3DPLM SOFTWARE SOLUTIONS LTD, MUMBAI V. ITO RG 10(2)(1), MUMBAI

ITA 4538/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3268 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 20-06-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 02-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJARSHI DWIVEDI
• Assessee Lawyers: FALE E H BILIMORIA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENC H, MUMBAI . , . ! , # $%& $ BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI D. KARUNAKARA RAO, AM $ ./I.T.A. NO.4538/M/2010 (AY: 2005-2006) $ ./I.T.A. NO. ITA NO.5839/M/2010 (AY: 2006-2007) CO NO.123/M/2011 (2006-2007) CO NO.178/M/2012 (AY:2007-2008) 3DPLM SOFTWARE SOLUTIONS LTD., PLANT NO.6, PIROJSHANAGAR, VIKHROLI, MUMBAI 400 079. / VS. ITO, RANGE-10(2)(1), AAYAKAR BHAVAN, MUMBAI 400 020. &' # $ ./PAN : AAACA 1421 B ( '( /APPELLANT) .. ( )*'( / RESPONDENT) ITA NO.4932/M/2010 (2005-2006) ITA NO.6003/M/2010 (AY:2006-2007) ITA NO.6194/M/2011 (2007-2008) ITO, RANGE-10(2)(1), AAYAKAR BHAVAN, MUMBAI 400 020. / VS. 3DPLM SOFTWARE SOLUTIONS LTD., PLANT NO.6, PIROJSHANAGAR, VIKHROLI, MUMBAI 400 079. ( '( /APPELLANT) .. ( )*'( / RESPONDENT) '( + , $ / ASSESSEE BY : SHRI FALEE H. BILIMORIA )*'( + , $ / RESPONDENT BY : SHRI RAJARSHI DWIVEDI, DR $ + -# /DATE OF HEARING : 20.06.2013 ./ + -# /DATE OF PRONOUNCEMENT : 03. 07.2013 %0 %0 %0 %0 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE SEVEN APPEALS UNDER CONSIDERATION. OUT OF THESE SEVEN APPEALS, TWO APPEALS AND TWO COS ARE FILED BY THE ASSESSEE IE ITA NO.4538/M/2010 (AY:2005-2006); ITA NO.5839/M/2010 (AY: 2006-2007); CO NO.123/M/2011 (2006- 2007) AND CO NO.178/M/2012 (AY:2007-2008). REVENUE FILED THREE APPEALS IE ITA NO.4932/M/2010 (2005-2006); ITA NO.6003/M/2010 (AY: 2006-2007) & ITA NO.6194/M/2011 (2007-2008). SINCE, THE IDENTICAL I SSUE IS INVOLVED IN ALL THESE 2 APPEALS AND COS, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND BEING DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE AND GROUND WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS. (A) ITA NO. 4538/M/2010 - AY 2005-2006 ASSES SEES APPEAL AND ITA NO.4932/M/2010 (AY 2005-2006) - REVEN UES APPEAL 2. FIRSTLY, WE SHALL TAKE UP ITA NO. 4538/M/2010, WHICH IS FILED BY THE ASSESSEE ON 2.6.2010 AGAINST THE ORDER OF CIT (A)-21, MUMBA I DATED 19.3.2010 FOR THE AY 2005-2006 AND THE GROUNDS RAISED IN THIS APP EAL READ AS UNDER: 1. THE LD CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING EXPENDITURE U/S 14A OF THE ACT AGGREGATING TO RS. 2,12,899/- TOWARDS T HE EARNING OF DIVIDEND INCOME, BY APPLYING CLAUSE 2(III) OF RU LE-8D. 2. THE LD CIT (A) ERRED IN HOLDING THAT RULE-8D READ WITH SECTION 14A(2) AND 14A(3) OF THE ACT COULD BE APPLIED RETROSPECTIVELY TO THE ASSESSMENT YEAR 2005-06. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 18,65,361/-. AS A RESULT OF SC RUTINY ASSESSMENT U/S 143(3) OF THE ACT, ASSESSED INCOME OF THE ASSESSEE WAS DETERMINED AT RS.39,05,180/-. DURING THE ASSESSMENT PROCEEDINGS, AO INVOKED THE PROVISIONS O F SECTION 14A OF THE ACT READ WITH RULE-8D OF IT RULES, 1962 AND MADE ADDITION OF RS. 2,12,899/-. 4. IN CONNECTION WITH THE ABOVE ADDITIONS AND AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE STATED THAT THE ONLY ISSUE RAISED IN THE A PPEAL RELATES TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE-8D OF INCOME TAX RULES, 1962 RETROSPECTIVELY FOR THE AY 2005-2006. IN THIS REGARD, LD COUNSEL MENTIONED THAT THE AO ADDED A SUM OF RS. 2,12,899/-, WHICH WA S QUANTIFIED BY APPLYING @ 0.5% OF THE AVERAGE INVESTMENT AMOUNTING TO RS. 4,2 5,79,840/-. THUS, AO INVOKED THE PROVISIONS OF RULE-8D(2)(III) OF THE IT RULES T O QUANTIFY THE EXPENDITURE RELATABLE TO THE EARNING OF THE DIVIDEND INCOME OF RS. 12,72, 337/-. THUS, THE MATTER RELATING THE SAID ADDITION TRAVELLED TO THE FIRST APPELLATE AUTHORITY. DURING THE PROCEEDINGS 3 BEFORE THE FIRST APPELLATE AUTHORITY, CIT (A) RELIE D ON THE SPECIAL BENCH DECISION OF THE ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT AND CONFIRMED THE DISALLOWANCE. ON THESE FACTS, LD COUNSEL MENTIONED THAT THE ABOVE MANNER OF INVOKING THE SAID RULE-8D FOR MAKING DISALLOWANCE OF RS. 2,12,89 9/-, IS NOT IN ACCORDANCE WITH THE CITED DECISION OF THE BOMBAY HIGH COURT JUDGMEN T IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (SUPRA). FURTHER, LD COUNSEL MENTIONE D THAT NO EXPENDITURE IS ACTUALLY INCURRED IN CONNECTION WITH THE EARNING OF FEW DIVI DEND RECEIPTS FROM FEW MUTUAL FUND COMPANIES. WITHOUT PREJUDICE, LD COUNSEL BROU GHT OUR ATTENTION TO THE FACTS OF RELEVANT FOR THE ASSESSMENT YEAR 2007-2008 IN THE A SSESSEES OWN CASE AND MENTIONED THAT THE EXPENDITURE U/S 14A WAS RESTRICT ED TO 2% OF THE TOTAL DIVIDEND INCOME EARNED BY THE ASSESSEE IN THAT YEAR. IN THE PROCESS, CIT(A) RELIED ON DECISION OF HIS COLLEAGUE IN A CASE RELATING TO A G ROUP COMPANIES. THE SAID DECISION BEING REASONABLE WAS ACCEPTED BY THE ASSESSEE AND T HUS, THE DISALLOWANCE @ 2% OF THE DIVIDEND INCOME HAS BECOME FINAL FOR THE SAID A Y 2007-08. IN THIS REGARD, LD COUNSEL RELIED ON THE DECISION OF MUMBAI BENCH OF T HE ITAT IN THE CASE OF THE M/S. GODREJ AGROVET LTD. VS. ACIT VIDE ITA NO.1629/M/200 9, WHICH IS SUBSEQUENTLY CONFIRMED BY THE HIGH COURT VIDE ITA NO.934 / 2011, DATED 8.1.2013. FURTHER, HE MENTIONED THAT THE RULE-8D CANNOT BE APPLIED RETROS PECTIVELY TO THE ASSESSMENT YEAR 2005-2006 IN VIEW OF THE BINDING JUDGMENT IN T HE CASE OF GODREJ BOYCE MFG CO LTD., 328 ITR 81. 5. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE AO / CIT (A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CASE LAWS FILED BEFORE U S. IT IS A FACT THAT ASSESSEE MADE AN INVESTMENT, WHOSE AVERAGE INVESTMENT IS TO THE TUNE OF RS. 4,25,79,840/-. THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 12,72,337/-. IT IS A SETTLED PROPOSITION THAT SOME EXPENDITURE OUT OF THE ADMINISTRATIVE EXPENSES IS ALWAYS INCURRED AND, THEREFORE, IT IS A MATTER OF METHOD OF QUANTIFYING SUCH ATTRIBUTABLE EXPENDITURE TO THE EXEMPT INCOME. IT IS A JUDICIALLY FINALIZED POS ITION IN LAW THAT THE PROVISIONS OF RULE-8D READ WITH SECTION 14A CANNOT BE INVOKED FOR THE ASSESSMENT YEARS PRIOR TO AY 2008-2009 . TO THAT EXTENT, ASSESSEES ARGUMENT RAISED IN GR OUND NO.2 IS SUSTAINABLE. THEREFORE, WHAT IS LEFT FOR AD JUDICATION HERE RELATES TO THE ISSUE 4 OF QUANTIFICATION OF SUCH EXPENDITURE RELATABLE TO THE DIVIDEND INCOME BUT INCLUDED IN SUCH ADMINISTRATIVE EXPENSES. NOW, IT IS THE SUBMI SSION OF THE ASSESSEE THAT IN THE ASSESSEES OWN CASE, THE REVENUE HAS NOT INVOKED TH E RULE-8D FOR THE AY 2007- 2008 AND ONLY RESTRICTED THE DISALLOWANCE TO 2% OF THE DIVIDEND INCOME AND WHICH HAS BECOME FINALLY ACCEPTABLE TO BOTH THE PARTIES. IN OUR OPINION, RESTRICTING THE DISALLOWANCE TO 2% OF THE DIVIDEND INCOME FOR THIS ALSO MUST BRING THE PEACE BETWEEN THE PARTIES FOR THIS AY 2005-2006. THEREFO RE, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO 2% OF THE D IVIDEND INCOME AND COMPUTE THE DISALLOWANCE ACCORDINGLY. BEFORE US, LD COUNSEL RAISED A NEW ARGUMENT THAT IN THE ASSESSEES CASE, WHICH IS 100% EXPORT ORIENTED UNIT, INVOKING THE PR OVISIONS OF SECTION 14A OF THE ACT HAS NO TAX IMPLICATION. IF ANY EXPENDITURE IS DI SALLOWED UNDER THE SAID PROVISIONS, EQUALANT AMOUNT NEEDS TO BE REDUCED FRO M THE EXPENDITURE CLAIMED IN THE P & L ACCOUNT. THOUGH THE SAID ARGUMENT DESERVE S MERIT FOR CONSIDERATION, WE SHALL GO INTO THE SAME HERE CONSIDERING THE FACT TH AT THE ASSESSEE INDICATED TO ADJUDICATE THE IMPUGNED ISSUE IN LINES OF THE CONCL USIONS FOR THE ASSESSMENT YEAR 2007-2008. THEREFORE, WE DISMISS THE SAME. ACCORDI NGLY, GROUND NO.1 RAISED IS PARTLY ALLOWED . 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.4932/M/2010 (AY 2005-2006) REVENUES APPEAL 8. THIS APPEAL FILED BY THE REVENUE ON 14.06.2010 I S AGAINST THE ORDER OF CIT (A)-21, MUMBAI DATED 19.3.2010 FOR THE AY 2005-2006 . IN THIS APPEAL, REVENUE RAISED THE FOLLOWING EFFECTIVE GROUND WHICH READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD CIT (A) ERRED IN HOLDING THAT THE INSURANCE EXPENSES OF RS. 14,37,288/- AND COMMUNICATION EXPENSES OF RS. 41,96,206/- WERE NOT TO BE REDUCED FROM THE EXPORT TURNOVER FOR COMPUTING THE DEDUCTION U/S 10A OF THE ACT. 9. IN THIS APPEAL, LD DR EXPLAINED THAT THE GROUND R ELATES TO COMPUTATION OF DEDUCTION U/S 10A OF THE ACT QUA THE EXCLUSION OF ENTIRE INSURANCE AND TELECOMMUNICATION EXPENSES FROM THE EXPORT TURNOVER (ETO). LD DR MENTIONED THAT ASSESSEE DEBITED INSURANCE EXPENSES OF RS. 14,37,28 8/- AND COMMUNICATION 5 EXPENSES OF RS. 41,96,206/-. DURING THE ASSESSMENT PROCEEDINGS, AO INVOKED THE PROVISIONS OF EXPLANATION (2) TO SECTION 10A OF THE ACT AND PROPOSED TO ADJUST THE EXPORT TURNOVER (ETO) QUA THE INSURANCE AND TELECOMMUNICATION EXPENSES FOR T HE PURPOSE OF COMPUTING THE DEDUCTION U/S 10A OF THE A CT. 10. DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE SUB MITTED THAT FOR DOWNWORD REVISION OF THE ETO, THE EXPENSES ARE IN THE NATURE OF FREIGHT TELECOMMUNICATION CHARGES OR INSURANCE MUST BE ATTRIBUTABLE TO THE SA ID COMPUTER SOFTWARE OUTSIDE INDIA AND ONLY THEN SUCH EXPENDITURE CAN BE REDUCED FROM THE EXPORT TURNOVER. FURTHER, HE EXPLAINED THAT NO SUCH EXPENDITURE IS R EQUIRED TO BE REDUCED IN THIS CASE FOR THE REASON THAT EXPENSE ON TELECOMMUNICATION AN D INSURANCE EXPENSES INCURRED FOR SOFTWARE DEVELOPMENT WERE NOT INCURRED IN FOREI GN EXCHANGE ATTRIBUTABLE TO THE DELIVERY OF STOCKS OUTSIDE INDIA. ASSESSEE ALSO EX PLAINED THAT THE SAID EXPENDITURE WAS NOT INCURRED IN FOREIGN CURRENCY BY THE ASSESSE E AND THEY ARE INCURRED IN LOCAL CURRENCY FOR CARRYING ON DAY-TO-DAY SOFTWARE DEVELO PMENT WORK FROM THE LOCATIONS WITHIN INDIA. AS PER THE ASSESSEE, THESE EXPENSES A RE NOT ATTRIBUTABLE TO THE COMPUTER SOFTWARE OUTSIDE INDIA AND NO EXPENSES IN FOREIGN CURRENCY FOR RENDERING ANY TECHNICAL SERVICES OUTSIDE INDIA. IT IS THE CASE OF THE ASSESSEE THAT THE SAID COMMUNICATION AND INSURANCE EXPENSES WERE INCURRED AND THEY ARE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE IN INDIA AND THE INSURANCE OF THE EMPLOYEES. THEREFORE, THE EXPORT TURNOVER NEED NOT BE ADJUSTED QUA TELECOMMUNICATION EXPENSES. 11. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSE E REITERATED THE SUBMISSIONS AND DEMONSTRATED THAT THESE EXPENSES ARE NOT INCURR ED OUTSIDE INDIA. IN THIS REGARD, THE ASSESSEE FILED RELEVANT DETAILS IN SUPPORT OF T HE SAID CLAIM. ASSESSEE SUBMITTED THAT THE TELECOMMUNICATION EXPENSES AND INSURANCE E XPENSES ARE NOTHING BUT THE EXPENSES RELATING TO THE INSURANCE OF THE FIXED ASS ETS, CLAIM ON PERSONAL EXPENDITURE FOR EMPLOYEES, MEDICAL AND TRAVELLING EXPENSES FOR EMPLOYEES.REGARDING TELEPHONE EXPENSES, THE SAME WERE PAID TO THE INDIAN COMPANIE S AND THEREFORE, EXPORT TURNOVER NEED NOT BE REDUCED ACCORDINGLY. ON CONSI DERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) APPRECIATED THAT THE IMPUGNED EXP ENSES WERE NOT INCURRED OUTSIDE INDIA AND THEY ARE ATTRIBUTABLE TO THE DEL IVERY OF ARTICLES WITHIN INDIA. HE 6 ALSO APPRECIATED THE FACT THAT WHILE MAKING DISALLO WANCE, AO SHOULD HAVE COME TO A CLEAR FINDING AS TO WHY THE TELECOMMUNICATION AND I NSURANCE EXPENSES WERE ATTRIBUTABLE TO THE SAID COMPUTER SOFTWARE OUTSIDE INDIA. ON THE ABOVE SAID FACTS, CIT (A) GRANTED RELIEF TO THE ASSESSEE. 12. DURING THE PROCEEDINGS BEFORE US, LD DR FAIRLY MENTIONED THAT FOR MAKING THE PROPOSED ADJUSTMENT TO THE EXPORT TURNOVER, THE EXP ENDITURE MUST BE INCURRED NOT ONLY OUTSIDE INDIA BUT ALSO IN THE FOREIGN EXCHANGE. IN THE INSTANT CASE, AO HAS NOT MADE OUT A CLEAR CASE AS TO HOW THESE EXPENSES WERE INCURRED OUTSIDE INDIA. HOWEVER, WITHOUT GIVING UP THE CASE, LD DR FAIRLY R ELIED ON THE ORDER OF THE AO. 13. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT (A) IN GENERAL AND CONTENTS OF PARA 3.3 OF THE IMPU GNED ORDER WHICH CONTAINS THE DECISION OF THE CIT (A). 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND THE MATERIAL PLACED BEFORE US. THE ISSUE FOR ADJUDICATION RELATES TO THE APPLICABILITY OF THE PROVISIONS OF CLAUSE-(IV) TO THE EXPLANATION-2 TO SECTION 10A OF THE ACT. CLAUSE (IV) PROVIDES FOR DEFINITION OF EXPORT TURNOVER. THE SAID CLAUSE- (IV) READS AS FOLLOWS: (IV) EXPORT TURNOVER MEANS THE CONSIDERATION IN R ESPECT OF EXPORT [BY THE UNDERTAKING] OF ARTICLES OR THINGS OR COMPUTER SOFT WARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHAN GE IN ACCORDANCE WITH SUB-SECTION (3), BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATIO N CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUT ER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN P ROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA: 14.1. FROM THE ABOVE, IT IS EVIDENT THAT THE EXPORT TURNOVER MEANS CONSIDERATION IN RESPECT OF THE EXPORT RECEIVED BY THE ASSESSEE IN C ONVERTIBLE FOREIGN EXCHANGE. BUT IT DOES NOT INCLUDE FREIGHT TELECOMMUNICATION CHARG ES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE STOCKS OUTSIDE INDIA OR EXPENSE S INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THUS, T HE EXPENSES INCURRED IN LOCAL CURRENCY IN INDIA ON ACCOUNT OF TELECOMMUNICATIONS A ND INSURANCE ARE OUTSIDE THE SCOPE OF THE ABOVE SAID DEFINITION GIVEN IN CLAUSE- (IV). IT IS NOT THE CASE OF THE ASSESSEE THAT SUCH EXPENSES ON ACCOUNT OF TELECOMMU NICATION INSURANCE ARE INCURRED OUTSIDE INDIA. IN FACT, IT IS AN ADMITTED POSITION THAT THE SAID EXPENDITURE 7 WAS INCURRED IN LOCAL CURRENCY IN CONNECTION WITH D IFFERENT LOCATION WITHIN INDIA. THEREFORE, IN OUR OPINION, THE ORDER OF THE CIT (A) ON THIS ISSUE IS REASONABLE AND THE SAME DOES NOT CALL FOR ANY INTERFERENCE. ACCOR DINGLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED . 15. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . (B) ITA NO.6003/M/2010 (AY:2006-200 7) BY REVENUE CO NO.123/M/2011 (AY:2006-2007) BY ASSESSEE ITA NO.5839/M/2010 (AY: 2006-2007) BY ASSESSEE 16. THE APPEAL ITA NO.6003/M/2010 IS FILED BY THE REVENUE ON 2.8.2010 IS AGAINST THE ORDER OF CIT (A)-21, MUMBAI DATED 25.5. 2010 FOR THE AY 2006-07. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING EFFECTIVE GROUND WHICH READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT (A) ERRED IN HOLDING THAT THE INSURANCE EXPENSES OF RS. 21,77,791/- AND COMMUNICATION EXPENSES OF RS. 52,70,734/- WERE NOT TO BE REDUCED FROM THE EXPORT TURNOVER FOR COMPUTING THE DEDUCTION U/S 10A OF THE ACT. 17. THE ONLY ISSUE RAISED IN THIS APPEAL RELATES TO THE ADJUSTED MADE TO THE EXPORT TURNOVER (ETO) QUA THE INSURANCE AND COMMUNICATION EXPENDITURE. THE LD REPRESENTATIVES OF BOTH THE PARTIES ARE CONCORD WIT H THE SUBMISSIONS THAT THE ISSUE INVOLVED IN THIS APPEAL IS IDENTICAL IN SUBSTANCE T O THE ONE RAISED FOR THE AY 2005-06 IN THE REVENUES APPEAL, ITA NO.4932/M/2010 AND AD JUDICATED AGAINST THE REVENUE. WE HAVE HELD IN THE SAID APPEAL THAT THE ORDER OF T HE CIT (A) IS REASONABLE AND ACCORDINGLY GROUND RAISED BY THE REVENUE WAS DISMIS SED. ON OBSERVING THE FACTS AND THE LAW, WE FIND BUT FOR THE FIGURES, THE ISSUE S ARE IDENTICAL TO THAT OF REVENUES APPEAL FOR THE AY 2005-2006. ACCORDINGLY, GROUND RA ISED IN THIS APPEAL IS DISMISSED TOO FOR THE SAME REASONS. 18. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . CO NO.123/M/2011 (ARISING FROM ITA NO. 6003/M/2010) (AY: 2006-2007) BY ASSESSEE 19. THIS CROSS OBJECTION FILED BY THE ASSESSEE ON 7 .8.2011 FOR THE AY 2006-2007. IN THIS CO, ASSESSEE RAISED THE FOLLOWING GROUND WHI CH READ AS UNDER: 8 WITHOUT PREJUDICE TO THE CONTENTION OF THE CROSS OB JECTOR THAT THE INSURANCE AND TELECOMMUNICATION EXPENSES ARE NOT TO BE REDUCED FR OM EXPORT TURNOVER FOR THE PURPOSES OF COMPUTING THE DEDUCTION UNDER SECTION 1 0A OF THE ACT, EVEN ASSUMING THOUGH NOT CONCEDING THAT ANY EXPENDITURE WAS TO BE REDUCED FROM THE EXPORT TURNOVER, THEN SUCH EXPENDITURE IS TO BE REDUCED FR OM THE TOTAL TURNOVER ALSO FOR THE PURPOSES OF COMPUTING THE DEDUCTION UNDER SECTI ON 10A OF THE ACT. 20. BEFORE US, BOTH THE PARTIES POINTED OUT THAT TH E ONLY ISSUE RAISED IN THE CO RELATES TO THE DOWNWARD ADJUSTMENT MADE BY THE AO T O THE EXPORT TURNOVER QUA INSURANCE AND TELECOMMUNICATION EXPENSES WITHOUT MAKING SIMILAR ADJUSTMENT TO THE TOTAL TURNOVER OF THE ASSESSEE. IN THE CO, ASSESSEE ARGUES THAT W HEN ADJUSTMENT IS MADE IN EXPORT TURNOVER, THE TOTAL TU RNOVER IS ALSO TO BE ADJUSTED CONSIDERING THE PRINCIPLE OF PARITY. WE HAVE ADJUD ICATED THIS ISSUE IN ATTENDING TO THE REVENUES APPEAL VIDE ITA NO.6003/M/2010 VIDE P ARA 17 OF THIS ORDER AND DISMISSED THE APPEAL OF THE REVENUE. THEREFORE, AT THE END OF THE APPEAL, THE ETO AS CLAIMED BY THE ASSESSEE IS RESTORED. ACCORDINGLY , THE ISSUE RAISED IN THE CO BECOMES ACADEMIC. ACCORDINGLY, GROUND RAISED IN CO IS DISMISSED AS ACADEMIC. 21. IN THE RESULT, CO OF THE ASSESSEE IS DISMISSED . ITA NO.5839/M/2010 (AY: 2006-2007) BY ASSESSEE 22. THIS APPEAL FILED BY THE ASSESSEE ON 20.7.2010 IS AGAINST THE ORDER OF THE CIT (A)- 21, MUMBAI DATED 25.5.2010 FOR THE AY 2006-200 7. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. LD CIT (A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING EXPENDITURE U/S 14A OF THE ACT AGGREGATING TO RS. 4,53,507/- TOWARDS THE EARNING OF DIVIDEND INCOME, BY APPLYING CLAUSE 2(III) OF RULE-8D. 2. LD CIT (A) ERRED IN HOLDING THAT RULE-8D READ WI TH SECTION 14A(2) AND 14A(3) OF THE ACT COULD BE APPLIED RETROSPECTIVELY TO THE ASSESSMENT YEAR 2006- 2007. 23. THE ISSUES RAISED IN THIS APPEAL ARE SIMILAR TO THE ONE RAISED IN THE ASSESSEES APPEAL FOR THE AY 2005-2006. IN THAT APPEAL, WE HAV E HELD THAT THE PROVISIONS OF RULE-8D SHOULD NOT BE APPLIED FOR THE AYS PRIOR TO AY 2008-2009 IN VIEW OF THE BINDING JUDGMENT OF THE JURISDICTIONAL HIGH COURT I N THE CASE OF GODREJ & BOYCE MFG. CO. LTD (SUPRA). FURTHER, WE HAVE ALSO UPHELD THAT IN VIEW OF THE AGREED POSITION BETWEEN THE PARTIES FOR THE AY 2007-2008 ON THE QUA NTIFICATION OF THE DISALLOWABLE 9 EXPENDITURE RELATABLE TO THE EXEMPT INCOME, 2% OF D IVIDEND INCOME IS THE EXPENDITURE DISALLOWABLE UNDER SECTION 14A OF THE ACT. WE HAVE ADJUDICATED THIS ISSUE AFTER PROVIDING DETAILED DISCUSSION FOR THE A Y 2005-2006. ACCORDINGLY, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 2% OF THE EXEMPT INCOME FOR THIS YEAR ALSO ON PAR WITH THE DECISIONS FOR THE AY 2005-06. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED . 24. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED PARTLY ALLOWED . (C) ITA NO.6194/M/2011 (AY 2007-20 08) BY REVENUE & CO NO.178/M/2012 (AY 2007-2008) BY ASSESSEE 25. THIS APPEAL ITA NO.6194/M/2011, FILED BY THE REVENUE ON 7.9.2011, IS AGAINST THE ORDER OF CIT (A)-21. MUMBAI DATED 3.6.2 011 FOR THE ASSESSMENT YEAR 2007-2008. IN THIS APPEAL, REVENUE RAISED THE FOLLO WING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT D(A) ERRED IN DIRECTING THE AO NOT TO DEDUCT THE TELECOMMUNICATION EXPENSES OF RS. 93,25,650/- AND INSURANCE EXPENSES OF RS. 26,95,650 /- FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10A. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS. 3,59,823/-MADE U/S 14A R.W.RULE 8D I N RESPECT OF EXEMPT DIVIDEND INCOME WITHOUT APPRECI ATING THE FACT THAT IN THE ASSESSMENT ORDER, ADMINISTRATIVE AND MANAGERIAL EXP ENSES HAD BEEN CORRECTLY COMPUTED AT THE AVERAGE VALUE OF INVESTMENTS WHERE WHOLE VALUE IS EXEMPT AS PROVIDED UNDER CLAUSE (III) OF RULE -8D (2). 26. GROUND NO.1 RELATES TO THE DOWNWARD ADJUSTMENT OF THE EXPORT TURNOVER (ETO) QUA THE INSURANCE AND COMMUNICATION EXPENSES. THE LD REPRESENTATIVES OF BOTH THE PARTIES ARE CONCURRED WITH THE SUBMISSION THAT THE ISSUE INVOLVED IN THIS APPEAL IS IDENTICAL TO THE ONE RAISED FOR THE AY 20 05-06 IN THE REVENUES APPEAL, ITA NO.4932/M/2010, WHEREIN THE ORDER OF THE CIT (A) WA S HELD REASONABLE. ACCORDINGLY, THE GROUND WAS DISMISSED AND THE REVEN UES APPEAL WAS DISMISSED. ON OBSERVING THE FACTS AND THE LAW RELATING TO THE PRE SENT ISSUE, WE FIND THAT BUT THE FIGURES, THE ISSUES ARE IDENTICAL TO THAT OF REVENU ES APPEAL FOR THE AY 2005-2006 AND THE SAME HAVE TO BE DISMISSED HERE TOO FOR THE REASONS GIVEN FOR THE AY 2005- 2006. ACCORDINGLY, GROUND NO.1 RAISED IN THIS APPE AL IS DISMISSED . 10 27. THE ISSUE RAISED IN GROUND NO.2 RELATING TO THE DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT, IS SIMILAR TO THE ONE RAISED IN THE ASSESSEES APPEAL FOR THE AY 2005-2006. IN THAT APPEAL, WE HAVE HELD THAT THE P ROVISIONS OF RULE-8D SHOULD NOT BE APPLIED FOR THE AYS PRIOR TO AY 2008-2009 IN VIE W OF THE BINDING JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD (SUPRA). FURTHER, WE HAVE ALSO HELD THAT IN VIEW OF THE AGRE ED POSITION BETWEEN THE PARTIES FOR THE AY 2007-2008 IN THE GROUP CASES OF THE ASSE SSEE, THE QUANTIFICATION OF THE DISALLOWABLE EXPENDITURE RELATABLE TO THE EXEMPT IN COME AT THE RATE OF 2% OF DIVIDEND/EXEMPT INCOME IS REASONABLE FOR THE AY 200 5-2006 AND 2006-2007. WE HAVE ADJUDICATED THIS ISSUE AFTER PROVIDING DETAILE D DISCUSSION FOR THE AY 2005-2006. WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 2% OF THE EXEMPT INCOME FOR THIS YEAR ALSO. ACCORDINGLY, GROUNDS RAISED BY THE ASSE SSEE ARE PARTLY ALLOWED . 28. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED PARTLY ALLOWED. CO NO.178/M/2012 (ARISING FROM ITA NO. 6194/M/2011) (AY: 2007-2008) BY ASSESSEE 29. THIS CROSS OBJECTION FILED BY THE ASSESSEE ON 7 .8.2012 FOR THE AY 2007-2008. IN THIS CO, ASSESSEE RAISED THE FOLLOWING GROUND WHI CH READ AS UNDER: WITHOUT PREJUDICE TO THE CONTENTION OF THE CROSS OB JECTOR THAT THE INSURANCE AND TELECOMMUNICATION EXPENSES ARE NOT TO BE REDUCED FR OM EXPORT TURNOVER FOR THE PURPOSES OF COMPUTING THE DEDUCTION UNDER S ECTION 10A OF THE ACT, EVEN ASSUMING THOUGH NOT CONCEDING THAT ANY EXPENDITURE WAS TO BE REDUCED FROM THE EXPORT TURNOVER, THEN SUCH EXPENDITURE IS TO BE RED UCED FROM THE TOTAL TURNOVER ALSO FOR THE PURPOSES OF COMPUTING THE DEDUCTION UN DER SECTION 10A OF THE ACT. 30. BEFORE US, BOTH THE PARTIES POINTED OUT THAT TH E ONLY ISSUE RAISED IN THE CO RELATES TO THE DOWNWARD ADJUSTMENT MADE BY THE AO T O THE EXPORT TURNOVER QUA INSURANCE AND TELECOMMUNICATION EXPENSES WITHOUT MAKING SIMILAR ADJUSTMENT TO THE TOTAL TURNOVER OF THE ASSESSEE. IN THE CO, ASSESSEE ARGUES THAT W HEN ADJUSTMENT IS MADE IN EXPORT TURNOVER, THE TOTAL TU RNOVER IS ALSO TO BE ADJUSTED CONSIDERING THE PRINCIPLE OF PARITY. WE HAVE ADJUD ICATED THIS ISSUE IN ATTENDING TO THE REVENUES APPEAL VIDE ITA NO.6003/M/2010 VIDE P ARA 17 OF THIS ORDER AND DISMISSED THE APPEAL OF THE REVENUE. THEREFORE, AT THE END OF THE APPEAL, THE ETO AS CLAIMED BY THE ASSESSEE IS RESTORED. ACCORDINGLY , THE ISSUE RAISED IN THE CO BECOMES ACADEMIC. ACCORDINGLY, GROUND RAISED IN CO IS DISMISSED AS ACADEMIC. 11 31. IN THE RESULT, CO OF THE ASSESSEE IS DISMISSED . 32. FINALLY, REVENUES APPEALS ITA NO.4932/M/2010 ( 2005-2006); ITA NO.6003/M/2010 (AY:2006-2007) ARE DISMISSED AND ITA NO.6194/M/2011 (2007- 2008) IS PARTLY ALLOWED. AS WELL, ASSESSEES APPEAL S ITA NO.4538/M/2010 (AY:2005- 2006); ITA NO.5839/M/2010 (AY: 2006-2007) ARE PARTL Y ALLOWED AND CO NO.123/M/2011 (2006-2007) & CO NO.178/M/2012 (AY:20 07-2008) ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03. 07.2013 SD/- SD/- (D. MANMOHAN ) (D. KARUNAKARA RAO ) / VICE PRESIDENT # $%& / ACCOUNTANT MEMBER MUMBAI; 1% 03. 07.2013 . 2 . $ ./ OKK , SR. PS %0 %0 %0 %0 + ++ + )2-34 )2-34 )2-34 )2-34 54/- 54/- 54/- 54/- / COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT 2. )*'( / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 4 78 )2-2 , , / DR, ITAT, MUMBAI 6. 89 : / GUARD FILE. $*4- )2- //TRUE COPY// %0 $ %0 $ %0 $ %0 $ / BY ORDER, / $ $ $ $ ; ; ; ; (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI