SITEL INDIA LTD, MUMBAI V. ACIT 8(3), MUMBAI

ITA 3535/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9444 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 23-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 29-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Assessee Lawyers: SUNIL M LALA
• Keywords: Business income; Transfer pricing; Additional evidence; Revenue expenditure
• Section: 80HHC; 10B

Judgement Text

ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 1 OF 16 IN THE INCOME TAX APPELLATE TRIBUNAL 'K' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.3535/MUM/2009 (ASSESSMENT YEAR: 2004-05) M/S SITEL INDIA (P) LTD., 4A, PARKE DAVIS COMPLEX (MAIN) SAKINAKA, ANDHERI KURLA ROAD, MUMBAI 400072 PAN: AAECS 1297 M VS. ACIT 8(3) MUMBAI (APPELLANT) (RESPONDENT) ITA NO.4073/MUM.2009 (ASSESSMENT YEAR: 2004-05) ACIT 8(3) MUMBAI VS. M/S SITEL INDIA (P) LTD., 4A, PARKE DAVIS COMPLEX (MAIN) SAKINAKA, ANDHERI KURLA ROAD, MUMBAI 400072 PAN: AAECS 1297 M (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI AJEET KUMAR JAIN, DR ASSESSEE BY: SHRI SUNIL M LALA DATE OF HEARING: 23/10/2012 DATE OF PRONOUNCEMENT: 05/12/2012 O R D E R PER BENCH: THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE A GAINST THE ORDER OF THE CIT (A)-32 MUMBAI DATED 27.02.2009 . ASSESSEE HAS RAISED FIVE GROUNDS IN ITS APPEAL, WHEREAS THE REVE NUE HAS RAISED ONLY ONE GROUND IN ITS APPEAL. ASSESSEES GROUND NO .2 AND REVENUES APPEAL ARE WITH REFERENCE TO THE TRANSFER PRICING ADJUSTMENT MADE BY THE TPO WHICH WAS PARTLY CONFIRM ED BY THE CIT (A). THE REST OF THE GROUNDS ARE ON OTHER ISSUES ON ASSESSMENT OF TOTAL INCOME. ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 2 OF 16 2. WE HAVE CONSIDERED THE ARGUMENTS OF THE LEARNED COU NSEL SHRI SUNIL M LALA AND THE LEARNED CIT (DR) SHRI AJE ET KUMAR JAIN AND THEIR ARGUMENTS WERE INCORPORATED WHEREVER REQU IRED. FIRST WE WILL TAKE UP ASSESSEES APPEAL IN ITA NO.3535/MUM/2 009. 3. GROUND NO.1 IS GENERAL IN NATURE WHICH DOES NOT REQ UIRE ANY ADJUDICATION. 4. GROUND NO.2 IS WITH REFERENCE TO THE TRANSFER PRICI NG. THE REVENUE GROUND IS ALSO ON THE SAME ISSUE. BOTH THE GROUNDS OF ASSESSEE AND THE REVENUE ARE AS UNDER: ASSESSEES GROUND NO.2: TRANSFER PRICING: THE LEARNED CIT (A) ERRED ON FAC TS AND IN LAW BY ALLOWING ONLY PARTIAL RELIEF TO THE ADJUS TMENTS MADE BY AO IN RELATION TO TRANSFER PRICING MATTERS. THE APPELLANT THEREFORE, PRAYS THAT THE ADJUSTMENTS IN RELATION TO TRANSFER PRICING MATTERS MADE BY THE CI T (A) BE DELETED. REVENUES GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN DELETING THE A DDITION MADE BY AO ON THE BASIS OF WORKING PROVIDED BY THE TPO WHERE THE OPERATING MARGIN WAS TAKEN AT 11.96% INSTEAD OF 9.47% TAKEN BY ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. THE APPELLANT P RAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUND B E SET ASIDE AND THAT OF THE ITO/ACIT/DCIT BE RESTORED. 5. BRIEFLY STATED, ASSESSEE IS A DOMESTIC COMPANY FORM ED BY A SHAREHOLDING BETWEEN SITEL GROUP & TATA GROUP WITH 50% STAKE EACH. ASSESSEE HAS PROVIDED SOFTWARE DEVELOPMENT SE RVICES TO ITS OVERSEAS ENTERPRISE. ASSESSEE IN THE TP STUDY USED TNM METHOD TO BENCHMARK ITS ALP FOR ITS TRANSACTION WITH AE AND H AS COMPUTED THE PROFIT MARGIN OF COMPARABLES AND COMPARED WITH ITS OWN MARGINS. WHILE CALCULATING THE OPERATING PROFIT MAR GINS THE ASSESSEE HAS EXCLUDED THE IDLE CAPACITY COST. SINCE NO BASIS HAS BEEN PROVIDED BY THE ASSESSEE AS TO WHY THE SAME HAS BEE N EXCLUDED, THE TPO DID NOT ALLOW THE IDLE CAPACITY COST AND ON THE BASIS OF THE OP ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 3 OF 16 MARGIN OF THE COMPARABLES PROVIDED BY ASSESSEE, FIX ED THE ARMS LENGTH MARGIN AT 11.96% ON THE OPERATING COST OF ` .55,82,69,000 AND ACCORDINGLY ARMS LENGTH PRICE WAS ARRIVED AT ` .6,67,88,000. ASSESSEES MARGIN AND COST WAS LESS, ADJUSTMENT OF AMOUNT OF ` .5,11,22,000 WAS MADE FOR THE IMPUGNED ASSESSMENT Y EAR. AO HAVING REGARD TO THE ORDER OF THE TPO MADE THE SAID ADDITION IN THE ASSESSMENT. 6. BEFORE THE CIT (A), ASSESSEE HAS RAISED MANY OBJECT IONS, THOUGH FIRST OBJECTION IS WITH REFERENCE TO ARRIVIN G AT THE OPERATING MARGIN OF 11.96%. THE COMPARABLE ARMS LENGTH RANGE IS FROM (-) 6.04% TO 19.02% OF OPERATING MARGINS WITH ARITHMETI C MEAN 9.47% IN RESPECT OF THE COMPARABLE INSTANCES. THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER OR IN THE ORDER OF THE TPO AS TO WHY AND HOW THE OPERATING MARGIN OF 11.96% WAS ARRIVED AT. IT W AS ALSO THE CONTENTION BEFORE THE CIT (A) THAT ASSESSEE IS A PR OVIDER OF SOFTWARE DEVELOPMENT SERVICES AND IS BASICALLY ENGAGED IN PR OVIDING CONTRACT CENTER SERVICES IN THE FORM OF VOICE, WEB CHAT AND EMAIL. IT WAS FURTHER SUBMITTED THAT THERE IS AVERAGE REDUCTION I N OPERATING PROFIT EARNED BY ASSESSEE AS THERE WAS REDUCTION OF GROSS REVENUE EARNED DURING THE YEAR ON ACCOUNT OF WITHDRAWAL OF SUBSTAN TIAL BUSINESS BY ITS MAJOR CLIENT. SIMILARLY INCREASE IN THE NUMBER OF EMPLOYEES AS A STRATEGIC METHOD TO DEVELOP ITS BUSINESS IN THE LON G RUN AND THEREFORE, ASSESSEE HAS PROVIDED IDLE COST ADJUSTME NT TO MAKE IT COMPARABLE WITH THE OTHER COMPANIES. IT WAS ALSO FU RTHER SUBMITTED THAT ASSESSEE WAS 50:50 JOINT VENTURE BETWEEN THE S ITEL NETHERLANDS AND TATA GROUP (COMPRISING OF TATA INFO TECH LIMITED HOLDING 40% AND TATA INTERNATIONAL LIMITED HOLDING 10%). THEREFORE, SINCE CONTROLLING INTEREST WAS HELD BY T HE THIRD PARTY, THERE IS NO NEED FOR ANY ARMS LENGTH ADJUSTMENT. FU RTHER IT WAS SUBMITTED THAT ASSESSEES PROFITS WERE TOTALLY EXEM PT UNDER SECTION 10A, THEREFORE, SHIFTING OF PROFITS DOES NOT ARISE. IN THE COURSE OF APPELLATE PROCEEDINGS, ASSESSEE ALSO FURNISHED ADDI TIONAL EVIDENCE ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 4 OF 16 OF THE GROSS REVENUE EARNED BY THE AES FROM THE CON TRACT EXECUTED WITH THE END CUSTOMERS. IT WAS THE SUBMISSION OF AS SESSEE THAT THE AES RETAINED PART OF THE REVENUES VARYING FROM 0 TO 26% AND PASSED ON THE BALANCE TO ASSESSEE. THEREFORE, ADJUSTMENT S O PROPOSED BY THE TPO DOES NOT ARISE. 7. THE LEARNED CIT (A) DISCUSSED THESE OBJECTIONS ELA BORATELY VIDE PARA 3 OF THE ORDER ITEM-WISE AND VIDE PARA 3. 11 TO 3.13 DECIDED THE ISSUE AS UNDER: 3.11. I HAVE PERUSED THE ORDER OF THE TPO AND CONS IDERED ALL THE ABOVE SUBMISSIONS/ CONTENTIONS OF THE APPEL LANT. I HAVE ALSO PERUSED THE REMAND REPORT RECEIVED FROM T HE AO VIDE LETTER DATED 11.06.2007 AND ANOTHER REPORT DAT ED 27.02.2008 RECEIVED FROM TPO. AT THE OUTSET, THE AP PELLANT HAS PRAYED FOR ADMISSION OF ADDITIONAL EVIDENCE ON THE ABOVE GROUNDS RELATING TO TRANSFER PRICING ADJUSTME NT. I HAVE PERUSED THE ADDITIONAL EVIDENCE FILED BY THE A PPELLANT AND FIND IT APPROPRIATE TO TAKE COGNIZANCE OF THE S AME AND ACCEPT IT UNDER RULE 46A, AS THE APPELLANT DID NOT HAVE SUFFICIENT OPPORTUNITY DURING THE COURSE OF THE ASS ESSMENT PROCEEDINGS TO PRODUCE THE ABOVE DOCUMENTARY EVIDEN CE. LOOKING AT THE EVIDENCE RECEIVED FROM THE AES PROVI DING DETAILS OF REVENUE, COSTS, PROFIT/ LOSS MARGIN EARNED BY THE AES, IT IS CLEAR THAT THE AES HAVE RE TAINED AN AMOUNT OF RS 54,389,700, REPRESENTING 0% TO 26% OF THE GROSS REVENUE EARNED FROM THE END CUSTOMERS FOR VARIOUS PROJECTS. THE TABLE BELOW SHOWS THE PROJECT -WISE PROFITABILITY FOR THE AES FOR THE YEAR: ASSOCIATED CLIENT PROFIT I (LOSS) MARGIN OF ASSOCIATED ENTERPRISE ENTERPRISE SITEL UK AOL 1,154,312 2.86% NAFS UK GMAC 6,095,497 21.71% SITEL US AOL (13,424,235) (3.03%) SITEL US DELL (4,539,475) (6.03%) --- SITEL US CYPRESS 39,026 1.47% SITEL US EARTHLINK 80,198 0.97% SITEL US MEMBER WORKS 1,744,994 14.97% SITEL US ONSTAR (91,030) (11.03%) SITEL US PAY SYSTEM (63,055) (1.03%) FROM THE ABOVE, IT IS CLEAR THAT IN CASE OF PROJECT S RESULTING ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 5 OF 16 IN LOSS SITUATION TO THE AES, THERE CANNOT BE ANY ADJUSTMENT OF ARM'S LENGTH PRICE IN THE CASE OF THE APPELLANT. 3.12 HOWEVER, IT IS ALSO OBSERVED THAT THERE ARE CE RTAIN PROJECTS WHEREIN THE AES HAVE RETAINED SUBSTANTIAL PROFITS IN RELATION TO THEIR MARKETING SERVICES. GI VEN THE FACT THAT AES ARE ONLY WORKING ON A LIMITED PORTION OF THE PROJECTS, THE AES COULD HAVE BEEN COMPENSATED ON EA CH OF THE PROJECTS ON A COST PLUS ARRANGEMENT. AS THE AES ARE LOCATED IN US AND UK, THE ARM'S LENGTH PROFIT M ARGIN FOR SUCH SERVICES GENERALLY RANGES FROM 5% TO 7% (E VEN OEED GUIDELINES SUGGEST SO), DEPENDING ON FACTS AND CIRCUMSTANCES OF THE EACH CASE. IN VIEW OF THE ABOV E, I CONSIDER PROFIT MARGIN OF 6% TO BE AN APPROPRIATE ARM'S LENGTH CONSIDERATION FOR THE EFFORTS OF THE A ES. PROJECT-WISE DETAILS WHERE AES HAVE EARNED MORE THA N 6% MARGIN AND THE AMOUNT OF EXCESS MARGIN EARNED BY THE AES IS AS UNDER: 3.13. BASED ON THE ABOVE, THE ADJUSTMENT IN THE CAS E OF THE APPELLANT IS REQUIRED TO BE RESTRICTED TO ` .5,456,479/-. ACCORDINGLY THE APPELLANT IS GIVEN A RELIEF TO THE EXTENT OF ` .45,665,521/- ( ` .51,122,000/- LESS ` .5,456,479/-). IN VIEW OF THE ABOVE THE ISSUE RELATING TO TRANSFER PR ICING ADJUSTMENT (GROUND NO.2 TO 11 IS PARTLY BEING ALLOW ED . 8. ASSESSEE IS OBJECTING TO THE ABOVE CONFIRMATION OF ` .54,56,479 WHEREAS THE REVENUE IS AGGRIEVED ON THE REDUCTION M ADE BY THE CIT (A). THE LEARNED COUNSEL REFERRED TO THE SUBMISSION S MADE BEFORE THE CIT (A) AND ALSO THE ORDERS PASSED BY THE AUTHO RITIES IN LATER YEARS WHEREIN ASSESSEES MARGIN WERE ACCEPTED WITH OUT ANY ADJUSTMENT. ON THE PRINCIPLES OF CONSISTENCY IT WAS SUBMITTED THAT THE SAME APPROACH SHOULD BE MADE FOR THIS YEAR ALSO . IT WAS ONE OF THE ARGUMENT THAT THE ADDITIONS PROPOSED CANNOT BE EXCEEDED THE PROFIT EARNED BY THE AE AS ASSESSEE IS A CONTACT SE RVICE CONTRACTOR ASSOCIATED PROFIT I (LOSS) MARGIN OF ARM'S LENGTH EXCESS ENTERPRISE ASSOCIATED ENTERPRISE MARGIN NAFS UK 6,095,497 21.71% 6% 4,410,882 SITEL US 14.97% 6% 1,045,597 1,744,994 5,456,479 ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 6 OF 16 AND THE GROSS RECEIPTS ARE ACCOUNTED BY THE PE. IN THIS REGARD ASSESSEES COUNSEL SUBMITTED A NOTE WITH REFERENCE TO HAVING REGARD TO USED IN SECTION AND SUBMITTED THAT AS AE MADE LOSSES THE ADDITION CANNOT BE EXCEEDED THE ULTIMATE PROFIT S EARNED IN THE WHOLE TRANSACTIONS WITH THIRD PARTIES. THE LEARNED COUNSEL ALSO MADE DETAILED SUBMISSION ON THE OBJECT OF TP PROVIS IONS, DETERMINATION OF ALPS TO CONTEND THAT THE METHOD/ F ORMULA CANNOT BE ACCEPTED WHICH GIVES ABSURD RESULT IN THE TP ADJ USTMENTS. HE ALSO REFERRED TO THE TPO ORDER FOR 2006-07 WHEREIN ALL PROFITS AND COSTS HAVE BEEN ACCEPTED. IN ASSESSMENT YEAR 2005-0 6 WHEN THE ADJUSTMENTS WERE PROPOSED ASSESSEE COULD NOT GIVE D ETAILS AS THEY WERE LOST DUE TO FLOODS AND THE TP ADJUSTMENTS WERE ACCEPTED. IT WAS THE SUBMISSION THAT IN ASSESSMENT YEAR 2004-05 WHEN ASSESSEE HAS FURNISHED ENTIRE DATA REGARDING PROFIT S EARNED BY THE SITEL US, THE CIT (A) ERRED IN SELECTING ONLY TWO P ROFIT MAKING COMPANIES, IGNORING THE LOSSES AND DETERMINING THE ALP MARGIN AT 6%, THEREFORE, CONFIRMING THE AMOUNT OF ` .54,56,479. 9. THE LEARNED CIT (DR) SUBMITTED THAT THE TP STUDY SU BMITTED BY THE ASSESSEE DID NOT CONTAIN ANY DATA AND REFERR ED TO THE PAGE 34 OF THE TP STUDY REPORT. HE THEN REFERRED TO RULE 10B FOR INTERNAL COMPARABLE AND EXTERNAL COMPARABLES. IN ORDER TO CL AIM IDLE CAPACITY ADJUSTMENT, THE ONUS IS ON ASSESSEE WHICH HAS NOT BEEN DISCHARGED. THE LEARNED DR SUBMITTED THE ARGUMENTS WITH REGARD TO METHODS PRESCRIBED UNDER THE PROVISIONS TO SUBMIT T HAT ASSESSEE HAS ADOPTED TNM AS A METHOD FOR TP STUDY AND THEREF ORE, THE ARMS LENGTH MARGIN ARRIVED AT BY THE TPO SHOULD BE UPHEL D AND THERE IS NO BASIS FOR CIT (A) TO REJECT THE ADDITIONS SO PRO POSED BY THE TPO. 10. WE HAVE CONSIDERED THE DETAILED SUBMISSIONS MADE AL ONG WITH THE VARIOUS CASE LAW RELIED UPON BY THE COUNSE LS. WHAT WE NOTICE FROM THE ORDER OF THE CIT (A) IS THAT HE HAS NOT ONLY SHIFTED THE METHOD ADOPTED BY ASSESSEE AND THE TPO, BUT ALS O CHANGED THE TESTED PARTY. ASSESSEE HAS MADE TNMM STUDY AND IN COMPARISON ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 7 OF 16 WITH THE PROFITS EARNED BY THE COMPARABLE, ASSESSEE BENCH MARKED ITSELF AND CLAIMED IDLE CAPACITY AS IT HAS LOST A M AJOR CONTRACT DURING THE YEAR SO AS TO JUSTIFY THE PROFITS EARNED BY IT DURING THE YEAR. THE TPO WHILE REJECTING THE IDLE CAPACITY, HO WEVER, DID NOT DISCUSS ANYTHING ABOUT THE ARMS LENGTH MARGIN FIXED AT 11.96% DETERMINING THE TP ORDER. IN FACT THE ORDER IS SO B RIEF THE SAME CAN BE EXTRACTED AS UNDER: 3. ASSESSEE HAS PROVIDED SOFTWARE SERVICES TO ITS OVERSEAS ENTERPRISES. IN THIS CONNECTION, ASSESSEE HAS USED TNM METHOD WHEN IT HAS COMPUTED THE MARGIN OF COMPARABLES AND ARE THE SAME WITH ITS OWN MARGIN. WHILE CALCULATING THE MARGIN FOR ASSESSEE, IT HAS EXCLUDED IDLE CAPACITY COST. HOWEVER, NO BASIS HAS BEEN PROVIDED AS TO WHY THE SAME IS EXCLUDED. AS THIRD P ARTY SOFTWARE DEVELOPER WOULD NEVER BEAR THE IDLE CAPACI TY COST THERE IS NO MERIT ON REDUCING THE IDLE CAPACIT Y COST WHILE COMPUTING THE MARGIN. IN THIS REGARD ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE IDLE CAPACITY COST SHOULD NOT BE DISALLOWED AND THE MARGIN OF COMPARABLE OF 11.96% BE NOT CONSIDERED TO DETERMINE THE ARMS LENGTH PRICE FOR THIS TRANSACTION. ASSESSEE HAS ONLY REITERATED WHAT WAS STATED IN THE EARLIER SUBMISSIONS THAT THE IDLE CAPACITY IS NOT OPERATING COST AND HENCE THE SAME IS EXCLUDED. THE SUBMISSION OF ASSESSEE IS NOT ACCEPTED BECAUSE THIR D PARTY SOFTWARE DEVELOPER WOULD NOT BEAR SUCH COST I N THE COURSE OF BUSINESS. MOREOVER, NO SUCH IDLE CAPACITY ADJUSTMENTS HAVE BEEN MADE WHILE ARRIVING AT THE MARGINS OF THE COMPARABLE COMPANIES. ACCORDINGLY AN ADJUSTMENT IS BEING MADE TO THIS TRANSACTION ON THE FOLLOWING BASIS: INCOME 57,39,34,000 OP COST 55,82,69,000 MARGIN (A) 1,56,66,000 MARGIN ON COSTS 2.81% ARMS LENGTH MARGIN 11.96% ARMS LENGTH PROFIT (B) 6,67,88,000 ADJUSTMENT (A-B)= 5,11,22,000 ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 8 OF 16 11. THIS INDICATES THAT ASSESSEES TP STUDY HAS NOT BEE N CONSIDERED BY THE TPO. VIDE ANNEXURE-D TO THE TP ST UDY ASSESSEE HAS SELECTED TEN COMPARABLE COMPANIES AND SUMMARY O F NET COST + MARGIN VARIES FROM -6.04% TO 19.06%. MEAN ARRIVED A T ASSESSEES TP STUDY WAS AT 9.47%. HOW THIS AMOUNT WAS REJECTED AN D WHY IT IS FIXED AT 11.96% COULD NOT BE DISCERNED FROM THE ORD ER OF THE TPO, AS IT IS VERY BRIEF WITHOUT ANY DISCUSSION. FURTHER WHEN ASSESSEE RAISED ARGUMENTS ON VARIOUS ISSUES AND SUBMITTED TH AT THE TOTAL PROFITS EARNED BY THE AES AND ASSESSEE PUT TOGETHER AND FURNISHED THE INFORMATION HOW THE PROFITS ARE APPORTIONED BET WEEN THE AE AND ASSESSEE, THE CIT (A) SHIFTED TESTED PARTY FROM ASS ESSEE TO AE AND THAT TOO ONLY TWO AES WERE ACCEPTED IN WHICH THERE WERE PROFITS, IGNORING THE AES WHICH INCURRED LOSSES ON VARIOUS P ROJECTS. EVEN AFTER CONSIDERING THE PROFIT COMPANIES, THE CIT (A) ARBITRARILY FIXED THE MARGIN AT 6% WITHOUT THERE BEING ANY BASIS AND ARRIVED AT THE TP ADJUSTMENT RESTRICTING TO ` .54,56,479. THEREFORE, NEITHER THE TPOS ORDER CAN BE CONSIDERED AS APPROPRIATE NOR TH E ORDER OF THE CIT (A) ON THE GIVEN FACTS OF THE CASE. 12. IT IS ALSO PLACED BEFORE US THAT ASSESSEES TP STUD Y IN LATER YEARS WERE ACCEPTED WITHOUT ANY ADJUSTMENT AND SO A DJUSTMENT IN THIS YEAR SHOULD BE DELETED. HOWEVER, THE REASONS F OR ACCEPTING THE TP STUDY IN LATER YEARS COULD NOT BE EXAMINED BY US WITH THE TP STUDY MADE IN THIS YEAR. AS STATED ABOVE, EVEN THOU GH THE METHOD OF TNM WAS ACCEPTED, THE CIT (A) WENT BY PROFIT SPL IT METHOD AND FURTHER RESTRICTED TO TWO AES BY SHIFTING THE TESTE D PARTY FROM ASSESSEE TO AE. IN VIEW OF THIS, WE ARE OF THE OPIN ION THAT THE MATTER SHOULD BE RESTORED TO AO FOR FRESH CONSIDERATION BY THE TPO. FOR THIS PURPOSE, WE SET ASIDE THE ORDER OF THE CIT (A) AND THE ORDER OF THE TPO/ AO WITH A DIRECTION TO RECONSIDER THE ARMS LENGTH MARGIN KEEPING IN MIND THE OBJECTIONS OF ASSESSEE RAISED B EFORE THE CIT (A) AND ALSO THE OTHER ASPECTS BEFORE DECIDING THE ISSU E. TPO SHOULD GIVE DUE OPPORTUNITY TO ASSESSEE AND ALSO DECIDE WH ETHER ASSESSEES ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 9 OF 16 COMPARABLES ARE TO BE ACCEPTED OR NOT AND IF IT IS NOT ACCEPTED THE REASONS SHOULD BE SPECIFIED BY UNDERTAKING A PROPER FAR ANALYSIS. IN CASE THE TPO ACCEPT ASSESSEES TRANSFER PRICING STUDY IN LATER YEARS THOSE CAN ALSO BE KEPT IN MIND WHILE DETERMIN ING THE ISSUE IN THIS YEAR. 13. THE LEARNED COUNSEL AND THE LEARNED CIT (DR) GAVE E LABORATE SUBMISSIONS WITH REFERENCE TO VARIOUS PROPOSITIONS ON THE ISSUE. SINCE WE ARE OF THE OPINION THAT THE TP ORDER ITSEL F WAS NOT CORRECTLY MADE AND THE CIT (A) ALSO DEVIATED FROM THE NORMS, WE ARE OF THE OPINION THAT THERE IS NO NEED TO CONSIDER AND ADJUD ICATE ON THE VARIOUS PROPOSITIONS. SINCE THE ISSUE IS RESTORED T O AO, ASSESSEE IS FREE TO RAISE VARIOUS OBJECTIONS BEFORE THE TPO IN THE RE-ASSESSMENT PROCEEDINGS. 14. IN THE RESULT ASSESSEES GROUNDS AS WELL AS REVENUE GROUND ON THIS ISSUE ARE CONSIDERED ALLOWED FOR STATISTICA L PURPOSES. THE MATTER IS RESTORED TO AO FOR FRESH CONSIDERATION. 15. GROUND NO.3. ASSESSEES GROUND IS AS UNDER: 3. TREATMENT OF INTEREST ON TERM DEPOSIT RECEIPTS AND MISCELLANEOUS INCOME : BASED ON THE FACTS OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN UPHOL DING THE ACTION OF AO IN TREATING INTEREST EARNED ON TER M DEPOSIT RECEIPTS AND MISCELLANEOUS INCOME AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME. THE APPELLANT THEREFORE PRAYS THAT THE AMOUNT OF ` .78,70,769 TOWARDS INTERESTS EARNED ON TERM DEPOSIT RECEIPTS A ND ` .31,745 AS MISCELLANEOUS INCOME SHOULD BE CONSIDERE D AS PART OF NET PROFITS EARNED IN BUSINESS WHILE COM PUTING DEDUCTION UNDER SECTION 10A OF THE ACT AND AO BE DIRECTED TO COMPUTE THE DEDUCTION ACCORDINGLY . 16. IT WAS FAIRLY ADMITTED THAT THIS ISSUE IS DECIDED A GAINST ASSESSEE BY THE ORDER OF THE ITAT MUMBAI IN ITA NOS . 6395/MUM/05 & 3110/MUM/08 IN ASSESSMENT YEARS 2002- 03 AND 2003-04. THE FINDINGS OF THE ITAT VIDE PARA 8, 9 & 10 ARE AS UNDER: 8 IT IS TO BE NOTED THAT THE JURISDICTIONAL HIGH C OURT HAS FOLLOWED THE DECISION OF THE DIVISIONAL BENCH IN TH E CASE OF ALFA LAVAL INDIA LTD VS DCIT REPORTED N 133 TAXM AN ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 10 OF 16 740(BOM). IN THE CASE OF ALFA LAVAL INDIA LTD (SUPR A), THE INTEREST INCOME WAS RECEIVED BY THE ASSESSEE FROM T HE CUSTOMERS AND IN THOSE FACTS, IT WAS HELD THAT THE INTEREST INCOME WAS ELIGIBLE FOR DEDUCTION U/S 80HH C. AS IT IS HELD BY THE HONBLE HIGH COURT AND OTHERWI SE THERE IS NO DISPUTE THAT THE INTEREST FROM THE CUST OMERS IS PART AND PARCEL OF THE SALE RECEIPTS AND THEREFORE, THE SAME IS ASSESSABLE UNDER THE HEAD PROFITS AND GAIN S OF THE BUSINESS OR PROFESSION. SIMILARLY, IN THE CASE OF SOCIEDADE DE FOMENTO INDUSTRIAL LTD (SUPRA), THE VA RIOUS DEPOSITS BY THE ASSESSEE WAS TREATED AS PART OF BUSINESS ACTIVITY AND THEREFORE, THE INTEREST INCOM E WAS HELD AS PART OF BUSINESS PROFIT. 9 IN THE CASE IN HAND, UNDISPUTEDLY THE ASSESSEE IS NOT IN REGULAR BUSINESS OF LACING VARIOUS DEPOSITS AND THEREFORE, THE INTEREST INCOME HAS NO DIRECT OR LIV E CONNECTION WITH THE BUSINESS UNDERTAKING OF THE ASSESSEE AND PARTICULARLY, THE EXPORT ARTICLES OR T HINGS AND COMPUTER SOFTWARE. THE DECISION RELIED UPON BY THE LEARNED AR OF THE ASSESSEE ARE ON THE FACTS WHEN TH E INTEREST EARNED ON THE DEPOSITS MADE IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. THEREFORE, IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F LIBERTY INDIA (SUPRA), THE RECEIPTS SHOULD COME WIT HIN FIRST DEGREE OF SOURCE AS TO FALL UNDER THE WORDS DERIVED FROM. THE HONBLE SUPREME COURT HAS OBSERVED IN PA RA 14 AS UNDER: 14 ANALYZING CHAPTER VI-A, WE FIND THAT SECTION 80-IB/80-IA ARE A CODE BY THEMSELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. THEREFORE, WE NEED TO EXAMINE WHAT THESE PROVISIONS PRESCRIBE FOR COMPUTATION OF PROFITS OF THE ELIGIBLE BUSINESS. IT IS EVIDENT TH AT SECTION 80-IB PROVIDES FOR ALLOWING OF DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS. THE WORDS DERIVED FROM ARE ARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO. IN OTHER WORDS, BY USING THE EXPRESSION DERIVED FROM, PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. IN THE PRESENT BATCH OF CASES, THE CONTROVERSY WHICH ARISES FOR DETERMINATION IS: WHETHER THE DEPB CREDIT/DUTY DRAWBACK RECEIPT COMES WITHIN THE FIRST DEGREE SOURCES? ACCORDING TO THE ASSESSEE(S), DEPB CREDIT/DUTY DRAWBACK RECEIPT REDUCES THE VALUE OF PURCHASES (COST NEUTRALIZATION), HENCE, IT COMES WITHIN FIRST DEGREE SOURCE AS IT INCREASES ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 11 OF 16 THE NET PROFIT PROPORTIONATELY. ON THE OTHER HAND, ACCORDING TO THE DEPARTMENT, DEPB CREDIT/DUTY DRAWBACK RECEIPTS DO NOT COME WITHIN FIRST DEGREE SOURCE AS THE SAID INCENTIVES FLOW FROM THE INCENTIVE SCHEMES ENACTED BY THE GOVERNMENT OF INDIA OR FROM SECTION 75 OF THE CUSTOMS ACT, 1962. HENCE, ACCORDING TO THE DEPARTMENT, IN THE PRESENT CASES, THE FIRST DEGREE SOURCE IS THE INCENTIVE SCHEME/PROVISIONS OF THE CUSTOMS ACT. IN THIS CONNECTION, THE DEPARTMENT PLACES HEAVY RELIANCE ON THE JUDGMENT OF THIS COURT IN STERLING FOODS [1999] 237 ITR 579. THEREFORE, IN THE PRESENT CASES, IN WHICH WE ARE REQUIRED TO EXAMINE THE ELIGIBLE BUSINESS OF AN INDUSTRIAL UNDERTAKING, WE NEED TO TRACE THE SOURCE OF THE PROFITS TO MANUFACTURE. (SEE CIT V. KIRLOSKAR OIL ENGINES LTD. REPORTED IN [1986] 157 ITR 762.) 10 THUS, IN VIEW OF THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF LIBERTY INDIA (SUPRA), WE HOLD THAT INTEREST EARNED BY THE ASSESSEE ON SURPLUS FUNDS DEPOSIT IN THE BANK DOES NOT COME UNDER THE FIRST D EGREE OF SOURCE OF PROFIT DERIVED FROM PROFIT OF BUSINESS OF UNDERTAKING. ACCORDINGLY, THIS ISSUE IS DECIDED AGA INST ASSESSEE. 17. SINCE THE FACTS ARE SIMILAR, RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION THE ORDER OF THE CIT (A) IS UPHELD AND ASSESSEES GROUND IS REJECTED. 18. GROUND NO.4. ASSESSEES GROUND IS AS UNDER: 4. DEDUCTION UNDER SECTION 10A OF THE ACT : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT (A) ERRED IN UPHOLDING THE ACTION OF AO IN DENYING THE REDUCTION OF COMMUNICATION LINE EXPENSE S FROM THE TOTAL TURNOVER WHILE ACCEPTING THE REDUCTI ON FROM EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING T HE DEDUCTION UNDER SECTION 10A. THE APPELLANT PRAYS THAT AO BE DIRECTED TO REDUCE T HE AMOUNT OF COMMUNICATION EXPENSES FROM THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTIO N 10A OF THE ACT. 19. THE ISSUE RELATING TO THE GROUND IS WITH REFERENCE TO THE BASIS OF COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT. ASSESSEE INCURRED COMMUNICATION LINE EXPENSES IN FOREIGN ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 12 OF 16 EXCHANGE OF ` .7,01,67,886 FOR TRANSFERRING THE DATA IN THE YEAR UNDER CONSIDERATION. AS ASSESSEE MAKES GROSS BILLIN G AND THE AMOUNTS ARE RECEIVED FROM THE AES AFTER DEDUCTING T HE COMMUNICATION EXPENSES. ASSESSEE HAS REDUCED THIS A MOUNT FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. AO HOWEVER, DID NOT ACCEPT THE REDUCTION OF COMMUNICATION LINE EXPENSES FROM T HE TOTAL TURNOVER WHILE ACCEPTING THE REDUCTION FROM EXPORT TURNOVER BASED ON THE DEFINITION OF EXPORT TURNOVER GIVEN UNDER THE PROVISIONS. ASSESSEES CONTENTIONS AND RELIANCE ON THE DECISION S OF I GATE GLOBAL SOLUTIONS LTD. VS ACIT IN 112 TTJ 1002 (BANG ), INDO FUJI INFORMATION TECHNOLOGIES (P) LTD VS. ITO 6 DTR 27 ( BANG.) AND PATNI TELECOM (P) LTD VS. ITO 308 ITR 414 (HYDERABAD) HAV E NOT BEEN ACCEPTED BY THE CIT (A) ON THE REASON THAT THEY ARE DISTINGUISHABLE OR NOT BINDING. ASSESSEE IS AGGRIEVED. 20. AT THE OUTSET IT WAS SUBMITTED THAT THIS ISSUE WAS DECIDED BY THE CHENNAI SPECIAL BENCH OF THE ITAT IN THE CASE O F INCOME TAX OFFICER VS. SAK SOFT LTD 121 TTJ 865 WHEREIN IT WAS HELD THAT FOR THE PURPOSE OF APPLYING FORMULA UNDER SECTION 10B(4), T HE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO DELIVE RY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EX PENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHN ICAL SERVICES OUTSIDE INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPO RT TURNOVER AND FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AN D THE DENOMINATOR, RESPECTIVELY, IN THE FORMULA. THE LEAR NED COUNSEL ALSO RELIED ON THE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF CIT VS. TATA ELXIS LTD, 247 CTR 334 AND JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD 330 IT R 175. THE LEARNED DR HOWEVER, RELIED ON THE ORDERS OF AO AND THE CIT (A) ON THIS ISSUE. 