M/s. Intel Technology India Pvt. ltd., Bangalore V. DCIT, Bangalore

ITA 428/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9458 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-09-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 05-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PREETHI GARG PAGE OF
• Assessee Lawyers: KOUSHIK MUKHERJEE
• Keywords: Revision of order
• Section: 143(3); 10B; 263

Judgement Text

PAGE 1 OF 10 ITA NOS.427 & 428 /BANG/2009 1 THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI K K GUPTA, A.M. AND SHRI GEORGE GEORGE K., J.M ITA NO.427/BANG/2009 [ASSESSMENT YEAR 2004-05] M/S INTEL TECHNOLOGY INDIA PRIVATE LIMITED, 136, AIRPORT ROAD, BANGALORE. - APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAX PAYERS UNIT, BANGALORE. - RESPONDE NT ITA NO.428/BANG/2009 (ASST. YEAR 2004-05) M/S INTEL TECHNOLOGY INDIA PRIVATE LIMITED, (SUCCESSOR IN INTEREST TO SOFTWARE & SILICON SYSTEMS INDIA PRIVATE LIMITED), SURVEY NO.23-56P, DEVA5RABEESANAHALLI VILLAGE, OUTER RING ROAD, VARTHUR HOBLI, BANGALORE SOUTH TALUK, BANGALORE560 103. - APPELLA NT VS THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAX PAYERS UNIT, BANGALORE. - RESPONDE NT APPELLANT BY : SHRI KOUSHIK MUKHERJEE RESPONDENT BY : SMT. PREETHI GARG PAGE 2 OF 10 ITA NOS.427 & 428 /BANG/2009 2 O R D E R PER GEORGE GEORGE K : THESE TWO APPEALS FILED BY THE ASSESSEE EMANATED FROM TWO SEPARATE ORDERS OF CIT, BOTH DATED 5TH MAR CH, 2009. THE CONCERNED ASST. YEAR IS 2004-05. 2. ITA NO.427/09 IS FILED BY M/S INTEL TECHNOLOGY INDIA PRIVATE LIMITED, WHEREAS ITA NO.428/08 IS FIL ED BY M/S INTEL TECHNOLOGY INDIA PRIVATE LIMITED AS SUCCESSOR IN INTEREST TO 'SOFTWARE & SILICON SYSTEMS INDIA PRIVATE LIMITED '. SINCE IDENTICAL ISSUES ARE RAISED IN THESE APPEALS, THEY A RE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR TH E SAKE OF CONVENIENCE AND BREVITY. 3. THE GROUNDS RAISED IN THESE APPEALS ARE IDENTIC AL EXCEPT IN VARIANCE IN FIGURES AND HENCE, GROUNDS IN ITA NO.427/09 IS REPRODUCED BELOW:- 1) THAT THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX, LARGE TAX PAYERS UNIT, BANGALORE (HEREINAFTER REFERRED TO AS 'THE CIT) U/S 263 OF THE INCOME-TAX ACT, 1961 ('THE ACT') IS CONTRARY TO THE PROVISIONS OF LAW AND LIABLE TO BE QUASHED. 2.1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT ERRED IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. 2.2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT ERRED IN HOLDING PAGE 3 OF 10 ITA NOS.427 & 428 /BANG/2009 3 THAT THE ORDER PASSED BY INCOME TAX OFFICER, WARD 11(2), BANGALORE IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE WITHIN THE MEANING OF THE PROVISIONS OF SECTION 263 OF THE ACT. 3.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT ERRED IN DIRECTING THE ASSESSING OFFICER TO REDUCE THE PROFESSIONAL & CONSULTANCY CHARGES AND TRAVELING AND CONVEYANCE EXPENSES INCURRED IN FOREIGN CURRENCY AGGREGATING TO RS.2898.76 LAKHS FROM THE 'EXPORT TURNOVER' IN COMPUTING DEDUCTION U/S 10A OF THE ACT. 3.2) THAT THE LEARNED CIT ERRED IN NOT ALLOWING DEDUCTION U/S 10A OF THE ACT OF THE ENTIRE PROFITS OF THE UNDERTAKINGS REGISTERED WITH THE SOFTWARE TECHNOLOGY PARK OF INDIA (STPI). 4) THAT THE LEARNED CIT ERRED IN TREATING THE ENTIRE PROFESSIONAL & CONSULTANCY CHARGES AND TRAVELING AND CONVEYANCE EXPENSES INCURRED IN FOREIGN CURRENCY AGGREGATING TO RS.2898.76 LAKHS AS ATTRIBUTABLE TO THE STPI UNITS. 5) THAT EVEN ASSUMING BUT NOT ADMITTING THAT PROFESSIONAL AND CONSULTANCY CHARGES AND TRAVELING AND CONVEYANCE EXPENSES INCURRED IN FOREIGN CURRENCY ARE TO BE REDUCED FROM 'EXPORT TURNOVER', THE LEARNED CIT ERRED IN NOT DIRECTING THE AO TO REDUCE THE SAID EXPENSES ALSO FROM THE 'TOTAL TURNOVER' FOR COMPUTING DEDUCTION U/S 10A OF THE ACT. 4. THE ASSESSMENT FOR BOTH THE CASES WERE COMPLETE D U/S 143(3) OF THE ACT ON 28TH DECEMBER, 2006, DETER MINING THE PAGE 4 OF 10 ITA NOS.427 & 428 /BANG/2009 4 TAXABLE INCOME AT RS.17,28,72,010/- AND RS.8,92,77, 120/- RESPECTIVELY. THE CIT WAS OF THE VIEW THAT ASSESSME NTS COMPLETED U/S 143(3) WERE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE, SINCE EXPENDITURE INCURRED IN FOREIGN CURRENCY, ON ACCOUNT OF PROFESSIONAL AND CONSULTANCY CHARGES AND TRAVELING AND CONVEYANCE EXPENSES, WERE NOT REDUCED FROM THE EXPORT TURNOVER WHILE CALCULATING THE DEDUCTION U/S 10A OF THE ACT. 5. THE REASONING OF THE CIT WAS, AS PER THE PROVIS IONS OF SECTION 10A, READ WITH EXPLANATION 2(IV), TO ARR IVE AT THE EXPORT TURNOVER, ANY EXPENDITURE INCURRED IN FOREIGN CURRENCY IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA HAS TO B E REDUCED FROM THE CONSIDERATION RECEIVED IN FOREIGN EXCHANGE IN RESPECT OF EXPORT TURNOVER BY THE ASSESSEE COMPANY. THIS HAS NOT BEEN DONE WHILE FRAMING THE ASSESSMENT ORDER U/S 143(3), RESULTING IN ALLOWANCE OF EXCESS DEDUCTION U/S 10A TO THE EXTENT OF RS.2,00,92,346/- AND RS.14,14,600/-. 6. ACCORDINGLY, PROCEEDINGS U/S 263 OF THE ACT WERE INITIATED BY NOTICE DATED 23/1/2009. THE ASSESSEE F ILED DETAILED WRITTEN SUBMISSIONS DATED 23/2/2009 AGAINS T THE INITIATION OF REVISIONARY POWER U/S 263 OF THE ACT. THE ASSESSEE'S AUTHORIZED REPRESENTATIVE ALSO APPEARED ON 23.2.2009 AND MADE ORAL SUBMISSIONS. THE ASSESSEE'S ARGUMENTS WERE SUMMARIZED BY THE CIT AS FOLLOWS:- PAGE 5 OF 10 ITA NOS.427 & 428 /BANG/2009 5 I) NO ADJUSTMENT IS WARRANTED FROM THE EXPORT TURNOVER AS REGARDS THE EXPENDITURE IN FOREIGN CURRENCY AS THE ASSESSEE WAS NOT ENGAGED IN RENDERING TECHNICAL SERVICES OUTSIDE INDIA. II) WITHOUT PREJUDICE TO THE ABOVE, EVEN IF AN ADJUSTMENT IS TO BE DONE AS ABOVE, THE SAME SHOULD BE DONE FOR BOTH EXPORT TURNOVER AND TOTAL TURNOVER. ACCORDINGLY, THERE WOULD NOT BE ANY CHANGE IN THE QUANTUM OF DEDUCTION CLAIMED BY ASSESSEE U/S 10A OF THE ACT. III) WITHOUT PREJUDICE TO THE ABOVE, THE ORDER PROPOSED TO BE REVISED IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE, AND THEREFORE THE IMPUGNED PROCEEDINGS ARE NOT WARRANTED ON THE FACTS OF THE CASE. 7. THE LEARNED CIT REJECTED THE VARIOUS CONTENTIONS/ARGUMENTS RAISED BY THE ASSESSEE AND PAS SED AN ORDER U/S 263 BY HOLDING THUS - 'THEREFORE, BASED ON THE ABOVE DISCUSSION ON THE FACTS OF THE CASE AS ALSO VARIOUS DECISIONS OF THE COURT AS APPLICABLE IN THE CASE OF THE ASSESSEE, I HAVE TO CONCLUDE THAT THE SAID ASSESSMENT ORDER OF AY 2004- 05 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE IN SO FAR AS NOT REDUCING EXPENDITURE IN FOREIGN EXCHANGE IN RESPECT PAGE 6 OF 10 ITA NOS.427 & 428 /BANG/2009 6 OF PROFESSIONAL AND CONSULTANCY CHARGES AND TRAVELING AND CONVEYANCE WHILE COMPUTING CORRECT 10A DEDUCTION IN ACCORDANCE WITH LAW. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE 10A DEDUCTIONS IN ACCORDANCE WITH LAW IN VIEW OF THE ABOVE DISCUSSIONS'. 8. THE ASSESSEE, BEING AGGRIEVED BY THE CIT'S REVISIONARY ORDER U/S 263 OF THE ACT, IS IN APPEAL B EFORE US. THE LEARNED AUTHORIZED REPRESENTATIVE REITERATED THE SU BMISSIONS MADE BEFORE THE CIT. PER CONTRA THE DR STATED THE ABOVE SAID EXPENDITURE INCURRED IN FOREIGN CURRENCY IS TO BE EX CLUDED FROM THE EXPORT TURNOVER ALONE. HOWEVER, SHE FAIRLY CONC EDED THAT THE BANGALORE ITAT HAS BEEN CONSISTENTLY HOLDING 'IN CASE EXPORT TURNOVER IN THE NOMINATOR IS TO BE ARRIVED A T AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD BE EXCL UDED IN COMPUTING THE 'TOTAL TURNOVER' IN THE DENOMINATOR'. SHE RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S GE MEDICAL SYSTEMS (INDIA) PVT. LTD. IN ITA NO.304/BANG/2009 DA TED 4/8/2009. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE CASE OF INCOME TAX OFFICER V M/S SAK SOFT LTD. (313 ITR (AT) 353) THE ASSESSEE W AS ENGAGED IN THE BUSINESS OF EXPORTING COMPUTER SOFTWARE AND CLAIMED DEDUCTION U/S 10B OF THE ACT. IN COMPLETING THE AS SESSMENT U/S 143(3) OF THE ACT, THE ASSESSING OFFICER REDUCED TH E EXPENDITURE INCURRED IN FOREIGN EXCHANGE IN PROVIDI NG THE PAGE 7 OF 10 ITA NOS.427 & 428 /BANG/2009 7 TECHNICAL SERVICES OUTSIDE INDIA, FROM THE EXPORT T URNOVER WITHOUT CORRESPONDING REDUCTION FROM TOTAL TURNOVER , THEREBY REDUCING THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 1 0B OF THE ACT. IN LIGHT OF THE ABOVE FACTS, THE SPECIAL BENCH HE LD AS UNDER:- 'FOR THE ABOVE REASONS, WE HOLD THAT FOR THE PURPOSE OF APPLYING THE FORMULA UNDER SUB- SECTION (4) OF SECTION 10B, THE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. THE APPEALS FILED BY THE DEPARTMENT ARE THUS DISMISSED'. EVEN THOUGH THE ORDER OF SPECIAL BENCH IS IN THE CONTEXT OF SECTION 10B OF THE ACT, THE RATIO LAID D OWN IN THE ABOVE DECISION APPLIES TO SECTION 10A OF THE ACT AS WELL AS THE PROVISIONS OF SECTION 10A AND 10B ARE IDENTICAL ON ALL MATERIAL ASPECTS. MORE PARTICULARLY, BOTH THE SECTIONS DEFIN E ONLY EXPORT TURNOVER BUT NOT TOTAL TURNOVER AND SUB-SECTION (4) OF BOTH THE SECTIONS PRESCRIBE AN IDENTICAL FORMULA FOR COMPUTI NG THE EXPORT PROFITS. PAGE 8 OF 10 ITA NOS.427 & 428 /BANG/2009 8 9.1. FURTHER, IN THE CASE OF TATA ELXSI LIMITED IT A NO.315/BANG/2006, THE HON'BLE BANGALORE TRIBUNAL ON THE ISSUE OF EXCLUSION OF FOREIGN CURRENCY EXPENSES FROM ET HA S HELD THAT 'IF THE 'EXPORT TURNOVER' IN THE NUMERATOR IS TO BE ARRIVED AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE 'TOTAL TURNOVER' IN THE DENOMINATOR. THOUGH THERE IS NO DEFINITION OF THE TERM 'TOTAL TURNOVER' IN SE CTION 10A, THERE IS ALSO NOTHING IN THE SAID SECTION TO MANDATE THAT WHAT IS EXCLUDED FROM THE NUMERATOR (EXPORT TURNOVER) WOULD NEVERTHELESS FORM PART OF DENOMINATOR. ONE WOULD H AVE TO APPLY CONSISTENT STANDARDS IN UNDERSTANDING AND APPLYING A TERM, PARTICULARLY, WHEN SUCH TERM, VIZ., EXPORT TURNOVER HAS AN INDEPENDENT FUNCTION AND AT THE SAME TIME A PART OF A LARGER TERM VIZ., TOTAL TURNOVER. THUS, IF SOME EXPENSES, FOR ANY REASON ARE EXCLUDED IN ARRIVING AT THE 'EXPORT TURNOVER' T HE SAME SHOULD BE REDUCED FROM 'TOTAL TURNOVER' ALSO'. 9.2. WE ALSO RELY ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS WHEREIN SIMILAR VIEW HAS BEEN ADOPTE D: M/S I GATE GLOBAL SOLUTIONS LIMITED V ASSISTANT COMMISSIONER OF INCOME TAX (ITA NO.248 AND 249/BANG/2007) ITO V D.E. BLOCK INDIA SOFTWARE (P) LTD. (ITA NOS.983 AND 984/HYD/2006) DCIT V BINARY SEMANTIES LTD. (2007) 109 TTJ 556 (DEL.) PAGE 9 OF 10 ITA NOS.427 & 428 /BANG/2009 9 9.3. IN VIEW OF THE ABOVE, THE CORRESPONDING EFFEC T OF THE REDUCTION OF THE EXPENSES INCURRED IN FOREIGN C URRENCY FROM THE EXPORT TURNOVER BE GIVEN BY REDUCING IT FROM THE TOTAL TURNOVER AS WELL, FOR UNIFORMITY BETWEEN THE TWO COM PONENTS WHILE COMPUTING THE DEDUCTION U/S 10A OF THE ACT. 9.4. THE VIEW THAT EXCLUSIONS SHOULD BE MADE FROM BOTH EXPORT TURNOVER AS WELL AS TOTAL TURNOVER HAS ALSO BEEN UPHELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V LA KSHMI MACHINE WORKS (290 ITR 667). THE SAME PRINCIPLE HA S ALSO BEEN UPHELD IN THE FOLLOWING JUDICIAL PRONOUNCEMENTS: CIT V CHLORIDE INDIA LTD. (2002) (256 ITR 625) (CAL.) CIT V SUDARSHAN CHEMICALS INDUSTRIES LTD. (2000) (245 ITR 769) (BOM.) CIT V KANTILAL CHHOTALAL (2000) (246 ITR 439) (BOM.) CIT V H M EXPORTS LIMITED (276 ITR 299) (CAL.) ALTHOUGH THE ABOVE DECISION OF HON'BLE HIGH COURT'S HAS BEEN RENDERED WITH RELATION TO SECTION 80HHC/80HHE OF TH E ACT, AS THIS SECTION IS IN PARI MATERIA WITH SECTION 10A OF THE ACT, THE RATIO LAID DOWN IN THE ABOVE DECISION APPLIES TO SE CTION 10A OF THE ACT AS WELL. 9.5. IN THE LIGHT OF THE ABOVE SAID REASONING, WE ALLOW THE FIFTH GROUND RAISED IN THIS APPEAL. PAGE 10 OF 10 ITA NOS.427 & 428 /BANG/2009 10 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSE E ARE PARTLY ALLOWED TO THE EXTENT INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 25TH SEPTEMBER, 200 9. SD/- SD/- (K K GUPTA) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED:25/9/2009 COPY TO :- 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT(A) CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR 6. GF 7. GF, ITAT, DELHI BENCH BY ORDER MSP/17/9/ ASSISTANT REGISTRAR, ITAT, BANGALORE.