Income Tax Appellate Tribunal - Hyderabad
Qvantel Software Solutions Ltd., Hyd, ... vs Ito, Ward-16(1), Hyd, Hyderabad on 10 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA No. 824/Hyd/2016
Assessment Year: 2010-11
Qvantel Software Solutions vs. Income-tax Officer,
Ltd., Hyderabad. Ward - 16(1), Hyderabad.
PAN - AAACQ 1480 D
(Appellant) (Respondent)
Assessee by : Shri D. Ranga Rao &
Smt. K. Leela Krishna Mohan
Revenue by : Smt. Esther N. Hanghal
Date of hearing : 18-01-2017
Date of pronouncement : 10-02-2017
O RDE R
PER S. RIFAUR RAHMAN, A.M.:
This appeal filed by the assessee is directed against the order of CIT(A) - 4, Hyderabad, dated 18/03/2016 for AY 2010-11.
2. Briefly the facts of the case are that the assessee company is engaged in the business of software development service, filed its return of income for the AY 2010-11 declaring total income at Rs. Nil and book profit u/s 115JB was admitted at Rs. 50,16,122/-. The AO completed the assessment by assessing the income at Rs. 14,66,185/- under normal provisions after making addition u/s 10A of Rs. 31,26,509/- and assessed book profit u/s 115JB at Rs. 50,16,122/-.
2.1 As the assessee is in the business of software development services, during the previous year 2009-10, the assessee company has exported the software services to various customers and made 2 ITA No. 824/H/16 Qvantel Software Solutions Ltd.
export turnover for a value of Rs. 4,41,20,060/- for which export invoices were raised and sale proceeds for such exports were received in India by the assessee company in convertible foreign exchange for Rs. 4,13,65,229/- within a period of six months from the end of the previous year as prescribed in section 10A(3) of the Act.
2.2 The assessee company has also obtained the foreign inward remittance certificate (FIRCs) from banks for the above and sale proceeds and submitted the copies of FIRCs to the AO.
2.3 The AO while passing the order, has not considered Rs. 1,07,63,562/- as export turnover because of the reason that the FIRCs contain the nature of remittance as 'consultancy fee from client' or 'software consultancy free from client'. The details of FIRCs are as follows:
Sl.No. FIRC Sl. No. Amount (Rs.)
1. 663428 37,86,348
2. 680109 36,62,558
3. 712122 12,81,071
4. 721192 20,96,585
Total 1,07,63,562
The AO has excluded the above mentioned amounts from the export turnover without considering the agreements with customers, purchase orders from customers, export invoices raised and collection of sale proceeds. The AO has not considered the above turnover as export turnover while completing the assessment.
2.4 The assessee company has incurred Rs. 5,66,628/- towards internet charges during the previous year 2009-10. The AO has excluded the internet charges from the above said export turnover. The assessee has incurred the internet charges for the day to day operations and performing the exports of software services. Internet charges are the integral part of the business of assessee company.
3 ITA No. 824/H/16Qvantel Software Solutions Ltd.
3. On appeal before the CIT(A), the CIT(A) confirmed the action of the AO.
4. Aggrieved by the order of the CIT(A), the assessee is in appeal before us raising the following grounds of appeal:
" 1. The Ld. Commissioner of Income Tax (Appeals) was erred in confirming the exclusion of Rs.1,07,63,562/- from the Export Turnover while computing the deduction under section 10A despite of the fact that the amount was received towards exports of software / software services.
2. The Ld. Commissioner of Income Tax (Appeals) was erred in confirming the exclusion of intemet and communication charges ofRs.5,66,628/- which were not incurred in convertible foreign exchange from the Export Turnover while computing the deduction under section 10A."
5. As regards ground No. 1, the ld. AR submitted that the AO has excluded the amount of Rs. 1,07,63,562/- from the export turnover treating the same as consultancy fee from client/software consultancy fee from client, as mentioned in the FIRCs, without considering the agreements with customers, purchase orders from customers, export invoices raised and collection of sale proceeds, softex forms submitted to Software Technology Parks of India (STPI) and did not consider as export turnover.
6. The ld. DR, on the other hand, relied on the orders of revenue authorities.
7. Considered the rival submissions and perused the material facts on record. It is observed that the AO did not consider the receipts totaling Rs. 1,07,63,562/- as export sale proceeds and not considered for 10A exemption on the ground that the Foreign Inward Remittance Certificates (FIRCs) contain the nature of remittance as "consultancy fee from client" or "software consultancy fee from client". In this connection, the ld. AR of the assessee invited our attention to the paper book at pages 2 to 25 wherein invoice copies along with export clearance certificates from STPI are placed, wherein it was clearly 4 ITA No. 824/H/16 Qvantel Software Solutions Ltd.
mentioned under the specification column that the assessee has provided software services. He contended that these copies have been filed before the AO, but, he did not consider the same. In our opinion, STPI is an autonomous body which functions under Ministry of Communication & Information Technology, which is certifying body for export of services. Assessee has filed these certificates to claim that these are genuine export of services. We, therefore, remit the issue to the file of the AO with a direction to examine the claim of the assessee and allow the same in accordance with law after providing reasonable opportunity of being heard to the assessee. Thus, this ground of appeal is allowed for statistical purposes.
8. As regards ground No. 2, the ld. AR submitted that the issue in dispute is squarely covered by the decisions of coordinate benches of Hyderabad ITAT. He relied on the following decisions:
1. ACIT Vs. Microsoft Global Services Centre P.Ltd., ITA No. 2124/Hyd/2010, order dated 18/05/2012.
2.M/s Mehra Brothers Vs. ITO, ITA No. 508/LKW/12, order dated 28/11/2014.
9. Ld. DR, on the other hand relied on the orders of revenue authorities.
10. Considered the rival submissions and perused the material facts on record. The Hon'ble Courts and the coordinate benches of ITAT have consistently held that the internet charges have to be excluded both from the export turnover as well as from the total turnover while computing deduction u/s 10A of the Act. The Hon'ble Bombay High Court in case of CIT vs. Gem Plus Jewellery (330 ITR 175) as well as different Benches of Tribunal including ITAT, Chennai Bench (SB) in the case of ITO vs. Sak Soft (313 ITR (AT) 853) have held that communication charges attributable directly to the export of article or thing outside India has to be excluded both from export turnover as well as total turnover while computing exemption u/s 10A of the Act. In view of the above, we set aside the order of the CIT(A) and direct 5 ITA No. 824/H/16 Qvantel Software Solutions Ltd.
the AO to exclude the internet charges of Rs. 5,66,628/- from the export turnover as well as total turnover while computing 10A deduction. Accordingly, the ground raised by the assessee is allowed.
8. In the result, appeal of the assessee is partly allowed for statistical purposes.
Pronounced in the open court on 10 th February, 2017.
Sd/- Sd/-
(D. MANMOHAN) (S. RIFAUR RAHMAN)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, Dated: 10 th February, 2017
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Copy to:-
1) Qvantel Software Solutions Ltd., Door No. 1-66/1/RI/08/8, 12 th Floor, Ramky Grandiose, Ramky towers, Gachibowli, Hyderabad - 500 082, Telangana
2) ITO, Ward - 16(1), Hyderabad.
3) CIT(A) - 4, Hyderabad.
4) Pr. CIT - 4 , Hyd.
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File