The DCIT, (OSD)-1, Circle-4, Ahmedabad V. M/s. Mastek Ltd., Ahmedabad

ITA 240/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2411 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2004-2005
• Appeal Filed On: 01-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Business expenditure; Earning of tax free income; Retrospective amendment; Tax effect
• Section: 143(3); 14A; 37(1); 92

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO.98 /AHD/2016 / ASSESSMENT YEAR: 2002-03 MASTEK LIMITED 804/805, PRESIDENT HOUSE OPP: CN VIDYALAYA NR. AMBAWADI CIRCLE AMBAWADI AHMEDABAD 380 006. PAN : AAACM 9908 Q VS DCIT (OSD)-1 CIR.4, NAVJIVAN TRUST BLDG. AHMEDABAD. ./ ITA NO.239 AND 240 /AHD/2016 / ASSESSMENT YEAR: 2002-03 AND 2004-05 DCIT (OSD)-1 CIR.4, NAVJIVAN TRUST BLDG. AHMEDABAD. VS MASTEK LIMITED 804/805, PRESIDENT HOUSE OPP: CN VIDYALAYA NR. AMBAWADI CIRCLE AMBAWADI AHMEDABAD 380 006. PAN : AAACM 9908 Q / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR WITH SMT. URVASHI SHODHAN, AR REVENUE BY : SHRI S.K. DEV, SR.DR / DATE OF HEARING : 14/08/2018 /DATE OF PRONOUNCEMENT : 30 /08/2018 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : IN ASSESSMENT YEAR 2002- 03 THE ASSESSEE AND THE REVENUE ARE IN CROSS-APPEAL S AGAINST ORDER OF THE ITA NO.98, 239 AND 240/AHD/2016 - 2 - LD.CIT(A)-2, DATED 16.11.2015. IN ASSESSMENT YEAR 2004-05 REVENUE ALONE IS CHALLENGING ORDER OF THE LD.CIT(A)-2 DATED 17.11.2015. 2. FIRST WE TAKE CROSS APPEAL FOR THE ASSESSMENT YE AR 2002-03. BEFORE ADVERTING TO THE SPECIFIC GRIEVANCE OF THE PARTIES, WE WOULD LIKE TO MAKE REFERENCE TO CERTAIN FACTS. 3. THE ASSESSEE AT THE RELEVANT TIME WAS IN THE BUS INESS OF SOFTWARE DEVELOPMENT. IT HAS FILED ITS RETURN OF INCOME ON 31.10.2002 DECLARING NIL INCOME AFTER CLAIMING DEDUCTION OF RS.29,15,29, 314/- UNDER SECTION 10A OF THE INCOME TAX ACT, 1961. AN ASSESSMENT ORD ER WAS PASSED UNDER SECTION 143(3) ON 28.12.2004. THE LD.AO HAS MADE CERTAIN DISALLOWANCE AND RESTRICTED THE DEDUCTION UNDER SEC TION 10A AT RS.25,52,65,186/-. DISSATISFIED WITH THE ASSESSMEN T ORDER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A) W HO HAS DECIDED THE APPEAL VIDE ORDER DATED 24.5.2005. DISSATISFIED WI TH ORDER OF THE LD.CIT(A), ASSESSEE AND REVENUE WENT IN APPEAL BEFO RE THE TRIBUNAL VIDE ITA NO.1821/AHD/2005 AND 1883/AHD/2005. THE T RIBUNAL HAS DECIDED THESE CROSS APPEALS FOR THE ASSESSMENT YEAR S 2002-03 TO 2004-05 ON 11.5.2012. THE GROUNDS TAKEN BY THE ASSESSEE AS WELL AS BY THE REVENUE BEFORE THE TRIBUNAL READ AS UNDER: I. ITA NO.1821/A/05 - A Y 2002-03 - BY THE ASSESSE E: 2. THE ASSESSEE COMPANY HAS RAISED FOUR GROUNDS, OU T OF WHICH, IN GROUND NO.1 THAT THE CIT (A) ERRED IN HOLDING THAT THE ASSE SSEE WAS NOT ENTITLED TO CLAIM DEDUCTION U/S 80HHE OF THE ACT ON THE OTHE R INCOME OF RS.4.71 LAKHS; AND IN GROUND NO.4 THAT THE CIT (A) ERRED IN NOT PASSING A SPEAKING ORDER IN RELATION TO GROUND NOS. 8(K), 8(L ) AND 8(M) WERE NOT PRESSED DURING THE COURSE OF HEARING BEFORE THIS BE NCH. THUS, GROUND ITA NO.98, 239 AND 240/AHD/2016 - 3 - NOS.1 AND 4 ARE DISMISSED AS 'NOT PRESSED'. IN THE REMAINING GROUNDS, THE CRUXES OF THE ISSUES RAISED ARE REFORMULATED AS UND ER: (1) THAT THE CIT (A) ERRED IN HOLDING THAT THE TRAVEL ING EXPENSES OF RS.1,32,52,859/- IN RELATION TO THE SECONDED EMPLOY EES; (2) THAT THE CIT (A) ERRED IN UPHOLDING THAT THE DISA LLOWANCE OF RS.5,61,000/- TOWARDS LEGAL FEES PAID TO BAKER & MC KINSEY BEING NON- BUSINESS EXPENSES OF THE ASSESSEE. II. ITA NO.1883/A/05 - A Y 2002-03 - BY THE REVENUE : 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: THAT THE CIT (A) HAS ERRED IN: (1) GRANTING EXEMPTION OF INCOME U/S 10A OF THE ACT AMOUNTING TO RS.9,99,70,054/- IN RESPECT OF UNIT NO.107; (2) DIRECTING TO EXCLUDE THE INCOME OF RS.16,48,000/ - BEING EXCHANGE FLUCTUATION GAIN AND OTHER INCOME OF RS.1000/- FOR GRANTING EXEMPTION U/S 10A IN RESPECT OF NEW UNIT IN SEEPZ AND STP IN PUNE UNIT; (3) DIRECTING TO RECALCULATE DEDUCTION U/S 80HHE OF THE ACT AFTER CONSIDERING THE EXCHANGE FLUCTUATION GAIN OF RS.35, 04,000/-; (4) ALLOWING LOANS AND ADVANCES WRITTEN OFF OF RS.1. 33 LAKHS; (5) ALLOWING RS.4,25,72,977/- (SIC) RS.42,57,297/- PA ID AS BELGIUM TAX U/S 37(1) OF THE ACT; (6) ALLOWING RS.72,11,557/- OUT OF DISALLOWANCE OF R S.74,11,557/- U/S 14A OF THE ACT; (7) DELETING THE ADDITION OF RS.2,34,50,000/- BEING COMPENSATION RECEIVED FOR RENDERING HUMAN RESOURCE SUPPORT SERVICES U/S 9 2 OF THE ACT; & (8) & (9) BEING GENERAL IN NATURE AND NO SPECIFIC ISS UES INVOLVED, THEY HAVE BECOME INCONSEQUENTIAL. ITA NO.98, 239 AND 240/AHD/2016 - 4 - 4. THE TRIBUNAL HAS SET ASIDE THE ISSUE RAISED IN T HE APPEAL OF REVENUE VIDE GROUND NO.2 AND 6 I.E. THE ISSUE REGAR DING EXCLUSION OF FOREIGN EXCHANGE FLUCTUATION GAIN OUT OF ELIGIBLE P ROFIT FOR THE PURPOSE OF GRANT OF DEDUCTION UNDER SECTION 10A AND DISALLOWAN CE REQUIRED TO BE MADE FOR THE PURPOSE OF SECTION 14A IN RELATION TO EARNING OF TAX FREE INCOME, WERE REMITTED BY THE TRIBUNAL TO THE AO FOR RE-ADJUDICATION. THE LD.AO HAS DECIDED THESE ISSUES. HE AGAIN EXCLU DED THE FOREIGN EXCHANGE FLUCTUATION GAIN FROM COMPUTATION OF SECTI ON 10A. ON APPEAL, THE LD.CIT(A) HAS ALLOWED THIS GROUND OF APPEAL OF THE ASSESSEE AND HELD THAT IT IS ENTITLED FOR DEDUCTION UNDER SECTION 10A ON THE FOREIGN EXCHANGE FLUCTUATION GAIN. SIMILARLY, THE LD.CIT(A ) RESTRICTED THE DISALLOWANCE UNDER SECTION 14A. THE RELIEF GIVEN B Y THE LD.CIT(A) ARE BEING IMPUGNED BY THE REVENUE BEFORE THE TRIBUNAL B Y WAY OF THE FOLLOWING GROUNDS: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE DISALLOWANCE MADE ON ACCOUNT OF FOREIGN EXCHANGE GA IN OF RS.16,48,000/- CLAIMED U/S.10A OF THE ACT, WITHOUT PROPERLY APPREC IATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN RE STRICTING THE DISALLOWANCE MADE U/S.14A OF THE ACT TO RS.3,04,052 /- AS AGAINST RS.18,50,502/-, WITHOUT PROPERLY APPRECIATING THE F ACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED T O THE ABOVE EXTENT. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. ITA NO.98, 239 AND 240/AHD/2016 - 5 - 5. THE ASSESSEE HAS RAISED ONLY ONE GROUND OF APPEA L, WHICH READS AS UNDER: THE FOLLOWING GROUND OF APPEAL IS DISTINCT AND SEP ARATE AND WITHOUT PREJUDICE TO EACH OTHER: 1.0 GROUND NO. 1: THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - I I ['THE LEARNED CIT(A)'] HAS ERRED IN LAW AND ON FACTS IN COMPUTING D EDUCTION UNDER SECTION 10A OF THE INCOME-TAX ACT, 1961 ('THE ACT') CONSIDERING THE NET PROFITS OF BUSINESS OF ALL UNITS TAKEN TOGETHER I.E . AFTER SETTING-OFF LOSSES OF ELIGIBLE & NON-ELIGIBLE UNIT WITH PROFITS OF ELIGIB LE UNIT THEREBY RESTRICTING DEDUCTION UNDER SECTION 10A OF THE ACT TO THE BUSIN ESS INCOME. THE DEPUTY COMMISSIONER OF INCOME TAX (OSD) I, CIRCLE-4 ('LEARNED AO') AND LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FOL LOWING: I. EACH ELIGIBLE UNDERTAKING IS AN INDEPENDENT AND DISTINCTIVE BUSINESS UNIT AND DEDUCTION UNDER SECTION 10A OF THE ACT SHO ULD BE COMPUTED SPECIFIC TO ELIGIBLE UNDERTAKING INSTEAD OF COMPUTI NG SUCH DEDUCTION AFTER SETTING-OFF OF LOSSES OF ELIGIBLE AND NON-ELIGIBLE UNITS. II. LOSSES OF ELIGIBLE & NON-ELIGIBLE UNDERTAK ING SHOULD BE SET-OFF AFTER COMPUTING UNDER SECTION 10A DEDUCTION OF THE PROFIT S OF ELIGIBLE UNDERTAKING. III. LOSSES OF ELIGIBLE & NON-ELIGIBLE UNITS F OR CURRENT YEAR CAN BE SET- OFF AGAINST TOTAL PROFITS AND GAINS OF BUSINESS FOR THE CURRENT YEAR UNDER SECTION 70 OF THE ACT UNDER THE SAME HEAD OF INCOME . BALANCE LOSS, IF ANY WOULD BE ELIGIBLE FOR CARRY FORWARD AND SET-OFF IN SUBSEQUENT YEARS UNDER SECTION 71 AND 72 OF THE ACT. YOUR APPELLANT CRAVES LEAVE TO ADD TO AND/OR TO AME ND AND/OR TO MODIFY AND/OR TO CANCEL ANY ONE OR MORE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING. 6. THE LD.COUNSEL FOR THE ASSESSEE, ON THE STRENGTH OF HONBLE SUPREME COURT IN THE CASE OF YOKOGAWA INDIA LTD., 3 91 ITR 274 (SC) CONTENDED THAT PROFIT OF ELIGIBLE UNIT OUGHT TO BE CONSIDERED FOR GRANT OF ITA NO.98, 239 AND 240/AHD/2016 - 6 - DEDUCTION UNDER SECTION 10A AS A STANDALONE BASIS W ITHOUT SETTING OF THE LOSS OF OTHER NON-ELIGIBLE UNITS. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE TH ROUGH THE RECORD. THE LIMITED ISSUE BEFORE THE AO IN A SET A SIDE PROCEEDINGS WAS RELATED TO EXCLUSION/INCLUSION OF FOREIGN EXCHANGE FLUCTUATION GAIN FROM COMPUTATION OF 10A AS WELL AS REWORKING OF DISALLOW ANCE FOR THE PURPOSE OF 14A. THE ISSUE WHICH HAS BEEN AGITATED BY THE ASSESSEE IN ITS APPEAL BEFORE THE TRIBUNAL IN THE SECOND ROUND WAS NEVER RAISED BEFORE THE ITAT IN THE FIRST ROUND NOR IT WAS REMITTED BAC K. THE JURISDICTION IN A SET ASIDE PROCEEDINGS IS TO BE CONFINED TO THE IS SUE WHICH HAS BEEN REMITTED BACK. NO FRESH ISSUE CAN BE TAKEN UP IN S UCH PROCEEDINGS. IF THE ASSESSEE HAD ANY GRIEVANCE ON ACCOUNT OF THIS I SSUE, THEN IT SHOULD HAVE CHALLENGED THE ORIGINAL ITATS ORDER I.E. ORDE R DATED 11.5.2012. WE HAVE EXTRACTED THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL IN THE FIRST ROUND AS WELL AS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. NO SUCH ISSUE WAS EVER RAISED. THUS, SCO PE BEFORE THE AO TO ENTERTAIN ANY OTHER ISSUE, EXCEPT THE ISSUE REMITTE D BY THE TRIBUNAL, WAS NOT AVAILABLE. CONSEQUENTLY, NO FRESH ISSUE CAN BE RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL IN THIS ROUND OF LITIGATION, OT HERWISE, THERE WILL NEVER BE A FINALITY OF THE PROCEEDINGS BEFORE THE TRIBUNA L. SINCE THE ISSUE ITSELF CANNOT BE TAKEN UP, THEREFORE, THERE IS NO NEED TO EXAMINE IT ON MERIT. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS REJE CTED. 8. SO FAR AS APPEALS OF THE REVENUE ARE CONCERNED, TAX EFFECT BY VIRTUE OF RELIEF GIVEN BY THE LD.CIT(A) IS BELOW RS.20 LAK HS. SIMILARLY, IN THE ASSESSMENT YEAR 2004-05 IDENTICAL ISSUE HAS BEEN AG ITATED I.E. INCLUSION OF ITA NO.98, 239 AND 240/AHD/2016 - 7 - THE FOREIGN EXCHANGE FLUCTUATION GAIN AMOUNTING TO RS.29,61,008/- FOR COMPUTING DEDUCTION UNDER SECTION 10A AND RESTRICTI NG THE DISALLOWANCE UNDER SECTION 14A TO RS.10,96,408, AGA INST RS.18,77,665/-. TAX EFFECT AFTER CONSIDERING THE RELIEF GIVEN BY TH E LD.CIT(A) ON THIS ISSUE IS LESS THAN RS.20 LAKHS. THEREFORE, BOTH THE APPE ALS OF THE REVENUE ARE HIT BY RECENT CBDT INSTRUCTION NO.3 OF 2018 DATED 8 .7.2018 WHEREIN THE BOARD HAS PROHIBITED REVENUE TO FILE APPEAL BEFORE THE TRIBUNAL WHERE TAX EFFECT IS BELOW RS.20 LAKHS. THE INSTRUCTIONS HAVE BEEN MADE APPLICABLE WITH RETROSPECTIVE EFFECT, MEANING THERE BY, THESE INSTRUCTIONS ARE APPLICABLE ON PENDING APPEALS ALSO. WHEN WE CO NFRONTED THE LD.DR WITH THIS CIRCULAR, THE LD.DR DID NOT DISPUTE THE S AME AND LEFT TO THE TRIBUNAL TO DECIDE IN ACCORDANCE WITH LAW. 9. IN THE PRESENT CASE, IF WE CONSIDER EACH ADDITIO N CONTESTED BY THE REVENUE, THEN IT WOULD SHOW THAT TAX EFFECT ON EACH APPEAL WOULD FALL BELOW RS.20 LAKHS. THE TAX EFFECT AS PER CBDT CIR CULAR IS TAX ON THE TOTAL INCOME ASSESSED MINUS THE TAX THAT WOULD HAVE BEEN CHARGEABLE HAD SUCH TOTAL INCOME BEEN REDUCED BY THE AMOUNT OF INCOME IN RESPECT OF THE ISSUE AGAINST WHICH APPEAL IS FILED, WOULD B E LESS THAN RS.20 LAKHS. THEREFORE, THE PRESENT APPEALS OF THE REVENUE ARE H IT BY THE CBDT CIRCULAR AND HENCE NOT MAINTAINABLE. BESIDES THAT LD.DR HAS NOT POINTED OUT WHETHER THE CASE OF THE REVENUE FALL WITHIN THE AMBIT OF EXCEPTIONS PROVIDED IN THE CIRCULAR OR NOT. THUS, KEEPING IN VIEW THE ABOVE CBDT CIRCULAR AND PROVISIONS OF SECTION 268A OF THE INCO ME TAX ACT, WE ARE OF THE VIEW THAT THE PRESENT APPEALS OF THE REVENUE DE SERVE TO BE DISMISSED. THEY ARE ACCORDINGLY DISMISSED. ITA NO.98, 239 AND 240/AHD/2016 - 8 - HOWEVER, IT IS OBSERVED THAT IN CASE ON RE-VERIFICA TION AT THE END OF THE AO IT COMES TO THE NOTICE THAT THE TAX EFFECT I S MORE OR REVENUES CASE FALLS WITHIN THE AMBIT OF EXCEPTIONS PROVIDED IN THE CIRCULAR, THEN THE DEPARTMENT WILL BE AT LIBERTY TO APPROACH THE T RIBUNAL FOR RECALL OF THIS ORDER. SUCH APPLICATION SHOULD BE FILED WITHI N THE TIME PERIOD PRESCRIBED IN THE ACT. IN VIEW OF THE ABOVE, THE A PPEALS OF THE REVENUE ARE DISMISSED DUE TO LOW TAX EFFECT. 10. IN THE RESULT, APPEAL OF THE ASSESSEE AS WELL A S OF THE REVENUE, ALL ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2018. SD/- SD/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER