ACIT, New Delhi V. M/s. All E Technologies Pvt. Ltd., New Delhi

ITA 838/DEL/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0150 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 08-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Capital receipt; Revenue expenditure; Capital expenditure

Judgement Text

PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. J .S.R EDDY , ACCOUNTANT MEMBER I.T.A .NO. - 838 /DEL/201 3 (ASSESSMENT YEAR - 200 9 - 1 0 ) A CIT CIRCLE - 1(1), ROOM NO . - 390 , C.R. BUILDING, I. P. ESTATE, NEW DELHI - 110002. (APPELLANT) VS ALL E TECHNOLOGIES PVT. LTD., UU - 14, VISHAKHA ENCLAVE, NEW DELHI - 110034. PAN - AA CCA7848R (RESPONDENT) APPELLANT BY MS.Y.KAKKAR, DR RESPONDENT BY SH. BHARAT BERIWAL, ADV. ORDER PER DIVA SINGH, JM BY THE PRESENT APPEAL FILED BY THE REVENUE, THE CORRECTNESS OF THE ORDER DATED 21.11.2012 OF CIT(A) - IV, NEW DELHI PERTAINING TO 2009 - 10 ASSESSMENT YEAR HAS BEEN ASSAILED ON THE FOLLOWING GROUNDS: - 1. WHETHER THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW TO DIRECT THE AO TO RE - COMPUTE THE DEDUCTION U/S 10A AND THE DISALLOWANCE OF RS.38,91,437/ - MADE BY THE AO WAS ALLOWED IGNORING THE FACTS THAT THE FOREIGN EXCHANGE FLUCTUATION GAIN RECEIVED HAS NOT BEEN EARNED BY THE ASSESSEE THROUGH EXPORT OF SOFTWARE. 2. THE A PPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. THE RELEVANT FACTS AS PER THE ASSESSMENT ORDER ARE THAT THE ASSESSEE COMPANY AS IN TH E PAST CONTINUE D TO DERIVE INCOME FROM THE BUSINESS OF DATE OF HEARING 21 .05.2015 DATE OF PRONOUNCEMENT 3 0 .0 6 .2015 ITA NO. 838/DEL/2013 PAGE 2 OF 6 SOFTWARE DEVELOPMENT. THE AO IN THE COURSE OF THE ASSESSMENT PROCEEDINGS REQUIRED THE ASSESSEE TO EXPLAIN WHY FOREIGN EXCHANGE GAIN AND INTEREST INCOME MAY NOT BE EXCLUDED FOR THE PURPOSES OF SECTION 10A. CONSIDERING THE EXPLANATION OF THE ASSESSEE AND RELYING UPON VARIOUS JUDGEMENTS , T HE AO HELD THAT THE FOREIGN EXCHANGE GAIN OF RS. 38,91,437/ - WAS TO BE CONSIDER ED UNDER THE H EAD INCOME FROM OTHER SOURCES . ACCORDINGLY HE EXCLUDED THE SAME FROM CAL CULATIONS OF SECTION 10A RELYING UPON THE FOLLOWING JUDGEMENTS : - [I] NAHAR INDUSTRIAL ENTERPRISES LTD. IN ITA NOS. - 2878, 1820/DEL/196 & 4257/DEL/94 ORDER DATED 04.06.2002 (DELHI BENCH); [II] CIT VS STERLING FOODS LTD. (1999) 237 ITR 579; [III] NANJI TOP ANBHAI & CO. VS. ACIT (2000) 243 ITR 192; [IV] CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY LTD. VS CIT (1978) 113 ITR 84; [V] CEMENT DISTRIBUTORS LTD. (1994) 208 ITR 35; [VI] CIT VS BUILDWELL ASSAM PVT.LTD. (1996) 220 ITR 577 (GAUHATI HIGH COURT). 