ACIT, Circle-2(2), Hyd, Hyderabad V. Tanla Solutions Ltd., Hyd, Hyderabad

ITA 879/HYD/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98648 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Section: 43B; 143(3); 28; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 879/HYD/2015 ASSESSMENT YEAR: 2008-09 ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 2(2), HYDERABAD. VS. M/S TANLA SOLUTIONS LTD., HYDERABAD. PAN AABCT 5004 H (APPELLANT) (RESPONDENT) REVENUE BY : SHRI B. KURMI NAIDU ASSESSEE BY : NONE DATE OF HEARING 27-10-2015 DATE OF PRONOUNCEMENT 04-11-2015 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORD ER DATED 22/04/2015 OF LD. CIT(A)-2, HYDERABAD, FOR THE AY 2 008-09. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE, A COMPANY DERIVING INCOME FROM SOFTWARE DEVELOPMENT AND EXPOR T, FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 29/09 /08, DECLARING TOTAL LOSS OF RS. 4,52,21,983 AND ADMITTED BOOK PRO FIT UNDER MAT U/S 115 JB AT RS. 100,98,99,226. ASSESSMENT WAS COMPLET ED U/S 143(3) AFTER MAKING THE FOLLOWING DISALLOWANCES: 1) DEDUCTION U/S 10A 2) DISALLOWANCE OF BELATED PF & ESI PAYMENTS 3) INCOME TAX PRIOR YEARS 2 ITA NO. 879 /HYD/2015 M/S TANLA SOLUTIONS LTD. 3. AS REGARDS THE DISALLOWANCE U/S 10A OF THE ACT, DURING THE YEAR THE ASSESSEE COMPANY EARNED AN INCOME OF RS. 77,47, 60,927 FROM CARRYING OUT THE BUSINESS OF SOFTWARE EXPORTS. THE ASSESSEE COMPANY CLAIMED THE ENTIRE AMOUNT OF RS. 77,47,60,927 AS EX EMPTION U/S 10A OF THE I.T. ACT. DURING THE COURSE OF EXAMINATION, THE AO NOTICED THAT THE ASSESSEE HAD INCURRED THE FOLLOWING EXPENDITURE : SL.NO. NATURE OF EXPENDITURE INCURRED AMOUNT OF EXPENDITURE RS. 1 EXPENDITURE INCURRED IN FOREIGN CURRENCY. 12,37,91,805 2 FOREIGN TRAVEL 44,10,416 3 COMMUNICATION EXPENSES 34,64,857 4 -DO- 9,89,959 5 INSURANCE ON ASSETS 4,38,809 6 FOREIGN EXCHANGE FLUCTUATION 20,08,070 TOTAL 3.1 REFERRING TO EXPLANATION 2(IV) OF SECTION 10A, THE AO OBSERVED THAT ANY EXPENDITURE INCURRED TOWARDS TELECOMMUNICA TION CHARGES, INSURANCE, AND EXPENSES INCURRED IN FOREIGN CURRENC Y AND ARE ATTRIBUTABLE DIRECTLY TO THE EXPORT OF ARTICLE OR T HING OUTSIDE INDIA HAS TO BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE P URPOSE OF CLAIMING EXEMPTION U/S 10A. THE AO, THEREFORE, HELD THAT THE EXPENDITURE OF RS. 13,51,75,916 BEING THE EXPENDITURE OF THE ABOVE NATURE, IS TO BE EXCLUDED FROM THE EXPORT TURNOVER WHICH IS INCURRED TOWARDS EXPORT OF SOFTWARE OUTSIDE INDIA FOR THE PURPOSE OF COMPUTATI ON OF ELIGIBLE EXEMPTION U/S 10A OF THE IT ACT. ACCORDINGLY, HE CO MPUTED THE ELIGIBLE EXEMPTION U/S 10 A BY EXCLUDING THE SAID E XPENDITURE OF RS. 13,51,75,916. 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 5. THE LD. CIT(A) ALLOWED THE GROUND OF ASSESSEE FO LLOWING THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2006-07 IN ITA 3 ITA NO. 879 /HYD/2015 M/S TANLA SOLUTIONS LTD. NO. 234/HYD/2013, DATED 27/08/13 BY DIRECTING THE A O TO EXCLUDE THE EXPENDITURE FROM BOTH THE EXPORT TURNOVER AS WELL A S TOTAL TURNOVER. 6. AS REGARDS THE DISALLOWANCE OF BELATED PAYMENTS TOWARDS PF & ESI, THE ASSESSEE HAD PAID PF & ESI CONTRIBUTION OF EMPLOYEES FOR AN AMOUNT OF RS. 20,08,686 BELATEDLY. THE AO DISALLOWE D THE SAME U/S 36(1)(VA) R.W.S. 2(24)(X) OF THE IT ACT ON THE GROU ND THAT THEY WERE PAID WELL BEYOND DUE DATE. 7. ON APPEAL, THE CIT(A) FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF M/S SPECK SYSTEMS LTD. IN ITA NO. 473/HYD/2 013 DATED 10/07/13 FOR AY 2008-09, ALLOWED THE GROUND OF ASSE SSEE ON THE GROUND THAT THE ASSESSEE HAS PAID THE CONTRIBUTION BEFORE FILING OF THE RETURN OF INCOME. 8. ASSESSEE DID NOT PRESS THE GROUND REGARDING INCO ME-TAX PRIOR YEARS, THUS, THE SAME WAS DISMISSED. 9. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE APPELLATE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS BOTH ON FACTS AND LAW. 2. IN THE FACT AND CIRCUMSTANCES OF THE CASE, WHET HER THE CIT(A) IS CORRECT IN LAW IN DIRECTING THAT THE COMMUNICATION CHARGES SHALL NOT BE EXCLUDED FROM EXPORT TURNOVER THOUGH EXPLANATION 2 TO SECTION 10A OF THE INCOME TAX ACT, 1961, CLEARLY STATES THAT THEY NEE D TO BE EXCLUDED. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHE THER THE CIT(A) IS CORRECT IN ALLOWING THE APPEAL OF THE ASSESSEE ON THE ISSUE OF REMITTANCE OF ESI AND PF UJS.36(1)(VA) OF THE ACT THOUGH THE EXPLANATION TO THE SAID SECTION SPECIFY THE 'DUE DATE' FOR REMITTANCE IS W ITH REFERENCE TO THE ACT, RULE, ORDER OR NOTIFICATION ISSUED THERE UNDER OR UNDER ANY STANDING ORDER, AWARD, CONTRACT OF SERVICE OR OTHERWISE. 10. NONE APPEARED ON BEHALF OF THE ASSESSEE AT THE TIME OF HEARING OF THIS APPEAL. HOWEVER, WE PROCEED TO DISPOSE OF T HIS APPEAL AFTER HEARING THE LD. DR AS THE ISSUES INVOLVED IN THIS A PPEAL ARE COVERED BY THE DECISIONS OF ITAT IN FAVOUR OF THE ASSESSEE. 11. LD. DR RELIED ON THE ORDER OF AO. 4 ITA NO. 879 /HYD/2015 M/S TANLA SOLUTIONS LTD. 12. WE HAVE HEARD THE ARGUMENTS OF LEARNED DR AND P ERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATE RIAL ON RECORD. THE ISSUES IN DISPUTE ARE COVERED BY THE DECISION OF TH E ITAT. AS REGARDS THE DEDUCTION U/S 10A, SIMILAR ISSUE CAME UP FOR CO NSIDERATION BEFORE THE ITAT IN ASSESSEES OWN CASE IN ITA NO. 234/HYD/ 13 FOR AY 2006- 07 WHEREIN THE TRIBUNAL HAS HELD AS UNDER: ' 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE R ECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FI ND THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN THE CASE OF THE PATNI COMPUTERS LTD. (SUPRA) AND ALSO SPECIAL BENCH OF THE CHENNAI TRIBUNAL IN THE CASE OF ITO VS SAKSOFT LTD (313 ITYR AT 353) WHEREIN IT WAS HELD THAT 'EXPENSES EXCLUDED FROM E XPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER'. THE HON 'BLE KARNATAKA HIGH COURT HAS ALSO TAKEN SIMILAR VIEW IN THE CASE OF C IT VS. TATA ELXSI LTD. & OTHERS, 247 CTR 334(KAR). RESPECTFULLY FOLLOWING T HE SAID DECISIONS CITED SUPRA WE UPHOLD THE ORDER OF THE CIT(A) IN DIRECTI NG THE ASSESSING OFFICER TO REDUCE FOREIGN TRAVEL EXPENSES, COST OF SERVICE AND PROFESSIONAL CHARGES FROM TOTAL TURNOVER AND DISMISS THE GROUND RAISED BY THE REVENUE IN THIS REGARD. 12.1 AS THE CIT(A) ALLOWED THE GROUND OF APPEAL FOL LOWING THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR EAR LIER AY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A ) AND ACCORDINGLY UPHOLDING THE SAME, WE DISMISS THE GROU ND RAISED BY THE REVENUE. 12.2 AS REGARDS THE DISALLOWANCE U/S 36(1)(VA), THI S GROUND IS COVERED BY THE DECISION OF ITAT IN THE CASE OF M/S SPECK SYSTEMS LTD. IN ITA NO. 473/HYD/13 FOR AY 2008-09, WHEREIN THE TRIBUNAL HAS HELD AS UNDER: '5. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E RECORD, WE ARE OF THE OPINION THAT THE ISSUE IN DISPUTE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY VARIOUS JUDICIAL PRECEDENTS. MORE SPEC IFICALLY, THE ISSUE CAME UP FOR CONSIDERATION BEFORE VARIOUS COURTS IN THE FOLLOWING CASES: 1. CIT & ANR. VS. DESH RAKSHAK AUSHDHALAYA LTD., 1 3 ITR 140 2. CIT VS. LAKSHANI RUBBER WORKS, [2010] 326 ITR 4 15 (P&H) 3. CIT VS. AIMIL LTD., [2010] 321 ITR 508 (DEL.) 6. THE HON'BLE DELHI HIGH COURT IN CIT VS. AIMIL L TD. &ORS.[(2010) 321 ITR 508 (DEL)] HAS HELD THAT IF THE EMPLOYEES' SHARE OF CONTRIBUTION IS PAID BEFORE THE DUE DATE OF FILING THE RETURN U/S 139(1 ) OF THE INCOME-TAX ACT, 1 961, THEN NO DISALLOWANCE CAN BE MADE. 5 ITA NO. 879 /HYD/2015 M/S TANLA SOLUTIONS LTD. 7. IN VIEW OF THE ABOVE, DEDUCTION OF PAYMENT TOW ARDS EMPLOYEES CONTRIBUTION ON ACCOUNT OF PF & ESI CANNOT BE DIS ALLOWED IF THE SAME IS PAID BEFORE THE DUE DATE OF FILING OF RETURN. ACCO RDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) IN ALLOWING THE ASSESSEE'S CLA IM OF EPF & ESI DEDUCTION AND DISMISS THE GROUND RAISED BY THE REV ENUE. 12.3 IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD., 3 19 ITR 306, THE HONBLE SUPREME COURT HAS HELD AS UNDER: THERE IS NO MERIT IN THESE APPEALS FILED BY THE DE PARTMENT FOR THE FOLLOWING REASONS : FIRSTLY, S. 43B (MAIN SECTION), WHICH ST OOD INSERTED BY FINANCE ACT, 1983, W.E.F. 1ST APRIL, 1984, EXPRESSLY COMMENCES WITH A NON OBSTANTE CLAUSE, THE UNDERLYING OBJECT BEING TO DISALLOW DE DUCTIONS CLAIMED MERELY BY MAKING A BOOK ENTRY BASED ON MERCHANTILE SYSTEM OF ACCOUNTING. AT THE SAME TIME, S. 43B (MAIN SECTION) MADE IT MANDATORY FOR THE DEPARTMENT TO GRANT DEDUCTION IN COMPUTING THE INCOME UNDER S. 2 8 IN THE YEAR IN WHICH TAX, DUTY, CESS, ETC., IS ACTUALLY PAID. HOWEVER, PARLIAMENT TOOK COGNIZANCE OF THE FACT THAT ACCOUNTING YEAR OF A COMPANY DID NOT ALWAYS TALLY WITH THE DUE DATES UNDER THE PROVIDENT FUND ACT, MUNICIPAL CORPORATION ACT (OCTROI) AND OTHER TAX LAWS. THEREFORE, BY WAY OF FIRST PRO VISO TO S. 43B, AN INCENTIVE/RELAXATION WAS SOUGHT TO BE GIVEN IN RES PECT OF TAX, DUTY, CESS OR FEE BY EXPLICITLY STATING THAT IF SUCH TAX, DUTY, CESS OR FEE IS PAID BEFORE THE DATE OF FILING OF THE RETURN UNDER THE IT ACT (DUE DATE), THE ASSESSEE(S) THEN WOULD BE ENTITLED TO DEDUCTION. HOWEVER, THIS RELA XATION/INCENTIVE WAS RESTRICTED ONLY TO TAX, DUTY, CESS AND FEE. IT DID NOT APPLY TO CONTRIBUTIONS TO LABOUR WELFARE FUNDS. THE REASON APPEARS TO BE THA T THE EMPLOYER(S) SHOULD NOT SIT ON THE COLLECTED CONTRIBUTIONS AND DEPRIVE THE WORKMEN OF THE RIGHTFUL BENEFITS UNDER SOCIAL WELFARE LEGISLATION S BY DELAYING PAYMENT OF CONTRIBUTIONS TO THE WELFARE FUNDS. HOWEVER, THE S ECOND PROVISO RESULTED IN IMPLEMENTATION PROBLEMS, WHICH RESULTED IN THE ENA CTMENT OF FINANCE ACT, 2003, DELETING THE SECOND PROVISO AND BRINGING ABO UT UNIFORMITY IN THE FIRST PROVISO BY EQUATING TAX, DUTY, CESS AND FEE WITH C ONTRIBUTIONS TO WELFARE FUNDS. ONCE THIS UNIFORMITY IS BROUGHT ABOUT IN TH E FIRST PROVISO, THEN, THE FINANCE ACT, 2003, WHICH IS MADE APPLICABLE BY THE PARLIAMENT ONLY W.E.F. 1ST APRIL, 2004, WOULD BECOME CURATIVE IN NATURE, HENCE, IT WOULD APPLY RETROSPECTIVELY W.E.F. 1ST APRIL, 1988. IT IS IMPO RTANT TO NOTE ONCE AGAIN THAT, BY FINANCE ACT, 2003, NOT ONLY THE SECOND PR OVISO IS DELETED BUT EVEN THE FIRST PROVISO IS SOUGHT TO BE AMENDED BY BRING ING ABOUT AN UNIFORMITY IN TAX, DUTY, CESS AND FEE ON THE ONE HAND VIS-A-VIS CONTRIBUTIONS TO WELFARE FUNDS OF EMPLOYEE(S) ON THE OTHER. THIS IS ONE MOR E REASON WHY IT IS HELD THAT THE FINANCE ACT, 2003, IS RETROSPECTIVE IN OP ERATION. ACCORDINGLY, FINANCE ACT, 2003, WILL OPERATE RETROSPECTIVELY W. E.F. 1ST APRIL, 1988 (WHEN THE FIRST PROVISO STOOD INSERTED). HARDSHIP AND TH E INVIDIOUS DISCRIMINATION WOULD BE CAUSED TO THE ASSESSEE(S) IF THE CONTENTI ON OF THE DEPARTMENT IS TO BE ACCEPTED THAT FINANCE ACT, 2003, TO THE ABOVE E XTENT, OPERATED PROSPECTIVELY. TAKE AN EXAMPLEIN THE PRESENT CASE , THE RESPONDENTS HAVE DEPOSITED THE CONTRIBUTIONS WITH THE R.P.F.C. AFTE R 31ST MARCH (END OF ACCOUNTING YEAR) BUT BEFORE FILING OF THE RETURNS UNDER THE IT ACT AND THE DATE OF PAYMENT FALLS AFTER THE DUE DATE UNDER THE EMPLOYEES' PROVIDENT FUND ACT, THEY WILL BE DENIED DEDUCTION FOR ALL TI MES. IN VIEW OF THE SECOND PROVISO, WHICH STOOD ON THE STATUTE BOOK AT THE RE LEVANT TIME, EACH OF SUCH ASSESSEE(S) WOULD NOT BE ENTITLED TO DEDUCTION UND ER S. 43B FOR ALL TIMES. THEY WOULD LOSE THE BENEFIT OF DEDUCTION EVEN IN T HE YEAR OF ACCOUNT IN WHICH THEY PAY THE CONTRIBUTIONS TO THE WELFARE FU NDS, WHEREAS A DEFAULTER, WHO FAILS TO PAY THE CONTRIBUTION TO THE WELFARE F UND RIGHT UPTO 1ST APRIL, 2004, AND WHO PAYS THE CONTRIBUTION AFTER 1ST APRI L, 2004, WOULD GET THE 6 ITA NO. 879 /HYD/2015 M/S TANLA SOLUTIONS LTD. BENEFIT OF DEDUCTION UNDER S. 43B. THEREFORE, FINA NCE ACT, 2003, TO THE EXTENT INDICATED ABOVE, SHOULD BE READ AS RETROSPE CTIVE. IT WOULD, THEREFORE, OPERATE FROM 1ST APRIL, 1988, WHEN THE FIRST PROVI SO WAS INTRODUCED. IT IS TRUE THAT THE PARLIAMENT HAS EXPLICITLY STATED THA T FINANCE ACT, 2003, WILL OPERATE W.E.F. 1ST APRIL, 2004. HOWEVER, THE MATTE R INVOLVES THE PRINCIPLE OF CONSTRUCTION TO BE PLACED ON THE PROVISIONS OF FIN ANCE ACT, 2003. FOR THE AFORESTATED REASONS, FINANCE ACT, 2003, TO THE EXT ENT INDICATED ABOVE, IS CURATIVE IN NATURE, HENCE, IT IS RETROSPECTIVE AND IT WOULD OPERATE W.E.F. 1ST APRIL, 1988 (WHEN THE FIRST PROVISO CAME TO BE INS ERTED). 12.4 SINCE THE CIT(A) ALLOWED THIS GROUND FOLLOWING THE DECISIONS OF VARIOUS JUDICIAL PRONOUNCEMENTS (SUPRA), WE UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE AND DISMISS THE GROUND RAISED BY THE REVENUE. 13. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 4 TH NOVEMBER, 2015. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 4 TH NOVEMBER, 2015 KV COPY TO:- 1) ACIT, CIRCLE 2(2) 8 TH FLOOR, B BLOCK, ROOM NO. 824, IT TOWERS, AC GUARDS, HYDERABAD 500 004 2) M/S TANLA SOLUTIONS LTD., HITECH CITY ROAD, MADH APUR, HYDERABAD. 3 CIT(A)-2, HYDERABAD 4) PR. CIT-2, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.