DCIT, Bangalore V. M/s Oewen Financial Solutions Pvt. Ltd., Bangalore

ITA 502/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60710 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-04-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 29-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIKRAM BAPAT
• Keywords: Depreciation; Reasonable cause; Unabsorbed depreciation

Judgement Text

PAGE 1 OF 10 ITA NO.5 02/BANG/2011 & C .O.NO.41/BANG/2011 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES A BEFORE SHRI N K SAINI, ACCOUNTANT MEMBER AND SMT. P MADHAVI DEVI, JUDICIAL MEMBER ITA NO.502/BANG/2011 (ASST. YEAR 2003-04) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(2), BANGALORE. VS M/S OCWEN FINANCIAL SOLUTIONS PVT. LTD., 4 TH & 6 TH FLOOR, SALARPURIA ARENA, 24, HOSUR ROAD, BANGALORE-30. PA NO.AAACO3764E (APPELLANT) (RESPONDENT) C.O.NO.41/BANG/2011 (ASST. YEAR 2003-04) M/S OCWEN FINANCIAL SOLUTIONS PVT. LTD., 4 TH & 6 TH FLOOR, SALARPURIA ARENA, 24, HOSUR ROAD, BANGALORE-30. PA NO.AAACO3764E VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(2), BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING : 19.04.20 12 DATE OF PRONOUNCEMENT : 19.04.2012 REVENUE BY : SHRI SARAVANAN B., JCIT ASSESSEE BY : SHRI VIKRAM BAPAT, C.A. O R D E R PER N K SAINI : THE APPEAL BY THE DEPARTMENT AND THE CROSS OBJECTI ON BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-III, BANGALORE, DATED 29/12/2010. PAGE 2 OF 10 ITA NO.5 02/BANG/2011 & C .O.NO.41/BANG/2011 2 2. THE ASSESSEES CROSS OBJECTION IS BARRED BY LIMI TATION BY 37 DAYS AND THE ASSESSEE FILED AN APPLICATION FOR CO NDONATION OF DELAY STATING THEREIN THAT THE DELAY WAS DUE TO CERTAIN CH ANGES AT THE SENIOR MANAGEMENT LEVEL, OWING TO WHICH, APPROPRIAT E AND TIMELY ACTION RELATED TO FILING OF CROSS OBJECTION COULD NOT BE T AKEN. A REQUEST HAS BEEN MADE TO CONDONE THE DELAY FOR 37 DAYS IN FILING THE CROSS OBJECTION. IN SUPPORT OF THE AFORESAID APPLICATION , THE ASSESSEE HAS ALSO FILED AN AFFIDAVIT DATED 25 TH AUGUST, 2011 WHEREIN THE AFORESAID FACTS HAS BEEN REPEATED AND IT HAS ALSO BEEN STATED THAT THE DELAY WAS NOT DUE TO ANY MALAFIDE INTENTION ON THE PART OF THE ASSESSEE. 2.1 DURING THE COURSE OF HEARING, THE LEARNED AR R EITERATED THE SUBMISSIONS IN FILING THE APPLICATION FOR CONDO NATION OF DELAY AS WELL AS THE AFORESAID AFFIDAVIT AND REQUESTED TO AD MIT THE CROSS OBJECTION AFTER CONDONING THE DELAY. 2.2 IN HIS RIVAL SUBMISSIONS, THE LEARNED DR OPPOS ED CONDONING THE DELAY. 2.3 AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIALS ON RECORD, IT APPEARS THAT THE AS SESSEE HAS A REASONABLE CAUSE IN NOT FILING THE CROSS OBJECTION WITHIN TIME, SINCE THERE WERE CHANGES AT THE SENIOR MANAGEMENT LEVEL. WE THEREFORE BY TAKING A LIBERAL VIEW, CONDONE THE DELAY AND THE CRO SS OBJECTION IS ADMITTED. PAGE 3 OF 10 ITA NO.5 02/BANG/2011 & C .O.NO.41/BANG/2011 3 3. FIRST WE SHALL DECIDE THE APPEAL OF THE DEPARTM ENT. IN THIS APPEAL, THE ONLY RELEVANT GROUND RAISED READS A S UNDER:- THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE LEASED LINE CHARGES AMOUNTING TO RS.2,00,03,469/-, HALF CIRCUIT CHARGES AMOUNTING TO RS.59,61,635/- AND TRAVEL EXPENSES AMOUNTING TO RS.19,91,910/- FROM TOTAL TURNOVER FOR THE PURPOSES OF COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE IT ACT, 1961. 3.1 THE FACTS OF THE CASE IN BRIEF ARE THAT THE AS SESSEE FILED ITS RETURN OF INCOME ON 28.11.2003 DECLARING AN INC OME OF RS.3,41,880/-. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE CLAIMED RS.2,22,67,110/- AS EXPEN SES INCURRED ON COMMUNICATION, OUT OF WHICH, RS.2,00,03,469/- WAS U TILIZED FOR THE PURPOSE OF LEASE LINE CHARGES FOR DELIVERY OF SOFTW ARE OUTSIDE INDIA. HE ALSO NOTICED THAT THE ASSESSEE INCURRED RS.59,61 ,635/- IN FOREIGN CURRENCY ON ACCOUNT OF INTERNATIONAL HALF-CIRCUIT C HARGES PAID TO MCI WORLDCOMM SINGAPORE PTE LTD. THE ASSESSING OFFICER CONSIDERED THE SAME AS EXPENSES INCURRED FOR PROVIDING TECHNICAL S ERVICES OUTSIDE INDIA. THE ASSESSING OFFICER ALSO DISALLOWED 50% O F THE TRAVELLING EXPENSES IN FOREIGN EXCHANGE BY TREATING THE SAME AS EXPENSES INCURRED FOR PROVIDING TECHNICAL SERVICES OUTSIDE I NDIA. THE ASSESSING OFFICER REDUCED THE AFORESAID EXPENSES FROM THE TOT AL RECEIPT TO ARRIVE AT THE EXPORT TURNOVER. PAGE 4 OF 10 ITA NO.5 02/BANG/2011 & C .O.NO.41/BANG/2011 4 3.2 THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A), WHO DIRECTED THE ASSESSING OFFICER TO REDUCE THE EX PENSES FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER. 3.3 BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL B EFORE US. 3.4 DURING THE COURSE OF HEARING, THE LEARNED DR S UPPORTED THE FINDING OF THE ASSESSING OFFICER AND THE LEARNE D AR REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND ALSO SUBMITTED THAT THIS ISSUE IS COVERED BY THE ORDER OF THE TRIBU NAL IN THE CASE OF ITO V SAK SOFT LTD. 313 ITR (AT) 353 (CHENNAI) (SB) IN FAVOUR OF THE ASSESSEE. 3.5 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIALS AVAILABLE O N RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH OF ITAT CHENNAI IN THE CASE OF ITO V SAK SOFT LTD. 313 ITR (AT) 353 (CHENNAI) (SB) WHERE IN IT HAS BEEN HELD AS UNDER:- TO SAY THAT IN THE ABSENCE OF ANY DEFINITION OF TOTAL TURNOVER FOR THE PURPOSE OF SECTION 10B, THERE IS NO AUTHORITY TO EXCLUDE ANYTHING FROM THE EXPRESSION AS UNDERSTOOD IN GENERAL PARLANCE WOULD BE WRONG, AS THERE HAS TO BE AN ELEMENT OF TURNOVER IN THE RECEIPT IF IT HAS TO BE INCLUDED IN THE TOTAL TURNOVER. THAT ELEMENT IS MISSING IN THE CASE OF FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE GOODS OUTSIDE INDIA AND EXPENSES INCURRED IN FOREIGN EXCHANGE IN PAGE 5 OF 10 ITA NO.5 02/BANG/2011 & C .O.NO.41/BANG/2011 5 CONNECTION WITH THE PROVIDING OF TECHNICAL SERVICES OUTSIDE INDIA. THESE RECEIPTS CAN ONLY BE RECEIVED BY THE ASSESSEE AS REIMBURSEMENT OF SUCH EXPENSES INCURRED BY HIM. MERE REIMBURSEMENT OF EXPENSES CANNOT HAVE AN ELEMENT OF TURNOVER. IT IS ONLY IN RECOGNITION OF THIS POSITION THAT IN THE DEFINITION OF EXPORT TURNOVER IN SECTION 10B, THE AFORESAID TWO ITEMS HAVE BEEN DIRECTED TO BE EXCLUDED. SECONDLY, THE DEFINITION OF EXPORT TURNOVER CONTEMPLATES THAT THE AMOUNT RECEIVED BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE SHOULD REPRESENT CONSIDERATION IN RESPECT OF THE EXPORT. ANY REIMBURSEMENT OF THE TWO ITEMS OF EXPENSES MENTIONED IN THE DEFINITION CAN UNDER NO CIRCUMSTANCES BE CONSIDERED TO REPRESENT CONSIDERATION FOR THE EXPORT OF THE COMPUTER SOFTWARE OR ARTICLE OR THINGS. THUS, THE EXPRESSIO N TOTAL TURNOVER WHICH IS NOT DEFINED IN SECTION 10 B SHOULD ALSO BE INTERPRETED IN THE SAME MANNER. THUS, THE TWO ITEMS OF EXPENSES REFERRED TO IN THE DEFINITION OF EXPORT TURNOVER CANNOT FORM PART OF THE TOTAL TURNOVER SINCE THE RECEIPTS BY WAY OF RECOVERY OF SUCH EXPENSES CANNOT BE SAID TO REPRESENT CONSIDERATION FOR THE GOODS EXPORTED SINCE TOTAL TURNOVER IS NOTHING BUT THE AGGREGATE OF THE DOMESTIC TURNOVER AND THE EXPORT TURNOVER. IN THE FORMULA PRESCRIBED BY SECTION 10B(4) THE FIGURE OF EXPORT TURNOVER HAS TO BE THE SAME BOTH IN THE NUMERATOR AND IN THE DENOMINATOR OF THE FORMULA. IT FOLLOWS THAT THE TOTAL TURNOVER CANNOT INCLUDE THE TWO ITEMS OF EXPENSES RECOVERED BY THE ASSESSEE AND REFERRED TO IN THE DEFINITION OF EXPORT TURNOVER . 3.6 THE AFORESAID DECISION HAD BEEN CONSIDERED AND AFFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD. & ORS. 2011-TIOL-684-HC-KAR-II WHEREIN IT HAS BEEN HELD THAT FOR PAGE 6 OF 10 ITA NO.5 02/BANG/2011 & C .O.NO.41/BANG/2011 6 THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTI ON 10A OF THE ACT, IF ANY EXPENDITURE IS EXCLUDED FROM THE EXPORT TURNOVER, THE SAME HAS TO BE EXCLUDED FROM THE TOTAL TURNOVER ALS O. A SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. 2010-TIOL-456-HC-MUM-I T. WE, THEREFORE, BY CONSIDERING THE TOTALITY OF THE FACTS A S DISCUSSED HEREINABOVE, ARE OF THE VIEW THAT THE LEARNED CIT(A ) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE AND DIRECTING TH E ASSESSING OFFICER TO EXCLUDE THE EXPENSES BOTH FROM EXPORT TURNOVER A S WELL AS TOTAL TURNOVER WHILE CALCULATING THE DEDUCTION UNDER SECT ION 10A OF THE ACT. WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORD ER OF THE LEARNED CIT(A) ON THIS ISSUE. 3.7 IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. 4. NOW WE SHALL DEAL WITH THE CROSS OBJECTION FILE D BY THE ASSESSEE. THE FOLLOWING GROUNDS HAVE BEEN RAISED I N THE CROSS OBJECTION:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER, OF INCLUDING MISCELLANEOUS INCOME OF INR 11,35,154 AS PART OF TO TAL TURNOVER FOR COMPUTING DEDUCTION UNDER SECTION 10A OF THE INCOME-TAX ACT, 1961, BY DISREGARDING THE FACTS THAT THE SECTION REFER TO TOTAL TURNOVER AND NOT TOTAL RECEIPTS. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE :- PAGE 7 OF 10 ITA NO.5 02/BANG/2011 & C .O.NO.41/BANG/2011 7 A) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER, OF SETTING OFF THE LOSSES OF MUMBAI STPI UNDERTAKING OF RS.66,64,539/- IN ARRIVING AT THE PROFITS FOR THE BUSINESS OF BANGALORE STPI UNDERTAKING, WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE INCOME-TAX ACT, 1961; B) THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT THE DEDUCTION UNDER SECTION 10A OF THE INCOME-TAX ACT, 1961, SHOULD BE COMPUTED WITH RESPECT TO THE PROFITS OF EACH UNDERTAKINGS ON STAND-ALONE BASIS, AND CONFIRMING THE ACTION OF THE ASSESSING OFFICER. 4.1 VIDE GROUND NO.1, THE GRIEVANCE OF THE ASSESSE E RELATES TO THE EXCLUSION OF MISCELLANEOUS INCOME AMOUNTING TO RS.11,35,154/- AS PART OF TOTAL TURNOVER FOR COMPUTING DEDUCTION U NDER SECTION 10A OF THE I T ACT. 4.2 THE FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, NOTICED THAT THE ASSESSEE HAD SHOWN RS.11,35,154/- AS INCOME FROM OTHER SOURCES, WHICH HAD NOT BEEN RECEIVED IN CONVE RTIBLE FOREIGN EXCHANGE, HE WAS OF THE VIEW THAT THE SAME ALSO NEE DS TO BE REDUCED FROM THE SALE RECEIPTS TO ARRIVE AT THE EXPORT TURN OVER. 4.3 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LEARNED CIT(A), WHO CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY STATING THAT THE TOTAL TURNOVER INCLUDES EVEN THE MISCELLANEOUS INCOME. PAGE 8 OF 10 ITA NO.5 02/BANG/2011 & C .O.NO.41/BANG/2011 8 4.4 AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIALS ON RECORD, WE ARE OF THE OPINION THAT WHEN THE MISCELLANEOUS INCOME WAS NOT RELATING TO EXPORT AND WAS REDUCED FROM THE EXPORT TURNOVER, IT SHOULD HAVE ALSO BEEN REDUC ED FROM THE TOTAL TURNOVER FOR THE PURPOSES OF WORKING OUT THE DEDUCT ION UNDER SECTION 10A OF THE ACT, AS PER THE RATIO LAID DOWN BY THE HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD. & ORS. (S UPRA), THE SAID JUDGEMENT ALTHOUGH IS IN RESPECT OF VARIOUS EXPENSE S BUT THE RATIO LAID DOWN IN THE JUDGEMENT IS ALSO APPLICABLE FOR T HE INCOME WHICH IS NOT PART OF EXPORT TURNOVER AND IF THE INCOME IS TO BE REDUCED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO TO BE RED UCED FROM THE TOTAL TURNOVER WHILE WORKING OUT THE DEDUCTION UNDE R SECTION 10A OF THE ACT. IN THAT VIEW OF THE MATTER, WE DIRECT THE ASSESSING OFFICER TO REDUCE THE MISCELLANEOUS INCOME IN QUESTION FROM THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNOVER WHILE COMPUT ING THE DEDUCTION UNDER SECTION 10A OF THE ACT. 5. THE NEXT ISSUE VIDE GROUND NO.2 (A) AND (B) REL ATES TO SETTING OFF OF THE LOSS OF MUMBAI STPI UNDERTAKING FROM THE PROFITS OF THE BUSINESS OF BANGALORE STPI UNDERTAKING WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE I T ACT. 5.1 THE FACTS IN RELATION TO THIS ISSUE IN BRIEF A RE THAT THE ASSESSING OFFICER WHILE WORKING OUT THE DEDUCTION U NDER SECTION 10A OF THE ACT, SET OFF THE LOSS OF RS.66,64,539/- OF M UMBAI UNIT AGAINST THE TAXABLE PROFIT OF RS.49,14,168/- OF THE BANGALO RE UNIT WHICH PAGE 9 OF 10 ITA NO.5 02/BANG/2011 & C .O.NO.41/BANG/2011 9 RESULTED IN A LOSS UNDER THE HEAD PROFITS AND GAIN S OF THE BUSINESS OR PROFESSION. THE CLAIM OF THE ASSESSEE WAS THAT TH ERE WAS NO QUESTION FOR CLAIMING DEDUCTION UNDER SECTION 10A OF THE ACT ON THE LOSS SUFFERED BY THE MUMBAI UNIT AND THAT THE ASSESSEE WA S ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT O F THE PROFITS AND GAINS FROM BANGALORE UNIT. THE ASSESSING OFFICER D ID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND ADJUSTED THE LOSS SUFFERE D IN MUMBAI UNIT AGAINST THE TAXABLE PROFIT OF THE BANGALORE UNIT. 5.2 THE ASSESSEE BEING AGGRIEVED CARRIED THE MATTE R BEFORE THE LEARNED CIT(A), WHO HELD THAT THE ASSESSING OFF ICER WAS JUSTIFIED IN WORKING OUT THE DEDUCTION ONLY AFTER SETTING OFF OF THE CURRENT YEAR LOSS OF MUMBAI UNIT FROM PROFITS FROM BANGALORE UNIT. 5.3 NOW THE ASSESSEE IN CROSS OBJECTION BEFORE US. 5.4 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND GONE THROUGH THE MATERIALS AVAILABLE ON RECORD. IT IS NOTICED THAT THE ISSUE UNDER CONSIDERATION HAD BEEN SETTLED BY TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V YOKO GAWA INDIA LTD. (2012) 341 ITR 385, WHEREIN IT HAS BEEN HELD AS UND ER:- HELD, THAT AS THE PROFITS AND GAINS UNDER SECTION 10A WERE NOT TO BE INCLUDED IN THE INCOME OF THE ASSESSEE AT ALL, THE QUESTION OF SETTING OFF THE LO SS OF THE ASSESSEE FROM ANY BUSINESS AGAINST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. SIMILARLY, AS PER SECTION 72(2), UNABSORBED BUSINESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER PAGE 10 OF 10 ITA NO. 502/BANG/2011 & C .O.NO.41/BANG/2011 10 UNABSORBED DEPRECIATION TREATED AS CURRENT YEARS DEPRECIATION UNDER SECTION 32(2) IS TO BE SET OFF. AS THE DEDUCTION UNDER SECTION 10A HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE, THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. 5.5 IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER O F THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER NOT TO SET OFF THE LOSS OF MUMBAI UNIT AGAINST THE PROFITS OF THE BANG ALORE UNIT WHILE WORKING OUT DEDUCTION UNDER SECTION 10A OF THE ACT. 6. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSES SEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DAY OF APRIL, 2012. SD/- SD/- (P MADHAVI DEVI) (N K SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER COPY TO:- 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONC ERNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.