3. AGGRI EVED BY THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. SUPPORT ING ITS CLAIM AND ASSAILING THE ASSESSMENT ORDER , IT WAS ARGUED THAT THE BASIC CHARACTER OF THE RECEIPT WOULD NOT CHANGE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AS A NY FLUCTUATION IN THE FOREIGN EXCHANGE WOULD GO TO INCREASE OR REDUCE THE FIGURE OF EXPORT TURN OVER AND AT BEST IT WOULD IMPACT THE INCREAS E IN SALE PRICE REALISED . RELIANCE WAS PLACED UPON THE FOLLOWING DECISIONS: - [A] RENAISSANCE JEWELLERY PVT. LTD. VS ITO {(2007) 289 ITR (AT) 0065}; [B] FABINDIA VS CIT {(1981) 130 ITR 0143}; [C] HINDUSTAN TRADING CORPORATION VS. CIT {(1986) 160 ITR 0015}; [D] SANYO LSI TECHNOLOGY INDIA PVT. LTD. VS DCIT; [E] SMT. SUJATA GROVER VS. DCIT {(2002) 74 TTJ DEL 347} 4. CONSIDERING THE EXPLANATION OF THE ASSESSEE AND RELYING UPON THE DECISION OF THE ITAT IN THE CASE OF SONY INDIA PVT. LTD. VS DCIT [2009] 315 ITR (AT) 0150 AND THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF FAB INDIA VS CIT 130 ITR 143, THE CI T(A) DIRECTED THE AO TO RE - COMPUTE THE DEDUCTION U/S 10A. ITA NO. 838/DEL/2013 PAGE 3 OF 6 5. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. SR. DR, MS. Y.KAKKAR VEHEMENTLY RELYING UPON THE ASSESSMENT ORDER AND THE DECISIONS CITED IN THE ASSESSMENT ORDER SUBMIT TED THAT THE IMPUGNED ORDER DESERVE S TO BE SET ASIDE AS THE ISSUE OF DERIVED FROM WAS WELL SETTLED BY THE APEX COURT IN THE CASE OF CIT VS STERLING FOODS LTD. (CITED SUPRA) AND CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY LTD. (CITED SUPRA) WHICH VIEW HAS CONTINUOUSLY BEEN FOLLOWED BY VARIOUS COURTS AS REFERRED TO BY THE AO TO THE CASES OF CEMENT DISTRIBUTORS LTD. (CITED SUPRA) AND BUILDWELL ASSAM PVT. LTD. (CITED SUPRA) . THE SAID VIEW IT WAS SUBMITTED IS FOUND SUPPORTED BY TH E ORDER OF THE CO - ORDINATE BENCH IN THE CASE OF QUALCOMM INDIA PVT. LTD. VS DCIT [2013] 37 TAXMANN. COM 17 (TRIBUNAL) W HEREIN THE SAID ISSUE HAS BEEN CONSIDERED IN THE SPECIFIC PARAS 25.1 TO PARA 27. REFERRING TO THE SAID DECISION, IT WAS HER SUBMISSION THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL THEREIN H AS CONSIDERED AND DISCUSSED THE IMPACT OF THE LATEST JUDGEMENT OF THE APEX COURT THE CASE OF WOODWARD PVT. LTD. [2009] 312 ITR 254 AND HAS HELD THAT IF LOSS SUFFERED ON ACCOUNT OF FOREIGN EXCHANGE FLUCTU ATION IS ALLOWABLE AS REVENUE EXPENDITURE THEN GAIN ON ACCOUNT OF SUCH FLUCTUATION WOULD BE ALLOWED AS A REVENUE RECEIPT. REFERRING TO THE SAID DECISION IT WAS SUBMITTED THAT THE LATEST DECISION OF THE CO - ORDINATE BENCH BE FOLLOWED AS IT HAS CONSIDERED TH E ENTIRE ASPECT A ND IS ALSO IN LINE WITH THE LEGISLATIVE INTENT AS INTERPRETED BY THE COURTS. 6. THE LD. AR, ON THE OTHER HAND, RELYING UPON THE IMPUGNED ORDER SUBMITTED THAT THE JUDGEMENTS CITED BY THE LD. S R . DR ARE DISTINGUISHABLE ON FACTS . THE VIEW T AKEN IT WAS SUBMITTED IS SUPPORTED BY DECISIONS OF THE ITAT JURISDICTIONAL HIGH COURT AS REFERRED TO IN THE IMPUGNED ORDER AND ALSO TO DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS PENTASOFT TECHNOLOGIES LTD.[2012] 347 ITR 578 (MAD.). ON THE CON TRARY IT WAS ARGUED THAT THE DECISION OF THE TRIBUNAL RENDERED ON 21.02.2013 STATED TO HAVING CONSIDERED THE MOST RECENT DECISION , I T WAS SUBMITTED IS ENTIRELY DISTINGUISHABLE ON FACTS . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAI LABLE ON RECORD. AS FAR AS THE FACTS OF THE CASE ARE CONCERNED THERE IS NO DISPUTE AS ITA NO. 838/DEL/2013 PAGE 4 OF 6 THE ASSESSEE ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT REALIZED A HIGHER SALE PRICE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. THE ASSESSEE BY WAY OF A REVISED R ETURN INCLUDED THIS GAIN ALSO IN ITS CLAIM OF EXEMPTION U/S 10A. THE RECORD SHOWS THAT THE AO DENIED THE CLAIM RELYING UPON THE VARIOUS DECISIONS REFERRED TO IN PARA 2 OF THIS ORDER HOLDING THAT THE TERM DERIVED FROM AS INTERPRETED BY VARIOUS COURTS MAN DATES THAT THERE MUST BE DIRECT CONNECTION WITH THE ACTIVITY AND DID NOT CONTEMPLATE THAT EXEMPTION CAN BE ALLOWED TO GAIN S ARISING FROM FOREIGN EXCHANGE FLUCTUATION. T HE CIT(A) CONSIDERING THE JURISDICTIONAL HIGH COURT S DECISION IN THE CASE OF FABINDIA OVERSEAS LTD. (CITED SUPRA) AND THE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF SONY INDIA PVT. LTD. ALLOWED THE CLAIM OF THE ASSESSEE WHICH IS UNDER CHALLENGE. IN THE AFORE - MENTIONED PECULIAR FACTS AND CIRCUMSTANCES, CONSIDERING THE PROVISION OF SEC TION 10A(1) OF THE ACT AND THE DECISIONS REFERRED TO BY THE CIT(A) READ ALONG WITH THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS PENATSOFT (CITED SUPRA) , WE FIND THAT THE REVENUE S CHALLENGE HAS TO FAIL. THE GAIN IN THE SALE PRICE AS A RESUL T OF FLUCTUATION IN THE FOREIGN CURRENCY HAS A DIRECT NEXUS AND IS OF THE FIRST DEGREE AND CANNOT BE EQUATED TO SITUATIONS WHERE SURPLUS FUNDS ARE PARKED IN FIXED DEPOSITS YIELDING INTEREST INCOME . THE INCREASE IN SALE PRICE AS A RESULT OF CURRENCY FLUC TUATION IMPACTS THE SALE PRICE ON WHICH THE EXEMPTION IS TO BE CALCULATED. THE FACTS BEFORE THE CO - ORDINATE BENCH IN THE CASE OF QUALCOMM INDIA P. LTD. (CITED SUPRA) SPECIFIC PARAS 25.1 TO PARA 27 OF THE SAME WHICH HAVE BEEN RELIED UPON BY THE LD. SR. D R ARE ENTIRELY DISTINGUISHABLE. IN THE FACTS OF THAT CASE, WE FIND THAT THE ISSUE UNDER CONSIDERATION WAS WHETHER ON THE ECB LOAN (EXTERNAL BORROWINGS) WHICH YIELDED A GAIN AS A RESULT OF FOREIGN EXCHANGE FLUCTUATION WAS A CAPITAL RECEIPT OR A REVENUE REC EIPT. CONSIDERING THE PRINCIPLE LAID DOWN BY THE APEX COURT IN WOODWARD GOVERNOR (CITED SUPRA), IT WAS HELD THAT IT IS A REVENUE RECEIPT ON THE PRINCIPLE THAT I F A LOSS SUFFERED ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IS ALLOWABLE AS A REVENUE EXPENDIT URE THEN THE GAIN ON SUCH A RECEIPT WOULD BE A REVENUE RECEIPT. THE ISSUE WAS IN THE CONTENT OF UTILIZATION OF THE LOAN AT THE RELEVANT POINT OF TIME. IN THE FACTS OF THE PRESENT CASE, THE GAIN DUE TO FOREIGN ITA NO. 838/DEL/2013 PAGE 5 OF 6 EXCHANGE FLUCTUATION IS IN THE SALE PRICE AND NOT ON ACCOUNT OF EXTERNAL BORROWING. THE GAIN FOLLOWING THE PRINCIPLE OF FABINDIA OVERSEAS LTD.(CITED SUPRA) CAN BE CONSIDERED TO BE ARISING ON ACCOUNT OF ADDITIONAL SALE PROCEEDS. THE VIEW IS ALSO SUPPORTED BY THE DECISION OF THE MADRAS HIGH COURT. THE FOLLOWING EXTRACT STATED JUDGEMENTS BRINGS OUT THE CRUX OF THE ISSUE: - IN ORDER TO ALLOW A CLAIM UNDER SECTION 10A OF THE ACT, WHAT ALL IS TO BE SEEN IS WHETHER SUCH BENEFIT EARNED BY THE ASSESSEE WAS DERIVED BY VIRTUE OF EXPO RT MADE BY THE ASSESSEE. THE EXCHANGE VALUE BASED ON UPWARD OR DOWNWARD OF THE RUPEE VALUE IS NOT IN THE HANDS OF THE ASSESSEE. IN OTHER WORDS, THE ASSESSEE DOES NOT DETERMINE THE EXCHANGE VALUE OF THE INDIAN RUPEE. IT HAS TO BE REMEMBERED BUT FOR THE F ACT THAT THE ASSESSEE IS AN EXPORT HOUSE, THERE WAS NO QUESTION OF EARNING ANY FOREIGN EXCHANGE. THEREFORE, WHEN THE FLUCTUATION IN FOREIGN EXCHANGE RATE WAS SOLELY RELATABLE TO THE EXPORT BUSINESS OF THE ASSESSEE AND THE HIGHER RUPEE VALUE WAS EARNED BY VIRTUE OF SUCH EXPORTS CARRIED OUT BY THE ASSESSEE, THERE IS NO REASON WHY THE BENEFIT OF SECTION 10A SHOULD NOT BE ALLOWED TO THE ASSESSEE. 8. THUS WHERE THE FOLLOWING FINDING ON FACTS HAS NOT BEEN DEMOLISHED BY THE REVENUE, WE FIND THAT THE CHALLENGE P OSED MUST FAIL : - ..THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT. IT IS NOT A CASE OF THE AO THAT THE GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION OF THE APPELLANT COMPANY WAS ON ACCOUNT OF ANY EXTERNAL COMMERCIAL BORRO WINGS OR ON ACCOUNT OF ANY CAPITAL EXPENDITURE OR THE ASSESSEE HAS ANY OTHER BUSINESS OTHER THAN EXPORT OF SOFTWARE ON WHICH FOREIGN EXCHANGE GAIN WAS RECEIVED. WHATEVER GAIN THE APPELLANT HAS MADE, IT WAS OUT OF ITS BUSINESS. THEREFORE, WHATEVER GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION WAS THERE HAS TO BE HELD AS PART OF ITS BUSINESS PROFITS 9. ACCORDINGLY ON ACCOUNT OF THE ABOVE - MENTIONED DETAILED REASONING ON FACTS AND LAW, WE FIND THAT THE CHALLENGE OF THE REVENUE BY WAY OF THE GROUNDS RAISED IN THE PRESENT APPEAL DESERVES TO FAIL. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 3 0 T H OF JUNE , 2015. S D / - S D / - ( J . S. R EDDY ) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 3 0 / 0 6 /2015 *AMIT KUMAR* ITA NO. 838/DEL/2013 PAGE 6 OF 6 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI