Income Tax Appellate Tribunal - Hyderabad
Patni Telecom Solutions Pvt. Ltd., ... vs Department Of Income Tax on 28 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No. 1404/Hyd/2010
Assessment year 2006-07
M/s. Patni Telecom Solutions Vs. The Income Tax Officer
Pvt. Ltd., Hyderabad Ward-16(2)
PAN: AACCA4255G Hyderabad
Appellant Respondent
ITA No. 1426/Hyd/2010
Assessment year 2006-07
The Income Tax Officer Vs. M/s. Patni Telecom Solutions
Ward-16(2) Pvt. Ltd., Hyderabad
Hyderabad PAN: AACCA4255G
Appellant Respondent
Assessee by: Shri A.V. Raghuram
Revenue by: Shri Nageswara Rao
Date of hearing: 28.05.2012
Date of pronouncement: 29.06.2012
ORDER
PER CHANDRA POOJARI, AM:
These two appeals are cross appeals directed against the order of the CIT(A)-V, Hyderabad dated 20.08.2010 for assessment year 2006-07.
2. The assessee raised the following grounds of appeal:
In the fact and the circumstances of case, and in law, the learned CIT(A)-V, Hyderabad erred:
1. In respect of disallowance of Rs. 5,59,271 on account of employees' contributions to Provident Fund paid after the due date:
a) In confirming that said amount is not a business receipt.
b) In confirming that the said amount is not eligible for deduction u/s. 10A.2 ITA Nos. 1404 & 1426/Hyd/2010
M/s. Patni Telecom Solutions Pvt. Ltd.
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c) In not appreciating that the once the amount is disallowed u/s. 36(1)(va) and form part of the business income, the same has to be considered for the purpose of computing deduction u/s. 10A.
2. Without prejudice to above, the CIT(A) ought to have allowed the said amount as deduction since the same was paid before the end of the year.
3. The appellant craves leave to add, modify or withdraw any of the grounds of appeal at the time of hearing.
3. Brief facts of the issue are that it was noticed by the Assessing Officer that an amount of Rs. 5,59,271 being employees' contribution was paid after the due date and he treated the same as deemed income of the assessee in terms of provisions of section 36(1)(va) of the Act. The CIT(A) confirmed the same placing reliance on the order of the Tribunal in assessee's own case for the assessment years 2001-01 and 2001-02 in I.T.A. No. 354/Hyd/2006 dated 11.1.2008 wherein the Tribunal held as follows:
"9. One more ground in addition to common ground raised in the appeal for assessment year 2000-01 is in respect of disallowance of employees' contribution to PF after due date. The Assessing Officer assessed Rs. 2,52,340 as employees' contribution to PF which was not deposited and credited to Profit and Loss A/c., as income from other sources, considering provisions of section 56(2)(ic), read with sections sec. 2(24)(x) and 36 (va). of Income- tax Act. The assessee did not object to this before the A.O. However, the CIT(A) after considering the submission of the assessee confirmed the order of the Assessing Officer. The contention of the learned AR that employee's contribution to PF paid after the due date is not taxable under the head income from other sources. It should be assessed as income from business as Assessee Company is already engaged in the business of development and export of computer software and the employees are employed in the course of such business. The contention of the learned AR is not acceptable in view of the clear provisions of sec. 2(24)(x), 36(va) and 56(2)(ic) of the Income-tax Act. The unpaid PF contribution of employees cannot be said to be a business receipt. If this receipt is allowed or to be treated as business receipt, then the assessee will be entitled to set off of all business expenditure against this receipt which is not permissible. The assessee's business is in software and not in dealing with contribution of PF of employees. We are, therefore, inclined to 3 ITA Nos. 1404 & 1426/Hyd/2010 M/s. Patni Telecom Solutions Pvt. Ltd.
============================ uphold the order of the CIT(A). Accordingly, the order of the CIT(A) on this issue is confirmed.
4. Against this the assessee is in appeal before us.
5. The learned AR relied on the judgement of Supreme Court in the case of CIT vs. Alom Extrusions Ltd. (319 ITR 306) wherein it was held that omission of second proviso to Section 43B and amendment of 1st proviso by Finance Act, 2003 bringing about uniformity in payment of tax, duty, cess and fee on one hand and contribution to employees' welfare fund, on the other hand, are curative in nature and thus effective retrospectively with effect from 1st April, 1988, i.e., the date of insertion of first proviso. Being so, if the assessee has deposited the contribution before due date of filing of return under the I.T. Act, and the date of payment was after the due date under the Employees Provident Fund Act would not be denied deduction.
6. Before us the AR contended that the employees' contribution to PF was made before the due date of filing of the return. However, no details regarding the date of payment were furnished before us. In view of this we set aside the matter to the file of the Assessing Officer to examine this issue in the light of the judgement of the Supreme Court (cited supra). However, we make it clear that addition cannot be made u/s. 43B of the Act if the actual payment is made by the assessee before the due date of filing of return and the assessee is entitled for deduction as business expenditure.
7. The other ground raised by the assessee is that even if it is disallowed, the same is to be treated as part of the business income of the assessee to consider the same for exemption u/s. 10A of the Act. In our opinion this ground is covered by the earlier order of the Tribunal for A.Ys. 2000-01 and 2001-02 (cited supra) against the assessee. However, there is a judgement by the 4 ITA Nos. 1404 & 1426/Hyd/2010 M/s. Patni Telecom Solutions Pvt. Ltd.
============================ Bombay High Court, in favour of the assessee, in the case of CIT vs. Gem Plus Jewellery India Ltd. (330 ITR 175) wherein the High Court held as under:
1.
"Held, (i) that interest income could not be taken as business income and could not be taken into account in computing the special deduction under section 80HHC.
CIT v. Asian Star Co. Ltd. [2010]326 ITR 56 (Born) followed.
(ii) That gross interest should be taken into account for purposes of exclusion under clause (baa) of the Explanation to section 80HHC.
(ii) That the foreign exchange was realised by the assessee within the period of stipulated in law. The assessee had realised a larger amount in terms of Indian rupees as a result of a foreign exchange fluctuation that took place in the course of the export transaction. The gains had to be taken into account for the purpose of section 10A.
CIT v. Shah Originals [2010] 327 ITR 19 (Bom) distinguished.
(iv) That it was an admitted position that the assessee had deposited both the employer's and the employees' contribution towards provident fund and ESIC, though beyond the due date including the grace period. The Officer added these payments to the total income of the assessee. The disallowance which was effected by the Assessing Officer had not been challenged by the assessee. The plain consequence of the disallowance and the add back that had been made by the Assessing Officer was an increase in the business profits of the assessee. The contention of the Revenue that in computing the deduction under section 10A the addition made on account of the disallowance of the provident fund/ESIC payments ought to be ignored could not be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow. The Tribunal was justified in directing the Assessing Officer to grant exemption under section 10A of the Act on the assessed income, which was enhanced due to disallowance of the employer's as well as employees' contribution towards PF/ESIC."
5 ITA Nos. 1404 & 1426/Hyd/2010M/s. Patni Telecom Solutions Pvt. Ltd.
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8. Respectfully following the judgement of Bombay High Court (supra), this ground of the assessee is allowed.
9. Now coming to the appeal in ITA No. 2426/Hyd/2010 (Revenue appeal). The Revenue raised the following grounds of appeal:
1. The order of the learned CIT(A) is erroneous on facts and in law.
2. The learned CIT(A) ought to have held that the expenditure incurred by the assessee in foreign exchange was on account of travelling expenses which is necessary for providing technical services.
3. The learned CIT(A) ought to have held that the internet charges on delivery of the software includes internet charges on development of the software.
4. The findings of the CIT(A) is based on no evidence as he was merely relied upon the order of the ITAT for earlier years.
10. We have heard both the parties on this issue. This issue was covered by the Tribunal in ITA No. 354/Hyd/2006 for A.Y. 2000-01. In para 7.4 of the order the Tribunal held as follows:
"7.4 Now we examine the facts of the case in the light of the above discussion. The AO noticed that the expenses attributable to the delivery of the software was under Internet Service Provider, since the assessee got leased line exclusively. The A.O. deducted this amount from consideration treating it as communication charges. We find that the said expenditure on 'Internet Service Provider (ISP)' does not come within the scope of Telecommunication charges as provided in clause (iv) of Explanation 2 to sec. 10A of of IT Act because ISP was for transmitting the data i.e., software developed by the assessee. The ISP expenses incurred is in respect of development of software i.e. goods. The ISP expenses is not attributable to the delivery of computer software, therefore, such expenses need not be excluded from consideration in foreign exchange. However, if for the sake of arguments it is presumed that the expenditure incurred is attributable to delivery of goods outside India even though same is not to be excluded. The words 'received' and 'but not include' used in clause (iv) of Explanation 2 to se. 10A of IT Act ore significant. What is to be excluded is out of what is received. In the case under consideration the assessee received consideration against software i.e., goods. For this purpose, the assessee has demonstrated by referring invoices 6 ITA Nos. 1404 & 1426/Hyd/2010 M/s. Patni Telecom Solutions Pvt. Ltd.
============================ (Page 4.1 to 4.4) and agreement (page 2.1) of which photocopies have been placed in assessee's paper book. The agreement, invoices and the turnover clearly show that the assessee did not recover any such expenditure. Therefore, there is no scope for any exclusion from export turnover on account at such expenses. If at all on presumption, it is to be excluded for the purpose of 'export turnover' then on the some assumption, reason and analogy it should be excluded from 'total turnover'. The simple reason is that such expenditure is also included in consolidated consideration which is forming part of 'total turnover'. In order to make the formula for the purpose of "export turnover" in sec. 10A workable one has to give a schematic interpretation to the formula. Elimination should be from both the denominator and the numerator. We, therefore, find that the AO was not correct in excluding Rs. 40,93,493/- from consideration received in convertible foreign exchange while calculating export turnover for the purpose of section 10A of the IT Act."
11. Respectfully following the order of the Tribunal, we are inclined to dismiss the ground taken by the Revenue.
12. In the result, assessee appeal is partly allowed and Revenue appeal is dismissed.
Order pronounced in the open court on 29th June, 2012.
Sd/- Sd/-
(SAKTIJIT DEY) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated the 29th June, 2012
Copy forwarded to:
1. M/s. Patni Telecom Solutions Pvt. Ltd., IV Floor, Maximus Towers-2B, Raheja Mind Space, Madhapur, Hyderabad-500
081.
2. The Income Tax Officer, Ward-16(2), 6th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.
3. The CIT(A)-V, Hyderabad.
4. The CIT-IV, Hyderabad.
5. The DR - A Bench, ITAT, Hyderabad.
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