Appeal details
Counselvise Citation
[2023] 101 COUNSELVISE.COM (IT) 0487 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 month(s)
Appellant
Respondent
Appeal Type
Miscellaneous Application
Pronouncement Date
28-05-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
B
Next Hearing Date
25-05-2023
Assessment Year
2011-2012
Appeal Filed On
28-12-2022
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER M.P. No. 17/Bang/2023 (in IT(TP)A No. 835/Bang/2016) Assessment Year : 2011-12 M/s. EIT Services India Pvt. Ltd., Formerly known as Hewlett Packard Global Soft Pvt. Ltd., No. 39, 40, Electronic City, Phase – I, Bangalore – 560 100. PAN: AAACD4078L Vs. The Assistant Commissioner of Income Tax, Circle 3 (1)(2), Bangalore. APPELLANT RESPONDENT Assessee by : Shri Padam Chand Khincha, CA Revenue by : Shri Pavan Kumar, Addl. CIT(DR) Date of Hearing : 26-05-2023 Date of Pronouncement : 29-05-2023 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present miscellaneous petition arises out of order dated 03.06.2022 filed by the assessee seeking certain typographic mistakes. Page 2 M.P. No. 17/Bang/2023 (in IT(TP)A No. 835/Bang/2016) 2. The first issue raised by the Ld.AR is regarding the reduction of expenditure incurred in foreign currency from the export turnover while computing deduction u/s. 10A/10B. It is the contention of the Ld.AR that these expenses need not be excluded from the export turnover by relying on the decision of Hon'ble Karnataka High Court which has been upheld by Hon’ble Supreme Court in case of CIT vs. Mphasis Ltd. reported in (2020) 113 taxmann.com 74. 3. The Ld.AR submitted that Hon’ble Supreme Court has upheld the proposition that the foreign currency expenditure incurred for providing software development services outside India cannot be excluded from export turnover. He thus emphasised that this Tribunal has committed an error by not accepting the contentions of the assessee that has been accepted by the Hon’ble Supreme Court in case of CIT vs. Mphasis Ltd. (supra). The Ld.DR however supported the order passed by this Tribunal. We have perused the submissions advanced by both sides in the light of records placed before us. 4. We note that the arguments of the Ld.AR has been recorded and considered in the impugned order at paras 3.7-3.8. We note that the Tribunal has directed the Ld.AO to compute the deduction eligible in the hands of the assessee u/s. 10A in the light of the principles laid down by Hon’ble Supreme Court in case of CIT vs. HCL Technologies Ltd. reported in (2018) 93 taxmann.com 33. 5. The issue considered in CIT vs. Mphasis Ltd. (supra) by Hon’ble Supreme Court consists of two items: Page 3 M.P. No. 17/Bang/2023 (in IT(TP)A No. 835/Bang/2016) a) The first observation of the Hon’ble Supreme Court is in respect of the expenditure pertaining to providing of software development services outside India in foreign currency should be excluded from the export turnover for the purposes of computation of deduction and b) The second issue pertains to the expenditure incurred in foreign currency by assessee on account of telecommunication expenses, freight and insurance etc. whether to be included in the total turnover for the purposes of computation of deduction u/s. 10B. 5.1 Both these aspects have been dealt with by Hon’ble Supreme Court independently. In para 2 of the order of Hon'ble Karnataka High Court, that was under consideration before the Hon’ble Supreme Court (supra), following are the observations: “However the said export turnover does not include freight, telecommunication charges or insurance attributable to the delivery of computer software outside India or expenses if any incurred in foreign exchange in providing technical service outside India. In other words out of the said export turnover the following amounts have to be deducted; a. freight; b. telecommunication charges; c. insurance attributable to the delivery of computer software outside India; d. expenses, if any, incurred in foreign exchange in providing technical services outside India.” 5.2 Hon’ble Supreme Court in case of CIT vs. Mphasis Ltd. (supra) held that since the services rendered were in respect of software development or production of computer software which are technical in nature, the said expenses incurred in foreign currency for providing technical services outside India, cannot be excluded from the export turnover. Page 4 M.P. No. 17/Bang/2023 (in IT(TP)A No. 835/Bang/2016) 5.2.1 The next part of the order deals with such expenditure which do not form part of software development / production expenses and therefore has been held to be not includable in the export turnover for the purposes of computing deduction u/s. 10A/10B. Hon’ble Supreme Court in case of CIT vs. Mphasis Ltd. (supra) relied on the decision of its own bench in case of CIT vs. Tata Elxsi Ltd. reported in (2012) 17 taxmann.com 100. 5.3 In another decision, Hon’ble Supreme Court in case of CIT vs. HCL Technologies Ltd.(supra) that has been relied by this Tribunal in considering this issue has in great detail dealt with the intention of the legislature in modifying the language used and has held that a strict literal construction is not intended where it would lead to an absurd result. Hon’ble Supreme Court reiterated that equity and taxation are often strangers and an attempt should be made that they do not remain so always. Hon’ble Supreme Court further held that, if a construction results in equality rather than injustice, then such construction should be preferred to the liberal construction. 5.4 In the instant case, if the expenditure is sought to be included by the assessee in the export turnover and not in the total turnover then it would give rise to inadvertent, unlawful meaningless and illogical results. Therefore very cautiously Hon’ble Supreme Court held that, what cannot be included in the denominator should be excluded from the numerator. 5.5 Similar is the view taken by Hon’ble Supreme Court in case of CIT vs. Mphasis Ltd. (supra), while approving the decision of Page 5 M.P. No. 17/Bang/2023 (in IT(TP)A No. 835/Bang/2016) Hon’ble Karnataka High Court in case of CIT vs. Mphasis Ltd. reported in (2016) 74 taxmann.com 274. We do not find any infirmity in the order of this decision in following the above decision by Hon’ble Supreme Court and directing the Ld.AO to compute the deduction u/s. 10A in the light of the principles laid down therein. Accordingly, this issue raised by the assessee stands dismissed. 6. The Ld.AR submitted that the next issue raised in the present miscellaneous petition is in respect of additional ground no. 11b has not been adjudicated. He submitted that the additional ground no. 11b was raised to restrict the TP adjustment only with respect to the value of the international transaction alone. The assessee has filed a withdrawal letter dated 11.01.2022 wherein all the issues pertaining to transfer pricing adjustment with the AE has been considered in the MAP and therefore the same stood withdrawn which has been recorded by this Tribunal in para 2.9. In our opinion there cannot be any element that could have not been considered while computing the margin by the competent authorities under MAP in respect of the transactions with US entity. We therefore do not find any merit in this issue raised by assessee in the present M.P. 7. The next issue raised by assessee is in respect of certain typographic mistakes that has crept in paras 2.12 – 2.16 at pages 7-8 of the impugned order. It has been submitted that these paras pertaining to adopting the rate agreed between the competent authorities for determining the margin in respect of Page 6 M.P. No. 17/Bang/2023 (in IT(TP)A No. 835/Bang/2016) the non-US AE transaction. The Ld.AR submitted that the clarification may be given that these paras pertain to non-US AE transaction. He suggested that in these paras wherever non-AE segment is mentioned, it may be clarified to be non-US AE segment. On perusal of the records, we agree with the submissions of the assessee and therefore hold that wherever the phrase “non AE segment / non US portion has been mentioned, the same shall be read as under: “non US AE segment”. 8. The rest of the contents of order dated 03/06/2022 passed by this Tribunal shall remain unchanged. In the result, the M.P. filed by the assessee stands partly allowed. Order pronounced in open court on 29 th May, 2023. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 29 th May, 2023. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore
AI Insights
The case involves M/s. EIT Services India Pvt. Ltd., formerly known as Hewlett Packard Global Soft Pvt. Ltd., which filed a miscellaneous petition seeking corrections in the tribunal's earlier order and contesting the exclusion of certain foreign currency expenditures from export turnover in the computation of deductions under sections 10A and 10B of the Income Tax Act. The tribunal considered the legal precedents and submissions from both the assessee and the revenue, ultimately dismissing the substantive claims but allowing minor typographical corrections in the order.
