DCIT, Hyderabad V. M/s Manga Infotech Pvt, Ltd., Hyderabad

ITA 287/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66608 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPT
• Assessee Lawyers: KISHORE KUMAR KABRA
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NOS. 287/HYD/2009 & 1119/HYD/2010 ASSESSMENT YEARS: 2005-06 & 2006-07 THE ASST. COMMISSIONER OF INCOME-TAX, AP PELLANT CIRCLE 16(2), HYDERABAD VS. MAGNA INFOTECH PVT LTD., RESPONDENT HYDERABAD (PAN AACM0914A) C.O. NO. 6/HYD/2009 (IN ITA NO. 287/HYD/2009 ASSESSMENT YEAR: 2005-06) MAGNA INFOTECH PVT LTD., CROSS OBJECTOR HYDERABAD (PAN AACM0914A) VS. THE ASST. COMMISSIONER OF INCOME-TAX, AP PELLANT CIRCLE 16(2), HYDERABAD REVENUE BY : SMT. AMISHA S. GUPT ASSESSEE BY : SHRI KISHORE KUMAR KABRA DATE OF HEARING : 20/12/2012 DATE OF PRONOUNCEMENT : 20/12/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: BOTH THESE APPEALS PREFERRED BY THE REVENUE ARE DIR ECTED AGAINST THE RESPECTIVE ORDERS OF THE CIT(A), HYDERA BAD, FOR THE ASSESSMENT YEARS 2005-06 & 2006-07. THE ASSESSEE AL SO FILED C.O. ITA NOS. 287/HYD/2009 & 1119/10& C.O. 06/H/09 M/S MAGNA INFOTECH PVT. LTD. 2 AGAINST THE SAID ORDER OF THE CIT(A). SINCE IDENTIC AL ISSUES ARE INVOLVED IN THESE APPEALS, THEY WERE CLUBBED AND HE ARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PASSED FOR THE SA KE OF CONVENIENCE. 2. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FAC TS OF THE CASE IN AY 2006-07. BRIEFLY THE FACTS OF THE CASE ARE TH AT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF COMPUTER SOFT WARE DEVELOPMENT/SERVICES. FOR THE AY 2006-07, IT FILED ITS RETURN OF INCOME ON 24/11/2006 ADMITTING AN INCOME OF RS. 90, 33,922/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143( 3) OF THE ACT DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 1,27,83,399/-. 3. THE ASSESSEE HAD CLAIMED EXEMPTION U/S 10A OF TH E ACT TO THE EXTENT OF RS. 37,24,685/-. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE EXPENDITURE OF RS. 5,90,30,186/- TOWARDS TECHNICAL SERVICES WAS IN CURRED IN FOREIGN EXCHANGE. FURTHER, THE ASSESSEE HAD ALSO INCURRED I NTERNET CONNECTION CHARGES OF RS. 11,41,298/- FOR DELIVERY OF THE SOFTWARE. THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE IN CURRED IN FOREIGN EXCHANGE TOWARDS PROVIDING TECHNICAL SERVICES OUTSI DE INDIA AND INTERNET CHARGES FOR DELIVERY OF ARTICLE OR THING A MOUNTING TO RS. 6,01,71,484/- AND RECOMPUTED THE ELIGIBLE EXEMPTION U/S 10A OF THE ACT. 4. ON APPEAL, BEFORE THE CIT(A) THE ASSESSEE STATED THAT IN ITS OWN CASE FOR AY 2005-06 THE CIT(A) HAD DECIDED THE ISSUE PARTLY IN ITS FAVOUR. THE PRESENT CIT(A) QUOTED THE ORDER OF HIS PREDECESSOR FOR 2005-06 IN HIS ORDER AT PAGES 3 TO 4. THE CIT(A ) RELYING ON THE ITA NOS. 287/HYD/2009 & 1119/10& C.O. 06/H/09 M/S MAGNA INFOTECH PVT. LTD. 3 DECISION OF THE PATNI TELECOM PVT. LTD. VS. ITO [20 08] 22 SOT 26 (HYD) AND FOLLOWING THE DECISION OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR AY 2005-06 HELD THAT THE EXPENDITURE I NCURRED IN FOREIGN EXCHANGE TOWARDS PROVIDING TECHNICAL SERVIC ES OUTSIDE INDIA AND INTERNET CHARGES FOR DELIVERY OF SOFTWARE AMOUN TING TO RS. 6,01,71,484/- SHOULD NOT BE EXCLUDED FROM THE EXPOR T TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 10A OF THE ACT. ACCORD INGLY, HE ALLOWED THE APPEAL OF THE ASSESSEE. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US AN D HAS RAISED THE FOLLOWING GROUNDS OF APPEAL, WHICH ARE COMMON I N BOTH THE APPEALS UNDER CONSIDERATION: 1. THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESS ING OFFICER TO EXCLUDE THE FOREIGN EXCHANGE PAYMENTS MADE OUTSI DE INDIA TOWARDS TECHNICAL SERVICES/SALARIES FROM EXPORT TUR NOVER. 2. THE EXPLANATION 2 TO SUB-SECTION (4) OF SECTION 10A CLEARLY DEFINED EXPORT TURNOVER FOR THE PURPOSE OF SECTION 10A.IT CLEARLY STATES THAT THE EXPORT TURNOVER DOES NOT IN CLUDE EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN P ROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA. 3. THE DECISION RELIED ON BY THE CIT(A) IN THE CASE OF PATNI TELECOM (P) LTD. VS. ITO, IS NOT ACCEPTED BY THE DE PARTMENT AND FURTHER APPEAL IS PREFERRED BY THE DEPARTMENT. 6. WE HAVE HEARD THE ARGUMENTS OF THE LEARNED DR SM T. AMISHA S. GUPT AND THE LEARNED COUNSEL FOR THE ASSESSEE SH RI B. SATYANARAYANA MURTHY. WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE SPECIAL BENCH DECISION OF I TAT, CHENNAI CIT (A) BENCH IN THE CASE OF M/S ZYLOG SYSTEMS LT D. FOR AY 2003- 04 IN ITA NOS. 1138/MDS/2007(ASSESSEES APPEAL) AND 1141/MDS/2007 (REVENUES APPEAL) VIDE ORDER DATED 0 2/11/2012 WHEREIN THE SPECIAL BENCH HAS HELD AS UNDER:- ITA NOS. 287/HYD/2009 & 1119/10& C.O. 06/H/09 M/S MAGNA INFOTECH PVT. LTD. 4 24WHATEVER THE EXPENDITURE HAS BEEN INCURRE D ON FOREIGN SOIL IN A SUM OF RS. 3,33,46,592/- WERE INC URRED IN CONNECTION WITH DEVELOPMENT OF SOFTWARE BY THE EMPL OYEES OF THE ASSESSEE COMPANY AT FOREIGN BRANCH AND NOTHING HAS BEEN INCURRED ON MANAGERIAL OR TECHNICAL SERVICES RENDER ED TO ANY OUTSIDER IN FOREIGN SOIL. IN VIEW OF THIS DISCUSSIO N, WE ARE INCLINED TO ALLOW THE GROUND OF THE ASSESSEE THAT R S. 3,33,46,592/- SHOULD NOT BE EXCLUDED FROM THE EXPOR T TURNOVER FOR COMPUTING DEDUCTION U/S 10B OF IT ACT. 7. RESPECTFULLY FOLLOWING THE SPECIAL BENCH DECISIO N OF THE ITAT, CHENNAI BENCH IN THE CASE OF M/S ZYLOG SYSTEMS LTD. (SUPRA) WE CONFIRM THE ORDER OF THE CIT(A) FOR AY 2006-07 IN H OLDING THAT THE EXPENDITURE INCURRED IN FOREIGN EXCHANGE TOWARDS PR OVIDING TECHNICAL SERVICES OUTSIDE INDIA AND INTERNET CHARG ES FOR DELIVERY OF SOFTWARE AMOUNTING TO RS. 6,01,71,484/- SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF DEDUCTI ON U/S 10A OF THE ACT. 8. AS FAR AS THE AY 2005-06 IS CONCERNED, THE CIT(A ) DIRECTED THE ASSESSING OFFICER TO EXCLUDE 50% OF THE INTERNET CH ARGES OUT OF RS. 6,94,763/- FROM THE EXPORT TURNOVER. RESPECTFULLY F OLLOWING THE SPECIAL BENCH DECISION OF THE ITAT, CHENNAI BENCH ( SUPRA), WE DIRECT THE ASSESSING OFFICER TO EXCLUDE 100% OF THE INTERNET CHARGES FROM THE EXPORT TURNOVER. ACCORDINGLY, THE ORDER OF THE CIT(A) IS MODIFIED. 9. IN THE C.O. FILED BY THE ASSESSEE, THE FOLLOWING CROSS OBJECTION HAS BEEN RAISED: THE HONBLE CIT(A) IS NOT JUSTIFIED IN DIRECTING TH E ASSESSING OFFICER TO DEDUCT , IN DETERMINING THE EXPORT TURNOVER, AN AMOUNT OF RS. 3,47,382/- OUT OF RS. 6,94,763/- BEIN G EXPENDITURE ON INTERNET CHARGES INCURRED BY THE COM PANY. THE ASSESSING OFFICER ERRED IN GIVING SUCH DIRECTION IN SO FAR AS THE ITA NOS. 287/HYD/2009 & 1119/10& C.O. 06/H/09 M/S MAGNA INFOTECH PVT. LTD. 5 AMOUNT INCURRED AMOUNT INCURRED BY THE COMPANY ON I NTERNET CHARGES HAS NOT BEARING ON EXPORT TURNOVER. 10. SINCE WE HAVE MODIFIED THE ORDER OF THE CIT(A) IN AY 2005-06 BY WAY OF GIVING DIRECTION TO THE ASSESSING OFFICER TO EXCLUDE 100% INTERNET CHARGES FROM THE EXPORT TURNOVER, THE CO F ILED BY THE ASSESSEE BECOMES INFRUCTUOUS. THEREFORE, THE CO IS DISMISSED AS INFRUCTUOUS. 11. IN THE RESULT, APPEALS OF THE REVENUE AND C.O. FILED BY THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER, 2012 UPON CONCLUSION OF HEARING. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGH AVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 20 TH DECEMBER, 2012. KV COPY TO:- 1) ACIT,CIRCLE 16(2), 6 TH FLOOR, AAYAKAR BHAVAN, HYDERABAD. 2) M/S MAGNA INFOTECH PVT. LTD., 6-2-47, AC GUARDS, VE TURU TOWERS, HYDERABAD 500 004. 3) THE CIT (A)-V, HYDERABAD 4) THE CIT-VI, HYDERABAD, 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. ITA NOS. 287/HYD/2009 & 1119/10& C.O. 06/H/09 M/S MAGNA INFOTECH PVT. LTD. 6 S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER