ITO, Ward-2(4), Hyderabad, Hyderabad V. Trendy Works Technologies Pvt.lt.d, Hyd, Hyderabad

ITA 478/HYD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6280 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 05-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: M CHANDRAMOULESWARA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 478/HYD/2016 ASSESSMENT YEAR: 2010-11 INCOME TAX OFFICER, WARD 2(4), HYDERABAD. VS. TRENDY WORKS TECHNOLOGY P. LTD., HYDERABAD. PAN AACCT 3184 B (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K.J. RAO ASSESSEE BY : SHRI M. CHANDRAMOULESWARA RAO DATE OF HEARING 19-07-2016 DATE OF PRONOUNCEMENT 27-07-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - 2, HYDE RABAD FOR AY 2010-11. 2. ON PERUSAL OF RECORD, WE FIND THAT THERE WAS A D ELAY OF 8 DAYS IN FILING THIS APPEAL BEFORE US. TO THIS EFFECT, TH E ASSESSEE FILED CONDONATION PETITION STATING THEREIN THAT THE RECOR DS FOR THE AY 2010- 11 COULD NOT BE TRACED OUT IMMEDIATELY, DUE TO WHIC H, THE SAID DELAY OCCURRED IN FILING THE APPEAL. THE ASSESSEE ALSO FI LED AN AFFIDAVIT AFFIRMING THE SAID REASONS IN THE AFFIDAVIT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, WE CONDONE THE SAID DE LAY AND ADMIT THE APPEAL FOR HEARING AND ADJUDICATION. 2 ITA NO. 478/H/16 TRENDY WORKS TECHNOLOGIES P. LTD. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY ENGAGED IN DEVELOPMENT, SALE OF SOFTWARE PRODUCTS T HROUGH WORLD WIDE WEB, FILED ITS RETURN OF INCOME FOR THE AO 201 0-11 ON 30/09/2010 DECLARING INCOME AT RS. 73,555/- AFTER CLAIMING DED UCTION U/S 10A AND BOOK PROFITS OF RS. 4,35,73,535/- U/S 115JB. 3.1 THE AO NOTED THAT ON EXAMINING THE RETURN AND C OMPUTATION OF INCOME FILED BY THE ASSESSEE, IT WAS FOUND THAT THE ASSESSEE CLAIMED DEDUCTION OF RS. 4,21,76,012/- U/S 10A. AS PER THE 3CD REPORT FILED, THE ASSESSEE HAS SHOWN FOREIGN EXCHANGE OUTGO AT RS . 528.93 LAKHS, AND THIS FIGURE REPRESENTS EXPENSES INCURRED IN FOR EIGN EXCHANGE TOWARDS ADVERTISEMENT EXPENSES, WEB HOSTING CHARGES , IMAGE CHARGES ETC. WHILE CALCULATING THE ABOVE ALLOWABLE DEDUCTION U/S 10A, THE ASSESSEE HAD NOT REDUCED THE EXPORT TURNOVER BY THE EXPENSES INCURRED AT RS. 528.93 LAKHS IN FOREIGN CURRENCY. A O OBSERVED THAT AS PER CLAUSE (IV) OF EXPLANATION 2 TO SECTION 10A, TH E EXPENDITURE INCURRED IN FOREIGN CURRENCY NEED TO BE REDUCED FRO M THE EXPORT TURNOVER FOR THE PURPOSE OF CALCULATION OF DEDUCTIO N U/S 10A. WHEN IT WAS PUTFORTH BEFORE THE ASSESSEE, THE ASSESSEE RELY ING ON THE DECISION OF THE COORDINATE BENCH OF ITAT HYDERABAD IN THE CASE OF M/S PATNI TELECOM PVT. LTD. VS. ITO, [2009] 120 TTJ 967 (HYD.) SUBMITTED THAT IF THE FOREIGN OUTGO IS TO BE REDUCE D FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER. 3.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE AO HELD THAT THE DEPARTMENT HAD NOT ACCEPTED THE DECISION O F VARIOUS HONBLE HIGH COURTS IN TREATING THE NUMERATOR AND DENOMINAT OR EQUALLY IN THE FORMULA FOR THE PURPOSE OF CALCULATING 10A DEDUCTIO N AND THE ISSUE IS PENDING BEFORE THE HONBLE SUPREME COURT, THE RELIA NCE PLACED BY THE ASSESSEE ON THE DECISION IN THIS REGARD IS NOT CONS IDERED AND THE FOREIGN OUTGO IS REDUCED FROM THE EXPORT TURNOVER F OR THE PURPOSE OF 10A. ACCORDINGLY, THE ALLOWABLE DEDUCTION U/S 10A W AS ARRIVED AT RS. 2,43,97,528/- AGAINST RS. 4,21,76,012/- CLAIMED BY THE ASSESSEE. 3 ITA NO. 478/H/16 TRENDY WORKS TECHNOLOGIES P. LTD. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A), IT WAS CONTENDED BY THE ASSES SEE THAT THE AO HAS ERRED IN REDUCING ADVERTISEMENT, WEBHOSTING CHARGES ETC., INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOV ER IGNORING THE FACT THAT THE SAME WERE NOT CLAIMED SEPARATELY IN THE IN VOICES AND HENCE THE AO IS NOT JUSTIFIED IN REDUCING THE EXPENDITURE INCURRED IN FOREIGN CURRENCY ONLY FROM THE EXPORT TURNOVER AND HE OUGHT TO HAVE REDUCED THE FOREIGN CURRENCY EXPENDITURE ALSO FROM THE TOTA L TURNOVER. 6. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF M/S PATNI TELECOM P. LTD. (SUPRA) DIRECTED THE AO TO REDUCE T HE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVE R ALSO. 7. AGGRIEVED WITH THE ORDER OF THE CIT(A), THE REVE NUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1) THE CIT(A) ERRED IN LAW AND ON FACTS WHILE DECID ING THE ISSUES RAISED IN THE APPEAL. 2) THE CIT(A) ERRED IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN DIRECTING THE ASSESSING OFFICER THAT THE EXPENDITUR E INCURRED IN FOREIGN EXCHANGE TOWARDS ADVERTISEMENT EXPENSES, WE B HOISTING CHARGES AND IMAGE CHARGES ETC., ARE TO BE EXCLUDED FROM BOTH EXPORT TURNOVER AND TOTAL TURNOVER THOUGH EXPLANATI ON 2 TO SECTION 10A OF THE INCOME TAX ACT, 1961, CLEARLY ST ATES THAT THEY NEED TO BE EXCLUDED FROM EXPORT TURNOVER AND NO SUC H PROVISION IS AVAILABLE FOR TOTAL TURNOVER?' 3) ANY OTHER GROUND(S) THAT MAY BE PRESSED/URGED DU RING THE COURSE OF APPEAL. 8. CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PE RUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF R EVENUE AUTHORITIES. THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DEC ISION OF THE COORDINATE BENCH IN THE CASE OF M/S PATNI TELECOM P . LTD. (SUPRA) WHEREIN IT WAS HELD THAT THE DEDUCTION OF EXPENSES INCURRED IN FOREIGN EXCHANGE BOTH FROM THE AMOUNT OF TOTAL TURN OVER AND ALSO FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF THE AMOUNT OF 4 ITA NO. 478/H/16 TRENDY WORKS TECHNOLOGIES P. LTD. DEDUCTION U/S 10A. THE SPECIAL BENCH OF THE CHENNAI TRIBUNAL IN THE CASE OF ITO VS SAKSOFT LTD (313 ITR AT 353) HE LD THAT EXPENSES EXCLUDED FROM EXPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER . THE HONBLE KARNATAKA HIGH COURT HAS ALSO TAKEN SIMILAR VIEW IN THE CASE OF CIT VS. TATA ELXSI LTD. & OTHERS, 247 CTR 334 (KAR.). RESPECTFULLY FOLLOWING THE SAID DECISIONS CITED SUPRA, WE UPHOLD THE ORDER OF THE C IT(A) IN DIRECTING THE AO TO REDUCE THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVER ALSO AND ACCORDING LY, DISMISS THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON 27 TH JULY, 2016 SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 27 TH JULY, 2016 KV COPY TO:- 1) ITO, WARD 2(4), ROOM NO. 826, B BLOCK, 8 TH FLOOR, AC GUARDS, IT TOWERS, HYDERABAD 500 004. 2) M/S TRENDY WORKS TECHNOLOGIES PVT. LTD., NSL, SE Z ARENA, 3 RD FLOOR, BLOCK 1, NO.6, SURVEY NO. 1, IDA, UPPAL,, HYD. 39. 3) CIT(A) - 2, HYDERABAD 4) PR. CIT - 2 , HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 5 ITA NO. 478/H/16 TRENDY WORKS TECHNOLOGIES P. LTD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER