M/s. Cincom Systems India Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 2528/DEL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2861 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 25-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RANU JA IN; ASHISH JAIN

Judgement Text

IN THE INCOME - TAX APPELLATE TRIBUNAL, DELHI BENCH B , NEW DELHI BEFORE : SHRI I.C. SUDHIR , JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 2528/DEL/2014 (ASSESSMENT YEAR: 2008 - 09) CINCOM SYSTEMS INDIA PVT. LTD. 507, BHIKAJI CAMA BHAWAN, BHIKAJI CAMA PALACE NEW DELHI, 110066 PAN - (APPELLANT) VS. ITO WARD 3 (4) NEW DELHI (RESPONDENT) ASSESSEE BY SMT. RANU JAIN, C.A. & SH. ASHISH JAIN, CA REVENUE BY SHRI ANIL SHARMA, SR. DR. ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 28 - 02 - 2014 PASSED BY THE LEARNED CIT(A) VI NEW DELHI FOR THE ASSESSMENT YEAR 2008 - 09 ON THE FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2 (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN HOLDING THE ABOVE DATE OF HEARING 11.05.2017 DATE OF PRONOUNCEMENT 16 .06.2017 ITA NO. 2528/DEL./2014 2 SAID ON THE BASIS THAT AN AMOUNT OF RS . 16.59 CRORES HAS BEEN INCLUDED AS THE INCOME FROM STPI UNIT BY THE ASSESSES IGNORING THE FACT THAT THE ASSESSEE ITSELF HAS NOT ADDED THE AMOUNT OF RS.16.59 CRORES IN THE INCOME OF STPI UNIT FOR CLAIMING EXEMPTION UNDER SECTION 10A OF THE ACT. (III) THAT THE LEARNED CIT(A) HAS A/SO ERRED BOTH ON FACTS AND IN LAW IN HOLDING THAT INTEREST ON FIXED DEPOSITS HAVE BEEN INCLUDED IN THE INCOME OF STPI UNIT, IGNORING THE FACT THAT THE ASSESSEE ITSELF HAS TREATED THE SAME AS INCOME FROM OTHER SOURCES AND HAS N OT CLAIMED BENEFIT UNDER SECTION 10A OF THE ACT. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN ON 26.09.2008 FOR THE YEAR UNDER CONSIDERATION AFTER CLAIMING DEDUCTION UNDER SECTION 10A TO THE EXTENT OF THE NET INCOME OF R S.1,48,89,090/ - . THE AO WAS OF THE VIEW THAT INCOME COMPUTED OF THE ELIGIBLE STPI UNIT BY THE ASSESSEE IS NOT CORRECT. HE REALLOCATED THE VARIOUS EXPENDITURE TO STPI UNIT AND COMPUTED A LOSS OF RS.2,84,73,178/ - OF STPI UNIT AS AGAINST INCOME OF RS.3,03,61, 288/ - COMPUTED BY THE ASSESSEE OF THE STPI UNIT. THE AO, ACCORDINGLY, ASSESSED INCOME AT RS.1,85,17,472/ - BY DENYING THE DEDUCTION UNDER SECTION 10A OF RS.1,48,89,090/ - AND ADDING RS.36,28,383/ - AS INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. ITA NO. 2528/DEL./2014 3 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CAME IN APPEAL BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A) AFTER EXAMINATION OF THE FACTS AND THE DOCUMENTS CAME TO THE CONCLUSION THAT THE AO WAS NOT CORRECT IN REALLOCATING THE EXPENDITURE AND ACCO RDINGLY DIRECTED THE AO TO ALLOW THE EXPENDITURE AS PER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. HOWEVER, WHILE COMPUTING DEDUCTION UNDER SECTION 10A HE HELD THAT ASSESSEE HAS INCLUDED A SUM OF RS.16.59 CRORE IN ITS PROFIT AND LOSS ACCOUNT OF STPI UNIT IN RESPECT OF AMOUNT WRITTEN BACK WHICH IS NOT ELIGIBLE INCOME WHILE COMPUTING DEDUCTION UNDER SECTION 10AOF THE ACT. THE LEARNED CIT(A) FURTHER HELD THAT INTEREST INCOME IS TO BE CHARGED UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. AGGRIEVED BY THE O RDER OF THE LEARNED CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 4. GROUND NO. 2(I) AND (II) ARE IN RESPECT OF COMPUTATION OF INCOME OF STPI UNIT. 5. IT WAS CONTENTED BY THE BY THE LEARNED AR THAT THE LEARNED CIT(A) IS NOT CORRECT IN OBSERVING THAT RS.16.59 CRORE HAS BEEN ITA NO. 2528/DEL./2014 4 INCLUDED IN THE PROFIT AND LOSS ACCOUNT OF THE STPI UNIT WHILE COMPUTING ELIGIBLE INCOME FOR DEDUCTION UNDER SECTION 10A OF THE ACT. IN THIS REGARD ATTENTION WAS INVITED TO THE ASSESSMENT ORDER PAGE 2 WHERE THIS AMOUNT OF RS.16,59, 42,925/ - ON ACCOUNT OF THE LIABILITY NO LONGER REQUIRED WRITTEN BACK HAS NOT BEEN INCLUDED IN THE INCOME UNDER THE HEAD 'SOFTWARE DEVELOPMENT' WHICH IS THE ELIGIBLE STPI UNIT FOR EXEMPTION UNDER SECTION L0A OF THE ACT. 6. IT WAS FURTHER CONTENTED THAT AFT ER EXCLUDING THIS AMOUNT OF RS. 16,59,42,925/ - THERE IS A NET INCOME OF RS.3,03,61,288/ - FROM STPI UNIT AND AFTER ADJUSTING THE LOSS OF THE NON - STPI UNIT OF RS.1,54,72,198/ - THERE IS NET INCOME OF RS.1,48,89,090/ - TO WHICH THE ASSESSEE IS ELIGIBLE FOR DEDU CTION UNDER SECTION 10A OF THE ACT. IT WAS CONTENTED THAT THE LEARNED CIT(A) HAS GONE WRONG IN ASSUMING THAT RS. 16,59,42,925/ - IS THE INCOME INCLUDED IN THE STPI UNIT WHICH IS FACTUALLY INCORRECT. 7. I T WAS FURTHER SUBMITTED THAT THE INTEREST INCOME OF R S.36,28,383/ - NEED NOT BE SEPARATELY ASSESSED AS THE ASSESSEE ITA NO. 2528/DEL./2014 5 ITSELF HAS SHOWN THIS INTEREST INCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AS IS EVIDENT FROM THE COMPUTATION OF INCOME PLACED AT PAPER BOOK PG. 2. 8. THE LD. DR. RELIED ON THE ORD ER OF THE LOWER AUTHORITIES & HE FURTHER SUBMITTED THAT THIS APPEARS TO BE A FACTUAL ISSUE AND THE ISSUE BE DECIDED ON ITS MERIT. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED MATERIALS AVAILABLE ON RECORDS AND GOING THROUGH THE FACTS, WE NOTE THAT THE ASSESSEE COMPANY IS HAVING TWO UNITS, ONE IS STPI UNIT LOCATED AT K - 1, PLOT NO.412, SECTOR 14, MEHRAULI ROAD, GURGAON FROM WHERE IT CARRIES ON ALL ACTIVITIES RELATING TO STPI UNIT. THE OTHER UNIT IS NON - STPI LOCATED AT 1206 - 1207, KAILASH BUIL DING, 26, KASTURBA GANDHI MARG, NEW DELHI - 110001. THE ASSESSEE, DURING THE YEAR UNDER CONSIDERATION, HAD INCOME OF RS.3,03,61,288/ - FROM STPI UNIT AND LOSS OF RS. 1,54,72,198/ - FROM NON - STPI UNIT. THUS THE NET INCOME WAS RS.1,48,89,090/ - . BESIDES THIS ASSE SSEE HAD INTEREST INCOME OF RS.36,28,383/ - SINCE NET INCOME OF RS.1,48,89,090/ - WAS LESS THAN THE PROFIT OF ITA NO. 2528/DEL./2014 