DCIT, New Delhi V. M/s EDS Electronics Data Systems India (P) Ltd., Bengalore

ITA 4505/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3680 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-06-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 11-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure
• Section: 271(1)(c); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 4505(DEL)/2010 ASSESSMENT YEAR: 2003-04 DEPUTY COMMISSIONER OF E DS ELECTRONICS DATA SYSTEMS INCOME-TAX, CIRCLE 11(1), VS. I NDIA (P) LTD., (NOW MERGED WITH NEW DELHI. MPHASIS LTD.) ABACUS SQUARE, 6 TH FLOOR, A-BLOCK, BAGAMANE TECHNOLOGY PARK, BYRASANDRA, C.V.RAMAN NAGAR, BANGALORE. PAN-AAACB6820C (APPELLANT) (RESPONDENT) APPELLANT BY : MS. Y. KAKKAR, DR RESPONDENT BY : S /SHRI SANJIV CHAUDHARY & YOGESH MITTAL ORDER PER K.G. BANSAL : AM THE ONLY SUBSTANTIVE GROUND TAKEN BY THE REVENUE IN THIS CASE IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(APPEALS) ERRED IN DELETING THE PENALTY OF RS. 4,37,107/- U /S 271(1)(C) OF THE INCOME- TAX ACT, 1961, ON ACCOUNT OF DEDUCTION CLAIMED UND ER SECTION 80HHE ON EXPORT OF SOFTWARE. ITA NO. 4505(DEL)/2010 2 2. THE FACTS ARE THAT THE ASSESSEE-COMPANY FIL ED ITS RETURN ON 28.11.2003 DECLARING TOTAL INCOME OF RS. 5,41,49,3 90/-. THE RETURN WAS INITIALLY PROCESSED U/S 143(1) OF THE ACT AND LATE R ON IT WAS PICKED UP FOR SCRUTINY BY ISSUING STATUTORY NOTICE U/S 143(2) ON 7.10.2004. IN THE COURSE OF ASSESSMENT, IT WAS FOUND THAT THE ASSESSEE CL AIMED DEDUCTION U/S 80HHE AT RS. 56,46,155/- ON THE EXPORT OF SOFTWAR E. WHILE MAKING THE COMPUTATION FOR AFORESAID DEDUCTION, AN AMOUNT OF RS. 36,73,426/-, BEING THE INTEREST INCOME, WAS INCLUDED IN THE PROFITS O F BUSINESS. THE AO REDUCED 90% THEREOF FROM THE PROFITS. THUS, THE DEDUCTION U/S 80HHE WAS COMPUTED AT RS. 44,55,746/-; AND THE INTERE ST INCOME OF RS. 36,73,426/- WAS ASSESSED UNDER THE RESIDUARY HEAD . PENALTY PROCEEDINGS WERE ALSO INITIATED U/S 271(1)(C) OF THE ACT. TH ESE PROCEEDINGS WERE DISPOSED OFF ON 28.5.2009 BY LEVYING MINIMUM PENA LTY OF RS. 4,37,107/-. IN THIS ORDER, IT WAS HELD THAT THE CLAIM OF DEDU CTION U/S 80HHE IN RESPECT OF INTEREST INCOME CONSTITUTES FURNISHING INACC URATE PARTICULARS OF INCOME. THE TRIBUNAL HAS DISMISSED THE APPEAL OF THE ASSESSEE ON THIS GROUND IN THE QUANTUM APPEAL. ITA NO. 4505(DEL)/2010 3 3. AGGRIEVED BY THIS ORDER, THE ASSESSEE MOVED AN APPEAL BEFORE THE LD. CIT(APPEALS). A NUMBER OF CASES WERE CONSIDERE D BY HIM INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F CIT VS. RELIANCE PETRO PRODUCTS P. LTD., (2010) 322 ITR 158. IT WAS MENTIONED THAT THE ASSESSEE HAS OBTAINED STATUTORY REPORT IN FORM NO . 10CCAF FROM THE CHARTERED ACCOUNTANT, IN WHICH DEDUCTION WAS COMPU TED BY CONSIDERING THE INTEREST INCOME AS PROFITS OF THE BUSINESS. IT WAS FURTHER MENTIONED THAT ALL FACTS HAVE BEEN DISCLOSED BY THE ASSESS EE AND, THEREFORE, IN VIEW OF THE AFORESAID DECISION, THE PENALTY WAS NOT LE VIABLE. AGGRIEVED BY THIS ORDER, THE REVENUE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LD. DR SUBMITS THAT ONLY ISSUE IN THIS CASE IS WHETHER THE ASSESSEE RIGHTLY CLAIMED DEDUCTION U/S 80H HE ON INTEREST INCOME. THE ISSUE IN THIS MATTER IS WELL SETTLED AS ONLY THAT INCOME WHICH IS SAID TO HAVE BEEN DERIVED FROM EXPORT BUSINESS QUALIFIES F OR THE PURPOSE OF DEDUCTION. THERE IS NO SCOPE OF DEBATE OR D ISCUSSION IN THIS MATTER. YET, THE ASSESSEE CLAIMED DEDUCTION ON THE INT EREST INCOME, WHICH AMOUNTS TO FURNISHING INACCURATE PARTICULARS OF INCOME U/S 271(1)(C) READ WITH EXPLANATION-1 THEREUNDER. ITA NO. 4505(DEL)/2010 4 4.1 IN REPLY, THE LD. COUNSEL SUBMITTED THAT THE ISSUE REGARDING INTEREST INCOME NOT CONSTITUTING THE INCOME DERIVED FRO M EXPORT BUSINESS IS NOT MATERIAL FOR LEVY OF PENALTY. THE MATERIAL QUEST ION IS-WHETHER, THE ASSESSEE FURNISHED ANY INACCURATE PARTICULAR OF INCOME? HE REFERRED TO PAGE NOS. 106 AND 107 OF THE PAPER BOOK WHICH IS A REPORT FROM THE AUDITOR, SHRI SANJIV K. CHAUDHARY, PARTNER OF BHA RAT S.RAUT & COMPANY. IN THIS REPORT THE AGGREGATE OF EXPORT TURNOVER OF SOFTWARE AND FEES FOR TECHNICAL SERVICES WAS QUANTIFIED AT ABOUT RS. 3 8.94 CRORE. NO DEDUCTION WAS MADE IN RESPECT OF INCOME FROM INTEREST. ON THE BASIS OF THE REPORT, IT IS ARGUED THAT EVEN THE CHARTERED ACCOUNTANT, WHO HAS BEEN ENTRUSTED WITH THE STATUTORY WORK, WAS OF THE VIEW THAT THE INTEREST INCOME IS ELIGIBLE FOR DEDUCTION U/S 80HHE. IT IS FURTHE R SUBMITTED THAT THE ASSESSMENT ORDER NOWHERE FURNISHES A FINDING THA T THE INCOME HAS BEEN CONCEALED OR INACCURATE PARTICULARS THEREOF HAVE BEEN FURNISHED. EVEN THE PENALTY ORDER MERELY MENTIONS THAT THE DEDUCTIO N IS ADMISSIBLE AT RS. 44,55,746/- AGAINST THE CLAIM OF RS. 56,46,155/-. IT IS ALSO SUBMITTED THAT AFTER THE DECISION OF HONBLE DELHI HIGH COURT I N THE CASE OF CIT VS. SHRI RAM HONDA POWER EQUIPMENT, (2007) 289 ITR 475, RENDERED ON 12.1.2007 MUCH AFTER THE FILING OF THE RETURN ON 28.11.2003, THE POSITION OF LAW WAS SETTLED IN FAVOUR OF THE REVENUE. ON TH E OTHER HAND, THE DECISION ITA NO. 4505(DEL)/2010 5 IN THE CASE OF RELIANCE PETRO PRODUCTS P. LTD. IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE IN AS MUCH AS ALL MATE RIAL FACTS HAVE BEEN DISCLOSED. 4.2 IN THE REJOINDER, THE LD. DR REFERRED TO THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF KUTTOOKARAN MACHINE TOOLS VS. ACIT & ANOTHER, (2009) 313 ITR 413. IT IS HER C ASE THAT THE ASSESSEE HAS COMMITTED A MISDEMEANOR BY CLAIMING DEDUCTION O N THE INTEREST INCOME AS PER THE RATIO OF THIS DECISION. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS OF THE CASE ARE THAT THE ASSESSEE EARNED INTEREST INCOME OF RS. 36,73,426/- IN THIS YEAR. THIS AMOUN T WAS CONSIDERED AS PROFITS OF BUSINESS FOR THE PURPOSE OF COMPUTATI ON OF DEDUCTION U/S 80HHE. HOWEVER, THE AO EXCLUDED 90% OF THE AMOUN T FOR COMPUTING THE PROFITS OF THE BUSINESS. THIS POSITION HAS BEEN CONFIRMED BY THE ITAT IN QUANTUM APPEAL. THE QUESTION IS-WHETHER, THE ASSE SSEE FURNISHED INACCURATE PARTICULARS OF INCOME? ITA NO. 4505(DEL)/2010 6 5.1 BEFORE PROCEEDING WITH DETERMINATION OF THE ISSUE, IT MAY BE MENTIONED THAT THE TERM PROFITS OF BUSINESS HA S BEEN DEFINED IN CLAUSE (D) OF THE EXPLANATION TO SECTION 80HHE AS THE PROFITS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFE SSION, AND REDUCED BY (I) 90% OF ANY RECEIPT BY WAY OF BROKERAGE, COMMI SSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF SIMILAR NATURE I NCLUDED IN SUCH PROFITS; AND (II) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE O R ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA. THERE H AS BEEN A CONTROVERSY ON THE ISSUE AS TO WHETHER INTEREST RECEIVED ON SURPLU S BUSINESS FUNDS WOULD AMOUNT TO PROFITS AND GAINS OF BUSINESS OR 90% THE REOF IS TO BE DEDUCTED FROM SUCH PROFITS AS PROVIDED IN THE AFORESAID CLAUSE (D). THE CONTROVERSY TRAVELED UP TO HONBLE DELHI HIGH COURT IN RESPECT OF DEDUCTION U/S 80HHC, WHICH CONTAINS ANALOGOUS P ROVISION. IN THE JUDGMENT RENDERED ON 12.01.2007 IN THE CASE OF S HRI RAM HONDA POWER EQUIPMENT (SUPRA), THE MATER HAS BEEN DECIDED IN FAVOUR OF THE REVENUE. THAT IS WHY IN THE QUANTUM APPEAL, THE MATTER WA S DECIDED AGAINST THE ASSESSEE. HOWEVER, THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 28.11.2003, MUCH PRIOR TO THE RENDERING OF THIS J UDGMENT. THEREFORE, THE BENEFIT OF THIS JUDGMENT WAS NOT AVAILABLE TO THE ASSESSEE AT THE TIME OF FILING THE RETURN. OBVIOUSLY, THE BENEFIT OF THIS JUDGMENT WAS ALSO NOT ITA NO. 4505(DEL)/2010 7 AVAILABLE TO THE AUDITOR, WHO FURNISHED THE COMPU TATION IN FORM NO. 10CCAF DATED 26.11.2003. THUS, IT CAN BE SAID THAT EVEN THE AUDITOR WAS OF THE VIEW THAT THE INTEREST INCOME CONSTI TUTED BUSINESS INCOME. ON THE OTHER HAND, THE CONTROVERSY REGARDING THE IN TERPRETATION OF THE TERM DERIVED FROM AROSE UNDER DIFFERENT PROVISIONS OF THE ACT. THE DECISION IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. CIT, (1978) 113 ITR 84 (SC) AROSE IN THE CONTEXT OF SECTION 80E, WHICH EMPLOYS THE WORDS ATTRIBUTABLE TO. HOWEVER, SECTION 80HHE DOES NOT EMPLOY ANY OF THE AFORESAID TERM AND IT ONLY SPEAKS OF T HE ASSESSEE ENGAGED IN THE BUSINESS OF EXPORT OUT OF INDIA OF COMPUTER SOFT WARE ETC. THE MECHANISM FOR GRANT OF THE DEDUCTION STARTS WITH THE COMPUTA TION OF PROFITS OF THE BUSINESS, ABOUT WHICH WE HAVE ALREADY MADE A DIS CUSSION. THUS, THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. ( SUPRA) AND SUBSEQUENT DECISION IN THIS MATTER ARE NOT APPLICABLE TO TH E FACTS OF THE CASE. IT ALSO CAN BE SAID THAT SINCE THE MATTER TRAVELED UP TO DELHI HIGH COURT IN THE CASE OF SHRI RAM HONDA POWER EQUIPMENT, THE ISSU E WAS CONTROVERSIAL IN NATURE. THEREFORE, IT IS HELD THAT A DEBATE W AS POSSIBLE ON THE ISSUE WHEN THE RETURN OF INCOME WAS FILED AND EVEN WHEN THE ASSESSMENT WAS FRAMED ON 27.03.2006. ITA NO. 4505(DEL)/2010 8 5.2 THE DECISION IN THE CASE OF CIT VS. ZOOM COM MUNICATION PVT. LTD., (2010) 327 ITR 510 WAS IN RESPECT OF A CLAIM WHICH IS PATENTLY NOT ALLOWABLE EITHER ON THE BASIS OF STATUTORY L ANGUAGE OR THE DECISION IN THE MATTER. SUCH IS NOT THE CASE HERE AS WE HAVE A LREADY HELD THAT A DEBATE IS POSSIBLE ON THE ISSUE. THE FACTS OF THE CASE OF KUTTOOKARAN MACHINE TOOLS (SUPRA) ARE ALSO DISTINGUISHABLE AS IN TH AT CASE THE ASSESSEE HAD CLAIMED DEDUCTION OF DEPRECIATION AND INVESTMENT ALLOWANCE ON MACHINERY & PLANT WHICH WAS NOT PURCHASED BY T HE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. THEREFORE, THERE WAS FALSITY IN FACTS ON WHICH THE CLAIM WAS REJECTED. ON THE OTHER HAND, THE H ONBLE SUPREME COURT HAS HELD IN THE CASE OF RELIANCE PETRO PRODUCTS PVT. LTD.(SUPRA) THAT WHERE ALL FACTS REGARDING THE CLAIM HAVE BEEN FU RNISHED AND THERE IS NO AVERMENT OF FALSITY IN THE FACTS, PENALTY CANNOT BE LEVIED MERELY BECAUSE A CLAIM HAS BEEN MADE EVEN IF THE CLAIM IS FOUND T O BE WRONG BY THE ASSESSING AUTHORITY. THERE IS NO AVERMENT IN THI S CASE THAT ANY FALSE FACT OR WRONG FACT HAS BEEN FURNISHED BY THE ASSESSEE. THE ISSUE IS ONLY AS TO WHETHER DEDUCTION U/S 80HHE IS ADMISSIBLE ON IN TEREST INCOME OR TO PUT IT DIFFERENTLY AS TO WHETHER INTEREST INCOME FORMS A PART OF PROFITS OF BUSINESS. THE FACTS OF THE CASE OF MICROSOFT C ORPORATION (INDIA) P. LTD. VS. DY. CIT, 2010-TIOL-218-ITAT-DEL DATED 16.4.2 010 ARE ALSO ITA NO. 4505(DEL)/2010 9 DISTINGUISHABLE AS IN THAT CASE PATENTLY INADM ISSIBLE EXPENDITURE OF INTEREST ON MONEY BORROWED FOR PAYMENT OF INCOME-TA X WAS CLAIMED, WHICH WAS NOT THE BUSINESS EXPENDITURE. THEREFORE, WE ARE OF THE VIEW THAT THE FACTS OF THIS CASE DO NOT WARRANT LEVY OF PEN ALTY. 6. IN THE RESULT, THE APPEAL IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 2 4TH JUNE, 2011. SD/- SD/- (RAJPAL YADAV) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 24 .06.2011. SP SATIA COPY OF THE ORDER FORWARDED TO:- EDS ELECTRONIC DATA SYSTEMS INDIA (P) LTD., BANGA LORE. DCIT, CIRCLE 11(1), NEW DELHI. CIT CIT(APPEALS) THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.