M/s. MSourcE (India) Pvt. Ltd., Bangalore V. ACIT, Bangalore

ITA 519/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9492 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-09-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 21-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K P KUMAR SHRI JASON P BOAZ
• Keywords: Depreciation; Revised return; Unabsorbed depreciation; Set aside
• Section: 143(3); 260A; 263; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI K.K. GUPTA, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO.519/BANG/2009 ASSESSMENT YEAR : 2004-05 MSOURCE (INDIA) PRIVATE LTD., BAGMANE TECHNOLOGY PARK, BYSANDRA, C.V. RAMAN NAGAR, BANGALORE 560 093. : APPELLANT VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 12(1), BANGALORE. : RESPONDENT APPELLANT BY : SHRI K.P. KUMAR RESPONDENT BY : SHRI JASON P. BOAZ O R D E R PER GEORGE GEORGE K., JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME-TAX DATED 6.3.09 PASSED UNDE R SECTION 263 OF THE INCOME-TAX ACT. 2. THE ASSESSEE IS A COMPANY ENGAGED IN INFORMATION TECHNOLOGY ENABLED SERVICES (ITES FOR SHORT) AND AS SUCH CLA IMING EXEMPTION UNDER SECTION 10A OF THE ACT. WHILE FILING ITS RETURN OF INCOME FOR THE A.Y. 2004- ITA NO.519/B/09 PAGE 2 OF 7 05, THE ASSESSEE REDUCED FOREIGN CURRENCY EXPENSES AND TELECOMMUNICATION EXPENSES FROM THE EXPORT TURNOVER AND TOTAL TURNOVER. SUBSEQUENTLY REVISED RETURN WAS FILED WHEREIN FOREI GN CURRENCY EXPENSES WAS INCLUDED IN THE EXPORT TURNOVER AND TOTAL TURNO VER. 3. THE ASSESSING OFFICER WHILE COMPLETING ASSESSMEN T U/S. 143(3) OF THE ACT BY ORDER DATED 29.12.2006 DID NOT ACCEPT TH E ASSESSEES REVISED CLAIM FOR INCLUSION OF FOREIGN CURRENCY EXPENSES IN THE EXPORT TURNOVER AND TOTAL TURNOVER. IT IS STATED, THE ASSESSEE HAS PRE FERRED AN APPEAL ON THIS ISSUE BEFORE THE CIT(APPEALS)-VII, MUMBAI WHICH HAS SINCE BEEN TRANSFERRED TO BANGALORE AND IS PENDING. 4. AS REGARDS TELECOMMUNICATION EXPENSES, THE AO RE DUCED THE SAME FROM BOTH THE EXPORT TURNOVER AND TOTAL TURNOVER. THE LD. CIT ISSUED NOTICE U/S. 263 FOR REVISING THE ASSESSMENT. ACCORDING TO THE LD. CIT, THE ASSESSMENT COMPLETED ON 29.12.2006 WAS ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF REVENUE FOR THE FOLLOWING REASONS: (I) FOREIGN CURRENCY EXPENSES - THE COMMISSIONER T OOK EXCEPTION TO EXCLUSION OF FOREIGN CURRENCY EXPENSES FROM TOTAL TURNOVER. (II) TELECOMMUNICATION CHARGES THE COMMISSIONER T OOK EXCEPTION TO EXCLUSION OF TELECOMMUNICATION CHARGES FROM THE TOTAL TURNOVER. (III) UNABSORBED DEPRECIATION THE CIT WAS OF THE VIEW THAT UNABSORBED DEPRECIATION PERTAINING TO A.Y. 2002-03 HAD BEEN ALLOWED TO BE SET OFF TWICE IN COMPUTING THE TOTAL INCOME FOR A.Y. 2004-05 AND HE DESIRED TO TAKE CORRECTIVE ACTI VE. 5. THE ASSESSEE HAD RAISED OBJECTIONS TO THE ABOVE PROPOSAL OF THE CIT AND FILED WRITTEN SUBMISSIONS DATED 24.2.09. T HE LEARNED CIT REJECTED ITA NO.519/B/09 PAGE 3 OF 7 THE VARIOUS CONTENTIONS RAISED BY THE ASSESSEE AND PASSED THE REVISIONARY ORDER U/S. 263 ON 6.3.09. THE CITS DIRECTIONS TO THE AO ARE AS FOLLOWS: TO SUM UP THE ASSESSMENT ORDER DATED 29.12.2006 PA SSED BY THE ACIT, CIRCLE 12(1), BANGALORE U/S. 143(3) R.W.S. 14 7 STANDS MODIFIED TO THE EXTENT THAT THE TOTAL TURN OVER ADO PTED BY THE AO FOR THE PURPOSES OF COMPUTATION OF DEDUCTION U/S. 1 0A SHALL BE REDUCED BY A SUM OF RS.14,31,95,657/- BEING TELECOM MUNICATION CHARGES AND EXPENSES INCURRED IN FOREIGN CURRENCY F ROM THE TOTAL TURNOVER. THE AO IS DIRECTED TO COMPUTE DEDUCTION U /S. 10 OF THE I.T. ACT, 1961 IN ACCORDANCE WITH THE ABOVE DIRECTI ONS WHILE GIVING EFFECT TO THIS ORDER. THE ISSUE OF SET OFF OF UNABSORBED DEPRECIATION OF RS.13,99,141/- PERTAINING TO A.Y. 2 002-03 IS SET ASIDE TO THE AO WHO WILL GRANT THE ASSESSEE AN OPPO RTUNITY OF BEING HEARD BEFORE DECIDING THE ISSUE. 6. AGGRIEVED BY THE ORDER OF THE CIT, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSION ER OF INCOME-TAX, BANGALORE-III [THE CIT] UNDER SECT ION 263 OF THE ACT IS BAD IN LAW AND VOID AB INITIO . THE LEARNED CIT ERRED IN CONCLUDING THAT THE ORDER OF THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 8(2), MUMBAI (T HE DCIT) IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, AND SUCH, THE ORDER OF THE CIT IS WITHOUT JURISDICTION . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT ERRED IN EXCLUDING EXPENSES INCURRED IN FOREIGN CURRENCY FOR PROVIDING SOFTWARE DEVELOPMENT SERVICE S OUTSIDE INDIA OF RS.16,487,478 FROM THE EXPORT TURNOVER. THE LEARNED CIT ERRED IN NOT APPLYING THE DECISION OF THE INCOME- TAX APPELLATE TRIBUNAL, BANGALORE IN THE CASE OF IN FOSYS TECHNOLOGIES LIMITED (ITA NOS.50, 793 TO 795, 742 A ND 732 TO 734/BANG/2001) AND MPHASIS LIMITED (ITA NO.884/BANG /2007 AND 524/BANG/2008) TO THE APPELLANTS CASE. 3. THE LEARNED CIT, HAVING EXCLUDED THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOV ER OUGHT TO ITA NO.519/B/09 PAGE 4 OF 7 HAVE EXCLUDED THE RELEVANT EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVER AS WELL. 4. THE LEARNED CIT ERRED IN CONCLUDING THAT IN THE ABSENCE OF THE DEFINITION OF TOTAL TURNOVER, THE ADJUSTMENT OF TELECOMMUNICATION EXPENSES AMOUNTING TO RS.126,708, 179 TO BE MADE TO THE EXPORT TURNOVER NEED NOT BE MADE TO T HE TOTAL TURNOVER. THE LEARNED CIT ERRED IN NOT EXCLUDING TELECOMMUNIC ATION EXPENSES OF RS.126,708,179 FROM THE TOTAL TURNOVER, HAVING EXCLUDED THE SAME FROM THE EXPORT TURNOVER. 5. THE LEARNED CIT ERRED IN CONCLUDING THAT THE APP ELLANT HAD ERRONEOUSLY SET OFF UNABSORBED DEPRECIATION AMO UNTING TO RS.1,399,141 PERTAINING TO A.Y. 2002-03. 6. THE APPELLANT THEREFORE PRAYS THAT THE ORDER PAS SED BY THE CIT UNDER SECTION 263 OF THE ACT AND THE CONSEQUENT IAL EFFECT THEREOF IS BAD IN LAW AND SHOULD BE ANNULLED. 7. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITTED THAT ISSUE REGARDING UNABSORBED DEPRECIATION (GROUND NO. 5) IS NOT BEING PRESSED, SINCE THE MATTER HAS BEEN REMANDED TO THE AO FOR DE NOVO CONSIDERATION. HENCE GROUND NO.5 RAISED IN THIS AP PEAL IS DISMISSED AS NOT PRESSED. ON THE OTHER TWO ISSUES (GROUNDS 2 TO 4), THE ASSESSEE RAISED THE FOLLOWING CONTENTIONS. 8. REGARDING FOREIGN CURRENCY EXPENSES, IN TERMS OF THE DECISIONS RENDERED BY BANGALORE TRIBUNAL, THE FOREIGN CURRENC Y EXPENSES ARE NOT TO BE EXCLUDED FROM THE EXPORT TURNOVER AND TOTAL TURN OVER. WHAT IS MORE IN THE ASSESSEES CASE IS, IT WAS SUBMITTED, IT IS NO T ENGAGED IN RENDERING OF ANY TECHNICAL SERVICES WHATEVER. AS THE COMMISSION ER HAS CHOSEN TO INCLUDE THE EXPENDITURE IN THE TOTAL TURNOVER, IT S HOULD BE SIMILARLY INCLUDED ITA NO.519/B/09 PAGE 5 OF 7 IN THE EXPORT TURNOVER ALSO TO MAINTAIN PARITY IN T HE LIGHT OF THE FOLLOWING DECISIONS : (1) ORDER DATED 27.6.2009 IN ITA NO.884/07 IN THE C ASE OF MPHASIS LTD. V. ACIT (A.Y. 2003-04) (2) ORDER DATED 7.11.2008 IN ITA NO.524/08 IN THE CASE OF MPHASIS LTD. V. ACIT (A.Y. 2004-05) (3) ORDER DATED 29.5.09 IN ITA NO.620/B/2008 IN THE CAS E OF ACIT V. KSHEMA TECHNOLOGIES LTD. (A.Y. 2004-05) (4) ORDER DATED 10.7.2009 IN ITA NO.367/B/09 IN THE CAS E OF MPHASIS SOFTWARE & SERVICES (INDIA) PVT. LTD. V. CI T (A.Y. 2004-05). 9. ALTERNATIVELY IT WAS SUBMITTED THAT THE CITS AC TION IN SO FAR AS INCLUSION IN THE TOTAL TURNOVER MAY BE SET ASIDE AN D AS REGARDS INCLUSION OF THE SAME IN THE EXPORT TURNOVER AND TOTAL TURNOVER, THE ASSESSEE WILL AGITATE IN THE APPEAL PENDING BEFORE THE CIT. 10. AS REGARDS TELECOMMUNICATION CHARES, IT WAS SUB MITTED THAT IN THE LIGHT OF THE DECISIONS REFERRED ABOVE AS WELL AS RE CENT DECISION OF THE CHENNAI SPECIAL BENCH IN THE CASE OF SAK SOFT LIMIT ED REPORTED IN 313 ITR (AT) 353 (CHENNAI)(SB), TELECOMMUNICATION EXPENSES ARE TO BE REDUCED FROM BOTH EXPORT TURNOVER AND TOTAL TURNOVER. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. GROUND NOS.2 TO 4 ARE WITH REGARD TO ISSUE OF REDUCTION OF TELECOMMUNICATION CHARGES (RS1,64,87,478/-) AND EXP ENDITURE INCURRED ON FOREIGN CURRENCY (RS.12,67,08,179/-) FROM THE VALUE OF THE TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. THE LEARNED CIT HIMSELF, WHILE PASSING ORDER U/S 263, HAS CATEGORIC ALLY STATED THAT THE ISSUE ITA NO.519/B/09 PAGE 6 OF 7 IN QUESTION IS COVERED BY THE VARIOUS ORDERS OF THE TRIBUNAL AND SINCE THE DEPARTMENT HAS NOT ACCEPTED THE SAME AND APPEAL U/S 260A HAS BEEN FILED, HE HAS PROPOSED TO REVISE THE ASSESSMENT. T HE FOLLOWING ORDERS HAVE CATEGORICALLY HELD WHEN EXPENDITURE IS EXCLUDE D FROM THE EXPORT TURNOVER NECESSARILY FROM THE TOTAL TURNOVER ALSO T HE SAME HAS TO BE EXCLUDED. I) TATA ELXSI LTD. VS. ACIT (ITA NO.315/BANG/2006) II) ACIT VS. INFOSYS TECHNOLOGIES LTD. (ITA NO.653 & 969/BANG/2006) III) IGATE GLOBAL SOLUTIONS LTD. VS. ACIT (ITA NOS.248 & 249/BAG/2007) IV) ISEVA SYSTEMS PVT. LTD. VS. ACIT (ITA NO.401/BANG/2007) V) ITO VS. M/S. DE BLOCK INDIA SOFTWARE PVT. LTD. (ITA NOS.983 & 984/HYD/2006) AND VI) DCIT VS. BINARY SYMENTICS LTD. (109 TTJ 556) THE SPECIAL BENCH (CHENNAI) IN THE CASE OF ITO VS. SAK SOFT LTD . (313 ITR (AT) CHENNAI 353) HAS ALSO TAKEN THE ABOVE VIEW. IN THE LIGHT OF THE ABOVE DECISIONS WE ARE OF THE VIEW THAT THE LEARNED CIT H AS ERRED IN REVISING THE ASSESSMENT SINCE A POSSIBLE VIEW HAS BEEN TAKEN BY THE AO AND THE ORDER CANNOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF REVENUE. GROUNDS NO.2 TO 4 RAISED IN THE APPEAL ARE ALLOWED. 12. GROUNDS NO.1 AND 6 ARE WITH REFERENCE TO VALIDI TY OF INVOKING THE REVISIONARY JURISDICTION U/S 263 OF THE ACT. IN TH IS CASE, SINCE THE ASSESSEE DOES NOT HAVE OBJECTION TO THE THIRD PROPOSAL OF TH E LEARNED CIT, WE CANNOT HOLD THAT THE LEARNED CIT HAS ERRED IN INVOKING HIS REVISIONARY JURISDICTION U/S 263. HENCE, GROUNDS NO.1 AND 6 ARE DISMISSED. ITA NO.519/B/09 PAGE 7 OF 7 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF SEPTEMBER 2009. SD/- SD/- (K. K. GUPTA ) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 18 TH SEPTEMBER, 2009. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.