ACIT, New Delhi V. M/s. HCL Comnet Systems & Services Ltd., New Delhi

ITA 2269/DEL/2012

• Counselvise Citation: 226920114 RSA 2012
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 17-12-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 11-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: RAJESH GUPTA
• Keywords: Business income; Deemed export
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C: NEW DELHI BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 2269/DEL/2012 ASSESSMENT YEARS: 2001-02 ACIT V S. HCL COMNET SYSTEMS & SERVICES LTD. CIRCLE 12(1) 806-808, SIDDHARTHA, 96, NEHRU PLACE NEW DELHI. NEW DELHI -110 019 (PAN AAACH3130M) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SATPAL SINGH, SR. DR RESPONDENT BY : SHRI RAJESH GUPTA, CA DATE OF HEARING : 17/12/2012 DATE OF PRONOUNCEMENT : ORDER PER I.C. SUDHIR, JUDICIAL MEMBER THE REVENUE HAS QUESTIONED FIRST APPEL LATE ORDER ON THE SOLE GROUND THAT THE LD. CIT(A) WAS NOT CORRECT IN DELETING THE DISALLOWANCE OF RS. 42,63,330/- MADE BY THE AO U/S 10A OF THE I.T. ACT 1961. 2. THE RELEVANT FACTS ARE THAT THE AO NOTICED THAT THE ASSESSSEE HAD CLAIMED EXEMPTION U/S 10A ON THE FULL CONSIDERATION OF EXPO RT OF RS. 5,10,46,690/- WHEREAS EXPORT PROCEEDS OF RS. 4,35,92,290/- ONLY W AS RECEIVED. THE AO WAS THUS OF THE VIEW THAT EXEMPTION U/S 10A TO THE EXTE NT OF RS. 14,00,000/- WAS WRONGLY ALLOWED. HE THUS RECORDED THE REASONS AND I SSUED NOTICE U/S 148 OF THE ACT THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSES SMENT TO THE EXTENT OF RS. ITA NO. 2269/DEL/12 2 42,00,000/- BY REASONS OF THE FAILURE ON THE PART O F THE ASSESSEE TO DISCLOSE FULL AND TRUE ALL MATERIAL FACTS NECESSARY FOR ITS ASSES SMENT. IN ANOTHER WORDS THE ASSESSMENT WAS REOPENED MAINLY ON THE GROUND THAT O UT OF THE TOTAL EXPORT TURN OVER OF RS. 5,10,46,690/- RECEIPTS AMOUNTING TO RS. 4,35,92,290/- WAS ONLY REALIZED WITHIN SIX MONTHS FROM THE END OF THE FINA NCIAL YEAR AND THEREFORE THE ASSESSEE HAD CLAIMED EXCESS EXEMPTION TO THE TUNE O F RS. 42,63,330/- ON ACCOUNT OF EXCESS EXEMPTION GRANTED U/S 10A OF THE ACT AS DISCUSSED ABOVE. 3. BEFORE THE LD. CIT(A) THE ASSESSEE QUEST IONED THE VALIDITY OF INITIATION OF REOPENING PROCEEDINGS AND THE DISALLOWANCE MADE. TH E LD. CIT(A) DID NOT AGREE WITH THE ASSESSEE THAT REOPENING PROCEEDINGS AND TH E REASSESSMENT MADE IN FURTHERANCE THERETO WAS VOID AND WITHOUT JURISDICTI ON. HE HOWEVER ACCEPTED THE CONTENTION OF THE ASSESSEE RAISED IN GROUND NO. 4 THAT THE AO HAD ERRED IN REDUCING THE EXEMPTION U/S 10A OF THE ACT WITHOUT A PPRECIATING THE FACTUAL POSITION / SUBMISSION MADE BY THE ASSESSEE EVIDENCI NG THAT THE ENTIRE SALE PROCESS OF RS. 5,10,46,690/- WERE RECEIVED IN INDIA WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR. THIS ACTION OF T HE LD. CIT(A) HAS BEEN QUESTIONED BY THE REVENUE BEFORE THE TRIBUNAL. 4. IN SUPPORT OF THE GROUND THE LD. DR HAS BA SICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. HE SUBMITTED THAT EXPORT PROCEEDS OF RS. 4,35,92,290/- ONLY HAD BEEN RECEIVED BY THE ASSESSEE WHEREAS FULL CONS IDERATION OF EXPORTS OF RS. 5,10,46,690/- WAS TAKEN AS EXPORT PROCEEDS REALIZED . THE SAID RESULTED IN EXCESS ALLOWANCE OF EXEMPTION U/S 10A TO THE EXTENT OF RS. 42,63,330/-. HE SUBMITTED ITA NO. 2269/DEL/12 3 THAT IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE AO, THE ASSESSEE HAS FAILED TO FILE BANK STATEMENT AS WELL AS EXPORT PRO CEEDS REALIZED ACCOUNT THUS THE AO WAS JUSTIFIED IN ARRIVING AT THE CONCLUSION THAT ON THE BASIS OF DOCUMENTS AVAILABLE ON RECORD THAT EXPORT PROCEEDS TO RS. 4,3 5,92,290/- ONLY HAD BEEN RECEIVED BY IT THEREFORE THE ASSESSEE WAS NOT ENTIT LED TO EXEMPTION U/S 10A ON THE CLAIMED AMOUNT. 5. LD. AR ON THE OTHER HAND TRIED TO JUSTIFY T HE FIRST APPELLATE ORDER. HE SUBMITTED THAT THE THIRD PROVISO TO SECTION 10A (1) WAS INSERTED BY THE FINANCE ACT 2000 W.E.F 1.4.2001 BUT LATER ON THE SAID THIR D PROVISO WAS OMITTED BY THE FINANCE ACT, 2001 W.E.F. 1.4.2002. THE SAID PROVISO PROVIDED THAT THE PROFITS AND GAINS DERIVED FROM SALE OF ARTICLES OR THINGS OR CO MPUTER SOFTWARE IN THE DOMESTIC MARKET TO THE EXTENT IT DID NOT EXCEED 25% OF THE T OTAL SALES SHALL BE DEEMED TO BE EXPORT TURNOVER OF AN UNDERTAKING OPERATING IN A STPI FOR THE PURPOSE OF SECTION 10A. THE ASSESEE HAS THUS RIGHTLY CLAIMED E XEMPTION U/S 10A ON THE TOTAL SALES OF RS. 5,10,46,690/- . HE ALSO PLACED RELIANC E ON THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF T.TWO INTERNAT IONAL P. LTD. VS. ITO (2010) 122 ITD 255 (DELHI) WHICH PERTAINS TO THE SAME ASSE SSMENT YEAR 2001-02. LD. AR ALSO REFERED CBDT CIRCULAR NO. 14 OF 2001 DATED 22.11..2001 CONTAINING THE EXPLANATORY NOTES ON PROVISIONS RELATING TO DIRECT TAXES WHREIN MEANING OF THE ABOVE SAID THIRD PROVISO OF SECTION 10A (1) HAS BEE N EXPLAINED. 6. CONSIDERING THE ABOVE SUBMISSION AND HAVIN G GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS RELI ED UPON WE FIND THAT IN THE ITA NO. 2269/DEL/12 4 CASE OF T.TWO INTERNATIONAL P. LTD. (SUPRA) THE ASE SEE HAD CLAIMED THE DEDUCTION U/S 10A ON ENTIRE RECEIPTS DURING THE YEAR (RELEVAN T FOR ASSESSMENT YEAR 2001- 02) INCLUDING EXPORT TURN OVER AS WELL AS DOMESTIC TURNOVER. HOWEVER THE PROPORTION OF DOMESTIC TURNOVER EXCEEDED 25% OF THE TOTAL TURN OVER. THE AO HELD THAT SINCE THE TOTAL DOMESTIC SALES WERE IN EX CESS OF 25% OF THE TOTAL SALES, HE DISALLOWED THE CLAIM FOR DEDUCTION U/S 10A IN RE SPECT OF THE ENTIRE DOMESTIC SALES. THE TRIBUNAL ON A CONSIDERATION OF THE PROVI SION OF SECTION 10A RELEVANT FOR THE YEAR UNDER CONSIDERATION HELD THAT UNDER THE PR OVISO TO SECTION 10A, ADDITIONAL DEDUCTION IN RESPECT OF DOMESTIC SALES T O THE EXTENT OF THE 25% OF THE TOTAL SALES IS AVAILABLE. THE TRIBUNAL HELD THAT TH E AO WAS NOT JUSTIFIED IN HOLDING THAT IN CASE THE DOMESTIC SALES EXCEEDED 25% OF THE TOTAL SALES, RELIEF U/S 10A IS DENIED ON THE ENTIRE DOMESTIC SALES. IT WAS HELD T HAT THE DEDUCTION U/S 10A SHOULD BE GRANTED ON THE 25% OF THE DOMESTIC SALES AND ONLY ON THE EXCESS OF 25% DEDUCTION U/S 10A CAN BE DENIED. RESPECTFULLY F OLLOWING THIS DECISION OF THE TRIBUNAL ON THE ISSUE AND TAKING ASSISTANCE FROM CI RCULAR NO. 14 OF 2001 DATED 22.11.2001 OF THE CBDT WE ARE OF THE VIEW THAT LD. CIT(A) HAS RIGHTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FOR A READY RE FERENCE PARA 3.6 TO 3.8 OF THE FIRST APPELLATE ORDER IS BEING REPRODUCED HEREUNDE R :- 3.6 I HAVE GONE THROUGH THE AFORESAID SUBMISSIO NS OF THE LD. ARS. IT IS A FACT THAT FOR A VERY BRIEF PERIOD OF O NLY ONE ASSESSMENT YEAR I.E. AY 2001-02, A THIRD PROVISO HAD BEEN INSE RTED IN SECTION 10A. THIS NEWLY INSERTED PROVISO (INSERTED W.E.F 01 .04.2001 BUT WITHDRAWN W.E.F 01-04-2002) ALLOWED UPTO 25% OF DOM ESTIC TURNOVER TO BE ELIGIBLE FOR DEDUCTION U/S 10A BY GI VING IT DEEMED EXPORT STATUS. ACCORDINGLY, THE APPELLANT HAS REND ERED SOFTWARE ITA NO. 2269/DEL/12 5 DEVELOPMENT SERVICES TO HCL TECHNOLOGIES LTD. WHICH IS AN INDIAN COMPANY. THE ABOVE SERVICE HAS BEEN RENDERED IN IND IA AND RECEIPTS TO THE EXTENT OF RS. 74,65,600/- HAS BEEN RECEIVED IN INDIAN RUPEE AS AGAINST TOTAL EXPORT RECEIPTS OF RS . 4,35,92,290/-. THUS, WHILE THE DOMESTICS COMPONENT OF THE TURNOVER CONSTITUTED 15% OF THEY OVERALL TURNOVER OF RS. 5,10,46,690/-, THE EXPORT TURNOVER CONSTITUTED THE BALANCE 85%. ACCORDING TO FORMNO. 56F, THE APPELLANT COMPANY HAS RECEIVED FULL INWARD REMI TTANCE AGAINST THE EXPORT SALES OF COMPUTER SOFTWARE TOTALING RS. 4,35,92,290/-. AFTER INCLUDING THE DOMESTIC STALES TO THE EXTENT O F RS. 74,54,400/-, WHICH HAS TO BE TREATED AS DEEMED EXPORTS IN VIEW OF THIRD PROVISO REFERRED HEREINABOVE, THE DEDUCTION U/S 10A WOULD RIGHTLY WORK OUT TO RS. 2,91,94,534/-. THE SAME HAS BEEN CO MPUTED IN FORM NO. 56F AND NEEDS TO BE ALLOWED IN THE LIGHT O F THIRD PROVISO WHICH REMAINED ON THE STATUTE FOR A LIMITED PERIOD OF ONE ASSESSMENT YEAR, I.E. A.Y. 2001-02. 3.7 I AM INCLINED TO AGREE WITH THE LD. ARS ON ME RITS AFTER KEEPING IN VIEW THE CBDTS CIRCULAR NO. 14 OF 2001 DATED 22.11.2001 CONTAINING THE EXPLANATORY NOTES ON PROVISIONS RELATING TO DIRECT TAXES, WHICH HAS EXPLAINED THE M EANING OF THIS 3 RD PROVISO AS UNDER :- 15.7. PROVISO TO SUB-SEC. (1) FURTHER PROVIDES T HAT PROFITS ON DOMESTIC SALES TO THE EXTENT OF 25% OF TOTAL SAL ES SHALL BE DEEMED TO BE THE PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. THE PRO FITS ON SUCH DOMESTIC SALES SHALL BE SEPARATELY WORKED OUT PROPORTIONATELY AND FURTHER ADDED TO THE AMOUNT OF EXPORT PROFITS FOR THE PURPOSES OF DEDUCTION UNDER THESE PROVISIONS. 7. AS DISCUSSED ABOVE APPELLATE ORDER ON THE ISSUE IS COMPREHENSIVE AND REASONED ONE AND IS BASED UPON THE DECISION OF DELH I BENCH OF THE TRIBUNAL IN THIS REGARD IN THE CASE OF T. TWO INTERNATIONAL P. LTD. VS. ITO (SUPRA) AND CBDT CIRCULAR NO. 14 OF 2001 DATED 22.11.2001 EXPLAINING THE MEANING OF THIRD PROVISO TO SECTION 10A (1) OF THE ACT. THE SAME IS THUS UPH ELD. THE GROUND IS ACCORDINGLY REJECTED. ITA NO. 2269/DEL/12 6 8. IN THE RESULT APPEAL IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 21.12.2012. SD/- SD/- (J.SUDHAKAR. REDDY) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 21.12.2012 VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR, ITAT