Income Tax Appellate Tribunal - Bangalore
Global E Business Operations Private ... vs Assessee on 25 July, 2012
IN THE INCOME TAX APPELLATE TRIBNAL
BANGALORE BENCH 'B', BANGALORE
BEFORE SHRI N.BARATHVAJA SANKAR, VICE PRESIDENT
AND
SHRI N.V.VASUDEVAN, JUDICIAL MEMBER
ITA No.276(B)/2011
(Assessment year : 2005-06)
M/s Global E Business Operations Pvt.Ltd., The CIT,
The Icon, 2nd Floor, Bangalore
4th Floor,No.8, 80 ft. Road,
HAL 3rd Stage, Indranagar,
Bangalore
PAN No.AACCC2943F Vs
Appellant Respondent
Assesseee by : Shri Sriram Seshadri, CA
Revenue by : Shri Farhat Hussain Qureshi, CIT-II
Date of hearing : 25-07-2012
Date of pronouncement : 31-07-2012
ORDER
PER SHRI N.V.VASUDEVAN, JM:
This is an appeal by the assessee against the order dated 30- 12-2010 of CIT, Bangalore, relating to AY: 2005-06.
2. The assessee is a company engaged in the business of developing software. For assessment year 2005-06, the assessee filed its return of income declaring a loss of Rs.2,07,88,373/-. The asseseee was 2 ITA No.276(B)/2011 entitled to claim deduction u/s 10A of the IT Act, 1961. The eligible deduction u/s 10A of the Act is computed as follows;
Export turnover x Eligible business profits Total turnover Export turnover has been defined under clause(iv), Explanation-2 to Sec.10A of the Act is as follows;
"Export turnover means the consideration in respect of export by the undertaking of articles o things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub- section(3), but does not include.
(i) freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or
(ii) expenses, if any, incurred in foreign exchange in providing the technical services outside India.......".
3. In the course of assessment proceedings, the AO called upon the assessee by letter dated 08-10-2008 to give adjustment towards freight, telecom, insurance, technical services, while computing the deduction u/s 10A of the IT Act. The assessee furnished the following details.
"Computation of deduction u/s 10A of the IT Act, 1961 ("The Act") adjustments towards freight/telecom/insurance/technical services As per profit & loss account and schedule K to financial of Global-e-for the year ended March 31, 2005 the following expenditure has been incurred;3 ITA No.276(B)/2011
Particulars Amount as per Schedule K (expend.) Profit & loss a/c incurred in foreign exchange Communication expenses 109,825.384 1,442.242 Travel & conveyance 268.881.615 1,34.317.387 Legal and professional 40,364.985 2,040.482 charges
4. In the course of assessment proceedings it was noticed that the assessee reduced the communication expenses to the tune of Rs.14,42,242/- from the export turnover as well as total turnover while computing the eligible deduction u/s 10A of the IT Act, 1961. The AO held that communication expenses have to be reduced from the export turnover and cannot be reduced from the total turnover as done by the assessee. The deduction u/s 10A of the IT Act was accordingly, reworked by the AO.
5. The CIT in exercise of powers u/s 263 of the Act was of the view that the aforesaid order of the AO passed u/s 143(3) of the Act on 31-012-2008 was erroneous and prejudicial to the interest of revenue. In this regard, the CIT was of the view that the assessee had incurred a sum of Rs.13,43,17,367/- in foreign currency towards traveling and conveyance and in terms of clause (iv) of Explanation-2 to Sec.10A of the Act, any expenditure incurred in foreign exchange in providing technical services outside India has to be excluded from the export turnover. Since the aforesaid expenses were incurred in connection with foreign travel expenses (which according to CIT were for providing technical services) were not reduced from the export turnover while computing deduction u/s 4 ITA No.276(B)/2011 10A of the Act, the order of AO was erroneous and prejudicial to the interest of revenue.
