GEOMETRIC SOFTWARE SOLUTINS CO. LTD ( NOW GEMETRIC LTD), MUMBAI V. ADDL CIT RG 10(2), MUMBAI

ITA 5974/MUM/2010

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9284 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 03-03-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 30-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Assessee Lawyers: F V IRANI
• Keywords: Business income; Depreciation; Competent authority; Assessment record
• Section: 14A; 115JB; 10B; 147; 263; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BE NCH, MUMBAI ! , ' #$ % % % % , #$ & BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ./I .T.A. NO. 5974/MUM/2010 ( ' ' ' ' / ASSESSMENT YEAR : 2002-03 ./I .T.A. NO. 2672/MUM/2010 ( ' ' ' ' / ASSESSMENT YEAR : 2004-05 A N D ./I .T.A. NO. 2750/MUM/2011 ( ' ' ' ' / ASSESSMENT YEAR : 2006-07 M/S. GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. (NOW GEOMETRIC LTD.), C/O KALYANIWALLA & MISTRY, ARMY & NAVY BLDG., 148 M.G. ROAD, FORT, MUMBAI-400 001 / VS. THE ACIT, RANGE 10(2), AAYAKAR BHAVAN, MUMBAI-400 020 $( ' ./ ) ./ PAN/GIR NO. : AABCG 0066A ( (* / APPELLANT ) .. ( +,(* / RESPONDENT ) (* - / APPELLANT BY: SHRI F.V. IRANI +,(* . - / RESPONDENT BY: SHRI PAVAN KUMAR BEERLA . /0' / DATE OF HEARING :03.03.2015 12' . /0' / DATE OF PRONOUNCEMENT :11.03.2015 M/S. GEOMETRIC LTD. 2 #3 / O R D E R PER N.K. BILLAIYA, AM: THESE THREE APPEALS BY THE ASSESSEE ARE PREFERRED A GAINST SEPARATE ORDERS OF THE LD. CIT(A)-21, MUMBAI FOR ASSESSMENT YEARS 2002-03, 2004-05 AND 2006-07. ALL THESE APPEALS HAVE COMMON ISSUES, THEREFORE THEY WERE HEARD TOGETHER AND DISPOSED OF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT FAC TS OF A.Y. 2004-05 WOULD COVER THE ISSUES INVOLVED IN ALL THREE APPEAL S. 3. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONCE DED TO THIS. 4. WE HAVE HEARD THESE APPEALS ON THE BASIS OF THE FACTS OF A.Y. 2004- 05 IN ITA NO. 2672/M/2010. THE ASSESSEE HAS RAISED 11 SUBSTANTIVE GROUNDS OF APPEAL. 5. GROUND NO. 1,2 AND 3 RELATE TO THE TREATMENT OF INCOME CLAIMED BY THE ASSESSEE UNDER THE HEAD PROFITS & GAINS OF BUS INESS OR PROFESSION BUT ASSESSED BY THE AO AND CONFIRMED BY THE LD. CIT (A) UNDER THE HEAD INCOME FROM HOUSE PROPERTY THEREBY DENYING THE CL AIM FOR DEPRECIATION ON THE SAME. 5.1. THE ASSESSEE IS IN THE BUSINESS OF SOFTWARE DE VELOPMENT. WHILE SCRUTINIZING THE RETURN OF INCOME FOR THE YEAR UNDE R CONSIDERATION, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS REC EIVED RS. 1,37,26,637/- TOWARDS LEASE RENTAL FROM TWO COMPANIES OUT OF WHIC H ONE COMPANY IS SUBSIDIARY OF ASSESSEE COMPANY. THE ASSESSEE WAS A SKED AS TO WHY LEASE M/S. GEOMETRIC LTD. 3 RENT RECEIVED OF RS. 1.37 CRORES BE NOT ASSESSED AS INCOME FROM HOUSE PROPERTY. THE ASSESSEE FILED A DETAILED REPLY CLAI MING THAT THE ASSESSEE HAS LEASED OUT THE PART OF THE OFFICE BUILDING, SIN CE THERE WAS SURPLUS AREA IN THE SAID BUILDING, WHICH WAS NOT IMMEDIATELY REQ UIRED BY THE COMPANY FOR ITS OWN USE, THE SAME WAS LEASED OUT WITH A VIE W TO ENSURE THE EFFECTED UTILIZATION OF THE BUSINESS ASSETS AND TO ENSURE AN INCOME STREAM FROM THE USE OF THE SAID OFFICE BUILDINGS. IN SUPP ORT, THE ASSESSEE RELIED UPON CERTAIN JUDICIAL DECISIONS. 5.2. THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPT ED BY THE AO. RELYING UPON THE OBJECT CLAUSE IN THE MEMORANDUM O F ASSOCIATION OF THE ASSESSEE, THE AO CAME TO THE CONCLUSION THAT LETTIN G OUT OF PROPERTY CANNOT BE CONSIDERED AS ASSESSEES BUSINESS OBJECTI VE. FURTHER, IT IS NOT THE ASSESSEES CASE THAT THE SAID LET OUT WAS INCID ENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS OF THE COMPANY, HENC E IT IS THE CASE OF LEASING OUT OF SURPLUS OFFICE PLACE. AFTER CONSIDE RING VARIOUS DECISIONS OF THE HONBLE SUPREME COURT AND HONBLE HIGH COURT, T HE AO FINALLY HELD THAT INCOME FROM BUSINESS HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 6. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A). AFTER CONSIDERING THE FACTS AND THE SUBMIS SIONS, THE LD. CIT(A) OBSERVED THAT ACTIVITY OF LEASING OUT SURPLUS AREA WAS NOT A BUSINESS ACTIVITY BUT WAS SIMPLY AN ACT OF LETTING OUT OF PR OPERTY. THE LETTING OUT OF SURPLUS AREA WAS IN NO MANNER INCIDENTAL OR ANCI LLARY TO THE ATTAINMENT OF THE MAIN OBJECTS OF THE ASSESSEE, HENCE THE AO C ORRECTLY HELD THAT LETTING OUT OF PROPERTY COULD NOT BE CONSIDERED AS THE ASSESSEES MAIN OBJECT. M/S. GEOMETRIC LTD. 4 6.1. BEFORE THE LD. CIT(A), THE ASSESSEE TOOK AN AL TERNATIVE PLEA THAT IN ANY EVENT IF THE INCOME IS NOT ASSESSED UNDER THE H EAD BUSINESS INCOME, THE SAME SHOULD BE CONSIDERED UNDER THE HEAD INCOM E FROM OTHER SOURCES. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THIS CLAIM OF THE ASSESSEE, THE LD. CIT(A) DISMISSED THE SAME BY HOLD ING THAT THERE WAS NO MACHINERY OR PLANT WHICH WERE LET OUT ALONGWITH THE BUILDING. THE LD. CIT(A) ALSO DISMISSED THE CLAIM OF DEPRECIATION. 7. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. IN SUPPORT OF ITS CLAIM, THE LD. COUNSEL RELIED UPON THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF LAXMI SILK MILLS IN 20 ITR 451. 9. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE DECISION OF THE HONBLE SUPREME COURT RELIED UP ON BY THE LD. COUNSEL. AT THE OUTSET, THE DECISION OF THE HONBL E SUPREME COURT RELIED UPON BY THE LD. COUNSEL IS MISPLACED AND DO NOT MAT CH WITH THE FACTS OF THE CASE IN HAND BECAUSE IN THE CASE OF THE HONBLE SUPREME COURT, THE COMMERCIAL ASSET OF THE BUSINESS WERE TEMPORARILY P UT OUT OF USE AND LET OUT TO ANOTHER PERSON AND ON THIS TEMPORARY LET OUT , THE HONBLE SUPREME COURT HELD THAT THE YIELD OF INCOME BY WAY OF COMME RCIAL ASSET IS THE PROFIT OF THE BUSINESS. HOWEVER, IN THE CASE IN HA ND, THE LET OUT WAS NOT TEMPORARY , MORE SO THE LEASED OUT PREMISES WERE NE VER GOT VACATED BUT WERE SOLD SUBSEQUENTLY THEREFORE THE DECISION OF TH E HONBLE SUPREME COURT DO NOT SUPPORT THE CASE OF THE ASSESSEE. THE ASSESSEE HAS ALSO NOT SUBMITTED THE COPY OF LEASE AGREEMENT NEITHER BEFOR E THE REVENUE AUTHORITIES NOR BEFORE US. M/S. GEOMETRIC LTD. 5 9.1. THE LD. COUNSEL FOR THE ASSESSEE REITERATED IT S ALTERNATIVE CLAIM THAT THE INCOME SHOULD BE TAXED UNDER THE HEAD OTHER SO URCES. IT IS THE SAY OF THE LD. COUNSEL THAT THE LD. CIT(A) HAS HIMSELF CONTRADICTED HIS OWN EVALUATION OF FACTS. ON THE ONE HAND, THE LD. CIT( A) HAS OBSERVED THAT THE PROVISIONS OF SEC. 56(2)(III) ARE APPLICABLE WH ERE THE MACHINERY, PLANT OR FURNITURE ARE LET OUT ALONGWITH BUILDING AND L ETTING OUT OF BUILDING IS INSEPARABLE FROM THE LETTING OUT OF SAID MACHINERY, PLANT OR FURNITURE AND ON THE OTHER HAND THE LD. CIT(A) OBSERVED THAT THER E WAS NO MACHINERY OR PLANT WHICH WERE LET OUT ALONGWITH THE BUILDING. THE LD. COUNSEL FURTHER STATED THAT THE LD. CIT(A) HAS DISMISSED TH E CLAIM OF DEPRECIATION HOLDING THAT THE ITEMS LIKE UPS, PLANT AND MACHINER Y AND FURNITURE AND FIXTURES ARE PART OF THE BUSINESS PREMISES LET OUT . THE LD. COUNSEL PLEADED THAT THE INCOME SHOULD BE TAXED UNDER THE H EAD OTHER SOURCES AND ACCORDINGLY DEPRECIATION SHOULD BE ALLOWED. 10. THE DEPARTMENTAL REPRESENTATIVE STRONGLY SUBMIT TED THAT THERE IS NO CONTRADICTION IN THE FINDINGS OF THE LD. CIT(A). THE LD. CIT(A) HAS VERY CATEGORICALLY STATED THAT PROVISIONS OF SEC. 5 6(2)(III) ARE NOT APPLICABLE ON THE FACTS OF THE CASE. 11. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE SUBMISSIONS OF THE RIVAL PARTIES. THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS SHAMBU INVESTMENT PVT. LTD. 249 ITR 47 HAS HELD AS UNDER: WHERE PRIME OBJECT OF THE ASSESSEE UNDER THE AGREE MENT WAS TO LET OUT THE PORTION OF THE SAID PROPERTY TO VARIOUS OCCUPANTS BY GIVING THEM ADDITIONAL RIGHT OF USING THE FURNITURE AND FIXTURES AND OTHER COMMON FACILITIES FOR WHICH RENT WAS BEING PAID MONTH BY MONTH. INCOME DERIVED FROM THE SAID PROPERTY IS AN INCOME FROM PROPERTY AND SH OULD BE ASSESSED AS SUCH. M/S. GEOMETRIC LTD. 6 12. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SHAMBU INVEST MENT (SUPRA), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1,2 & 3 ARE ACCORDINGLY DISMISSED. 13. GROUND NO. 4,5 & 6 RELATE TO THE CLAIM OF DEDUC TION U/S. 10A OF THE ACT. 14. WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO OBSERVED THAT IN THE COMPUTATION OF DEDUCTION CLAIMED BY THE ASSESSE E U/S. 10A OF THE ACT EXPORT TURNOVER AND TOTAL TURNOVER WERE INCLUDED ON GROSS BASIS. THE ASSESSEE WAS ASKED TO EXPLAIN THE CALCULATION OF EX PORT TURNOVER VIS--VIS FREIGHT, TELECOMMUNICATION CHARGES, INSURANCE ATTRI BUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTS IDE INDIA, EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE T ECHNICAL SERVICES OUTSIDE INDIA. THE ASSESSEE WAS ALSO ASKED TO BIFU RCATE SALES SOFTWARE PACKAGES AND SERVICES WITH SUPPORTING SAMPLE BILLS OF EXPORT SALES. THE ASSESSEE FILED A DETAILED REPLY IN THE LIGHT OF THE PROVISIONS OF SECTION 10A(IV) R/W EXPLANATION 2 AND CLAIMED THAT THERE I S NO FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE INCLUDED IN EITHER THE EXPORT TURNOVER OR TOTAL TURNOVER. 14.1. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, THE AO OBSERVED THAT IF TURNOVER OF THE ASSESSEE DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE CHARGES SEPA RATELY, THEN WHY IT SHOULD NOT BE ASSUMED THAT THE SAID CHARGES/BILL AM OUNT INCLUDE DELIVERY COSTS. ACCORDING TO THE AO, UNLESS AND UNTIL ASSES SEE DELIVERS SAID PRODUCT/SOFTWARE TO THE FOREIGN BUYER, THE SAID BUY ERS IS NOT GOING TO PAY BILLS RAISED BY THE ASSESSEE. THE AO WAS OF THE FI RM BELIEF THAT EVEN IF NO SEPARATE CHARGES ARE CHARGED BY THE ASSESSEE, IT DO ES NOT MEAN THAT SAME M/S. GEOMETRIC LTD. 7 ARE NOT INCLUDED WITHIN INVOICE. THE AO FINALLY CO MPUTED THE DEDUCTION ALLOWABLE U/S. 10A AND COMPUTED THE DISALLOWANCE AT RS. 14.80 LAKHS. 15. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MAT TER BEFORE THE LD. CIT(A). THE LD. CIT(A) OBSERVED THAT THE AO HAS MA DE ADJUSTMENT ON ACCOUNT OF EXPENSES ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA AND EXPENSES INCURRED IN FOREIGN CURR ENCY FOR PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. 15.1. IN SO FAR AS THE EXPENSES ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE ARE CONCERNED, IT WAS EXPLAINED BEFORE THE LD. CIT(A) THAT THE SALE OF SOFTWARE PACKAGES AND SERVICES PERTAINS SOL ELY TO PRODUCTION AND DEVELOPMENT OF COMPUTER, SOFTWARE AND THERE WERE NO FREIGHT, TELECOMMUNICATION CHARGES AND INSURANCE INCLUDED IN EITHER EXPORT TURNOVER OR THE TOTAL TURNOVER. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) OBSERVED THAT THOUGH TH ESE EXPENSES WERE DENIED TO HAVE BEEN INCURRED BUT THEY MUST HAVE BEE N INCURRED AND THE EXPENSES MUST HAVE BEEN RECOVERED FROM THE FOREIGN CUSTOMER BY MAKING ADJUSTMENT IN THE SALE BILLS ITSELF. HOWEVER, AT T HE SAME TIME, THE LD. CIT(A) WAS OF THE OPINION THAT THE TOTAL AMOUNT ALL OCATED BY THE AO AT RS. 84,14,013/- IS ON THE HIGHER SIDE. THE LD. CIT (A) REDUCED THE SAME TO 25% AND RESTRICT THE ALLOCATION AT RS. 21,03,503 /-. 15.2. IN SO FAR AS THE EXPENDITURE INCURRED ON TECH NICAL SERVICES OUTSIDE INDIA ARE CONCERNED, IT EXPLAINED THAT THE ASSESSEE DID NOT PROVIDE ANY TECHNICAL SERVICES AND WAS NOT IN THE FIELD OF ERP SOFTWARE IMPLEMENTATION, MANAGEMENT CONSULTANCY AND ANY OTHE R RELATED FILED WHERE TECHNICAL SERVICES TO BE PROVIDED TO THE CLIE NT. IT WAS EXPLAINED THAT THE ASSESSEE WAS PURELY ENGAGED IN THE DEVELOP MENT OF COMPUTER M/S. GEOMETRIC LTD. 8 SOFTWARE AND THEREFORE THERE WAS NO OCCASION FOR IN CURRING ANY EXPENDITURE FOR PROVIDING ANY TECHNICAL SERVICES OU TSIDE INDIA. 15.3. AFTER CONSIDERING THE FACTS AND THE SUBMISSIO NS, THE LD. CIT(A) OBSERVED THAT IT CANNOT BE TOTALLY ACCEPTED THAT TH E ASSESSEE DID NOT RENDER ANY TECHNICAL SERVICES OUTSIDE INDIA PERTAINING TO THE COMPUTER SOFTWARE EXPORTED. THE LD. CIT(A) WAS CONVINCED THAT PROFES SIONAL FEES OF RS. 19,61,324/-, ROYALTY RS. 49,806/-, EXHIBITION EXPEN SES RS. 6,74,877/- AND OTHER EXPENSES AT RS. 1,12,85,960/- CANNOT BE CONSI DERED AS ATTRIBUTABLE TO PROVIDING OF TECHNICAL SERVICES OUTSIDE INDIA. AT THE SAME TIME, THE LD. CIT(A) WAS NOT CONVINCED THAT TRAVELLING EXPENSES, SALARY ON-SITE EMPLOYEES, SOFTWARE PACKAGE & TOOLS AND SALES AND M ARKETING EXPENSES WERE ALSO NOT ATTRIBUTABLE TO PROVIDING OF TECHNICA L SERVICES OUTSIDE INDIA. THE LD. CIT(A) FINALLY DIRECTED THE AO NOT TO CONSI DER PROFESSIONAL FEES, EXHIBITION EXPENSES, ROYALTY AND OTHER EXPENSES AS PERTAINING TO PROVIDING OF TECHNICAL SERVICES. IN RESPECT OF OTHER EXPENSE S, THE LD. CIT(A) REDUCED THE ALLOCATION TO 25% AS PERTAINING TO INCU RRED FOR THE PURPOSE OF PROVIDING TECHNICAL SERVICES OUTSIDE INDIA AND ACCO RDINGLY DIRECTED THE AO TO RECOMPUTED THE DEDUCTION U/S. 10A OF THE ACT. 16. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE EXP LAINED THE PROVISIONS OF SEC. 10A(IV) R.W. EXPLANTION -2 OF TH E ACT. CLAUSE (IV) READS AS UNDER: EXPORT TURNOVER MEANS THE CONSIDERATION IN RESPEC T OF EXPORT (BY THE UNDERTAKING) OF ARTICLES OR THINGS O R 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, TELECOM MUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY O F THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE IND IA OR M/S. GEOMETRIC LTD. 9 EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN P ROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA. 17. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSES SEE HAS NOT RECOVERED ANY OF THE EXPENSES NOR THESE EXPENSES WERE REIMBUR SABLE BY THE FOREIGN PARTY. FURTHER, THE LD. COUNSEL POINTED OUT THAT T HE SECOND LIMB OF CLAUSE (IV) TO EXPLANATION-2 IS INDEPENDENT AND THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN ASSESSEE S OWN CASE IN ITA NO. 3464/M/08 FOR A.Y. 2003-04. 18. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SU PPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 19. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. IT IS AN UNDISPUTED FACT THAT THERE IS NO SPECIFIC FINDIN G IN SO FAR AS THE RECOVERIES OF EXPENDITURE BY THE ASSESSEE FROM ITS FOREIGN PARTIES ARE CONCERNED. IT IS ALSO NOT THE CASE OF THE AO THAT THE INVOICE AMOUNT IS INCLUSIVE OF SUCH EXPENSES. IT IS ALSO NOT A CASE OF THE REVENUE THAT ALL THESE EXPENSES ARE REIMBURSABLE. THE TRIBUNAL IN A SSESSEES OWN CASE IN ITA NO. 3464/M/08 INTER ALIA CONSIDERED THE FOLLOWI NG GROUNDS: GROUND NO. 4: THE LD. CIT ERRED IN HOLDING THAT THE ASSESSEE HAD CLAIMED EXCESS DEDUCTION U/S. 10A IN RESPECT OF ITS SOFTWARE UNITS. GROUND NO. 8: THE LD. CIT ERRED IN HOLDING THAT THE AGGREGATE EXPENSES IN FOREIGN CURRENCY WERE TO BE ENTIRELY RE DUCED FROM THE EXPORT TURNOVER FOR THE PURPOSES OF COMPUTING THE D EDUCTION U/S. 10A OF THE ACT. 20. THE TRIBUNAL AT PARA-7 OF ITS ORDER HAS CONSID ERED THE FOLLOWING FACTS: M/S. GEOMETRIC LTD. 10 AS REGARDS SECOND PROPOSITION REGARDING THE MERITS OF COMPUTATION OF DEDUCTION U/S. 1OA OF THE ACT, THE LD COUNSEL FO R THE ASSESSEE DREW OUR PARTICULAR ATTENTION TO THE DEFINITION OF EXPORT T URNOVER GIVEN IN CLAUSE (IV) OF SUB-SECTION (2) OF SECTION 1OA OF THE I.T. ACT AND SUBMITTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN FOREIGN CURRENCY WERE AS FOLLOWS: (I) SOFTWARE PACKAGES AND TOOLS - RS. 58,89,375/- (II) TRAVELLING-EXPENSES - RS. 1,10,35,099/- (III) PROFESSIONAL FEES - RS. 18,72,157/- (IV) SALES & MARKETING EXPENSES - RS.7,70,56,613/ (V) EXHIBITION EXPENSES - RS. 14,48,572/- (VI) ROYALTY - RS 51,41,R67/- (VII) OTHER EXPENSES (NET OF REIMBURSEMENT INCLUDE FOREIGN OFFICE EXPENSES) - RS.1,67,70,596/- - RS.11,92,14,2 46/- 21. THE TRIBUNAL OBSERVED AS UNDER: AS REGARDS THE GROUND ON WHICH THE REVISION WAS S OUGHT TO BE MADE, WE FIND THAT SECTION 1OA IS A SPECIAL PROV ISION RELATING TO NEWLY ESTABLISHED UNDERTAKING IN TRADING ZONES AND THE CLAUSE (IV) OF EXPLANATION (2) OF THE SECTION 1OA DEFINES THE E XPORT TURNOVER, ACCORDING TO WHICH, IT IS THE CONSIDERATION IN RESP ECT OF THE EXPORT BY THE UNDERTAKING ARTICLES OR THINGS OR COMPUTER S OFTWARE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERT IBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB-SECTION (3) I.E. WI THIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR WIT HIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF AND IT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE CHARGES ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA. . FROM THE FACTS O F THE CASE, IT CAN BE SEEN THAT THE EXPENDITURE SOUGHT TO BE REDUCED F ROM THE EXPORT TURNOVER IS NOT IN THE NATURE OF FREIGHT, TELECOMMU NICATION CHARGES OR INSURANCE CHARGES ATTRIBUTABLE TO THE DELIVERY O F THE SOFTWARE OUTSIDE INDIA. THE OTHER EXPENDITURE WHICH CAN BE R EDUCED IS THE EXPENDITURE INCURRED IN FOREIGN EXCHANGE IN PROVIDI NG THE TECHNICAL SERVICES OUTSIDE INDIA. THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT IN THE NATURE OF TE CHNICAL EXPENDITURE FOR PROVIDING THE TECHNICAL SERVICES OU TSIDE INDIA. M/S. GEOMETRIC LTD. 11 THEREFORE, THE ASSESSEE HAS CORRECTLY NOT REDUCED T HE SAME FROM THE EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION U /S. 1OA OF THE ACT. THIS VIEW IS ALSO FORTIFIED BY THE DECISION O F THE ITAT BANGALORE IN THE CASE OF INFOSYS TECHNOLOGIES P. L TD. (SUPRA) AND ALSO ITAT, HYDERABAD IN THE CASE OF PATNI TELECOM ( P.) LTD. (SUPRA). FURTHER THESE DECISIONS ALSO WERE ALREADY DELIVERED WHEN THE ASSESSMENT ORDER WAS PASSED ON 20.03.2006 AND T HE VIEW ADOPTED BY THE ASSESSING OFFICER IS INCONSONANCE W ITH THE SAID DECISION AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MAX INDIA LTD. (SUPRA) AND MALABAR INDUSTRIAL CO. (SUPR A). WHEN TWO DIFFERENT VIEWS EXISTED WHEN THE COMMISSIONER WAS P ASSING THE ORDER, IT HAD TO BE TAKEN INTO ACCOUNT AND THE COMM ISSIONER HAS NO JURISDICTIONAL POWER TO REVISE U/S. 263. SIMILAR VI EW HAS ALSO BEEN EXPRESSED BY THE VARIOUS OTHER HONBLE HIGH COURTS IN THE DECISIONS RELIED UPON BY THE LD COUNSEL FOR THE ASS ESSEE. EVEN THE DECISION RELIED UPON BY THE LD DR POINTS TO LEGAL P ROPOSITION THAT THE BETTER WISDOM LOWER COUNTS MUST YIELD TO THE HI GHER WISDOM OF THE COURT ABOVE, MEANING THAT THE COMMISSIONER OF I NCOME-TAX SHOULD FOLLOW THE DECISIONS OF THE TRIBUNAL. IN VIEW OF THE SAME, WE HOLD THAT THE CIT HAS NO J URISDICTION TO REVISE THE ORDER U/S. 263 OF THE I.T. ACT. IN VIEW OF OUR DECISION RELATING TO PROPOSITION NO. 1 AND ALSO PROPOSITION NO. 2, WE DO NOT SEE ANY REASON TO ADJUDICATE THE PROPOSITION NO. 3 ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE. 21. THE EXPENDITURES AS PER GROUND NO. 6 READ AS UN DER: EXPENDITURE IN FOREIGN CURRENCY AMOUNT RS. TRAVEL EXPENSES 55,64,008/- SALARY ONSITE EMPLOYEES 76,76,341/- SOFTWARE PACKAGE & TOOLS 13,27,805/- SALES & MARKETING EXPENSES 66,80,683/- TOTAL 2,12,48,837/- M/S. GEOMETRIC LTD. 12 22. IT CAN BE SEEN THAT THE EXPENDITURES CONSIDERED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS ARE IDENTICAL TO THE EXP ENDITURE CONSIDERED DURING THE YEAR UNDER CONSIDERATION. A SIMILAR ISS UE WAS CONSIDERED BY THE TRIBUNAL, HYDERABAD BENCH IN THE CASE OF PATNI TELECOM (P) LTD. VS ITO 22 SOT 26 (HYD) WHEREIN THE ISSUE WAS THAT THE ASSESSEE HAD INCURRED CERTAIN EXPENDITURE ON ACCOUNT OF TRAVELLI NG ALLOWANCE FOR THE PURPOSE OF DEVELOPMENT OF SOFTWARE AT CLIENTS CITED OUTSIDE INDIA AND HAD ALSO INCURRED CERTAIN EXPENDITURE ON THE DELIVERY O F SOFTWARE BOOKED UNDER INTERNET SERVICE PROVIDER (ISP), SINCE IT GO T LEASED ISP LINE EXCLUSIVELY. IT WAS EXPLAINED BY THE TRIBUNAL THAT IF THE QUOTED PRICE IS INCLUSIVE OF SUCH EXPENSES, THEN CONSOLIDATED VALUE OF THE GOODS IS ONLY MENTIONED IN THE INVOICE. IN A CASE WHERE ONLY VAL UE OF GOODS IS QUOTED, EXPENSE IS BORNE BY THE SUPPLIER. THE LOGIC AND REA SON BEHIND THIS HAVE BEEN EXPLAINED BY THE CBDT VIDE ITS CIRCULAR NO. 56 4 DT. 5.7.1990 THAT THE DELIVERY OF THE GOODS SHOULD BE FREE ON BOARD. 22.1. IN RESPECT OF EXPENSES INCURRED IN FOREIGN EX CHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA, THE TRIBUNAL OBSE RVED THAT ON READING OF CLAUSE (IV) OF EXPLANATION -2 TO SEC. 10A, IT IS EV IDENT THAT ALL EXPENSES NEED NOT BE REDUCED FROM CONSIDERATION RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPOSE OF CALCULATION OF EXPORT TURNOVER U/S. 10A OF THE ACT. ONLY THOSE EXPENSES WHICH ARE INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA ARE REQU IRED TO BE REDUCED. CONSIDERING THE FACTS OF THE CASE IN HAND, IN THE L IGHT OF THE DECISION OF THE TRIBUNAL DISCUSSED HEREINABOVE, WE SET ASIDE TH E FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO ALLOW THE CLAIM OF DEDU CTION U/S. 10A AS COMPUTED BY THE ASSESSEE. GROUND NO. 4,5 & 6 ARE A CCORDINGLY ALLOWED. M/S. GEOMETRIC LTD. 13 23. GROUND NO. 7 & 8 RELATE TO THE CLAIM OF DEDUCTI ON U/S. 10A ON THE PROFITS IN RESPECT OF UNITS I & II BY CLAIMING THA T THE LOSS OF UNIT-III BE SET OFF AGAINST THE INCOME COMPUTED UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. 24. IT IS THE CLAIM OF THE ASSESSEE THAT THE LOSS O F ONE ELIGIBLE UNIT CANNOT BE SET OFF AGAINST THE PROFITS OF OTHER TWO ELIGIBLE UNITS. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATE D THAT THE ISSUES INVOLVED IN GROUND NOS. 7 & 8 ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD. V S DCIT & ANOTHER 325 ITR 102. 25. THE LD. DR COULD NOT BRING ANY DISTINGUISHING D ECISION IN FAVOUR OF THE REVENUE. 26. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW AND THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL WHEREIN THE HONB LE HIGH COURT HAS HELD THAT ALL THE FOUR UNITS OF THE ASSESSEE WERE E LIGIBLE U/S. 10B OF THE ACT. THREE UNITS HAD RETURNED A PROFIT DURING THE COURSE OF THE ASSESSMENT YEAR, WHILE ONE UNIT HAD RETURNED A LOSS. HONBLE HIGH COURT HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION IN RESPECT O F THE PROFITS OF THE THREE ELIGIBLE UNITS WHILE THE LOSS SUSTAINED BY THE FOUR TH UNITS COULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. FACTS BEING ID ENTICAL TO THE FACTS OF THE CASE IN HAND, RESPECTFULLY FOLLOWING THE DECISI ON OF THE HONBBLE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE FINDING S OF THE LD. CIT(A) AND DIRECT THE AO NOT TO SET OFF ELIGIBLE UNIT WITH THE PROFITS OF THE INELIGIBLE UNIT. GROUND NO. 7 & 8 ARE ACCORDINGLY ALLOWED. M/S. GEOMETRIC LTD. 14 27. GROUND NO. 9,10 & 11 RELATE TO THE DISALLOWANC E U/S. 14A R.W. RULE 8D OF THE ACT. 28. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT BE CAUSE OF THE SMALLNESS OF THE AMOUNT INVOLVED, HE IS NOT PRESSIN G THESE GROUNDS. GROUND NO. 9,10 & 11 ARE ACCORDINGLY DISMISSED AS N OT PRESSED FOR THE SMALLNESS OF THE AMOUNT INVOLVED. 29. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 2750/M/2011 A.Y. 2006-07 30. THE ASSESSEE HAS RAISED 5 GROUNDS OF APPEAL. G RIEVANCE RAISED VIDE GROUND NO. 1 IS IDENTICAL TO THE GRIEVANCE RAISED V IDE GROUND NO. 4,5 & 6 IN ITA NO. 2672/M/2010. FOR THE DETAILED REASONS G IVEN THEREIN, GROUND NO. 1 IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE. 31. GRIEVANCE RAISED VIDE GROUND NO. 2 IS IDENTICAL TO THE GRIEVANCE RAISED VIDE GROUND NO. 7 & 8 IN ITA NO. 2672/M/2010 . FOR THE DETAILED REASONS GIVEN THEREIN, GROUND NO. 2 IS ALLOWED. 32. GRIEVANCE RAISED VIDE GROUND NO. 3,4 & 5 ARE S IMILAR TO THE ISSUES TAKEN VIDE GROUND NO. 1,2 & 3 IN ITA NO. 2672/M/20 10. FOR THE DETAILED REASONS GIVEN THEREIN, GROUND NO. 3,4 & 5 ARE DISMISSED. 33. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 5974/M/2010 A.Y. 2002-03 34. THE ASSESSEE HAS RAISED 17 SUBSTANTIVE GROUNDS OF APPEAL. M/S. GEOMETRIC LTD. 15 35. GRIEVANCE RAISED VIDE GROUND NO. 5 & 6 ARE SIM ILAR TO THE GROUNDS RAISED VIDE GROUND NO. 4,5 & 6 IN ITA NO. 2672/M/ 2010. FOR THE DETAILED REASONS GIVEN THEREIN, GROUND NO. 5 & 6 AR E ALLOWED. 36. GRIEVANCE RAISED VIDE GROUND NO. 7 TO 10 ARE SI MILAR TO THE ISSUES TAKEN VIDE GROUND NO. 1,2 & 3 IN ITA NO. 2672/M/201 0. FOR THE DETAILED REASONS GIVEN THEREIN, THESE GROUNDS ARE DISMISSED. 37. GRIEVANCE RAISED VIDE GROUND NO. 11 TO 15 RELAT E TO THE COMPUTATION OF DISALLOWANCE MADE U/S. 14A OF THE AC T R.W. RULE 8D. 38. A PERUSAL OF THE ASSESSMENT RECORD SHOWS THAT T HE AO HAS COMPUTED THE DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE ACT. IT IS A SETTLED PROPOSITION OF LAW THAT APPLICATION OF RULE 8D IS W.E.F 2008-09 AS HELD BY THE HONBLE HIGH COURT OF BOMBAY IN THE CAS E OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS DCIT 328 ITR 81. THEREFORE, THE ACTION OF THE AO IS NOT AS PER THE SETTLED POSITION OF THE LAW. IN OUR CONSIDERED OPINION, DISALLOWANCE OF RS. 1,00,000/- WOULD MEET THE ENDS OF JUSTICE. WE, ACCORDINGLY DIRECT THE AO TO RESTR ICT THE DISALLOWANCE U/S. 14A OF THE ACT AT RS. 1,00,000/-. GROUND NO. 11 TO `15 ARE PARTLY ALLOWED. 39. GROUND NO. 16 & 17 RELATE TO THE COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT. 40. WE RESTORE THIS ISSUE TO THE FILE OF THE AO TO RECOMPUTE THE BOOK PROFIT U/S. 115JB OF THE ACT QUA OUR FINDINGS TO GR OUND NO. 11 TO 15. GROUND NO. 16 & 17 ARE TREATED AS ALLOWED FOR STATI STICAL PURPOSE. 41. GROUND NO. 1 TO 4, THE ASSESSEE HAS CHALLENGED THE REOPENING OF THE ASSESSMENT U/S. 147 OF THE ACT. SINCE WE HAVE PROCEEDED BY DECIDING M/S. GEOMETRIC LTD. 16 THE APPEAL ON MERITS OF THE CASE, WE DO NOT FIND IT NECESSARY TO DECIDE THIS GRIEVANCE OF THE ASSESSEE. 42. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE PARTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MARCH, 2015 SD/- SD/- (VIVEK VARMA ) (N.K. BILLAIYA) #$ /JUDICIAL MEMBER ' #$ / ACCOUNTANT MEMBER MUMBAI; 4# DATED : 11 TH MARCH, 2015 . . ./ RJ , SR. PS #3 #3 #3 #3 . .. . +/ +/ +/ +/ 5'/ 5'/ 5'/ 5'/ / COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 78 +/ , , / DR, ITAT, MUMBAI 6. 89 : / GUARD FILE. #3 #3 #3 #3 / BY ORDER, ,/ +/ //TRUE COPY// ; ;; ; / < < < < (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI