DCIT, Bangalore V. M/s CGI Information Systems and Management Consultants Pvt. Ltd., Bangalore

ITA 451/BANG/2011

• Counselvise Citation: 45121114 RSA 2011
• Duration Of Justice: 1 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 21-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARAHAT HUSSAIN QURESHI CITII
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.451/BANG/2011 ASSESSMENT YEAR : 2002-03 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(2), BANGALORE. VS. M/S. CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTANTS PVT. LTD.., 38/1, NAGNATHPURA, ELECTRONIC CITY POST, BANGALORE 560 100. PAN: AAACI 1994C APPELLANT RESPONDENT APPELLANT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II (DR) RESPONDENT BY : MS. SHEETAL BORKAR, ADVOCATE DATE OF HEARING : 09.08.2012 DATE OF PRONOUNCEMENT : 31.08.2012 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL PREFERRED BY THE REVENUE AGAINST THE ORDER DATED 17.01.2011 OF THE CIT(APPEALS)-IV, BANGALORE RELATI NG TO ASSESSMENT YEAR 2002-03. ITA NO.451/BANG/11 PAGE 2 OF 6 2. GROUND NOS.1, 5 & 6 ARE GENERAL IN NATURE AND DO NOT REQUIRE ADJUDICATION. THE OTHER GROUNDS OF APPEAL RAISED B Y THE REVENUE READ AS FOLLOWS:- 2. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN D IRECTING THE AO TO RECOMPUTED THE DEDUCTION ALLOWABLE U/S. 1 0A OF I.T. ACT, 1961 AFTER REDUCING THE EXPENDITURE INCURRED I N FOREIGN CURRENCY AMOUNTING TO RS.3,10,69,864.00 BOTH FROM T HE EXPORT TURNOVER AND THE TOTAL TURNOVER, WITHOUT APPRECIATI NG THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THAT THERE IS NO PROVISION IN SECTION 10A, WHICH REQUIRES THE EXPENDITURE INCURRED IN FOREIGN CURRENCY REDUCED FROM THE EXPOR T TURNOVER AS PER CLAUSE (IV) OF EXPLANATION 2 TO SECTION 10A, TO BE REDUCED FROM THE TOTAL TURNOVER ALSO. 4. THE LEARNED CIT(APPEALS) HAS ERRED IN APPORTIONI NG THE ABOVE EXPENSES BETWEEN MUMBAI SEEPZ AND BANGALORE S TPI UNIT ON THE BASIS OF DETAILS FILED BY THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS WITHOUT GIVING ANY OPPORTU NITY TO THE ASSESSING OFFICER TO BE HEARD. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPOR T OF COMPUTER SOFTWARE AND SOFTWARE DEVELOPMENT SERVICES. THE AS SESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S. 10A OF THE ACT IN RESPECT O F PROFITS FROM THE BUSINESS OF EXPORT OF COMPUTER SOFTWARE. THE ASSESSEE HAD T WO UNITS, ONE AT MUMBAI AND THE OTHER AT BANGALORE. THE ASSESSEE CL AIMED DEDUCTION U/S. 10A OF THE ACT IN RESPECT OF PROFITS OF BOTH THE UN ITS. THE CLAIM FOR DEDUCTION U/S. 10A OF THE ACT IN RESPECT OF THE PRO FITS OF THE BANGALORE UNIT WAS DISALLOWED BY THE ASSESSING OFFICER FOR THE REA SON THAT THE SAID UNIT WAS ESTABLISHED AFTER RECONSTITUTING THE EXISTING B USINESS. THE DEDUCTION U/S. 10A OF THE ACT IN RESPECT OF THE MUMBAI UNIT W AS ALLOWED BY THE AO OF ITA NO.451/BANG/11 PAGE 3 OF 6 A SUM OF RS.1,38,81,093. THE ORDER OF THE ASSESSIN G OFFICER U/S. 143(3) OF THE ACT WAS PASSED ON 11.03.2005. 4. THE AO THEREAFTER INITIATED PROCEEDINGS U/S. 154 OF THE ACT AS HE FOUND THAT WHILE ALLOWING DEDUCTION U/S. 10A OF THE ACT ON THE PROFITS OF THE MUMBAI UNIT, HE HAD NOT DEDUCTED EXPENDITURE INCURR ED IN FOREIGN CURRENCY OF A SUM OF RS.3,10,69,864 FROM THE EXPORT TURNOVER OF THE MUMBAI UNIT. THE DEDUCTION U/S. 10A OF THE ACT IS ALLOWED BY APP LYING THE FORMULA VIZ., EXPORT TURNOVER X PROFITS FROM THE BUSINESS TOTAL TURNOVER EXPLANATION 2(IV) BELOW SECTION 10A OF THE ACT PROV IDES THAT EXPORT TURNOVER FOR THE ABOVE PURPOSE MEANS SALE CONSIDERATION RECE IVED IN FOREIGN EXCHANGE IN RESPECT OF EXPORT, BUT DOES NOT INCLUDE FREIGHT, INSURANCE, TELECOMMUNICATION CHARGES ATTRIBUTABLE TO THE EXPOR T OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THE AO NOTICED THAT WHILE COMPLETING THE ASSESSMENT U/S. 143(3) OF THE ACT, HE HAD NOT EXCLUDED EXPENDITURE OF Q 3,10,69,864 IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER AS REQUIRED BY THE PROVISI ONS OF SECTION 10A EXPLANATION 2(IV) OF THE ACT. IN THE PROCEEDINGS U /S. 154 OF THE ACT, THE AO SOUGHT TO RECTIFY THIS MISTAKE, WHICH ACCORDING TO HIM, WAS APPARENT ON THE FACE OF THE RECORD. 5. THE ASSESSEE IN THE PROCEEDINGS U/S. 154 OF THE ACT BEFORE THE AO SUBMITTED THAT (A) OUT OF THE SUM OF Q 3,10,69,864 BEING EXPENDITURE INCURRED IN FOREIGN CURRENCY, A SUM OF Q 86,45,392 ALONE PERTAINS TO THE MUMBAI UNIT AND REMAINING SUM OF ITA NO.451/BANG/11 PAGE 4 OF 6 Q 2,24,24,472 PERTAINS TO THE BANGALORE UNIT FOR WHIC H DEDUCTION U/S. 10A OF THE ACT WAS NEVER ALLOWED; (B) THE EXPENDITURE OF RS.86,45,392 WAS ONSITE EXP ENSES INCURRED BY THE ONSITE EMPLOYEES DURING THEIR STAY OUTSIDE INDIA FOR THEIR DAY TO DAY MAINTENANCE, THE SAME TH EREFORE BE SAID TO BE FREIGHT, INSURANCE, TELECOMMUNICATIO N CHARGES ATTRIBUTABLE TO THE EXPORT WITHIN THE MEAN ING OF EXPLANATION 2(IV) BELOW SECTION 10A OF THE ACT; (C) IN ANY EVENT, IF THE SAID EXPENSES ARE EXCLUDE D FROM EXPORT TURNOVER, THEY HAVE ALSO TO BE EXCLUDED FROM THE TO TAL TURNOVER. IF IT IS SO EXCLUDED, THEN THERE WOULD B E NO CHANGE IN THE DEDUCTION ALLOWABLE U/S. 10A OF THE A CT. IN THIS REGARD, THE ASSESSEE RELIED ON A RULING OF THE SPECIAL BENCH OF THE ITAT, CHENNAI IN THE CASE OF SAK SOFT LTD. 313 ITR 353 (AT)(CHENNAI) WHEREIN IT WAS HELD THAT WHATEVER IS REDUCED FROM THE EXPORT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOT AL TURNOVER WHILE COMPUTING DEDUCTION U/S. 10A OF THE ACT. 6. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT T HE CLAIM OF THE ASSESSEE AND HE EXCLUDED Q 3,10,69,864 FROM THE EXPORT TURNOVER ONLY AND COMPUTED DEDUCTION U/S. 10A OF THE ACT AND THEREBY REDUCED THE DEDUCTION ALLOWED U/S. 10A OF THE ACT IN THE ORDER U/S. 143(3 ) OF THE ACT BY Q 29,42,869. 7. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) ACCE PTED THE BIFURCATION OF EXPENDITURE OF Q 3,10,69,864 INCURRED IN FOREIGN EXCHANGE BETWEEN MUMBAI AND BANGALORE UNITS OF THE ASSESSEE AT Q 86,45,392 AND ITA NO.451/BANG/11 PAGE 5 OF 6 Q 2,24,24,472 RESPECTIVELY. THE CIT(A) ALSO ACCEPTE D THE STAND OF THE ASSESSEE THAT WHATEVER IS EXCLUDED FROM EXPORT TURN OVER HAS ALSO TO BE EXCLUDED FROM TOTAL TURNOVER WHILE ALLOWING DEDUCTI ON U/S. 10A OF THE ACT BY FOLLOWING THE DECISION OF THE SPECIAL BENCH ITAT CH ENNAI IN THE CASE OF SAK SOFT LTD. (SUPRA). 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE THE TRIBUNAL. 9. AT THE TIME OF HEARING OF THE APPEAL IT WAS AGRE ED BY THE PARTIES THAT THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF TATA ELXSI LTD., ITA NO.70/2009 DATED 30.08.2011 HAS HELD THAT EXPENSES REDUCED FROM EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCT ION U/S. 10A OF THE ACT HAS TO BE REDUCED FROM THE TOTAL TURNOVER. THEREFO RE THE ORDER OF THE CIT(A) HAS TO BE UPHELD. 10. THE LD. DR HOWEVER SUBMITTED THAT THE CIT(A) AC CEPTED THE BIFURCATION OF EXPENSES BETWEEN MUMBAI AND BANGALOR E UNIT AS CLAIMED BY THE ASSESSEE BEFORE HIM FOR THE FIRST TIME, WITHOUT AFFORDING OPPORTUNITY TO THE AO TO VERIFY THE CLAIM OF THE ASSESSEE. WHILE WE AGREE WITH THE SUBMISSION OF THE LD. DR ON THIS ASPECT, WE ARE OF THE VIEW THAT THE EXERCISE OF IDENTIFYING THE EXPENSES AS ATTRIBUTABL E TO MUMBAI AND BANGALORE UNITS WILL BE ONLY ACADEMIC. THE DEDUCTI ON U/S. 10A WOULD NOT CHANGE EVEN IF SUCH BIFURCATION IS FOUND TO BE NOT CORRECT BECAUSE WHATEVER IS EXCLUDED FROM EXPORT TURNOVER WILL ALSO BE EXCLUDED FROM TOTAL TURNOVER. WE THEREFORE DO NOT FIND ANY MERIT IN TH E SUBMISSION OF THE ASSESSEE. ITA NO.451/BANG/11 PAGE 6 OF 6 11. FOR THE REASONS GIVEN ABOVE, WE CONFIRM THE ORD ER OF THE CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 12. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2012. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASU DEVAN ) VICE PRESIDENT JUDICIAL MEMB ER BANGALORE, DATED, THE 31 ST AUGUST , 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.