6. In reply to the show cause noticed issued by the CIT, the assessee submitted that enquiries were made by the AO on the issue of what is export turnover and the assessee had made appropriate submissions and the AO, after having considered the submissions made and the objections raised by he assessee, had decided not to make any adjustment on account of the expenses incurred in foreign currency, it was a case of the AO having taken a plausible view on the matter. It was further submitted that the relevant clause of the Explanation requiring the expenses incurred in foreign currency to be reduced from the export turnover, is applicable only if the assessee is engaged in the business of rendering technical services outside India. It was submitted that the assessee was engaged in the business of providing data processing services and other IT enabled service for Hewlett Packard companies world wide, which is distinct and must be distinguished from the business of 'rendering technical services outside India'. It was submitted that this view has been upheld by the ITAT Bangalore Bench in the case of Infosys Technologies Ltd., Vs DCIT reported in 109 TTJ 631. Relying on the above decision, it was submitted that as the assessee was not engaged in the business of rendering technical services outside India. The foreign travel expenses incurred in foreign currency are not required to be excluded from the export turnover for the purpose of computing the deduction allowable u/s 10A. It was stated that the assessee was in 5 ITA No.276(B)/2011 fact engaged in carrying out call centre activities and back office operations and the same does not amount to rendering technical services outside India. It was further submitted that 'computer software' has been defined in Explanation 2(i) of Sec.10A and as per the CBDT's notification No.SO 890(E) dated 26.09.2000, certain IT enabled services have also been notified as coming within the meaning of 'computer software' for the purpose of sec.10A and rendering of technical services outside India, per se, is different and distinct from 'computer software' as per the above definition. It was further submitted that in case the aforesaid sum is to be excluded from the export turnover then, the same should also be excluded from the total turnover and in this regard, the assessee relied on the following decisions CIT Vs Gem Plus Jewellery India Ltd., reported in 233 CTR 248(Mum.) and ITO Vs Sak Soft Ltd., reported in 313 ITR(ITAT) 353(AT) Chennai Spl.Bench) It was also submitted that the definition of export turnover and total turnover have to be read and interpreted harmoniously as the incentive is required to be computed on a proportionate basis in the ratio of export turnover total turnover. In support of its contentions, the assessee has relied on a number of ITAT decisions including the decision in the case of Kshema Technologies (Ltd., (2008 TIOL-440-ITAT-BANG). Relying on the decision in the case of Tata Elxsi Ltd., in ITA No.315/Bang/2006 dated 16-10-2007(ITAT, Bangalore Bench) it has been contended that as the total turnover is the sum of the export turnover and domestic turnover. If the concerned charges do not form part of the export turnover as per the definition, then there is no scope to include such charges in the total turnover.
6 ITA No.276(B)/20117. The CIT however, was of the view that the AO did not make any enquiries on the aspects set out in the show cause notice u/s 263 of the IT Act, 1961. The CIT was also of the view that clause (iv) of Explanation-2 to Sec.10A also envisages a situation where even a software developer can render technical services outside India. The CIT thereafter, proceeded to hold that there was non-application of mind by the AO on this aspect and therefore, the order of AO was erroneous and prejudicial to the interest of revenue. The CIT also held that what is excluded from the export turnover need not be excluded from the total turnover as contended by the assessee. The CIT finally, set aside the order of the AO for fresh consideration by the AO on the aspects discussed by the CIT in his order u/s 263 of the IT Act, 1961. The following were the relevant observation made by the CIT.
" In view of the above, it is necessary for the AO to examine in detail and ascertain the nature of the expenses of Rs.13,43,17,367/- incurred in foreign currency for foreign travel after verifying the submissions made by the assessee, as mentioned above, with reference to the facts of the assessee's case, and the relevant provisions of clause(iv) of Explnation-2 to Sec.10A for the purpose of computing the deduction allowable u/s10A.
The assessment order, which has been held to be erroneous and prejudicial to the interest of the revenue for the reasons stated above is, therefore, set aside aqnd the AO is directed to make a fresh assessment in the light of my observation above, after giving the assessee a reasonable opportunity of being heard".7 ITA No.276(B)/2011
8. Aggrieved by the order of the CIT, the assessee preferred the present appeal before the Tribunal.
9. We have heard the submissions of the learned counsel for the assessee who submitted that as on the date when the CIT passed the order u/s 263 of the Act namely 30-12-2010 there were decisions rendered by various Benches of the Tribunal taking a view that under clause-(iv) of Explanation-2 to Sec.10A of the Act, expenditure incurred in foreign currency in providing technical services outside India will not cover the case of an assessee engaged in the business of providing software development services. The following decisions were referred to in this regard.
Name of the case Citation Date of order
Sak Soft Ltd 313 ITR 353(Chen.(SB)(ITAT) March 6,2009
Binary Semantics 109 TTJ 556(Del.)(HC) March 30,2007
Ltd
SRA Systems Ltd 305 ITR 27(Che.)(ITAT) June 15,2007
Tata Elxsi Ltd (115 TTJ 423) Bang.ITAT) October 16, 2007
Patni Telecom(P)Ltd 308 ITR 414(Hyd.ITAT) January 11, 2008
Softsol India Ltd 22 SOT 271(Hyd.ITAT) February 15, 2008
Gem Plus Jewellery 330 ITR 175(Bom.)(HC) June 23, 2010
GE Medical Systems 2009 TIOL 669(Bang ITAT) August 4, 2009
(I) Pvt.Ltd./
I Gate Global 112 TTJ 1002(Bang ITAT) December 18, 2009
Solutions Ltd
Intel Technology 2009 TIOL 752(Bang ITAT) September 25,
Pvt.Ltd 2010
8 ITA No.276(B)/2011
It was further submitted that in the light of the aforesaid judicial decisions the claim of the assessee cannot be set to be erroneous. In this regard, it was also pointed out that the AO in the course of assessment proceedings did apply his mind to the quantum of export turnover to be considered for deduction u/s 10A of the Act. It cannot be said that the AO did not make enquiries which he ought to have made. Further, the view taken by the AO is a possible view and where two views are possible the CIT cannot exercise his powers u/s 263 just because, he does not agree with the view taken by the AO. It was submitted that the jurisdiction u/s 263 cannot be exercised for substituting the view of the CIT with that of the AO. It was also submitted that even assuming that the aforesaid sum incurred in foreign exchange for travel abroad is to be excluded from the total turnover than the sum has to be excluded from the total turnover also and in this regard, the attention was drawn to the decision of the Hon'ble Karnataka High Court in the case of M/s Tata Elxsi Ltd., (2012) 20-4 Taxman 321(Kar.) approving the aforesaid view. Finally, it was submitted that the action of the CIT cannot be sustained because, in any event it cannot be said that there was any prejudice to the interest of revenue and the whole exercise is revenue neural exercise.
10. The learned DR submitted that the view taken by the AO even if it is in consonance with the view expressed by the Tribunal in several decided cases, the same cannot be a bar for the CIT to exercise jurisdiction u/s 263 of the Act, because, in principle the revenue has not accepted the theory of parity of the figures of export 9 ITA No.276(B)/2011 turnover and total turnover while computing the deduction u/s 10A of the Act. In this regard, our attention was drawn to the decision of the Delhi Bench of the Tribunal in the case of Hindustan Tin Works Ltd Vs DCIT92 ITD 101(Del) wherein it was held that if the view taken by an AO even if it is in conformity with the decision that the jurisdictional or other High Courts, if the jurisdiction of the High Court is a subject matter of appeal before the Supreme Court then the jurisdiction u/s 263 can be invoked. To a query, as to whether any specific appeal has been filed against the various orders cited by the learned counsel for the assessee before the higher forums, the learned DR could not give the required particulars, but however, submitted that exercising jurisdiction u/s 263 was proper.
11. The learned counsel for the assessee in his rejoinder submitted that the Hon'ble Supreme Court in the case of CIT Vs Max India 295 ITR 282(SC) has taken a view that if two views are possible on an issue and the AO has taken one view and by reasons of subsequent retrospective amendment to the law, such view becomes erroneous even than jurisdiction u/s 263 cannot be exercised.
12. We have considered the rival submissions. In our view, the order u/s 263 cannot be sustained. Firstly, we find that in the course of assessment proceedings, the assessee has furnished details regarding communication expenses, travel an conveyance expenses, legal and professional charges in the context of deduction u/s 10A of the Act. In the order of assessment, the AO has discussed only one aspect of the claim for deduction u/s 10A of the 10 ITA No.276(B)/2011 Act namely, reducing communication expenses both from the export turnover and the total turnover. The order of the AO is silent with regard to the expenses incurred in foreign exchange namely traveling expenses. The CIT in his order u/s 263 has proceeded to hold that the order of the AO is erroneous not because of lack of enquiry by the AO, but on the ground that the foreign travel expenses incurred in foreign exchange were in connection with providing technical services outside India. The CIT passed the order u/s 263 on 30-12-2008. As on this date there were several decisions rendered by the Tribunal in which a view has been expressed that the expenses incurred in foreign currency need not be reduced from the export turnover, in the case of an assessee who is engaged in the business of development of software. In other words, such adjustment can be made only if the assessee who is engaged in the business of providing technical services outside India. In the light of the aforesaid judicial pronouncement, the view taken by the AO was a possible view. The learned DR could not point out, as to why there are contrary views, expressed on the above issue by any higher forum to that of the ITAT. Nor was the DR was able to substantiate the aforesaid pronouncements were subject mater of appeal pending before the higher judicial forums. In the above circumstances, we are of the view that the decisions of the ITAT, Delhi Benches in the case of Hindustan Tin Works Ltd., (supra), will not be applicable to the facts of the present case. In the light of the above said judicial pronouncement cited by the counsel for the assessee, we are of the view that the AO has taken a possible view and the CIT cannot in exercise of powers u/s 263 seek to substitute 11 ITA No.276(B)/2011 his view with that of the AO. On this basis, we hold that the order u/s 263 cannot be sustained and the same is quashed.
13. In view of the above conclusion, the other submissions made by the parties before us do not require any consideration.
14. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on the 31st July, 2012.
Sd/- Sd/-
(N.BARATHVAJA SANKAR) (N.V.VASUDEVAN)
VICE PRESIDENT JUDICIAL MEMBER
Bangalore:
D a t e d : 31-07-2012
am*
Copy to :
1 Appellant
2 Respondent
3 CIT(A)-IV, Bangalore.
4 CIT
5 DR, ITAT, Bangalore.
6 Guard file (1+1)
By Order
Senior Private Secretary,
ITAT, Bangalore