IIC Technologies Pvt.Ltd., Hyd, Hyderabad V. DCIT, Circle-2(1), Hyd, Hyderabad

ITA 495/HYD/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0315 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-07-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 30-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: A V RAGHURAM
• Keywords: Assessment record
• Section: 143(3); 10B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 495/HYD/2015 ASSESSMENT YEAR: 2010-11 M/S IIC TECHNOLOGIES P. LTD., HYDERABAD PAN AAACI 4582 L VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI A.V. RAGHURAM REVENUE BY : SHRI P. SOMA SEKHAR REDDY DATE OF HEARING : 16-07-2015 DATE OF PRONOUNCEMENT : 29 -07-2015 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER DATED 27/03/2015 OF LD. CIT II, HYDERABAD PASSED U/S 26 3 OF THE ACT FOR THE AY 2010-11. 2. BRIEFLY THE FACTS ARE, ASSESSEE A COMPANY IS ENG AGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT. FOR THE AY UNDER CONSIDERATION, ASSESSEE FILED ITS RETURN OF INCOME ON 20/09/2010 D ECLARING TOTAL INCOME OF RS. 1,97,77,830. AO COMPLETED ASSESSMENT U/S 143(3) OF THE ACT VIDE ORDER DATED 19/03/2013. AFTER COMPLETI ON OF THE ASSESSMENT, LD. CIT IN EXERCISE OF POWER U/S 263 OF THE ACT CALLED FOR ASSESSMENT RECORDS FOR THE YEAR UNDER CONSIDERATION AND AFTER EXAMINING THE SAME WAS OF THE VIEW THAT ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. THE REASONS FOR WHICH HE CONSIDERED THE ASSESSMENT ORDER TO BE ERRO NEOUS AND 2 ITA NO. 495 /HYD/2015 IIC TECHNOLOGIES P. LTD. PREJUDICIAL TO THE INTERESTS OF REVENUE AS MENTIONE D IN THE SHOW CAUSE NOTICE ARE AS UNDER: IT WAS OBSERVED THAT THE ASSESSEE HAD INCOME FROM B OTH DOMESTIC UNIT AS WELL AS 100% EOU I.E. UNIT ELIGIBLE FOR DEDUCT ION U/S 10B AND APPORTIONED EXPENDITURE BASED ON INCOME GENERATED AND ARRIVED PROFITS ON DOMESTIC UNIT AT RS.1,75,93,819/- AFTER ALLOCATION OF 11.29% OF TOTAL EXPENDITURE OF RS.31,59,38,238/-. IT WAS OBSERVED FROM SCHEDULE - 14 ADMINISTRATIVE AND SELLING EXPENSES THAT AN AMOUNT OF RS.1,19,30,686/ - WAS DEBITED TOWARDS FOREIGN EXC HANGE FLUCTUATIONS. THE SAID EXPENDITURE SOLELY RELATES TO THE EOU AND NEEDS TO BE REDUCED FROM TURNOVER OF EOU ONLY. THU S, THERE WAS EXCESS CLAIM OF EXPENDITURE TO THE EXTENT OF 11.29% ON RS . 1,19,30,686/ - ON DOMESTIC TURNOVER WHICH RESULTED IN SHORT COMPUTAT ION OF INCOME ATTRIBUTABLE TO THE DOMESTIC TURN OVER TO THE EXT ENT OF RS.13,46,974/- (11.29% OF 1.,19,30,686). AS THE ASSESSEE COMPANY PAID TAXES UNDER MAT PROVISIONS, MAT CREDIT TO THE EXTENT OF RS.4,0 4, 092/NEEDS TO BE RESTRICTED. IT WAS ALSO OBSERVED THAT THE ASSESSEE CALCULATED MAT CREDIT OF RS. 1,96,78,465/ - AS AGAINST ALLOWABLE .MAT CREDIT OFRS. 1,66,71,959/ - RESULTING IN EXCESS CARRIED FORWAR D OF MAT CREDIT OF RS.30, 06,476/ -. THE TOTAL EXCESS CARRIED FORWAR D MAT CREDIT WORKS OUT TO RS.34, 10,568/-. IN RESPONSE TO THE NOTICE ISSUED U/S 263 OF THE ACT , ASSESSEE SUBMITTED A DETAILED REPLY, CONTENDING THEREIN THAT SECTION 10B OF THE ACT DOES NOT MAKE ANY SUCH DIFFERENTIATION IN REDUC ING FOREIGN EXCHANGE FLUCTUATION LOSS FROM EXPORT TURNOVER ONLY . IT WAS FURTHER SUBMITTED, THE METHOD/MODE OF COMPUTATION OF EXEMPT ION U/S 10B IS PROVIDED IN SUB-SECTION (4) OF SAID SECTION AND ASS ESSEE IN TERMS WITH THE PROVISIONS OF THE SAID SECTION HAS COMPUTED EXE MPTION U/S 10B. THEREFORE, THERE IS NO OCCASION TO TINKER WITH THE COMPUTATION MADE U/S 10B OF THE ACT BY ASSESSEE, HENCE, THERE IS NO OCCASION TO CONSIDER ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. IT WAS SUBMITTED BY ASSESSEE THAT DEFIN ITION OF EXPORT TURNOVER AS PROVIDED UNDER EXPLANATION 2 TO SECTION 10B OF THE ACT DOES NOT SPEAK OF ADJUSTMENT OF FOREIGN EXCHANGE F LUCTUATION LOSS. 3. LD. CIT AFTER CONSIDERING THE SUBMISSIONS OF ASS ESSEE, HOWEVER, DID NOT FIND MERIT IN THE SAME. HE WAS OF THE VIEW THAT WHEN ASSESSEE HAS GOT INCOME FROM EXPORT UNIT AS WELL AS DOMESTIC UNIT, EXPENDITURE RELATING TO EXPORT UNIT SHOULD BE REDUC ED FROM THE EXPORT 3 ITA NO. 495 /HYD/2015 IIC TECHNOLOGIES P. LTD. UNIT ONLY AND CANNOT BE APPORTIONED TO THE INCOME O F DOMESTIC UNIT. HOWEVER, HE OBSERVED, ASSESSEE HAS DEBITED THE FORE IGN EXCHANGE FLUCTUATION LOSS OF RS. 1,19,36,686 TO THE P&L A/C WHICH CONTAINS A COMBINED PROFIT OF BOTH DOMESTIC AND EXPORT UNIT. L D. CIT OBSERVED THAT FOREIGN FLUCTUATION LOSS SINCE RELATES TO EXPO RT UNIT ONLY, IT CANNOT BE APPORTIONED TO THE DOMESTIC UNIT. HE, THEREFORE, DIRECTED AO TO REDUCE FOREIGN EXCHANGE FLUCTUATION LOSS FROM PROFI TS OF EXPORT UNIT AND COMPUTE DEDUCTION U/S 10B. 4. LD. AR SUBMITTED BEFORE US, PROVISIONS OF SECTIO N 10B DO NOT SPECIFY THAT ASSESSEE HAS TO MAINTAIN SEPARATE BOOK S OF ACCOUNT FOR DOMESTIC UNIT AND EXPORT UNIT. THEREFORE, THERE IS NO NEED FOR ASSESSEE TO ALLOCATE EXPENDITURE SEPARATELY TO DOME STIC UNIT AND EXPORT UNIT. IT WAS SUBMITTED BY LD. AR, ASSESSEE H AVING COMPUTED THE EXEMPTION U/S 10B IN TERMS WITH THE STATUTORY P ROVISIONS, LD. CIT WAS NOT JUSTIFIED IN DIRECTING AO TO REDUCE FOREIGN EXCHANGE FLUCTUATION LOSS FROM THE PROFITS EARNED FROM EXPOR T UNIT. LD. AR SUBMITTED, IN ANY CASE OF THE MATTER, IF AT ALL, FO REIGN EXCHANGE FLUCTUATION LOSS IS REDUCED FROM EXPORT TURNOVER, T HEN, IN TERMS WITH SECTION 10B(4) OF THE ACT, IT HAS BE REDUCED FROM T OTAL TURNOVER AND IN SUCH CASE ALSO IT WILL BE REVENUE NEUTRAL. 5. LD. DR, ON THE OTHER HAND, JUSTIFYING ACTION OF LD. CIT IN REVISING ASSESSMENT ORDER SUBMITTED BEFORE US, DEDUCTION U/S 10B OF THE ACT IS ONLY TO A 100% EXPORT ORIENTED UNIT, THEREFORE, THE EXPENDITURE RELATING TO EXPORT TURNOVER CANNOT BE ALLOCATED TO PROFITS OF DOMESTIC UNIT. HE SUBMITTED, SINCE THE FOREIGN EXCHANGE FLUC TUATION LOSS IS RELATABLE TO THE EXPORT UNIT, IT HAS TO BE SET OFF AGAINST THE PROFIT OF EXPORT UNIT. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. AS CAN BE SEEN, THE ONLY D ISPUTE IN THE PRESENT APPEAL IS WITH REGARD TO ALLOCATION OF FORE IGN EXCHANGE FLUCTUATION LOSS TO THE PROFITS OF EXPORT UNIT ONLY . WHERE ASSESSEE MAINTAINS SEPARATE BOOKS OF ACCOUNT FOR BOTH DOMEST IC UNIT AND 4 ITA NO. 495 /HYD/2015 IIC TECHNOLOGIES P. LTD. EXPORT UNIT IT MAY BE POSSIBLE TO ALLOCATE EXPENDIT URE UNIT SPECIFIC. HOWEVER, WHERE ASSESSEE MAINTAINS ONLY ONE SET OF B OOKS OF ACCOUNT FOR BOTH UNITS, IT WILL BE DIFFICULT TO IDENTIFY EX PENDITURE SPECIFIC TO EITHER OF THE UNIT. ON READING OF PROVISION CONTAIN ED U/S 10B OF THE ACT, WE ARE UNABLE TO LOCATE ANY MANDATE THEREIN RE QUIRING ASSESSEE TO MAINTAIN SEPARATE BOOKS OF ACCOUNT. ON PERUSAL O F THE P&L A/C. OF ASSESSEE, IT IS OBSERVED, ASSESSEE HAS MADE A CONSO LIDATED P&L A/C. CONSIDERING INCOME FROM EXPORT UNIT AS WELL AS DOME STIC UNIT. THE EXPENDITURES HAVE ALSO BEEN REDUCED FROM THE COMBIN ED PROFIT. THEREFORE, WHEN ASSESSEE IS NOT MAINTAINING SEPARAT E BOOKS OF ACCOUNT, AND EXPENDITURE HAS BEEN ALLOCATED AGAINST COMBINED PROFIT OF BOTH DOMESTIC AND EXPORT UNIT, IT IS NECESSARY T O EXAMINE WHETHER A PARTICULAR EXPENDITURE CAN BE ALLOCATED TO A SPECIF IC UNIT OR IT HAS TO BE ALLOCATED ON PRORATA BASIS. IT IS ALSO NECESSARY TO EXAMINE WHETHER THERE IS ANY CONDITION IMPOSED EITHER U/S 10B OR AN YWHERE ELSE IN THE ACT REQUIRING MAINTENANCE OF SEPARATE BOOKS OF ACCO UNT FOR EXPORT UNIT AND DOMESTIC UNIT. FURTHER, ASSESSEE HAS CONTE NDED THAT AS PER SECTION 10B(4) OF THE ACT, IF, ANY AMOUNT IS REDUCE D FROM NUMERATOR I.E. EXPORT TURNOVER, THE SAME ALSO IS REQUIRED TO BE REDUCED FROM THE DENOMINATOR I.E. TOTAL TURNOVER AS PER THE METHOD/M ODE PROVIDED U/S 10B(4). THIS CONTENTION OF ASSESSEE, WHICH HAS NOT AT ALL BEEN EXAMINED/DEALT BY LD. CIT, IN OUR VIEW, REQUIRES E XAMINATION. AS LD. CIT HAS NOT EXAMINED THESE ASPECTS, WE ARE INCLINED TO SET ASIDE THE IMPUGNED ORDER OF LD. CIT AND REMIT THE MATTER BACK TO HIS FILE FOR DECIDING AFRESH AFTER DUE OPPORTUNITY OF BEING HEAR D TO ASSESSEE KEEPING IN VIEW THE OBSERVATIONS MADE BY US HEREINB EFORE. CIT MUST PASS A REASONED ORDER BY CONSIDERING ALL ISSUES RAI SED BY ASSESSEE. 5 ITA NO. 495 /HYD/2015 IIC TECHNOLOGIES P. LTD. 7. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2015. SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 29 TH JULY, 2015 KV COPY TO:- 1) M/S IIC TECHNOLOGIES P. LTD., C/O K. VASANTKUMAR & A.V. RAGHURAM, ADVOCATES, 610, 6 TH FLOOR, BABHUKHAN ESTATE, BASHEERBAGH, HYDERABAD. 2) DCIT CIRCLE 2(1), HYDERABAD. 3) CIT II, HYDERABAD 4) ADDL. CIT, RANGE 2, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S. 2. DRAFT PLACED BEFORE AUTHOR SR.P.S 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER VP 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER