Virtusa (India) Private Limited, Hyderabad V. Dy.CIT, Circle 3(3), Hyderabad

MA 151/HYD/2013

• Counselvise Citation: [2013] 124 COUNSELVISE.COM (IT) 0840 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 16 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 16-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 31-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: RAVI BHARDWAJ
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER M.A. NO. 151/HYD/13 (IN ITA NO. 268/HYD/2011 ASSESSMENT YEAR 2006-07) VIRTUSA (INDIA) PVT. LTD., HYDERABAD. (PAN AABCV4077E) VS. DY. COMMISSIONER OF INCOME-TAX, CIRCLE 3(3), HYDERABAD. APPLICANT RESPONDENT AND M.A. NO. 97/HYD/13 (IN ITA NO. 482/HYD/2011 ASSESSMENT YEAR 2006-07) DY. COMMISSIONER OF INCOME-TAX, CIRCLE 3(3), HYDERABAD. VS. VIRTUSA (INDIA) PVT. LTD., HYDERABAD. (PAN AABCV4077E) APPLICANT RESPONDENT ASSESSEE BY: SRI RAVI BHARDWAJ REVENUE BY: SRI K.J. RAO DATE OF HEARING: 19.07.2013 DATE OF PRONOUNCEMENT: 16.09.2013 O R D E R PER SAKTIJIT DEY, JM : BY THESE M.AS., THE ASSESSEE AS WELL AS THE REVENUE ARE SEEKING RECTIFICATION OF THE ORDER OF TRIBUNAL DATED 24/08/2012 PASSED IN ITA NOS. 268/HYD/11(ASSESSEES APPEAL) AND 482/HYD/2011 (REVENUES APPEAL) FOR THE ASSESSMENT YEAR 2006-07 ON M.A. NOS. 151 & 97/HYD/2013. M/S VIRTUSA (INDIA) PVT. LTD. ==================== 2 THE GROUND THAT MISTAKE APPARENT ON THE FACE OF THE RECORD HAS CREPT INTO THE ORDER OF THE TRIBUNAL, 2. FIRST WE WILL DEAL WITH M.A. NO. 151/HYD/13 FILE D BY THE ASSESSEE. 3. IT HAS BEEN AVERRED IN THE MISCELLANEOUS APPLICATION THAT WHILE DECIDING GROUND NOS. 7 & 8 RAISED BY THE ASSESSEE IN ITS APPEAL, THE TRIBUNAL HAD REMANDED THE ISSUES RAISED IN THE AFORESAID GROUNDS TO THE ASSESSING OFFICER FOR FRESH DETERMINATION. IT I S FURTHER STATED THAT SINCE FACTUAL SUBMISSIONS & JUD ICIAL PRECEDENTS IN RELATION TO THE ISSUES RAISED IN GROU ND NOS. 7 & 8 AS WELL AS IN GROUND NO. (II) WERE ALREA DY SUBMITTED BEFORE THE ASSESSING OFFICER AS WELL AS T HE CIT(A) DURING THE COURSE OF PROCEEDINGS BEFORE THEM AND SINCE THE AUTHORITIES CONCERNED HAVE PASSED THE IR RESPECTIVE ORDERS AFTER CONSIDERING FACTUAL SUBMISS IONS AND JUDICIAL PRECEDENTS ON RECORD, THERE IS NO NEW MATERIAL FACTS/INFORMATION OR JUDICIAL PRECEDENTS, WHICH REQUIRES FOR FRESH CONSIDERATION BY THE ASSESSING OFFICER. WHILE DECIDING THE AFORESAID GROUNDS, IT H AS BEEN AVERRED IN THE MISCELLANEOUS APPLICATION, THE TRIBUNAL HAS OVERLOOKED THESE FACTS. THE ASSESSEE, THEREFORE, HAS CONTENDED THAT SINCE THE TRIBUNAL FA ILED TO ADJUDICATE ON THE ISSUES RAISED IN THE ABOVE MENTIONED GROUNDS THERE IS A MISTAKE APPARENT ON TH E FACE OF THE RECORD WHICH NEEDS RECTIFICATION. 4. THE LEARNED AR IN COURSE OF HEARING BEFORE US SUBMITTED THAT SO FAR AS THE ISSUE RELATING TO REDU CTION M.A. NOS. 151 & 97/HYD/2013. M/S VIRTUSA (INDIA) PVT. LTD. ==================== 3 OF COMMUNICATION CHARGES AND INSURANCE CHARGES ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA FROM THE EXPORT TURNOVER WITHOUT DEDUCTING THE SAME FROM THE TOTAL TURNOVER IS CONCERNED, THE ITAT, HYDERABAD BENCH IN ASSESSEES OWN CASE FOR THE AY 2003-04 IN ITA NO. 757/HYD/2006 HAD DECIDED THE ISSUE BY HOLDING THAT COMMUNICATION CHARGES AND INSURANCE CHARGES OUGHT TO BE REDUCED FROM THE EXPORT TURNOVER AND TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. THE LEARNED AR ALSO PLACED A COPY OF THE SAID ORDER BEFORE US. IT WAS CONTENDED BY THE LEARNED AR THAT THOUGH THE COORDINATE BENCH OF THE TRIBUNAL HAS DECIDED THE IS SUE IN THE AFORESAID MANNER AND THOUGH IT WAS ALSO BROU GHT TO THE NOTICE OF THE TRIBUNAL IN COURSE OF HEARING OF THE AFORESAID APPEAL BUT WHILE DECIDING THE ISSUE, THE TRIBUNAL HAS TOTALLY OVERLOOKED THE ORDER PASSED BY THE COORDINATE BENCH. THE LEARNED AR, THEREFORE, SUBMIT TED THAT NON-CONSIDERATION OF THE ORDER OF THE COORDINA TE BENCH ON IDENTICAL ISSUE CONSTITUTE A MISTAKE APPAR ENT ON THE FACE OF THE RECORD AS ENVISAGED U/S 254(2) O F THE ACT. IN SUPPORT OF SUCH CONTENTION, THE LEARNED AR RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF HONDA SIEL POWER PRODUCTS LTD. VS. CIT, [20 07] 295 ITR 466 (SC). 5. IN SO FAR AS THE ISSUE RAISED IN GROUND NO. 8 RELATING TO REIMBURSEMENT OF EXPENDITURE AMOUNTING TO RS. 33,96,032/- FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT IS CONCERNED , THE LEARNED AR ALSO ADVANCED SIMILAR ARGUMENT AS WA S M.A. NOS. 151 & 97/HYD/2013. M/S VIRTUSA (INDIA) PVT. LTD. ==================== 4 ADVANCED IN CASE OF THE ISSUE RAISED IN GROUND NO. 7 & (II). 6. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT THERE IS NO MISTAKE APPARENT ON THE FACE OF TH E RECORD IN THE ORDER PASSED BY THE TRIBUNAL WHICH REQUIRES RECTIFICATION. 7. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE IN ITS APPEAL RAISED THE FOLLOWING ISSUES IN GROUND NOS. 7 & 8 AND GROUND NO. (II). GROUND NO. 7: ERRED IN LAW AND ON FACTS IN CONSIDERING THE COMMUNICATION CHARGES AND INSURANCE CHARGES INCURRED BY THE APPELLANT AS ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA AND ACCORDINGLY UPHELD THE ACTION OF THE LEARNED ASSESSING OFFICER IN REDUCTION OF THE SAME FROM THE EXPORT TURNOVER FOR THE COMPUTATION OF DEDUCTION U/S 10A OF THE ACT FOR THE HYDERABAD UNIT. GROUND NO. 8: ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER TO REDUCE THE AMOUNT OF REIMBURSEMENT OF EXPENSES TO VIRTUSA CORPORATION, USA OF RS. 33,96,032/- FROM THE EXPORT TURNOVER FOR THE COMPUTATION OF DEDUCTION U/S 10A OF THE ACT FOR THE HYDERABAD UNIT. GROUND NO. (II): THE CIT(A) HAS ERRED IN HOLDING THAT IF THE (I) COMMUNICATION CHARGES OF RS. 2,39,47,853/- AND (II) INSURANCE CHARGES OF RS. 16,80,632/- WERE EXCLUDED FROM THE EXPORT TURNOVER, THE SAME HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER ALSO, WHEN SUCH AN ADJUSTMENT TO THE TOTAL TURNOVER IS NOT CONTEMPLATED IN THE PROVISIONS LAID DOWN BELOW SEC. 10A. M.A. NOS. 151 & 97/HYD/2013. M/S VIRTUSA (INDIA) PVT. LTD. ==================== 5 8. SO FAR AS THE ISSUES RAISED IN GROUND NO. 7 AND GROUND NO.II ARE CONCERNED, IT RELATES TO DEDUCTION OF COMMUNICATION AND INSURANCE CHARGES FROM THE EXPORT TURNOVER WITHOUT DEDUCTING THEM FROM TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. IT IS A FACT ON RECORD THAT FOR THE AY 2003-04, THE ITAT, HYDERABAD BENCH IN ASSESSEES OWN CASE IN ITA NO. 757/HYD/2006 DATED 29/02/2008 CONSIDERING IDENTICAL ISSUE HAS HELD THAT TELECOMMUNICATION CHARGES IS TO BE REDUCED FROM EXPORT TURNOVER AS WELL AS TOTAL TURNO VER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. THE AFORESAID DECISION OF THE COORDINATE BENCH THOUGH W AS CITED BEFORE THE TRIBUNAL AT THE TIME OF HEARING, HOWEVER, AS IT APPEARS, WAS NOT CONSIDERED WHILE DECIDING THE ISSUE IN THE IMPUGNED ORDER PASSED BY THE TRIBUNAL. THE HONBLE SUPREME COURT IN CASE OF HOND A SIEL POWER PRODUCTS LTD. (SUPRA) HELD THAT NON- CONSIDERATION OF AN ORDER OF THE COORDINATE BENCH AMOUNTS TO A MISTAKE APPARENT ON THE FACE OF THE RECORD AS ENVISAGED U/S 254(2) OF THE ACT. FOLLOWIN G THE RATIO LAID DOWN AS ABOVE BY THE HONBLE SUPREME COURT, WE RECTIFY THE MISTAKE BY DIRECTING THE ASSESSING OFFICER TO COMPUTE DEDUCTION U/S 10A OF T HE ACT BY REDUCING THE COMMUNICATION CHARGES AND INSURANCE CHARGES FROM EXPORT TURNOVER AS WELL AS T HE TOTAL TURNOVER. THE AFORESAID VIEW IS ALSO IN CONSO NANCE WITH THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CASE OF GEMPLUS JEWELLERY INDIA LTD., 330 ITR 175 AND ALSO SPECIAL BENCH DECISION OF THE CHENNAI TRIBUNAL IN CASE OF ITO VS SAKSOFT LTD (313 ITR AT 353). WE DIRECT ACCORDINGLY. M.A. NOS. 151 & 97/HYD/2013. M/S VIRTUSA (INDIA) PVT. LTD. ==================== 6 9. SO FAR AS THE ISSUE RAISED IN GROUND NO. 8 RELATING TO REDUCTION OF REIMBURSEMENT OF EXPENSES TO VIRTUSA CORPORATION, USA FROM EXPORT TURNOVER IS CONCERNED, SINCE THE SAME IS CO-RELATED TO THE MA FILED BY THE DEPARTMENT, WE WILL DEAL WITH THE SAME WHILE DECIDING THE SAID MA OF THE DEPARTMENT. MA NO. 97/H/13 BY THE DEPARTMENT 10. IN THIS M.A. THE DEPARTMENT HAS SOUGHT RECTIFICATION OF THE ORDER DATED 24/08/2012 PASSED BY THE TRIBUNAL (SUPRA) ON THE GROUND THAT GROUND NO. (II) AS RAISED BY THE DEPARTMENT IN ITS APPEAL IN ITA NO. 482/HYD/2011 WAS NOT ADJUDICATED BY THE TRIBUNAL WHILE DECIDING THE APPEAL. THE SAID GROUND NO. (II)I READS AS UNDER: THE CIT(A) ERRED IN HOLDING THAT HAVING NOT CONSIDERED THE (I) REIMBURSEMENT OF EXPENSES AT RS. 33,96,032/- AND (II) REIMBURSEMENT OF EXPENDITURE BY VIRTUSA CORPN., USA (RS. 3,81,47,701/-), VIRTUSA UK (P) LTD. (RS. 42,88,632/-) AND VIRTUSA (P) LTD., COLOMBO (RS. 2,57,09,133/-), AGGREGATING TO RS. 6,81,45,466/- AS PART OF THE EXPORT TURNOVER, THE SAME IS ALSO NOT INCLUDIBLE IN THE TOTAL TURNOVER. 11. ON A PERUSAL OF THE ORDER PASSED BY THE TRIBUNAL DATED 24/08/2012 (SUPRA), IT IS FOUND THAT WHILE DECIDING THE DEPARTMENTAL APPEAL, THE TRIBUNAL HAS RECORDED ITS FINDING IN PARAS 26 & 27 OF THE ORDER. HOWEVER, IT APPEARS THAT GROUND NO. (II) HAS NOT BEEN ADJUDICATED BY THE TRIBUNAL M.A. NOS. 151 & 97/HYD/2013. M/S VIRTUSA (INDIA) PVT. LTD. ==================== 7 WHILE DECIDING THE APPEAL. NON CONSIDERATION OF THE GROUND RAISED BY THE DEPARTMENT IS A MISTAKE APPARENT ON THE FACE OF THE RECORD, HENCE, WE RECTIFY THE SAME BY ADJUDICATING THE AFORESAID GROUND RAISED BY THE DEPARTMENT. 12. REVERTING BACK TO THE MERITS OF THE ISSUE AS RAISED IN THE AFORESAID GROUND OF THE DEPARTMENT, AS WELL AS GROUND NO. 8 RAISED BY THE ASSESSEE IT IS SEEN THAT WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT, THE ASSESSING OFFICER HAD REDUCED THE REIMBURSEMENT OF EXPENSES TO VIRTUSA CORPORATION, U.K., AMOUNTING TO RS. 33,96,032/- BY HOLDING THAT THE SAID AMOUNT HAS BEEN SHOWN AS REIMBURSEMENT WITH A VIEW TO ESCAPE RESTRICTION IN CLAUSE IV) TO EXPLANATION 2 TO SECTION 10A. HE FURTHER CONCLUDED THAT THE SAID AMOUNT CANNOT FORM PART OF THE EXPORT TURNOVER AND ACCORDINGLY REDUCED THE SAME FROM EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10A. THE ASSESSEE CHALLENGED THE SAME BEFORE THE CIT(A) BY CONTENDING THAT THE ASSESSEE HAD REIMBURSED ACTUAL COST INCURRED BY VIRTUSA CORPORATION IN ADDITION TO EXPENSES LIKE TRAVEL ETC., WHICH HAS ALSO BEEN FOUND TO BE WITHIN THE ARMS LENGTH BY TPO. IT WAS FURTHER CONTENDED THAT SINCE THE SAID EXPENSES ARE NOT INCURRED IN FOREIGN CURRENCY, IT SHOULD NOT HAVE BEEN REDUCED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE ACT. ALTERNATIVELY, IT WAS CONTENDED BY THE ASSESSEE THAT IF AT ALL IT IS TO B E M.A. NOS. 151 & 97/HYD/2013. M/S VIRTUSA (INDIA) PVT. LTD. ==================== 8 REDUCED FROM THE EXPORT TURNOVER IT SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER. THE CIT(A) AFTER CONSIDERING THE ISSUE HELD THAT THE ASSESSEE HAD NOT BEEN ABLE TO PROVE THAT THE REIMBURSEMENT OF EXPENSES DO NOT CONSTITUTE PART OF OTHER EXPENSES INCURRED FOR RENDERING TECHNICAL SERVICES OUTSIDE INDIA. HE, THEREFORE, HELD THAT SUCH EXPENSES HAS TO BE REDUCED FROM EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10A. THE CIT(A), HOWEVER, HELD THAT SINCE THE EXPENSES ARE IN THE NATURE OF REIMBURSEMENT, NO PROFIT ELEMENT IS EMBEDDED THEREIN AND, THEREFORE, THE SAME HAS TO BE REDUCED BOTH FROM EXPORT TURNOVER AND TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE ACT. THE CIT(A) ALSO TOOK SIMILAR VIEW IN RESPECT OF REIMBURSEMENT OF EXPENSES BY VIRTUSA CORPORATION, AT USA, UK, AND COLOMBO AGGREGATING TO RS. 6,81,44,566/-. BY HOLDING THAT IT SHOULD BE REDUCED BOTH FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE ACT. 13. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDER OF THE LOWER AUTHORITIES WITH REGARD TO THE AFORESAID ISSUE. WE HAVE ALSO EXAMINED THE STATUTORY PROVISIONS AS CONTAINED U/S 10A OF THE ACT. WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) AS IT IS IN CONSONANCE WITH THE RATIO LAID DOWN IN VARIOUS JUDICIAL PRECEDENTS AS REFERRED TO BY HIM IN HIS M.A. NOS. 151 & 97/HYD/2013. M/S VIRTUSA (INDIA) PVT. LTD. ==================== 9 ORDER. WHEN THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE AMOUNTS IN DISPUTE ARE IN THE NATURE OF REIMBURSEMENT, HENCE, SHOULD NOT FORM PART OF THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE ACT, THEN, THE SAME CANNOT ALSO FORM PART OF THE TOTAL TURNOVER FOR THE SAID PURPOSE. FURTHER, THE CIT(A) HAS RIGHTLY HELD THAT NO PROFIT ELEMENT IS EMBEDDED IN THE AFORESAID AMOUNTS. THEREFORE, THE DIRECTION OF THE CIT(A) TO REDUCE THE AFORESAID AMOUNTS FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT IS PERFECTLY IN ORDER AND REQUIRES NO INTERFERENCE. ACCORDINGLY, THE AFORESAID GROUND RAISED BY THE DEPARTMENT AS WELL AS GROUND NO. 8 OF THE ASSESSEE ARE DISMISSED. THUS, THE ORDER DATED 24/08/2012 PASSED BY THE TRIBUNAL (SUPRA) STANDS RECTIFIED TO THE EXTENT INDICATED ABOVE. 14. IN THE RESULT, BOTH THE MAS FILED BY THE ASSESSEE IN MA NO. 151/H/13 AND BY THE REVENUE IN MA NO. 97/HYD/13 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/09/2013. SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED 16 TH SEPTEMBER, 2013 M.A. NOS. 151 & 97/HYD/2013. M/S VIRTUSA (INDIA) PVT. LTD. ==================== 10 KV COPY FORWARDED TO: 1. VIRTUSA (INDIA) PVT. LTD., 6-3-1192, 1 ST FLOOR, MY HOME TYCOON, BEGUMPET, HYDERABAD. 2. DCIT, CIRCLE 3(3), HYDERABAD 3. THE CIT(A)-IV, HYDERABAD. 5. THE CIT CONCERNED 6. THE DR, ITAT, HYDERABAD