Sri Xinthe Technologies P Ltd., Visakhapatnam V. The ACIT, Circle-4(1), Visakhapatnam

ITA 268/VIZ/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2733 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-10-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 18-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T L PETER
• Keywords: Revision of order; Assessment record
• Section: 143(3); 263; 10; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 268 /VIZAG/ 20 09 ASSESSMENT YEAR : 2004 - 05 XINTHE TECHNOLOGI ES P LTD VISAKHAPATNAM ACIT CIRCLE - 4(1) VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO.AAACX 0186D APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI T.L. PETER, DR ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER : - THIS APPEAL IS PREFERRED B Y THE ASSESSEE AGAINST THE ORDER OF THE CIT PASSED U/S 263 OF THE I.T. ACT SETTING ASIDE THE ORDER OF THE A.O. AFTER HAVING OBSERVED THAT THE ORDER OF THE A.O. IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THROUGH THIS APPEAL THE ORDER OF T HE CIT IS ASSAILED ON VARIOUS GROUNDS WHICH ARE AS UNDER: - 1. APPELLANT SUBMITS THAT THE COMMISSIONER OF INCOME TAX IS NOT JUSTIFIED IN PASSING ORDER UNDER SECTION 263 EX - PARTE REJECTING TO CONSIDER THE APPLICATION FILED FOR ADJOURNMENT, ON THE GROUND THAT T HE CASE IS GETTING TIME BARRED. 2. WITHOUT PREJUDICE TO GROUND NUMBER 1, APPELLANT SUBMITS THAT THE COMMISSIONER OF INCOME TAX IS NOT JUSTIFIED IN HOLDING THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF TH E REVENUE AS; THE ENTIRE SALE PROCEEDS WERE NOT REPATRIATED INTO INDIA AS PER THE PROVISIONS OF SUB - SECTION 3 & 4 OF SECTION 10A READ WITH EXPLANATION 2(IV) AND THAT CONSEQUENTLY THERE WAS EXCESS ALLOWANCE OF DEDUCTION UNDER SECTION 10A. 3. WITHOUT PREJUDICE TO GROUND NUMBER 1, APPELLANT SUBMITS THAT THE COMMISSIONER OF INCOME TAX IS NOT JUSTIFIED IN HOLDING THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AS; THE AMOUNT OF RS.6,17,206 TOWARDS IN SURANCE AND THE AMOUNT OF RS.8,52,761 TOWARDS COMMUNICATION EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT WERE TO BE REDUCED FROM EXPORT TURNOVER AS PER EXPLANATION 2(IV) TO SECTION 10A. 2 4. WITHOUT PREJUDICE TO GROUND NUMBER 1, APPELLANT SUBMITS THAT THE COMM ISSIONER OF INCOME TAX IS NOT JUSTIFIED IN HOLDING THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AS; THE INTEREST EARNED FROM FDRS HELD IN BANK OF RS.1,90,833 WAS INCLUDED IN EXPORT TURNOV ER AND OUGHT TO HAVE BEEN ASSESSED AS INCOME FROM OTHER SOURCES AND BROUGHT TO TAX. 2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW DOCUMENTS PLACED ON RECORD AND JUDGEMENTS REFERRED TO BY THE PARTIES. THE LD. COUNSEL FOR THE ASSESSEE EMPHATICALLY ARGUED THAT CIT HAS NOT GIVEN SUFFICIENT TIME TO THE ASSESSEE EVEN TO REPLY THE SHOW CAUSE NOTICE ISSUED TO IT. THE CIT(A) HAS POSTED THE MATTER FOR HEARING ON 30 TH MARCH, 2009 BY ISSUING A SHOW CAUSE NOTICE AND IN RESPONSE THERETO THE FINANCE MANAGER OF THE ASSESSEE MR. SESHAGIRI APPEARED AND SOUGHT FOR ADJOURNMENT. THE CIT TURNED DOWN THE REQUEST FOR ADJOURNMENT AND HAS PASSED AN ORDER ON THE SAME DAY I.E. 30.3.2009 ON THE GROUND THAT THE MATTER IS GETTING BARR ED BY LIMITATION BY 31.3.2009. FROM A CAREFUL PERUSAL OF THIS ORDER OF THE CIT, WE FIND THAT CIT EVEN DID NOT GIVE REASONABLE TIME TO THE ASSESSEE TO FILE A PROPER REPLY EVEN TO A SHOW CAUSE NOTICE AND HE HAS PASSED AN ORDER ON THE FIRST DATE OF HEARING. THEREFORE, WE ARE OF THE VIEW THAT CIT HAS NOT PROPERLY EXAMINED THE ISSUE IN RIGHT PERSPECTIVE AND HAS PASSED AN ORDER IN HASTE. 3. SO FAR AS MERIT IS CONCERNED, WE FIND THAT THE CIT HAS DISALLOWED THE DEDUCTIONS CLAIMED U/S 10A CLAIMED BY THE ASSESSE E WHICH WERE INITIALLY ALLOWED BY THE A.O. IN THIS REGARD, THE ASSESSEE HAS INVITED OUR ATTENTION TO THE QUERY RAISED BY THE A.O. THROUGH ITS LETTER DATED 27.11.2006, COPY OF THE SAME IS AVAILABLE AT PG.18 OF THE COMPILATION OF THE ASSESSEES. THIS LETTER WAS DULY REPLIED BY THE ASSESSEE VIDE ITS LETTER DATED 29.11.2006 AND 1 ST DECEMBER, 2006. BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES, THE ASSESSING OFFICER ALLOWED THE CLAIM OF DEDUCTION U/S 10A OF THE I.T. ACT. THE LD. COUNSEL FOR THE ASSES SEE FURTHER INVITED OUR ATTENTION TO THE ORDERS OF THE TRIBUNAL IN THE CASE OF DCIT VS. SOFTSOL INDIA LTD. 22 SOT 271 AND PATNA TELECOM (P) LTD. VS. ITO 120 ITD 105 (HYD) IN SUPPORT OF HIS CONTENTION THAT T HE ON SITE EXPENDITURE INCURRED FOR DEVELOPMENT OF SOFTWARE NEED NOT BE REDUCED FROM CONVERTIBLE FOREIGN EXCHANGE RECEIVED BY THE ASSESSEE FOR THE 3 PURPOSE OF CALCULATION OF EXPORT TURNOVER FOR THE PURPOSE OF RELIEF U/S 10A OF THE I.T. ACT. THE LD. D.R. ON THE OTHER HAND HAS PLACED A RELIANCE UPON THE ORDE R OF THE CIT WITH THE SUBMISSION THAT ASSESSING OFFICER HAS NOT EXAMINED THE CLAIM U/S 10A OF THE I.T. ACT RAISED BY THE ASSESSEES AS THERE IS NO DISCUSSION IN THIS REGARD IN THE ASSESSMENT ORDER. 4. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM CAREFUL PER USAL OF THE ORDERS OF THE LOWER AUTHORITIES, WE FIND THAT CIT ON SCRUTINY OF THE ASSESSMENT RECORD HAS NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 10A FOR RS.2,53,61,347/ - . AS PER THE STATEMENT, THE TOTAL RECEIPT IN RESPE CT OF SOFTWARE SERVICES BOTH O N SITE AND OFFSIT E RENDERED WERE 14,68,225.22 U.S. DOLLARS . OUT OF THE ABOVE, AMOUNT SPENT DURING THE PERIOD DATED ENDED 31.3.2004 TOWARDS BRANCH EXPENSES WERE 19559.91 US DOLLARS AND ONLY 9,72,632.91 US DOLLARS WERE REPATRIATED INTO AN INDIAN BANK ACCOUNT OUT OF THE TOTAL RECEIPTS. SINCE THE ENTIRE SALE PROCEEDS WERE NOT REPATRIATED INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE, AS PER SUB - SE CTION 3&4 OF SECTION 10A READ WITH EXPLANATION 2( IV ), THERE WAS EXCESS ALLOWANCE OF THE DEDUCTION U/S 10A BY THE A.O. A S OBSERVED BY THE CIT. 5. WE HAVE EXAMINED THE RELEVANT RECORD IN THIS REGARD AND WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS RAISED A SPECIFIC QUERY FROM THE ASSESSEE IN THIS REGARD. VIDE LETTER DATED 27.11.2006 APPEARING AT PG.NO.18 OF THE COMPILATION OF THE ASSESSEE, THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO FURNISH WHETHER FLEET BANK, BOSTON, USA IS THE ONLY BANK AND BRANCH APPROVED BY THE RBI OR ARE THERE IN OTHER BANKS APPROVED FOR THE PURPOSE AND ARE B EING USED BY YOU? , B ECAUSE AS PER EXPLANATION 2 TO SUB - SECTION 3 OF SECTION 10A, THE ASSESSEE IS REQUIRED TO OBTAIN APPROVAL OF THE RBI IN ORDER TO ROUTE ITS SALE PROCEEDS THROUGH ANY BANK ABROAD. IN RESPONSE TO THIS LETTER, THE ASSESSEE HAS FURNISHED THE INFORMATION VIDE ITS LETTER DATED 29.11.2006 AND 1 ST DECEMBER, 2006 APPEARING AT PG.NO.19 TO 26 STATING THEREIN THAT THE ASSESSEE COMPANY HAS OBTAINED PERMISSION FROM THE RBI FOR OPENING BRANCH OFFICE AT USA AND ALSO BANK ACCOUNT WITH FLEET BANK, USA VIDE ITS LETTER DATED NOVEMBER 1, 2002 OF WHICH PHOTOCOPIES WERE ENCLOSED. IT WAS FURTHER CONFIRMED THAT FLEET BANK, 4 USA IS THE ONLY BANK IN WHICH THE COMPANY IS AUTHORIZED TO OPERATE BANKING TRANSACTIONS IN USA. ALONG WITH THIS LETTER , ASSESSEE HAS ENCLOSED THE RESERVE BANK CERTIFICATE AND ITS ANNEXURES. 6. FROM A CAREFUL READING OF THE QUERY RAISED AND THE REPLY FILED BY THE ASSESSEE, WE ARE OF THE VIEW THAT A.O. HAS APPLIED HIS MIND WITH RESPECT TO THE CLAIM OF THE ASSESSEE RAISED U/S 10A OF THE I.T. AC T AND ONCE HIS DOUBTS ARE CLEARED, HE HAS ACCEPTED THE CLAIM OF THE ASSESSEE. OUR ATTENTION WAS ALSO INVITED TO THE ORDERS OF THE TRIBUNAL IN THE CASE OF DCIT VS. SOFTSOL INDIA LIMITED (SUPRA) AND PATNI TELECOM PRIVATE LIMITED VS. ITO (SUPRA) IN WHICH IT HAS BEEN CATEGORICALLY HELD THAT THE ONSITE EXPENDITURE INCURRED FOR THE DEVELOPMENT OF SOFTWARE NEED NOT BE REDUCED FROM CONVERTIBLE FOREIGN EXCHANGE RECEIVED BY THE ASSESSEES FOR THE PURPOSE OF CALCULATION OF EXPORT TURNOVER FOR THE PURPOSE OF RELIEF U/ S 10A OF THE I.T. ACT. OUR ATTENTION WAS ALSO INVITED TO THE EXPLANATION 2 BELOW SUBSECTION 3 OF SECTION 10A ACCORDING TO WHICH THE SALE PROCEEDS REFERRED TO IN THIS SUB SECTION SHALL BE DEEMED TO HAVE BEEN RECEIVED IN INDIA WHERE SUCH SALE PROCEEDS ARE C REDITED TO A SEPARATE ACCOUNT MAINTAINED FOR THE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSIDE INDIA WITH THE APPROVAL OF RESERVE BANK OF INDIA. EVEN ON MERIT, THE REQUISITE CONDITIONS FOR CLAIMING DEDUCTION U/S 10A ARE ALSO FULFILLED. IT IS NOT A CASE O F A REGULAR APPEAL . I T IS A CASE WHERE THE CIT HAS EXERCISED JURISDICTION U/S 263 OF THE I.T. ACT. IT HAS BEEN REPEATEDLY HELD BY VARIOUS HIGH COURTS THAT IF THE ASSESSING OFFICER HAS APPLIED ITS MIND AND HAS EXAMINED THE ISSUE BEFORE ACCEPTING IT, THE CI T IS PRECLUDED FROM INTERFERING WITH THE ORDER OF THE A.O. IN THE INSTANT CASE, THE A.O. HAS MADE A NECESSARY INVESTIGATION WITH REGARD TO THE CLAIM U/S 1 0 A RAISED BY THE ASSESSEE AND IN RESPONSE THERETO, ASSESSEE HAS FURNISHED THE DETAILED REPLY AND BEIN G CONVINCED WITH IT, THE A.O. HAS ACCEPTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 10A OF THE ACT. THEREFORE, THE CIT HAS NO JURISDICTION TO THRUST UPON HIS OPINION OR WISDOM UPON THE A.O. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT IN THIS REGARD. 7 . WITH RESPECT TO THE INSURANCE AND COMMUNICATION EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT ON WHICH CIT HAS ALSO EXERCISED JURISDICTION AND SET 5 ASIDE THE ORDER OF THE A.O. , NOTHING HAS BEEN BROUGHT TO OUR NOTICE THAT THIS CLAIM WAS EVER EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THEREFORE, WE ARE OF THE VIEW THAT CIT HAS RIGHTLY EXERCISED HIS JURISDICTION IN THIS R EGARD. WE ACCORDINGLY CONFIRM HIS ORDER. THE CIT HAS ALSO EXERCISED HIS JURISDICTION U/S 263 OF THE ACT WITH RESPECT TO THE INTEREST EARNED FROM FDRS HELD IN BANK. IN THIS REGARD ALSO NOTHING HAS BEEN BROUGHT BEFORE US WHETHER TH IS ISSUE WAS EVER EXAMINED BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. WE THEREFORE OF THE VIEW THAT CIT HAS RI GHTLY EXERCISED HIS JURISDICTION IN THIS REGARD ALSO AND WE CONFIRM HIS ORDER. 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 25.10 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTAN T MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 25 TH OCTOBER , 20 10 COPY TO 1 XINTHE TECHNOLOGIES (P) LTD, UNIT 22, SDF BUILDING, VSEZ, VISAKHAPATNAM - 530 046. 2 ACIT, CIRCLE - 4(1), VISAKHAPATNAM 3 THE CI T, VISAKHAPATNAM 4 THE CIT (A) , VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM