Smt. REENA ARUN SAXENA, Nagpur V. ITO-WARD-1(4), Nagpur

ITA 413/NAG/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1601 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 25-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Keywords: Earning of tax free income; Question of law
• Section: 14A; 10B; 263

Judgement Text

1 ITA NO. 413/NAG/2013 & ITA NO. 259/NAG/2014. IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 413/NAG/2013 ASSESSMENT YEAR : 2009 - 10. REENA ARUN SAXENA, THE INCOME - TAX OFFICER, NAGPUR. VS. WARD - 1(4), NAGPUR. PAN AETPS6959K APPELLANT. RESPONDENT. I.T.A. NO.259/NAG/2014. ASSESSMENT YEAR : 2010 - 11. DY. COMMISSIONER OF INCOME - TAX, REENA ARUN SAXENA, CIRCLE - 1, NAGPUR. VS. NAGPUR. APPELLANT. RESPONDENT. ASSESSEE BY : SHRI MUKESH AGRAWAL. DEPARTMENT BY : SHRI NARENDRA KANE. DATE OF HEARING : 26 - 10 - 2015. DATE OF PRONOUNCEMENT : 24 TH NOV., 2015. O R D E R PER SHRI SHAMIN YAHYA, A.M . THESE APPEALS BY THE REVENUE AND ASSESSEE EMANATE OUT OF THE RESPECTIVE ORDERS OF C.I.T. AND CIT(APPEALS) FOR THE CONCERNED ASSESSMENT YEARS. SINC E THE ISSUES ARE CONNECTED, THE APPEALS HAVE BEEN DISPOSED OF BY THIS COMMON ORDER. 2. ITA NO. 413/NAG/2013 THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED U/S 263 BY THE LEARNED CIT. IN THE ORDER PASSED U/S 263 THE LEARNED CIT HAS DIRECTED THAT 2 ITA NO. 413/NAG/2013 & ITA NO. 259/NAG/2014. THE EXEMPTION U/S 10A AMOUNTING TO RS.2,31,81,621/ - BE WITHDRAWN. IN THIS CASE THE LEARNED CIT EXERCISED HIS JURISDICTION U/S 263 OF I.T. ACT FOR THE REASON THAT THE ASSESSEE WAS ENTITLED TO DE DUCTION U/S 10A FOR PROFITS AND GAINS DERIVED BY UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF 10 CONSECUTIVE YEARS BEGINNING IN THE YEAR IN WHICH THE ASSESSEE BE G AN THE ACTIVITY. HENCE LEARNED CIT FOUND THAT IN TH E ASSESSEES CASE EXEMPTION U/S 10A WAS ALLOWABLE ONLY IN ASSESSMENT YEAR 2008 - 09. ASSESSMENT YEAR 2009 - 10 WAS 11 TH YEAR OF THE CLAIM AND HENCE THE SAID EXEMPTION WAS NOT ALLOWABLE. ASSESSEES CONTENTION IN THIS REGARD WAS THAT THE ASSESSEE HAD EARLIER CL AIMED DEDUCTION FOR SOFTWARE U/S 80HHE FOR THE PERIOD OF TWO ASSESSMENT YEARS I.E. 1999 - 2000 AND 2000 - 01. THE ASSESSEE STARTED CLAIMING 100% DEDUCTION U/S 10A FROM ASSESSMENT YEAR 2001 - 02 AS THE ASSESSEE WAS REGISTERED AS 100% EOU WITH STP I IN THE YEAR 20 00. HENCE THE ASSESSEE CONTENDED THAT THE PERIOD OF 10 YEARS SHOULD BE COMPUTED FROM THE ASSESSEES REGISTRATION AS 100% EOU WITH STP I . LEARNED CIT REJECTED THESE CONTENTIONS AND HELD THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S 10A. LEARNED CIT F URTHER HELD THAT THIS ISSUE WAS NOT AT ALL EXAMINED BY THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS. HENCE LEARNED CIT FOUND THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HENCE LEARNED CIT DIRECTED THAT THE EXE MPTION BE WITHDRAWN. 3. AGAINST THE ABOVE ORDER, ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE REITERATED THE SUBMISSIONS THAT IRRESPECTIVE OF THE FACT THAT THE ASSESSEE WAS GET TING DEDUCTION U/S 80HHE WITH RESPECT TO MANUFACTURE AND EXPORT OF SOFTWARE , ASSESSEES EXEMPTION U/S 10A SHOULD BE DEEMED TO HAVE COMMENCED FROM THE YEAR IN WHICH ASSESSEE GOT REGISTRATION AS 100% EOU WITH STP I AND BECAME ENTITLED FOR DEDUCTION U/S 10A. FOR THIS PROPOSITION LEARNED COUNSEL PLACED RELIANCE UPON THE FOLLOWING CASE LAWS: 3 ITA NO. 413/NAG/2013 & ITA NO. 259/NAG/2014. 1. ITA NO. 2551/MAD/2005 PREMIER MILLS - CHENNAI BENCH. 2. CIT VS. EXPERT OUTSOURCE (KAR) 358 ITR 518. 3. CIT VS. INTERRA SOFTWARE INDIA PVT. LTD. 5. PER CONTRA LEARNED D.R. SUBMITTED THAT THE ASSESSEE IS TRYING TO STRE TCH THE EXEMPTION BEYOND 10 YEARS AS MANDATED BY THE ACT. LEARNED COUNSEL SUBMITTED T HAT THE CASE LAWS REFERRED BY THE LEARNED CIT ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. LEARNED D.R. PLEADED THAT NONE OF THE CASE LAWS AS MENTIONED ABOVE PROVIDE THAT THE ASSESSEE SHOULD BE GIVEN DEDUCTION/EXEMPTION FOR MANUFACTURE AND EXPORT OF SOFTWARE BEYOND 10 YEARS OF THE COMMENCEMENT OF ACTIVITY. IN THIS REGARD LEARNED D.R. REFERRED TO THE PARAGR APH 4 OF CIRCULAR NO. F 2005 DATED 06 - 01 - 2005 ISSUED BY CBDT ON EXACTLY THE PRESENT ISSUE. THE SAID PORTION OF THE CIRCULAR READS AS UNDER : 4. THE MATTER HAS BEEN EXAMINED AND IT IS HEREBY CLARIFIED THAT AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA (DTA ) AND DERIVING PROFIT FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCED BY IT, WHICH IS SUBSEQUENTLY CONVERTED INTO AN EOU, SHALL BE ELIGIBLE FOR DEDUCTION U/S 10B OF THE I.T. ACT, ON GETTING APPROVAL AS 100% EXPORT ORIENTED U NDERTAKING. IN SUCH A CASE, THE DEDUCTION SHALL BE AVAILABLE ONLY FROM THE YEAR IN WHICH IT HAS GOT THE APPROVAL AS 100% EOU AND SHALL BE AVAILABLE ONLY FOR THE REMAINING PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS, BEGINNING WITH THE ASSESSMENT YEAR RELEVA NT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE AS A DTA UNIT. FURTHER, IN THE YEAR OF APPROVAL, THE DEDUCTION SHALL BE RESTRICTED TO THE PROFITS DERIVED FROM EXPORTS , FROM AND AFTER THE DATE OF APPROVAL OF THE DTA UNIT AS 100% EOU. MOREOVER, THE DEDUCTION TO SUCH UNITS IN ANY CASE WILL NOT BE AVAILABLE AFTER ASSESSMENT YEAR 2009 - 10. REFERRING TO THE ABOVE, LEARNED D.R. SUBMITTED THAT THERE IS NO AMBIGUITY IN THE SAID CIRCULAR AND TH E ASSESSEE IN THIS CASE CANNOT BE ENTITLED TO CLAIM DEDUCTION/EXEMPTION FOR MANUFACTURE AND EXPORT OF SOFTWARE BEYOND THE PERIOD OF 10 YEARS AS THE ASSESSEE HAS DULY ENJOYED THE DEDUCTION/EXEMPTION FOR 10 4 ITA NO. 413/NAG/2013 & ITA NO. 259/NAG/2014. YEARS. LEARNED D.R. SUBMITTED THAT IT IS SETTLED LA W THAT THE CBDT CIRCULARS ARE BINDING UPON THE REVENUE AUTHORITIES. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. IT IS UNDISPUTED FACT OF THE CASE THAT THE ASSESSEE IS ENJOYING EXEMPTION FOR EXPORT OF ARTICLES OR THINGS OF COM PUTER SOFTWARE BEGINNING FROM ASSESSMENT YEAR 1999 - 2000. FOR THE FIRST TWO YEARS DEDUCTION WAS CLAIMED U/S 80HHE AND FOR REST OF THE YEARS EXEMPTION WAS CLAIMED U/S 10B. THUS NOW IT IS 11 TH YEAR OF THE ASSESSEES CLAIM FOR EXEMPTION/DEDUCTION FOR THE SAME ACTIVITY. NONE OF THE CASE LAWS REFERRED BY THE LEARNED COUNSEL OF THE ASSESSEE PROVIDE THAT DEDUCTION SHOULD BE EXTENDED FOR EXPORT OF SOFTWARE BEYOND 10 YEARS IF THE ASSESSEE IS REGISTERED AS 100% EOU UNDER STPI IN BETWEEN. THE C.B.D.T. CIRCULAR AS REFE RRED BY THE LEARNED D.R. AS ABOVE IS DIRECTLY APPLICABLE ON THE FACTS OF THE CASE. THE ASSESSEE WAS SET UP IN DOMESTIC TARIFF AREA AND DERIVING PROFIT FROM EXPORT OF ARTICLE OR THING OF COMPUTER SOFTWARE. SUBSEQUENTLY IT WAS CONVERTED INTO AN EOU BY REGIS TRATION AS STPI . IN SUCH SITUATION IT HAS BEEN ENVISAGED IN THE ABOVE SAID CIRCULAR THAT THE DEDUCTION SHALL BE AVAILABLE ONLY FROM THE YEAR IN WHICH IT HAS GOT THE APPROVAL AS 100% EOU AND SHALL BE AVAILABLE ONLY FOR THE REMAINING PERIOD OF 10 CONSECUTIV E ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGAN MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE AS A DTA UNIT. THUS IT IS UNAMBIGUOUS FROM THE ABOVE CIRCULAR THAT THE ASSES SEE IS NOT ENTITLED TO THE DEDUCTION U/S 10A IN THE PRESENT ASSESSMENT YEAR AS IT WOULD BE THE 11 TH YEAR OF CLAIM OF DEDUCTION. IT IS SETTLED LAW THAT THE CBDT CIRCULARS ARE BINDING UPON THE REVENUE. THIS IS SUPPORTED BY THE HONBLE APEX COURT DECISION IN THE CASE OF UNION OF INDIA VS. AZADI BACHAO ANDOLAN. 7. FROM THE ABOVE DISCUSSION IT IS EVIDENT THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S 10A. HENCE THE AO CLEARLY ERRED IN ALLOWING THE SAME. MOREOVER THE AO HAS ALSO NOT EXAMINED THIS ISSUE. IN THESE CIRCUMSTANCES, IN 5 ITA NO. 413/NAG/2013 & ITA NO. 259/NAG/2014. OUR CONSIDERED OPINION, THERE I S NO INFIRMITY IN THE ORDER OF LEARNED CIT. ACCORDINGLY WE UPHOLD THE SAME. ASSESSEES APPEAL IS DISMISSED. 8. ITA NO. 259/NAG/2014 APROPOS GROUND NO. 1 & 2: THE ISSUE IN THIS APPEAL AS RAISED IN THESE GROUNDS BY THE REVENUE IS CONSEQUENTIAL TO OUR ORDER IN ITA NO. 413/NAG/2013 AS ABOVE. IN THE PRESENT CASE THE AO HAS DISALLOWED THE DEDUCTION TO THE ASSESSEE AS THE IMPUGNED ASSESSMENT YEAR WAS THE 12 TH YEAR OF ASSESSEES CLAIM OF EXEMPTION/DEDUCTION FOR EXPORT OF COMPUTER SOFTWARE. THE AO HAS CON SIDE RED THE CBDT CIRCULAR NO. 1/2005 DATED 06 - 01 - 2005 DEALT WITH BY US ABOVE. ACCORDINGLY THE AO HAS DENIED THE EXEMPTION U/S 10A AS CLAIMED BY THE ASSESSEE. 9. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) IGNORED THE SAID CBDT CIRCULAR AND HAS ALSO DISREGARD ED THE FACT THAT ACTION U/S 263 HAD BEEN TAKEN BY THE REVENUE ON THE SAME ISSUE AGAINST THE SAME ASSESSEE FOR THE PRECEDING YEAR. LEARNED CIT(APPEALS) HAS REFERRED THE DECISION OF ITAT, CHENNAI BENCH IN PREMIER MILLS P. LTD. (SUPRA). WE HAVE FOUND THE AB OVE SAID DECISION OF ITAT BY NO STRETCH OF IMAGINATION MANDATES THAT THE ASSESSEE SHOULD BE GRANTED EXEMPTION FOR THE EXPORT OF COMPUTER SOFTWARE FOR A PERIOD OF EXCEEDING 10 YEARS. THE ASSESSEE WAS NOT AT ALL CLA I MING EXEMPTION FOR THE EXPORT OF COMPUTER SOFTWARE IN THE APPEAL DEALT WITH BY THE ITAT FOR A PERIOD BEYOND THE PERIOD OF 10 YEARS OF HAVING AVAILED THE DEDUCTION/EXEMPTION. HENCE IN OUR CONSIDERED OPINION, LEARNED CIT(APPEALS) RELIANCE ON THE ABOVE DECISION OF THE ITAT TO DISREGARD THE CBDT CIRC ULAR DIRECTLY ON THE ISSUE IS NOT AT ALL SUSTAINAB LE . ACCORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT(APPEALS) AND RESTORE THAT OF THE AO. 10. APROPOS GROUND NO. 3 RESTRICTION OF DISALLOWANCE U/S 14A. ON THIS ISSUE THE AO MADE THE DISALLOWANCE HOLDING AS UNDER : 6 ITA NO. 413/NAG/2013 & ITA NO. 259/NAG/2014. DURING THE YEAR THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.1846891/ - . THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS HAVE MENTIONED HAT NO EXPENDITURE HAS BEEN INCURRED IN RESPECT OF THE EXEMPT INCOME. HOWEVER, IT CANNOT BE DENIED THAT THE ADMINISTRATIVE, MACHINERY & PERSONNEL OF THE ASSESSEES PROPRIETARY CONCERN WOULD HAVE INVARIABLY CONTRIBUTED TO THE VARIOUS SERVICES REQUIRED FOR MAINTAINING THE DETAILS REGARDING THE SHARES & MUTUAL FUNDS, THEIR ACCOUNTING ETC. THE RULE 8D(2)(III) PROVI DES THE MECHANISM OR FORMULA TO BE ADOPTED FOR ATTRIBUTING PART OF THE ADMINISTRATIVE/MANAGERIAL EXPENSES TO THE TAX EXEMPT INVESTMENT INCOME. THE DISALLOWANCE U/S 14A AS PER RULE 8D WORKS OUT TO BE RS.1,61,436/ - . THIS AMOUNT OF RS.1,61,436/ - IS DISALLOWED U/S 14A AND IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDING U/S 271(1)(C) ARE SEPARATELY INITIATED. 11. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) REFERRED TO THE DECISION OF HONBLE APEX COURT IN THE CASE OF M/S RELIANCE INDUS TRIES LTD. WHEREIN HONBLE APEX COURT HAS DIRECTED THE HIGH COURT TO CONSIDER T HE QUESTION OF LAW RAISED BEFORE IT AND NOT DISMISS THE SAME. THE HONBLE HIGH COURT HAS DISMISSED THE ISSUE AS UNDER : SO FAR AS QUESTION (A) IS CONCERNED, CIT(APPEALS) HEL D THAT CERTAIN ADMINISTRATIVE EXPENSES ARE REQUIRED TO BE INCURRED TO KEEP TRACK OF RECEIPT AND ACCRUALS OF DIVIDEND INCOME AND ACCORDINGLY IT IS NOT POSSIBLE TO ACCEPT THAT NO EXPENDITURE HAS BEEN INCURRED OUT OF DIVIDEND INCOME. ACCORDINGLY, IT IS HELD H AT EXPENSES OF RS. 20 LAKHS IS SUFFICIENT TO MEET EXPENSES. THE INCOME TAX APPELLATE TRIBUNAL IN APPEAL OBSERVED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME ONLY FROM THREE COMPANIES. THERE IS NO FACT OF HAVING INCURRED ANY EXPENDITURE FOR THE PURPOSE OF EARNING THE DIVIDEND INCOME. THE DISALLOWANCE IN OUR VIEW IS MISCONCEIVED AND THE SAME IS DELETED IN THE LIGHT OF THE SAME ORDER. IN OUR OPINION, THIS IS PURELY A FINDING OF FACT AND, THEREFORE, QUESTION (A) AS FRAMED WOULD NOT ARISE. FROM THE ABOVE , LEARNED CIT(APPEALS) INFERRED THAT INCURRING THE ADMINISTRATIVE EXPENSE FOR EARNING DIVIDEND INCOME CANNOT BE RULED OUT IN TOTO AND IT DEPENDS 7 ITA NO. 413/NAG/2013 & ITA NO. 259/NAG/2014. UPON THE FACTS AND CIRCUMSTANCES OF THE INDIVIDUAL CASE. THEREAFTER LEARNED CIT(APPEALS) RESTRICTED THE DISALLO WANCE MADE BY THE AO TO RS.80,000/ - . 12. AGAINST THE ABOVE ORDER, REVENUE IS IN APPEAL BEFORE US. 13. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT THE AO HAS MADE THE DISALLOWANCE BY PLACING RELIANCE UPON RULE 8D(2)(III). IT IS UNDI SPUTED THAT THE SAID RULE 8D IS APPLICABLE IN THE CURRENT ASSESSMENT YEAR. LEARNED CIT(APPEALS) HAS RESTRICTED THE SAID ADDITION ON ADHOC BASIS WITHOUT BRINGING ANY MATERIAL ON RECORD. THE DECISION REFERRED BY THE LEARNED CIT(APPEALS) AS ABOVE CANNOT BE A BASIS FOR LEARNED CIT(APPEALS) TO BYPASS THE PROVISIONS OF RULE 8D(2)(III) WITHOUT BRINGING ANY MATERIAL ON RECORD. ACCORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT(APPEALS) AND RESTORE THAT OF THE AO. HENCE THE APPEAL OF THE REVENUE IS ALLOWED. 14 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED AND THE APPEAL FILED BY THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF NOV., 2015. SD/ - SD/ - (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 24 TH NOV., 2015. 8 ITA NO. 413/NAG/2013 & ITA NO. 259/NAG/2014. COPY FORWARDED TO : 1. SMT. REENA ARUN SAXENA, EASYPACK SOFTWARE INC., 11/2, INFOTECH PARK, SOUTH AMBAZARI ROAD, PARSODI, NAGPUR. 2. I.T.O., WARD - 1 ( 4 ), NAGPUR. / DCIT, CIRCLE - 1, NAGPUR. 3. C.I.T. - I, NAGPUR. 4. CIT(APPEALS) - I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE