Income Tax Appellate Tribunal - Chennai
Computer Sciences Corporation India ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A' CHENNAI
Before Shri N. S. Saini, Accountant Member and
Shri George Mathan, Judicial Member
.....
I.T.A. No. 660/Mds/2011
Assessment Year : 2002-03
The Assistant Commissioner of M/s. Covansys (India) Pvt. Ltd.
Income-tax, Circle-I(3), v. (Now known as M/s. Computer
Chennai. Sciences Corporation India Pvt.
Ltd.), Unit 13, Block 2,
SDF Building, MEPZ,
Tambaram, Chennai-600 045.
[PAN : AAACC1351M]
AND
I. T. A. No. 707/Mds/2011
Assessment year : 2002-03
M/s. Computer Sciences Corporation v. The Assistant Commissioner of
India Private Ltd., Unit 13, Block 2, of Income-tax, Circle-I(3),
SDF Building, MEPZ, Tambaram, Chennai.
Chennai-600 045.
(Appellants) (Respondents)
Department by : Shri Sriram Bharathan, CIT-DR
and Shri Shaji P. Jacob, Sr. DR
Assessee by : Shri R. Vijayaraghavan,
Advocate
Dates of Hearing : 15-12-2011 & 21-12-2011
Date of Pronouncement : 23-12-2011
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I.T.A. No.660 & 707/M/11
ORDER
PER GEORGE MATHAN, JUDICIAL MEMBER : ITA No. 660/Mds/2011 is an
appeal filed by the Revenue and ITA No. 707/Mds/2011 is an appeal filed by the assessee against the order of the learned CIT(Appeals)-III, Chennai in ITA No. 140/07-08/A.III dated 11-01-2011 for the assessment year 2002-03.
2. Shri R. Vijayaraghavan, Advocate represented on behalf of the assessee and Shri Sriram Bharathan, learned CIT-DR represemnted on behalf of the Revenue.
3. In the Revenue's appeal, the Revenue has raised the following grounds :
"1. The Order of the learned Commissioner of Income Tax (Appeals) is contrary to the Law and facts of the case.
2. The learned CIT(A) has erred in directing the assessing officer to exclude foreign exchange and telecommunication expenses, which were excluded from the export turnover also from the total turnover. 2.1 It is submitted that if the items such as expenditure incurred in foreign exchange and telecommunication expenses which are to be excluded from the export turnover as per the statute are excluded from the total turnover also, then the very purpose of excluding the said items from the export turnover will get defeated as the effect of exclusion of the same from the total turnover (denominator) will nullify the effect of exclusion from the export turnover (numerator). 2.2 It is also submitted that the decision by the Special Bench of Chennai ITAT in the case of Sak Soft Ltd. (2009) 313 ITR (AT) 353 3 I.T.A. No.660 & 707/M/11 Chennai relied on by the learned CIT(A) has not become final as the Department has preferred further appeal in that case.
3. The learned CIT(A) has erred in deleting the interest charged u/s 234D.
3.1 It is submitted that the decision relied on by the CIT(A) ion the case of Ekta Promoters (305 ITR 1) has not become final as the Department has preferred further appeal before the Hon'ble High Court.
3.2 It is submitted that the date of assessment order viz 30-08- 2007 is after the date of introduction of section 234D and hence the statutory duty to levy interest u/s 234D was rightly discharged and this action is supported by the decision of the ITAT, Bangalore Bench "B"
in the case of Sigma Aldrich Foreign Holding Co. Vs.. ACIT (International Taxation) Bangalore.
4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the learned Commissioner of Income Tax (appeals) be set aside and that of the Assessing Officer be restored."
4. In the assessee's appeal, the assessee has raised the following grounds :
"The grounds of appeal listed below are without prejudice to each other.
1. The order of the learned Commissioner of Income Tax (Appeals) ['CIT(A)'] is erroneous and bad in law. Exclusion of expenses incurred in foreign exchange from export turnover but not from total turnover.
2. The learned CIT(A) has erred in excluding the expenses incurred in foreign currency towards computer software development 4 I.T.A. No.660 & 707/M/11 from export turnover, when such expenses were not incurred in providing technical services outside India.
3. The learned CIT(A) erred in excluding the expenses incurred in foreign currency towards computer software development from export turnover, when such expenditure were not included in the export turnover which is contrary to statutory provisions. Exclusion of telecommunication expenditure incurred in Indian currency from export turnover but not from total turnover.
4. The learned CIT(A) erred in excluding the telecommunication expenditure incurred in Indian currency from export turnover, when the Act prescribes expenses incurred in convertible foreign exchange only, to be excluded from export turnover.
5. The learned CIT(A) erred in excluding the telecommunication expenditure incurred in Indian currency from export turnover, when such expenditure were not included in the export turnover which is contrary to statutory provisions.
Disallowance under section 14A of the Act.
6. The learned CIT(A) ought not to have held that the Appellant has incurred expenditure to the tune of ` 12,43,618 (ie 2 percent of the dividend income) in earning the dividend income when the Appellant has demonstrated from its accounts that no expenditure was incurred at all and the Appellant has not taken any loan for making any investment.
7. The learned CIT(A) erred in noting that prior to June 1, 2007, the Assessing Officer did not have the powers to estimate the expenditure allegedly incurred in earning exempt income and the impugned estimation is illegal and arbitrary.5
I.T.A. No.660 & 707/M/11
8. Without prejudice to the above, the learned CIT(A) erred in not directing the Assessing Officer to include the expenditure incurred in the computation of income under section 80HHE. Further, the learned CIT(A) ought to have appreciated that the exclusion was not part of the directions under 263 and thus was beyond the scope of the impugned order.
Others
9. The learned CIT(A) erred in levying interest under section 234B of the Act.
10. The Appellant craves leave to add, supplement, amend, delete or otherwise modify any of the grounds stated hereinabove at the time of hearing."
5. In regard to the Revenue's appeal, it was submitted by the learned CIT-DR that in respect of grounds 2 to 2.2, the issue was against the action of the learned CIT(A) in directing the Assessing Officer to exclude the foreign exchange and telecommunication expenses which were excluded from the export turnover also from the total turnover. It was the submission that the learned CIT(A) had followed the decision of the Special Bench of this Tribunal in the case of M/s. Sak Soft Ltd, reported in 313 ITR (AT) 353. It was the submission that the decision of the Special Bench in the case of M/s. Sak Soft Ltd. has not become final insofar as appeal has been filed before the Hon'ble High Court. It was the further submission that if the said expenditure representing the foreign exchange and telecommunication expenses which are excluded from the export turnover as per 6 I.T.A. No.660 & 707/M/11 the statute are excluded from the total turnover also, the very purpose of excluding the said items from the export turnover would get defeated as the effect of the exclusion of the same from the total turnover will nullify the effect of the exclusion from the export turnover. It was the submission that the exclusion of the same from both the denominator and the numerator was not what was called for by the statute.
6. In reply, the learned authorised representative submitted that the issue had been rightly decided by the learned CIT(A) by following the decision of the Hon'ble Special Bench of the Tribunal. It was the submission that the issue was squarely covered by the decision of the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd. reported in 2011-TIOL-684-HC-KAR-IT, wherein the Hon'ble High Court had categorically held that while computing the exemption u/s 10A if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. It was the further submission that identical was the decision of the Hon'ble Bombay High Court in the case of CIT v. Gem Plus Jewellery India Ltd. reported in 303 ITR 175. He vehemently supported the order of the learned CIT(A).
7. It was also another submission that the assessee here was one of the interveners in the decision of the Special Bench in the case of Sak Soft Ltd., referred to supra.
7
I.T.A. No.660 & 707/M/11
8. We have considered the rival submissions. As it is noticed that the issue in this ground is squarely covered by the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd., referred to supra, as also the decision of the Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd., referred to supra, respectfully following the decisions of the Bombay High Court as also the Hon'ble Karnataka High Court, referred to supra, the findings of the learned CIT(A) on this issue stands confirmed.
9. In regard to grounds 3 to 3.2 in the Revenue's appeal, it was submitted by the learned CIT-DR that the issue was against the action of the learned CIT(A) in directing the deletion of the interest levied under section 234D of the Income Tax Act, 1961. It was the submission that the assessment order was passed on 30-08- 2007 which was after the date of introduction of the provisions of section 234D and consequently in view of the unreported decision of the Hon'ble jurisdictional High Court in the case of Commissioner of Income Tax-III, Chennai v. Indian Overseas Bank in Tax Case (Appeal) No. 534 of 2008 dated 30-09-2011, as the assessment order was passed after the introduction of the provisions of section 234D, the order of the learned CIT(A) is liable to be reversed.
10. In reply, the learned authorised representative submitted that the assessment year involved was the assessment year 2002-03 and consequently in view of the decision of the Tribunal in the case of ITO v. Ekta Promotors P. Ltd. 8
I.T.A. No.660 & 707/M/11 reported in 305 ITR (AT) 1, the order of the learned CIT(A) was liable to be confirmed.
11. We have considered the rival submissions. As it is noticed that the issue in this ground is squarely covered by the decision of the Hon'ble jurisdictional High Court in the case of Indian Overseas Bank, referred to supra, respectfully following the decision of the Hon'ble jurisdictional High Court in the case of Indian Overseas Bank, referred to supra, the finding of the learned CIT(A) on this issue is reversed and that of the Assessing Officer restored.
12. In the circumstances, the appeal of the Revenue is partly allowed.
13. In regard to the assessee's appeal it was submitted by the learned authorised representative that in grounds 2 & 3 the assessee has challenged the action of the learned CIT(A) in excluding the expenses incurred in foreign currency towards the computer software development from the export turnover. It was the further submission that in grounds 4 & 5 the assessee has challenged the action of the learned CIT(A) in excluding the telecommunication expenses incurred in Indian currency from the export turnover when the Act prescribes the expenses incurred in convertible foreign exchange only to be excluded from the export turnover. It was submitted by the learned CIT-DR that the two issues did not arise from the order of the learned CIT(A) insofar as the assessment order in the present case was as a result of a specific direction by the learned Commissioner of Income-tax, Chennai-I under section 263 of the Act and the issues as raised by the assessee in the 9 I.T.A. No.660 & 707/M/11 grounds 2 to 5 were issues which should have been challenged in the original assessment order itself and which has not been challenged there and the same was also not an issue which arose out of the order passed by the learned Commissioner of Income-tax, Chennai-I under section 263.
14. In reply, the learned authorised representative submitted that though the issue did not arise out of the order passed as a consequence of the order of the learned Commissioner of Income-tax, Chennai-I under section 263, still the same could be challenged as it was an issue arising from the assessment order.
15. We have considered the rival submissions. A perusal of the assessment order clearly shows that these two issues do not arise out of the assessment order which is in fact an order giving effect to the order of the learned Commissioner of Income-tax, Chennai-I under section 263. Consequently, these issues would not arise out of the order of the learned CIT(A) also. In the circumstances, grounds 2 to 5 of the assessee's appeal stand dismissed as they do not arise out of the order of the learned CIT(A).
16. In regard to grounds 6 & 7 of the assessee's appeal which were against the disallowance made by invoking the provisions of section 14A, the learned authorised representative submitted that he did not wish to press the said grounds. Consequently, grounds No. 6 & 7 of the assessee's appeal stand dismissed as not pressed.
10
I.T.A. No.660 & 707/M/11
17. In regard to ground No.8 of the assessee's appeal, it was submitted by the learned authorised representative that the ground was against the action of the learned CIT(A) in not directing the Assessing Officer to include the expenditure which had been disallowed by invoking the provisions of section 14A for the purpose of computing the eligible income for deduction under section 80HHE of the Act. It was the submission that the disallowance by invoking the provisions of section 14A was out of the business expenditures of the assessee and consequently any disallowance from the same would go to increase the business income of the assessee which is eligible for deduction under section 80HHE.
18. In reply, the learned CIT-DR submitted that the disallowance under section 14A was in regard to the exempted dividend income. It was the submission that dividend income was liable for taxation only under the head 'income from other sources'. It was the submission that as the dividend income is liable to be taxed under the head 'income from other sources', the disallowance of any expenditure relating thereto would fall only under the head 'income from other sources'. It was the further submission that though ground has been raised before the learned CIT(A) on the issue, the learned CIT(A) had not adjudicated on the issue. It was the submission that he had no objection if the issue is restored to the file of the learned CIT(A) for re-adjudication.
19. In reply, the learned authorised representative submitted that non- adjudication of a ground would have to be treated as a dismissal of the ground. 11
I.T.A. No.660 & 707/M/11
20. We have considered the rival submissions. A perusal of the grounds of appeal filed by the assessee before the learned CIT(A) shows that in ground No.4 the assessee has raised the issue before the learned CIT(A). A perusal of the order of the learned CIT(A) shows that the learned CIT(A) has not decided the issue per se though he has adjudicated upon the issue of the disallowance made by invoking the provisions of section assessee14A. In this situation it would have to be deemed that when the learned CIT(A) dismissed the assessee's ground in regard to the issue under section 14A, the learned CIT(A) has also dismissed the assessee's ground in regard to the head under which the disallowance is to be added to the total income. Consequently, this issue is taken up for adjudication. A perusal of the assessment order shows that the disallowance of 2% by invoking the provisions of section 14A is being done out of the exempted income on the ground that common administrative expenses would have been incurred. Here what is specifically noticed is that the foundation for calculating the 2% disallowance is the exempted income and not the administrative expenditure incurred by the assessee. If it was the administrative expenditure which was taken as the foundation for the disallowance, obviously, the same would have to be treated as the business income as it would be the business expenditure which has been disallowed. But that is not the case here. The addition has been made by taking 2% of the exempted income. This is not a disallowance out of an expenditure but it is an income which is being assessed as relating to earning an exempted income. Adding this amount to the 12 I.T.A. No.660 & 707/M/11 business income would, in net result, mean granting an assessee an additional expenditure which has not been claimed by the assessee but treating the disallowance out of the income as a deemed expenditure of an assessee which is not permissible. In the circumstances, we are of the view that the action of the learned Assessing Officer in treating the said disallowance as 'income from other sources' is on a right footing. Consequently, ground No.8 of the assessee's appeal stands dismissed.
21. In the circumstances, the appeal of the assessee stands dismissed.
22. In the result, the appeal of the Revenue is partly allowed and the appeal of the assessee is dismissed.
23. The order was pronounced in the court on 23/12/2011.
Sd/- Sd/-
(N. S. Saini) (George Mathan)
Accountant Member Judicial Member
Chennai,
Dated the 23rd December, 2011.
H.
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file