DCIT, V. M/s Informatica Business Solutions Pvt. Ltd., Bangalore

ITA 608/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0382 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 03-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: P K PRASAD
• Keywords: Question of law; Competent authority
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI VIJAYPAL RAO, JUDICIAL MEMBE R AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER IT(TP)A NO.608/BANG/ 2013 (ASST. YEAR 2008- 09) THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-11(4), BANGALORE. . APPELLANT VS. M/S INFORMATICA BUSINESS SOLUTIONS PVT. LTD., NO.66/1, BAGMANE, COMMERZ 02, BAGMANE TECH PARK, CR RAMAN NAGAR, BANGALORE-560 030. APPELLANT BY : DR. PK SRIHARI, ADDL. CIT RESPONDENT BY : SHRI PK PRASAD, ADVOCATE DATE OF HEARING : 19-5-2016 DATE OF PRONOUNCEMENT : 25-5-2016 O R D E R SHRI VIJAYPAL RAO, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 20/2/2013 OF COMMISSIONER OF INCOME-TAX (APPEALS) F OR THE ASSESSMENT YEAR 2008-09. IT(TP)A NO. 608/B/13 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1) THE ORDER OF THE LD CIT(A), IN SO FAR AS IT IS P REJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND T HE FACTS AND CIRCUMSTANCES OF THE CASE . 2) THE LEARNED CIT(A) ERRED IN EXCLUDING M/S CELES TIAL BIOLABS LTD., FLEXTRONICS LTD., IGATE GLOBAL SOLUTI ONS LTD., INFOSYS TECHNOLOGIES LTD., MINDTREE LTD., PERSISTEN T SYSTEMS LTD., SASKEN COMMUNICATION TECHNOLOGIES LTD., TATA ELSI LTD., AND WIPRO LTD., (SEGMENT) FROM THE FINAL LIST OF COMPARABLES IN THE SOFTWARE SERVICES SEGMENT AND AD ITYA BIRLA MINACS WORLDWIDE LTD., CORAL HUBS LTD. ECLERX SERVICES LTD, INFOSYS BPO LTD, JINDAL INTELLICOM LT D, MOLDTEK TECHNOLOGIES LTD, WIPRO LTD (SEGMENT) AND ALLSEC TECHNOLOGIES LTD IN THE ITES SEGMENT HOLDING THAT T HE SIZE AND TURNOVER OF THE COMPANY ARE DECIDING FACTOR FOR TRE ATING A COMPANY AS A COMPARABLE. 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT M/S AVANI CINCOM TECHNOLOGIES LTD., CANNOT BE TAKEN AS COMPARABLE. 4. THE LEARNED CIT(A) ERRED IN HOLDING THAT M/S AVANI CINCOM TECHNOLOGIES LTD., CANNOT BE TAKEN AS COMPARABLE. 5. THE LEARNED CIT(A) ERRED IN HOLDING THAT M/S KALS INFORMATION SYSTEMS LTD., CANNOT BE TAKEN AS COMPAR ABLE WITHOUT APPRECIATING THE FACT THAT IT QUALIFIES ALL THE QUALITATIVE AND QUANTITATIVE FILTERS APPLIED BY THE TPO. 6. THE LEARNED CIT(A) ERRED IN EXCLUDING CELESTIAL BIO LABS LTD. FROM THE LIST OF COMPARABLES BEING FUNCTIONALLY DIF FERENT. IT(TP)A NO. 608/B/13 3 7. THE CIT(A) ERRED IN DIRECTING THE AO TO INCLUDE VMF SOFT TECH LTD IN THE FINAL LIST OF COMPARABLES HOLDING T HAT THERE WAS NO REASON TO REJECT VMF SOFT TECH LTD AS A COMP ARABLE ON APPLYING THE EXPORT REVENUE FILTER. 8. THE CIT(A), ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, ERRED IN INCLUDING VMF SOFT TECH LTD AS A COMPARABL E ON THE BASIS OF EXPORT EARNINGS WITHOUT APPRECIATING THE F ACT THAT IF FAILS THE PERSISTENT LOSS FILTER. 9. THE CIT(A) ERRED IN MAARS SOFTWARE INTERNATIONAL LT D., AS A COMPARABLE REJECTING THE EMPLOYEE COST FILTER APPLI ED BY THE TPO TO SELECT COMPANIES WHICH ARE PREDOMINANTLY INT O SOFTWARE DEVELOPMENT SERVICES. 10. THE CIT(A) ERRED IN NOT APPRECIATING THAT THE EMPL OYEE COST IS USED AS A FILTER TO EXCLUDE COMPANIES THAT DO NO T HAVE THE CHARACTERISTIC FEATURE OF A SOFTWARE COMPANY. 11. THE CIT(A), ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, ERRED IN HOLDING THAT ACCENTIA TECHNOLOGIES LTD., AND GENESYS INTERNATIONAL CORPORATION LTD., CANNOT BE T AKEN AS COMPARABLES. 12. THE CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE FRO M THE TOTAL TURNOVER THE EXPENSES ALREADY EXCLUDED FROM EXPORT TURNOVER AND ACCORDINGLY MODIFY THE COMPUTATION OF RELIEF AL LOWABLE U/S 10A. 13. THE CIT(A) ERRED IN HOLDING THAT THE DECISION IN TH E CASE OF ACIT V TATA ELSXI LTD., [2011] TIOL 684 HC KAR IT I S SQUARELY APPLICABLE TO THE FACT OF THE PRESENT CASE AND THE JURISDICTIONAL HIGH COURTS DECISIONS IS BINDING IT(TP)A NO. 608/B/13 4 14. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FA CT THAT THERE IS NO PROVISION IN SECTION 10A WHICH REQUIRES THE CONCERNED EXPENSES; WHICH ARE REQUIRED TO BE REDUCE D FROM THE EXPORT TURNOVER AS PER CLAUSE (IV) OF THE EXPLA NATION TO SEC. 10A, TO BE REDUCED FROM THE TOTAL TURNOVER ALS O. 15. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE F ACT THAT THE JURISDICTIONAL HIGH COURTS DECISION RELIED UPON BY HIM HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL H AS BEEN FILED BEFORE HONBLE SUPREME COURT WHICH IS STILL P ENDING. 16. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING IT IS HUMBLY PRAYED THAT ORDER OF T HE CIT(A) BE REVERSED AND THAT OF THE AO BE RESTORED. 3. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT RE QUIRE ANY SPECIFIC ADJUDICATION. 4. GROUND NOS. 2 TO 11 ARE REGARDING TRANSFER PRICI NG ADJUSTMENT AND RELIEF GRANTED BY THE CIT(A). 5. AT THE TIME OF HEARING OUR ATTENTION WAS DRAWN T O THE LETTER DATED 18/12/2015, WHEREBY THE ACIT, CIRCLE-3(1)(1), BANGALORE INFORMED THE ASSESSEE REGARDING THE ORDER DATED 4/1 2/2015 PASSED BY THE COMPETENT AUTHORITY OF INDIA TO RESOLVE THE MAP PROCEEDINGS FOR THE ASSESSMENT YEAR 2005-06 TO 2008-09. IT(TP)A NO. 608/B/13 5 6. THE LEARNED AR OF THE ASSESSEE HAS FILED A COPY OF THE LETTER DATED 18/12/2015 AS WELL AS THE ORDER DATED 4/12/20 15, WHEREBY THE TP MATTER HAS BEEN RESOLVED UNDER MAP PROCEEDINGS A S THE PARTIES HAVE MUTUALLY AGREED UNDER THE FRAMEWORK AGREEMEN T IN RESPECT OF THE CASE INVOLVING IT SERVICES AND IT ENABLED SERVI CES. IN VIEW OF THE FACT THAT THE DISPUTE REGARDING TRANSFER PRICE HAS BEEN RESOLVED UNDER MAP PROCEEDINGS VIDE ORDER DATED 4/12/2015, THE GR OUND NOS. 2 TO 11 OF THE REVENUE APPEAL BECOMES INFRUCTUOUS AND A RE ACCORDINGLY DISMISSED. 7. GROUND NOS.12 TO 15 ARE REGARDING EXCLUSION OF E XPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOV ER AS WELL AS TOTAL TURNOVER. 8. AT THE OUTSET, WE NOTE THAT THIS ISSUE OF EXCLUS ION OF THE EXPENSES INCURRED IN FOREIGN EXCHANGE FROM THE EXPO RT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER IS SETTLED BY THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI , 349 ITR 98 WHERE IN THE HONBLE HIGH COURT HAS HELD IN PARA 17 AND 1 8 AS UNDER : IT(TP)A NO. 608/B/13 6 17. FROM THE AFORESAID JUDGMENTS, WHAT EMERGES IS THAT, THERE SHOULD BE UNIFORMITY IN THE INGREDIE NTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA, SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10A IS A BENEFICIAL SEC TION. IT IS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. THE INCENTIVE IS TO EXEMPT PROFITS RELATA BLE TO EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS, THE LEGISLATURE INTENDED TO HAVE A FORMUL A TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON T HE BASIS OF TURNOVERS. APPORTIONMENT ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN THE CASE OF SECTION 80HHC, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSIN ESS INCOME OF THE ASSESSEE, WHEREAS IN SECTION 10A, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSIN ESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS O F AN UNDERTAKING, IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS, IN OTHER WORDS, EXPORT TURNOVER AND DOMESTIC TURNOVER. THE EXPORT TURNOVER WOULD B E A COMPONENT OR PART OF A DENOMINATOR, THE OTHER COMPONENT BEING THE DOMESTIC TURNOVER. IN OTHER WORDS TO THE EXTENT OF EXPORT TURNOVER, THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IN VIEW OF THE COMMONALITY, THE UNDERSTANDING SHOULD ALSO BE THE IT(TP)A NO. 608/B/13 7 SAME. IN OTHER WORDS, IF THE EXPORT TURNOVER IN TH E NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTA IN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNOVER N THE DENOMINATOR. THE REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFOR E, THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TURNOVER IN SECTION 10A, THERE IS NOTHING IN THE S AID SECTION TO MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELES S FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICULAR WORD IS NOT DEFINED BY THE LEGISLATURE A ND AN ORDINARY MEANING IS TO BE ATTRIBUTED TO THE SAME , THE SAID ORDINARY MEANING TO BE ATTRIBUTED TO SUCH WORD IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHI CH IT IS USED. WHEN THE STATUE PRESCRIBES A FORMULA A ND IN THE SAID FORMULA, EXPORT TURNOVER IS DEFINED, AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE TOTAL TURNOVER, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER, WHEN THE EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER, S UCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLAT IVE IT(TP)A NO. 608/B/13 8 INTENT AND IMPERMISSIBLE. IF THAT WERE THE INTENTI ON OF THE LEGISLATURE, THEY WOULD HAVE EXPRESSLY SATED SO . IF THEY HAVE NOT CHOSEN TO EXPRESSLY DEFINE WHAT TH E TOTAL TURNOVER MEANS, THEN, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE MEANING ASSIGNED BY T HE LEGISLATURE TO THE EXPORT TURNOVER IS TO BE RESPECT ED AND GIVEN EFFECT TO WHILE INTERPRETING THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER. THEREFORE, THE FORMULA FOR COMPUTATION OF THE DEDUCTION US 10A, WOULD BE AS UNDER: PROFITS OF THE BUSINESS EXPORT TURNOVER OF THE UNDERTAKING X,--------------------------- ------------------- (EXPORT TURNOVE R + DOMESTIC TURNOVER) TOTAL TURNOVER IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY ERRO R COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGMENT S RENDERED I THE CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAM E. THEREFORE, WE DO NOT SEE ANY MERIT IN THESE APPEALS . THE SUBSTANTIAL QUESTION OF LAW FRAMED IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 9. THE CASE OF THE REVENUE IS THAT THE SAME SHOULD BE EXCLUDED FROM THE EXPORT TURNOVER BUT SHOULD NOT BE EXCLUDED FROM TOTAL IT(TP)A NO. 608/B/13 9 TURNOVER. ON THIS ISSUE, THE JUDGMENT OF HONBLE K ARNATAKA HIGH COURT RENDERED IN THE CASE OF TATA ELXSI (SUPRA) SU PPORTS THE CASE OF THE ASSESSEE BECAUSE IN THIS CASE, IT WAS HELD BY H ONBLE KARNATAKA HIGH COURT THAT THE TOTAL TURNOVER IS SUM TOTAL OF EXPORT TURNOVER AND DOMESTIC TURNOVER AND, THEREFORE, IF AN AMOUNT IS E XCLUDED FROM EXPORT TURNOVER, THE TOTAL TURNOVER IS ALSO REDUCED BY THE SAME AMOUNT AS A CONSEQUENCES OF DEDUCTION FROM EXPORT TURNOVER . IN THIS VIEW OF THE MATTER, WE FIND NO INFIRMITY IN THE ORDER OF TH E LEARNED CIT(A) ON THIS ISSUE. REGARDING THE CONTENTION OF THE REVEN UE THAT THE REVENUE HAS NOT ACCEPTED THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT AND HAS FILED APPEAL BEFORE THE HONBLE APEX COURT, WE WOULD LIKE TO OBSERVE THAT IT IS NOT THE CASE OF THE REVENUE THAT THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT HAS BEEN STAYED BY HON BLE APEX COURT, AND THEREFORE, THE JUDGMENT IS VALID AND WE ARE BOUND TO FOLLOW THE SAME. ACCORDINGLY GROUND NOS. 12 TO 15 OF THE REVENUE IS REJECTED. 10. RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LEARNED CIT(A) TO QUA THIS ISSUE. IT(TP)A NO. 608/B/13 10 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 MAY, 2015. SD/- SD/- (INTURI RAMA RAO) (VIJAYPAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 25/5/2015 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, I TAT, BANGALORE.