATE. DEF INITION OF EXPORT TURNOVER AS GIVEN IN CLAUSE (III) OF EXPLA NATION 2 TO SECTION 10B OF THE ACT RUNS AS UNDER:- (III) EXPORT TURNOVER MEANS THE CONSIDERATION I N RESPECT OF EXPORT [BY THE UNDERTAKING] OF ARTICLES O R THINGS OR COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANG E IN ACCORDANCE WITH SUB-SECTION (3), BUT DOES NOT INCLU DE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THIN GS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHN ICAL SERVICES OUTSIDE INDIA. AS PER LEARNED A.R., THE DEFINITION OF EXPORT TURN OVER DOES NOT MANDATE ANY REDUCTION OF TELECOMMUNICATION CHARGES, BUT, ONLY STIPULATES EXCLUSION OF SUCH TELECOMMUNICATION CHAR GES. SUCH TELECOMMUNICATION CHARGES WERE NEVER PART OF THE AM OUNTS INVOICED BY THE ASSESSEE AND HENCE THERE COULD BE NO EXCLUSION I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 11 THEREOF FROM EXPORT TURNOVER. WE ARE AFRAID WE ARE UNABLE TO ACCEPT THIS LINE OF REASONING. LEARNED A.R. HAS NO T REBUTTED WITH ANY EVIDENCE, FINDINGS OF THE A.O. THAT TELECOMMUNIC ATION CHARGES WERE INCURRED BY THE ASSESSEE FOR DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA AND SUCH EXPENSES WERE ATTRI BUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. WH EN THE EXPENSES WERE INCURRED FOR DELIVERY OF COMPUTER SOF TWARE OUTSIDE INDIA, EVEN IF THE ASSESSEE HAD NOT INVOICE D SUCH AMOUNTS SPECIFICALLY IN ITS BILLS RAISED ON ITS CUSTOMERS AB ROAD, THE AMOUNTS WOULD HAVE DEFINITELY BEEN FIXED, TAKING INT O CONSIDERATION SUCH TELECOMMUNICATION EXPENSES ALSO. JUST BECAUSE THE INVOICES RAISED DID NOT SPECIFICALLY MEN TION RECOVERY OF TELECOMMUNICATION CHARGES, WE CANNOT SAY THAT THE BILLED AMOUNTS WERE EXCLUSIVE OF SUCH TELECOMMUNICATION CH ARGES. ASSESSEE WHILE AGREEING FOR DELIVERY OF COMPUTER SOF TWARE AT PRICES MUTUALLY ACCEPTED, WOULD HAVE DEFINITELY RECKO NED THE TELECOMMUNICATION CHARGES WHICH WERE TO BE INCURRED BY IT FOR THE DELIVERY OF SUCH SOFTWARE OUTSIDE INDIA. IT IS NOT THE CASE OF THE ASSESSEE THAT THE TELECOMMUNICATION EXPENSES WE RE NOT CONSIDERED BY IT FOR WORKING OUT ITS PROFITS. IT IS ALSO NOT A CASE OF THE ASSESSEE THAT SUCH EXPENSES WERE NOT CONSIDE RED BY IT AS A PART OF ITS REVENUE OUTGO. HENCE, TELECOMMUNICAT ION 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 SP ECIFICALLY INCLUDED SUCH TELECOMMUNICATION EXPENSES. EFFECT O F ANY EXCLUSION FROM A GIVEN SUM WILL BE REDUCTION OF SUC H SUM AND THE STRENUOUS EFFORT TO DIFFERENTIATE BETWEEN EXCLUSIO N AND REDUCTION IS, IN OUR OPINION, AN ENDEAVOUR TO STR ETCH INTERPRETATION OF ORDINARY WORDS TO OUT OF ORDINARY M EANINGS. 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 O NE ASPECT OF THE MATTER. IT MAY BE AN EASY TASK TO EXCLUDE THE F REIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DE LIVERY OF I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 12 COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICE S OUTSIDE INDIA FROM THE EXPORT TURNOVER AND THE TOTAL TURNOVER IF THEY ARE SEPARATELY MENTIONED IN THE INVOICE RAISED BY THE ASS ESSEE. 