Income Tax Appellate Tribunal - Chennai
Visteon Technical And Services Centre ... vs Assessee on 28 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH, CHENNAI
BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
I.T.A. No. 1870/Mds/2011
Assessment Year : 2007-08
M/s Visteon Technical and
Services Centre Pvt. Ltd., The Assistant Commissioner
Keelakaranai Village, v. of Income Tax,
Melrosapuram Post, Company Circle III(4),
Maraimalai Nagar, Chennai - 600 034.
Chengalpet - 603 204.
PAN : AACCV3261H
(Appellant) (Respondent)
S.P. No.74/Mds/2012
(in I.T.A. No. 1870/Mds/2011)
Assessment Year : 2007-08
M/s Visteon Technical and
Services Centre Pvt. Ltd., The Assistant Commissioner
Keelakaranai Village, v. of Income Tax,
Melrosapuram Post, Company Circle III(4),
Maraimalai Nagar, Chennai - 600 034.
Chengalpet - 603 204.
(Petitioner) (Respondent)
Appellant/Petitioner by : Shri Arvind P. Datar, Sr. Advocate
Respondent by : Shri Shaji P. Jacob, Additional CIT
Date of Hearing : 28.05.2012
Date of Pronouncement : 15.06.2012
O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
This is an appeal filed by the assessee directed against an order dated 27.9.2012 of ACIT III(4), Chennai, passed pursuant to the 2 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 directions of the Dispute Resolution Panel (in short 'DRP'). A Stay Petition has also been moved by the assessee for stay of demand. The appeal has been listed and heard and hence is disposed of through this order. Assessee has filed a concise grounds of appeal and this alone is considered. Ground No.1 in such concise grounds of appeal is general needing no adjudication.
2. Vide its ground No.2, grievance of the assessee is that the A.O. had done the assessment under Section 143(3) of Income-tax Act, 1961 (in short 'the Act') after 31st December, 2010 and this was therefore beyond the statutorily allowed time. As per the assessee, it was not an 'eligible assessee' falling within Section 144C(15)(b) of the Act, and therefore, the extended time period for completing the assessment was not available to the A.O.
3. Fact apropos this issue are that assessee, engaged in the business of developing and selling automotive embedded software to group companies and also providing business outsourcing support, was functioning as a 100% Export Oriented Unit (EOU). For the impugned assessment year, assessee filed a return on 31st October, 2007 declaring income of ` 19,95,386/- and there was a claim for deduction of ` 21,19,96,264/- under Section 10B of the Act. During the course of assessment proceedings, a reference was made by the Assessing 3 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 Officer to Transfer Pricing Officer (TPO) under Section 92CA(1) of the Act in respect of the international transactions entered by the assessee with its Associated Concerns. The TPO called for various details, which were duly furnished by the assessee. Thereafter, order was passed by TPO under Section 92CA(3) of the Act, wherein it was ruled that no adjustment was required to the value of the international transactions entered by the assessee with the group companies. Subsequent to her order dated 16.9.2010, the TPO in a letter 29.12.2010, made an observation that international transactions entered by the assessee with the AE was above arm's length price by a sum of ` 10,89,20,652/-. The TPO also opined such excess profit required to be brought to tax. Assessing Officer thereafter framed a draft order as stipulated under Section 144C of the Act, through which he proposed to reduce the claim of deduction under Section 10B of the Act by a sum of ` 2,85,83,065/- by recalculating such deduction inter alia excluding telecommunication expenses, foreign currency expenditure on travel and foreign exchange not realized within the period allowed under the statute, from the total export turnover. He also proposed to apply Section 10B(7) of the Act and reading it alongwith Section 80-IA(10) of the Act, wanted to make an addition of ` 10,89,20,652/- being the amount found by the TPO to be the excess profits shown by the assessee on international transactions vis-à-vis the comparables.
4 I.T.A. No. 1870/Mds/11S.P. No.74/Mds/12
4. Assessee, on receipt of the draft assessment order, filed objections before the Dispute Resolution Panel (DRP). Primary objection of the assessee was that the draft assessment order issued by the A.O. under Section 144C of the Act was invalid since no transfer pricing adjustment was required to be made by the TPO. As per the assessee, it did not fall within the definition of "eligible assessee" given in Section 144C(15)(b) of the Act. Argument of the assessee was that there being no transfer pricing adjustment, order under Section 143(3) itself ought have been passed before 31st December, 2010. Hence, as per the assessee, the draft assessment order and all proceedings subsequent thereto became invalid. Reliance was placed on the decision of Hon'ble Gujarat High Court in the case of Pankaj Extrusion Ltd. v. ACIT (2011) 56 DTR 32. However, the DRP was not impressed. According to them, the variation in the returned income made by the A.O. in the draft assessment order was only on account of report of the TPO and therefore, the assessee fell within the definition of "eligible assessee" under Section 144C(15)(b) of the Act. DRP was also of the opinion that the decision of Hon'ble Gujarat High Court in the case of Pankaj Extrusion Ltd. (supra), relied on by the assessee, had not become final.
5 I.T.A. No. 1870/Mds/11S.P. No.74/Mds/12
5. Now before us, learned A.R., strongly assailing the orders of the A.O. as well as the DRP, submitted that under Section 144C(15) of the Act, when variation to the arm's length price was not required to be made, based on the order of Transfer Pricing Officer, assessee was no longer an "eligible assessee" and hence, the draft of the proposed order of assessment could never have been validly made by the A.O. Strongly relying on the decision of Hon'ble Gujarat High Court in the case of Pankaj Extrusion Ltd. (supra), learned A.R. submitted that when there was no variation of income by virtue of order of the TPO, the assessee could not be considered an 'eligible assessee' and therefore, procedures for issue of draft assessment order and further steps required under Section 144C of the Act would not apply. According to him, once the procedure under Section 144C of the Act was not effectively followed, then the assessment could be framed on the assessee only under Section 143(3) of the Act in accordance with normal procedure. Here, the final assessment order was passed on 27.9.2011 and this was beyond the time period allowed for making a regular assessment. Therefore, according to him, the proceedings required to be quashed.
6. Per contra, learned D.R. submitted that just because the TPO had not recommended any changes to the arm's length price, would not render the draft assessment order invalid. According to him, this 6 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 question was elaborately considered by the co-ordinate Bench of this Tribunal in the case of Visual Graphics Computing Services (India) Pvt. Ltd. v. ACIT (2012) 15 ITR (Trib.) 393. Learned D.R. submitted that similar plea was raised by the assessee in that case also and co- ordinate Bench held that if at all there was any irregularity of the nature mentioned by the learned A.R., such irregularity did not make the assessment order illegal and such assessment order did not become void ab initio.
7. We have perused the orders and heard the rival submissions. No doubt, we do not appreciate the stand of the DRP that decision of Hon'ble Gujarat High Court in the case of Pankaj Extrusion Ltd. (supra) could not be followed since it had not become final. In the order of judicial hierarchy, it is essential that judgment of higher judicial forums are respected by all the authorities below. Nevertheless, if we take a look at the decision of Hon'ble Gujarat High Court in the case of Pankaj Extrusion Ltd. (supra), it is clearly held at para 10 that the contention regarding extended time limit provided under Section 153 of the Act for cases falling under Section 92CA, when an assessee cannot be considered as an eligible assessee as defined in clause (b) sub-section (15) of Section 144C of the Act, is left open and not decided. Relevant paras 8 to 10 of the judgment of Hon'ble Gujarat High Court are reproduced hereunder:-
7 I.T.A. No. 1870/Mds/11S.P. No.74/Mds/12
"8. From the above, it is clear that for assessment year relevant for our purpose, on account of procedure undertaken in s. 92CA of the Act, there was no variation in the income by virtue of order of TPO. That being the position, the petitioner cannot be stated to be an eligible assessee as defined in cl. (b) of sub-s. (15) of s. 144C of the Act. Procedure for issuance of draft order calling for his objection and taking further steps as laid down under s. 144C therefore, would not apply.
9. We are of the opinion that with above declaration petition can be closed.
10. Counsel for the petitioner however, submitted that even the extended time-limit provided in s. 153 of cases under s. 92CA would not apply by virtue of above conclusion. On the other hand, counsel for the Department contended that if the petitioner does not wish to raise any objection to the draft order, it would be open for the A.O. to treat the assessment order accompanying impugned communication as final order of assessment."
Thus their Lordship had not considered the issue of time limits at all, whether it was one under proviso to Section 153 or under Section 144C(13). What is required under Section 144C(1) of the Act is that the variation in the income or loss returned should be resulting out of an order of Transfer Pricing Officer. Though there has been no revision in the ALP recommended by the Transfer Pricing Officer, he had in his clarificatory order clearly mentioned that the excess profit shown by the assessee had to be considered for taxation. Therefore, we cannot say that the variation in the income or loss returned was not on account of the order of Transfer Pricing Officer. Even otherwise, the proposed draft assessment order is only a procedural requirement and assessee's interests are not prejudiced. It is in a sense an in-built protection given 8 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 to the assessee, whereby an option is given to him to approach the DRP if he is not satisfied. We are of the opinion that this issue has been considered by the co-ordinate Bench of this Tribunal elaborately in Visual Graphics Computing Services (India) Pvt. Ltd. (supra). Para 12 of the said order dated 17th April, 2012, is reproduced hereunder:-
"12. The first issue raised by the assessee reflected in ground Nos. 2.1 to 2.4 is legal in nature. The ground is that the draft assessment order passed by the assessing authority under sec.144C(1) is void ab initio and consequently the final assessment order is barred by limitation. This legal issue, will be considered, after we adjudicate the grounds raised by the assessee on the merits of various disallowances."
The above issue has been dealt with by the co-ordinate Bench at paras 46 to 49 of the same order, which is reproduced hereunder:-
"46. When we go through these different schemes, it is easy to find that the assessing authority is within the competence of law to refer the matter to the TPO, if the assessee had entered into international transactions with its AE. It is, as a result of the reference made by the assessing authority, that subsequent order of the TPO and the order of the DRP are followed. While making proposals on the basis of the order of the TPO, the Assessing Officer may propose adjustments which in fact do not fall under the segment of TP matters but fall under the segment of non-TP matters. For the reason that the Assessing Officer has made such a mistake, it is not possible to hold that an erroneously passed draft assessment order will make the assessment order passed under sec.143(3), time barred. The Assessing Officer has made a reference to the TPO and on the basis of the order of the TPO, he has made a draft order. In the said draft order, there is no proposal on TP matters, but he made a proposal on sec.10A deduction. But the material necessary for making such a proposal, even if erroneous, was generated from the order of the TPO. Therefore, the Assessing Officer proposed to reduce the super profit from the computation 9 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 of sec.10A deduction. That may not be in accordance with the procedure prescribed. But it does not mean that the Assessing Officer should have never passed such a draft assessment order. If the Assessing Officer has to make such adjustment in the light of the information available from the order of the TPO, then he has to pass a draft assessment order. Whether those adjustments are sustainable or not, is a different issue. The legality or illegality of those adjustments do not determine the validity and limitation of an assessment made under sec.143(3).
47. Therefore, it is necessary to see that the reference made to the TPO, the order passed by the TPO, the draft assessment order passed by the Assessing Officer and the directions issued by the DRP are all pre-assessment procedures of aid and guidance provided to the assessing authority by the statute. If any irregularity is committed by the Assessing Officer in following the above set of pre-assessment procedures, such irregularity does not make the assessment order illegal. At the best, it makes the order only irregular.
48. In the present case, when the adjustments made by the Assessing Officer are deleted by the Tribunal, that irregularity is automatically cured. In such circumstances, the assessment order need not be invalidated. The assessment order does not become void ab initio. In the present case, the irregularity will be rectified as soon as the Assessing Officer passes the order to give effect to the order of the Tribunal.
49. Therefore, we are not able to accept the argument of the learned senior counsel that the impugned assessment is barred by limitation."
In view of the above, we are of the opinion that ground No.2 of the assessee has no merits. This ground stands dismissed.
8. Grounds Nos.3 to 6 of the assessee are regarding the adjustment made under Section 10B(7) of the Act. These grounds are reproduced hereunder:-
10 I.T.A. No. 1870/Mds/11S.P. No.74/Mds/12
"3. The learned A.O. has erred, on law and facts, by making adjustments under section 10B(7) read with section 80IA(10) of the Act to the returned income, without establishing that the business between the Appellant and associated enterprises has been so "arranged" for earning more than ordinary profits which might be expected to arise in such eligible business.
4. The learned DRP and A.O. erred in not appreciating that the term 'ordinary profits' is not defined under the Act and also erred in construing the arithmetic mean of the comparable companies provided in the documentation maintained under section 92D of the Act as the ordinary profits for the purposes of section 10B(7) of the Act.
5. The Learned A.O. erred in unilaterally seeking clarifications from the TPO on the ALP after the conclusion of the transfer pricing assessment. Further, the learned A.O. erred in neither sharing the same with VTSC nor granting an opportunity to VTSC to provide its rebuttal, leading to violation of principles of natural justice.
6. The learned TPO/DRP having accepted Sankhya Infotech Ltd. as a comparable company with a margin of 32.13 percent, erred in considering the margin earned by the Appellant (24.09 percent) as extraordinary profits."
The TPO in her letter dated 29.12.2010 had given a finding that the Profit Level Indicator (PLI) of the assessee came to 24.09%, as against which the arithmetic mean of such PLI of the comparable companies, came to only 10.06%. Assessee had adopted Transactional Net Margin Method (TNMM) for arriving at arm's length price. The Transfer Pricing Officer in her report dated 16.9.2010, had made the following observations with respect of the adjustments required on the international transactions:-
11 I.T.A. No. 1870/Mds/11S.P. No.74/Mds/12
"5. The case was discussed with the assessee's representative. On examination of the international transactions, the value of those transactions are verified to be determined at arm's length. Hence, no adjustment is considered necessary to the value of international transactions entered into by the assessee. It is hereby clarified that the findings and discussions made in this order are applicable only in respect of reference received for Assessment Year 2007-08 and not for any other Assessment Year."
The TPO in her clarifications dated 29.12.2010, had stated as follows:-
"Based on the TNMM Method chosen by the assessee, the arm's length price in relation to the International transaction on comparison with the average PLI - 10.0% of the comparables, is determined as per the provision of Sec. 92C(2) of the I.T. Act as follows:-
Arithmetic mean of the comparable 10.06%
OP/Cost of the Assessee Company 24.09%
Income earned from software and ITES
94,72,56,794
Total expenditure incurred 77,63,41,070
PBIT of Assessee 18,78,86,520
Excess Profit earned 77,63,41,070 x 24.09/100
= Rs. 18,17,20,564
77,63,41,070 x 10.06/100
= Rs. 7,80,99,912/-
Difference Rs. 10,89,20,652/-
Accordingly it is evident that International transaction carried on by the assessee with its AE is above the arm's length price 10,89,20,652/- which is the difference between the operating profit shown by the assessee and operating profit computed by 10.06% of the operating cost. This excess profit of Rs. 10,89,20,652/- may be brought to tax."
Based on the above, the Assessing Officer, relying on Section 80-IA(10) of the Act, reached an opinion that deduction under Section 10B of the Act could not be given to the excessive profit amount of ` 10,89,20,652/- Such a proposal in the draft assessment order was objected by the assessee before the DRP. The DRP, however, confirmed the view of 12 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 the A.O. and held that assessee had more than ordinary profits and arm's length price determined by the TPO could be taken as reasonable profits. Therefore, according to DRP, the case called for application of Section 10B(7) read with Section 80-IA(10) of the Act. The DRP, therefore, refused to interfere with the proposal of the A.O. Assessment was completed by re-working the deduction claimed by the assessee under Section 10B of the Act whereby reasonable profits fixed considering the ALP recommended by the TPO was only considered. Effectively, the sum of ` 10,89,20,652/-, which was considered by the Assessing Officer as excess profits, was not given the benefit of deduction under Section 10B of the Act.
9. Now before us, learned A.R., strongly assailing the orders of A.O. as well as DRP, submitted that the issue stood decided in favour of assessee by virtue of decision of co-ordinate Bench of this Tribunal in the case of Visual Graphics Computing Services (India) Pvt. Ltd. (supra). According to him, this Tribunal, in the above order, after considering another co-ordinate Bench's decision in the case of Tweezerman (India) (P) Ltd. v. ACIT (133 TTJ 308), had held that reduction of eligible profits by invoking Section 80-IA(10) read with Section 10B(7) in the context of TPO order, was unsustainable. Therefore, according to him, the Assessing Officer fell in error in holding that there were unreasonably 13 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 high profits which were not eligible for deduction under Section 10B of the Act.
10. Per contra, learned D.R. fairly conceded that the issue stood decided in favour of the assessee by the decision of co-ordinate Bench of this Tribunal in the case of Visual Graphics Computing Services (India) Pvt. Ltd. (supra).
11. We have perused the orders and heard the rival submissions. In the case of TweezerMAN (India) (P) Ltd. (supra), co-ordinate Bench on a similar issue held as under at para 8 of its order:
"8. We have considered the rival submissions. A perusal of the order of the TPO for the relevant assessment year shows that the TPO has verified the ALP and has confirmed that no adjustment on account of transfer pricing was required to be made. The provisions of transfer pricing relate to international transactions between two or more AEs. The intention of the provisions of transfer pricing is to see to it that when international transactions are done between two or more AEs, the affairs of the enterprises are not adjusted in such a manner as to deprive the country or the local AE of the correct revenue, which would result in the reduction of taxable income of the local AE in the country. In the present case, undisputedly, the TPO has confirmed that the local AE being the assessee herein has received the revenue due to it and there is no adjustment made in the affairs of the AE so as to deprive the revenues of the assessee in the country. Reading of the provisions of s. 10B shows that the deduction of the profits and gains derived by the assessee from 100 per cent export-oriented undertaking is granted. The provisions of s. 10B(7) provide for the applicability of the provisions of s. 80-IA(10) of sub-s. (8) when computing the profits and gains of 100 per cent export oriented undertaking. The provisions of sub-s. (10) of s. 80-IA which have been invoked in the present case provide that if the A.O. is of the opinion that owning to 14 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 the connection between the assessee carrying on the eligible business with another person the business between them is so arranged so that as a result of the business transacted between the eligible person and other person, the profit of the eligible person is inflated so as to claim the exemption provided, then the A.O., while computing the profits and gains of the eligible business for the purpose of granting deduction can readjust the amount of profit as would reasonably be derived from such eligible business. Here, in the present case the TPO has categorically given a finding that the income of the assessee is at the arm's length. One must keep in mind that the intention of transfer pricing is also on similar lines as s. 80- IA(10) insofar as under the provisions of transfer pricing it is to verify as to whether the local AE is getting its right share of revenue and as per s. 80-IA(10), it is to verify and adjust the profits of an eligible business so that under the garb of the eligible business the taxable income of an AE is not reduced by shifting its income to the eligible business. However, he has given a further fact in his order that the profit level indicator of the assessee is higher than the mean of the profit level indicator of the comparable cases. The assessee has been right from the beginning claiming that M/s Rahul Electricals & Electronics, which showed a low ratio of profit before tax to sales was not a comparable. This has not been refuted by either the TPO or the A.O. In fact, with the comparable, which the assessee itself is pointing out being a sister-concern of the assessee showed the ratio of the PBT to sales at 90.1 per cent, if M/s Rahul Electricals is being considered as comparable and had shown a PBT to sales at 7.3 per cent, has the TPO taken any action under transfer pricing against M/s Rahul Electricals & Electronics has also not been placed before us. This is because, after all the assessee-company is showing a higher margin and complying with the intention of the transfer pricing policy in the country, whereas the comparable which has been taken by the TPO and the A.O. showed a far lower margin than even the mean of the profit level indicator of the so-called comparables. At the time of hearing, the learned Departmental Representative was vehemently of the view that the transfer pricing action by the TPO at the behest of the A.O. was a separate proceeding and the A.O. while completing the assessment by invoking the provisions of s. 10B(7) r/w s. 80-IA(10) was doing an independent action though using the evidence and documents which had been submitted before the TPO. Even if this submission of the learned Departmental Representative is accepted, then it becomes incumbent upon the A.O. to specify as to why he feels that the profits 15 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 disclosed by the assessee are higher than the ordinary profits which might be expected to arise in the assessee's business. The provisions of s. 80-IA(10) do not give an arbitrary power to the A.O. to fix the profits of the assessee. The A.O. has to specify as to why he feels that the profits of the assessee are being shown at a higher figure, which he has done by alleging the close proximity between the assessee and the USA company with whom the assessee is transacting. He has further to show as to how he has computed the ordinary profits which he deems to be the ordinary profits which the assessee might be expected to generate. Here, the A.O. failed insofar as he has blindly taken a calculation which the assessee has given before the TPO which the assessee himself has admitted to be erroneous and the errors have been corrected and the fresh calculation given. This calculation is also not a calculation for determining the ordinary profits which the assessee might be expected to generate. The A.O. would be expected to use a comparable case to determine the possible ordinary profit which the assessee could be expected to generate from his business. In the absence of any other substantial evidence available with him, when using a comparable, the assessee's own past and future performance would obviously be the best comparable. Comparing the assessee's modus operandi of conducting its business with another when the same are not of equal terms would be a travesty of justice insofar as the financial charges, the use of the plant and machinery, the depreciation thereon, the location which would affect the cost of transportation as also the cost of the labour, cost of power and fuel would have to be seen. These are but only some factors which would affect the comparability when comparing two different enterprises. M/s Rahul Electricals & Electronics which has a turnover of only Rs. 1.28 crores, obviously cannot be compared with the assessee which has the turnover of more than Rs. 15.06 crores. Further, from the order of the TPO, M/s Rahul Electricals & Electronics is also in the business of making tools, which include tweezers, whereas manufacture of tweezers is nearly 90 per cent of the total manufacturing of the assessee. The fact that the A.O. has also not shown any calculation on the basis of which he has determined Rs. 3.54 crores is the excess profit received by the assessee cannot stand in view of the fact that he has not shown as to what he feels is the actual ordinary profit which the assessee could have generated nor has he shown any particulars he has used for arriving at such a figure especially when the assessee himself has filed the calculation showing the error in the difference between the profits and the ALP 16 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 as filed before the TPO. Under these circumstances, we are of the view that the reduction of the eligible profits of the assessee by an amount of Rs. 3.54 crores as done by the A.O. by invoking the provisions of s. 80-IA(10) r/w s. 10B(7) of the Act is unsustainable and consequently the same is deleted in toto."
Since the fact situation is very similar here also, we are of the opinion that assessee could not have been denied deduction under Section 10B of the Act by invoking sub-section (7) thereof read with Section 80-IA(10) of the Act, simply based on the TPO order. The A.O. is, therefore, directed to re-work the deduction under Sec. 10B of the Act considering the profits shown by the assessee in Form No.56G filed by it.
12. In the result, ground Nos.3 to 6 of the assessee stand allowed to the extent cited above.
13. Vide its ground No.7, grievance of the assessee is that the A.O. made an addition of ` 10,89,20,652/- as TP adjustment, while at the same time denying deduction under Section 10B of the Act on said sum, considering it to be excess profit.
14. We are of the opinion that this issue can be resolved without much quarrel. Relevant part of the report dated 16.9.2010 of the TPO is reproduced at para 8 above. TPO has recommended that there was no requirement of revision of the value of international transactions of the assessee. Clarificatory letter dated 29.12.2010 issued by the TPO only 17 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 mentioned that the values of international transaction entered by the assessee with AEs was above the arm's length price by ` 10,89,20,652/- If we endeavour to bring down the profits of the assessee by the amount considered as excessive profit, it will have the effect of reducing the income chargeable to tax or increasing the loss. This brings us to Section 92(3) which reads as follows:-
"(3) The provisions of this section shall not apply in a case where the computation of income under sub-section (1) or the determination of the allowance for any expense or interest under that sub-section, or the determination of any cost or expense allocated or apportioned, or, as the case may be, contributed under sub-section (2), has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction was entered into.]"
It is thus clearly specified that where computation of income was done, considering the arm's length price for the international transactions and such computation result in reducing the income chargeable to tax or increasing the loss, as the case may be, then the computation that has to be considered is one done based on the entries made in the books in respect of such international transactions. Assessee here had profits which were in excess of the profits of the comparable cases. There was thus no question of addition of ` 10,89,20,652/- based on the TPO order. This addition, therefore, stands deleted.
15. In the result, ground No.7 of the assessee is allowed. 18 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12
16. Vide its ground Nos.8 to 11, grievance of the assessee is that deduction under Section 10B of the Act was denied to it even on sale proceeds which were brought into India within the time limit prescribed under sub-section (3) thereof, despite such directions of the DRP. Further, as per the assessee, if unrealized export proceeds were reduced from export turnover, such amounts had to be reduced from total turnover as well.
17. Facts apropos are that in Form No.56G filed alongwith return of income, it was mentioned that a sum of ` 7,05,40,982/- being consideration relating to exports was brought to India beyond the period of six months from the end of relevant previous year. Based on this observation of the auditors, Assessing Officer in his draft assessment order under Section 144C of the Act, proposed to reduce from the export turnover this sum of ` 7,05,40,982/-. Before the DRP, submission of the assessee was that RBI had, vide Circular No.25 dated 1st November, 2004, provided general permission to export-oriented units to bring the sale proceeds in convertible foreign exchange within twelve months from the date of export. As per the assessee, the competent authority mentioned in Section 10B(3) of the Act was RBI, and the circular applied. Assessee also filed before the DRP, a list showing dates of receipt of foreign exchange from its sales. DRP was of the opinion that 19 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 there was merit in the grievance of the assessee and directed the A.O. to verify the details and evidence filed by the assessee in the paper- book and to give assessee appropriate relief. Pursuant to such direction, the Assessing Officer took up the matter once again for verification. Assessing Officer, after verifying the details furnished by the assessee, concluded that the sum of ` 7,05,40,982/- mentioned in Form No.56G, had to be reduced from the eligible profits in view of Section 10B(3) of the Act and such amounts also had to be reduced from the export turnover in view of Explanation 2 to Section 10B of the Act. While re-working the deduction under Section 10B of the Act, Assessing Officer also excluded from export turnover the sum of ` 7,05,40,982/- being foreign exchange not realized.
18. Now before us, learned A.R., strongly assailing the order of A.O., submitted that the details of receipts of foreign exchange on sales, furnished by the assessee were not at all considered by the Assessing Officer. According to him, DRP gave clear direction to the Assessing Officer to verify such details, but this was not done. Assessing Officer, without going through the Circular of the RBI, had simply come to a conclusion that the sum of ` 7,05,40,982/-, though it was realized within the period of one year, had to be excluded from export turnover. According to him, just because the receipts that were within the period allowed by RBI, were in names which did not exactly tally with the 20 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 names of the clients, the disallowance was made. Relying on sub- section (3) of Section 10B of the Act, learned A.R. submitted that the only requirement was that sale proceeds in convertible foreign exchange was to be brought into India within a period of six months or extended periods allowed by the competent authority. This was done and despite that, the disallowance was made. In any case, according to him, if such amount was excluded from the export turnover, it had to be excluded from total turnover, in the formula adopted for computing of deduction under Section 10B and reliance was placed on the decision of Special Bench of this Tribunal in the case of ITO v. Sak Soft Ltd. (2009) 313 ITR (AT) 353.
19. Per contra, learned D.R. submitted that assessee could not produce evidence for receipt of sale proceeds worth ` 7,05,40,982/- within the period permitted by RBI. As per the details filed by the assessee, the said amount was received from one M/s Yanfeng Visteon Automotive Electronics Co. Ltd., whereas, sundry debtors as on 31st March 2007 as per assessee's accounts disclosed only dues of ` 7,03,11,303/- from the said company during the relevant previous year. Audit Report in Form 3CEB showed sales of ` 4,09,94,820/- not to the said company but to one Yangfeng Visteon Ltd., China. In the face of such contradictory figures given by the assessee, it was impossible that assessee would have received the stated amount from the said concern, 21 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 that too, more than what was due. Relying on paper-book filed him, learned D.R. submitted that a total export turnover of ` 94,72,56,794/- were on account of sales to three parties of which one was M/s Visteon Corporation, USA (` 84,12,72,058) and one was M/s Visteon Japan Ltd., Japan (` 6,54,89,416/-) and the third one was Yanfeng Visteon Ltd., China (` 4,04,94,820/-). Therefore, according to him, assessee's argument that the whole sum of ` 7,05,40,982/- claimed as received during the period allowed under Section 10B(3) of the Act, had come from Yanfeng Visteon Ltd., China alone could not be believed. It could only mean that payments received were from one of the above companies and not from Yanfeng Visteon Automotive Electronics Co. Ltd., China, since there were no sales whatsoever to the latter in the relevant previous year. Learned D.R. pointed out that the addition made under Section 10B(3) of the Act by the A.O. was ` 9,49,44,729/- and this comprised two more items other than ` 7,05,40,982/-, claimed as received from Yanfeng Visteon Automotive Electronics Co. Ltd., China. According to him, Assessing Officer had also found that for a sum of ` 27,03,972/- claimed as received from M/s Visteon Corporation, no foreign inward remittance certificate (FIRC) was filed. Similarly, the details furnished by the assessee, showed that a sum of ` 2,05,86,262/- was received after expiry of one year from the date of the invoice from M/s Visteon Corporation, Japan and M/s Visteon UK.
22 I.T.A. No. 1870/Mds/11S.P. No.74/Mds/12
20. Ad libitum, learned A.R. submitted that in the original draft assessment order, the amount considered for exclusion under Section 10B(3) was only ` 7,05,40,983/- and the other two amounts were added only in the final assessment. According to him, this could not have been done since Assessing Officer had no power to go beyond the draft assessment order on which directions were given by the DRP. In any case, according to him, atleast a sum of ` 4,02,45,585/- was acknowledged by the Assessing Officer to have been received in time, and therefore, atleast this sum ought not have been excluded from export turnover. .
21. We have perused the orders and heard the rival submissions. It is true that in the draft assessment order, the Assessing Officer proposed to exclude from export turnover a sum of ` 7,05,40,982/- mentioned in Form 56G filed by the assessee, as to have been received after the six months period. DRP based on the submissions of the assessee, required the Assessing Officer to go through the details filed by the assessee in this regard and also consider the extension of time limit given by RBI through its general Circular. The direction of the DRP in this regard is clear and reproduced hereunder:-
"As regards the receipt of foreign exchange within one year the assessee has filed details in p.100-133 of the paperbook filed 23 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 with the objections on 28.11.2011. The A.O.'s comments on the objections, though specifically called for, have not been received. Prima-facie, there is merit in the assessee's grievance. The A.O. is directed to verify the circulars cited and the details and evidence of the time of remittance given in the paperbook and allow appropriate relief."
Assessing Officer, based on the details furnished by the assessee, came to a conclusion that against the sum of ` 7,05,40,982/- shown as received from Yanfeng Visteon Automotive Electronics Co. Ltd., China, a sum of ` 4,04,94,820/- alone could be considered received by the assessee, that too from Yanfeng Visteon, China and not Yangeng Visteon Automotive Electronics Co. Ltd. Therefore, the A.O. was of the opinion that names differed and no credit could be given for alleged receipts of ` 7,05,40,982/-. List of sundry creditors of assessee as on 31st March, 2007 placed before us by learned D.R., reads as under:-
Sl. Name of the Party along Amount Nature of Purpose No with address (INR) Transactio n
1. Visteon - Philiphines 3,211,933 Receivables Reimbursement
2. Visteon (Thailand) Limited 2,979,651 Receivables Reimbursement
3. Visteon Electronics 186,394,345 Receivables Software Systems - USA services rendered
4. Visteon Electronics 31,183,680 Receivables Software Systems - USA - BPO services rendered
5. Visteon Japan, Ltd. 11,279,260 Receivables Software services rendered
6. Yanfeng Visteon 70,311,303 Receivables Software Automotive Electronics services Co. Ltd., China rendered 24 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 As per the above list, what was due by the assessee from Yanfeng Visteon Automotive Electronics Co. Ltd., China, was ` 70,311,303/-.
Other receivables have also been shown, but these were all in the name of M/s Visteon and not Yanfeng Visteon Automotive Electronics Co. Ltd., China. The break-up of the total sale of the assessee has been given in the paper-book filed by the learned D.R. and this reads as follows:-
International Transaction in respect of providing of services S. Name and address of Description of No. the associated Services Amount paid/received or enterprise with whom provided/availed payable/receivable for the the International to/from the Services provided/taken transaction has been associated entered into enterprises As per books As computed of account by the assessee having regard to the arm's length price Clause 10(a) Clause 10(b) Clause 10(c)(i) Clause 10(c)(ii)
1. Visteon Corporation, 841,272,058 841,272,058 128, Spring Road, Ypsilanti MI 48198, USA Export of
2. Visteon Japan Ltd., Software 65,489.916 65,489,916 4-25-2 Kilayamata Service and Tsuzuki-Ku, Yokohama- Information Shi Kanagawa 224- Technology 0021, Japan enabled services
3. Yanfeng Visteon Ltd., 40,494,820 40,494,820 300, Minolta Road, Songjang, County shanghai, China Total 947,256,794 947,256,794 It is clear from the above that the sales of the assessee were to Visteon Corporation, USA, Visteon Japan Ltd., Japan and Yanfeng Visteon Ltd., 25 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 China. The only name in which "Yanfeng Visteon" appearing is Yanfeng Visteon Ltd. No sales to any company by the name of Yanfeng Visteon Automotive Electronics Co. Ltd., China is there. Further, for the dues from Chinese companies, we cannot presume that money would have come from USA and/or Japan companies, though they were all associated enterprises. The only probability is that the amount ` 40,494,820/- accepted by the A.O. as received from Yanfeng Visteon Automotive Electronics Co. Ltd., China, was nothing but what was billed and due from Yanfeng Visteon Ltd., China. We are, therefore, of the opinion that receipt of ` 4,04,94,820/- out of sum of ` 7,05,40,982/-
stands established.
22. Coming to the exclusion of ` 2,05,86,262/- received from Visteon Corporation, undisputedly this amount was not mentioned in the draft assessment order for applying Section 10B(3). There is also no dispute that assessee had raised an objection against the proposal to exclude export realization received beyond six months from the export turnover, before the DRP. Once a reference is made to Dispute Resolution Panel and where objections are filed by the assessee, the procedure to be followed is clearly set out in sub-section (5) to (13) of Section 144C of the Act, which is reproduced hereunder for brevity:- 26 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12
(5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment.
(6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:--
(a) draft order;
(b) objections filed by the assessee;
(c) evidence furnished by the assessee;
(d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority;
(e) records relating to the draft order;
(f) evidence collected by, or caused to be collected by, it; and
(g) result of any enquiry made by, or caused to be made by, it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),--
(a) make such further enquiry, as it thinks fit; or
(b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub- section (5) for further enquiry and passing of the assessment order. (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members.
(10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer.
(11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respectively. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee.
(13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153, the assessment without providing any further opportunity of being heard 27 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 to the assessee, within one month from the end of the month in which such direction is received.
Sub-section (8) clearly specifies that the power of Dispute Resolution Panel is limited to confirmation, reduction or enhancement of variations proposed. There cannot be any setting aside of any proposed variation for further enquiry and passing of the assessment order. Here, the Dispute Resolution Panel had given a direction to the Assessing Officer, at page 13 of its order which read as under:-
"As regards the receipt of foreign exchange within one year the assessee has filed details in p.100-133 of the paperbook filed with the objections on 28.11.2011. The A.O.'s comments on the objections, though specifically called for, have not been received. Prima-facie, there is merit in the assessee's grievance. The A.O. is directed to verify the circulars cited and the details and evidence of the time of remittance given in the paperbook and allow appropriate relief."
DRP by the above directions, requires the A.O. to verify the details furnished by the assessee and to give appropriate relief. In our opinion, this is nothing but equivalent to a set aside, with direction for making further enquiry and thereafter to pass the assessment order. The Assessing Officer could not have made any further addition to the original proposal in the draft assessment order, once it was subject to a proceeding by the Dispute Resolution Panel, except for completing the assessment in confirmation with directions of Dispute Resolution Panel. DRP had no powers to issue directions which gave scope for "further 28 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 enquiry". Reduction of ` 2,05,86,262/- and also ` 27,03,972/- from export turnover were resulting out of further enquiries made by the A.O. pursuant to the DRP direction. No doubt, the figures for such addition might have been taken by the A.O. from the details submitted by the assessee. But, nevertheless, a departure from the draft assessment order in a substantial manner so as to include items which were not originally considered, cannot be done in view of the clear wordings of the Sections. We are, therefore, of the opinion that exclusion of ` 2,05,86,262/- and ` 27,03,972/- from the export turnover were not warranted. Insofar as exclusion of ` 7,05,40,982/- is concerned, we have already held that assessee could establish receipt of ` 4,04,94,820/-. Therefore, we limit the amount, which is to be excluded for non-realization of export proceeds within the period mentioned in Section 10B(2) of the Act, to a sum of ` 3,00,46,162/- being difference between ` 7,05,40,982/- and ` 4,04,94,820/-.
23. Thus grounds Nos.8 to 11 are allowed to the extent as above.
24. Vide its ground No.12, grievance of the assessee is that the amounts which have been excluded from export turnover on account of non-realization within the time specified under Section 10B(3) of the Act ought have been excluded from total turnover for computation of deduction under Section 10B of the Act.
29 I.T.A. No. 1870/Mds/11S.P. No.74/Mds/12
25. Before us, learned A.R. submitted that in view of the decision of Special Bench of this Tribunal in the case of Sak Soft Ltd. (supra), whatever was excluded from export turnover had to be excluded from total turnover also.
26. Per contra, learned D.R. submitted that if unrealized export proceeds were excluded both from total turnover as well as export turnover, then Section 10B(3) of the Act will become otiose when an assessee was doing 100% exports . According to him, if the profit of the assessee was ` 100/- against the turnover of ` 1000/-, of which only ` 800/- was realized, if the formula proposed by learned A.R. was accepted, then deduction under Section 10B of the Act may be equal to-
Rs 100 x ` 800 = ` 100
Rs 800
In other words, according to him, if it was excluded both from numerator and denominator then there would be no reduction in the export profit and non-realization of export proceeds within the period mentioned in Section 10B(3) of the Act, will have no effect in the work-out of deduction available under Section 10B of the Act.
27. Ad libitum, reply of the learned A.R. was that when something was excluded from export turnover, it had to be excluded from total turnover 30 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 also, especially, when these items were not considered for the purpose of working out deduction under Section 10B of the Act.
28. We have perused the orders and heard the rival submissions. We are of the opinion that the argument of the learned D.R. has substance. If unrealized export proceeds were excluded both from export turnover and total turnover, insofar as an assessee which was having only export sales, the export profit deductible under Section 10B of the Act, will remain same. If the total profits are ` 100 as mentioned by learned D.R. and a sum of ` 200 out of total turnover ` 1000/- has not been realized, the equation to be applied for working out deduction under Section 10B of the Act, in our opinion, will be -
Rs 100 x ` 800 and not ` 100 x ` 800
` 1000 ` 800
No doubt, the Special Bench of this Tribunal in the case of Sak Soft Ltd. (supra) had held that if export turnover in the numerator was to be reduced by an amount the same should be excluded from total turnover also. It was held by the Special Bench that the component of export turnover and component of total turnover could not be different. Most important factor to be considered here is that the Special Bench was dealing with the issue of exclusion of freight, telecom charges or insurance attributable to the delivery of articles or things for computer software outside India or expenses, if any, incurred in foreign exchange 31 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 for providing technical services outside India, based on the definition of "export turnover" given in Explanation 2(iv) of Section 10A of the Act. The said explanation states that export turnover would not include expenses attributable to delivery of exported items, outside India. The question there was limited to "expenses attributable". It cannot be treated on par with components of turnover which are in the nature of receipts and not expenses. Billed amount not received within the time specified under Section 10B(3) of the Act, is not an expense in any view of the matter but, only a part of the income or receipts of the assessee. The view taken by the Special Bench that what was excluded from the export turnover has to be excluded from total turnover, has to be seen alongwith the question raised before the Special Bench. As held by Hon'ble Apex Court in the case of CIT v. Sun Engineering Works Pvt. Ltd. (1992) (198 ITR 297) (SC), a decision of court could not be considered divorced from the question raised before it. We are of the opinion that the decision of Special Bench of this Tribunal in the case of Sak Soft Ltd. (supra) could not be extended to mean that items comprised in the turnover which had no element of expenses, was also covered by such decision, so as to exclude such items from both export as well as total turnover, while applying the mathematical formula prescribed for working out deduction under Sections 10A or 10B of the Act. In our opinion, more appropriate will be to apply the decision of 32 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 Hon'ble Apex Court in the case of CIT v. K. Ravindranathan Nair (295 ITR 228) where "total turnover" has been lucidly explained to include all items which are business receipts. We, therefore, cannot accept the contention of the learned A.R. that if sale proceeds, which were not realized, are excluded from export turnover for going beyond the time limit prescribed in Section 10B(3) of the Act, then these are to be excluded from total turnover also.
29. In the result, ground No.12 stands dismissed.
30. Vide its ground Nos. 13 to 18, assessee is aggrieved that Assessing Officer excluded expenses incurred in foreign exchange from export turnover though such expenses were not included in the export turnover at all. Further, as per the assessee, in the case of telecommunication expenses, these were incurred in Indian currency and could not be excluded from export turnover at all. Alternatively, it is submitted that if at all these were excluded from export turnover, it had also to be excluded from total turnover.
31. Insofar as the claim of the assessee that expenses, which were not included export turnover could not have been deducted while computing the deduction under Section 10B, we are afraid we cannot accept. Definition of "export turnover" given in clause (iii) to Explanation 2 in Section 10B, reads as under:-
33 I.T.A. No. 1870/Mds/11S.P. No.74/Mds/12
"(iii) "export turnover" means the consideration in respect of export 35[by the undertaking] of articles or 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 freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India;"
32. The above definition of "export turnover" does not say that the expenses mentioned therein should be shown separately in the invoice raised by the assessee for its claim.
33. When this was pointed out to learned A.R., he submitted that the definition "export turnover" warranted exclusion of expenses incurred in foreign currency only and telecommunication expenses, which were incurred in Indian currency, could not be excluded from export turnover. For this, reliance was placed by the learned A.R. on the decision of California Software Co Ltd V. ACIT, 118 TTJ (Chennai) 842 of a co- ordinate Bench of this Tribunal. According to him, what was incurred in Indian rupee could not be excluded from export turnover in view of the above decision.
34. Per contra, learned D.R., relying on another decision of co- ordinate Bench of this Tribunal in the case of DCIT v. Astron Document Management P. Ltd. in I.T.A. No. 1302/Mds/2008 dated 19th August, 2011, submitted that whether telecommunication charges were incurred 34 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 in foreign currency or not, to the extent it was expended for delivery of articles or things or computer software outside India, it had to be excluded from export turnover. In any case, according to him, when conflicting decisions of the Tribunal were there, latter decision of the Tribunal to be followed in view of the decision of Delhi High Court in the case of Bhika Ram v. Union of India (238 ITR 113). However, learned D.R. fairly admitted that in view of the decision of Special Bench of this Tribunal in the case of Sak Soft Ltd. (supra), such amounts had to be excluded from total turnover also while calculating deduction under Section 10B of the Act.
35. We have perused the orders and heard the rival submissions. No doubt, in the decision relied on by the learned A.R., namely, California Software Co Ltd. (supra) dated 29th August, 2008, it has been held that telecommunication expenditure in Indian rupee could not be excluded from export turnover. What is specifically noted by us is that the above decision in the case of California Software Co Ltd. (supra) was given prior to the decision of Special Bench in the case of Sak Soft Ltd. (supra). The Special Bench had pronounced the decision of Sak Soft Ltd. (supra) on 6th March, 2009. It was after such decision of Special Bench that the co-ordinate Bench took a different view in the case of Astron Document Management P. Ltd. (supra). The decision of Astron Document Management P. Ltd. (supra) was given on 19th August, 2011 35 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 and for coming to a conclusion that telecommunication expenses incurred had to be excluded from the export turnover, irrespective of the fact whether it was spent in Indian Rupee or foreign currency, reliance was placed on the decision of Special Bench in the case of Sak Soft Ltd. (supra). It will be pertinent to note para 6 of the order of Special Bench in Sak Soft Ltd. (supra)'s case, which is reproduced hereunder:-
"6. The interveners have also adopted the same line of argument. Some of them have adopted a broader base in the sense that their arguments were not limited to the exclusion of expenses incurred in foreign exchange in providing technical services outside India, but also extended to the exclusion of freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India. Since these expenses are also to be statutorily excluded from the export turnover, according to them they should also be excluded from the total turnover. The logic behind the exclusion of both types of expenditure mentioned in the definition of export turnover is, however, the same and both sides have addressed us on the question in its broader aspect also. It may be clarified that the case of Sak Soft Ltd., on facts relates to the exclusion of certain expenses incurred in foreign exchange in providing technical services outside India. The question referred to the Special Bench however, refers to expenses incurred in foreign currency treated as attributable to the delivery of computer software outside India. It was common ground before us that so far as freight, telecommunication charges or insurance is concerned, the expenses may be incurred even in Indian currency and that the requirement that the expenses should be incurred in foreign exchange was limited only to the expenses in providing the technical services outside India. The definition of the term 'export turnover' also supports this interpretation. Therefore, even though the question placed before the Special Bench seems to assume that expenses attributable to the delivery of computer software outside India was incurred in foreign currency, statutorily there seems to be no requirement that such expenses should only be incurred in foreign currency. Subject to this clarification or modification, which really 36 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 does not make any fundamental change to the substance of the question posed before the Special Bench for decision, we proceed to decide the issue which really arises in the cases before us, namely, whether any expenses on freight, telecommunication charges, or insurance attributable to the delivery of the articles or things or computer software outside India or any expenses incurred in foreign exchange in providing the technical services outside India, which are required to be excluded from the export turnover as defined in Expln. 2(iii) below s. 10B, ought also to be excluded from the figure of total turnover while applying the formula prescribed by sub-s. (4) of s. 10B."
It is clear from the above that what was considered by Special Bench, inter alia, included freight and telecommunication charges or insurance incurred in Indian currency as well. Condition regarding incurring of the expenses in foreign exchange was limited only to technical services outside India. This is also very clear from the above para. It was after effecting such clarification or modification to the question raised before it, that the Special Bench gave a final ruling that freight, telecommunication charges or insurance attributable to delivery of articles or things or computer software outside India or expenses, if any incurred, in foreign exchange for providing technical services outside India had to be excluded from the export turnover as well as the total turnover. Since the decision relied on by the learned D.R. has been given after the decision of Special Bench in Sak Soft Ltd. 's case and based on the conclusion of Special Bench, we are inclined to follow the latter decision in preference to the decision given prior to the decision of Special Bench in Sak Soft Ltd. (supra)'s case. We are reproducing the 37 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 decision of co-ordinate Bench in the case of Astron Document Management P. Ltd. (supra) for brevity:-
"15. We have perused the orders and heard the rival contentions. Though the A.O. has considered definition of "export turnover" as given in sub-clause (iv) of Explanation 2 to Section 10A of the Act, assessee here had claimed deduction under Section 10B, and therefore, definition of the said term as given in Section 10B will be more appropriate. Definition of "export turnover" as given in clause
(iii) of Explanation 2 to Section 10B of the Act runs as under:-
(iii) " 'export turnover' means the consideration in respect of export [by the undertaking] of articles or 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 freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India."
As per learned A.R., the definition of "export turnover" does not mandate any reduction of telecommunication charges, but, only stipulates exclusion of such telecommunication charges. Such telecommunication charges were never part of the amounts invoiced by the assessee and hence there could be no exclusion thereof from export turnover. We are afraid we are unable to accept this line of reasoning. Learned A.R. has not rebutted with any evidence, findings of the A.O. that telecommunication charges were incurred by the assessee for delivery of computer software outside India and such expenses were attributable to the delivery of computer software outside India. When the expenses were incurred for delivery of computer software outside India, even if the assessee had not invoiced such amounts specifically in its bills raised on its customers abroad, the amounts would have definitely been fixed, taking into consideration such telecommunication expenses also. Just because the invoices raised did not specifically mention recovery of telecommunication charges, we cannot say that the billed amounts were exclusive of such telecommunication charges. Assessee while agreeing for delivery of computer software at prices mutually 38 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 accepted, would have definitely reckoned the telecommunication charges which were to be incurred by it for the delivery of such software outside India. It is not the case of the assessee that the telecommunication expenses were not considered by it for working out its profits. It is also not a case of the assessee that such expenses were not considered by it as a part of its Revenue outgo. Hence, telecommunication charges which admittedly were attributable to the delivery of computer software outside India, had to be excluded from the export turnover whether or not billings of the assessee specifically included such telecommunication expenses. Effect of any exclusion from a given sum will be reduction of such sum and the strenuous effort to differentiate between 'exclusion' and 'reduction' is, in our opinion, an endeavour to stretch interpretation of ordinary words to out of ordinary meanings. Special Bench in the case of Sak Soft Ltd. (supra) held as under at para 27 of its order:-
"27. At this juncture, it is necessary to refer to one aspect of the matter. It may be an easy task to exclude the freight, telecom charges or insurance attributable to the delivery of computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India from the export turnover and the total turnover if they are separately mentioned in the invoice raised by the assessee. In the course of the arguments addressed on behalf of M/s Sak Soft Ltd. a question arose as to what would happen if these items are not separately shown in the invoice and are included in the total amount raised by the invoice. It was conceded on behalf of the assessee by its learned representative that in such a case, the A.O. will have the power to go behind the invoice and find out how much of the invoice amount pertains to the recovery of the aforesaid items. We are also of the view that in an appropriate case it would be open to the A.O. to exercise such a power in order to apply the formula in meaningful manner."
As already mentioned by us, in the case before us it is an admitted position that telecommunication charges, which was not considered by the A.O. for working out deduction under Section 10B of the Act, were attributable to delivery of computer software outside India. Hence, there was no necessity to go behind the invoices raised by the assessee at all. With regard to the expenses incurred in foreign 39 I.T.A. No. 1870/Mds/11 S.P. No.74/Mds/12 exchange for providing technical services outside India, learned counsel for the assessee, as earlier stated by us, did not press the related ground in the cross-objection. Coming to the case of the Revenue that such amounts should not have been excluded from total turnover, we are unable to accept. The Special Bench of this Tribunal in the case of Sak Soft Ltd. (supra) has clearly held that whatever has been excluded from export turnover had to be excluded from total turnover also since total turnover included export turnover as well. We are fortified in taking this view by the decision of Hon'ble Bombay High Court in the case of CIT v. Gem Plus Jewellery India Ltd. (330 ITR 175). Therefore, we do not find any merits in the arguments advanced by the assessee or the Revenue in respect of their respective grounds in this regard." We are, therefore, of the opinion that the A.O. was justified in excluding the expenses incurred in foreign currency as well as the telecommunication expenses from the export turnover. Nevertheless, we direct the A.O. to exclude such amounts both from export turnover as well as from total turnover, in accordance with the Special Bench decision in Sak Soft Ltd. (supra) and re-compute the deduction available to the assessee under Section 10B of the Act accordingly.
36. In the result, grounds No.13, 14, 16 and 17 are dismissed, whereas grounds No.15 and 18 are allowed for statistical purposes.
37. Vide its ground No.19, grievance of the assessee is that short credit of ` 2,29,886/- was not given to it despite direction from DRP in this regard.
40 I.T.A. No. 1870/Mds/11S.P. No.74/Mds/12
38. We remit this issue back to the file of A.O. and if assessee files original certificate for tax deducted at source, credit is directed to be given.
39. Other grounds are consequential needing no adjudication.
40. Coming to the Stay Petition filed by the assessee, since we have disposed of the assessee's appeal, the stay petition in S.P. No.74/Mds/2012 has become infructuous and hence dismissed.
41. To summarize the result, assessee's appeal is treated as partly allowed, whereas, its Stay Petition is dismissed as infructuous. The order was pronounced in the Court on Friday, the 15th of June, 2012, at Chennai.
sd/- sd/-
(Challa Nagendra Prasad) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 15th June, 2012.
Kri.
Copy to: (1) Appellant
(2) Respondent
(3) ITO, Secretary, DRP, Chennai
(4) D.R.
(5) Guard file