TECH MAHINDRA BUSINESS SERVICES LTD, MUMBAI V. DCIT CIR 13(3)(2), MUMBAI

ITA 766/MUM/2016

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2267 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 12-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VATSALYA SAXENA
• Assessee Lawyers: J D MISTRI SENIOR
• Keywords: Business income; Transfer pricing
• Section: 271(1)(c); 143(3); 80HHC; 10B; 13

Judgement Text

1 ITA 766/MUM/2019 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR (VICE PRESIDENT) AND SHRI SAKTIJIT DEY (JUDICIAL MEMBER) I.T.A. NO.766/MUM/2016 (ASSESSMENT YEAR 2011-12) TECH MAHINDRA BUSINESS SERVICES LTD (FORMERLY KNOWN AS HUTCHISON 3 GLOBAL SERVICES LIMITED) SPECTRUM TOWERS, MINDSPACE CHINCHOLI BUNDER, LINK ROAD MALAD (W), MUMBAI-400 064 PAN : AABCH8136L VS DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE-13(3)(2), MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI J. D. MISTRI, SENIOR COUNSEL RESPONDENT BY SHRI VATSALYA SAXENA, CIT (DR) DATE OF HEARING 14 - 0 6 - 2021 DATE OF PRONOUNCEMENT 3 0 - 0 6 - 2021 O R D E R PER SAKTIJIT DEY (JM): THIS IS AN APPEAL BY THE ASSESSEE ASSAILING THE AS SESSMENT ORDER DATED 29- 01-2016 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2011-12, IN PURSUANCE TO TH E DIRECTIONS OF LEARNED DISPUTE RESOLUTION PANEL (DRP), MUMBAI. 2. GROUND 1 IS GENERAL IN NATURE; HENCE, DOES NOT R EQUIRE SPECIFIC ADJUDICATION. 2 ITA 766/MUM/2019 3. IN GROUNDS 2 TO 11 ASSESSEE HAS RAISED VARIOUS I SSUES RELATING TO ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. HOW EVER, AT THE VERY OUTSET, SHRI J.D. MISTRI, LEARNED SENIOR COUNSEL APPEARING FOR T HE ASSESSEE SUBMITTED, IN CASE ASSESSEES PLEADING IN RELATION TO GROUND 7 IS ACCE PTED, ALL OTHER GROUNDS RELATING TO TRANSFER PRICING ISSUE WOULD BECOME INFRUCTUOUS. NARROWING DOWN THE ISSUE FURTHER, HE SUBMITTED, IN CASE, TWO OF THE COMPARAB LES SELECTED BY THE TRANSFER PRICING OFFICER (TPO) ARE EXCLUDED, ASSESSEES MARG IN WOULD BE WITHIN THE TOLERANCE BAND OF REST OF THE COMPARABLES SELECTED BY TPO. KEEPING IN VIEW THE AFORESAID SUBMISSION OF LEARNED SENIOR COUNSEL APPE ARING FOR THE ASSESSEE, WE PROCEED TO DEAL WITH THE ISSUE RAISED IN GROUND NO. 7. 4. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A RESIDEN T COMPANY. AS STATED, THE ASSESSEE PROVIDES INFORMATION TECHNOLOGY ENABLED SE RVICES (ITES) TO ITS OVERSEAS ASSOCIATED ENTERPRISES (AE). THE SERVICES RENDERED BY THE ASSESSEE ARE MAINLY IN RELATION TO HANDLING SERVICE RELATED QUERIES, BILLI NG RELATED QUERIES, MOBILE NUMBER PORTABILITY RELATED QUERIES, HAND-SET RELATE D QUERIES, NETWORK RELATED QUERIES AND HANDSET PLAN RELATED QUERIES. IT IS REL EVANT TO OBSERVE, EARLIER THESE SERVICES WERE RENDERED TO THE AE BY VODAFONE INDIA SERVICES PVT LTD UPTO 04-12- 2017. THEREAFTER, THE ENTIRE ITES SEGMENT OF VODAFO NE INDIA SERVICES LTD WAS TRANSFERRED TO THE PRESENT ASSESSEE AS A GOING CONC ERN AND ASSESSEE CONTINUED TO PROVIDE SUCH SERVICES TO THE AE. BE THAT AS IT MAY, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD PROVIDED ITES TO TH E AE AND EARNED REVENUE FROM SUCH SERVICES. FOR BENCHMARKING THE INTERNATIONAL T RANSACTIONS ENTERED WITH THE AE, THE ASSESSEE ADOPTED TRANSACTIONAL NET MARGIN M ETHOD (TNMM) AS THE MOST APPROPRIATE METHOD WITH OPERATING PROFIT / TOTAL CO ST (OP / TC) AS THE PROFIT LEVEL INDICATOR (PLI). CHOOSING ITSELF AS THE OUTSIDE PAR TY, THE ASSESSEE CONDUCTED A 3 ITA 766/MUM/2019 FUNCTION, ASSET, RISK (FAR) ANALYSIS AND UNDERTAKIN G A SEARCH IN THE DATABASE IDENTIFIED CERTAIN COMPANIES AS COMPARABLE WITH ARI THMETIC MEAN OF 11.27% AS AGAINST THE PLI OF THE ASSESSEE SHOWN AT 14.9%. THU S, THE TRANSACTIONS WITH AE WERE CLAIMED TO BE AT ARMS LENGTH. 5. THE TRANSFER PRICING OFFICER (TPO), HOWEVER, POI NTED OUT VARIOUS DEFICIENCIES IN THE TRANSFER PRICING STUDY REPORT A ND MORE PARTICULARLY, WITH REGARD TO THE FILTERS ADOPTED BY THE ASSESSEE FOR SELECTIN G COMPARABLES. THOUGH, THE TPO ACCEPTED TNMM AS THE MOST APPROPRIATE METHOD; HOWEV ER, HE TREATED THE ASSESSEE AS A KNOWLEDGE PROCESS OUTSOURCING (KPO) S ERVICE PROVIDER. AFTER REJECTING ALL, EXCEPT, ONE OF THE COMPARABLES SELEC TED BY THE ASSESSEE, THE TPO SELECTED FRESH SET OF SIX COMPARABLES WITH ARITHMET IC MEAN OF 27.50 AS BELOW:- OP / OC ACROPETAL TECHNOLOGIES LTD 39.66 ECLERX SERVICES LTD 69.7 INFOSYS BPO LTD 17.73 E4E HEALTHCARE BUSINESS SERVICES PRIVATE LIMITED 13.82 INFORMED TECHNOLOGIES INDIA LTD 9.24 NIIT SMATSERVE LTD 14.83 AVERAGE 27.50 6. APPLYING THE ARITHMETIC MEAN OF THE SELECTED COM PARABLES, THE TPO DETERMINED THE ALP OF THE TRANSACTIONS WITH THE AE AT R.102,42,52,000/- AND PROPOSED AN ADJUSTMENT OF RS.95,59,64,000/-. BASED ON THE ADJUSTMENT PROPOSED BY THE TPO, THE ASSESSING OFFICER FRAMED THE DRAFT ASSESSMENT ORDER. AGAINST THE DRAFT ASSESSMENT ORDER, ASSESSEE RAISED OBJECTIONS BEFORE LEARNED DRP. HOWEVER, LEARNED DRP MORE OR LESS CONCURRED WITH THE DECISIO N OF THE TPO. 4 ITA 766/MUM/2019 7. LEARNED SENIOR COUNSEL FOR THE ASSESSEE SUBMITTE D, BOTH, ECLERX SERVICES LTD AND ACROPETAL TECHNOLOGIES LTD ARE NOT COMPARAB LE TO THE ASSESSEE FOR VARIED REASONS. HE SUBMITTED, BEING CONVINCED WITH THE AFO RESAID FACTUAL POSITION, THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008-09, VIDE ITA NO.7520/MUM/2012 DATED 23-01-2019 HAS HELD THAT ACR OPETAL TECHNOLOGIES LTD AND ECLERX SERVICES LTD ARE NOT COMPARABLE TO THE A SSESSEE. CLARIFYING FURTHER, HE SUBMITTED, WHILE DOING SO, THE TRIBUNAL ALSO TOOK N OTE OF THE FACT THAT THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE IS ITES. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE RELEVANT OBSERVATIONS OF THE TRIBU NAL IN CORRIGENDUM ORDER DATED 30-04-2019 PLACED IN THE PAPER BOOK. THUS, HE SUBMI TTED, FACTS BEING IDENTICAL, THE EARLIER DECISION OF THE TRIBUNAL WOULD SQUARELY APPLY TO THE PRESENT APPEAL. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF THE TPO AND LEARNED DRP SUBMITTED, THE TPO HAS PROVIDED VALID REASONS FOR SELECTING THESE TWO COMPARABLES. HE SUB MITTED, IN THE IMPUGNED ASSESSMENT YEAR, THE TPO HAD TAKEN A FRESH LOOK AT THE FUNCTIONS CARRIED OUT BY THE ASSESSEE AND FOUND THAT THE ASSESSEE COMES IN T HE CATEGORY OF KPO SERVICE PROVIDER. THEREFORE, THE DECISION OF THE TRIBUNAL I N ASSESSMENT YEAR 2008-09 HAVING NOT CONSIDERED THESE FACTS DISCUSSED BY THE TPO, WOULD BE INAPPLICABLE. 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. THE FACTS EMANATING FROM RECORD CLEARLY INDICATE TH AT THE ASSESSEE IN DECEMBER,2007 HAD TAKEN OVER THE ITES BUSINESS OF V ODAFONE INDIA SERVICES PVT LTD AS A GOING CONCERN. IT IS A FACT ON RECORD THAT THE ASSESSEE CONTINUED TO CARRY ON THE BUSINESS OF PROVISION OF ITES EARLIER CARRIE D ON BY VODAFONE INDIA SERVICES PVT LTD AND PROVIDED SUCH SERVICES TO THE AE. THE A FORESAID FINDING OF FACT HAS BEEN VERY CLEARLY RECORDED BY THE TRIBUNAL WHILE DE CIDING ASSESSEES APPEAL IN 5 ITA 766/MUM/2019 ASSESSMENT YEAR 2008-09 IN THE ORDER REFERRED TO EA RLIER. ON A PERUSAL OF THE AFORESAID ORDER OF THE TRIBUNAL, WE FIND THAT WHILE CONSIDERING THE ISSUE OF COMPARABILITY OF ACROPETAL TECHNOLOGIES LTD AND ECL ERX SERVICES LTD IN CASE OF VODAFONE INDIA SERVICES LTD, LEARNED DRP HAD DIRECT ED TO EXCLUDED THESE TWO COMPARABLES ALONG WITH SOME OTHER COMPARABLES. THE EXCLUSION OF THESE TWO COMPARABLES WAS ALSO UPHELD BY THE TRIBUNAL WHILE D ECIDING THE APPEAL IN ITA NO.7514/MUM/2013 DATED 10-12-2014. TAKING NOTE OF T HE AFORESAID FACTUAL POSITION, THE TRIBUNAL, WHILE DECIDING ASSESSEES A PPEAL IN ASSESSMENT YEAR 2008- 09 HAS OBSERVED AS UNDER:- 7. WE FIND THAT THE VERY SAME SEVENTEEN COMPARABLE S WERE ALSO CONSIDERED IN THE HANDS OF THE VODAFONE INDIA SERVICES PVT. LT D BY LEARNED TPO AND LEARNED DRP IN THEIR CASE HAD DIRECTED TO EXCLUDE FOLLOWING SEVEN COMPARABLES:- 1. ACROPETAL TECHNOLOGIES (SEG.) 2. CORAL HUBS LTD (FORMERLY VISHAL INFORMATION TECHNOL OGIES LTD) 3. GENESYS INTERNATIONAL CORPORATION LTD 4. CROSSDOMAIN SOLUTIONS LTD 5. DATAMATICS FINANCIL SERVICES LTD (SEG.) 6. ECLERX SERVICES LTD 7. MOLD-TEK TECHNOLOGIES LTD AGGRIEVED BY THIS ORDER, WE FIND THAT THE ASSESSEE PREFERRED N APPEAL BEFORE THIS TRIBUNAL AND THE TRIBUNAL FURTHER DIRECTED TO EXCLU DE FOLLOWING TWO COMPARABLES VIDE ITS ORDER IN ITA NO.7514/MUM/2013 DATED 10.12. 2014: 1. MOLD-TEX TECHNOLOGIES LTD 2. COSMIC GLOBAL LTD 8. NOW, WE ARE LEFT WITH REMAINING EIGHT COMPARABLES. LEARNED AR PLACED A CHART BEFORE US STATING THAT MARGIN OF THE SE EIGHT COMPARABLES WOULD AS UNDER:- SR.NO. NAME OF COMPANY OP/TC 1 ADITYA BIRLA MINACS WORLDWIDE LTD 2.20% 2 E4E HEALTHCARE SOLUTIONS LTD 16.72% 3 HCL COMNET SYSTEMS & SERVICES LTD (SEG .) 32.90% 4 INFOSYS BPO LTD 20.01% 5 ISERVICES INDIA PVT LTD 9.58% 6 R.SYSTEMS INTERNATIONAL (SEG.) 4.30% 7 SPANCO LLTD 11.04% 8 WIPRO LTD 30.05% 6 ITA 766/MUM/2019 10. NOW, PERTINENT QUESTION THAT REMAINS TO BE ANSWERED IS AS TO WHETHER ORDERS PASSED BY LEARNED DRP AND BY THIS TRIBUNAL I N THE CASE OF VODAFONE INDIA SERVICES PVT LTD. COULD BE USED IN THE HANDS OF THE ASSESSEE HEREIN. 11. WE FIND THAT THE VERY SAME BUSINESS CARRIED OUT BY THE ASSESSEE UP TO 4.12.2007 WAS CARRIED OUT BY VODAFONE INDIA SERVICE S PVT LTD. FOR THE REMAINING PART OF THE FINANCIAL YEAR. WE ALSO FIND THAT THE VERY SAME SEVENTEEN COMPARABLE COMPANIES (SUPRA) WERE SELECTED BY LEARN ED TPO WHILE FRAMING TRANSFER PRICING ASSESSMENT IN THE HANDS OF VODAFON E INDIA SERVICES PVT LTD FOR A.Y. 2008-09. HENCE, WE HOLD THAT THERE IS NO HARM IN FOLLOWING LEARNED DRPS ORDER AND ORDER OF THIS TRIBUNAL FOR THE ASSESSEE H EREIN. 10. SOME INADVERTENT FACTUAL MISTAKES IN THE AFOR ESAID ORDER OF THE TRIBUNAL REGARDING THE TAKING OVER OF THE BUSINESS OF VODAFO NE INDIA SERVICES LTD. HAS SUBSEQUENTLY BEEN RECTIFIED BY THE TRIBUNAL IN A CO RRIGENDUM. THEREFORE, CONSIDERING THE FACT THAT THERE IS NO CHANGE IN THE NATURE OF BUSINESS BEING EARLIER CARRIED ON BY VODAFONE INDIA SERVICES PVT LTD AND T HE PRESENT ASSESSEE AND KEEPING IN VIEW THE AFORESAID OBSERVATIONS OF THE T RIBUNAL IN ASSESSEES OWN CASE, WE ARE OF THE VIEW THAT BOTH ACROPETAL TECHNOLOGIES LTD AND ECLERX SERVICES LTD CANNOT BE TREATED AS COMPARABLES TO THE ASSESSEE. A CCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THEM FROM THE LIST OF COMPARABLES AND DETERMINE THE ALP. AS DISCUSSED EARLIER IN THE ORDER, IN COURSE O F HEARING, LEARNED SENIOR COUNSEL FOR THE ASSESSEE HAS SPECIFICALLY SUBMITTED BEFORE US THAT WITH THE EXCLUSION OF ACROPETAL TECHNOLOGIES LTD AND ECLERX SERVICES LTD, THE ARITHMETIC MEAN OF THE REST OF THE COMPARABLES WILL WORK OUT TO 13.91% AS AGAINST THE MARGIN SHOWN BY THE ASSESSEE OF 14.9%, REQUIRING NO FURTHER ADJUSTM ENT. THUS, IN VIEW OF THE AFORESAID SUBMISSIONS OF LEARNED SENIOR COUNSEL, TH E OTHER GROUNDS RAISED BY THE ASSESSEE RELATING TO TRANSFER PRICING ADJUSTMENT BE ING GROUNDS 2 TO 6 AND GROUNDS 8 TO 11 HAVING BECOME INFRCTUOUS, ARE DISMISSED. WH EREAS, GROUND 7 IS ALLOWED TO THE EXTENT INDICATED ABOVE. 7 ITA 766/MUM/2019 11. IN GROUND 12, THE ASSESSEE HAS CHALLENGED THE D ISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT IN RESPECT OF INTEREST INCOME OF RS.1,44,03,437/- AND FOREIGN EXCHANGE GAIN OF RS.4, 86,061. OF COURSE, IN GROUND 13, THE ASSESSEE HAS MADE AN ALTERNATIVE CLAIM TO T HE EFFECT THAT IN CASE IT IS HELD THAT FOREIGN EXCHANGE GAIN IS NOT ELIGIBLE FOR DEDU CTION UNDER SECTION 10A OF THE ACT, THEN, DEDUCTION UNDER SECTION 10A OF THE ACT O UGHT TO BE CALCULATED AFTER REDUCING THE FOREIGN EXCHANGE LOSS. 12. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS INCLUDED INTEREST EARNED ON BANK GUARANTEE AND FIXED DEPOSIT AMOUNTING TO RS.1,44,03,437/- IN THE PROFITS OF BUSINESS AND HAS CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT THER EON. BEING OF THE VIEW THAT INTEREST INCOME BEING ASSESSABLE UNDER THE HEAD IN COME FROM OTHER SOURCES; HENCE, CANNOT BE TREATED AS BUSINESS INCOME AND FUR THER, OBSERVING THAT IT HAS NO CONNECTION WITH THE BUSINESS INCOME, THE ASSESSING OFFICER DISALLOWED THE DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT ON T HE INTEREST INCOME. FURTHER, HE NOTICED THAT ASSESSEE HAS INCLUDED AN AMOUNT OF RS.4,86,061/- TOWARDS FOREIGN EXCHANGE GAIN FOR THE PURPOSE OF COMPUTING DEDUCTIO N UNDER SECTION 10A OF THE ACT. BEING OF THE VIEW THAT GAIN DERIVED FROM FLUCT UATION IN THE RATE OF FOREIGN EXCHANGE DEPOSIT IN EEFC ACCOUNT ARISES AFTER COMPL ETION OF THE EXPORT ACTIVITY AND DOES NOT HAVE ANY DIRECT NEXUS WITH THE EXPORT TRANSACTION, DISALLOWED ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT. THOUGH, THE ASSESSEE CONTESTED THE AFORESAID DECISION OF THE ASSESSING O FFICER BEFORE LEARNED DRP; HOWEVER, ASSESSEE WAS UNSUCCESSFUL. 13. THE LEARNED SENIOR COUNSEL APPEARING FOR THE AS SESSEE SUBMITTED, THE ASSESSEE HAS EARNED THE INTEREST INCOME FROM THE DE POSIT MADE TOWARDS BANK 8 ITA 766/MUM/2019 GUARANTEE AND TEMPORARILY PARKING OF SURPLUS FUNDS IN FIXED DEPOSIT. HE SUBMITTED, SINCE THE ASSESSEE HAS EARNED SUCH INTER EST INCOME IN COURSE OF BUSINESS, IT IS ELIGIBLE FOR DEDUCTION UNDER SECTIO N 10A OF THE ACT. IN THIS REGARD, HE RELIED UPON THE FOLLOWING DECISIONS:- 1. CIT VS HEWLETT PACKARD GLOBAL SOFT LTD (2017) 4 03 ITR 453 (KARN FB) 2.CYBERTECH SYSTEMS & SOFTWARE VS. DCIT (2018) 91 TAXMANN.COM 407(BOM) 14. AS REGARDS DEDUCTION CLAIMED IN RESPECT OF FORE IGN EXCHANGE GAIN, THE LEARNED COUNSEL SUBMITTED, SINCE THE ASSESSEE DERIV ES INCOME ONLY FROM ITS 10A UNIT WHICH IS ENGAGED IN EXPORT ACTIVITY, IT HAS OU TSTANDING OVERSEAS CREDITORS AS ON THE LAST DAY OF THE FINANCIAL YEAR. HE SUBMITTED , THE ASSESSEE OPERATES AN EEFC ACCOUNT WITH A BANK IN INDIA WHEREIN ASSESSEE IS PE RMITTED TO MAINTAIN BALANCE AND UNDERTAKE TRANSACTIONS IN FOREIGN CURRENCY. HE SUBMITTED, SUCH ACCOUNT FACILITATE RECEIPT OF EXPORT PROCEEDS AND PAYMENTS OF IMPORT PAYABLE IN FOREIGN CURRENCY, WITHOUT THERE BEING ANY NEED TO CONVERT T HE SAME INTO INDIAN CURRENCY. HE SUBMITTED, AS PER ACCOUNTING STANDARD-11, IT IS MANDATORY FOR A COMPANY TO RE- INSTATE ITS FOREIGN CURRENCY MANDATORY ITEMS SUCH A S DEBTORS, CREDITORS, CASH AND BANK BALANCES, ETC., TO THE RATE OF EXCHANGE PREVAI LING AS ON 31 ST MARCH OF EACH YEAR. FOLLOWING THE AFORESAID ACCOUNTING GUIDELINES , THE ASSESSEE HAS REVALUED ITS YEAR-END CREDITORS BALANCE WHICH RESULTED IN GAIN OF RS.4,86,061/-. WHEREAS, ON REINSTATEMENT OF DEBTORS, EEFC BANK ACCOUNT AND ON DOLLAR SALE, ASSESSEE INCURRED LOSS OF RS.9,80,67,531/-. HE SUBMITTED, SI NCE THE FOREIGN EXCHANGE GAIN ON REVALUATION OF CREDITORS BALANCE IS INTRINSICAL LY CONNECTED TO THE EXPORT ACTIVITY, IT IS ELIGIBLE FOR DEDUCTION UNDER SECTIO N 10A OF THE ACT. FURTHER, HE SUBMITTED, SECTION 10A OF THE ACT USES THE WORDS P ROFITS OF BUSINESS AND NOT PROFITS OF BUSINESS AND PROFESSION. SINCE, THE A SSESSEE HAS NO OTHER ACTIVITY 9 ITA 766/MUM/2019 EXCEPT ITS SECTION 10A UNIT; THE INTEREST INCOME EA RNED HAS TO BE REGARDED AS PROFITS OF BUSINESS. FURTHER, HE SUBMITTED, IN ASSE SSEES OWN CASE FOR ASSESSMENT YEAR 2010-11, THE DRP HAS DIRECTED THE ASSESSING OF FICER TO TREAT FOREIGN EXCHANGE GAIN AS INCOME FROM BUSINESS FOR COMPUTING DEDUCT ION UNDER SECTION 10A OF THE ACT. AS REGARDS THE DECISION OF THE HONBLE JURISDI CTIONAL HIGH COURT IN CASE OF CIT VS SHAH ORIGINAL (2010) 327 ITR 19 (BOM) RELIED UPO N BY THE TPO AND LEARNED DRP, LEARNED SENIOR COUNSEL SUBMITTED, THE SAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT WAS RENDERED IN THE CONTEXT OF DEDUCTIO N CLAIMED UNDER SECTION 80HHC OF THE ACT. WHEREAS, IN ASSESSEES CASE THE C LAIM OF DEDUCTION IS UNDER SECTION 10A OF THE ACT. HE SUBMITTED, SINCE THE PRO VISIONS OF SECTION 10A AND 80HHC ARE NOT IDENTICAL, THE DECISION RENDERED IN C ASE OF SHAH ORIGINALS (SUPRA) WOULD NOT BE APPLICABLE. IN THIS CONTEXT, HE RELIED UPON A DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS MOTOROLA INDIA ELECTRONICS (P) LTD (2014) 46 TAXMANN.COM 167. WITHOUT PREJUDICE, HE SU BMITTED, IN CASE ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF FOREIGN EXCHANGE GAIN IS NOT ACCEPTED, THE ASSESSING OFFICER MAY BE DIRECTED TO COMPUTE DEDUCTION UNDER SECTION 10A OF THE ACT WITHOUT CONSIDERING FO REIGN EXCHANGE LOSS ON ACCOUNT OF EEFC REVALUATION AND DOLLAR SALE. 15. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGL Y RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED D RP. 16. WE HAVE CONSIDERED RIVAL SUBMISSIONS IN THE LIG HT OF THE DECISIONS RELIED UPON AND PERUSED MATERIALS ON RECORD. UNDISPUTEDLY, THE ASSESSEE HAS EARNED THE INTEREST INCOME FROM THE DEPOSIT MADE TOWARDS BANK GUARANTEE AND TEMPORARY PARKING OF SURPLUS FUNDS. IT IS EVIDENT, THE ASSESS EE HAS NO OTHER ACTIVITY OF EARNING INCOME EXCEPT EXPORT OF ITES THROUGH ITS 10 A UNIT. THUS, IT CAN BE SAFELY 10 ITA 766/MUM/2019 CONCLUDED THAT THE DEPOSITS ON WHICH THE ASSESSEE H AD EARNED INTEREST INCOME WERE ON ACCOUNT OF ITS BUSINESS ACTIVITY. THERE CAN NOT BE ANY DOUBT THAT DEPOSITS MADE TOWARDS BANK GUARANTEE IS PURELY IN CONNECTION WITH ITS BUSINESS ACTIVITY. AS FAR AS THE INTEREST ON FIXED DEPOSIT IS CONCERNE D, IT IS AN ACCEPTED FACTUAL POSITION THAT THE SURPLUS FUND AVAILABLE WITH THE A SSESSEE AND NOT IMMEDIATELY REQUIRED FOR BUSINESS WAS TEMPORARILY INVESTED IN F IXED DEPOSIT. THUS, THIS ACTIVITY OF PARKING SURPLUS FUNDS IN THE FIXED DEPOSIT HAS T O BE CONSTRUED TO BE IN THE COURSE OF ITS REGULAR BUSINESS ACTIVITY. OUR AFORES AID VIEW IS FULLY SUPPORTED BY THE FULL BENCH DECISION OF THE HONBLE KARNATAKA HIGH C OURT IN THE CASE OF CIT VS HEWLETT PACKARD GLOBAL SOFT. LTD (SUPRA), WHEREIN, IT IS HELD THAT ALL PROFITS AND GAINS INCLUDING INCIDENTAL INCOME OF AN EXPORT ORIE NTED UNIT EVEN IN THE NATURE OF INTEREST ON BANK DEPOSITS OR SOFT LOANS WOULD BE EN TITLED FOR DEDUCTION UNDER SECTION 10A OR 10B. IN CASE OF CYBERTECH SYSTEMS & SOFTWARE VS. DCIT (SUPRA), THOUGH THE HONBLE JURISDICTIONAL HIGH COURT WAS DE ALING WITH A CASE RELATING TO IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF TH E ACT DUE TO DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 10B OF THE ACT; HOW EVER, THE HONBLE COURT, FOLLOWING THE DECISION OF THE HONBLE KARNATAKA HIG H COURT IN CASE OF CIT VS HEWLETT PACKARD GLOBAL SOFT LTD (SUPRA) HAS GIVEN A CATEGORICAL FINDING THAT BENEFIT OF DEDUCTION UNDER SECTION 10B OF THE ACT W OULD BE AVAILABLE ON THE INTEREST INCOME. KEEPING IN VIEW THE RATIO LAID DOW N IN THE AFORESAID DECISIONS, WE HOLD THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTI ON UNDER SECTION 10A OF THE ACT IN RESPECT OF THE INTEREST INCOME. 17. AS REGARDS DEDUCTION CLAIMED IN RESPECT OF FORE IGN EXCHANGE GAIN, IT IS NOTICED THAT BOTH THE ASSESSING OFFICER AND LEARNED DRP HAVE DISALLOWED ASSESSEES CLAIM RELYING UPON THE DECISION OF THE H ONBLE JURISDICTIONAL HIGH COURT 11 ITA 766/MUM/2019 IN THE CASE OF CIT VS SHAH ORIGINALS (SUPRA). HOWEV ER, ON A CAREFUL READING OF THE SAID JUDGEMENT, IT IS NOTICED THAT THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT WAS RENDERED IN THE CONTEXT OF DEDUCTION CLAI MED UNDER SECTION 80HHC OF THE ACT. WHEREAS, IN THE PRESENT CASE, ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT. ON GOING THROUGH THE RELEVA NT STATUTORY PROVISIONS, WE FIND A MARKED DIFFERENCE IN THE LANGUAGE USED IN BO TH THE PROVISIONS. WHILE, AS PER SECTION 80HHC(1), THE DEDUCTION IS AVAILABLE ON PROFITS DERIVED BY THE ASSESSEE FROM THE EXPORT OF GOODS OR MERCHANDISE, I N CASE OF SECTION 10A THE DEDUCTION IS AVAILABLE ON PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES, THINGS, ETC. TAKING NOTE OF THE DIFFERENCE IN THE LANGUAGE USED IN BOTH THE PROVISIONS, THE HONBLE KARNATAKA HIGH COURT IN CIT VS MOTOROLA INDIA ELECTRONICS (P) LTD (SUPRA) HAS HELD THAT UNLIKE SE CTION 80HHC OF THE ACT, WHICH EXPRESSLY EXCLUDED CERTAIN TYPES OF INCOME SUCH AS FOREIGN EXCHANGE GAIN IN EEFC ACCOUNT, ETC; HOWEVER, NO SUCH EXPRESS PROVISION IS THERE IN SECTIONS 10A / 10B OF THE ACT. THE HONBLE COURT HAS HELD, WHAT IS EXEMPT ED IS NOT MERELY THE PROFITS AND GAINS OF THE EXPORT OF ARTICLES, BUT ALSO THE I NCOME FROM THE BUSINESS OF THE UNDERTAKING. PROCEEDING FURTHER, THE HONBLE COURT HAS OBSERVED THAT SINCE THE EXPORT PROCEEDS KEPT IN THE EEFC ACCOUNT ARE THE IN COME OF THE BUSINESS UNDERTAKING; HENCE, THE CLAIM OF DEDUCTION WOULD BE ALLOWABLE. IN OUR CONSIDERED OPINION, THE AFORESAID DECISION OF THE HONBLE KARN ATAKA HIGH COURT CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEEE. HENCE, WE DIRECT THE ASSESSING OFFICER TO ALLOW ASSESSEES CLAIM OF DEDUCTION ON THE FOREIGN EXCHAN GE GAIN. GROUND 12 IS ALLOWED. 18. IN VIEW OF OUR DECISION IN GROUND 12, GROUND 13 HAS BECOME INFRUCTUOUS; HENCE, DISMISSED. 12 ITA 766/MUM/2019 19. GROUNDS 14, 15 & 16 BEING CONSEQUENTIAL IN NATU RE, DO NOT REQUIRE ADJUDICATION. 20. IN ADDITION TO THE AFORESAID GROUNDS, THE ASSES SEE HAS RAISED AN ADDITIONAL GROUND SEEKING DEDUCTION OF EDUCATION CESS PAID ON INCOME-TAX. 21. HAVING CONSIDERED RIVAL SUBMISSIONS, WE FIND TH AT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE JURISDICTION AL HIGH COURT IN CASE OF SESA GOA LTD VS JCIT (2020) 423 ITR 426(BOM). RESPECTFUL LY FOLLOWING THE AFORESAID DECISION, WE DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION OF EDUCATION CESS WHILE COMPUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. ADDITIONAL GROUND IS ALLOWED. 22. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED ON 30/06/2021. SD/- SD/- ( PRAMOD KUMAR ) ( SAKTIJIT DEY ) VICE PRESIDENT JUDICIAL MEMBER MUMBAI, DT : 30/06/2021 PAVANAN COPY TO : 1. APPELLANT 2. RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) 5. THE DR, ITAT, MUMBAI 6. GUARD FILE /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI