ACIT, CHENNAI V. M/s. Covansys (India) Private Limited, CHENNAI

ITA 593/CHNY/2007

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0978 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-02-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 28-02-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DR ANITA SUMANTH
• Keywords: Depreciation; Competent authority; Scheme of amalgamation
• Section: 143(3); 80HHC; 10B; 80HH; 32; 6; 154; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH A : CHENNAI [BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER] I.T.A.NO.414/MDS/2007 ASSESSMENT YEAR : 2003-04 M/S COVANSYS (INDIA) PVT. LTD UNIT 13, BLOCK 2, SDF BUILDINGS MADRAS EXPORT PROCESSING ZONE TAMBARAM CHENNAI 45 VS THE ACIT COMPANY CIRCLE I(3) CHENNAI [PAN - AAACC1351M ] (APPELLANT) (RESPONDENT) I.T.A.NO.593/MDS/2007 ASSESSMENT YEAR : 2003-04 THE ACIT COMPANY CIRCLE I(3) CHENNAI VS M/S COVANSYS (INDIA) PVT. LTD CHENNAI - 45 (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. ANITA SUMANTH DEPARTMENT BY : SHRI SHAJI P. JACOB O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: BOTH THE PARTIES ARE AGGRIEVED AGAINST THE ORDER OF THE LD. CIT(A) III, CHENNAI, DATED 15.12.2006, FOR ASSESS MENT YEAR 2003-04. ITA 414&593/07 :- 2 -: 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE- COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT O F COMPUTER SOFTWARE AND PROVIDING THE RELATED SERVICES. FOR T HE YEAR UNDER CONSIDERATION, THE ASSESSEE-COMPANY FILED ITS RETUR N OF INCOME ON 27.11.2003 DECLARING TOTAL INCOME OF ` 9,08,35,914/- AFTER CLAIMING DEDUCTION OF ` 9,76,44,877/- U/S 80HHE AND EXEMPTION OF ` 1,35,170,946/- U/S 10B OF THE ACT. BUT THE ASSES SMENT WAS COMPLETED U/S 143(3) ON 10.3.2006 DETERMINING TOTAL INCOME OF THE ASSESSEE AT ` 13,21,26,100/-. IN ARRIVING AT THE ABOVE COMPUTAT ION, THE ASSESSING OFFICER MADE CERTAIN ADJUSTMENTS AND ADDITIONS IN RESPECT OF DEDUCTION CLAIMED U/S 80HHE AND 10B OF THE ACT. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL READ A S UNDER: ISSUE-I, CHENNAI UNIT II DENIAL OF CLAIM UNDER S ECTION 80HHE ON 10 PERCENT OF THE PROFITS OF THE UNDERTAKI NG. 1. THAT THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS) [LD. CIT(A)] IS NOT JUSTIFIED IN HOLDI NG THAT 10 PERCENT OF THE PROFITS OF CHENNAI UNIT II WHICH WAS EXCLUDED FROM DEDUCTION U/S 10B ARE NOT ENTITLED FOR DEDUCTION UNDER SECTION 80HHE OF THE ACT. ISSUE 2 EXPENDITURE INCURRED IN FOREIGN CURRENCY. 2. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN HOLDING THAT EXPENSES INCURRED IN FOREIGN EXCHANGE SHOULD BE EXCLUDED FROM EXPORT TURNOVER, BUT NOT FROM TOTAL TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. ITA 414&593/07 :- 3 -: 3. WITHOUT PREJUDICE TO GROUND NO.2 ABOVE, THE LD. CIT(A) HAS ERRED IN EXCLUDING THE EXPENSES INCURRED IN FOREIGN CURRENCY TOWARDS COMPUTER SOFTWARE DEVELOPMENT FROM EXPORT TURNOVER, WHEN SUCH EXPENSES WERE NOT INCURRED IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. ISSUE 3 TELECOMMUNICATION EXPENDITURE. 4. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN HO LDING THAT TELECOMMUNICATION EXPENDITURE INCURRED IN CONNECTIO N WITH THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDI A SHOULD BE EXCLUDED FROM EXPORT TURNOVER, BUT NOT FR OM TOTAL TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE C AREFULLY PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. T HE FIRST ISSUE OF ASSESSEES APPEAL RELATES TO A CLAIM OF DEDUCTION U /S 80HHE OF THE ACT IN RESPECT OF REMAINING 10% OF ELIGIBLE PROFITS AFT ER ALLOWANCE OF DEDUCTION U/S 10B OF THE ACT IN RESPECT OF NEWLY E STABLISHED (UNIT II) 100% EXPORT ORIENTED UNDERTAKING (EOU) TO THE EXTEN T OF 90% ON SUCH PROFITS. THE CHENNAI UNIT-II OF THE ASSESSEE WAS ELIGIBLE FOR 100% DEDUCTION OF ITS BUSINESS PROFIT U/S 10B OF TH E ACT. BUT FOR ASSESSMENT YEAR 2003-04, I.E WITH EFFECT FROM 1.4.2 003 BY WAY OF A PROVISO INSERTED BY THE FINANCE ACT, 2002, THE PER MISSIBLE DEDUCTION WAS REDUCED TO ONLY 90% OF THE TOTAL ELIGIBLE PROFI TS. THE CASE OF THE ASSESSEE IS THAT BALANCE 10% OF THE PROFITS ON WHIC H DEDUCTION U/S 10B IS NOT ALLOWABLE AS PER THE ABOVE AMENDMENT SHO ULD BE ITA 414&593/07 :- 4 -: CONSIDERED FOR DEDUCTION U/S 80HHE WHEREUNDER ALSO THE ASSESSEE IS ELIGIBLE FOR DEDUCTION. THE CONTENTION OF THE ASSE SSEE AS PUT FORTH THROUGH ITS LD.AR IS THAT THE PROVISIONS OF SECTION 10B(6)(III) SPECIFICALLY EXCLUDES DEDUCTIONS U/S 80HH, 80HHA, 80-I, 80-IA AN D 80-IB BUT IT DOES NOT EXCLUDE FURTHER DEDUCTION U/S 80HHE IN REL ATION TO SUCH PROFITS AND THEREFORE, DEDUCTION U/S 80HHE IS AVAI LABLE SIMULTANEOUSLY WITH DEDUCTION U/S 10B OF THE ACT. IN OTHER WORDS, THE CONTENTION OF THE LD.AR IS THAT SECTION 10B AND 80HHE ARE EXCLUSI VE TO EACH OTHER IN VIEW OF THE PROVISIONS OF SUB-SECTION (5) OF SECTIO N 80HHE WHICH USES THE TERM SUCH PROFITS FOR WHICH DEDUCTION U/S 80 HHE HAS BEEN CLAIMED CANNOT BE CONSIDERED U/S 10B OF THE ACT, BU T VICE-VERSA IS POSSIBLE. THE LD.AR HAS RELIED ON VARIOUS DECISION S TO SUBSTANTIATE HER ABOVE CONTENTION. ON THE OTHER HAND, THE LD.DR HAS COUNTERED THE ABOVE CONTENTION WITH REFERENCE TO THE PROVISIONS O F SECTION 80A(4), THE AMENDED PROVISION, WHICH HAS A RETROSPECTIVE E FFECT, AND SECTION 80HHE ITSELF. ACCORDING TO HIM, ASSESSEE IS ELIG IBLE FOR THIS DEDUCTION ONLY IF IT HAS GOT ONLY ONE UNIT AND NOT TWO UNITS. FURTHER HE HAS REFERRED TO THE FINDING OF THE LD. CIT(A) WHEREIN H E HAS HELD THAT SPECIFIC AMENDMENT HAS BEEN MADE IN ORDER TO RESTRI CT THE ELIGIBLE CLAIM TO 90% INSTEAD OF 100% WITH REGARD TO THE SA ME AND SIMILAR ITA 414&593/07 :- 5 -: PROFIT, AND TO SUBSTANTIATE HIS ARGUMENTS HE HAS RE LIED ON VARIOUS DECISIONS. 4. A PIQUANT SITUATION HAS ARISEN DUE TO THE AMENDM ENT MADE IN THE PROVISIONS OF SECTION 10B OF THE ACT. IT IS TR UE THAT THE PROVISIONS OF SECTION 10B(6)(III) SPECIFICALLY EXCLUDES SECTIO N 80HH BUT IT DOES NOT EXCLUDE SECTION 80HHE DEDUCTION BUT STILL A MILLIO N DOLLAR QUESTION REMAINS TO BE REPLIED AS TO WHETHER DEDUCTIONS UN DER SECTIONS 10B AND 80HHE CAN BE ALLOWED SIMULTANEOUSLY OR NOT. IN OTHER WORDS, IT IS TO BE SEEN IF WHETHER SECTIONS 10B AND 80HHE ARE EX CLUSIVE TO EACH OTHER OR THEY HAVE TO BE TREATED INCLUSIVE ONE. FO R ARRIVING AT THE CORRECT REPLY OF THIS TICKLISH PUZZLE, WE HAVE TO C AREFULLY READ BOTH THESE PROVISIONS IN HARMONY. SECTION 10B OF THE AC T, AS IT STANDS TODAY, READS AS UNDER: SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKINGS 8 . 10B. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDR ED PER CENT EXPORT-ORIENTED UNDERTAKING FROM THE EXPORT OF ARTI CLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE A SSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT T O THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CAS E MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME OF THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AN D GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISIONS OF T HIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FI NANCE ACT, 2000, THE UNDERTAKING SHALL BE ENTITLED TO THE DEDUCTION REFERRED TO IN THIS ITA 414&593/07 :- 6 -: SUB-SECTION ONLY FOR THE UNEXPIRED PERIOD OF AFORES AID TEN CONSECUTIVE ASSESSMENT YEARS : 9 [ PROVIDED 10 [ FURTHER ] THAT FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2003, THE DEDUCTION UNDER THI S SUB-SECTION SHALL BE NINETY PER CENT OF THE PROFITS AND GAINS D ERIVED BY AN UNDERTAKING FROM THE EXPORT OF SUCH ARTICLES OR THI NGS OR COMPUTER SOFTWARE:] PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 11 [ 2012 ] AND SUBSEQUENT YEARS : 12 [ PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO AN ASSESSEE WHO DOES NOT FURNISH A RETUR N OF HIS INCOME ON OR BEFORE THE DUE DATE SPECIFIED UNDER SUB-SECTI ON (1) OF SECTION 139 .] (2) THIS SECTION APPLIES TO ANY UNDERTAKING W HICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY : ( I ) IT MANUFACTURES OR PRODUCES ANY ARTICLES OR THING S OR COMPUTER SOFTWARE; ( II ) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECO NSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE- ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASS ESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKING AS IS REFERRED TO IN SECTION 33B , IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION ; ( III ) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINES S OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION. THE PROVISIONS OF EXPLANATION 1 AND EXPLANATION 2 TO SUB-SECTION (2) OF SECTION 80-I SHALL APPLY FOR THE PURPOSES OF CLAUSE ( III ) OF THIS SUB-SECTION AS THEY APPLY FOR THE PURPOSE S OF CLAUSE ( II ) OF THAT SUB-SECTION. (3) THIS SECTION APPLIES TO THE UNDERTAKING, IF THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OU T OF INDIA ARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE, WITHIN A PERIOD OF SIX MONTHS FRO M THE END OF THE PREVIOUS YEAR OR, WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. ITA 414&593/07 :- 7 -: EXPLANATION 1. FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESSION COMPETENT AUTHORITY MEANS THE RESERVE BANK OF INDIA OR SUCH OTHER AUTHORITY AS IS AUTHORISED UNDE R ANY LAW FOR THE TIME BEING IN FORCE FOR REGULATING PAYMENTS AND DEA LINGS IN FOREIGN EXCHANGE. EXPLANATION 2. THE SALE PROCEEDS REFERRED TO IN THIS SUB-SECTION SHALL BE DEEMED TO HAVE BEEN RECEIVED IN INDIA WHER E SUCH SALE PROCEEDS ARE CREDITED TO A SEPARATE ACCOUNT MAINTAI NED FOR THE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSIDE INDIA WITH THE APPROVAL OF THE RESERVE BANK OF INDIA. 13 [(4) FOR THE PURPOSES OF SUB-SECTION (1), THE PROFI TS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE S HALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS O F THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURN OVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFT WARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING.] (5) THE DEDUCTION UNDER SUB-SECTION (1) SHALL NOT B E ADMISSIBLE FOR ANY ASSESSMENT YEAR BEGINNING ON OR AFTER THE 1 ST DAY OF APRIL, 2001, UNLESS THE ASSESSEE FURNISHES IN THE PRESCRIB ED FORM 14 , ALONG WITH THE RETURN OF INCOME, THE REPORT OF AN A CCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288 , CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CL AIMED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION. (6) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, IN COMPUTING THE TOTAL INCOME OF THE ASSE SSEE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IMMED IATELY SUCCEEDING THE LAST OF THE RELEVANT ASSESSMENT YEAR S, OR OF ANY PREVIOUS YEAR, RELEVANT TO ANY SUBSEQUENT ASSESSMEN T YEAR, ( I ) SECTION 32 , SECTION 32A , SECTION 33 , SECTION 35 AND CLAUSE ( IX ) OF SUB-SECTION (1) OF SECTION 36 SHALL APPLY AS IF EVERY ALLOWANCE OR DEDUCTION REFERRED TO THEREIN AND RELA TING TO OR ALLOWABLE FOR ANY OF THE RELEVANT ASSESSMENT YEA RS 15 [ENDING BEFORE THE 1ST DAY OF APRIL, 2001], IN RELA TION TO ANY BUILDING, MACHINERY, PLANT OR FURNITURE USED FO R THE PURPOSES OF THE BUSINESS OF THE UNDERTAKING IN THE PREVIOUS YEAR RELEVANT TO SUCH ASSESSMENT YEAR OR A NY EXPENDITURE INCURRED FOR THE PURPOSES OF SUCH BUSIN ESS IN SUCH PREVIOUS YEAR HAD BEEN GIVEN FULL EFFECT TO FO R THAT ASSESSMENT YEAR ITSELF AND ACCORDINGLY SUB-SECTION (2) OF SECTION 32 , CLAUSE ( II ) OF SUB-SECTION (3) OF SECTION 32A , CLAUSE ( II ) OF SUB-SECTION (2) OF SECTION 33 , SUB-SECTION (4) OF SECTION 35 OR THE SECOND PROVISO TO CLAUSE ( IX ) OF SUB- ITA 414&593/07 :- 8 -: SECTION (1) OF SECTION 36 , AS THE CASE MAY BE, SHALL NOT APPLY IN RELATION TO ANY SUCH ALLOWANCE OR DEDUCTIO N; ( II ) NO LOSS REFERRED TO IN SUB-SECTION (1) OF SECTION 72 OR SUB- SECTION (1) OR SUB-SECTION (3) OF SECTION 74 , IN SO FAR AS SUCH LOSS RELATES TO THE BUSINESS OF THE UNDERTAKIN G, SHALL BE CARRIED FORWARD OR SET-OFF WHERE SUCH LOSS RELAT ES TO ANY OF THE RELEVANT ASSESSMENT YEARS 16 [ENDING BEFORE THE 1ST DAY OF APRIL, 2001]; ( III ) NO DEDUCTION SHALL BE ALLOWED UNDER SECTION 80HH OR SECTION 80HHA OR SECTION 80-I OR SECTION 80-IA OR SECTION 80-IB IN RELATION TO THE PROFITS AND GAINS OF THE UNDERT AKING; AND ( IV ) IN COMPUTING THE DEPRECIATION ALLOWANCE UNDER SECTION 32 , THE WRITTEN DOWN VALUE OF ANY ASSET USED FOR THE PU RPOSES OF THE BUSINESS OF THE UNDERTAKING SHALL BE COMPUTE D AS IF THE ASSESSEE HAD CLAIMED AND BEEN ACTUALLY ALLOWED THE DEDUCTION IN RESPECT OF DEPRECIATION FOR EACH OF TH E RELEVANT ASSESSMENT YEAR. (7) THE PROVISIONS OF SUB-SECTION (8) AND SUB-SECTI ON (10) OF SECTION 80-IA SHALL, SO FAR AS MAY BE, APPLY IN RELATION TO THE UNDERTAKING REFERRED TO IN THIS SECTION AS THEY APPLY FOR THE P URPOSES OF THE UNDERTAKING REFERRED TO IN SECTION 80-IA. 17 [(7A) WHERE ANY UNDERTAKING OF AN INDIAN COMPANY WH ICH IS ENTITLED TO THE DEDUCTION UNDER THIS SECTION IS TRANSFERRED, BEFORE THE EXPIRY OF THE PERIOD SPECIFIED IN THIS SECTION, TO ANOTHER IN DIAN COMPANY IN A SCHEME OF AMALGAMATION OR DEMERGER ( A ) NO DEDUCTION SHALL BE ADMISSIBLE UNDER THIS SECTI ON TO THE AMALGAMATING OR THE DEMERGED COMPANY FOR THE PREVIO US YEAR IN WHICH THE AMALGAMATION OR THE DEMERGER TAKE S PLACE; AND ( B ) THE PROVISIONS OF THIS SECTION SHALL, AS FAR AS M AY BE, APPLY TO THE AMALGAMATED OR RESULTING COMPANY AS THEY WOU LD HAVE APPLIED TO THE AMALGAMATING OR THE DEMERGED COMPANY IF THE AMALGAMATION OR THE DEMERGER HAD NOT TAKEN PLACE.] (8) NOTWITHSTANDING ANYTHING CONTAINED IN THE FOREG OING PROVISIONS OF THIS SECTION, WHERE THE ASSESSEE, BEFORE THE DUE DA TE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 , FURNISHES TO THE ASSESSING OFFICER A DECLARATION IN WRITING THAT THE PROVISIONS OF THIS SECTION MAY NOT BE MADE APPLICABLE TO HIM, THE PROV ISIONS OF THIS SECTION SHALL NOT APPLY TO HIM FOR ANY OF THE RELEV ANT ASSESSMENT YEAR. (9) 18 [ OMITTED BY THE FINANCE ACT, 2003, W.E.F. 1-4-2004. ] (9A) 19 [ OMITTED BY THE FINANCE ACT, 2003, W.E.F. 1-4-2004. ] EXPLANATION 1. 20 [ OMITTED BY THE FINANCE ACT, 2003, W.E.F. 1-4-2004. ] ITA 414&593/07 :- 9 -: EXPLANATION 2. FOR THE PURPOSES OF THIS SECTION, ( I ) COMPUTER SOFTWARE MEANS ( A ) ANY COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE , PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVIC E; OR ( B ) ANY CUSTOMIZED ELECTRONIC DATA OR ANY PRODUCT OR SERVICE OF SIMILAR NATURE AS MAY BE NOTIFIED 21 BY THE BOARD, WHICH IS TRANSMITTED OR EXPORTED FROM INDIA TO AN Y PLACE OUTSIDE INDIA BY ANY MEANS; ( II ) CONVERTIBLE FOREIGN EXCHANGE MEANS FOREIGN EXCH ANGE WHICH IS FOR THE TIME BEING TREATED BY THE RESERVE BANK OF INDIA AS CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPO SES OF THE FOREIGN EXCHANGE REGULATION ACT, 1973 (46 OF 1973), AND ANY RULES MADE THEREUNDER OR ANY OTHER CORRESPONDING LA W FOR THE TIME BEING IN FORCE; ( III ) EXPORT TURNOVER MEANS THE CONSIDERATION IN RESP ECT OF EXPORT 22 [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, TELECOMMUNICATIO N CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE AR TICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENS ES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHN ICAL SERVICES OUTSIDE INDIA; ( IV ) HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKING ME ANS AN UNDERTAKING WHICH HAS BEEN APPROVED AS A HUNDRED PE R CENT EXPORT-ORIENTED UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONFERRED BY SECTION 14 23 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951 (65 OF 1951), AND THE RULES M ADE UNDER THAT ACT; ( V ) RELEVANT ASSESSMENT YEARS MEANS ANY ASSESSMENT YEARS FALLING WITHIN A PERIOD OF TEN CONSECUTIVE ASSESSME NT YEARS, REFERRED TO IN THIS SECTION.] 24 [ EXPLANATION 3. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED TH AT THE PROFITS AND GAINS DERIVED FROM ON SITE DEVELOPM ENT OF COMPUTER SOFTWARE (INCLUDING SERVICES FOR DEVELOPMENT OF SOF TWARE) OUTSIDE INDIA SHALL BE DEEMED TO BE THE PROFITS AND GAINS DERIVED FROM THE EXPORT OF COMPUTER SOFTWARE OUTSIDE INDIA.] 25 [ EXPLANATION 4. FOR THE PURPOSES OF THIS SECTION, MANUFACTURE OR PRODUCE SHALL INCLUDE THE CUTTING AND POLISHING OF PRECIOUS AND SEMI- PRECIOUS STONES.] ITA 414&593/07 :- 10 - : 5. THE ABOVE SECTION LAYS DOWN A SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED 100% EXPORT ORIENTED UNDERTAKINGS . IN SO FAR AS THE UNIT-II OF THE ASSESSEE-COMPANY IS CONCERNED, IT IS A 100% EXPORT ORIENTED UNDERTAKING AND THIS UNIT IS ALSO ELIGIBLE FOR 100% DEDUCTION U/S 10B. THE HEADING OF THIS SECTION SPEAKS OF UN DERTAKINGS AND NOT A UNDERTAKING. CLAUSE (III) OF SUB-SECTION (6) OF SECTION 10B SPECIFICALLY EXCLUDES ALLOWANCE OF DEDUCTIONS UNDER SECTIONS 80H HA, 80-I, 80-IA AND 80-IB, IN RESPECT OF THE PROFITS AND GAINS OF S UCH UNDERTAKINGS, BUT CONSPICUOUSLY THE DEDUCTION U/S 80HHE HAS NOT BEEN SO EXCLUDED. LET US NOW UNDERSTAND THE DEDUCTION IN RELATION TO SECT ION 80HHE FROM EXPORT OF COMPUTER SOFTWARE, ETC. THIS SECTION REA DS AS UNDER: DEDUCTION IN RESPECT OF PROFITS FROM EXPORT OF C OMPUTER SOFTWARE, ETC. 85 80HHE. (1) WHERE AN ASSESSEE, BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A COMPANY) RESIDENT IN INDIA, IS ENGAGED IN THE BUSINESS OF, (I) EXPORT OUT OF INDIA OF COMPUTER SOFTWARE OR ITS TRANSMISSION FROM INDIA TO A PLACE OUTSIDE INDIA BY ANY MEANS; (II) PROVIDING TECHNICAL SERVICES OUTSIDE INDIA IN CONNECTION WITH THE DEVELOPMENT OR PRODUCTION OF COMPUTER SOFTWARE, THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL IN COME OF THE ASSESSEE, 86 [A DEDUCTION TO THE EXTENT OF THE PROFITS, REFERRED TO IN SUB-SECTION (1B),] DERIVED BY THE ASSESSEE FROM SUCH BUSINESS : 87 [***] [ PROVIDED THAT IF THE ASSESSEE, BEING A COMPANY, ENGAGED IN THE EXPORT OUT OF INDIA OF COMPUTER SOFTWARE, ISSUE S A CERTIFICATE REFERRED TO IN CLAUSE ( B ) OF SUB-SECTION (4A), THAT IN ITA 414&593/07 :- 11 - : RESPECT OF THE AMOUNT OF THE EXPORT SPECIFIED THERE IN, THE DEDUCTION UNDER THIS SUB-SECTION IS TO BE ALLOWED T O A SUPPORTING SOFTWARE DEVELOPER, THEN THE AMOUNT OF D EDUCTION IN THE CASE OF AN ASSESSEE SHALL BE REDUCED BY SUCH AMOUNT WHICH BEARS TO THE TOTAL PROFITS DERIVED BY THE ASS ESSEE FROM THE EXPORT, THE SAME PROPORTION AS THE AMOUNT OF TH E EXPORT TURNOVER SPECIFIED IN SUCH CERTIFICATE BEARS TO THE TOTAL EXPORT TURNOVER OF THE ASSESSEE. 89 [ EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT THE PROFITS AND GAINS DERIVED FROM ON SITE DEVELOPMENT OF COMPUTER SOFTWARE (INCLUDING SERVICE S FOR DEVELOPMENT OF SOFTWARE) OUTSIDE INDIA SHALL BE DEE MED TO BE THE PROFITS AND GAINS DERIVED FROM THE EXPORT OF CO MPUTER SOFTWARE OUTSIDE INDIA.] (1A) WHERE THE ASSESSEE, BEING A SUPPORTING SOFTWAR E DEVELOPER, HAS DURING THE PREVIOUS YEAR, DEVELOPED AND SOLD COMPUTER SOFTWARE TO AN EXPORTING COMPANY IN RESPEC T OF WHICH THE SAID COMPANY HAS ISSUED A CERTIFICATE UND ER THE PROVISO TO SUB-SECTION (1), THERE SHALL, IN ACCORDA NCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOW ED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE A DEDUCT ION OF THE PROFITS DERIVED BY THE ASSESSEE FROM THE DEVELOPING AND SELLING OF COMPUTER SOFTWARE TO THE EXPORTING COMPA NY IN RESPECT OF WHICH THE CERTIFICATE HAS BEEN ISSUED BY THE SAID COMPANY 90 [TO SUCH EXTENT AND FOR SUCH YEARS AS SPECIFIED IN SUB-SECTION (1B)].] 90 [(1B) FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1A ), THE EXTENT OF DEDUCTION OF PROFITS SHALL BE AN AMOUNT E QUAL TO ( I ) EIGHTY PER CENT OF SUCH PROFITS FOR AN ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2001; 9 1 [( II ) SEVENTY PER CENT THEREOF FOR AN ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2002; ( III ) FIFTY PER CENT THEREOF FOR AN ASSESSMENT YEAR BEG INNING ON THE 1ST DAY OF APRIL, 2003; ( IV ) THIRTY PER CENT THEREOF FOR AN ASSESSMENT YEAR BE GINNING ON THE 1ST DAY OF APRIL, 2004,] AND NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2005 AND AN Y SUBSEQUENT ASSESSMENT YEAR.] (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) SH ALL BE ALLOWED ONLY IF THE CONSIDERATION IN RESPECT OF THE COMPUTE R SOFTWARE REFERRED TO IN THAT SUB-SECTION IS RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE, WI THIN A PERIOD ITA 414&593/07 :- 12 - : OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR, 92 [WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF]. EXPLANATION 93 [ 1 ].THE SAID CONSIDERATION SHALL BE DEEMED TO HAVE BEEN RECEIVED IN INDIA WHERE IT IS CREDITED TO A SEPARATE ACCOUNT MAINTAINED FOR THE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSIDE INDIA WITH THE APPROVAL OF THE RESERVE BANK OF INDIA. 93 [ EXPLANATION 2. FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESSION COMPETENT AUTHORITY MEANS THE RESERVE BANK OF INDIA OR SUCH OTHER AUTHORITY AS IS AUTHORISED UNDE R ANY LAW FOR THE TIME BEING IN FORCE FOR REGULATING PAYMENTS AND DEALINGS IN FOREIGN EXCHANGE.] (3) FOR THE PURPOSES OF SUB-SECTION (1), PROFITS DE RIVED FROM THE BUSINESS REFERRED TO IN THAT SUB-SECTION SHALL BE T HE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROP ORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. 94 [(3A) FOR THE PURPOSES OF SUB-SECTION (1A), PROFITS DERIVED BY A SUPPORTING SOFTWARE DEVELOPER SHALL BE, ( I ) IN A CASE WHERE THE BUSINESS CARRIED ON BY THE SU PPORTING SOFTWARE DEVELOPER CONSISTS EXCLUSIVELY OF DEVELOPI NG AND SELLING OF COMPUTER SOFTWARE TO ONE OR MORE EXPORTI NG COMPANIES SOLELY ENGAGED IN EXPORTS, THE PROFITS OF SUCH BUSINESS; ( II ) IN A CASE WHERE THE BUSINESS CARRIED ON BY A SUPP ORTING SOFTWARE DEVELOPER DOES NOT CONSIST EXCLUSIVELY OF DEVELOPING AND SELLING OF COMPUTER SOFTWARE TO ONE OR MORE EXPORTING COMPANIES, THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE TURNOVE R IN RESPECT OF SALE TO THE RESPECTIVE EXPORTING COMPANY BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E ASSESSEE.] (4) THE DEDUCTION UNDER SUB-SECTION (1) SHALL NOT BE ADMISSIBLE UNLESS THE ASSESSEE FURNISHES IN THE PRESCRIBED FOR M 95 , ALONG WITH THE RETURN OF INCOME, THE REPORT OF AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288 , CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION. 96 [(4A) THE DEDUCTION UNDER SUB-SECTION (1A) SHALL NO T BE ADMISSIBLE UNLESS THE SUPPORTING SOFTWARE DEVELOPER FURNISHES IN THE PRESCRIBED FORM ALONG WITH HIS RETURN OF INCOME, * ( I ) THE REPORT OF AN ACCOUNTANT 97 , AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288 , CERTIFYING THAT THE ITA 414&593/07 :- 13 - : DEDUCTION HAS BEEN CORRECTLY CLAIMED ON THE BASIS O F THE PROFITS OF THE SUPPORTING SOFTWARE DEVELOPER IN RES PECT OF SALE OF COMPUTER SOFTWARE TO THE EXPORTING COMPANY; AND ( II ) A CERTIFICATE 98 FROM THE EXPORTING COMPANY CONTAINING SUCH PARTICULARS AS MAY BE PRESCRIBED AND VERIFIED IN TH E MANNER PRESCRIBED THAT IN RESPECT OF THE EXPORT TURNOVER M ENTIONED IN THE CERTIFICATE, THE EXPORTING COMPANY HAS NOT CLAI MED DEDUCTION UNDER THIS SECTION : PROVIDED THAT THE CERTIFICATE SPECIFIED IN CLAUSE ( B ) SHALL BE DULY CERTIFIED BY THE AUDITOR AUDITING THE ACCOUNTS OF THE EXPORTING ASSESSEE UNDER THE PROVISIONS OF THIS ACT OR UNDER ANY OTHER LAW.] (5) WHERE A DEDUCTION UNDER THIS SECTION IS CLAIME D AND ALLOWED IN RESPECT OF PROFITS OF THE BUSINESS REFERRED TO I N SUB-SECTION (1) FOR ANY ASSESSMENT YEAR, NO DEDUCTION SHALL BE ALLO WED IN RELATION TO SUCH PROFITS UNDER ANY OTHER PROVISION OF THIS ACT FOR THE SAME OR ANY OTHER ASSESSMENT YEAR. EXPLANATION .FOR THE PURPOSES OF THIS SECTION, ( A ) CONVERTIBLE FOREIGN EXCHANGE SHALL HAVE THE MEA NING ASSIGNED TO IT IN CLAUSE ( A ) OF THE EXPLANATION TO SECTION 80HHC ; 99 [( B ) COMPUTER SOFTWARE MEANS, ( I ) ANY COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE , PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVIC E; OR ( II ) ANY CUSTOMISED ELECTRONIC DATA OR ANY PRODUCT OR SERVICE OF SIMILAR NATURE AS MAY BE NOTIFIED 1 BY THE BOARD, WHICH IS TRANSMITTED OR EXPORTED FROM INDIA TO A PL ACE OUTSIDE INDIA BY ANY MEANS;] ( C ) EXPORT TURNOVER MEANS THE CONSIDERATION IN RESP ECT OF COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO, IND IA BY THE ASSESSEE IN CONVER-TIBLE FOREIGN EXCHANGE IN ACCORD ANCE WITH SUB-SECTION (2), BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRI-BUTABL E TO THE DELIVERY OF THE COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA; 2 [( CA ) EXPORTING COMPANY MEANS A COMPANY REFERRED TO IN SUB- SECTION (1) MAKING ACTUAL EXPORT OF COMPUTER SOFTWA RE;] ( D ) PROFITS OF THE BUSINESS MEANS THE PROFITS OF TH E BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION AS REDUCED BY ( 1 ) NINETY PER CENT OF ANY RECEIPTS BY WAY OF BROKERA GE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS; AND ITA 414&593/07 :- 14 - : ( 2 ) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR A NY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA ; ( E ) TOTAL TURNOVER SHALL NOT INCLUDE ( I ) ANY SUM REFERRED TO IN CLAUSES ( IIIA ), ( IIIB ) AND ( IIIC ) OF SECTION 28; ( II ) ANY FREIGHT, TELECOMMUNICATION CHARGES OR INSURAN CE ATTRIBUTABLE TO THE DELIVERY OF THE COMPUTER SOFTWA RE OUTSIDE INDIA; AND ( III ) EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA;] 2 [( EA ) SUPPORTING SOFTWARE DEVELOPER MEANS AN INDIAN COM PANY OR A PERSON (OTHER THAN A COMPANY) RESIDENT IN INDIA, DEVELOPING AND SELLING COMPUTER SOFTWARE TO AN EXPORTING COMPA NY FOR THE PURPOSES OF EXPORT.] 6. THERE IS NO DISPUTE REGARDING ELIGIBILITY OF THIS ASSESSEE FOR DEDUCTIONS UNDER BOTH THESE SECTIONS. THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION U/S 10B AS WELL AS UNDER SECTION 80HHE. BUT STILL THE QUESTION REMAINS IF THE ASSESSEE CAN SIMULTANEOUSLY CLAIM DEDUCTIONS UNDER BOTH THESE SECTIONS OR IT CAN CLAIM UNDER EIT HER ONE OR THE OTHER. WHEN THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER BO TH THESE SECTIONS, CAN IT CLAIM DEDUCTION U/S 80HHE OUT OF THE REMNANT , WHICH REMAINED BEHIND AFTER ALLOWANCE OF 90% DEDUCTION U/S 10B. T HE CONJOINT READING OF THESE SECTIONS IN OUR CONSIDERED OPINION CLEARLY ESTABLISHES THAT THE ASSESSEE IS ELIGIBLE UNDER BOTH SECTIONS T O CLAIM RESPECTIVE DEDUCTIONS. OTHERWISE, THE PROVISIONS OF SECTION 80 HHE WOULD NOT BE IN HARMONY WITH THE PROVISIONS OF SECTION 10B AND W OULD BECOME REDUNDANT OR OTIOSE, IN SO FAR AS ELIGIBILITY OF A NY UNDERTAKING FALLING UNDER BOTH THESE SECTIONS. EARLIER WHEN SUCH ELIGI BLE UNITS WERE ITA 414&593/07 :- 15 - : ENTITLED FOR 100% DEDUCTION U/S 10B, SUCH A SITUATI ON WOULD HAVE NEVER ARISEN. THE LEGISLATURE IN ITS WISDOM HAS R EDUCED 100% DEDUCTION U/S 10B TO 90% AND HAS RETAINED 10% PROF IT OF SUCH UNIT TO BE CHARGED TO TAX. IT SEEMS THE LEGISLATURE WAS C ONSCIOUS ABOUT SUCH A SITUATION AS THAT IS WHY IT HAS SPECIFICALLY EXCL UDED DEDUCTIONS U/S 80HH, 80-I, 80-IA AND 80-IB BUT HAS NOT EXCLUDED UN DER SECTION 80HHE. SECTION 10B(6)(III) HAS SPECIFICALLY MENTIO NED ABOUT CERTAIN SECTIONS UNDER WHICH NO SIMULTANEOUS DEDUCTION CAN BE CLAIMED AND ALLOWED AFTER CLAIMING DEDUCTION U/S 10B OF THE ACT FROM SUCH PROFITS. BUT PROVISIONS OF SECTION 80HHE HAVE NOT BEEN INCLU DED AND OR TO SAY HAS BEEN SPECIFICALLY EXCLUDED MEANING THEREBY THE ASSESSEE IS PERMITTED TO CLAIM SIMULTANEOUS DEDUCTIONS UNDER BOTH SECTIONS. IT WOULD NOT BE A CASE OF DOUBLE DEDUCTION AT ALL, AS HAS BEEN CANVASSED BY THE LD.DR. LET US NOW TREAD THROUGH THE PRECEDE NTS, IF ANY, AVAILABLE IN REGARD TO OUR ABOVE FINDING. THE LD.A R HAS PLACED RELIANCE ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT RE NDERED IN THE CASE OF CIT VS M/S AMBATTURE CLOTHING LTD, IN TAX CASE ( APPEAL) NO.695 OF 2010, JUDGMENT DATED 2.8.2010, WHICH IS UNREPORTED JUDGMENT, A COPY OF WHICH WAS FILED BEFORE THE BENCH. IN THIS DECIS ION, IN OUR OPINION, THE ISSUE INVOLVED IS EXACTLY IDENTICAL TO THE ISSU E INVOLVED IN THE PRESENT APPEAL. IN THE CASE BEFORE THE HON'BLE MAD RAS HIGH COURT, THE ITA 414&593/07 :- 16 - : ASSESSEE, AN EXPORT CONCERN, CLAIMED THE BENEFITS U /S 10A/10B APART FROM CLAIMING DEDUCTION U/S 80HHC OF THE ACT, FOR T HE REMAINING 10% OF THE PROFITS. ACCORDING TO THE ASSESSING OFFICER , SUCH A CLAIM U/S 80HHC IN RESPECT OF REMAINING 10% OF THE PROFIT AM OUNTED TO DOUBLE DEDUCTION, WHICH IS NOT PERMISSIBLE. SO, HE RECTIF IED THE ORDER AFTER INVOKING SECTION 154 OF THE ACT WHEN ORIGINALLY THE ASSESSING OFFICER HAD ALLOWED SUCH A DEDUCTION. THE TRIBUNAL HAD STR UCK DOWN THE CONFIRMATION OF 154 ORDER MADE BY THE LD. CIT(A) BY OBSERVING THAT WHEN TWO POSSIBLE VIEWS WERE AVAILABLE ON THE ISSUE , RECTIFICATION U/S 154 CANNOT BE PASSED. BUT THE HON'BLE HIGH COURT H AS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE APART FROM THE CONC LUSION OF THE TRIBUNAL BY OBSERVING AS UNDER: 4. WHEN WE EXAMINE THE ISSUE RAISED IN THIS APPEA L, AT THE VERY OUTSET, IT WILL HAVE TO BE POINTED OUT THAT EVEN UN DER SECTION 10A(6)(II) OF THE ACT, THERE IS A SPECIFIC PROVISIO N, WHICH READS AS UNDER : NO DEDUCTION SHALL BE ALLOWED UNDER SECTIO N 80HH OR SECTION 80HHA OR SECTION 80-I OR SECTION 80-IA OR S ECTION 80-IB IN RELATION TO THE PROFITS AND GAINS OF THE UNDERTA KING; AND 5. THE VERY STATUTORY PROVISION PRESCRIBING A PROH IBITION IN RESPECT OF THE DEDUCTIONS IN RELATION TO THE PROFIT S AND GAINS ITSELF, HAS NOT SPECIFICALLY INCLUDED SECTION 80HHC. APPAR ENTLY, IT THEREFORE WOULD ONLY MEAN THAT THERE WAS NO PROHIBI TION FOR CLAIMING ANY DEDUCTION UNDER SECTION 80HHC WHILE AP PLYING THE BENEFITS PROVIDED UNDER SECTION 10A OF THE ACT. IF THAT IS THE STATUTORY PRESCRIPTION, BY WHICH THE ASSESSEE WAS E NTITLED TO CLAIM A BENEFIT UNDER SECTION 80HHC IN RELATION TO THE PROFITS AND GAINS WHILE INVOKING SECTION 10A, IT WILL HAVE TO B E CONCLUDED THAT THE ASSESSMENT ORDER IN HAVING ALLOWED SUCH A DEDUCTION OF THE REMAINING 10% OF THE PROFITS EARNED BY THE ASSE SSEE, WAS NOT ERRONEOUS. IN ANY EVENT, HAVING REGARD TO SUCH A STATUTORY PRESCRIPTION AVAILABLE FOR THE ASSESSEE TO CLAIM TH E BENEFIT UNDER ITA 414&593/07 :- 17 - : SECTION 80HHC IN RESPECT OF THE PROFITS EARNED FROM SECTION 10A OF THE ACT, THERE IS ABSOLUTELY NO SCOPE FOR THE AS SESSING AUTHORITY TO HAVE INVOKED SECTION 154 OF THE ACT, I N ORDER TO STATE THAT, THAT CAN BE CONSIDERED AS AN ERROR APPARENT, INASMUCH AS, THERE WAS NO ERROR AT ALL, MUCH LESS, APPARENT ERRO R TO BE RECTIFIED BY THE ASSESSING AUTHORITY. 7. THUS, THE HON'BLE MADRAS HIGH COURT HAS SPECIFICA LLY HELD THAT THERE IS NO SCOPE FOR INVOKING THE PROVISIONS OF SE CTION 154 WHEN THE DEDUCTION UNDER BOTH THE SECTIONS IS SPECIFICALLY A VAILABLE TO THE ASSESSEE. WE ARE NOT IN AGREEMENT WITH THE OBJECTI ON OF THE LD.DR THAT THE DECISION RENDERED BY THE HON'BLE HIGH COUR T WAS IN THE CONTEXT OF RECTIFICATORY PROVISION OF SECTION 154. THE REASON FOR THE SAME ARE SELF-EXPLANATORY AS CONTAINED IN PARAGRAPH S 4 & 5 OF THE DECISION OF HON'BLE MADRAS HIGH COURT. HENCE, THE HON'BLE MADRAS HIGH COURTS DECISION SUPPORTS OUR ABOVE FINDING. 8. FURTHER, THE DECISION OF THE ITAT, KOLKATA, IN THE CASE OF HINDUSTAN GUM AND CHEMICALS LTD VS ITO, [2008] 23 S OT 143, AGAIN IS ON THE SAME ISSUE, IN WHICH IT HAS BEEN HELD THAT T HE REMAINING 10% TAXABLE INCOME IS PART OF PROFITS AND GAINS OF BUS INESS OR PROFESSION. THIS FINDING SUPPORTS THE CONCLUSION TAKEN IN THIS REGARD. 9. ANOTHER DECISION IS OF ITAT, DELHI BENCH, IN THE CA SE OF DY. CIT VS INTERRA SOFTWARE (INDIA) (P) LTD, [2007] 112 TTJ (DEL) 982 [COPY ON RECORD] ALSO SUPPORTS OUR ABOVE FINDING BECAUSE IN THAT CASE IT HAS ITA 414&593/07 :- 18 - : BEEN SPECIFICALLY HELD THAT SUB-SECTION (5) OF SECT ION 80HHC DOES NOT DEBAR CLAIM FOR DEDUCTION UNDER ANY OTHER PROVISION IN RESPECT OF PROFITS OF THE ELIGIBLE BUSINESS FOR ANY OTHER ASSE SSMENT YEAR AND THEREFORE, EXEMPTION U/S 10A CANNOT BE DENIED TO TH E ASSESSEE SIMPLY BECAUSE IT HAS AVAILED THE DEDUCTION U/S 80HHE IN A N EARLIER YEAR. THIS DECISION ALSO SUPPORTS OUR CONCLUSION THAT CLA IMING DEDUCTION UNDER SECTIONS 10B AND 80HHE WOULD NOT AMOUNT TO DO UBLE DEDUCTION IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. AS A RESULT, WE ALLOW GROUND NO.1 OF ASSESSEES APPEAL. 10. THE SECOND ISSUE OF ASSESSEES APPEAL IS REGARDING THE FINDING OF THE LD. CIT(A) THAT EXPENSES INCURRED IN FOREIGN EXCHANGE SHOULD BE EXCLUDED FROM EXPORT TURNOVER BUT NOT FROM TOTA L TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. ACCORDING TO THE LD.AR, THIS FINDING IS NOT CORRECT . SUCH EXPENSES HAVE TO BE EXCLUDED FROM BOTH I.E EXPORT AS WELL AS TOTA L TURNOVER FOR COMPUTING DEDUCTION U/S 10B. IN THIS REGARD, RELI ANCE HAS BEEN PLACED ON THE DECISION OF THIS BENCH [SPECIAL BENCH ] IN THE CASE OF SAK SOFT LTD, 313 ITR 353, WHICH ACCORDING TO THE LD.AR IS DIRECTLY ON THE ISSUE AND IN FAVOUR OF THE ASSESSEE. WE ARE TOTALL Y IN AGREEMENT WITH THE LD.AR IN REGARD TO THE LEGAL PROPOSITION BUT WE HAVE TO SEE IF THE FACTS OF THIS CASE ARE EXACTLY SIMILAR OR NOT. IN CASE THE FACTS ARE ITA 414&593/07 :- 19 - : IDENTICAL, SPECIAL BENCH DECISION SHALL APPLY. THE ASSESSING OFFICER HAS EXCLUDED THE EXPENSES INCURRED IN FOREIGN EXCHANGE AND ALSO TELECOMMUNICATION EXPENSES FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10B. THE ASSESSEES CASE IS THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DOING SO BECAUSE HE CANNOT DO SO BY REDUCING THE EXPENSES ONLY FROM THE EXPORT TURNOVER WITHOUT RED UCING THE SAME FROM TOTAL TURNOVER ALSO. THE TOTAL EXPENSES INCUR RED IN FOREIGN EXCHANGE WERE STATED TO BE ` 11.24 CRORES. THESE EXPENSES HAVE BEEN EXCLUDED FROM THE EXPORT TURNOVER. SIMILARLY, TELE COMMUNICATION EXPENSES OF ` 146 CRORES HAVE BEEN EXCLUDED FROM THE EXPORT TURN OVER WITHOUT MAKING CORRESPONDING ADJUSTMENT IN THE TOTA L TURNOVER. THE CASE OF THE REVENUE IS THAT NO SUCH ADJUSTMENT CAN BE MADE IN THE TOTAL TURNOVER BECAUSE THERE IS NO SUCH PROVISION I N THE ACT. BUT TO SUBSTANTIATE ITS CLAIM, THE LD.DR HAS DRAWN OUR ATT ENTION TOWARDS THE DECISIONS TAKEN WITH REFERENCE TO THE PROVISIONS OF SECTION 80HHE VIS- -VIS SECTION 10B OF THE ACT TO THE EFFECT THAT THE RATIO OF THE DECISIONS RENDERED ON SIMILAR ISSUES U/S 80HHE IN WHICH IT WA S HELD THAT CERTAIN EXPENSES ARE EXCLUDED FROM THE EXPORT PROFI TS AND SOME ARE EXCLUDED FROM THE TOTAL TURNOVER ALSO ARE VERY MUCH RELEVANT FOR THIS ISSUE AS WELL. THE DIFFICULTY IN APPLYING THE SPEC IAL BENCH DECISION(SUPRA) TO THE FACTS OF THIS CASE ARISES WH EN THE FACTS OF THE ITA 414&593/07 :- 20 - : GIVEN CASE ARE NOT CLEAR BECAUSE IN THIS CASE THE A SSESSEE HAD DEPUTED THE TECHNICAL MANPOWER OUTSIDE INDIA AND INCURRED EXPENSES ON THEIR TRAVELING, BOARDING AND LODGING AND THEIR EMOLUMEN TS FOR THE RELEVANT PERIOD IN FOREIGN CURRENCY OUTSIDE INDIA. BUT AT T HE SAME TIME, THE CLAIM OF THE ASSESSEE IS THAT NO SUCH EXPENSES WERE INCURRED IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THE AS SESSEE HAS NOT SPECIFICALLY INCLUDED THESE EXPENSES FOR PROVIDING TECHNICAL SERVICES IN SALE/SERVICE INVOICES RAISED BY IT AGAINST FOREIGN CLIENTS BUT THEY, BY THEIR NATURAL IMPLICATION, MUST HAVE INCURRED FOR P ROVIDING TECHNICAL SERVICES ABROAD. IT IS TRUE THAT THE METHOD OF MAK ING ENTRIES IN THE BOOKS OF ACCOUNT DOES NOT CHANGE THE CHARACTER OR N ATURE OF THE EXPENSES INCURRED. THOUGH THE ASSESSEE HAS TO CLAR IFY AS TO WHETHER SALE/SERVICE INVOICES RAISED BY IT ALSO INCLUDE THE AMOUNT OF EXPENSES INCURRED ON TRAVELING OF PERSONNEL FOR PROVIDING TE CHNICAL SERVICES ABROAD AS WELL AS THE ELEMENT OF PROFIT EMBEDDED TH EREIN OR NOT. THE REASON FOR ASCERTAINING THIS FACT IS RELATED TO CLA USE(III) TO EXPLANATION(2) OF SECTION 10B WHICH IS VERY CLEAR I N PROVIDING THAT EXPENSES INCURRED IN FOREIGN EXCHANGE FOR PROVIDIN G TECHNICAL SERVICES OUTSIDE INDIA ARE REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER. IT IS NOT COMING CLEARLY AS A FACT AS TO WHY EXPENSES IN FOREIGN EXCHANGE WERE INCURRED IF THESE ARE NOT PERTAINING TO EARNIN G OF SUCH INCOME ITA 414&593/07 :- 21 - : WHICH IS CLAIMED AS EXEMPTION U/S 10B. THEREFORE, IN OUR CONSIDERED OPINION, THIS ISSUES NEEDS TO BE RESTORED TO THE FI LE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH IN THE LIGHT OF OUR AB OVE OBSERVATION AND SEEKING EXPLANATION FROM THE ASSESSEE SO THAT FULL AND CORRECT FACTS MAY COME ON RECORD IN THIS REGARD. ONCE THE FACTS ARE SETTLED THEN WE ARE IN AGREEMENT WITH THE ASSESSEE THAT SUCH EXPENS ES WOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER AS PER EXPLANATION 2(III) OF SECTION 10B. HENCE, THIS GROUND IS ALLOWED FOR STATISTICA L PURPOSES. 11. THE THIRD ISSUE RELATING TO EXCLUSION OF EXPENSES F ROM EXPORT TURNOVER HAS NOT BEEN PRESSED AT THE TIME OF HEARIN G, HENCE, THE SAME STANDS DISMISSED, BUT THE VERSION TAKEN IN THIS GRO UND ALSO JUSTIFIES OUR FINDING REGARDING GROUND NO.3 AS ABOVE. 12. GROUND NO.4 IS SIMILAR TO GROUND NO.2. THEREFORE, THIS ISSUE IS ALSO RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS AS GIVEN WHILE DECIDING GROUND NO.2. GROUND NO.4 I S, THEREFORE, ALLOWED FOR STATISTICAL PURPOSES ONLY. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 14. IN REVENUES APPEAL ONLY TWO ISSUES HAVE BEEN RAISE D. THE FIRST ISSUE RELATES TO LOSS ON ACCOUNT OF FOREIGN EXCHANG E FLUCTUATION AND ITA 414&593/07 :- 22 - : THE SECOND ISSUE RELATES TO LEVY OF INTEREST UNDER SECTION 234D OF THE ACT. 15. THE ASSESSEE HAS INCURRED A LOSS OF ` 11,88,974/- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS ARISING FURTHER ON AC COUNT OF RE- STATEMENT OF CURRENT ASSETS AND LIABILITIES AS ON 3 1.3.03. TREATING THIS AS NOTIONAL LOSS, THE ASSESSING OFFICER HAS REJECTE D THE CLAIM OF THE ASSESSEE, TO THAT EXTENT, FROM THE BUSINESS PROFITS . THE CASE OF THE ASSESSEE IS THAT LOSS HAS BEEN COMPUTED ON THE BASI S OF ACCOUNTING STANDARD 11 ISSUED BY THE INSTITUTE OF CHARTERED A CCOUNTANTS OF INDIA(ICAI) WHICH HAS BEEN MODIFIED IN THE YEAR 199 6. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT WHATEVER LOSS IS CLAIMED IS ACTUALLY RELATED TO THE BUSINESS OF THE ASSESSEE-COMPANY. T HE ASSESSEE HAS FILED COMPLETE DETAILS IN THIS REGARD. THE LD. CIT (A) HAS AGREED WITH THE ASSESSEE AND NOW THE REVENUE HAS CHALLENGED THI S FINDING. 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND TH AT THE ASSESSEE HAS FILED THE RELEVANT DETAILS TO SUPPORT THE LOSS IN QUESTION WHICH PERTAINS TO THE SUNDRY DEBTORS RELATING TO SA LES AND THE TRAVELING EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS OF TH E ASSESSEE- COMPANY. IN THIS WAY, THE ENTIRE LOSS IS RELATED T O REVENUE TRANSACTIONS ONLY. THIS LOSS IS NOT FOUND TO BE R ELATED TO ANY CAPITAL ITA 414&593/07 :- 23 - : TRANSACTIONS. THE ASSESSEE HAS BEEN CONSISTENTLY F OLLOWING THIS SYSTEM OF RE-STATEMENT OF ASSETS AND LIABILITIES AS ON THE END OF THE ACCOUNTING PERIOD AND THE SYSTEM OF ACCOUNTING IS IN ACCORDANC E WITH AS-11 ISSUED BY THE ICAI. SUCH ACCOUNTING HAS BEEN UPHEL D BY THE HON'BLE SUPREME COURT RENDERED IN THE CASE OF CIT VS WOODWA RD GOVERNOR INDIA PL LTD, 312 ITR 254. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE DIRECTION OF THE LD. CIT(A) AND ALLOW DEDUCTION OF THIS LOSS FROM THE BUSINESS PROFITS. 17. THE SECOND GROUND IS REGARDING CHARGING OF INTERE ST U/S 234D. THE LD. CIT(A) HAS FOUND THIS ISSUE TO BE COVERED I N FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CHENNAI BENCH IN TH E CASE OF ACIT VS EAST COST CONSTRUCTION AND INDUSTRIES LTD IN I.T.A. NO. 234/MDS/05, ORDER DATED 31.5.2006, IN WHICH IT HAS BEEN HELD TH AT THE PROVISIONS OF SECTION 234D ARE NOT RETROSPECTIVE IN NATURE AND ON LY EFFECTIVE FROM ASSESSMENT YEAR 2004-05, HENCE, NOT APPLICABLE FRO ASSESSMENT YEAR 2003-04. BUT THE REVENUE IS AGGRIEVED AND HAS RELI ED ON THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS KERALA CHEMICALS AND PROTEINS LTD, 323 ITR 584, AS AGAINST WHICH THE LD.AR HAS RELIED ON THE ITAT DELHI SPECIAL BENCH DECISION IN THE CAS E OF ITO VS EKTA PROMOTERS PVT. LTD, 305 ITR (AT) 1, AND THAT OF HON 'BLE DELHI HIGH COURT IN THE CASE OF JACABS CIVIL INCORCOPRATED IN I.T.A.NO. 491/2008, ITA 414&593/07 :- 24 - : UNREPORTED ORDER DATED 30.8.2010, A COPY OF WHICH H AS BEEN PLACED BEFORE US. 18. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND TH AT THERE ARE DIVERGENT DECISIONS OF HIGH COURTS IN THIS REGARD W HEREAS THE SPECIAL BENCH DECISION OF ITAT IS IN FAVOUR OF THE ASSESSEE . THEREFORE, BY RESPECTFULLY FOLLOWING THE SPECIAL BENCH DECISION A ND THE CHENNAI BENCH DECISION, WE CONFIRM THE FINDING OF THE LD. CIT(A) IN THIS REGARD AND DO NOT FIND ANY LEGAL FORCE IN THE SUBMISSIONS OF THE REVENUE. 19. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DIS MISSED. 20. TO SUMMARIZE THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 18.3.2011. SD/- SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER ( HARI OM MARATHA ) JUDICIAL MEMBER DATED: 18.3.2011 RD COPY TO: APPELLANT /RESPONDENT/CIT(A)/CIT/DR