ADVANSYS (INDIA) P. LTD, PUNE V. ITO 8(1)(1), MUMBAI

ITA 396/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55679 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 15-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P K B MENON
• Section: 143(3); 10B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, MUMBAI. BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A NO.396/ MUM/2010 ASSESSMENT YEAR: 2005-06 ADVANSYS (INDIA) P. LTD. .. APPELLANT RAISONEINDL PARK, GATE NO.286/2A/2B, AK VILLAGE MANN, TALUKA MULSHI, PUNE PUNE PA NO.AADCA 3607 P VS INCOME TAX OFFICER 8(1)(1) .. RESPONDENT AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. APPEARANCES: K.GOPAL, FOR THE APPELLANT P.K.B. MENON, FOR THE RESPONDENT DATE OF HEARING : 9.8.2011 DATE OF PRONOUNCEMENT : 21-10-2011 O R D E R PER PRAMOD KUMAR: 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICA TE IN THIS APPEAL IS WHETHER OR NOT, ON THE FACTS AND IN THE CIRCUMSTANC ES OF THIS CASE, THE LEARNED COMMISSIONER WAS JUSTIFIED IN EXERCISING RE VISION POWERS UNDER SECTION 263 OF THE INCOME TAX ACT, 1961. THE ASSESS MENT YEAR INVOLVED IS 2005-06, THE IMPUGNED REVISION ORDER WAS PASSED BY THE LEARNED COMMISSIONER ON 25 TH NOVEMBER, 2009, AND THE ASSESSMENT ORDER, SO I.T.A NO.396/ MUM/2010 ASSESSMENT YEAR: 2005-06 2 SUBJECTED TO REVISION PROCEEDINGS, WAS PASSED BY TH E ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT. 2. BRIEFLY STATED THE RELEVANT MATERIAL FACTS ARE L IKE THIS. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF EXPORTS OF ENGINEERI NG GOODS, ENGINEERING DESIGN SERVICES AND SOFTWARE. THE ASSESSEE HAS CLA IMED EXEMPTION OF RS.6,36,05,934 UNDER SECTION 10B OF THE INCOME TAX ACT, 1961 TO THE EXTENT OF GROSS TOTAL INCOME COMPUTED THEREIN. IN THE ASSESSMENT ORDER UNDER SECTION 143(3), THE ASSESSING OFFICER ALLOWED THE CLAIM OF THE ASSESSEE OF RS.6,35,88,273 AS AGAINST CLAIM OF RS. 6,36,05,934, INTER ALIA, EXCLUDING INTEREST ON F.D. OF RS.14,835 AND OTHERS AT RS.2,826. LEARNED COMMISSIONER, ON 25.11.2009, REQUIRED THE ASSESSE T O SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER SO ALLOWING THE CLAIM NOT BE SUBJECTED TO REVISION UNDER SECTION 263. IN THE SHOW CAUSE NOTIC E, LEARNED COMMISSIONER OBSERVED AS FOLLOWS: THE ASSESSEE COMPANY HAS SHOWN TOTAL TURNOVER AS P ER FORM 56G AT RS.10,14,16,218 WHILE THE EXPORT REALISATION IS RS. 9,60,80,723 AND HENCE THE EXPORT TURNOVER IS RS.9,60,80,723. PROFI TS OF UNDERTAKING ARE SHOWN AT RS.6,35,88,273. THE DEDUCTION ALLOWAB LE UNDER SECTION 10B OF THE I.T.ACT WOULD BE AS UNDER; TOTAL TURNOVER AS PER FORM 56G RS.10,14,16,218 PROFITS OF UNDERTAKING RS. 6,35,88,273 EXPORT TURNOVER AS PER REALIZATION DETAILS RS. 9,6 0,80,723 DEDUCTION ALLOWABLE:6,35,88,273X9,60,80,723 = RS. 6,02,42,901 10,14,16,218 THE AO ALLOWED DEDUCTION OF RS.6,35,88,273 WHICH IS EXCESS BY AN AMOUNT OF RS.33,45,371. THE EXCESS DEDUCTION HAS B EEN WRONGLY ALLOWED BY THE AO BY TAKING THE TOTAL TURNOVER AS E XPORT TURNOVER WHICH IS NOT THE CORRECT POSITION. 3. IN RESPONSE TO SHOW CAUSE NOTICE, IT WAS SUBMITT ED BY THE ASSESSEE THAT 100% EXPORT TURNOVER PROCEEDS WERE BROUGHT TO INDIA IN CONVERTIBLE FOREIGN EXCHANGE AND THE DIFFERENCE BETWEEN EXPORT TURNOVER AND TOTAL I.T.A NO.396/ MUM/2010 ASSESSMENT YEAR: 2005-06 3 TURNOVER IS MAINLY ON ACCOUNT OF THE FACT THAT THE SALE PROCEEDS RECEIVED IN ADVANCE WERE LOWER THAN THE SUBSEQUENT BILLS OF SALES ISSUED ON ACCOUNT OF FLUCTUATION IN THE VALUE OF THE FOREIGN CURRENCY. IT WAS ALSO SUBMITTED THAT THE LOSS ON ACCOUNT OF FOREIGN EXCHA NGE FLUCTUATION AT THE TIME OF ISSUING THE BILLS WERE REQUIRED TO BE CLAIM ED AS FOREIGN EXCHANGE LOSS BY REDUCING THE TURNOVER AND FOR THIS MISTAKE, THE ASSESSEE SHOULD NOT BE PENALIZED TO ALLOW LOWER DEDUCTION TO THE ASSESS EE. NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE LEARNED COMMISS IONER. THE CIT WAS OF THE VIEW THAT THE TOTAL TURNOVER SHOWN IN TH E PROFIT AND LOSS ACCOUNT AT RS.10,14,16,218 TALLIES WITH THE TOTAL T URNOVER MENTIONED IN THE AUDIT REPORT FOR WORKING OUT DEDUCTION U/S.10B. THE FOREIGN EXCHANGE REALIZED IN CONVERTIBLE FOREIGN EXCHANGE IS MENTION ED IN THE AUDIT REPORT AT RS.10,14,16,218 WHILE THE CORRECT AMOUNT OF FORE IGN EXCHANGE IS BROUGHT TO INDIA IN CONVERTIBLE FORM IS ONLY RS.9,6 0,80,723. HE, THEREFORE, OBSERVED THAT THE ACTION OF THE AO ALLOWING DEDUCT ION UNDER SECTION 10B IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. LEARNED CIT WAS APPARENTLY OF THE VIEW THAT SINCE ONLY 94.69% O F TOTAL EXPORT TURNOVER IS REALISED, IN RUPEE TERMS, DEDUCTION U/ S.10B SHOULD ALSO BE RESTRICTED TO 94.69% OF TOTAL CLAIM. THE LEARNED CI T BY APPLYING FORMULA GIVEN IN SUB-SECTION (4) TO SECTION 10B, COMPUTED T HE DEDUCTION AT RS.33,45,371 AS AGAINST DEDUCTION OF RS.6,35,88,273 ALLOWED BY THE AO, WHICH WAS IN EXCESS OF RS.33,45,371. ACCORDINGLY, T HE ASSESSMENT ORDER MADE BY THE AO WAS MODIFIED AND THE DEDUCTIONU/S.1 0B WAS REDUCED BY AN AMOUNT OF RS.33,45,371 AND THE TAXABLE INCOME WA S WORKED OUT AT RS.34,03,190. 4. THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL B EFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF TH E CASE AS ALSO THE APPLICABLE LEGAL POSITION. I.T.A NO.396/ MUM/2010 ASSESSMENT YEAR: 2005-06 4 6. WE FIND THAT THERE IS NO DISPUTE THAT ENTIRE SAL E PROCEEDS WERE DULY REALIZED BY THE ASSESSEE AND THE DIFFERENCE IN VALU E OF EXPORTS VIS--VIS REALIZATION OF EXPORT PROCEEDS IS ENTIRELY NOTIONAL DUE TO VARIATIONS IN FOREIGN EXCHANGE RATES AT THE POINT OF TIME WHEN AD VANCES WERE RECEIVED AND AT THE POINT OF TIME WHEN EXPORT INVOICES WERE DRAWN UP. UNDER THESE CIRCUMSTANCES, THE LEARNED COMMISSIONER IS CL EARLY IN ERROR IN PROCEEDINGS ON THE BASIS THAT SINCE ONLY 94.69% OF TOTAL EXPORT TURNOVER IS REALIZED THE DEDUCTION U/S.10B SHOULD ALSO BE RE STRICTED TO 94.69% OF TOTAL CLAIM. ONCE IT IS NOT IN DISPUTE THAT ENTIRE EXPORT TURNOVER IS REALIZED AND THE NOTIONAL DIFFERENCE IS ONLY ON ACC OUNT OF VALUATION IN FOREIGN EXCHANGE RATES, IT IS ONLY COROLLARY THERE TO THAT DEDUCTION U/S.10B WILL BE ADMISSIBLE IN RESPECT OF ENTIRE PROFITS REL ATING TO EXPORT TURNOVER WITHOUT ADJUSTING THE REALIZATION DIFFERENCE, IF AN Y. IN THIS VIEW OF THE MATTER, IN OUR CONSIDERED VIEW, LEARNED CIT COULD N OT HAVE EXERCISED HIS POWERS U/S.263 ON THE FACTS OF THIS CASE. WE, THER EFORE, VACATE THE IMPUGNED REVISION ORDER. THE ASSESSEE GETS THE REL IEF ACCORDINGLY. 7. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 21 ST OCTOBER, 2011 SD/- (VIJAY PAL RAO) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATED 21 ST OCTOBER, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 4. COMMISSIONER OF INCOME TAX, 8 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI