Income Tax Appellate Tribunal - Chennai
Urjitha Electronics Private Limited, ... vs Department Of Income Tax on 26 February, 2014
आयकर अपील य अ धकरण, 'बी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
" B" BENCH, CHENNAI
ी ए. मोहन अलंकामणी, लेखा सद य एवं
ी एस. एस. गोदारा, या यक सद य के सम
BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER &
SHRI S.S. GODARA, JUDICIAL MEMBER
आयकर अपील सं./ I.T.A. Nos.936 & 937/Mds/2013
( नधारण वष / Assessment Years : 2004-2005 & 2005-2006)
The Assistant Commissioner of M/s. Urjitha Electronics Private
Income Tax, Vs Limited,
Company Circle III(3), No.36-39, SDF-II, MEPZ,
Chennai 600 034. Tambaram,
Chennai 600 045.
[PAN: AAACU4616R]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से / Appellant by : Shri. Guru Bhashyam, IRS, JCIT
यथ क ओर से / Respondent by : Shri. N. Rajagopalan, C.A.
सन
ु वाई क तार ख/Date of hearing : 26.02.2014.
घोषणा क तार ख /Date of Pronouncement : 27.02.2014.
आदे श / O R D E R
PER SHRI S.S. GODARA, JUDICIAL MEMBER
ITA No. 936/Mds/2013.
This Revenue's appeal arises from the order of the Commissioner of Income Tax (Appeals)-III, Chennai dated 09.01.2013, :- 2 -: I.T.A.No.936 & 937/Mds/2013.
passed in ITA No.285/2011-12/A.III for assessment year 2004-2005, in proceedings under section 143(3 )r.w.s. 147of the Income Tax Act 1961 [in short the "Act"].
2. The following grounds has been raised by the Revenue:-
1. ''The order of the learned CIT(A) is contrary to law and facts and circumstances of the case.
2.1. The CIT(A) erred in directing the Assessing Officer to include the income from designs and drawings as part of export turnover for the purpose of computing deductions u/s. 10A.
2.2. The CIT (A) ought to have appreciated that assesses itself had classified the receipts from Engineering and Design Services as other income and impugned receipt cannot be said to be derived from the export of goods.
2.3 The CIT(A) ought to have appreciated that the decision of the ITAT Bangalore in the case of Wipro Ltd (96 TTJ 211) distinguishable on facts and not applicable to the facts of the case.
2.4 The CIT(A) ought to have followed the ratio of the following judgments were the meaning of the expression derived from has been discussed.
a. Cochin Refineries Ltd (1982) 135 ITR 278(Ker) b. Cement Distributors Ltd (1994) 208 ITR 355(Delhi). c. Sterling Foods (1999) 104 Taxman 204/237 ITR 579(SC) d. Cambay Electric Supply Industrial Co. Ltd (1978) 113 ITR 84. e. Raja Bahadur Kamakhaya Narayan Singh (1948) 16 ITR 325. f. Pandian Chemicals Ltd. (2003) 129 ITR 539/262 ITR 278 (SC) 2.5 The CIT(A) failed to appreciate the fact that the assessee company mainly being involved in Miniature Electronic assessmbly could not explain how the 'Engineering and Designing Work' done by it comes under IT enabled product and ought to have upheld the action of the Assessing Officer.
3. For these and other grounds that may be adduced at the time :- 3 -: I.T.A.No.936 & 937/Mds/2013.
of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored''.
3. In the course of hearing, the Revenue strongly argues that the CIT(A) has erred in directing the Assessing Officer to include assessee's income from designs and drawings as part of export turnover for computing deduction under section 10A of the Act and prays for acceptance of the appeal.
4. The assessee supports the order of the CIT(A) in directing the Assessing Officer to include the above said income as part of export turnover and argues for rejection of the appeal.
5. The assessee is a 'company'. It manufactures and sells electronic items used in telecommunication industry. On 28.10.2004, it had filed its 'return' declaring income of 16,50,970/- which was 'summarily' processed. Thereafter, the Assessing Officer framed re- assessment on 05.10.2006 assessing total income of 16,56,260/-.
6. Subsequently, the Assessing Officer noticed that the assessee had claimed deduction under section 10A for entire income of 2,23,02,073/- including a sum of 13,79,250/- arising out of engineering and design charges. In his view, the same was not 'derived' from the export of articles or thing and there existed no direct :- 4 -: I.T.A.No.936 & 937/Mds/2013.
or indirect nexus with industrial undertaking. For the purpose of claiming deduction under section 10A. Accordingly, he formed reasons to believe that the said income had escaped assessment. So, the Assessing Officer issued 148 notice. In response, the assessee reiterated the income already returned. The Assessing Officer framed re-assessment vide order dated 15.11.2011 holding therein that engineering and design aforesaid income had not been 'derived' by an undertaking from export of articles or things. In this manner, this income was held ineligible for claiming deduction under section 10A of the Act.
7. Aggrieved, the assessee preferred an appeal. The CIT(A) has accepted its contentions observed as under:-
''4.2. I have carefully considered the facts of the case and the submissions of the ld. AR. I have also gone though the decisions relied on by the Assessing Officer and AR. As explained by the appellant, the designs and drawings supplied to the client is in the form of support services provided to them in respect of the goods exported by the appellant. Further, the CBDT's Notification No.890(E), dated 26.09.2000 has also specified 'engineering and design' as an information technology enabled product or services for the purposes of S. 10-A. The said Notification has been issued in exercise of the powers conferred by cl.(b) of item() of Expl. 2 to S.10-A; cl(b) of item (i) of Expl. 2 to S.10b and cl. (b) of Explanation to s. 80HHE of the IT Act, 1961 (43 of 1961). This clearly indicates that income received from designs and drawings are eligible for inclusion under the export turnover for the purpose of S10A. On a similar issue, the Hon'ble ITAT, Bangalore in the case of Wipro Ltd. DCIT 96 TTJ 211 has held that the royalty received from licensing of computer software products could be treated as income from the export of computer software and was consequently eligible for the exemption u/s. 10A of the Act. In the appellant's own case for the A.Y 2006-2007, on similar issue, the CIT(A) has allowed the appeal in favour of assessee vide ITA No.382/08-09/A.III :- 5 -: I.T.A.No.936 & 937/Mds/2013.
dated 4.1.2012 which was further confirmed by Hon'ble ITAT vide ITA No.806/Mds/2012 dated 20.7.2012. The Hon'ble ITAT has held as under:-
''On going through the notification, we see that the CBDT clearly specifies that the engineering and design services are information and technology enabled products or services and are to be treated as software and export of such software has to be treated as export. The Commissioner of Income-tax (Appeals) referring to the said notification and the decision of the Bangalore Bench of ITAT in the case of Wipro Ltd vs. DCIT (96 TTJ 211) directed the Assessing Officer to include the income from engineering design and drawings as part of the export turnover for the purpose of deduction under section 10A, which in our view is in accordance with the notification issued by the CBDT. Therefore, we uphold the order of the Commissioner of Income-tax(Appeals) on this issue also. The grounds raised by the Revenue are dismissed''.
Therefore, the Revenue is in appeal.
8. We have heard both parties at length and perused the case file. The only question sought to be raised by the Revenue is that income from engineering and design charges aforesaid cannot be said to have 'derived' from export for the purpose of claiming deduction under section 10A of the Act. On a query put up by the bench about the 'tribunals' order dated 20.7.2012(supra) the Revenue failed to draw any distinction on facts. In these circumstances, we draw support from order of the co-ordinate bench for 2006-07 on the very issue and reject the contentions of the Revenue.
ITA No.936/Mds/2013 is dismissed.
:- 6 -: I.T.A.No.936 & 937/Mds/2013.
ITA No.937/Mds/2013
9. This Revenue's appeal arises from the order of the
Commissioner of Income Tax (Appeals)-III, Chennai dated
09.01.2013, passed in ITA No.186/2011-12/A.III for assessment year 2005-2006, in proceedings under section 143(3) r.w.s. 147 of the Income Tax Act 1961 [in short the "Act"].
10. The following grounds are raised by the Revenue in this appeal.
"'2.1 The CIT(A) erred in directing the AO to include exchange fluctuation gain as a part of export turnover for the purpose of computing deduction u/s.1 0A.
2.2. The CIT(A) ought to have appreciated that the deduction u/s.10A is allowed only in respect of such profits and gain that are derived from the export of articles or things and therefore the claim for deduction should be restricted to the receipts through the export of manufactured goods only.
2.3. The CIT(A) ought to have followed the ratio of the following judgments were the meaning of the expression, derived from has been discussed.
a. Cochin Refineries Ltd.{982) 135 ITR 278 (Ker) b. Cement Distributors Ltd.(1994) 208 ITR 355, (Delhi) c. Sterling Foods (1999)104 Taxman 2041i37 ITR 579(SC) d. Cambay Electric Supply Industrial Co. Ltd. (1978) 113 ITR 84 e, Raja Bahadur Kamakhaya Narayan Sinqh (1948) 16 ITR 325 f. Pandian Chemicals Ltd. (2003) 129 ITR 539/262 ITR 278(SC) , ' 2.4. It is submitted that the decision of the ITAT Chennai in the case of I Nautix Technologies India Pvt. Ltd. which has been relied on by the CIT(A) has not been accepted by the Department and has been carried to appeal before the HHC, 3.1 The CIT(A) erred in directing the AO to include the income from designs and drawings as part of export turnover for the purpose of :- 7 -: I.T.A.No.936 & 937/Mds/2013.
computing deduction u/s.10A. . 3,2. The CIT(A) oug
ht to have appreciated that assessee itself had classified the receipts from Engineering and Design Services as, 'other income and impugned receipt cannot be said to be derived from the export of goods, 3,3, The CIT(A) ought to have appreciated that the decision of the ITAT Banqalore in the case of Wipro Ltd. (96 TT J 211) distinguishable on facts and not applicable to the facts of the case. ' 3.4. The CIT(A) ought to have followed the ratio of the following judgments were the meaning of the expression 'derived from has been discussed.
a. Cochin Refineries Ltd.(1982) 135 ITR 278 (Ker) , b. Cement Distributors Ltd. (1994) 208 ITR 355 (Delhi) c. Sterling Foods (1999)104 Taxman 204/237 ITR 579(SC) d. Cambay Electric Supply Industrial Co. Ltd. (1978).113 ITR 84 e. Raja Bahadur Karnakhaya Narayan Singh (1948) 16 ITR 325 f. Pandian Chemicals Ltd. (2003) 129 n:k 5-39/262 ITR 278(SC) 3.5. The CIT(A) failed to appreciate the fact that the assessee company mainly being involved in Miniature Electronic Assessmbly.could not explain how the 'Engineering and Designing Work done by it comes under IT enabled product and ought to have upheld the-action of the Assessing Officer''.
11. In the course of hearing, the parties clarify that the issue raised in ground nos. 3.1 to 3.5 is identical as in ITA No.936/Mds/2013. After perusing the pleadings, we found the same to be correct. Accordingly, in view of the corresponding findings in ITA No.936/Mds/2013, we decide this ground in assessee's favour.
12. The other ground raised by the Revenue is against the order of the CIT(A) in directing the Assessing Officer to include :- 8 -: I.T.A.No.936 & 937/Mds/2013.
exchange fluctuation gain in export turnover for deduction under section 10A of the Act. The facts pertaining to this ground are that on 29.10.2005, the assessee had filed its 'return' declaring income of 23,49,300/- which was processed 'summarily'. On 01.08.2007, 'regular' assessment was finalized. Thereafter, the Assessing officer finalized re-assessment order dated 15.11.2011 holding therein that the assessee had claimed deduction of 4,79,703/- due to fluctuation of foreign exchange rate which not eligible for deduction as not 'derived' from the export activities.
13. In assessee appeal, the CIT(A) has accepted its contentions as under:-
"5.2 I have carefully considered, the facts of the case and the submission of the Id. A.R. have also gone through the various case-lawsrelied upon by the AO and the appellant. The Hon'ble jurisdictional ITAT in the case of ACIT v. Inautix Technologies India (P) Ltd (supra) has clearly held that foreign exchange gain arising out of trading transactions has a direct nexus with business of eligible unit. In the appellant's own case for the A.Y. 2006-07, on similar issue, the Id.CIT(A) has allowed the appeal in favour of assessee vide ITA No.382/08-09/A. 11 I dated 4.1.2012 which W<;lS further confirmed by Hon'ble ITAT vide ITA NO.806/Mds/2012 dated 20.7.2012. The Hon'blelTAT has held as under:
"6. The counsel for the assessee, with,regard to foreign exchange fluctuation, submits that on an identical issue this Tribunal in the case of ACIT vs. Inautix Technologies India (P) Ltd., decided that exchange gains arising out of trading transaction had direct nexus with the business of the assessee and therefore held to be as part of the export turnover. ,
7. We have heard both sides; perused the materials available on :- 9 -: I.T.A.No.936 & 937/Mds/2013.
record, orders of lower authorities and the case law relied on by the counsels. The Commissioner of Income-tax )Appeals), on the issue of inclusion of exchange fluctuation gains as part of export turnover for the purpose of computation of deduction under section 10A, held as under:
4.1 The Id. AR submitted that the 'gain on foreign' exchange is derived by the appellant solely due to application of Accounting Standard 11 (AS) of ICAI. This AS requires the company to translate the foreign exchange (forex) amount of invoice into Indian Rupee (lNR) at the rate of exchange prevalent on the day of invoice, Similarly, the AS requires the company to translate the forex amount of the remittance received from the 'debtor into INR., at the rate of exchange prevalent on the day of receipt otremittence, as certified by the bankers. This results in gain or loss to the company depending on fluctuation in rates on the respective dates. The AS further stipulates that this gain or loss has to be accounted separately as foreign exchange fluctuation gain or loss only in the profit and loss account. Therefore, it was cqntended the! the foreign exchange gain reported for the year is an integral part of the export proceeds earned by the company and arises only due to exports. Lt was argued that this cannot be separated from the expott proceeds and this certainly is not other income as contended by the AO. It was submitted that the foreign exchange fluctuation gain has resulted in the appellant's case only on account of remittance of export proceeds by the debtor and not otherwise. Reliance was placed on the decision of Hon'ble ITAT 8angalore in the case of Sanyo ISI Technology India Pvt. Ltd v. DCIT, CIT v. Pentasoft Technologies Ltd [2010- TlOL-525-HC-MAO-ITJ, Renaissance Jewellery P. Ltd v. ITa, 289 ITR (A T) 65 and Sujata Grover [14 TTJ 347 (Del)). Reliance was also placed on the decision of Hon'ble High Court at Madras in the case of CIT v. Indo Matsushita Carbon Co. Ltd. 286 ITR 201 where it was held that the interest received by the assessee from its customers on overdue payments on sales was its income derived from industrial undertaking and was accordingly entitled for deduction. On ?
similar footing, since for-ex gains are inextricably connected to the payment on sales, it was ,contended that the same also needs to be given a similar treatment and has to be held as 'derived from' the export business of the undertaking. Reliance was also placed on the decision of Hon'ble ITAT Chennai in- the case' of ACIT v. Inautix Technologies India (P) Ltd. in I. T.ANo. 1054/Mds/2006 - AY 2002- 03, where it was held that the foreign exchange gain arising on exports are eligible for inclusion in export turnover for the purpose of deduction u/s 10A.
4.2 I have carefully considered the facts 'of the case and the submission of the Id. AR. I have also gone through the decisions relied on by the Aa and AR. The Hon'ble jurisdictionallTAT in the case ot ACITv. Inautix Technologies India (P) Ltd (supra) has :- 10 -: I.T.A.No.936 & 937/Mds/2013.
clearly held that foreign exchange gain arising out of trading transactions has a direct nexus with business of eligible unit. The Hon'ble ITA T had held as under:
"In the business of export, the assessee-company raises bills against the customer. The rates mentioned in the bill, $0 raised, are recorded in the books of account and at the same time, the company debits the account of the foreign buyer with equal amount. At (he end of the year, if the sale proceeds are not received by the assessee-company, the foreign buyer is shown as 'sundry debtor'. If the proceeds are not received in the same financial year and received after one or two years, the fluctuation arising 'at that time will have any relevance to the turnover reported for the previous year in which the sale took place or not is the puzzle of this issue. In the opinion of the Assessing Officer, the assessee loses its rights over the sold items on the very despatch of the same and as per Accounting Standard prescribed by the ICAI, foreign currency transactions are to be recorded at t8e date of the transactions applying the exchange rate between the reporting currency and the foreign currency as on such date of transaction (s). Thus, according to the Revenue, the sale proceeds should be the value' recorded in the books and any increase or decrease in exchange fluctuation on the bill amount is only a subsequent event after the completion of the transaction; it is only an accretion to the amount due to be received by the assessee and not an accretion to the sale price of items exported. In this context, it was argued by the Id. CIT/oR that it may be a treasury income and although this gain arises in the course of export business yet it has no direct nexus with the business of the undertaking and hence, needs to be excluded from the profits of the business of the undertaking for the purpose of computing exemption u/s 10A. As against this, the case of the Id.AR is that for-ex gain arises out of trading transactions for supply of software and hence, has a direct nexus with business of eligible unit.
14. We have examined the rival stards of the parties. Our attention was invited by the Id.AR to the observation made by both the authorities below, that these transactions are on 'Revenue Account'.
We have also noticed that both Assessing Officer and the Id. CIT(A) have accepted these transactions on Revenue Side. If it is so, the decisions relied by the Id.AR would support her contention. The Id. CIT/oR has stated that the decisions relied on by the Id. CIT(A) in the case of M/s Cognizant Technology Solutions India Pvt. Ltd and M/s Convansys (India) Pvt. Ltd have not been accepted by the Department. But in any case, this decision has got' a binding effect being a decision of the Co- ordinate Bench and therefore, this' issue stands covered in favour of the assessee. The following decisions also support our contention apart from the decision of Cognizant Technology Solutions (supra):
(i) Pentasoft Techonologies Ltd. (ii) Mls Mysodet (P) Ltd (Civil Appeal NO.5475 of 2008) S.C.15. Therefore, in the given facts and circumstances of the case, we cannot interfere in the finding of the Id. CIT(A). We are bound by the ebove decisions, therefore, we :- 11 -: I.T.A.No.936 & 937/Mds/2013.
cannot allow this ground in favour of the Revenue. This issue is decided in favour of the assessee by dismissing the ground raised by the Revenue."
Respectfully following the above decision, the AO is directed to include exchange fluctuation as a part export turnover for computif)g deduction u/s 1 OA"
8. The Commissioner of Income-tax (Appeals), following the Coordinate Bench of this Tribunal in the case of ACIT v. Inautix Technologies India (P) Ltd., in I. T.A.No. 1054/Mdsl2006, held that foreign exchange gain is part of export turnover for computation of deduction under section 10A. Therefore, we uphold the order of the Commissioner of Income-tax (Appeals). The grounds raised by the Revenue are dismissed. "
Respectfully following the above decisions, this ground is allowed
14. We have heard both sides at length and gone through the case file. We find that the co-ordinate bench of the 'tribunal' in assessment year 2006-07(supra) has decided this issue as well also against the Revenue. Therefore, in absence of any distinguishable facts pointed out by the Revenue, we uphold the findings of the CIT(A) under challenge.
The ITA No. 937/Mds/2013 is dismissed.
15. To sum up, both appeals filed by the Revenue are dismissed. Order pronounced on Thursday, the 27th of February, 2014, at Chennai.
Sd/- Sd/-
(A. MOHAN ALANKAMONY) (S.S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated:27th, Feb, 2014.
K.V
Copy to: Appellant/Respondent/CIT(A)/CIT/DR :- 12 -: I.T.A.No.936 & 937/Mds/2013.