21. WE HAVE CONSIDERED THE ISSUE AND THE RIVAL CONTENTI ONS. AS FAR AS DEFINITION OF EXPORT TURNOVER IS CONCERNED, AO H AS CORRECTLY ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 13 OF 16 EXCLUDED THE COMMUNICATION LINE CHARGES AS PER THE PROVISIONS OF THE ACT. SINCE THE TOTAL TURNOVER IS NOT DEFINED IN THE ACT, THIS ISSUE HAS BEEN CONTESTED AND THE ITAT CHENNAI SPECIAL BEN CH IN THE CASE OF INCOME TAX OFFICER VS. SAK SOFT LTD HAS DECIDED THE ISSUE AS UNDER: EXEMPTION UNDER SECTION 10B: COMPUTATION OF TOTAL TURNOVER-EXPENSES ATTRIBUTABLE TO DELIVERY OF COMPU TER SOFTWARE OUTSIDE INDIA-AS PER CL, (III) OF EXPLN. 2 TO S. LOB, FREIGHT, TELECOM CHARGES AND INSURANCE ATTRIBUTABLE TO DELIVERY OF GOODS OUTSIDE INDIA AND EXPENSES INCURR ED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OU TSIDE INDIA HAVE TO BE EXCLUDED FROM EXPORT TURNOVER-ON T HE BASIS OF PARITY PRINCIPLE, SAME HAVE TO BE EXCLUDED ALSO FROM THE TOTAL TURNOVER THOUGH THAT EXPRESSION HAS NOT BEEN DEFINED IN THE SECTION-ELEMENT OF TURNOVER IS MISSING IN THESE RECEIPTS AND RECEIPTS ARE RECEIVED BY THE ASSESSEE ONLY AS REIMBURSEMENT OF EXPENSES INCURRED BY IT-SECONDLY, THE DEFINITION OF EXPORT T URNOVER CONTEMPLATES THAT THE AMOUNT RECEIVED BY THE ASSESS EE IN CONVERTIBLE. FOREIGN EXCHANGE SHOULD REPRESENT 'CONSIDERATION' IN RESPECT OF THE EXPORT-ANY REIMBURSEMENT OF THE ITEMS OF EXPENSES MENTIONED IN THE DEFINITION CAN UNDER NO CIRCUMSTANCES BE CONSIDERED TO REPRESENT 'CONSIDERATION' FOR THE EXPORT-THUS, THE EXPRESSION 'TOTAL TURNOVER' SHOULD ALSO BE INTERPRE TED IN THE SAME MANNER AND THE SAID ITEMS OF EXPENSES CANN OT FORM PART OF TOTAL TURNOVER-EXPRESSION 'TOTAL TURNO VER' AS DEFINED IN SS. 80HHE AND 80HHF EXCLUDES FREIGHT, TELECOM CHARGES, ETC AND EXPENSES INCURRED IN FOREI GN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE IN DIA- STATUTORILY PARITY IS MAINTAINED BETWEEN EXPORT TUR NOVER AND TOTAL TURNOVER IN THESE SECTIONS- HENCE, THERE IS NO REASON WHY SUCH PARITY CANNOT BE MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER IN SECTION 1OB-W ORDS 'TOTAL TURNOVER' APPEARING IN VARIOUS PROVISIONS OF THE ACT SHOULD BE CONSTRUED IN THE SAME MANNER UNLESS IT LE ADS TO CONTEXTUAL INCONSISTENCIES OR REPUGNANCY-THEREFO RE FOR THE PURPOSE OF APPLYING THE FORMULA UNDER SUB-SO (4 ) OF SECTION 1OB, THE FREIGHT, TELECOM CHARGES OR INSURA NCE ATTRIBUTABLE TO E DELIVER 0 ARTICLES OR THINGS OR C OMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INC URRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERV ICES OUTSIDE INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPO RT TURNOVER AND FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN HE FORMULA. ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 14 OF 16 22. NOT ONLY THAT, THIS ISSUE IS ALSO COVERED BY THE DE CISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GE M PLUS JEWELLERY INDIA LTD (SUPRA GIVEN IN THE CONTEXT OF SECTION 10 A WITH REFERENCE TO FREIGHT & INSURANCE. THE DECISION OF THE HON'BLE BO MBAY HIGH COURT IS AS UNDER: UNDER SUB-SECTION (1) OF SECTION 10A OF THE INCOME -TAX ACT, 1961, A DEDUCTION IS ALLOWED FROM THE TOTAL IN COME OF THE ASSESSEE OF SUCH PROFITS AND GAINS AS ARE DE RIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR TH INGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS COMMENCING FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS MANUFACTURE OR PRODUCTION. SUB- SECTION (4) OF SECTION 10A PROVIDES THE MANNER IN W HICH THE PROFITS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE COMPUTED. UNDER SUB-SECT ION (4) THE PROPORTION BETWEEN THE EXPORT TURNOVER IN R ESPECT OF THE ARTICLES OR THINGS, OR, AS THE CASE MAY BE, COMPUTER SOFTWARE EXPORTED, TO THE TOTAL TURNOVER O F THE BUSINESS CARRIED OVER BY THE UNDERTAKING IS APPLIED TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN COMPUTING THE PROFITS DERIVED FROM EXPORT. IN OTHER WORDS, THE PROFITS OF THE BUSINESS OF THE UNDERTAKI NG ARE MULTIPLIED BY THE EXPORT TURNOVER IN RESPECT OF THE ARTICLES, THINGS OR, AS THE CASE MAY BE, COMPUTER SOFTWARE AND DIVIDED BY THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. THE EXPRESS ION 'TOTAL TURNOVER' HAS NOT BEEN DEFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF SECTION 10A. HOWEVER , THE EXPRESSION 'EXPORT TURNOVER' HAS BEEN DEFINED. THE DEFINITION OF 'EXPORT TURNOVER' EXCLUDES FREIGHT AN D INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED B Y PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FRE IGHT AND INSURANCE, THE EXPRESSION 'EXPORT TURNOVER' CAN NOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUEN T PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. A CONSTRUCTION OF A STA TUTORY PROVISION WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOVER, A RECEIPT SUCH AS FREIGHT AND INSURANCE WHICH DOES NOT HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTAL TURNOVER. FREIGHT A ND INSURANCE DO NOT HAVE AN ELEMENT OF TURNOVER. FOR T HIS REASON IN ADDITION, THESE TWO ITEMS WOULD HAVE TO B E ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 15 OF 16 EXCLUDED FROM THE TOTAL TURNOVER PARTICULARLY IN TH E ABSENCE OF A LEGISLATIVE PRESCRIPTION TO THE CONTRA RY. HELD, (I) THAT INTEREST INCOME COULD NOT BE TAKEN A S BUSINESS INCOME AND COULD NOT BE TAKEN INTO ACCOUNT IN COMPUTING THE SPECIAL DEDUCTION UNDER SECTION 80HHC . CIT V. ASIAN STAR CO. LTD. [2010] 326 ITR 56 (BOM) FOLLOWED. (II) THAT GROSS INTEREST SHOULD BE TAKEN INTO ACCOU NT FOR PURPOSES OF EXCLUSION UNDER CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC. (III) THAT THE FOREIGN EXCHANGE WAS REALIZED BY THE ASSESSEE WITHIN THE PERIOD STIPULATED IN LAW. THE ASSESSEE HAD REALIZED A LARGER AMOUNT IN TERMS OF INDIAN RUPEES AS A RESULT OF A FOREIGN EXCHANGE FLUCTUATION THAT TOOK PLACE IN THE COURSE OF THE EX PORT TRANSACTION. THE GAINS HAD TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF SECTION 10A. CIT V. SHAH ORIGINALS [2010] 327 ITR 19 (BOM) DISTINGUISHED. (IV) THAT IT WAS AN ADMITTED POSITION THAT THE ASSE SSEE HAD DEPOSITED BOTH THE EMPLOYER'S AND THE EMPLOYEES ' CONTRIBUTION TOWARDS PROVIDENT FUND AND ESIC, THOUG H BEYOND THE DUE DATE INCLUDING THE GRACE PERIOD. THE ASSESSING OFFICER ADDED THESE PAYMENTS TO THE TOTAL INCOME OF THE ASSESSEE. THE DISALLOWANCE WHICH WAS EFFECTED BY THE ASSESSING OFFICER HAD NOT BEEN CHALLENGED BY THE ASSESSEE. THE PLAIN CONSEQUENCE O F THE DISALLOWANCE AND THE ADD BACK THAT HAD BEEN MAD E BY THE ASSESSING OFFICER WAS AN INCREASE IN THE BUSINESS PROFITS OF THE ASSESSEE. THE CONTENTION OF THE REVENUE THAT IN COMPUTING THE DEDUCTION UNDER SECTI ON 10A THE ADDITION MADE ON ACCOUNT OF THE DISALLOWANC E OF THE PROVIDENT FUND/ESIC PAYMENTS OUGHT TO BE IGNORE D COULD NOT BE ACCEPTED. NO STATUTORY PROVISION TO TH AT EFFECT HAVING BEEN MADE, THE PLAIN CONSEQUENCE OF T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER MUST FOL LOW. THE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE ASSESSI NG OFFICER TO GRANT THE EXEMPTION UNDER SECTION 10A OF THE ACT ON THE ASSESSED INCOME, WHICH WAS ENHANCED DUE TO DISALLOWANCE OF THE EMPLOYER'S AS WELL AS EMPLOYEES ' CONTRIBUTION TOWARDS PF/ESIC. 23. THE PRINCIPLE LAID DOWN IN THE ABOVE DECISION IS TH AT WHATEVER IS EXCLUDED FROM THE EXPORT TURNOVER HAS TO BE EXCL UDED FROM THE TOTAL TURNOVER ALSO WHILE COMPUTING THE DEDUCTION U NDER SECTION 10A. IN VIEW OF THIS, AO IS DIRECTED TO EXCLUDE TH E COMMUNICATION LINE CHARGES FROM THE TOTAL TURNOVER AS WELL. GROUN D IS ALLOWED. ITA NOS.3535 & 4073 OF 2009 SITEL INDIA LTD MUMBAI PAGE 16 OF 16 24. GROUND NO.5 IS WITH REFERENCE TO SOFTWARE EXPENSES. THE GROUND IS AS UNDER: 5. SOFTWARE EXPENSES : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A0 ERRED IN UPHOLDING THE ACTION OF AO IN DISALLOWING THE SOFTWARE EXPENDITURE OF ` .38,85,928 INCURRED BY THE APPELLANT BY TREATING THE SAME AS C APITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE. THE APPELLANT THEREFORE, PRAYS THAT THE ADDITIONS MADE BY AO I THIS REGARD IS NOT JUSTIFIED AND BE DELETED. 25. DURING THE COURSE OF THE ARGUMENT, THE LEARNED COUN SEL DID NOT PRESS THIS GROUND. ACCORDINGLY TREATED AS WITHD RAWN. 26. IN THE RESULT APPEAL FILED BY ASSESSEE IS CONSIDERE D PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE REVENUES APPEAL IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH DECEMBER, 2012. SD/- SD/- ( AMIT SHUKLA ) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 5 TH DECEMBER, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI