ACIT, CHENNAI V. M/s. Urjita Electronics Pvt.Ltd., CHENNAI

ITA 806/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61332 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 12-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VI KRAMADITYA
• Assessee Lawyers: S R CHANDRASEKARAN
• Section: 143(3)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 806/MDS/2012 ASSESSMENT YEAR : 2006 07 & C.O.NO. 92/MDS/2012 [IN I.T.A. NO. 806/MDS/2012] THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, III(3), CHENNAI 600 034. VS. M/S. URJITHA ELECTRONICS PVT. LTD., NO. 36/39, SDF-III, PHASE II, MEPZ- SEZ, TAMBARAM, CHENNAI 45. [PAN: AAACU4616R] (APPELLANT) (RESPONDENT/CROSS OBJECTOR) REVENUE BY : SHRI VIKRAMADITYA, JCIT, SR. DR ASSESSEE BY : SHRI S.R. CHANDRASEKARAN, C.A. DATE OF HEARING : 20.06.2012 DATE OF PRONOUNCEMENT : 20.07.2012 ORDER PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS O BJECTION BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS) III, CHENNAI DATED 04.01.2012 IN ITA NO. 382/08-09/ A.III FOR THE ASSESSMENT YEAR 2006-07. SHRI VIKRAMADITYA, JCIT SR. DR REPR ESENTED ON BEHALF OF THE REVENUE AND SHRI S.R. CHANDRASEKARAN, C.A. REPRESEN TED ON BEHALF OF THE ASSESSEE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.80 8080 806 66 6/M/ /M/ /M/ /M/12 1212 12 2 2. THE FIRST ISSUE IN THE GROUNDS OF APPEAL OF THE REVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIREC TING THE ASSESSING OFFICER TO INCLUDE EXCHANGE FLUCTUATION GAINS AS PA RT OF EXPORT TURN OVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTI ON 10A. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF DESIGN, MANUFACTURING AND SALE OF E LECTRONIC COMPONENTS. FOR THE ASSESSMENT YEAR 2006-07, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29.11.2006 DECLARING INCOME OF ` .33,24,330/-. THE RETURN WAS PROCESSED ON 31.12.2006 UNDER SECTION 143(1) AND ASSESSMENT WAS COMPLETED ON 26.12.2008 UNDER SECTION 143(3) DETERMINING THE INC OME AT ` .58,40,750/-. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFI CER DISALLOWED DEDUCTION CLAIMED UNDER SECTION 10A ON THE INCOME F ROM FOREIGN EXCHANGE FLUCTUATION AND ENGINEERING & DESIGN CHARGES HOLDIN G THAT THEY ARE NOT DERIVED FROM EXPORTS. 4. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEA LS) ALLOWED THE CLAIM OF THE ASSESSEE. WITH REGARD TO THE CLAIM ON EXCHANGE FLUCTUATION GAINS AS FORMING PART OF EXPORT TURNOVER, THE COMMI SSIONER OF INCOME TAX (APPEALS), FOLLOWING THE TRIBUNALS DECISION IN THE CASE OF ACIT VS. INAUTIX TECHNOLOGIES INDIA (P) LTD. IN I.T.A. NO. 1054/MDS/ 2006 FOR THE ASSESSMENT YEAR 2002-03 HELD THAT SUCH FLUCTUATION IS PART OF EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 1 0A. WITH REGARD TO I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.80 8080 806 66 6/M/ /M/ /M/ /M/12 1212 12 3 INCLUSION OF INCOME FROM ENGINEERING AND DESIGN CHA RGES AS PART OF EXPORT TURNOVER, THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT INCOME RECEIVED FROM ENGINEERING AND DESIGN CHARGES ARE EL IGIBLE FOR INCLUSION UNDER EXPORT TURNOVER FOR THE PURPOSE OF DEDUCTION UNDER SECTION 10A IN VIEW OF THE CBDT NOTIFICATION NO. 890(E) DATED 26.09.200 0. AGAINST HIS ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE REVEN UE IS IN APPEAL BEFORE US. 5. THE COUNSEL FOR THE REVENUE SUPPORTED THE ORDER OF THE ASSESSING OFFICER IN EXCLUDING THE EXCHANGE FLUCTUATION AND I NCOME FROM ENGINEERING AND DESIGNS CHARGES FROM EXPORT TURNOVER FOR THE PU RPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE ACT. 6. THE COUNSEL FOR THE ASSESSEE, WITH REGARD TO FOR EIGN EXCHANGE FLUCTUATION, SUBMITS THAT ON AN IDENTICAL ISSUE, TH IS TRIBUNAL IN THE CASE OF ACIT VS. INAUTIX TECHNOLOGIES INDIA (P) LTD., DECID ED THAT EXCHANGE GAINS ARISING OUT OF TRADING TRANSACTION HAD DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE AND THEREFORE HELD TO BE AS PART OF THE EX PORT TURNOVER. 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD, ORDERS OF LOWER AUTHORITIES AND THE CASE LAW RELIED ON BY THE COUNSELS. THE COMMISSIONER OF INCOME TAX (APPEALS), ON THE ISSUE OF INCLUSION OF EXCHANGE FLUCTUATION GAINS AS PART OF EXPORT TURNOV ER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10A, HELD AS UNDER: I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.80 8080 806 66 6/M/ /M/ /M/ /M/12 1212 12 4 4.1 THE ID. AR SUBMITTED THAT THE GAIN ON FOREIGN EXCHANGE IS DERIVED BY THE APPELLANT SOLELY DUE TO APPLICATION OF ACCOUNTING S TANDARD 11 (AS) OF ICAI. THIS AS REQUIRES THE COMPANY TO TRANSLATE THE FOREIGN EXCHA NGE (FOREX) AMOUNT OF INVOICE INTO INDIAN RUPEE (INR) AT THE RATE OF EXCHANGE PRE VALENT ON THE DAY OF INVOICE. SIMILARLY, THE AS REQUIRES THE COMPANY TO TRANSLATE THE FOREX AMOUNT OF THE REMITTANCE RECEIVED FROM THE DEBTOR INTO INR., AT T HE RATE OF EXCHANGE PREVALENT ON THE DAY OF RECEIPT OF REMITTANCE, AS CERTIFIED BY T HE BANKERS. THIS RESULTS IN GAIN OR LOSS TO THE COMPANY DEPENDING ON FLUCTUATION IN RAT ES ON THE RESPECTIVE DATES. THE AS FURTHER STIPULATES THAT THIS GAIN OR LOSS HAS TO BE ACCOUNTED SEPARATELY AS FOREIGN EXCHANGE FLUCTUATION GAIN OR LOSS ONLY IN THE PROFI T AND LOSS ACCOUNT. THEREFORE, IT WAS CONTENDED THAT THE FOREIGN EXCHANGE GAIN REPORT ED FOR THE YEAR IS AN INTEGRAL PART OF THE EXPORT PROCEEDS EARNED BY THE COMPANY A ND ARISES ONLY DUE TO EXPORTS. IT WAS ARGUED THAT THIS CANNOT BE SEPARATED FROM THE E XPORT PROCEEDS AND THIS CERTAINLY IS NOT OTHER INCOME AS CONTENDED BY THE A .O. IT WAS SUBMITTED THAT THE FOREIGN EXCHANGE FLUCTUATION GAIN HAS RESULTED IN T HE APPELLANTS CASE ONLY ON ACCOUNT OF REMITTANCE OF EXPORT PROCEEDS BY THE DEB TOR AND NOT OTHERWISE. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE ITAT BANGALOR E IN THE CASE OF SANYO ISI TECHNOLOGY INDIA PVT. LTD V. DCIT, CIT V. PENTASOFT TECHNOLOGIES LTD [2010-TIOL- 525-HC-MAD-ITJ, RENAISSANCE JEWELLERY P. LTD V. ITO , 289 ITR (AT) 65 AND SUJATA GROVER [74 TTJ 347 (DEL)]. RELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE HIGH COURT AT MADRAS IN THE CASE OF CIT V. INDO MATSUSHITA CARBON CO. LTD. 286 ITR 201 WHERE IT WAS HELD THAT THE INTERES T RECEIVED BY THE ASSESSEE FROM ITS CUSTOMERS ON OVERDUE PAYMENTS ON SALES WAS ITS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING AND WAS ACCORDINGLY ENTITLED FOR DEDUCT ION. ON A SIMILAR FOOTING, SINCE FOR-EX GAINS ARE INEXTRICABLY CONNECTED TO THE PAYM ENT ON SALES, IT WAS CONTENDED THAT THE SAME ALSO NEEDS TO BE GIVEN A SIMILAR TREA TMENT AND HAS TO BE HELD AS 'DERIVED FROM' THE EXPORT BUSINESS OF THE UNDERTAKI NG. RELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE ITAT CHENNAI IN THE CASE OF ACIT V. INAUTIX TECHNOLOGIES INDIA (P) LTD. IN I.T.A.NO. 1054/MDS/2006 - A. Y 20 02-03, WHERE IT WAS HELD THAT THE FOREIGN EXCHANGE GAIN ARISING ON EXPORTS ARE EL IGIBLE FOR INCLUSION IN EXPORT TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 10A. 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSION OF THE ID. AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED O N BY THE AO AND AR. THE HON'BLE JURISDICTIONAL ITAT IN THE CASE OF ACIT V. INAUTIX TECHNOLOGIES INDIA (P) LTD (SUPRA) HAS CLEARLY HELD THAT FOREIGN EXCHANGE GAIN ARISING OUT OF TRADING TRANSACTIONS HAS A DIRECT NEXUS WITH BUSINESS OF EL IGIBLE UNIT. THE HON'BLE IT AT HAD HELD AS UNDER: 'IN THE BUSINESS OF EXPORT, THE ASSESSEE-COMPANY RA ISES BILLS AGAINST THE CUSTOMER. THE RATES MENTIONED IN THE BILL, TO RAISE D, ARE RECORDED IN THE BOOKS OF ACCOUNT AND AT THE SAME TIME, THE COMPANY DEBITS THE ACCOUNT OF THE FOREIGN BUYER WITH EQUAL AMOUNT. AT THE END OF THE YEAR, IF THE SALE PROCEEDS ARE NOT RECEIVED BY THE ASSESSEE COMPANY, THE FOREIGN BUYER IS SHOWN AS 'SUNDRY DEBTOR'. IF THE PROCEEDS ARE NOT R ECEIVED IN THE SAME FINANCIAL YEAR AND RECEIVED AFTER ONE OR TWO YEARS, THE FLUCTUATION ARISING AT I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.80 8080 806 66 6/M/ /M/ /M/ /M/12 1212 12 5 THAT TIME WILL HAVE ANY RELEVANCE TO THE TURNOVER R EPORTED FOR THE PREVIOUS YEAR IN WHICH THE SALE TOOK PLACE OR NOT IS THE PUZ ZLE OF THIS ISSUE. IN THE OPINION OF THE ASSESSING OFFICER, THE ASSESSEE LOSE S ITS RIGHTS OVER THE SOLD ITEMS ON THE VERY DESPATCH OF THE SAME AND AS PER A CCOUNTING STANDARD PRESCRIBED BY THE ICAI, FOREIGN CURRENCY TRANSACTIO NS ARE TO BE RECORDED AT THE DATE OF THE TRANSACTIONS APPLYING THE EXCHANGE RATE BETWEEN THE REPORTING CURRENCY AND THE FOREIGN CURRENCY AS ON S UCH DATE OF TRANSACTION(S). THUS, ACCORDING TO THE REVENUE, THE SALE PROCEEDS SHOULD BE THE VALUE RECORDED IN THE BOOKS AND ANY INCREASE OR DECREASE IN EXCHANGE FLUCTUATION ON THE BILL AMOUNT IS ONLY A SUBSEQUENT EVENT AFTER THE COMPLETION OF THE TRANSACTION; IT IS ONLY AN ACCRETION TO THE AMO UNT DUE TO BE RECEIVED BY THE ASSESSEE AND NOT AN ACCRETION TO THE SALE PRICE OF ITEMS EXPORTED. IN THIS CONTEXT, IT WAS ARGUED BY THE ID. CIT/DR THAT IT MAY BE A TREAS URY INCOME AND ALTHOUGH THIS GAIN ARISES IN THE COURSE OF EXPO RT BUSINESS YET IT HAS NO DIRECT NEXUS WITH THE BUSINESS OF THE UNDERTAKING A ND HENCE, NEEDS TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS OF THE UN DERTAKING FOR THE PURPOSE OF COMPUTING EXEMPTION U/S 10A. AS AGAINST THIS, TH E CASE OF THE ID.AR IS THAT FOR-EX GAIN ARISES OUT OF TRADING TRANSACTIONS FOR SUPPLY OF SOFTWARE AND HENCE, HAS A DIRECT NEXUS WITH BUSINESS OF ELIGIBLE UNIT. 14. WE HAVE EXAMINED THE RIVAL STANDS OF THE PARTI ES. OUR ATTENTION WAS INVITED BY THE ID.AR TO THE OBSERVATION MADE BY BOT H THE AUTHORITIES BELOW, THAT THESE TRANSACTIONS ARE ON 'REVENUE ACCOUNT'. WE HAVE ALSO NOTICED THAT BOTH ASSESSING OFFICER AND THE ID. CIT(A) HAVE ACCE PTED THESE TRANSACTIONS ON REVENUE SIDE. IF IT IS SO, THE DECISIONS RELIED BY THE ID.AR WOULD SUPPORT HER CONTENTION. THE ID. CIT/DR HAS STATED THAT THE DECISIONS RELIED ON BY THE ID. CIT(A) IN THE CASE OF MIS COGNIZANT TECHNOLOGY SOLUTIONS INDIA PVT. LTD AND M/S CONVANSYS (INDIA) PVT. LTD HAVE NOT BEEN AC CEPTED BY THE DEPARTMENT. BUT IN ANY CASE, THIS DECISION HAS GOT A BINDING EFFECT BEING A DECISION OF THE CO-ORDINATE BENCH AND THEREFORE, TH IS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE. THE FOLLOWING DECISIONS ALSO SUPPORT OUR CONTENTION APART FROM THE DECISION OF COGNIZANT TEC HNOLOGY SOLUTIONS (SUPRA): (I) PENTASOFT TECHONOLOGIES LTD. (II) M/S MYSODET (P) LTD (CIVIL APPEAL NO. 5475 OF 2008) S.C. 15. THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, W E CANNOT INTERFERE IN THE FINDING OF THE ID. CIT(A). WE ARE BOUND BY THE ABOVE DECISIONS, THEREFORE, WE CANNOT ALLOW THIS GROUND IN FAVOUR OF THE REVENUE. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY DISMISSING THE GROUND RAI SED BY THE REVENUE.' RESPECTFULLY FOLLOWING THE ABOVE DECISION, THE AO I S DIRECTED TO INCLUDE EXCHANGE FLUCTUATION AS A PART EXPORT TURNOVER FOR COMPUTING DEDUCTION U/S 10A. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.80 8080 806 66 6/M/ /M/ /M/ /M/12 1212 12 6 8. THE COMMISSIONER OF INCOME TAX (APPEALS), FOLLO WING THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V. INAUT IX TECHNOLOGIES INDIA (P) LTD. IN I.T.A. NO. 1054/MDS/2006, HELD THAT FOREIGN EXCHANGE GAIN IS PART OF EXPORT TURNOVER FOR COMPUTATION OF DEDUCTION UNDER SECTION 10A. THEREFORE, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS). THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 9. WITH REGARD TO THE GAINS ON INCOME FROM ENGINEER ING AND DESIGN CHARGES, THE COUNSEL FOR THE ASSESSEE INVITED OUR A TTENTION TO PAGE 83 OF PAPER BOOK AND SUBMITS THAT THE CBDT HAS ISSUED A N OTIFICATION SPECIFYING THAT ENGINEERING AND DESIGN SERVICES ARE INFORMATIO N TECHNOLOGY ENABLED PRODUCTS ENTITLED TO BE TREATED AS SOFTWARE AND WHE N TRANSMITTED TO FOREIGN COUNTRIES, THEY HAVE TO BE TREATED AS EXPORTS FOR T HE PURPOSE OF DEDUCTION UNDER SECTION 10A. THE COUNSEL FOR THE ASSESSEE SU BMITS THAT IN VIEW OF THE SAID NOTIFICATION, THE ASSESSING OFFICER IS NOT JUS TIFIED IN EXCLUDING THE ENGINEERING AND DESIGN CHARGES FROM EXPORT TURNOVER FOR THE PURPOSE OF DEDUCTION ALLOWABLE UNDER SECTION 10A OF THE ACT. 10. ON GOING THROUGH THE NOTIFICATION, WE SEE THAT THE CBDT CLEARLY SPECIFIES THAT THE ENGINEERING AND DESIGN SERVICES ARE INFORMATION AND TECHNOLOGY ENABLED PRODUCTS OR SERVICES AND ARE TO BE TREATED AS SOFTWARE AND EXPORT OF SUCH SOFTWARE HAS TO BE TREATED AS EX PORT. THE COMMISSIONER OF INCOME TAX (APPEALS) REFERRING TO THE SAID NOTIF ICATION AND THE DECISION OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.80 8080 806 66 6/M/ /M/ /M/ /M/12 1212 12 7 THE BANGALORE BENCH OF ITAT IN THE CASE OF WIPRO LT D. VS. DCIT [96 TTJ 211] DIRECTED THE ASSESSING OFFICER TO INCLUDE THE INCOME FROM ENGINEERING DESIGN AND DRAWINGS AS PART OF THE EXPORT TURNOVER FOR THE PURPOSE OF DEDUCTION UNDER SECTION 10A, WHICH IN OUR VIEW IS I N ACCORDANCE WITH THE NOTIFICATION ISSUED BY THE CBDT. THEREFORE, WE UPHO LD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE ALSO. THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 11. SINCE WE HAVE DISMISSED THE ABOVE APPEAL OF TH E REVENUE AND DECIDED ISSUES IN FAVOUR OF THE ASSESSEE BY SUSTAIN ING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE CROSS OBJ ECTION FILED BY THE ASSESSEE IN SUPPORT OF THE ORDER OF THE COMMISSIONE R OF INCOME TAX (APPEALS) WITHOUT ANY MATERIAL GROUNDS BECOME INFRU CTUOUS. 12. IN THE RESULT, THE APPEAL OF THE REVENUE AND C O OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 20 TH OF JULY, 2012 AT CHENNAI. SD/ - SD/ - (N.S. SAINI) ACCOUNTANT MEMBER (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER CHENNAI, DATED, THE 20.07.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.