Deputy Commissioner of Income Tax Circle-7(1)(2), Bangalore V. M/s Xchanging Solutions Ltd , Bangalore

ITA 503/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5063 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 21-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PADMA MEENAKSHI JT BENGALURU

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI A.K. GARODIA , ACCOUNTANT MEMBER I TA NO. 503/BANG/2018 ASSESSMENT YEAR : 2004 - 05 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(2), BANGALORE. VS. M/S. XCHANGING SOLUTIONS LTD., SJR I-PARK NO.13,14,15, EPIP INDUSTRIAL AREA, PHASE-I, WHITEFIELD, BANGALORE 560 066. PAN: AAFCS 9303L APPELLANT RESPONDENT APPELLANT BY : SMT. PADMA MEENAKSHI , JT.CIT(DR)(ITAT), BENGALURU. RE SPONDENT BY : NONE DATE OF HEARING : 07 .06 .201 8 DATE OF PRONOUNCEMENT : 03.08 .2018 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 27.12.2017 RELATING TO ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF PROVIDING SOFTWARE DEVELOPMENT SERVICES. IT IS NOT IN DISPUT E THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S.10A OF THE INCOME T AX ACT, 1961 ON PROFITS ITA NO.503/BANG/2018 PAGE 2 OF 5 AND GAINS AS ARE DERIVED FROM THE EXPORT OF COMPUTE R SOFTWARE. SEC.10A(4) PROVIDES THE METHODOLOGY OF COMPUTATION OF DEDUCTIO N U/S.10A OF THE ACT AND IT LAYS DOWN THAT THE PROFITS DERIVED FROM EXPO RT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS T O THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFT WARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAK ING. EXPORT TURNOVER HAS BEEN DEFINED UNDER EXPLANATION 2 (IV) TO SEC.10A AS : 'EXPORT TURNOVER' MEANS THE CONSIDERATION IN RESPE CT OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB -SECTION (3), BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHA RGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTIC LES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY , INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICE S OUTSIDE INDIA. 3. THE AO NOTICED THAT WHILE COMPUTING EXPORT TURNO VER FOR THE PURPOSE OF DEDUCTION U/S.10A, THE ASSESSEE HAD INCLUDED A S UM OF RS.65,04,253/- BEING COMMUNICATION EXPENSES AND RS.1,60,46,785/- B EING TRAVELLING AND CONVEYANCE EXPENSES. BOTH THE AFORESAID EXPENSES H AD BEEN INCURRED IN FOREIGN CURRENCY. THE AO THEREFORE EXCLUDED THE AF ORESAID SUM FROM THE EXPORT TURNOVER WITHOUT EXCLUDING THEM FROM THE TOT AL TURNOVER. AS A RESULT, THE DEDUCTION CLAIMED U/S.10A OF THE ACT BY THE ASS ESSEE WAS ALLOWED AT A LESSER SUM THAN WHAT WAS CLAIMED BY THE ASSESSEE. 4. IT WAS THE PLEA OF THE ASSESSEE IN THE APPEAL AG AINST THE ASSESSMENT ORDER BEFORE THE CIT(A) THAT AT ALL TIME S DURING THE RELEVANT PREVIOUS YEAR, IT WAS ENGAGED IN DEVELOPMENT OF COM PUTER SOFTWARE AND ITA NO.503/BANG/2018 PAGE 3 OF 5 NOT IN RENDERING ANY TECHNICAL SERVICES. COMMUNICA TION EXPENSES WERE INCURRED NOT FOR EXPORT OF COMPUTER SOFTWARE OUTSID E INDIA AND THEREFORE THE EXCLUSION FROM EXPORT TURNOVER AS DONE BY THE AO WA S NOT CORRECT. WITHOUT PREJUDICE TO ITS CONTENTION THAT THE AFORESAID SUMS SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT, THE ASSESSEE HAS ALSO MADE AN ALTERNATE PRAYER THAT EXP ENSES THAT ARE REDUCED FROM THE EXPORT TURNOVER SHOULD ALSO BE RED UCED FROM THE TOTAL TURNOVER AND IN THIS REGARD HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) WHEREIN IT WAS HELD THAT WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT EXPENSES THAT ARE REDUCED FROM T HE EXPORT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER. TH E CIT(A) ACCEPTED THE ALTERNATE PRAYER OF THE ASSESSEE AND DIRECTED THAT THE EXPENSES REDUCED FROM THE EXPORT TURNOVER SHOULD ALSO BE REDUCED FRO M THE TOTAL TURNOVER. AS A RESULT, THE DEDUCTION AS CLAIMED BY THE ASSESSEE U/S.10A OF THE ACT STOOD ALLOWED. AGGRIEVED BY THE RELIEF ALLOWED BY THE CI T(A), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ S THUS: 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO L AW AND FACTS OF THE CASE. 2. THE CIT(APPEALS) OUGHT TO HAVE CONSIDERED THAT T HAT THE EXPENDITURE INCURRED IN FOREIGN CURRENCY, TOWARDS TELECOMMUNICATION EXPENSES AND TRAVEL EXPENSES IN C ONNECTION WITH RENDERING TECHNICAL SERVICES OUTSIDE INDIA, TO BE EXCLUDED ONLY FROM EXPORT TURNOVER AND NOT FROM TOTAL TURNOV ER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/ S 10A OF THE ACT, SINCE SUCH EXCLUSION IS PERMITTED TO ARRIVE AT THE EXPORT TURNOVER ONLY AS PER THE DEFINITIONS GIVEN IN SEC. 10A AND TOTAL TURNOVER HAS NOT BEEN DEFINED IN THE SAME. ITA NO.503/BANG/2018 PAGE 4 OF 5 3. WHETHER THE CIT(A) IS CORRECT IN LAW IN FOLLOWIN G THE JUDGEMENTS OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TATA ELXSI LTD., WHICH HAS NOT BECOME FINAL SINCE T HE SAME HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND SLPS ARE PE NDING BEFORE THE HON'BLE APEX COURT'? 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT( A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND TH AT OF THE ASSESSING OFFICER MAY BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 6. WE HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE W HO RELIED ON THE ORDER OF THE CIT(A) AND THE LD. DR WHO RELIED ON TH E ORDER OF THE CIT(A). 7. TAKING INTO CONSIDERATION THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) , WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) D IRECTING THE ASSESSING OFFICER TO EXCLUDE COMMUNICATION CHARGES AND TRAVELLING AND CONVEYANCE EXPENSES BOTH FROM EXPORT TURNOVER AND TOTAL TURNOVER, IS JUST AND PROPER AND CALLS FOR NO INTERFERENCE. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE DECISION OF HON'BLE HIGH COURT OF KARNATAKA IN TATA ELXSI (SUPRA) HAS NOT ATTAINED FINALITY AND A SLP BY THE DEPARTM ENT IS PENDING BEFORE THE HON'BLE SUPREME COURT. WE ARE O F THE VIEW THAT AS OF TODAY, LAW DECLARED BY THE HON'BLE HIGH COURT OF KA RNATAKA WHICH IS THE JURISDICTIONAL HIGH COURT IS BINDING ON US. WE THE REFORE HOLD THAT THE ORDER OF CIT(A) DOES NOT CALL FOR ANY INTERFERENCE AND AC CORDINGLY THE SAME IS CONFIRMED. ITA NO.503/BANG/2018 PAGE 5 OF 5 8. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF AUGUST, 2018. SD/- SD/- ( A.K. GAROD I A ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 3 RD AUGUST, 2018. / D ESAI S MURTHY / COPY TO: 1. THE APP ELL ANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.