M/s Seven Hills Business Solutions Limited, Hyderabad V. ACIT, Circle -3(4), Hyderabad

MA 186/HYD/2012

• Counselvise Citation: [2012] 124 COUNSELVISE.COM (IT) 7362 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 31-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 05-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIDISHA KARLA
• Assessee Lawyers: P MURALI MOHAN
• Keywords: Rectification of order; Reasonable cause; Deemed export
• Section: 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SRI SAKTIJIT DEY, JUDICIAL MEMBER M.A. NO.186/HYD/12 ASST .YEAR 2005-06 (IN ITA NO.414/H/12 M/S. SEVEN HILLS BUSINESS SOLUTIONS, ACIT, CIR-3(1) HYDERABAD. V- HY DERABAD. (PAN:AAECS 1694 K) . (APPLICANT) (RESPONDENT ) APPLICANT BY : SHRI P. MURALI MOHAN RESPONDENT BY : SMT. VIDISHA KARLA (DR) DATE OF HEARING: 16-11-2012 DATE OF PRONOUNCEMENT: 31-12-2 012. O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: BY THIS MISC. APPLICATION, THE ASSESSEE SEEKS RECTIFICATION OF CERTAIN FINDINGS OF THE ORDER DATED 11 -6-2010 OF THE TRIBUNAL PASSED IN ITA NO.414/HYD/2009 PERTAINING TO THE ASSESSMENT YEAR 2005-06. 2. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE RAISED A GROUND BEFORE THE TRIBUNAL THAT THE CI T (A) ERRED IN DIRECTING THE AO TO EXCLUDE US BRANCH SALES FR OM THE M.A.NO186 OF 2012 SEVEN HILLS BUSINESS SOLUTIONS, HYD. ======================= 2 TOTAL TURNOVER AS WELL AS FROM THE EXPORT TURNOVER WH ILE COMPUTING THE DEDUCTION U/S 10B OF THE ACT. THE TRIBUNA L WHILE DECIDING THIS ISSUE GAVE A FINDING THAT IT SHOULD BE EX CLUDED FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TU RNOVER AND THE ASSESSEE IS NOT ENTITLED FOR BENEFIT OF SECTION 10B ON THE BRANCH SALES AND IT IS TO BE EXCLUDED BOTH FROM EXPORT TURNOVER AS WELL AS FROM TOTAL TURNOVER. ACCORDING TO THE LEAR NED AR, THERE IS NO NECESSITY OF PHYSICALLY BRINGING BACK ACTUAL R ECEIPTS TO INDIA. THE ASSESSEE HAS DEPOSITED THE PROCEEDS OF FOREI GN BRANCH SALES IN A SEPARATE BANK ACCOUNT WITH THE APPROVA L OF RBI WHICH IS IN COMPLIANCE OF EXPLANATION 2 TO SECTION 10 A WHICH STATES THE SALE PROCEEDS REFERRED TO IN THIS SUB SE CTION SHALL BE DEEMED TO HAVE BEEN RECEIVED IN INDIA WHERE SUCH SALE PROCEEDS ARE CREDITED TO A SEPARATE ACCOUNT MAINTAINE D FOR THE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSIDE INDIA W ITH THE APPROVAL OF RBI. IT IS FURTHER SUBMITTED THAT THE SUBSTANTIAL PART OF WORK IS CARRIED OUT IN INDIA FOR TH E SALES MADE IN FOREIGN BRANCH AND ONLY ON SITE DEVELOPMENT I S CARRIED OUT IN BRANCH, WHICH IS ALSO TO BE INCLUDED IN EXPORT SA LE AS PER EXPLANATION 3 TO SECTION 10A STATED AS FOR THE REMOVA L OF DOUBTS, IT IS HEREBY DECLARED THAT THE PROFITS AND GA INS DERIVED FROM THE ON SITE DEVELOPMENT OF COMPUTER SOFTWARE INCL UDING SERVICES FOR DEVELOPMENT OF THE SOFTWARE OUTSIDE INDIA SH ALL BE DEEMED TO BE THE PROFITS AND GAINS DERIVED FROM THE EXPORT OF COMPUTER SOFTWARE OUTSIDE INDIA. THE LEARNED AR FURTH ER SUBMITTED THAT THE SALES ARE BILLED FROM BRANCH JUST FO R THE SAKE OF CONVENIENCE REGARDING QUICK REALIZATION. THERE FORE, IT SHOULD BE CONSIDERED AS EXPORT SALES. ALTERNATIVELY, TH E AMOUNT WHICH IS SHOWN AS BRANCH SALE IS ONLY BRANCH M.A.NO186 OF 2012 SEVEN HILLS BUSINESS SOLUTIONS, HYD. ======================= 3 ADJUSTMENT ACCOUNT. AS THE BRANCH IS ONLY A LIAISON OFFI CE ACTING AS INTERMEDIARY BETWEEN THE INDIAN PRINCIPAL C OMPANY AND FOREIGN CUSTOMER, THE BRANCH SALES MAY BE CONSIDERED A S HEAD OFFICE SALES AND HENCE CAN BE CONSIDERED AS EXPORT SAL ES. ALTERNATIVELY, THE AMOUNT WHICH IS SHOWN AS BRANCH SALE I S ONLY BRANCH ADJUSTMENT ACCOUNT AS THE BRANCH IS ONLY A LIAISON O FFICE ACTING AS INTERMEDIARY BETWEEN THE INDIAN PRINCIPAL C OMPANY AND FOREIGN CUSTOMER, THE BRANCH SALES MAY BE CONSIDERED A S HEAD OFFICE SALES AND HENCE CAN BE CONSIDERED AS EXPORT SAL ES. IN SUPPORT HIS CONTENTION, THE LEARNED AR HAS RELIED ON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF INTERRA S OFTWARE INDIA PVT. LTD. VS. CIT (ITA NO.501 OF 2008 AND ITA NO.160 OF 2009. THE LEARNED AR RELIED ON THE ORDER OF THE 3 RD MEMBER CASE IN THE CASE OF ZYLOG SYSTEMS LIMITED VS. INCOME-TAX OFFICER, COMPANY WARD-III (2011) (128 ITD 105) (SB) WHEREIN IT HELD THAT AO IS NOT JUSTIFIED IN EXCLUDING A PART OF EXPORT PROCEEDS RETAINED BY THE ASSESSEE ABROAD IN ACCORDANCE WITH THE RBI GUIDELINES WHILE COMPUTING THE DEDUCTION U/S 10 B OF IT ACT. IN VIEW OF THE ABOVE, THE LEARNED AR FOR THE ASSE SSEE PRAYED FOR RECALLING THE ORDER OF THE TRIBUNAL IN T HE INSTANT CASE AND RECTIFY THE SAME IN ACCORDING WITH THE CLARIFICAT IONS AND SUBMISSIONS MADE IN HIS PETITION. 3. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THE ISSUE OF SPECIAL BENCH IS NOTHING TO DO WITH THE CASE UNDE R CONSIDERATION WITH REGARD TO RETENTION OF THE PART OF EXPORT PROCEEDS ABROAD IN ACCORDANCE WITH RBI GUIDELINES WHICH IS ENTITLED FOR DEDUCTION U/S 10B OF THE ACT. THE ASSESSEE S CASE M.A.NO186 OF 2012 SEVEN HILLS BUSINESS SOLUTIONS, HYD. ======================= 4 IS WITH REGARD TO THE BRANCH SALES AND THEREFORE THE ASSE SSEE IS NOT ENTITLED FOR DEDUCTION U/S 10B OF THE ACT. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF RIVAL PARTIES A ND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE CONTENDED TH AT BRANCH SALES SHOULD BE CONSIDERED AS EXPORTS. IN OUR OPINI ON, THE TERM EXPORTS OUT OF INDIA HAS NOT BEEN DEFINED IN THE ACT. THE MAIN AND SIMPLE MEANING OF THE TERM EXPORT OUT OF INDIA WOULD ENTITLE THE TRANSFER OF GOODS OUT OF TERRITORY OF INDIA. THE GOODS MUST PHYSICALLY MOVE OUT OF INDIA AT LEAST IN SO FAR AS TANGIBLE GOODS ARE CONCERNED. THE LEARNED COUNSEL FOR THE ASSESSEE URGED BEFORE US THE CONCEPT OF DEEMED EXPORTS FROM THE IMPORT AND EXPORT POLICIES. WE ARE OF THE O PINION THAT CONCEPT OF DEEMED EXPORTS IN EXPORT POLICY, CANNOT BE IMPORTED INTO THE IT ACT UNLESS THE SAID ACT SPECIFICALLY SA YS SO. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THERE IS NO NEED FOR THE GOODS TO CROSS THE BOUNDARY OF INDIA SO AS TO CONSTITUTE EXPORTS OUT OF INDIA, IS ALSO NOT TENABLE. SECTION 10B SPEAKS ONLY OF EXPORTS OUT OF INDIA, IRRESPECTIVE OF THE PURCHASES. THE FACTS REMAIN THAT THE GOODS HAVE NOT BEEN PHYSICALLY EXPORTED OUT OF INDIA AND THEREFORE THE IM PORTANT AND NECESSARY CONDITION PRECEDENT FOR CLAIMING DEDUCTION U/S 10B HAS NOT BEEN SATISFIED. THE JUDGMENT CITED BY THE LEARNED AR IS WITH REGARD TO INCURRING OF EXPENDITURE IN FORE IGN CURRENCY ON COMPUTER SOFTWARE DEVELOPMENT ON SITE AT CLIE NTS PLACE OUTSIDE INDIA AND WITH REGARD TO THIS, THE SPECI AL BENCH HELD THAT IT SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVER FOR COMPUTING DEDUCTION U/S 10B OF THE ACT. IN THE PRESENT CASE, WE ARE DEALING WITH BRANCH SALES OUTSIDE INDIA AND NOT ON SITE M.A.NO186 OF 2012 SEVEN HILLS BUSINESS SOLUTIONS, HYD. ======================= 5 DEVELOPMENT EXPENDITURE OUTSIDE INDIA. THEREFORE, T HAT JUDGMENT IS NOT CONSIDERED BY US. BECAUSE THE ORDER IS NO T IN FAVOUR OF THE ASSESSEE, IT CANNOT BE SAID THERE IS AN ERRO R APPARENT FROM RECORD. THE TRIBUNAL AFTER TAKING DUE CARE AND CONSIDERING ALL RELEVANT MATERIAL ON RECORD, TAKEN A CO NCIOUS DECISION AND DECIDED THE ISSUE AGAINST THE ASSESSEE. THE SCOPE AND AMBIT OF APPLICATION OF SECTION 254(2) IS VERY LIM ITED. THE SAME IS RESTRICTED TO RECTIFICATION OF MISTAKES APPARENT FR OM THE RECORD. WE SHALL FIRST DEAL WITH THE QUESTION OF THE P OWER OF THE TRIBUNAL TO RECALL AN ORDER IN ITS ENTIRETY. RECA LLING THE ENTIRE ORDER OBVIOUSLY WOULD MEAN PASSING OF A FRESH OR DER. THAT DOES NOT APPEAR TO BE THE LEGISLATIVE INTENT. T HE ORDER PASSED BY THE TRIBUNAL UNDER S. 254(1) IS THE EFFECTIVE ORDER SO FAR AS THE APPEAL IS CONCERNED. ANY ORDER PASSED UNDER S. 254(2) EITHER ALLOWING THE AMENDMENT OR REFUSING TO AMEND GETS MERGED WITH THE ORIGINAL ORDER PASSED. THE ORDER AS AMENDED OR REMAINING UN-AMENDED IS THE EFFECTIVE ORDE R FOR ALL PRACTICAL PURPOSES. AN ORDER UNDER S. 254(2) DOES NOT HA VE EXISTENCE DE HORS THE ORDER UNDER S. 254(1). RECALLING OF THE ORDER IS NOT PERMISSIBLE UNDER S. 254(2). RECALLING OF AN ORDER AUTOMATICALLY NECESSITATES REHEARING AND RE-ADJUDICATION OF THE ENTIRE SUBJECT-MATTER OF APPEAL. THE DISPUTE NO LONGE R REMAINS RESTRICTED TO ANY MISTAKE SOUGHT TO BE RECTIFIED. POWER TO RECALL AN ORDER IS PRESCRIBED IN TERMS OF RULE 24 OF TH E ITAT RULES, 1963, AND THAT TOO ONLY IN CASE WHERE THE ASSESSEE SHOWS THAT IT HAD A REASONABLE CAUSE FOR BEING ABSENT AT A TIME WHEN THE APPEAL WAS TAKEN UP AND WAS DECIDED EX-PARTE. JUDGED IN THE ABOVE BACKGROUND THE ORDER PASSED BY THE TRIBUNAL IS INDEFENSIBLE. M.A.NO186 OF 2012 SEVEN HILLS BUSINESS SOLUTIONS, HYD. ======================= 6 5. THE WORDS USED IN S. 254(2) ARE SHALL MAKE SUCH AMENDMENT, IF THE MISTAKE IS BROUGHT TO ITS NOTICE. C LEARLY, IF THERE IS A MISTAKE, THEN AN AMENDMENT IS REQUIRED TO BE CARRIED OUT IN THE ORIGINAL ORDER TO CORRECT THAT PART ICULAR MISTAKE. THE PROVISION DOES NOT INDICATE THAT THE TRIB UNAL CAN RECALL THE ENTIRE ORDER AND PASS A FRESH DECISION. THA T WOULD AMOUNT TO A REVIEW OF THE ENTIRE ORDER AND THAT IS N OT PERMISSIBLE UNDER THE IT ACT. THE POWER TO RECTIFY A M ISTAKE UNDER S. 254(2) CANNOT BE USED FOR RECALLING THE ENTIRE ORDER. NO POWER OF REVIEW HAS BEEN GIVEN TO THE TRIBUNAL UN DER THE IT ACT. THUS, WHAT IT COULD NOT DO DIRECTLY COULD NOT BE ALLOWED TO BE DONE INDIRECTLY. THE TRIBUNAL METICULOUSLY MENTION ED ARGUMENTS OF THE ASSESSEES COUNSEL, THE POINTS RAISED, RELEVANT CASE-LAW RELIED ON BY THE ASSESSEE AND AFTER CONSIDERING THE ARGUMENTS OF THE ASSESSEES COUNSEL PASSED THE ORDER. 6. BEING SO, THE ASSESSEE HAS NOT FULFILLED THE CONDITION S LAID DOWN IN SECTION 10B OF THE ACT ON THE ISSUES IN DISPUTE. AS SUCH, THE ASSESSEE WANTS TO REVIEW THE ORDER OF THE TRIBUN AL IN THE INSTANT CASE U/S 254(2) OF THE ACT WHICH IS NOT PERM ISSIBLE UNDER ITAT RULES. AFTER CONSIDERING THE TOTALITY OF FA CTS AND THE CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE ARGUMENTS BY THE LEARNED AR OF THE ASSESSEE ARE DEVOID O F ANY MERIT AND HENCE THE SAME ARE REJECTED. 7. IN THE RESULT, THE MISC. APPLICATION FILED BY THE ASSESSEE STANDS DISMISSED. M.A.NO186 OF 2012 SEVEN HILLS BUSINESS SOLUTIONS, HYD. ======================= 7 ORDER WAS PRONOUNCED IN THE COURT ON 31-12-2012. SD/- SD/- (SAKTIJIT DEY) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER. DATED: 31-12-2012. COPY FORWARDED TO: 1. M/S SEVEN HILLS BUSINESS SOLUTIONS PVT. LTD., Q-1, A -1, 10 TH FLOOR, CYBER TOWERS, HITECH CITY, MADHAPUR, HYDERABAD. 2. DCIT, CIR-3(10),HYDERABAD. 3 4. 5 JMR* CIT (A)- IV, HYDERABAD. CIT CONCERNED, HYDERABAD. DR, ITAT, HYDERABAD. M.A.NO186 OF 2012 SEVEN HILLS BUSINESS SOLUTIONS, HYD. ======================= 8 THE SUBSTANTIAL PART OF WORK CARRIED OUT IN INDIA FOR THE SALES MADE IN FOREIGN BRANCH AND ONLY ON SITE DEVELOPMENT I S CARRIED OUT IN BRANCH, WHICH IS ALSO TO BE INCLUDED IN EXPORT SALE AS PER EXPLANATION 3 TO THE SECTION 10A STATED AS FOR THE REMOVAL OF DOUBTS. IT IS HEREBY DECLARED THAT THE PROFITS AND GAINS DERIVED FROM THE ON SITE DEVELOPMENT OF COMPUTER SOFTW ARE INCLUDING SERVICES FOR DEVELOPMENT OF THE SOFTWARE OUTSID E INDIA SHALL BE DEEMED TO BE IN THE PROFITS AND GAINS DERIVED FROM THE EXPORT OF COMPUTER SOFTWARE OUTSIDE INDIA. T HE LEARNED AR FURTHER SUBMITTED THAT THE SALES ARE BILLED FROM BRANCH JUST FOR THE SAKE OF CONVENIENCE REGARDING QUICK REALIZATION. THEREFORE, IT SHOULD BE CONSIDERED AS EXP ORT SALES. ALTERNATIVELY, THE AMOUNT WHICH IS SHOWN AS BRANCH SALE I S ONLY BRANCH ADJUSTMENT ACCOUNT. AS THE BRANCH IS ONLY A LIAISO N OFFICE ACTING AS INTERMEDIARY BETWEEN THE INDIAN PRINCI PAL COMPANY AND FOREIGN CUSTOMER, THE BRANCH SALES MAY BE CONSIDERED AS HEAD OFFICE SALES AND HENCE CAN BE CONSIDERED A S EXPORT SALES. ALTERNATIVELY, THE AMOUNT WHICH IS SHOWN A S BRANCH SALE IS ONLY BRANCH ADJUSTMENT ACCOUNT AS THE BRAN CH IS ONLY A LIAISON OFFICE ACTING AS INTERMEDIARY BETWEEN TH E INDIAN PRINCIPAL COMPANY AND FOREIGN CUSTOMER, THE BRANCH SALES MAY BE CONSIDERED AS HEAD OFFICE SALES AND HENCE CAN BE CONSIDE RED AS EXPORT SALES. IN SUPPORT HIS CONTENTION, THE LEARNED AR HAS RELIED ON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF INTERRA SOFTWARE INDIA PVT. LTD. VS. CIT (ITA NO.501 OF 2008 AND ITA NO.160 OF 2009.