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 INCL UDED IN THE TOTAL AMOUNT RAISED BY THE INVOICE. IT WAS CONCEDED ON BEHALF OF THE ASSESSEE BY ITS LEARNED REPRESENTATIVE THAT IN S UCH A CASE, THE A.O. WILL HAVE THE POWER TO GO BEHIND THE INVOI CE AND FIND OUT HOW MUCH OF THE INVOICE AMOUNT PERTAINS TO THE RECO VERY OF THE AFORESAID ITEMS. WE ARE ALSO OF THE VIEW THAT IN A N 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 IT IS AN ADMITTED POSITION THAT TELECOMMUNICATION CHARGES, W HICH WAS NOT CONSIDERED BY THE A.O. FOR WORKING OUT DEDUCTION UND ER SECTION 10B OF THE ACT, WERE ATTRIBUTABLE TO DELIVERY OF COM PUTER SOFTWARE OUTSIDE INDIA. HENCE, THERE WAS NO NECESS ITY TO GO BEHIND THE INVOICES RAISED BY THE ASSESSEE AT ALL. WITH REGARD TO THE EXPENSES INCURRED IN FOREIGN EXCHANGE FOR PROVI DING TECHNICAL SERVICES OUTSIDE INDIA, LEARNED COUNSEL FOR THE ASS ESSEE, AS EARLIER STATED BY US, DID NOT PRESS THE RELATED GROU ND IN THE CROSS-OBJECTION. COMING TO THE CASE OF THE REVENUE THAT SUCH AMOUNTS SHOULD NOT HAVE BEEN EXCLUDED FROM TOTAL TU RNOVER, WE ARE UNABLE TO ACCEPT. THE SPECIAL BENCH OF THIS TR IBUNAL IN THE CASE OF SAK SOFT LTD. (SUPRA) HAS CLEARLY HELD THAT WHATEVER HAS BEEN EXCLUDED FROM EXPORT TURNOVER HAD TO BE EXCLUD ED FROM TOTAL TURNOVER ALSO SINCE TOTAL TURNOVER INCLUDED E XPORT TURNOVER AS WELL. WE ARE FORTIFIED IN TAKING THIS VIEW BY TH E DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. GEM PLUS JEWELLERY INDIA LTD. (330 ITR 175). THEREFORE, WE D O NOT FIND ANY MERITS IN THE ARGUMENTS ADVANCED BY THE ASSESSEE OR THE REVENUE IN RESPECT OF THEIR RESPECTIVE GROUNDS IN T HIS REGARD. I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 13 FOR THE IMPUGNED ASSESSMENT YEAR ALSO, THERE IS NO CASE FOR THE ASSESSEE THAT THE TELECOMMUNICATION CHARGES INCURRE D WERE NOT INCURRED FOR DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. THOUGH THE ASSESSEE HAD MADE A SUBMISSION THAT TRANSMISSION CH ARGES INCLUDED PAYMENTS IN INDIAN CURRENCY TO BSNL, ETC., DEFINITI ON OF EXPORT TURNOVER GIVEN IN CLAUSE (III) OF EXPLANATION 2 TO SECTION 10B DOES NOT STIPULATE THAT EXPENSES HAVE TO BE INCURRED IN FORE IGN CURRENCY FOR EXCLUSION FROM EXPORT TURNOVER. WE ARE THUS OF THE OPINION THAT THIS GROUND RAISED BY THE ASSESSEE DOES NOT HAVE ANY MER IT IN IT. 14. THIRD ISSUE RAISED BY THE ASSESSEE IS REGARDING EXCLUSION OF EXPENDITURE IN FOREIGN CURRENCY FROM EXPORT TURNOVE R. FOREIGN CURRENCY EXPENSES CONSIDERED BY THE A.O. WERE TRAVE LING EXPENSES, DATA TRANSMISSION CHARGES TO THE EXTENT NOT CONSIDE RED UNDER TELECOMMUNICATION EXPENSES, REIMBURSEMENT OF DATA E NTRY AND OTHER MISCELLANEOUS EXPENSES. CASE OF THE A.O. WAS THAT THESE WERE ALL EXPENSES INCURRED FOR TECHNICAL SERVICES AND HENCE, NECESSARILY HAD TO BE EXCLUDED FROM EXPORT TURNOVER BY VIRTUE OF DE FINITION THEREOF GIVEN IN CLAUSE (III) OF EXPLANATION 2 TO SECTION 1 0B OF THE ACT. LD. CIT(APPEALS) ALSO APPROVED OF THIS VIEW OF THE A.O. I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 14 15. NOW BEFORE US, LEARNED A.R. SUBMITTED THAT ASSE SSEE WAS NOT RENDERING ANY TECHNICAL SERVICES, BUT ONLY DOING BU SINESS OF OUTSOURCING. 16. PER CONTRA, LEARNED D.R. SUPPORTED THE ORDERS O F AUTHORITIES BELOW. 17. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. CONTENTION OF THE ASSESSEE THAT TECHNICAL SERVICES WERE NOT RENDERED OUTSIDE INDIA AND EXPENDITURE INCURRED WERE NOT REL ATED TO SUCH TECHNICAL SERVICES CANNOT BE ACCEPTED SINCE MAJOR P ART OF EXPENSES WERE INCURRED IN TRAVELING OF EMPLOYEES ABROAD FOR DOING THE WORK OF THE ASSESSEE OUTSIDE. ASSESSEE WAS UNABLE TO SHOW IF IT WERE NOT FOR RENDERING TECHNICAL SERVICES, WHAT OTHER PURPOSE WA S SERVED BY SUCH TRIPS OF ITS EMPLOYEES ABROAD. THIS BEING THE CASE , WE ARE OF THE OPINION THAT A.O. AS WELL AS LD. CIT(APPEALS) WERE JUSTIFIED IN HOLDING THAT THE EXPENSES INCURRED IN FOREIGN CURRENCY WERE TO BE EXCLUDED FROM THE EXPORT TURNOVER FOR COMPUTING DEDUCTION UN DER SECTION 10B OF THE ACT. I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 15 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. 19. COMING TO THE CROSS APPEAL OF THE REVENUE, AS A LREADY MENTIONED BY US, ITS MAIN GRIEVANCE IS THAT THE TEL ECOMMUNICATION EXPENSES AND FOREIGN CURRENCY EXPENSES WHICH WERE E XCLUDED FROM EXPORT TURNOVER BUT NOT FROM TOTAL TURNOVER, WAS AL LOWED BY LD. CIT(APPEALS) FOR EXCLUSION FROM TOTAL TURNOVER AL SO FOR COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. THOUGH THE REVENUE SAYS THAT IT HAS FILED AN APPEAL BEFORE HON'BLE JURISDIC TIONAL HIGH COURT AGAINST THE DECISION OF SPECIAL BENCH IN THE CASE O F ITO V. SAK SOFT LTD. (313 ITR (AT) 353), IN WHICH SIMILAR CONTENTIO N RAISED BY THE REVENUE WAS NOT ACCEPTED, NOTHING WAS BROUGHT ON RE CORD BY LEARNED D.R. AS TO WHY WE SHOULD TAKE A DIFFERENT V IEW THAN THAT WAS TAKEN BY THE SPECIAL BENCH. THE DECISION OF SPECIA L BENCH IS CLEAR THAT WHATEVER WAS EXCLUDED FROM EXPORT TURNOVER HAD ALSO TO BE EXCLUDED FROM TOTAL TURNOVER FOR THE PURPOSE OF WOR KING OUT DEDUCTION UNDER SECTION 10B OF THE ACT. WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(APPEALS) IN THI S REGARD. THIS GROUND OF THE REVENUE IS, THEREFORE, DISMISSED. I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 16 20. ONLY OTHER GROUND RAISED BY THE REVENUE IS AGAI NST THE DIRECTION OF LD. CIT(APPEALS) TO DIVIDE THE TELECOM MUNICATION CHARGES IN PROPORTION OF EXPORT SALES TO THE LOCAL SALES. CASE OF THE REVENUE IS THAT ASSESSEE HAD NOT REPORTED ANY LOCAL SALES I N INDIA AT ALL. THEREFORE, THE DIRECTION FOR PRO RATA DISTRIBUTION OF TELECOMMUNICATION EXPENSES WAS NOT CALLED FOR, AS PER LEARNED D.R. 21. LEARNED A.R. FAIRLY AGREED THAT IN THE ASSESSEE S CASE, EXPORT TURNOVER AND TOTAL TURNOVER WERE SAME AND THIS, IN OTHER WORDS, WOULD MEAN THAT THERE WERE NO LOCAL SALES FOR THE ASSESSE E. THEREFORE, WE FIND THAT THE DIRECTION GIVEN BY THE LD. CIT(APPEAL S) WAS UNWARRANTED. IN THE ASSESSEES CASE, THERE IS NO QUESTION OF ANY PRO RATA DIVISION OF TELECOMMUNICATION CHARGES BETWEEN EXPORT SALES AND LOCAL SALES. THEREFORE, GROUND NO.3 OF THE REVENUE ASSAILING SUC H DIRECTION GIVEN BY LD. CIT(APPEALS) TO THE A.O. IS ALLOWED. 22. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. 23. TO SUMMARIZE THE RESULTS, APPEAL OF THE ASSESSE E FOR ASSESSMENT YEAR 2003-04 IS ALLOWED, FOR ASSESSMENT YEAR 2005-06 IS I.T.A. NOS. 1989 & 1990/MDS/10 I.T.A. NO. 2145/MDS/10 17 DISMISSED AND APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2005-06 IS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 14 TH OCTOBER, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 14 TH OCTOBER, 2011. KRI. COPY TO: (1) ASSESSEE (2) ASSESSING OFFICER (3) CIT(A)-III, CHENNAI (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE