DCIT (LTU), New Delhi V. M/s EXLService.Com India (P) Ltd, New Delhi

ITA 4459/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82106 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 25-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARVINDER KAUR
• Assessee Lawyers: MANONEET DALAL
• Keywords: Depreciation
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B: NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO. 4459/DEL/2013 ASSESSMENT YEAR 2008-09 DCIT (LTU) VS. EXLSERVICE.COM I NDIA (P) LTD. NBCC PLAZA, PUSUP VIHAR 103-A, ASHOKA ESTATE, NEW DELHI. BARAKHAMBA ROA D, NEW DELHI 110 001. (PAN AAACE5174C) (APPELLANT) (RESPONDEN T) APPELLANT BY : S MT. PARVINDER KAUR, SR. DR RESPONDENT BY : SHRI MANONEET DALAL, CA ORDER PER GEORGE GEORGE K, JUDICIAL MEMBER THIS APPEAL AT THE INSTANCE OF THE ASSESS EE IS DIRECTED AGAINST THE CIT(A) ORDER DATED 15.5.2013. THE RELEVANT ASSESSMENT YEAR IS 2008-09. THE EFFECTIVE GROUNDS RAISED READ AS FOLLOWS :- I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(APPEALS) HAS ERRED IN ALLOWING DEDUCTION U/S 10A/10B IN RESP ECT OF INCOME OF RS. 5,72,740/- FROM SALE OF SCRAP AND INTEREST INCOME O F RS. 24,768/- ON LOANS TO EMPLOYEES. II) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON COMPUTER PERIPHERALS @ 60% AMOUNTIN G TO RS. 9,86,083/- 2. THE FACTS IN RELATION TO THE FIRST GROUND ARE AS FO LLOWS :- ITA NO. 4459/DEL/13 2 THE AO WHEN CONCLUDING THE SCRUTINY ASSES SMENT/S 143(3) OF THE ACT REDUCED THE CLAIM OF DEDUCTION U/S 10A/10B BY EXCLU DING INCOME OF RS. 5,72,740/- FROM THE SALE OF SCRAP AND INTEREST INCO ME OF RS. 24,768/- ON LOANS GIVEN TO THE EMPLOYEES. ON FURTHER APPEAL CIT(A) AL LOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE ORDERS OF THE TRIBUNAL :- I) WIPRO LTD. (2005-TII 17-ITAT-BANG-INTL) II) KIRLOSKAR EBARA PUMPS LTD. VS. DCIT, (2011) 47 SOT (PUNE) III) SHIPPING CORPORATION OF INDIA LTD. VS. ACIT, 2012 ( 20) ITR (TRIB) 332 (NULL) 3. THE RELEVANT FINDING OF THE CIT(A) READS A S FOLLOWS :- (AT PAGE 14) THIRDLY, REGARDING THE BALANCE AMOUNT OF RS. 5,97,508/- WHICH WAS DENIED DEDUCTION U/S 10A COMPR ISES OF INCOME FROM SALE OF SCRAP (5,72,740) AND INTEREST I NCOME ON LOANS GRANTED TO EMPLOYEES (RS. 24,768/-), KEEPING IN VIE W THE DECISION OF ITAT BANGALORE IN THE CASE OF WIPRO LTD. (SUPRA) THE PROFIT ON SALE OF SCRAP IS HELD AS ELIGIBLE FOR DEDUCTION U/S 10A/10B BEING INCURRED IN THE COURSE OF THE ELIGIBLE BUSINESS. RE GARDING THE INTEREST ON LOANS GIVEN TO EMPLOYEES, IN VIEW OF TH E DECISION OF PUNE BENCH IN THE CASE OF KIRLOSKAR EBARA PUMPS LTD . VS. DCIT (SUPRA) AND SHIPPING CORPORATION OF INDIA LD. VS. A DDL.CIT (SUPRA), SUCH INCOME BEING INTEGRALLY LINKED TO THIS ELIGIBL E UNIT IS CONSIDERED AS ELIGIBLE FOR DEDUCTION U/S 10A/10B. 4. THE REVENUE BEING AGGRIEVED IS IN APPEAL B EFORE US. THE LD. DR RELIED ON THE ORDER OF THE AO. THE LD. AUTHORIZED REPRESENTAT IVE OF THE ASSESEE SUBMITTED INCOME FROM THE SALE OF SCRAP IS RECEIVED IN THE C OURSE OF ITS BUSINESS OPERATION AND THE SAME IS ELIGIBLE FOR DEDUCTION U/S 10A/10B OF THE ACT. THE LD. COUNSEL SUBMITTED A SIMILAR ISSUE WAS CONSIDERED IN THE BAN GALORE BENCH OF THE TRIBUNAL ITA NO. 4459/DEL/13 3 IN THE CASE OF WIPRO LIMITED VS. DCIT (2006) 5 SOT 805(BANG.) AND AMRITSAR BENCH IN THE CASE OF CHAND ENGINEERING, AMRITSAR VS CIT (ITA NO. 168 (ASR)/2010 ORDER DATED 10.6.2011). IT WAS FURTHER S UBMITTED THAT THE DRP IN ASSESSEES OWN CASE FOR ASSTT. YEAR 2009-10 AND ASS TT. YEAR 2010-11 HAD DIRECTED THE AO TO INCLUDE THE INCOME RECEIVED FROM SALE OF SCRAP FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 10A/10B OF THE ACT. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF WIPR O LTD. (SUPRA) CONSIDERED AN IDENTICAL ISSUE AND HELD INCOME RECEIVED FROM TH E SALE OF SCRAP IS ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. THE RELEVANT FINDING OF THE BANGALORE BENCH OF THE TRIBUNAL READS AS FOLLOWS :- 4.5 WE HAVE GONE THROUGH THE RECORDS AND THE SU BMISSIONS MADE BY BOTH SIDES. WE FIND THAT THE ISSUE INVOLVED IN THIS YEAR IS IDENTICAL AND SIMILAR TO THE ISSUE DECIDED BY THE TRIBUNAL IN ITS ORDER MENTIONED SUPRA FOR THE EARLIER YEAR WHICH IS FOUND IN PARAS 22.1 A ND 22.2 WHICH ARE EXTRACTED HEREUNDER : 22.1 THE NEXT GROUND OF APPEAL RELATES TO WIPRO L TD. FOR ASSESSMENT YEAR 1997-98. THE ISSUE RELATES TO DEDUC TION OF CLAIM IN RESPECT OF INCOME DERIVED FROM AN EXPORT-ORIENTE D UNIT UNDER SECTION 10A OF THE ACT. THE ASSESSING OFFICER HELD THAT THE INCOME FROM SALE OF OLD NEWSPAPER, DIESEL DRUM, WOODEN RAC KS, ETC. AGGREGATING TO RS. 21,144 IS NOT IN THE NATURE OF I NCOME DERIVED FROM THE ELIGIBLE UNIT. THE CIT(A) HELD THAT THE AS SESEE DOES NOT REQUIRE THE ABOVE ITEMS TO MANUFACTURE OR PRODUCE T HE ELECTRONICS OR SOFTWARE ITEMS, THE INCOME ON ACCOUNT OF WHICH I S CLAIMED TO BE EXEMPT UNDER SECTION 10A. THE ASSESSEE HAS NOT EXPL AINED HOW THE NEWSPAPER, DIESEL DRUM, WOODEN RACKS, ETC. ARE CONNECTED WITH THE INDUSTRIAL ACTIVITY. 22.2 WE HAVE CONSIDERED THE FACTS OF THE CASE. IT IS NOT IN DISPUTE THAT THE VERY NATURE OF EXPENSES IN THE FORM OF NEW SPAPER, DIESEL ITA NO. 4459/DEL/13 4 DRUM AND CERTAIN PACKING MATERIALS HAVE FORMED PART OF THE EXPENSES INCURRED IN THE COURSE OF CARRYING ON EXPO RT-ORIENTED UNITS. THE EXPENSES OF SUCH NATURE HAVE REDUCED THE ELIGIBLE PROFIT OF THE EXPORT-ORIENTED UNIT. WHEN THE SAME ITEMS OF EXPENSES ARE REDUCED WHILE CALCULATING THE ELIGIBLE PROFIT, THE INCOME WHICH ACTUALLY REDUCES SUCH TYPE OF EXPENSES SHOULD NOT B E TREATED AS OTHER INCOME NOT FORMING PART OF PROFIT OF ELIGIBLE BUSINESS. WHILE CALCULATING THE PROFIT OF THE ELIGIBLE BUSINESS, TH E EXPENSES AND THE INCOME OF THE SAME UNIT ARE REQUIRED TO BE NETTED O UT. THE EXPENSES AND THE INCOME ARE RELATABLE TO THE SAME N ATURE. WE DIRECT THAT THE COMPUTATION SHOULD BE MADE AFTER NE TTING OUT THE EXPENDITURE BY REDUCING THE INCOME OF THE NATURE IN DISPUTE. IN OTHER WORDS, THOUGH IT CANNOT BE HELD THAT THE INCO ME OF THE NATURE IN DISPUTE IS INCOME ARISING OUT OF THE ACTI VITY OF AN EXPORT- ORIENTED UNIT, HOWEVER, THE EXPENSES ARE TO BE CALC ULATED ON NET OF INCOME BASIS. IN THE RESULT, THE INCOME OF THE ELIG IBLE BUSINESS OF A UNIT AS PRESCRIBED UNDER SECTION 10A WILL GO UP BY AN AMOUNT OF RS. 21,142. THE GROUND IS, THEREFORE, ACCORDINGLY ALLOW ED. THEREFORE, FOLLOWING THE SAID DECISION, WE REVERSE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND DIRECT THE ASSE SSING OFFICER TO FOLLOW OUR DECISION IN RELATION TO SALE OF SCRAP IN THE IN COME OF SECTION 10A UNITS AS HELD IN APPEAL FOR ASSESSMENT YEAR 1997-98. THE APPELLANT SUCCEEDS ON THIS ISSUE. 6. SIMILAR VIEW WAS HELD BY THE AMRITSAR BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. M/S. CHAND ENGINEERING IN ITA NO. 168/ 2010. MOREOVER DISPUTE RESOLUTION PENAL FOR ASSTT. YEAR 2009-10 AND 2010-1 1 HAVE ACCEPTED THE CASE OF THE ASSESEE AND DIRECTED THE AO TO INCLUDE INCOME FROM SALE OF SCRAP FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 10A/10B. 7. AS REGARDS INTEREST INCOME RECEIVED ON LOAN ADVANCES TO THE EMPLOYEES THE ISSUE IS COVERED BY THE JUDGMENT OF HONBLE KAR NATAKA HIGH COURT IN THE CASE OF CIT VS. MOTOROLA INDIA ELECTRONICS (P) LTD. IN ITA NO. 428, 447 OF 2007 (JUDGMENT DATED 11.12.2013). THE HONBLE HIGH COURT WAS CONSIDERING THE ISSUE ITA NO. 4459/DEL/13 5 WHETHER INTEREST INCOME CONSTITUTE PROFITS OF THE B USINESS OF THE UNDERTAKING AND WHETHER THE SAME IS ELIGIBLE FOR DEDUCTION U/S 10A AND 10B OF THE ACT. THE HONBLE KARNATAKA HIGH COURT WAS CONSIDERING THE IN TEREST EARNED FROM THE FOLLOWING SOURCES:- I) DEPOSITS LYING IN EEFC ACCOUNT AND II) ADVANCING OF INTER CORPORATE LOANS OUT O F THE FUNDS OF THE UNDERTAKING 8) THE HONBLE HIGH COURT HELD THAT THE INTEREST I NCOME WAS ELIGIBLE FOR DEDUCTION U/S 10A. THE REASONING OF THE HONBLE HIG H COURT FOR HOLDING SO ARE FOLLOW BY FINANCE ACT, 2001, WITH EFFECT FORM 1.4.2001, TH E PRESENT SUBSECTION (4) IS SUBSTITUTED IN THE PLACE OF OLD SUBSECTION ( 4). NO DOUBT SUBSECTION 10(B) SPEAKS ABOUT DEDUCTION OF SUCH PROFITS AND GA INS AS DERIVED FROM 100% EOU FROM THE EXPORT OF ARTICLES OR THINGS OR CO MPUTER SOFTWARE. THEREFORE, IT EXCLUDES PROFIT AND GAINS FROM EXPORT OF ARTICLES. BUT SUBSECTION (4) EXPLAINS WHAT IS THE PROFIT DERIVED FROM EXPORT OF ARTICLES AS MENTIONED IN SUBSECTION (1). THE SUBSTITUTED SUB SECTION (4) SAYS THAT PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE SHALL BE THE ACCOUNT WHICH BARES TO THE PROFITS OF THE BU SINESS OF THE UNDERTAKING AND NOT THE PROFITS AND GAINS FROM EXPO RT OF ARTICLES. THEREFORE, PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES IS DIFFERENT FROM THE INCOME DERIVED FROM THE PROFITS OF THE BUS INESS OF THE UNDERTAKING. THE PROFITS OF THE BUSINESS OF THE UND ERTAKING INCLUDES THE PROFITS AND GAINS FROM EXPORT OF THE ARTICLES AS WE LL AS ALL OTHER INCIDENTAL INCOMES DERIVED FROM THE BUSINESS OF THE UNDERTAKIN G. IT IS INTERESTING TO NOTE THAT SIMILAR PROVISIONS ARE NOT THERE WHILE DE ALING WITH COMPUTATION OF INCOME UNDER SECTION 80HHC. ON THE CONTRARY, THE RE IS SPECIFIC PROVISIONS LIKE SECTION 80HHB WHICH EXPRESSLY EXCLU DES THIS TYPE OF INCOMES. THEREFORE, IN VIEW OF THE AFORESAID PROVIS IONS, IT IS CLEAR THAT, WHAT IS EXEMPTED IS NOT MERELY THE PROFITS AND GAIN S FROM THE EXPORT OF ARTICLES BUT ALSO THE INCOME FROM THE BUSINESS OF T HE UNDERTAKING. ITA NO. 4459/DEL/13 6 9. SIMILARLY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF AMERICA EXPRESS INDIA PVT. LTD. VS. JCIT (2014) 44 TAXMANN.COM 389 (DELHI-TRIB) HELD AS FOLLOWS :- 40. SO FAR AS HOUSING LOAN TO THE EMPLOYEES IS C ONCERNED, WE AGREE WITH THE FINDING OF THE LEARNED CIT(A) THAT IT WAS FOR THE PURPOSE OF BUSINESS. THE LOAN WAS GIVEN TO THE EMPLOYEES DURIN G THE COURSE OF CARRYING ON OF THE ASSESSEES BUSINESS. HE HAS ALSO RECORDED A FINDING THAT THERE IS A DIRECT NEXUS BETWEEN INTEREST PAID AND I NTEREST RECEIVED BY THE APPELLANT. SUCH FINDING RECORDED BY THE CIT(A) WITH REGARD TO HOUSING LOAN TO THE EMPLOYEES HAS NOT BEEN CONTROVERTED BEF ORE US. THEREFORE, WE UPHOLD THE SAME. 10. IN THE LIGHT OF THE AFORESAID JUDICIAL PRO NOUNCEMENTS, WE HOLD INTEREST INCOME ON ACCOUNT OF LOANS ADVANCES TO THE EMPLOYEE S IS ELIGIBLE FOR DEDUCTION U/S 10A/10B OF THE ACT. FOR THE ABOVE SAID REASONS WE ALLOW GROUND NO. 1 RAISED BY THE ASESSEE. 11. IN SO FAR AS THE SECOND GROUND IS CONCERNED THE FACTS IN BRIEF ARE AS FOLLOWS :- THE ASSESSEE HAD CLAIMED 60% DEPRECIATION ON COMPUTE R PERIPHERIALS SUCH AS PRINTER, SCANNER, NT SERVER, ETC. FOR THE REASON IT FORM INTEGRAL PART OF THE COMPUTER AND THESE EQUIPMENTS CANNOT FUNCTION ON IT S OWN. THE AO CONCLUDED THE SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT, TREA TING THE COMPUTER PERIPHERALS AS PART OF PLANT AND MACHINERY AND DEPRECIATION ON THE SAID COMPUTER PERIPHERIAL WAS ALLOWED ONLY @ 15%. THEREFORE THE AO DISALLOWED EXCESS DEPRECIATION AMOUNTING TO RS. 9,86,083/-. ITA NO. 4459/DEL/13 7 12. ON FURTHER APPEAL THE CIT(A) ALLOWED THE APP EAL OF THE ASSESSEE. THE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOWS :- 5.4. REGARDING GROUND NO. 3 OF THE APPEAL, KEEP ING IN VIEW SEVERAL DECISIONS OF HONBLE DELHI HIGH COURT AND OTHER JUD ICIAL PRONOUNCEMENTS CITED BY THE APPELLANT, IT IS HELD THAT THE APPELLA NT IS ENTITLED FOR DEPRECIATION ON COMPUTER PERIPHERALS @ 60%. ACCORDI NGLY, THIS GROUND IS ALSO DECIDED IN FAVOUR OF APPELLANT. 13. REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO, WHEREAS THE LD. AR SUBMITTED T HAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE JUDGMENT OF HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT VS. BSES RAJDHANI POWER LTD. IN ITA NO. 1266/10 (JUDGMENT DATED 31.8.2010). 14. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BS ES RAJDHANI POWER LTD. (SUPRA) HAD HELD THAT THE COMPUTER ACCESSORIES SUCH AS PRIN TERS SCANNERS AND SERVER ETC. FORM AN INTEGRAL PART OF COMPUTER AND WAS ENTITLED TO DEPRECIATION @ 60%. THE RELEVANT FINDING OF THE HONJBLE JURISDICTIONAL HIG H COURT READS AS FOLLOWS 4. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBU NAL THAT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS PRINTERS, SCANN ERS AND SERVER ETC. FORM AN INTEGRAL PART OF THE COMPUTER SYSTEM. IN FA CT, THE COMPUTER ACCESSORIES AND PERIPHERALS CANNOT BE USED WITHOUT THE COMPUTER. CONSEQUENTLY, AS THEY ARE THE PART OF THE COMPUTER SYSTEM, THEY ARE ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60%. 15. IN VIEW OF THE JUDGMENT OF THE HONBLE HIGH COURT WE HOLD COMPUTER PERIPHERAL IS ENTITLED TO DEPRECIATION @ 60% INSTEA D OF 15% ALLOWED BY THE AO. THEREFORE THE ORDER OF THE CIT(A) IS SUSTAINED. ITA NO. 4459/DEL/13 8 16. IN THE RESULT THE REVENUES APPEAL IS DISMI SSED. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 14 TH NOVEMBER, 2014. SD/- SD/- (J.S. REDDY) ( GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 14 TH NOVEMBER, 2014 *VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR, ITAT