DCIT, Bangalore V. SLK Software Services Pvt. Limited, Bangalore

ITA 700/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57501 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 30-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE JT
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO. 700/BANG/2011 ASSESSMENT YEAR : 2006-07 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(3), BANGALORE. VS. M/S. SLK SOFTWARE SERVICES PVT. LTD., 563/564, NIRAN ARCADE, NEW BEL ROAD, SANJAYNAGAR, BANGALORE 560 094. PAN: AAECS 7548E APPELLANT RESPONDENT APPELLANT BY : SMT. SUSAN THOMAS JOSE, JT.CIT(DR) RESPONDENT BY : NONE DATE OF HEARING : 01.03.2012 DATE OF PRONOUNCEMENT : 01.03.2012 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE O RDER DATED 23.02.2011 OF THE CIT(APPEALS)-III, BANGALORE. 2. THE ONLY EFFECTIVE GROUND RAISED IN THIS APPEAL READS AS UNDER: ITA NO.700/BANG/2011 PAGE 2 OF 5 2. THE CIT(A) ERRED IN LAW IN DIRECTING THE AO TO EXCLUDE TELECOMMUNICATION CHARGES OF RS.53,95822/-, AND FOR EIGN TRAVEL EXPENSES INCURRED IN FOREIGN CURRENCY AMOUNTING TO RS.57,59,182 FROM TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 10A OF THE I.T. ACT. 3. THE FACTS OF THE CASE RELATING TO THE ISSUE UNDE R CONSIDERATION IN BRIEF ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSI NESS OF DEVELOPMENT OF SOFTWARE, PROVIDING GEOGRAPHICAL INFORMATION SERVIC ES AND RELATED ACTIVITIES. THE ASSESSEE FILED ITS RETURN OF INCOME ON 28.11.20 06 DECLARING TOTAL INCOME OF RS.14,75,386 AND BOOK PROFIT OF RS.32,39, 705 U/S. 115JB OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS T HE ACT IN SHORT]. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WHILE WORKING OUT DEDUCTION U/S. 10A OF THE ACT, HAD CONSIDERED E NTIRE TURNOVER OF RS.30,32,48,843 AFTER REDUCING RS.53,95,822 TOWARDS FREIGHT/ TELECOMMUNICATION CHARGES/INSURANCE AND RS.57,59,18 2 TOWARDS FOREIGN TRAVEL AND TECHNICAL SERVICES ATTRIBUTABLE TO THE D ELIVERY OF SOFTWARE OUTSIDE INDIA. THE AO, HOWEVER, BY REDUCING THE ABOVE SAI D EXPENSES FROM EXPORT TURNOVER, DETERMINED THE TOTAL INCOME AT R S.32,55,067 BY RESTRICTING THE CLAIM OF DEDUCTION U/S 10A TO THE E XTENT OF RS.5,02,60,950 AS AGAINST RS.5,20,40,631 CLAIMED BY THE ASSESSEE. 4. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A PPEALS), WHO DIRECTED THE AO TO REDUCE THE EXPENSES IN QUESTION FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER AND THE RELEVANT FINDINGS GIVEN BY HIM IN PARA 9 & 10 OF THE IMPUGNED ORDER READ AS UNDER: ITA NO.700/BANG/2011 PAGE 3 OF 5 9. RESPECTFULLY FOLLOWING THE ABOVE MENTIONED DECI SIONS AND THE DECISION OF THE JURISDICTIONAL ITAT (SUPRA), TH E SPECIAL BENCH DECISION IN THE CASE OF M/S. SAK SOFT LTD. AND THE HIGH COURT OF BOMBAY IN GEM PLUS JEWELLERY INDIA LTD. ANY EXPENSE WHICH IS REDUCED FROM THE EXPORT TURNOVER SHOULD ALSO BE RED UCED FROM THE TOTAL TURNOVER OF THE UNDERTAKING, I DIRECT THE ASS ESSING OFFICER TO EXCLUDE THE EXPENDITURE OF RS.1,11,55,004 INCURRED BY THE APPELLANT TOWARDS TELECOMMUNICATION CHARGES [RS.53, 95,822] AND THE EXPENSES INCURRED IN FOREIGN CURRENCY [RS.57,59 ,182] FROM BOTH EXPORT TURNOVER AND TOTAL TURNOVER WHILE COMPU TING DEDUCTION U/S 10A OF THE ACT. 10. FOLLOWING THE RATIONALE OF THE SAID DECISIONS, I DI RECT THE AO TO EXCLUDE THE EXPENSES [WHICH ARE EXCLUDED FROM EXPORT TURNOVER] FROM THE TOTAL TURNOVER ALSO IN COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT, 1961, THEREFORE THE GROUNDS RAISED BY THE APPELLANT ARE A LLOWED. NOW THE DEPARTMENT IS IN APPEAL. 5. NOBODY WAS PRESENT ON BEHALF OF THE ASSESSEE. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. DR AND CAREFU LLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BE NCH OF ITAT CHENNAI IN THE CASE OF ITO V. SAK SOFT LTD. 313 ITR (AT) 353 (CHENNAI)(SB) WHEREIN IT HAS BEEN HELD AS UNDER: TO SAY THAT IN THE ABSENCE OF ANY DEFINITION OF T OTAL TURNOVER FOR THE PURPOSE OF SECTION 10B, THERE IS NO AUTHORITY TO EXCLUDE ANYTHING FROM THE EXPRESSION AS UNDERSTOOD IN GENERAL PARLANCE WOULD BE WRONG, AS THERE HAS TO BE AN ELEM ENT OF TURNOVER IN THE RECEIPT IF IT HAS TO BE INCLUDED IN THE TOTAL TURNOVER. THAT ELEMENT IS MISSING IN THE CASE OF FR EIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY O F THE GOODS OUTSIDE INDIA AND EXPENSES INCURRED IN FOREIGN EXCH ANGE IN CONNECTION WITH THE PROVIDING OF TECHNICAL SERVICES OUTSIDE INDIA. THESE RECEIPTS CAN ONLY BE RECEIVED BY THE ASSESSEE AS REIMBURSEMENT OF SUCH EXPENSES INCURRED BY HIM. MER E REIMBURSEMENT OF EXPENSES CANNOT HAVE AN ELEMENT OF TURNOVER. IT IS ONLY IN RECOGNITION OF THIS POSITION THAT IN THE DEFINITION OF ITA NO.700/BANG/2011 PAGE 4 OF 5 EXPORT TURNOVER IN SECTION 10B, THE AFORESAID TWO ITEMS HAVE BEEN DIRECTED TO BE EXCLUDED. SECONDLY, THE DEFINIT ION OF EXPORT TURNOVER CONTEMPLATES THAT THE AMOUNT RECEIVED BY T HE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE SHOULD REPRESENT CONS IDERATION IN RESPECT OF THE EXPORT. ANY REIMBURSEMENT OF THE TWO ITEMS OF EXPENSES MENTIONED IN THE DEFINITION CAN UNDER NO C IRCUMSTANCES BE CONSIDERED TO REPRESENT CONSIDERATION FOR THE EXPORT OF THE COMPUTER SOFTWARE OR ARTICLES OR THINGS. THUS, THE EXPRESSION TOTAL TURNOVER WHICH IS NOT DEFINED IN SECTION 10 B SHOULD ALSO BE INTERPRETED IN THE SAME MANNER. THUS, THE TWO IT EMS OF EXPENSES REFERRED TO IN THE DEFINITION OF EXPORT T URNOVER CANNOT FORM PART OF THE TOTAL TURNOVER SINCE THE RECEIPTS BY WAY OF RECOVERY OF SUCH EXPENSES CANNOT BE SAID TO REPRESE NT CONSIDERATION FOR THE GOODS EXPORTED SINCE TOTAL TURNOVER IS NOTHING BUT THE AGGREGATE OF THE DOMESTIC TURNOVER AND THE EXPORT TURNOVER. IN THE FORMULA PRESCRIBED BY SECTION 10B( 4) THE FIGURE OF EXPORT TURNOVER HAS TO BE THE SAME BOTH IN THE N UMERATOR AND IN THE DENOMINATOR OF THE FORMULA. IT FOLLOWS THAT THE TOTAL TURNOVER CANNOT INCLUDE THE TWO ITEMS OF EXPENSES R ECOVERED BY THE ASSESSEE AND REFERRED TO IN THE DEFINITION OF EXPORT TURNOVER. 6. THE AFORESAID DECISION HAD BEEN CONSIDERED AND A FFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD. & ORS. 2011- TIOL-684-HC-KAR-II WHEREIN IT HAS BEEN HELD THAT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 10A OF THE ACT, IF AN Y EXPENDITURE IS EXCLUDED FROM THE EXPORT TURNOVER, THE SAME HAS TO BE EXCLUD ED FROM THE TOTAL TURNOVER ALSO. A SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. 2010-TIOL-456- HC-MUM-IT . WE, THEREFORE, BY CONSIDERING THE TOTALITY OF TH E FACTS AS DISCUSSED HEREINABOVE, ARE OF THE VIEW THAT THE LD. CIT(APPEALS) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE AND DIRECTING THE AO TO EXCLUDE THE EXPENSES BOTH FROM EXPORT TURNOVER AS W ELL AS TOTAL TURNOVER ITA NO.700/BANG/2011 PAGE 5 OF 5 WHILE CALCULATING THE DEDUCTION U/S. 10A OF THE ACT . WE THEREFORE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(APPE ALS) ON THIS ISSUE. 7. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS D ISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF MARCH, 2012. SD/- SD/- ( GEORGE GEORGE K. ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 1 ST MARCH , 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.