ITO, Bangalore V. M/s Cepha Imaging (P) Ltd., Bangalore

ITA 684/BANG/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1625 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 19-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Competent authority
• Section: 143(3); 10B; 6; 10

Judgement Text

PAGE 1 OF 11 ITA NOS.603 & 604/BANG/2010 & 684 & 685/BANG/201 0 1 THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K, J.M. AND SHRI A MOHAN ALANKAMONY, A.M. ITA NO S . 6 03 & 604 /BANG/2010 (ASST. YEAR S 2005 - 06 & 200 6 - 0 7 ) M/S CEPHA IMAGING (P) LTD., #31, KEMAPURA HEBBAL, BANGALORE - 560 024. - APPELLANT VS THE INCOME TAX OFFICER , WARD - 11(1),BANGALORE. - RESPONDENT ITA NO S . 684 & 685 /BANG/2010 (ASST. YEAR S 2005 - 06 & 2006 - 07) (BY REVENUE ) ASSESSEE BY : SHRI MILIND S KOTHARI, C.A. REVENUE BY : SMT. JACINTA ZIMIK VASHAI , ADDL. CIT O R D E R PER GEORGE GEORGE K : TH E S E APPEAL S PREFERRED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST TWO ORDER S OF THE CIT(A) - I , BANGAL ORE BOTH DATED 1 5 .1.2010 . THE RELEVANT ASS T. YEAR S ARE 2005 - 06 AND 200 6 - 07. PAGE 2 OF 11 ITA NOS.603 & 604/BANG/2010 & 684 & 685/BANG/201 0 2 2. SINCE THE ISSUES INVOLVED ARE PERTAINING TO THE SAME ASSESSEE, THESE APPEALS ARE DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. IN ASSESSEE S APPEAL S , IDENTICAL GROUNDS ARE RAISED EXCEPT FOR VARIAN CE I N FIGURES, HENCE, THE GROUNDS RE LAT ING TO ASST. YEAR 2005 - 06 ARE REPRODUCED BELOW: - I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT RS.10,63,878/ - BEING LEASED LINE CHARGES PAID TO VIDESH SANCHAR NIGAM LTD. ARE IN THE NATURE OF EXPENDITURE FOR DE LIVERY OR EXPORT OF PUBLICATION MATERIAL. II) WITHOUT PREJUDICE TO GROUND 1, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS LEGALLY ERRED IN IGNORING THE FACT THAT THE LEASED LINE CHARGES OF RS.10,63,878/ - DID NOT FORM PART OF EXPORT TURNOV ER AND HAVE NOT BEEN SEPARATELY RECOVERED WHILE REALIZING THE EXPORTS. THE LEARNED CIT(A) HAS THUS ERRED IN HOLDING THAT THE LEASED LINE CHARGES OF RS.10,63,878/ - ARE TO BE REDUCED FROM EXPORT TURNOVER WHILE DETERMINING DEDUCTION U/S 10B OF THE ACT. III) WITHO UT PREJUDICE TO GROUND 1 AND 2, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS LEGALLY ERRED IN NOT REDUCING THE LEASED LINE CHARGES OF RS.10,63,878 FROM TOTAL TURNOVER AFTER HOLDING IT AS EXPENDITURE FOR DELIVERY OR EXPORT OF PUBLICATI ON MATERIAL AND REDUCING IT FROM EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10B OF THE ACT. PAGE 3 OF 11 ITA NOS.603 & 604/BANG/2010 & 684 & 685/BANG/201 0 3 4. THE REVENUE HAS ALSO RAISED IDENTICAL ISSUES FOR BOTH THE ASST. YEARS. THE EFFECTIVE GROUNDS RAISED IN REVENUE S APPEALS READ AS FOLLOWS: - I) THE LEARNED CIT(A) HAS ERRED IN HOLDING THE FACT THAT THE EXPORT RECEIPTS WHICH WAS NOT RECEIVED IN TIME SHOULD NOT BE REDUCED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A. II) THE PROVISIONS OF SECTION 10A(3) CLEARLY STATES THAT O NLY THOSE CONVERTIBLE FOREIGN EXCHANGE WHICH IS RECEIVED WITHIN SIX MONTHS FROM THE END OF THE FINANCIAL YEAR OR PERMISSION FROM THE COMPETENT AUTHORITY IS RECEIVED IN RESPECT OF THOSE EXPORTS, ARE ONLY TREATED AS EXPORT RECEIPTS. 5. BRIEF FACTS TO THESE APPEALS ARE AS FOLLOWS: - THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF EXPORT OF E - PUBLISHING HAVING A UNIT LOCATED IN STPI AND WAS ENTITLED TO EXEMPTION U/S 10A OF THE INCOME TAX ACT, 1961. DURING THE PREVIOUS YEAR RELEVANT TO ASST. YE AR 2005 - 06, THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.4,43,836/ - AFTER CLAIMING DEDUCTION U/S 10B OF THE ACT AMOUNTING TO RS.3,40,72,530/ - . ASSESSMENT WAS COMPLETED U/S 143(3) VIDE ORDER DATED 26/12/2007 WHEREIN DEDUCTION U/S 10 A OF THE ACT WAS REDUCED. THE ASSESSING OFFICER MADE REDUCTION IN THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING THE QUALIFYING AMOUNT OF DEDUCTION U/S 10A OF THE ACT, 1961. THE AMOUNTS REDUCED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A OF THE ACT ARE AS FOLLOWS : - PAGE 4 OF 11 ITA NOS.603 & 604/BANG/2010 & 684 & 685/BANG/201 0 4 A) RS.10,63,878/ - ON ACCOUNT OF LEASE LINE CHARGES WHICH ACCORDING TO THE ASSESSING OFFICER, ARE ATTRIBUTABLE FOR EXPORT OF SOFTWARE AND THEREFORE, THE SAME HAS TO BE REDUCED FROM THE EXPORT TURNOVER WH I LE CALCU LATING DEDUCTION U/S 10A OF THE ACT; B) RS.29,80,564/ - ON ACCOUNT OF UNREALIZED REMITTANCE WITHIN THE STIPULATED TIME. 5.1 FOR ASST. YEAR 2006 - 07, THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.4,342/ - AFTER CLAIMING DEDUCTION OF RS.1 ,29,86,636/ - U/S 10B OF THE ACT. THE ASSESSING OFFICER, WHILE COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT VIDE ORDER DATED 26/12/2008, RECOMPUTED THE DEDUCTION U/S 10B OF THE ACT BY REDUCING FROM THE EXPORT TURNOVER, THE FOLLOWING SUMS: - A) 13,60,050/ - ON ACCOUNT OF LEASE LINE CHARGES AND B) RS.77,90,982/ - ON ACCOUNT OF UNREALIZED EXPORT REMITTANCE WITHIN THE STIPULATED TIME. 6. AGGRIEVED BY THE ASSESSMENT COMPLETED FOR ASST. YEARS 2005 - 06 AND 2006 - 07 , THE ASSESSEE PREFERRED APPEALS BEFORE THE FIRST APPE LLATE AUTHORITY. 7. A S REGARDS TO THE FIRST ISSUE, NAMELY, THE REDUCTION OF LEASE LINE CHARGES FROM THE EXPORT TURNOVER WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT , THE CIT(A) HELD AGAINST THE ASSESSEE AND CONFIRMED THE ACTION OF THE ASSESSING OFFICER FOR BOTH THE ASST. YEARS. THE CIT(A) ALSO REJECTED THE ALTERNATIVE SUBMISSION OF THE ASSESSEE , THAT WHEN AMOUNT S ARE REDUCED FROM THE EXPORT TURNOVER, A PAGE 5 OF 11 ITA NOS.603 & 604/BANG/2010 & 684 & 685/BANG/201 0 5 SIMILAR FIGURE SHOULD ALSO BE REDUCED FROM THE TOTAL EXPORT TURNOVER WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. THE CIT(A) FOLLOWED HIS ORDER IN THE CASE OF M/S JAIPURIA SILK MILLS (P) LTD. 7.1 REGARDING THE SECOND ISSUE, NAMELY, REDUCTION OF EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION U/S 10A/10B OF THE ACT ON ACCOUNT OF UNREALIZED EXPORT REMIT TANCE WITHIN THE STIPULATED TIME, THE CIT(A) HELD IN FAVOUR OF THE ASSESSEE BY OBSERVING THUS: - IN VIEW OF THE ABOVE FACTS THAT NOW THE APPELLANT HAD RECEIVED POST FACTO APPROVAL OF R.B.I. TO RECEIVE THE CFE NOT REALIZED WITHIN THE STIPULATED TIME, POST FACTO APPROVAL BEING AN APPROVAL IN THE EYE OF LAW, CANNOT BE THE REASON TO DENY ANY BENEFIT TO THE APPELLANT. THEREFORE, ASSESSING OFFICER IS DIRECTED TO TREAT SUCH REALIZATION AS EXPORT TURNOVER AND RE - COMPUTE THE DEDUCTION U/S 10B OF THE I T ACT . 7.2 T HE FIRST ISSUE , FOR WHICH THE CIT(A) HELD AGAINST THE ASSESSEE FOR BOTH THE ASST. YEARS, THE ASSESSEE PREFERRED APPEALS (ITA NOS.603 & 604/BANG/2010) BEFORE US. T HE SECOND ISSUE , FOR WHICH THE CIT(A) HELD AGAINST THE REVENUE FOR BOTH THE YEARS, THE REVE NUE HAS FILED APPEALS (ITA NOS.684 & 685/BANG/2010) BEFORE US . 8. THE LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW . WITH REGARD TO FIRST ISSUE, THE LEARNED AR SUBMITTED THAT THE DECISION RELIED ON BY THE FIRST APPELLATE AUT HORITY IN HOLDING AGAINST HIM, NAMELY, M/S JAIPURIA SILK MILLS (P) LTD. S CASE, WAS CARRIED IN APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL HAS PAGE 6 OF 11 ITA NOS.603 & 604/BANG/2010 & 684 & 685/BANG/201 0 6 REVERSED THE ORDER OF THE CIT(A) (ITA NO.1112 /BANG/2009 DATED 12 TH APRIL, 2010). AS REGARDS TO THE SECOND ISSUE, THE LEARNED AR SUPPORTED THE FINDING AND CONCLUSION OF THE CIT(A). 9. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE ASSESSING OFFICER. 10. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. WHILE CALCULATING DEDUC TION U/S 10A/10B OF THE ACT, THE AUTHORITIES HAVE REDUCED LE A SE LINE CHARGES AMOUNTING TO RS. RS.10,63,878/ - AND RS.13,60,050/ - FOR THE ASST. YEARS 2005 - 06 AND 2006 - 07 RESPECTIVELY, ONLY FROM THE EXPORT TURNOVER. SEVERAL DECISIONS OF THE TRIBUNAL INC LUDING THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF SAK SOFT (313 ITR (AT) 353, HAVE HELD THERE SHOULD BE PARITY BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 10A . THE DECISION RELIED ON BY THE CIT(A) HAS BEEN REVERSED BY TH E TRIBUNAL BY ITS ORDER DATED 12.4.2010, IN ITA NO.1112/BANG/2009 . NO CONTRARY DECISION HAS BEEN BROUGHT TO OUR NOTICE. THE RELEVANT FINDING OF THE TRIBUNAL IN M/S JAIPURIA SILK MILLS (P) LTD. IS REPRODUCED BELOW: - 8. WE HAVE HEARD THE RIVAL SUBMISSIO N AND PERUSED THE MATERIAL PLACED ON RECORD. THE ISSUE IN QUESTION STANDS COVERED DIRECTLY IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASST.YEAR 2005 - 06 (ITA NO.406/BANG/2008 DATED 10.7.2009), WHICH IN TURN, FOLLO WED THE DECISION OF THE SPECIAL PAGE 7 OF 11 ITA NOS.603 & 604/BANG/2010 & 684 & 685/BANG/201 0 7 BENCH CITED SUPRA. THE RELEVANT PORTION OF THE TRIBUNAL'S ORDER IN ASSESSEE'S OWN CASE CITED SUPRA READS AS FOLLOWS: - 'WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL PERUS AL OF THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE'S CASE, OUR CONSIDERED OPINION IS THAT NOW THE ISSUE STANDS SETTLED BY THE SPECIAL BENCH DECISION OF THE ITAT, CHENNAI IN THE CASE OF ITO V SAK SOFT LTD. REPORTED IN 313 ITR (AT) 353 DATED 6.3.09, THEREFORE , DOES NOT REQUIRE ANY FURTHER DELIBERATION. THE ISSUE STANDS COVERED AS ALSO HELD BY THE LEARNED CIT(A) WHICH DOES NOT CALL FOR ANY FURTHER INTERFERENCE'. 9. THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF ITO V SAK SOFT LTD. REPORTED IN 313 ITR (AT) 353 WAS CONSIDERING AN IDENTICAL SITUATION WHEREIN IT WAS HELD AS FOLLOWS: - 'THE COMMON THREAD RUNNING THROUGH SECTIONS 80HHC, 80HHE AND 80HHF IS THAT THEY ARE ALL PROVISIONS GRANTING RELIEF TO THE ASSESSEES IN RESPECT OF PROFITS DERIVED FROM EXPORT. THE DIF FERENCE BETWEEN CHAPTER III IN WHICH SECTION 10B FALLS, AND CHAPTER VI - A IN WHICH THESE SECTIONS FALL, IS THAT WHILE THE FORMER EXCLUDES THE INCOME IN PAGE 8 OF 11 ITA NOS.603 & 604/BANG/2010 & 684 & 685/BANG/201 0 8 QUESTION TOTALLY FROM THE PURVIEW OF TOTAL INCOME AND GIVES TOTAL EXEMPTION FROM TAX, THE LATTER GIVES DE DUCTION OF A PART OF THE PROFITS AND GAINS OF THE CONCERNED BUSINESS FROM THE GROSS TOTAL INCOME. BOTH, HOWEVER, ARE CHAPTERS WHICH GIVE RELIEF TO ASSESSEES FROM TAXATION SUBJECT TO THE CONDITIONS BEING FULFILLED AND IN THAT SENSE THEY ARE OF THE SAME GEN RE. THE OBJECT OF THESE SECTIONS IS TO ENCOURAGE THE EARNING OF FOREIGN EXCHANGE AND PROVIDE INCENTIVE TO PROMOTE EXPORTS. IF SOME OF THE SECTIONS SUCH AS SECTIONS 80HHE AND 80HHF PROVIDE FOR A FORMULA FOR CALCULATING THE DEDUCTION WHICH IS IDENTICAL WIT H THE FORMULA PRESCRIBED BY SECTION 10B, IT WOULD BE INCONGRUOUS TO INTERPRET SECTION 10B IN A MANNER DIFFERENT FROM THOSE TWO SECTIONS MERELY BECAUSE THERE IS NO DEFINITION OF 'TOTAL TURNOVER' IN THAT SECTION. 'EXPORT TURNOVER' AS DEFINED IN THESE SECTIO NS EXCLUDES FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THUS STATUTORILY PARITY IS MAINTAINED BE TWEEN EXPORT TURNOVER AND TOTAL TURNOVER IN THESE SECTIONS. THERE IS NO REASON WHY SUCH PARITY CANNOT PAGE 9 OF 11 ITA NOS.603 & 604/BANG/2010 & 684 & 685/BANG/201 0 9 BE MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER IN SECTION 10B JUST BECAUSE 'TOTAL TURNOVER' HAS NOT BEEN DEFINED IN THAT SECTION'. 10. THE FI RST APPELLATE AUTHORITY HAS ATTEMPTED TO DISTINGUISH THE CASES CITED ON THE BASIS THAT THE WORD 'TOTAL TURNOVER' OR 'GROSS RECEIPT' AS IT APPEARS IN SECTION 44AB OF THE I T ACT, 1961, BASED ON ICAI GUIDANCE NOTE INCLUDES ALL RECEIPTS INCLUDING REIMBURSEMEN T OF EXPENSES. THE CONTEXT IN WHICH THE WORDS 'TOTAL TURNOVER' AND 'GROSS RECEIPTS' APPEAR IN SECTION 44AB OF THE I T ACT, 1961 IS TOTALLY DIFFERENT TO THAT OF THIS CASE. THERE THE WORD 'TOTAL TURNOVER' IS USED TO BRING IN AMBIT OF TAX AUDIT ALL THE TRAN SACTIONS OF SALES AND SERVICES. THE DEFINITION IS REPRODUCED HEREIN BELOW: - 'THE AGGREGATE AMOUNT FOR WHICH SALES ARE EFFECTED OR SERVICES RENDERED BY AN ENTERPRISE. THE TERM 'GROSS TURNOVER' AND 'NET TURNOVER' (OR 'GROSS SALES' AND 'NET SALES') ARE SOME TIMES USED TO DISTINGUISH THE SALES AGGREGATE BEFORE AND AFTER DEDUCTION OF RETURNS AND TRADE DISCOUNTS'. THE WORD 'TOTAL TURNOVER' IS NOT DEFINED U/S 44AB OF THE I T ACT, 1961. HENCE, THIS DEFINITION IS BEING CONSIDERED AS GUIDING DEFINITION TO DETERMIN E TURNOVER FOR TAX AUDIT. THE FIRST APPELLATE AUTHORITY HAS ADOPTED THE MEANING OF WORDS STATED IN SECTION 44AB, WHICH IS WHOLLY UNNECESSARY IN PAGE 10 OF 11 ITA NOS.603 & 604/BANG/2010 & 684 & 685/BANG/201 0 10 THE INSTANT CASE AND HAS CONCLUDED THAT TURNOVER AND GROSS RECEIPTS ARE SYNONYM AND CAN BE USED INTERCHANGEABLY . THIS LINE OF ANALYSIS CANNOT BE APPLIED IN THIS CASE BECAUSE GROSS RECEIPT IS USED FOR SERVICES RENDERED BY BUSINESS ENTERPRISE OR FOR PROFESSIONAL INCOME AND WORD 'TURNOVER' FOR SALES EFFECTED OR FOR BUSINESS INCOME. THE ASSESSEE'S BUSINESS IS WHOLLY OF EXPORT OF MANUFACTURED SILK FABRIC AND HENCE WORD 'GROSS RECEIPT' CANNOT BE APPLIED TO EXPORT TURNOVER HERE. 11. FOR THE ABOVE SAID REASONS, WE REVERSE THE ORDER OF THE AUTHORITIES BELOW AND DIRECT THE ASSESSING OFFICER TO EXCLUDE FROM THE EXPORT TURN OVER AS WELL AS FROM THE TOTAL TURNOVER A SUM OF RS.96,39,523/ - AND RS.2,43,763/ - BEING FREIGHT AND INSURANCE EXPENSES RESPECTIVELY, WHILE CALCULATING DEDUCTION U/S 10B OF THE ACT . 10.1 IN THE LIGHT OF THE ABOVE ORDER OF THE TRIBUNAL, ALTERNATIVE GROUND , NAMELY, GROUND NO.3 RAISED IN ASSESSEE S APPEALS IS ALLOWED. THEREFORE, THE AO IS DIRECTED TO REDUCE LEASE LINE CHARGES NOT ONLY FROM THE EXPORT TURNOVER BUT ALSO FROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 10A/10B OF THE ACT. 10.2 AS REG ARDS TO THE REVENUE S APPEALS (ITA NOS.684 & 685/BANG/2010), THE ASSESSEE HAS PRODUCED LETTER OF RBI DATED APRIL 2, 2008, THE COMPETENT AUTHORITY, MENTIONED U/S 10 B (3) OF THE ACT . IN THE SAID LETTER, IT HAS BEEN CLEARLY STAT ED THAT THE ASSESSEE IS GRANTED POST FACTO EXTENSION . THE ASSESSEE COMPANY HAS PAGE 11 OF 11 ITA NOS.603 & 604/BANG/2010 & 684 & 685/BANG/201 0 11 SUBSEQUENTLY ALSO REALIZED THE SAID AMOUNT. SINCE THE ASSESSEE COMPANY HAS OBTAINED POST FACTO APPROVAL FROM RBI COUPLED WITH THE FACT THAT IT HAS ALSO REALIZED THE SAID AMOUNTS, IT ENTITLED TO THE DEDUCTIO N U/S 10A/10B OF THE ACT ON THE SAID AMOUNTS. THEREFORE, THE CONCLUSION OF CIT(A) IN THIS ISSUE IS AFFIRMED. HENCE, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 11. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED AS INDICATED A BOVE AND THE APPEALS FILED BY THE REVENUE ARE DISMISSED. THE ORDER PRONOUNCED ON THURSDAY, THE 13 TH DAY OF JANUARY , 201 1 AT BANGALORE. SD/ - SD/ - (A MO HAN ALANKAMONY) (GEORGE GEORGE K) ACCOUN TANT MEMBER JUDICIAL MEMBER COPY TO : - 1. THE ASS ESSEE 2. THE REVENUE 3. THE CIT(A) CONCERNED. 4. THE CIT CONCERNED. 5. THE DR 6. GF BY ORDER MSP/ 1 2 / 1. ASSISTANT REGISTRAR, ITAT, BANGALORE.