6 RS.3,03,61,288/ - ELIGIBLE FOR EXEMPTION UNDER SECTION 10A IN RESPECT OF STPI UNIT THE DEDUCTION TO THAT EXTENT I.E. RS.1,48,89,090/ - WAS CLAIMED BY THE ASSESSEE AND INTEREST INCOME OF RS.36,28,383/ - WAS OFFERED FOR TAXATION AS INCOME FROM OTHER SOURCES. DURING THE COURSE OF THE ASSESSMENT THE LD. AO RAISED THE ISSUE OF THE DIFFERENCE BETWEEN THE TURNOVER AND THE EXPENSES INCURRED BY THE ASSESSEE IN R ESPECT OF THE STPI UNIT AND NON - STPL UNIT. HE MADE A COMPARISON BETWEEN THE STPT AND NON - STPL UNITS AND HELD THE EXPENSES BE ALLOCATED IN THE RATIO OF 90%: 10%. THE ASSESSING OFFICER WORKED OUT A TOTAL EXPENDITURE OF RS.5,61,15,255/ - AS THE EXPENSES DEBITE D IN NON - STPL UNIT AND HELD THAT 90% OUT OF THESE EXPENSES BE APPROPRIATED TOWARDS STPI UNIT. ACCORDINGLY HE SHIFTED THIS 90% OF THE EXPENDITURE I.E. RS.5,05,03,730/ - FROM NON - STPL UNIT TO STPI UNIT WITH THE RESULT THE NET PROFIT OF THE STPI UNIT WHICH WA S COMPUTED BY THE ASSESSEE AT RS. 3,03,61,288/ - GOT CONVERTED INTO A LOSS OF RS.2,01,42,443/ - . SINCE ON THIS BASIS THE ASSESSING OFFICER COMPUTED A LOSS IN THE STPI UNIT HE DISALLOWED THE DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT OF INCOME OF RS.1,48, 89,090/ - OF STPI UNIT. ITA NO. 2528/DEL./2014 7 10. AGGRIEVED BY THE ORDER OF THE LD. AO, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). IT WAS CONTENDED BY THE ASSESSEE THAT ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS AND THE EXPENDITURE RELATING TO EACH OF THE U NIT HAS BEEN BOOKED UNDER THE RESPECTIVE UNIT AND AO WAS NOT JUSTIFIED IN ALLOCATING NON STPI UNIT EXPENSES ARBITRARILY IN RATIO OF 90:10. IT WAS FURTHER CONTENDED THAT NOT A SINGLE INSTANCE HAS BEEN BROUGHT ON RECORD TO POINT OUT ANY EXPENDITURE RELATABLE TO STPI UNIT HAVING BEEN DEBITED IN NON STPI UNIT. THE LEARNED CIT(A), AFTER EXAMINATION OF ALL THE FACTS AND EVIDENCES, ACCEPTED THE CONTENTION OF THE ASSESSEE AND HAS HELD THAT THE AO IS NOT CORRECT IN RE - ALLOCATING UNALLOCATED EXPENDITURE ON 90 TO 10 B ASIS AND DIRECTED THE AO TO ALLOW THE EXPENDITURE AS PER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THE RELEVANT FINDING OF LEARNED CIT(A) ON THIS ISSUE IN PARA 4.1.3 READS AS UNDER: - 'WHILE IT IS TRUE THAT THERE DID EXIST A CLOSE CONNECTION BETWEEN THE ASSESSEE COMPANY CARRYING ON ELIGIBLE BUSINESS TO WHICH SECTION 80IA(10) APPLIES AND ITS INELIGIBLE BUSINESS, THE OTHER REQUIREMENTS SUCH AS THE NATURE OF ARRANGEMENT & THE MANNER OF REJ ECTION OF THE PROFIT MARGIN IN EFFECT, DUE TO EXPORT SALES AS INFLATED PROFITS ATTRIBUTABLE TO EXPORT ACTIVITIES, HAVE NOT BEEN DISCLOSED BY THE AO. THE AO STATED THAT THE COURSE OF BUSINESS APPEARS TO BE SO ARRANGED REGARDING THE BUSINESS TRANSACTION ITA NO. 2528/DEL./2014 8 BETW EEN TWO UNITS E.G. ELIGIBLE & INELIGIBLE OF THE ASSESSEE, THAT IT HAS SHIFTED HUGE EXPENSES TO THE UNALLOCATED SEGMENT ARBITRARILY TO HOODWINK THE REVENUE, WHICH MIGHT BE EXPECTED TO ARISE IN THE BUSINESS UNDERTAKING CLAIMING EXEMPTION U/S 10A OF THE ACT O N ONE HAND & ALSO BY CLAIMING HUGE LOSS IN THE ELIGIBLE UNIT FOR THE PURPOSE OF CARRY FORWARD & SET OFF THE LOSES IN FUTURE YEARS AGAINST THE POSITIVE INCOME, WHEN TAX HOLIDAY PERIOD EXPIRES. HOWEVER, THE WORD 'APPEARS' CANNOT BE TAKEN IN ISOLATION DEHORS THE QUALIFYING WORDS 'SO ARRANGED' WITH THE BUSINESS, MORE THAN THE ORDINARY PROFITS IN THE ELIGIBLE BUSINESS. WHILE ON THE FIRST ASPECT, THERE IS NOT MUCH DISPUTE, THE SECOND REQUIREMENT, VIZ. IT IS A COURSE OF BUSINESS SO ARRANGED AS TO RESULT IN AN INFL ATED PROFIT FOR THE ELIGIBLE BUSINESS BY WAY OF SHIFTING HUGE EXPENSES TO UNALLOCATED UNIT, IS NOT FORTHCOMING FROM THE ORDER OF THE AO. THE APPELLANT IS MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR ITS STPL & DOMESTIC BUSINESS & HAS RECORDED ALL THE CORRESPO NDING EXPENDITURE AS WELL AS INCOME/RECEIPTS. THE ASSESSING OFFICER WAS ONLY REQUIRED TO FIND OUT THE CORRECTNESS OF THE BOOKS OF ACCOUNTS AS REGARDS THE ALLOCATION OF COMMON EXPENDITURE FOR EXPORT & DOMESTIC BUSINESS & COMPLETE THE ASSESSMENT ACCORDINGLY. THE ASSESSING OFFICER HAS IN TURN, REJECTED THE ASSESSEE'S BOOKS OF ACCOUNT IN EFFECT & IN ESSENCE & RESORTED TO ESTIMATION I.E. APPORTIONMENT OF EXPENDITURE CLAIMED UNDER THE HEAD UNALLOCATED SEGMENT IN THE RATIO OF 90:10 BETWEEN SOFTWARE DEVELOPMENT ACT IVITIES & UNALLOCATED SEGMENT, THEREBY TREATING THE SAME, AS ATTRIBUTABLE IN THE RATIO IN 'ELIGIBLE UNIT' & 'INELIGIBLE UNIT', ON PURELY SURMISES, IN & SUSPICIOUS & CONJECTURE MANNER, WITHOUT ANY EVIDENCE WITH HIM TO SUSPECT THE BOOKS OF ACCOUNT. WHEN THER E ARE NO MISTAKES IN THE BOOKS OF ACCOUNT AND BOOKS OF ACCOUNT ARE IN VERIFIABLE MANNER, THE AO CANNOT REJECT THE BOOKS OF ACCOUNT AND RESORT TO BEST JUDGMENT ASSESSMENT. THEREFORE, THE AO IS NOT CORRECT IN REALLOCATING THE UNALLOCATED EXPENDITURE ON 90:10 BASIS. THERE IS NO MATERIAL TO INDICATE THAT THE COURSE OF BUSINESS HAD BEEN SO ARRANGED AS TO INFLATE PROFITS IN THE ELIGIBLE BUSINESS I.E. TO SHOW A HIGHER PROFIT IN THE ELIGIBLE BUSINESS I.E. EXPORT UNIT. THE AO IS DIRECTED TO ALLOW THE EXPENDITURE AS PER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE & TO RECOMPUTE THE DEDUCTION U/S 10 OF THE ACT SUBJECT TO ITS ELIGIBILITY AS COMMENTED UPON IN THE SUBSEQUENT PARA, IN THE APPELLATE ORDER, KEEPING ALSO IN VIEW THE PRINCIPLES OF CONSISTENCY & THE METHOD OF ACCOUNTING FOLLOWING BY ITA NO. 2528/DEL./2014 9 THE ASSESSEE, WHEREIN NO DEVIATION NOTED VIS - A - VIS METHOD ACCOUNTING EMPLOYED IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR.' 11. CONSEQUENT TO ABOVE FINDINGS OF THE LEARNED CIT(A), THE ADJUSTMENT MADE BY AO BY SHIFTING EXPENDITU RE OF NON STPI UNIT GOT DELETED. THE REVENUE HAS ACCEPTED THESE FINDINGS AS IT HAS NOT COME IN APPEAL AGAINST THE ORDER OF THE LEARNED CIT(A). 12. HOWEVER, IN PG. 15 PARA 5.1.4, LD. CIT(A) HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTI ON 10A OF THE ACT AS IT HAS CREDITED AN AMOUNT OF RS.16.59 CRORE IN THE PROFIT & LOSS ACCOUNT OF STPI UNIT SINCE THE SAME DOES NOT REPRESENT THE INCOME FROM THE EXPORT OF SOFTWARE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE AND HENCE NOT ELIGIBLE FOR DEDUCTIO N UNDER SECTION 10A OF THE ACT. ON THE ABOVE BASIS, HE HELD THAT THIS AMOUNT OF RS.16.59 CRORE IS REQUIRED TO BE EXCLUDED WHILE COMPUTING INCOME ELIGIBLE UNDER SECTION 10A OF THE ACT. SIMILARLY HE ALSO HELD THAT INTEREST ON FIXED DEPOSIT OF RS.36,28,38 3/ - IS TO BE CHARGED AS INCOME FROM OTHER SOURCES AND NOT ELIGIBLE WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. ON THE ABOVE BASIS THE LEARNED CIT(A) HELD THAT THE ITA NO. 2528/DEL./2014 10 AGGREGATE OF THIS AMOUNT BEING MORE THAN THE INCOME COMPUTED UNDER SECTION 10A T HE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. 13. AFTER EXAMINATION OF THE FACTS, AS RIGHTLY CONTENDED BY THE LEARNED AR WE NOTE THAT THE OBSERVATIONS OF LEARNED CIT(A) ARE FACTUALLY NOT CORRECT. THE ASSESSEE HAS NOT INCLUDE D RS.16,59,42,925/ - AS INCOME OF STPI UNIT. IN FACT THE SAME HAS BEEN SHOWN AS INCOME OF NON - STPI UNIT AND ACCORDINGLY THE SAME HAS NOT BEEN TAKEN INTO ACCOUNT WHILE COMPUTING INCOME ELIGIBLE UNDER SECTION 10A OF THE ACT. 14. SIMILARLY INTEREST ON FIXE D DEPOSIT HAS NOT BEEN INCLUDED BY THE ASSESSEE IN THE INCOME OF STPI UNIT WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. THE ASSESSEE HAS COMPUTED DEDUCTION UNDER SECTION 10A ON THE INCOME EXCLUDING THE ABOVE INCOME OF RS.16,59,42,925/ - AS IS EV IDENT FROM THE COMPUTATION OF INCOME. EVEN AFTER EXCLUSION OF THE ABOVE INCOME OF RS.16,59,42,925/ - THE INCOME OF THE STPI UNIT COMES TO RS.3,03,61,288/ - . THIS INCOME ALSO DOES NOT INCLUDE INCOME ON ITA NO. 2528/DEL./2014 11 ACCOUNT OF INTEREST ON FIXED DEPOSIT OF RS.36,28,383/ - . AFTER SETTING OFF THE LOSS FROM THE NON - STPI UNIT OF RS.1,54,72,198/ - THE INCOME UNDER THE HEAD 'BUSINESS' REMAINS AT RS.1,48,89,090/ - . THUS THE ASSESSEE IS ELIGIBLE FOR CLAIMING EXEMPTION TO THIS EXTENT OF RS.1,48,89,090/ - UNDER SECTION 10A. DURING THE CO URSE OF THE HEARING THE LD. DR. ALSO COULD NOT CONTROVERT THE ABOVE FACTS. 15. IN VIEW OF THE ABOVE FACTS, WE HOLD THAT THE LEARNED CIT(A) WAS NOT CORRECT IN DENYING EXEMPTION AS CLAIMED BY THE ASSESSEE TO THE EXTENT OF RS.1,48,89,090/ - . ACCORDINGLY WE DIRECT THE AO TO ALLOW THE EXEMPTION . ACCORDINGLY , GROUND NO. 2(I) AND 2(II) ARE ALLOWED. 1 6 . GROUND NO. 2(III) IS DISMISSED AS NOT PRESSED. 17. IN THE RESULT THE APPEAL OF THE ASSESSES IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 16.06.2017 . SD/ - SD/ - ( I.C. SUDHIR) ( L.P. SAHU ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16.06.2017 *AKS*