DCIT, CHENNAI V. HTC Global Services (India) P Ltd., CHENNAI

ITA 362/CHNY/2014

• Counselvise Citation: 36221714 RSA 2014
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 08-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 14-02-2014
• Court: TRIBUNAL
• Department Lawyers: K M MOHANDASS
• Assessee Lawyers: S DAS GUPTA JCITD R
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 115JB; 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NOS.58 & 1280 /MDS./2014 ( !' #' / ASSESSMENT YEARS :2008-09 & 2009-10) M/S.HTC GLOBAL SERVICES (INDIA) P LTD, SDF II, PHASE II, MEPZ, TAMBARAM, CHENNAI 600 045. VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(2) CHENNAI 600 034. PAN AAACH 9921 J ( / APPELLANT ) ( / RESPONDENT ) ./ I.T.A.NOS.362 & 2021 /MDS./2014 ( !' #' / ASSESSMENT YEARS :2008-09 & 2009-10) ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(2) CHENNAI 600 034. VS. M/S.HTC GLOBAL SERVICES (INDIA) P LTD, SDF II, PHASE II, MEPZ, TAMBARAM,CHENNAI 600 045. PAN AAACH 9921 J ( / APPELLANT ) ( / RESPONDENT ) ITA NO.1280,2021,58,362/MDS/2014 2 $% & ' / APPELLANT BY : MR.K.M.MOHANDASS C.A ()$% & ' / RESPONDENT BY : MR.S.DASGUPTA, JCIT, D.R * + & ,- / DATE OF HEARING : 08.04.2015 .# & ,- /DATE OF PRONOUNCEMENT : 02.06.2015 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THE TWO APPEALS, I.T.A.NOS.58 & 1280 /MDS./2014 ARE FILED BY THE ASSESSEE AND THE OTHER TWO APPEALS, I.T.A.NOS.362 & 2021 /MDS./2014 ARE FILED BY THE REVENUE FOR THE A.YS. 2008-09 & 2009-10 RESPECTIVELY, AGGRIEVED BY THE SEPARATE ORD ER OF THE LEARNED COMMISSIONER OF INCOME TAX (A)-III, CHENNAI, DATED 30.10.2013 FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO.514/2013-14 A ND DATED 25.02.2014 FOR THE ASSESSMENT YEAR 2009-10 IN ITA N O.1558/2013- 14. BOTH THE ORDER IS PASSED UNDER SECTION 143(3) READ WITH SECTION 250 OF THE ACT. 2.1 THE GROUNDS RAISED BY BOTH THE PARTIES ARE CON CISED HEREIN BELOW FOR ADJUDICATION. ITA NO.1280,2021,58,362/MDS/2014 3 2.2 ASSESSEES APPEAL A.YS 2008-09 & 2009-10. THE ASSESSEE HAS RAISED FIVE & FOUR GROUNDS IN ITS APPEALS FOR A.YS 2008-09 & 2009-10 RESPECTIVELY AND THE SAME ARE CON CISED AS FOLLOWS:- I) LD. CIT (A) HAD ERRED IN CONFIRMING THE ORDER O F THE LD. ASSESSING OFFICER WHO HAD DISALLOWED EXPENDITURE BY INVOKING SECTION 14A READ WITH RULE 8D OF THE ACT AND MADE AN ADDITION OF ` 11,55,800/- FOR A.Y.2008-09 & ` 14,95,934/- FOR A.Y.2009-10. II) LD. CIT (A) HAD ERRED IN COMPUTING DEDUCTION U/ S. 10B OF THE ACT BY NOT REDUCING THE OVERSEAS TRAVEL EXPENSES AND TE LECOMMUNICATION EXPENSES INCURRED IN FOREIGN CURRENCY FROM THE TOTA L TURNOVER WHEN THE SAME IS EXCLUDED FROM THE EXPORT TURNOVER FOR ( A.Y.2008-09). 2.3 REVENUESS APPEAL A.YS 2008-09 & 2009-10. THE REVENUE HAS RAISED FOUR & THREE ELABORATE GROUN DS IN ITS APPEAL FOR THE A.YS 2008-09 & 2009-10 RESPECTIVELY AND THE SAME ARE CONCISED HEREIN BELOW AS FOLLOWS:- ITA NO.1280,2021,58,362/MDS/2014 4 I) LD. CIT (A) HAD ERRED IN TREATING THE SOFT WARE EXPENSES FOR ` 16.03 LAKHS AS REVENUE EXPENDITURE FOR A.Y.2008-09. II) LD. CIT (A) HAD ERRED IN DELETING THE ADDITION MADE TOWARDS DONATION OF ` 8.35 LAKHS WHILE COMPUTING THE BOOK PROFIT U/S. 115 JB OF THE ACT FOR A.Y.2008-09. III) LD. CIT (A) HAD ERRED IN COMPUTING DEDUCTION U/S. 10B OF THE ACT BY REDUCING THE OVERSEAS TRAVEL EXPENSES AND TELECO MMUNICATION EXPENSES INCURRED IN FOREIGN CURRENCY FROM THE TOTA L TURNOVER WHILE AS THE SAME HAS TO BE EXCLUDED ONLY FROM THE EXPORT TU RNOVER FOR THE A.Y.2009-10. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PRIVATE LIMITED COMPANY, ENGAGED IN THE BUSINESS OF PROVIDI NG CUSTOMER SUPPORT, SERVICES IN THE FORM OF EMAIL SUPPORT, VOI CE SUPPORT AND CHATTING, FILED ITS OF RETURN OF INCOME ON 25.09.20 08 ADMITTING ITS INCOME OF ` 82,74,530/- FOR A.Y 2008-09 AND ON 25.09.2009 ADMIT TING ITS INCOME OF ` 5,12,090/- FOR A.Y 2009-10. SUBSEQUENTLY, BOTH THE CASES WERE TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT ON 30.12.2011 FOR A.Y 2008-09 & ON ITA NO.1280,2021,58,362/MDS/2014 5 10.12.2012 FOR A.Y 2009-10 WHEREIN THE LD. ASSESSIN G OFFICER MADE CERTAIN ADDITIONS WHICH WERE FURTHER SUSTAINED BY T HE LD. CIT (A) AGAINST WHICH THIS APPEAL IS PREFERRED BEFORE US. ASSESSEES APPEALS 4.1 GROUND NO.I) DISALLOWANCE OF EXPENDITURE BY INVO KING SECTION 14A READ WITH RULE 8D OF THE ACT RESULTING IN ADDITION OF ` `` ` 11,55,800/- FOR ASSESSMENT YEAR 2008-09 & ` `` ` 14,95,934/- FOR ASSESSMENT YEAR 2009-10. THE LD. ASSESSING OFFICER HAD COMPUTED THE AMOUNT OF EXPENDITURE TO BE DISALLOWED U/S. 14A OF THE ACT BY TAKING INTO ACCOUNT OF RULE 8D OF THE RULES FOR THE ASSESSMENT YEAR 2008-09. THEREAFTER THE LD. CIT (A) REWORKED THE COMPUTATION APPLYING RULE 8D AND REDUCED THE DISALLOWANCE FROM ` 11,55.800/- TO ` 9,54,971/-. HOWEVER, WE FIND THAT RULE-8D OF THE RULES WAS INSE RTED BY THE I.T (FIFTH AMENDMENT) RULES, 2008 WITH EFFECT FROM 24.0 3.2008. THEREFORE, THIS RULE WILL BE IN OPERATION ONLY FROM ASSESSMENT YEAR 2009-10. 4.2 THE EARLIER DECISIONS OF THE TRIBUNAL ON SEVER AL OCCASIONS HAD DECIDED THAT 3% OF THE EXEMPT INCOME SHALL BE TREAT ED AS THE ITA NO.1280,2021,58,362/MDS/2014 6 EXPENDITURE INCURRED TOWARDS EARNING SUCH EXEMPT IN COME U/S.14A OF THE ACT. ACCORDINGLY, FOR THE ASSESSMENT YEAR 20 08-09 IN THE CASE OF THE ASSESSEE, WE HEREBY HOLD THAT 3% OF THE EXEM PT INCOME SHALL BE TREATED AS THE EXPENDITURE THAT WILL BE DISALLOW ED U/S.14A OF THE ACT. 4.3 AS FAR AS THE ASSESSMENT YEAR 2009-10 IS CONCE RNED, SINCE RULE 8D COMES INTO EFFECT FROM THAT ASSESSMENT YEAR ONWARDS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A), WHO HAS APPLIED ONLY RULE-14A AND REWORKED THE DISALLOWANCE U/S.14A OF THE ACT AND ARRIVED AT THE DISALLOWANCE AT ` 12,31,129/- AS AGAINST ` 14,95,934/- WORKED OUT BY THE LD. ASSESSING OFFICER. ACCORDINGL Y, THE ORDER OF THE LD. CIT (A) IS CONFIRMED FOR THE ASSESSMENT YEAR 20 09-10. 5.1. GROUND NO.II) - COMPUTING DEDUCTION U/S. 10A OF THE ACT BY NOT REDUCING THE OVERSEAS TRAVEL EXPENSES AND TELECOMMU NICATION EXPENSES INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVE R WHEN THE SAME IS EXCLUDED FROM THE EXPORT TURNOVER.( A.Y. 2008-09) THIS ISSUE IS SQUARELY COVERED BY THE SPECIAL BE NCH OF THE TRIBUNAL IN ITO VS. SAK SOFT REPORTED IN 121 TTJ 865 WHEREIN IT WAS HELD THAT ITA NO.1280,2021,58,362/MDS/2014 7 WHEN ANY SUCH AMOUNT IS DEDUCTED FROM THE EXPORT TU RNOVER FROM THE NUMERATOR, THE SAME SHALL ALSO BE DEDUCTED FROM THE TOTAL TURNOVER IN THE DENOMINATOR WHILE APPLYING THE FORMULA (PROFIT X EXPORT TURNOVER TOTAL TURNOVER ) AS PROVIDED UNDER THE ACT. REVENUES APPEAL 6.1 GROUND NO.I) - TREATING THE SOFT WARE EXPENSES FOR ` `` ` 16.03 LAKHS AS REVENUE EXPENDITURE FOR A.Y.2008-09 . DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE LD.A.O OBSERVED THAT THE ASSESSEE HAD INCURRED EXPENDITURE TOWARDS PURCHASE OF SOFTWARE FOR ` 32,42,522. THE LD.A.O AFTER EXAMINING THE VOUCHERS AND LEDGER ACCOUNT OF THE ASSESSEE DISALLO WED ` 26,22,322/- AS REVENUE EXPENDITURE AND TREATED THE SAME AS CAPITAL EXPENDITURE HOWEVER ALLOWED DEPRECIATION @60% WHICH IS APPLICABLE TO COMPUTERS. ON APPEAL THE LD.CIT(A) AFTER PERUSIN G THE ISSUE ARRIVED AT A CONCLUSION THAT THE SOFTWARE PURCHASED BY THE ASSESSEE ARE APPLICATION SOFTWARE USED IN THE BACK UP OFFICE OPERATIONS AND THEREAFTER FOLLOWING THE DECISION OF HONORABLE DELH I HIGH COURT IN THE CASE CIT VS. ASAHI INDIA SAFETY GLASS LTD., REPORT ED IN 203 TAXMANN 277, LD. CIT VS. AMWAY INDIA ENTERPRISES LTD., REP ORTED IN 22 ITA NO.1280,2021,58,362/MDS/2014 8 TAXMANN.COM 22 AND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE AJIT KUMAR C. KAMDAT VS. DCIT REPORTED IN 4(II) ITC L 76 HELD THE ISSUE IN FAVOUR OF THE ASSESSEE BY TREATING THE ENT IRE EXPENSES OF ` 32,42,522/- AS REVENUE EXPENDITURE. SINCE NO FURTH ER MATERIALS OR ARGUMENTS IS BROUGHT BEFORE US BY THE REVENUE TO CO UNTER THE DECISION OF THE LD.CIT(A) AND SINCE THE LD. CIT (A) HAS ONLY FOLLOWED THE DECISION OF THE HONBLE DELHI HIGH COURT AND MU MBAI BENCH OF THE TRIBUNAL IN ARRIVING AT HIS DECISION, WE HEREBY CONFIRM THE ORDER OF THE LD. CIT (A). 6.2 GROUND NO.II) - DELETING THE ADDITION MADE TOWARDS DONATION OF ` `` ` 8.35 LAKHS WHILE COMPUTING THE BOOK PROFIT U/S. 115 JB OF THE ACT FOR A.Y.2008-09. IT WAS OBSERVED BY THE LD. ASSESSING OFFICER THA T THE ASSESSEE HAD MADE A DONATION OF ` 8.35 LAKHS AND DEBITED THE SAME BELOW THE LINE IN THE P&L ACCOUNT. THE LD. ASSESSING OFFICER OPINED THAT WHILE ARRIVING AT THE BOOK PROFIT OF THE ASSESSEE FOR COM PUTATION OF TAX U/S. 115JB OF THE ACT, THE DONATION PAID BY THE ASSESSEE SHOULD NOT BE CONSIDERED AS EXPENDITURE OF THE ASSESSEE AND THE B OOK PROFIT HAS TO ITA NO.1280,2021,58,362/MDS/2014 9 BE COMPUTED ACCORDINGLY. ON APPEAL, THE LD. CIT (A ) FOR THE VARIOUS REASONS DISCUSSED IN HIS ORDER, DIRECTED LD. ASSESS ING OFFICER TO TREAT THE DONATION PAID AS EXPENDITURE IN THE P&L ACCOUNT OF THE ASSESSEE AND THEREAFTER ARRIVE AT THE NET PROFIT FOR THE PUR POSE OF SECTION-115JB OF THE ACT. WE ARE IN AGREEMENT WITH THE DECISION O F THE LD. CIT (A) FOR THE FOLLOWING REASONS:- I) SECTION-2(10) OF THE COMPANIES ACT DEFINES THE COMPANY AS DEFINED IN SECTION 3(1) OF THE ACT. II) AS PER SECTION 13(1)(D) OF THE ACT, THE MAIN O BJECTS OF THE COMPANY HAS TO BE STATED IN THE MEMORANDUM OF ASSOC IATION OF THE COMPANY. III) EVERY COMPANY INCLUDING THE RELEVANT ASSESSEE COMPANY CANNOT EXTEND ITS SCOPE OF ACTIVITIES OVER AND ABOVE THE O BJECTS OF THE COMPANY. IV) SINCE THE ASSESSEE COMPANY HAD PAID DONATION, IT HAS TO BE CONSTRUED THAT SUCH DONATION IS PAID FOR MEETING OU T THE OBJECTS OF THE COMPANY DIRECTLY OR INDIRECTLY, THOUGH AS PER I NCOME TAX ACT SUCH DONATION MAY NOT BE ALLOWABLE AS A DEDUCTION. ITA NO.1280,2021,58,362/MDS/2014 10 V) WHILE PRESENTING SUCH TRANSACTION IN THE P&L AC COUNT OF THE COMPANY AS PER SCHEDULESVI PART-II OF THE COMPANIE S ACT, THE ONLY PLACE IT FINDS IS IN ITEM NO.3(X)(I) UNDER THE HEAD MISCELLANEOUS EXPENDITURE WHICH MAY BE FOLLOWED W ITH A NOTE. VI) ACCORDINGLY, NET PROFIT WILL STAND REDUCED T O THE EXTENT OF THE DONATION PAID IN THE P&L ACCOUNT OF THE COMPANY WHI CH WILL BE THE BOOK PROFIT OF THE COMPANY AS PER THE COMPANIES ACT. FROM THE ABOVE ANALOGY WE FIND THAT THE DECISION OF THE LD. CIT (A) IN DIRECTING THE LD. ASSESSING OFFICER TO TREAT THE DO NATION PAID AS ALLOWABLE EXPENDITURE WHILE COMPUTING THE BOOK PROF IT OF THE ASSESSEE FOR THE PURPOSE OF SECTION 115JB OF THE AC T IS CORRECT. THEREFORE WE HEREBY CONFIRM THE ORDER OF THE LD. CI T (A) ON THIS ISSUE. 6.3 GROUND NO.III) - REDUCING THE OVERSEAS TRAVEL EXPENSES AND TELECOMMUNICATION EXPENSES INCURRED IN FOREIGN CURR ENCY FROM THE TOTAL TURNOVER. A.Y.2009-10. ITA NO.1280,2021,58,362/MDS/2014 11 SINCE THE LD. CIT (A) HAS FOLLOWED THE DECISION O F THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SAK SOFT (SUPR A), THE DECISION OF THE LD. CIT (A) IS HEREBY CONFIRMED. ACCORDINGLY, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. 7. IN THE RESULT, (I) THE APPEALS OF THE ASSESSEE F OR THE ASSESSMENT YEAR 2008-09 IS PARTLY ALLOWED AND FOR THE ASSESSM ENT YEAR 2009-10 IS DISMISSED AND (II) THE APPEALS OF THE REVENUE AR E FOR THE ASSESSMENT YEARS 2008-09 & 2009-10 ARE DISMISSED. ORDER PRONOUNCED ON 2 ND JUNE, 2015 AT CHENNAI. 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