LIONBRIDGE TECHNOLOGIES P. LTD, MUMBAI V. DCIT RG -8(2), MUMBAI

ITA 7261/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2600 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 24-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DAYA SHANKAR
• Assessee Lawyers: J D MISTRI
• Keywords: Assessment record; Set aside
• Section: 263; 63; 10; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, SR.VP AND SHRI R. K. PANDA, AM I.T.A. NO.7261/MUM/2008 (ASSESSMENT YEAR : 2004-05) LIONBRIDGE TECHNOLOGIES P.LTD. 5 TH & 6 TH FLOOR, SPECTRA, HIGH STREET,HIRANANDANI GARDEN, POWAI, MUMBAI-400 076. PAN:AABCT3380Q VS. THE DEPUTY COMMISSIONER OF INCOME TAX, RANGE-8(2), AAYAKAR BHAVAN, MUMBAI-400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. J.D.MISTRI RESPONDENT BY : MR. DAYA SHANKAR, DR O R D E R PER R.V.EASWAR, SENIOR VICE PRESIDENT: THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSMENT YEAR 2004-05 AND IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT UNDER SECTION 2 63 OF THE INCOME TAX ACT ON 17.11.2008. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN THE BUSINESS OF DESIGN, DEVELOPMENT AND EXPORT OF COMPU TER SOFTWARE, SOFTWARE SOLUTIONS AND PROVIDING IT ENABL ED AND RELATED SERVICES. 3. THE ASSESSEE IS ELIGIBLE FOR THE DEDUCTION UNDER SECTION 10A ABOUT WHICH THERE IS NO DISPUTE. IN THE ASSESSM ENT ORDER PASSED UNDER SECTION 143(3), THE ASSESSING OFFICER COMPUTED THE DEDUCTION AT RS.22,70,85,863/- AND IN DOING SO TOOK THE EXPORT TURNOVER AT RS.79,27,13,555/-. THE CIT ON A PERUSAL OF THE ASSESSMENT RECORD WAS OF THE VIEW THAT THE ASSE SSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE THEREFORE ISSUED A NOTICE PROPOSING TO TAKE ACTION UNDER SECTION 263 AND THE MAIN GROUND MENTIONED IN THE NOTICE WHICH IS REPRODUCED IN THE FIRST PAGE OF THE IMPUGN ED ORDER, IS THAT THE ASSESSING OFFICER DID NOT EXAMINE THE CLAI M MADE ITA NO.7261/MUM/08 2 UNDER SECTION 10A FULLY AND PROPERLY AND PARTICULAR LY DID NOT DEDUCT THE FOLLOWING EXPENSES FROM THE FIGURE OF EX PORT TURNOVER WHILE ALLOWING THE DEDUCTION; 1) EXPENSES INCURRED IN FOREIGN EXCHANGE IN RESPECT OF SERVICES RS.21,28,05,128/- 2 ) FOREIGN TRAVEL EXPENSES OF RS.3,75,24,159/- 3) COMMUNICATIO N EXPENSES OF RS.1,14,90,045/-. IN RESPONSE TO THE SHOW CAUSE NOTICE THE ASSESSEE SUBMITTED ITS EXPLANATION BUT THE CIT REJE CTED THE SAME AND FOR THE REASONS GIVEN IN HIS ORDER DIRECTE D THE ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION UNDER SECTION 10A AFTER RECOMPUTING THE EXPORT TURNOVER BY EXCLUDING THE EXPENSES INCURRED IN FOREIGN EXCHANGE ON ACCOUNT OF TECHNICAL SERVICES AMOUNTING TO RS.12,91,52,251/-, FOREIGN TR AVEL EXPENSES AMOUNTING TO RS.1,49,43,782/-, EXPENSES OF RS.2,25,80,377/- INCURRED IN FOREIGN TRAVEL IN INDI AN RUPEES AND COMMUNICATION EXPENSES OF RS.1,14,90,045/-. HE FURT HER DIRECTED THE ASSESSING OFFICER TO GIVE EFFECT TO TH E ORDER PASSED UNDER SECTION 263 AND ISSUE FRESH DEMAND NOTICE AS PER LAW, WHICH IN EFFECT MEANS THAT THE CIT HIMSELF ENHANCED THE ASSESSMENT. 4. IT IS AGAINST THE AFORESAID ORDER OF THE CIT THA T THE ASSESSEE HAS COME IN APPEAL BEFORE THE TRIBUNAL. TH E LEARNED COUNSEL FOR THE ASSESSEE FIRST SUBMITTED THAT THE C IT FELL INTO AN ERROR IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE THE AFORESAID ITEMS FROM THE FIGURE OF EXPORT TURNOVER INASMUCH A S THE AFORESAID ITEMS OF EXPENSES WERE IN THE FIRST PLACE NOT INCLUDED IN THE FIGURE OF EXPORT TURNOVER AT ALL AND THEREFO RE, THERE IS NO QUESTION OF EXCLUDING THEM. HE DREW OUR ATTENTION T O PARAGRAPH 8 OF THE IMPUGNED ORDER WHERE THE CIT HAS REJECTED THE CONTENTION AS BEING WITHOUT ANY MERIT ON THE GROUND THAT THE EXPENSES ARE INBUILT IN THE COST TO THE ASSESSEE WH ICH HAS BEEN RECEIVED BACK IN THE FORM OF SALE PROCEEDS OR EXPOR T TURNOVER AND SUCH LARGE EXPORT TURNOVER HAS BEEN POSSIBLE ON LY BECAUSE THE ASSESSEE HAD INCURRED SUCH EXPENSES. ITA NO.7261/MUM/08 3 5. SEVERAL OTHER CONTENTIONS WERE ALSO RAISED BY TH E LEARNED COUNSEL FOR THE ASSESSEE INCLUDING THE CONTENTION T HAT THE CLAIM UNDER SECTION 10A WAS EXAMINED BY THE ASSESSING OFF ICER AND IT IS NOT CORRECT ON THE PART OF THE CIT TO TAKE PROCE EDINGS ON THE GROUND THAT NO SUCH ENQUIRY WAS HELD. HE DREW OUR A TTENTION TO THE CORRESPONDENCE BETWEEN THE ASSESSEE AND THE ASS ESSING OFFICER WHICH TOOK PLACE DURING THE ASSESSMENT PROC EEDINGS. IT WAS SUBMITTED THAT THE ASSESSEE HAD DRAWN THE ATTEN TION OF THE ASSESSING OFFICER TO THE FACT THAT THE ASSESSEE ITS ELF HAS REDUCED THE FIGURE OF EXPORT TURNOVER BY EXCLUDING THE AMOU NTS RECEIVED AS REIMBURSEMENT FOR THE EXPENSES WHILE ARRIVING AT THE EXPORT TURNOVER AT RS.797,652,858/- (PAGE 67 OF THE PAPER BOOK) AND THAT THE ASSESSING OFFICER HIMSELF HAD ASKED FOR TH E RECONCILIATION OF THIS FIGURE WITH THE EXPORT SALES FIGURE OF RS.792,713,555/- REPORTED IN THE NOTES TO ACCOUNTS WHICH INDICATED THAT THE FIGURE OF EXPORT TURNOVER WAS AL SO POINTEDLY EXAMINED BY THE ASSESSING OFFICER AND IT WAS ONLY A FTER SUCH EXAMINATION THAT HE ACCEPTED THE FIGURE AND WHILE D OING SO HAD ALSO IMPLIEDLY ACCEPTED THE ASSESSEES CLAIM THAT T HE PROCEEDS REPRESENTING THE REIMBURSEMENT OF THE EXPENDITURE I NCURRED BY THE ASSESSEE WERE EXCLUDED FROM THE EXPORT TURNOVER . ANOTHER CONTENTION ADVANCED ON BEHALF OF THE ASSESSEE WAS A GAINST THE FINDING RECORDED BY THE CIT IN PARAGRAPH 7 OF HIS O RDER IN WHICH THE ALTERNATIVE OBJECTION OF THE ASSESSEE TO THE EF FECT THAT IF CERTAIN ITEMS ARE TO BE EXCLUDED FROM THE EXPORT TU RNOVER, THEY SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER WAS TURNED DOWN BY THE CIT. IT IS THE CONTENTION OF THE ASSESS EE, BASED ON THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL, CHE NNAI, IN ITO VS. SAK SOFT LIMITED, (2009) 313 ITR (AT) 353, THAT WHATEVER HAS BEEN EXCLUDED FROM THE EXPORT TURNOVER SHOULD A LSO BE EXCLUDED FROM THE TOTAL TURNOVER SINCE BOTH THE NUM ERATOR AND THE DENOMINATOR IN THE FORMULA SHOULD CONSIST OF LI KE ITEMS EVEN THOUGH THERE IS NO SPECIFIC PROVISION IN SECTION 10 A TO EXCLUDE ITA NO.7261/MUM/08 4 THOSE ITEMS FROM THE TOTAL TURNOVER ALSO. IT IS CON TENDED THAT THE DECISION OF THE CIT SHOULD NOT BE UPHELD. 6. ON MERITS, IT IS CONTENDED THAT THE CIT HAS NOT KEPT IN VIEW THE REQUIREMENT THAT THE FREIGHT AND TELECOMMU NICATION CHARGES OR INSURANCE SHOULD BE ATTRIBUTABLE TO THE DELIVERY OF THE COMPUTER SOFTWARE OUTSIDE INDIA, IF THEY HAVE T O BE EXCLUDED FROM THE EXPORT TURNOVER AS DEFINED IN THE SECTION AND THAT THE CIT HAS DIRECTED EXCLUSION OF THE AFORESAID ITEMS F ROM THE EXPORT TURNOVER WITHOUT EXAMINING THIS ASPECT. THIS IS IN ADDITION AND WITHOUT PREJUDICE TO THE MAIN CONTENTI ON THAT THE ASSESSEE ITSELF, WHILE ARRIVING AT THE FIGURE OF EX PORT TURNOVER, HAS EXCLUDED THE ITEMS MENTIONED IN THE DEFINITION OF EXPORT TURNOVER AND THERE IS NO NEED FOR EXCLUDING THEM OV ER AGAIN WHICH WOULD AMOUNT TO DOUBLE EXCLUSION. IT IS ALSO WITHOUT PREJUDICE TO THE ALTERNATIVE CONTENTION THAT SUCH I TEMS SHOULD ALSO BE EXCLUDED FROM THE FIGURE OF TOTAL TURNOVER WHICH IS THE DENOMINATOR IN THE FORMULA. 7. ON BEHALF OF THE DEPARTMENT, THE AFORESAID CONTE NTIONS WERE VEHEMENTLY OPPOSED AND IT WAS CONTENDED THAT T HE CIT HAD RIGHTLY ASSUMED JURISDICTION UNDER SECTION 263 AND HAS ALSO RIGHTLY DIRECTED THE EXCLUSION OF THE ITEMS ME NTIONED IN THE DEFINITION OF EXPORT TURNOVER. IT IS SUBMITTED THAT THE ASSESSING OFFICER DID NOT SPECIFICALLY ENQUIRE INTO THE COMPO NENTS OF THE EXPORT TURNOVER WHICH INVITED ACTION UNDER SECTION 263 AND THAT NO OBJECTION CAN BE TAKEN TO THE SAME SINCE FAILURE TO CONDUCT AN ENQUIRY INTO THE CLAIM ALSO MAKES THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. THE DEPARTMENT FURTHER CONTENDED THAT EVEN IF MORE THAN A VIEW IS POSSIBLE ON THE INTERPRETATION OF THE SECTION OR EV EN IF THE ISSUE SOUGHT TO BE REVISED IS DEBATABLE, IT WAS OPEN TO T HE CIT TO TAKE CORRECT ACTION UNDER SECTION 263 AS HELD BY THE GUJ ARAT HIGH COURT IN CIT VS. M.M. KHAMBHATWALA, 198 ITR 144. ITA NO.7261/MUM/08 5 8. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTENTI ONS, WE ARE OF THE VIEW THAT THE CIT RIGHTLY ASSUMED JURISDICTI ON UNDER SECTION 263 INASMUCH AS THE ASSESSING OFFICER DOES NOT APPEAR TO HAVE BESTOWED HIS POINTED ATTENTION TO THE COMPO NENTS OF THE EXPORT TURNOVER. IT IS TRUE THAT THE CLAIM UNDER SE CTION 10A WAS EXAMINED BY THE ASSESSING OFFICER AS IS EVIDENT FRO M THE QUERIES RAISED BY HIM IN THE COURSE OF THE ASSESSMENT PROCE EDINGS, COPIES OF WHICH HAS BEEN COMPLIED IN THE PAPER BOOK . IT IS ALSO TRUE THAT IN THE SALES REALIZATION STATEMENT SUBMIT TED TO THE ASSESSING OFFICER UNDER COVER OF LETTER DATED 18.12 .2006, THE ASSESSEE HAS EXCLUDED RS.11,208,702/- FROM THE EXPO RT SALES WITH THE NARRATION ADJUSTMENT FOR REIMBURSED INCOM E AND HAS ARRIVED AT THE EXPORT SALES AT RS.797,652,858/- . H OWEVER, THE ASSESSING OFFICER DOES NOT APPEAR TO HAVE ENQUIRED INTO THE AFORESAID ADJUSTMENT TO FIND OUT WHETHER THE ITEMS OF EXPENDITURE MENTIONED IN THE DEFINITION OF EXPORT T URNOVER IN SECTION 10A HAVE BEEN EXCLUDED. THE ASSESSING OFFIC ER MERELY ASKED FOR RECONCILIATION BETWEEN THE AFORESAID FIGU RE OF EXPORT SALES AND THE FIGURE OF RS.792,713,555/- REPORTED A S PER NOTES TO ACCOUNTS. THIS ASPECT OF THE MATTER ASSUMES IMPO RTANCE IN LIGHT OF THE CONTENTION OF THE ASSESSEE RAISED BEFO RE THE CIT IN PARAGRAPH 1.C OF ITS WRITTEN SUBMISSIONS DATED 14.0 7.2008 BEFORE THE CIT IN PROCEEDINGS UNDER SECTION 263 AND ALSO BEFORE US. THE ASSESSEE HAS CONTENDED THAT IT HAS NOT BILL ED ANY SEPARATE REIMBURSEMENT OF THE EXPENSES FROM ITS CLI ENTS AND THEREFORE, THE QUESTION OF REDUCING THEM FROM THE E XPORT TURNOVER DOES NOT ARISE. THIS CONTENTION WAS ALSO RAISED BEFORE US AND AS NOTED EARLIER IT WAS SOUGHT TO BE SUPPORT ED BY AN ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE C ASE OF ITO VS. SAK SOFT LTD. (SUPRA). THIS ASPECT GOES TO THE VERY ROOT OF THE MATTER AND IT OUGHT TO HAVE BEEN ADDRESSED BY THE C IT. HE DID ADDRESS THE SAME IN PARAGRAPH 8 OF HIS ORDER, BUT D ID NOT CARRY OUT ANY VERIFICATION OF THE ASSESSEES ACCOUNTS OR THE ITA NO.7261/MUM/08 6 COMPONENTS OF THE EXPORT TURNOVER HIMSELF, BUT REJE CTED THE CONTENTION AS BEING WITHOUT MERIT ON THE GROUND THA T SUCH EXPENSES WERE INBUILT IN THE COST OF THE ASSESSEE W HICH HAS BEEN RECEIVED BACK IN THE FORM OF EXPORT TURNOVER AND WI THOUT INCURRING SUCH EXPENSES IT WOULD NOT HAVE BEEN POSS IBLE FOR THE ASSESSEE TO ACHIEVE THE EXPORT SALES. WITH RESPECT, WE ARE OF THE VIEW THAT THIS IS A VERY GENERAL WAY OF DISPOSING O F THE CONTENTION WHICH CANNOT BE UPHELD. THE PURPOSE OF E XCLUDING SOME ITEMS OF EXPENDITURE MENTIONED IN THE DEFINITI ON OF EXPORT TURNOVER IS TO ENSURE THAT DEDUCTION IS GIVEN ONLY FOR THE CONSIDERATION FOR THE EXPORT OF THE SOFTWARE AND NO T FOR AMOUNTS RECEIVED MERELY AS REIMBURSEMENT OF THE EXPENSES. I T DEPENDS ON THE MANNER IN WHICH BILLS ARE RAISED BY THE ASSE SSEE. THE ASSESSEE HAS MADE A SPECIFIC CLAIM BEFORE THE CIT T HAT IT HAS EXCLUDED THOSE RECEIPTS WHICH IT RECEIVED MERELY AS REIMBURSEMENT OF EXPENSES, AND THEREFORE, THERE IS NO NEED TO EXCLUDE THOSE ITEMS FURTHER AS HAS BEEN DONE BY THE CIT. WE SHOULD HAVE THOUGHT THAT THIS CLAIM SHOULD HAVE BEE N EXAMINED AT THE HANDS OF THE ASSESSING OFFICER ESPECIALLY W HEN THE CIT TOOK PROCEEDINGS UNDER SECTION 263 ON THE GROUND TH AT THE ASSESSING OFFICER DID NOT MAKE A PROPER ENQUIRY INT O THE CLAIM FOR DEDUCTION UNDER SECTION 10A AND MORE PARTICULAR LY INTO THE FIGURE OF EXPORT TURNOVER. WE ARE THEREFORE OF THE VIEW THAT THE ORDER OF THE CIT SHOULD BE MODIFIED TO HOLD THAT TH E ASSESSMENT, INSOFAR AS IT RELATES TO THE CLAIM FOR DEDUCTION UN DER SECTION 10A, IS SET ASIDE AND THE ASSESSING OFFICER IS DIRE CTED TO EXAMINE THE FIGURE OF EXPORT TURNOVER AND ARRIVE AT THE SAME IN ACCORDANCE WITH THE DEFINITION OF EXPORT TURNOVER A S PER SECTION 10A. THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUN ITY OF ESTABLISHING ITS CLAIM THAT THE FIGURE OF EXPORT TU RNOVER AS DECLARED BY IT HAS BEEN RIGHTLY ARRIVED AT AS PER T HE DEFINITION. WE DIRECT ACCORDINGLY AND MODIFY THE ULTIMATE DIREC TION OF THE CIT IN THE ABOVE TERMS. ITA NO.7261/MUM/08 7 9. AS REGARDS THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT IN CASE IT IS FOUND THAT THE ITEMS IN QUESTION SHOULD BE EXCLUDED FROM THE EXPORT TURNOVER, THEY SHOULD ALSO BE EXCLU DED FROM THE TOTAL TURNOVER IN ORDER TO MAINTAIN PARITY BETWEEN THE NUMERATOR AND THE DENOMINATOR, WE FIND THAT THIS CL AIM IS SUPPORTED BY THE ORDER OF THE SPECIAL BENCH IN ITO VS. SAK SOFT LTD. (SUPRA). WHILE EXAMINING THE CLAIM UNDER SECTI ON 10A AS PER OUR DIRECTIONS GIVEN IN THE PRECEDING PARAGRAPH , THE ASSESSING OFFICER WILL ALSO EXAMINE THE APPLICABILI TY OF THE AFORESAID ORDER, IF NECESSARY, TO THE PRESENT CASE AND TAKE A DECISION IN ACCORDANCE WITH LAW. 10. IN THE RESULT, THE ASSESSING OFFICER IS DIRECTE D TO CARRY OUT OUR DIRECTIONS AND COMPLETE THE ASSESSMENT AFRESH. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON THIS 8 TH DAY OF DECEMBER, 2009. SD/- (R.K. PANDA) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VICE PRESIDENT MUMBAI, DATED 8 TH DECEMBER, 2009. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT MUMBAI. 4. THE CIT-8, MUMBAI 5. THE DR A BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI