DCIT, New Delhi V. M/s vCustomer Services India Pvt. Ltd., New Delhi

ITA 2544/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3572 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 16-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S D KAPILA; RR MAURYA S
• Keywords: Rule 8D; Set aside; Capital Gains
• Section: 14A; 2

Judgement Text

ITA NO. 2544/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2544/DEL/2011 A.Y. : 2006-07 DCIT, CIRCLE - 17(1), ROOM NO. 221, CR BUILDING, IP ESTATE, NEW DELHI VS. M/S VCUSTOMER SERVICES INDIA PVT. LTD., B-1/G-6, MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI AND F-2/7, OKHLA INDL. AREA, PHASE-I, NEW DELHI (PAN : AABCV0770E) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. S.D. KAPILA AND SH. RR MAURYA, ADVOCATES. DEPARTMENT BY : SH. ROHIT GARG, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 28.2.2 011 AND PERTAINS TO ASSESSMENT YEAR 2006-07. 2. THE FIRST ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN FACTS AND IN LAW BY DIRECTI NG THE ASSESSING OFFICER TO INCLUDE THE GAINS OF ` 72,96,422/- ON A CCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE RATES IN THE ELIGIBLE PROFITS FOR COMPUTING ITA NO. 2544/DEL/2011 2 DEDUCTION U/S 10A OF THE ACT, IGNORING THAT THE GA INS FROM FLUCTUATIONS IN FOREIGN EXCHANGE RATES IS ONLY ATTRIBUTABLE TO AND IS NOT DERIVED FROM THE ELIGIBLE UNDERTAKING OF THE ASSESSEE. 3. ASSESSEE IN THIS CASE CLAIMED EXEMPTION U/S 10A F ROM THE PROFITS EARNED FROM IT ENABLED SERVICES. THERE WAS A GAIN OF ` 59,12,872/- ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE IN RESPE CT OF SALE PROCEEDS OF EXPORTS. ASSESSING OFFICER REDUCED THIS AMOUNT F ROM THE ELIGIBLE PROFIT FOR DEDUCTION U/S 10A AND ACCORDINGLY, ALLOW ED DEDUCTION. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD AS UNDER:- THE HONBLE ITAT, IN THE CASE OF M/S CHANGEPOND TECHNOLOGIES (P) LTD. VS. ACIT IN ITA NO. 731 (MAD ) 2007 FOR A.Y. 2003-04, OBSERVED AS UNDER:- THE GAIN FROM THE FLUCTUATION OF FOREIGN EXCHANGE WAS DIRECTLY RELATED WITH THE EXPORT ACTIVITIES AND SHOULD BE CONSIDERED AS INCOME DERIVED FROM EXPORT ACTIVITIES. SUCH GAIN DUE TO FLUCTUATION OF FORE IGN EXCHANGE AROSE ONLY DUE TO THE EXPORT AND NOT DUE TO OTHER ACTIVITIES OF THE ASSESSEE. IF THE ASSESSEE HAD NOT EXPORTED ANY ARTICLE THEN THE QUESTION OF ANY G AIN ITA NO. 2544/DEL/2011 3 OR LOSS DUE TO FOREIGN EXCHANGE DID NOT ARISE. THEREFORE, THE GAIN ON FOREIGN EXCHANGE WOULD BE INCLUDED IN THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A. EXCHANGE FLUCTUATION GAIN IS IN RESPECT OF SALE PRO CEEDS ON ACCOUNT OF EXPORT. THERE IS NO ADVERSE FINDING TO THIS EFFECT. THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING TH AT THE AMOUNT IS ASSESSABLE UNDER THE HEAD INCOME FROM OTH ER SOURCES. AFTER CAREFUL CONSIDERATION OF THE FACTS BROUGHT ON RECORD, THE GAIN ON FOREIGN EXCHANGE FLUCTUATION IS RELATED TO SALES AND IS TO BE INCLUDED IN THE ELIGIBLE PROF IT. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S FOLLOWED THE DECISION OF THE ITAT IN THE CASE OF M/S CHANGEPOND TECHNOLOGIES P LTD. VS. ACIT (SUPRA). ACCORDING TO THE DECISION IT WAS HELD THAT GAIN ON FOREIGN EXCHANGE WOULD BE INCLUDED IN THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION U/S 10A AS IT WAS DIRECTLY R ELATED WITH EXPORT ACTIVITIES. NO CONTRARY DECISION WAS CITED BEFORE U S. ACCORDINGLY, RESPECTFULLY FOLLOWING THE PRECEDENT, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NO. 2544/DEL/2011 4 7. THE NEXT ISSUE RAISED IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF IN COME TAX (APPEALS) HAS ERRED BY NOT UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN INCLUDING INTEREST INCOME, DIVIDEND INC OME, SHORT TERM CAPITAL GAINS, RENTAL INCOME AND PROFIT ON SALE OF FIXED ASSETS AS PART OF TOTAL TURNOVER. 8. ON THIS ISSUE ASSESSEE HAS SHOWN FOLLOWING OTHER INCOME:- INTEREST INCOME TREATED SEPARATELY - 8,151,519/- DIVIDEND INCOME TREATED SEPARATELY - 2,739,517/- STCG TREATED SEPARATELY - 136,998/- RENTAL INCOME TREATED SEPARATELY - 2,700,000/- PROFIT ON SALE OF FIXED ASSETS - 2,247,374/- TOTAL TOTAL TOTAL TOTAL - 1,59,75,408/ 1,59,75,408/ 1,59,75,408/ 1,59,75,408/- -- - 8.1 ASSESSING OFFICER CONSIDERED THE ABOVE ITEMS OF INCOME AS PART OF TOTAL TURNOVER WHICH LED TO LOWER DEDUCTION U/S 10A. 9. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THESE AMOUNTS ARE TREATED BY TH E ASSESSEE AS INCOME FROM VARIOUS OTHER SOURCES. THESE INCOMES / RECEIPTS CANNOT BE INCLUDED IN THE TOTAL TURNOVER. 10. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 11. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LD. COUNSEL OF THE ASSESSEE HAS CONTENDED ON THIS ISSUE THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE HONBLE ITA NO. 2544/DEL/2011 5 MUMBAI HIGH COURT IN THE CASE OF C.I.T. VS. GEM PLUS JE WELLERY INDIA LTD. 330 ITR 175. IN THIS CASE IT WAS HELD THAT IN COMPUTATION OF TOTAL TURNOVER FOR EXEMPTION U/S 10A, EXPORT TURNOVER IN THE NUMERATOR MUST HAVE THE SAME MEANING AS THE EXPORT TURNOVER WHICH IS A CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR. FREIGHT AND INSURANCE WHICH DO NOT HAVE ANY ELEMENT OF PROFIT C ANNOT BE INCLUDED IN THE TOTAL TURNOVER. FURTHER, IT WAS HELD TH AT FREIGHT AND INSURANCE DO NOT HAVE ANY ELEMENT OF TURNOVER, THUS HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER. THE LD. LD. DEPARTMENTAL REPR ESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND COULD NOT GIVE ANY CONTRARY DECISION. UPON CAREFUL CONSIDERATION, WE A RE OF THE OPINION THAT THE OTHER INCOME OF THE ASSESSEE CANNOT BE INCL UDED IN THE TOTAL TURNOVER. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 12. THE LAST ISSUE RAISED IS THAT THE LD. COMMISSION ER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW BY GIVING D IRECTION TO THE ASSESSING OFFICER TO CALL FOR DETAILS OF EXPENDITU RE AND TO DISALLOW ONLY THE EXPENDITURE FOUND TO RELATE TO THE EXEMPT DIVIDE ND INCOME, IGNORING THAT:- (I) THE POWERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TO SET ASIDE ISSUES DECIDED IN SCRUTINY A SSESSMENT HAVE BEEN CURTAILED WITH EFFECT FROM 1.6.2001. (II) BY NOT CALLING FOR A REMAND REPORT FROM THE ASS ESSING OFFICER ON THE ISSUES SET ASIDE FOR VERIFICATION, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT DECIDED THE ITA NO. 2544/DEL/2011 6 APPEAL IN ACCORDANCE WITH THE BOARDS CIRCULAR NO. 14 DATED 12.12.2001 ON THE ISSUE. 13. ON THIS ISSUE ASSESSEE COMPANY HAD SHOWN RECEIPT OF 27,39,517/- TOWARDS DIVIDEND INCOME. ASSESSING OFFICER DISAL LOWED THE PORTION OF EXPENDITURE AMOUNTING TO ` 432,059/- BY INVOKING RUL E 8D R.W.S. 14A OF THE IT ACT. 14. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) REFERRED THE DECISION OF THE HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. PVT. LTD. 2010-TIOL56 4-HC-MUM-IT, WHEREIN IT WAS HELD THAT RULE 8D IS APPLICABLE FRO M THE ASSESSMENT YEAR 2008-09. CONSIDERING THE ABOVE JUDGEMENT, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT RULE 8D IS NOT APPLIC ABLE IN THE CURRENT ASSESSMENT YEAR I.E. 2006-07 IN THE ASSESSEES CASE . LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER DIRECTE D THE ASSESSING OFFICER TO CALL FOR THE DETAILS OF THE EXPENDITURE AND DISALLOW ANY EXPENDITURE FOUND TO BE RELATED TO EARNING OF DIVI DEND INCOME. 15. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 16. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT HONBLE MUMBAI COURT IN THE CASE GORDEJ BOY CE MFG. PVT. LTD. CITED ABOVE HAS CLEARLY HELD THAT RULE 8D IS APPLI CABLE FROM THE ITA NO. 2544/DEL/2011 7 ASSESSMENT YEAR 2008-09. HENCE, ASSESSING OFFICER S ACTION IN INVOKING RULE 8D FOR THE PRESENT ASSESSMENT YEAR IS LIABLE TO BE SET ASIDE. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) IS ALSO CORRECT IN HOLDING THAT THE EXPENDITURE IN THIS REG ARD NEEDS TO BE EXAMINED AND THE EXPENDITURE RELATED TO EARNING OF DIVIDEND INCOME TO BE DISALLOWED. HENCE, WE DO NOT FIND ANY INFIR MITY IN THE DIRECTIONS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN TH IS REGARD. ACCORDINGLY, WE UPHOLD THE SAME. 17. IN THE RESULT, APPEAL FILED BY THE REVENUE STAN DS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/7/2011, U PON CONCLUSION OF HEARING. SD/- SD/- [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 19/7/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES