Qvantel Software Solutions Ltd., Hyd, Hyderabad V. ITO, Ward-16(1), Hyd, Hyderabad

ITA 824/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6212 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 25-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 01-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ESTHER N. HANGHAL
• Assessee Lawyers: D. RANGA RAO; K. LEELA KRISHNA MOHAN
• Keywords: Opportunity of being heard; Services rendered outside India; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 824/HYD/2016 ASSESSMENT YEAR: 2010-11 QVANTEL SOFTWARE SOLUTIONS LTD., HYDERABAD. PAN AAACQ 1480 D VS. INCOME-TAX OFFICER, WARD 16(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI D. RANGA RAO & SMT. K. LEELA KRISHNA MOHAN REVENUE BY : SMT. ESTHER N. HANGHAL DATE OF HEARING : 18-01-2017 DATE OF PRONOUNCEMENT : 10-02-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A) - 4, HYDERABAD, DATED 18/03/2016 FOR AY 2 010-11. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SER VICE, FILED ITS RETURN OF INCOME FOR THE AY 2010-11 DECLARING TOTAL INCOME AT RS. NIL AND BOOK PROFIT U/S 115JB WAS ADMITTED AT RS. 50,16 ,122/-. THE AO COMPLETED THE ASSESSMENT BY ASSESSING THE INCOME AT RS. 14,66,185/- UNDER NORMAL PROVISIONS AFTER MAKING AD DITION U/S 10A OF RS. 31,26,509/- AND ASSESSED BOOK PROFIT U/S 115JB AT RS. 50,16,122/-. 2.1 AS THE ASSESSEE IS IN THE BUSINESS OF SOFTWARE DEVELOPMENT SERVICES, DURING THE PREVIOUS YEAR 2009-10, THE ASS ESSEE COMPANY HAS EXPORTED THE SOFTWARE SERVICES TO VARIOUS CUSTO MERS AND MADE 2 ITA NO. 824/H/16 QVANTEL SOFTWARE SOLUTIONS LTD. EXPORT TURNOVER FOR A VALUE OF RS. 4,41,20,060/- FO R WHICH EXPORT INVOICES WERE RAISED AND SALE PROCEEDS FOR SUCH EXP ORTS WERE RECEIVED IN INDIA BY THE ASSESSEE COMPANY IN CONVER TIBLE FOREIGN EXCHANGE FOR RS. 4,13,65,229/- WITHIN A PERIOD OF S IX MONTHS FROM THE END OF THE PREVIOUS YEAR AS PRESCRIBED IN SECTION 1 0A(3) OF THE ACT. 2.2 THE ASSESSEE COMPANY HAS ALSO OBTAINED THE FORE IGN INWARD REMITTANCE CERTIFICATE (FIRCS) FROM BANKS FOR THE A BOVE AND SALE PROCEEDS AND SUBMITTED THE COPIES OF FIRCS TO THE A O. 2.3 THE AO WHILE PASSING THE ORDER, HAS NOT CONSIDE RED RS. 1,07,63,562/- AS EXPORT TURNOVER BECAUSE OF THE REA SON THAT THE FIRCS CONTAIN THE NATURE OF REMITTANCE AS CONSULTA NCY FEE FROM CLIENT OR SOFTWARE CONSULTANCY FREE FROM CLIENT. THE DETAILS OF FIRCS ARE AS FOLLOWS: SL.NO. FIRC SL. NO. AMOUNT (RS.) 1. 663428 37,86,348 2. 680109 36,62,558 3. 712122 12,81,071 4. 721192 20,96,585 TOTAL 1,07,63,562 THE AO HAS EXCLUDED THE ABOVE MENTIONED AMOUNTS FRO M THE EXPORT TURNOVER WITHOUT CONSIDERING THE AGREEMENTS WITH CU STOMERS, PURCHASE ORDERS FROM CUSTOMERS, EXPORT INVOICES RAI SED AND COLLECTION OF SALE PROCEEDS. THE AO HAS NOT CONSIDERED THE ABO VE TURNOVER AS EXPORT TURNOVER WHILE COMPLETING THE ASSESSMENT. 2.4 THE ASSESSEE COMPANY HAS INCURRED RS. 5,66,628/ - TOWARDS INTERNET CHARGES DURING THE PREVIOUS YEAR 2009-10. THE AO HAS EXCLUDED THE INTERNET CHARGES FROM THE ABOVE SAID E XPORT TURNOVER. THE ASSESSEE HAS INCURRED THE INTERNET CHARGES FOR THE DAY TO DAY OPERATIONS AND PERFORMING THE EXPORTS OF SOFTWARE S ERVICES. INTERNET CHARGES ARE THE INTEGRAL PART OF THE BUSINESS OF AS SESSEE COMPANY. 3 ITA NO. 824/H/16 QVANTEL SOFTWARE SOLUTIONS LTD. 3. ON APPEAL BEFORE THE CIT(A), THE CIT(A) CONFIRME D THE ACTION OF THE AO. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS ERRED IN CONFIRMING THE EXCLUSION OF RS.1,07,63,562/- FROM T HE EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTIO N 10A DESPITE OF THE FACT THAT THE AMOUNT WAS RECEIVED TO WARDS EXPORTS OF SOFTWARE / SOFTWARE SERVICES. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS ERRED IN CONFIRMING THE EXCLUSION OF INTEMET AND COMMUNICATI ON CHARGES OFRS.5,66,628/- WHICH WERE NOT INCURRED IN CONVERTI BLE FOREIGN EXCHANGE FROM THE EXPORT TURNOVER WHILE COMPUTING T HE DEDUCTION UNDER SECTION 10A. 5. AS REGARDS GROUND NO. 1, THE LD. AR SUBMITTED TH AT THE AO HAS EXCLUDED THE AMOUNT OF RS. 1,07,63,562/- FROM THE E XPORT TURNOVER TREATING THE SAME AS CONSULTANCY FEE FROM CLIENT/SO FTWARE CONSULTANCY FEE FROM CLIENT, AS MENTIONED IN THE FIRCS, WITHOU T CONSIDERING THE AGREEMENTS WITH CUSTOMERS, PURCHASE ORDERS FROM CUS TOMERS, EXPORT INVOICES RAISED AND COLLECTION OF SALE PROCEEDS, SO FTEX FORMS SUBMITTED TO SOFTWARE TECHNOLOGY PARKS OF INDIA (ST PI) AND DID NOT CONSIDER AS EXPORT TURNOVER. 6. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORD ERS OF REVENUE AUTHORITIES. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. IT IS OBSERVED THAT THE AO DID NOT CONSI DER THE RECEIPTS TOTALING RS. 1,07,63,562/- AS EXPORT SALE PROCEEDS AND NOT CONSIDERED FOR 10A EXEMPTION ON THE GROUND THAT THE FOREIGN IN WARD REMITTANCE CERTIFICATES (FIRCS) CONTAIN THE NATURE OF REMITTAN CE AS CONSULTANCY FEE FROM CLIENT OR SOFTWARE CONSULTANCY FEE FROM CLIENT. IN THIS CONNECTION, THE LD. AR OF THE ASSESSEE INVITED OUR ATTENTION TO THE PAPER BOOK AT PAGES 2 TO 25 WHEREIN INVOICE COPIES ALONG WITH EXPORT CLEARANCE CERTIFICATES FROM STPI ARE PLACED, WHEREI N IT WAS CLEARLY 4 ITA NO. 824/H/16 QVANTEL SOFTWARE SOLUTIONS LTD. MENTIONED UNDER THE SPECIFICATION COLUMN THAT THE A SSESSEE HAS PROVIDED SOFTWARE SERVICES. HE CONTENDED THAT THESE COPIES HAVE BEEN FILED BEFORE THE AO, BUT, HE DID NOT CONSIDER THE SAME. IN OUR OPINION, STPI IS AN AUTONOMOUS BODY WHICH FUNCTION S UNDER MINISTRY OF COMMUNICATION & INFORMATION TECHNOLOGY, WHICH IS CERTIFYING BODY FOR EXPORT OF SERVICES. ASSESSEE HAS FILED THESE CE RTIFICATES TO CLAIM THAT THESE ARE GENUINE EXPORT OF SERVICES. WE, THER EFORE, REMIT THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO EXA MINE THE CLAIM OF THE ASSESSEE AND ALLOW THE SAME IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THUS, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S. 8. AS REGARDS GROUND NO. 2, THE LD. AR SUBMITTED TH AT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISIONS OF COO RDINATE BENCHES OF HYDERABAD ITAT. HE RELIED ON THE FOLLOWING DECISION S: 1. ACIT VS. MICROSOFT GLOBAL SERVICES CENTRE P.LTD. , ITA NO. 2124/HYD/2010, ORDER DATED 18/05/2012. 2.M/S MEHRA BROTHERS VS. ITO, ITA NO. 508/LKW/12, O RDER DATED 28/11/2014. 9. LD. DR, ON THE OTHER HAND RELIED ON THE ORDERS O F REVENUE AUTHORITIES. 10. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE HONBLE COURTS AND THE COORDINATE BE NCHES OF ITAT HAVE CONSISTENTLY HELD THAT THE INTERNET CHARGES HA VE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE T OTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. THE HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. GEM PLUS JEWELLERY (330 IT R 175) AS WELL AS DIFFERENT BENCHES OF TRIBUNAL INCLUDING ITAT, CHENN AI BENCH (SB) IN THE CASE OF ITO VS. SAK SOFT (313 ITR (AT) 853) HAV E HELD THAT COMMUNICATION CHARGES ATTRIBUTABLE DIRECTLY TO THE EXPORT OF ARTICLE OR THING OUTSIDE INDIA HAS TO BE EXCLUDED BOTH FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING EXEMPTION U /S 10A OF THE ACT. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT 5 ITA NO. 824/H/16 QVANTEL SOFTWARE SOLUTIONS LTD. THE AO TO EXCLUDE THE INTERNET CHARGES OF RS. 5,66, 628/- FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COM PUTING 10A DEDUCTION. ACCORDINGLY, THE GROUND RAISED BY THE AS SESSEE IS ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY, 2017. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHM AN) VICE PRESIDENT A CCOUNTANT MEMBER HYDERABAD, DATED: 10 TH FEBRUARY, 2017 KV COPY TO:- 1) QVANTEL SOFTWARE SOLUTIONS LTD., DOOR NO. 1-66/ 1/RI/08/8, 12 TH FLOOR, RAMKY GRANDIOSE, RAMKY TOWERS, GACHIBOWLI, HYDERABAD 500 082, TELANGANA 2) ITO, WARD 16(1), HYDERABAD. 3) CIT(A) 4, HYDERABAD. 4) PR. CIT 4 , HYD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE