Income Tax Appellate Tribunal - Ahmedabad
The Dcit, Circle-8,, Ahmedabad vs Silver Touch Technologies Ltd., ... on 2 December, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "B" BENCH
(BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT
MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER)
ITA. No: 2023/AHD/2013
& C.O. Nos. 39/Ahd/2015
(Assessment Year: 2010-11)
Dy. Commissioner of V/S Silver Touch Technologies
Income Tax, Circle-8, Ltd., 2nd Floor, Saffron
Ahmedabad Tower, Nr. Panchwati
Circle, Ambawadi,
Ahmedabad-380006
Silver Touch Technologies V/S
Ltd., 2nd Floor, Saffron Dy. Commissioner of
Tower, Nr. Panchwati Income Tax, Circle-8,
Circle, Ambawadi, Ahmedabad
Ahmedabad-380006
(Appellant) (Respondent)
C.O. No: 209/AHD/2012
(in ITA No. 2022/Ahd/2012)
(Assessment Year: 2009-10)
Silver Touch Technologies V/S Dy. Commissioner of
nd
Ltd., 2 Floor, Saffron Income Tax, Circle-8,
Tower, Nr. Panchwati Ahmedabad
Circle, Ambawadi,
Ahmedabad-380006
(Appellant) (Respondent)
PAN: AACCS6474P
2 ITA No. 2023/Ahd/2013 &
C.O. Nos. 39/Ahd/15 & 209/Ahd/12
. A.Y. 2010-11
Appellant by : Shri Mudit Nagpal, Sr. D.R.
Respondent by : Shri Mehul K. Patel, A.R.
(आदे श)/ORDER
Date of hearing : 04 -09-2019
Date of Pronouncement : 02 -12-2019
PER MAHAVIR PRASAD, JUDICIAL MEMBER
1. This appeal filed by the Revenue is directed against the order of the Ld. CIT(A)-XIV, Ahmedabad dated 21.05.2013 pertaining to A.Y. 2010-11 and two C.O. Nos. 209/Ahd/2012 & 39/Ahd/2015 have been filed by the Assessee. Revenue has taken following grounds of appeal:
1). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.31,11,757/- made u/s. 145A of the Act.
2). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in holding that the Assessee is entitled to deduction of Rs.4,11,14,242/-u/s10A of the Act.
2.1). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in allowing foreign exchange gain in the claim of deduction u/s.10AoftheAct.
3). On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer.
4). It is therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored.
2. Facts of the case are that assessee is a Limited company engaged in the business of trading of Computers, Computer Peripherals, software 3 ITA No. 2023/Ahd/2013 & C.O. Nos. 39/Ahd/15 & 209/Ahd/12 . A.Y. 2010-11 development, IT enabled services and export of Software from 100% EOU situated in Software Technology Park.
3. During the year the assesee has shown amount receivable of Rs. 4,51,607/- on account of unutilized/closing balance of VAT and Rs. 11,04,607/- on account of service tax under Loans and advances. The assessing officer has wrongly considered closing balance of VAT and service tax of Rs. 31,11,757/- instead of Rs. 15,55,879/-. The appellant has wrongly added the closing balance of service tax of Rs. 11,04,272/- in the value of closing stock even though it is deducted from the respective expenses and can never be a part of valuation of closing stock. Similarly the Ld. Assessing officer has wrongly included closing balance of VAT of Rs. 4,51,607/- in the closing stock valuation even though the purchases are accounted net of VAT.
4. During the year the assessee claimed deduction U/s.lOB in respect of profit earned from 100% Export oriented Unit (STP) of Rs. 4,30,87,1757- since the appellant had complied with all the conditions required U/s. 10B of the Income-tax Act, During the course of Assessment proceedings, appellant restricted the claim of deduction at Rs. 4,11,14,242/- on actual export realization. However the Ld. Assessing officer has disallowed deduction claimed from the profit of the 100% EOU/STP unit U/s. 10B of Rs. 4,11,14,242/-.
5. During the course of assessment proceedings, appellant made alternative claim of deduction of Rs. 4,11,14,242/- U/s. 10A of the Act.
4 ITA No. 2023/Ahd/2013 &
C.O. Nos. 39/Ahd/15 & 209/Ahd/12
. A.Y. 2010-11
6. But ld. A.O. was not agree with the contention of the assessee and made addition of Rs. 31,11,757/- u/s. 145A and disallowed exemption of Rs. 43087175/- u/s. 10B.
7. Against the order of ld. A.O., assessee preferred first statutory appeal before the ld. CIT(A) who granted relief to the assessee on the basis of principle of consistency with following observations:
"I hove carefully perused the assessment order and the submissions given by the appellant. The A. O, has made the disallowance by applying the provisions of section 145A on the unutilized balance of VAT and service fax as on 31 /03/2009.
The appellant has first of all submitted that the figure of Rs.7,85,827/- taken by the A. O, is factually incorrect. The A, O. has considered an amount of Rs.3,33,984/- twice which has resulted in an inflated disallowance. The actual figure should have been Rs.4,51,843/-. It has further been submitted by the appellant that the appellant had considered the application of section 145A in the audit report wherein the effect of including the taxes of closing stock, purchase and solos and other inventories was shown. It is clear from the annexure to the audit report nor there was no effect on the overall profit of the appellant company i.e. the adjustment made u/s. 145A would be income neutral. The appellant has further relied on the judgment of Ahmedabad IT AT in the case of Alpanil Industries Ltd, [ITA NO.169/AHD/2005, 17C/AHD/2005; dated 11/09/2009. It has further relied on the judgment of Delhi High Court in the case of CIT Vs. Mahavir Aluminum Limited [297 ITR 77].
After considering the submission of the appellant, I am of the considered view that no addition on account of provisions of section 145A can be made as the appellant has already considered the application of section -45A in the audit report. The practice of showing the working of inclusion of cess and excise duty on the purchases, sales and the stock is being followed by the appellant company since last so many year by including an annexure in the audit report to show that the effect would be revenue neutral. If would also be relevant to quote from the judgment of ITAT, Ahmedabad in case of Alpanil Industries (Supra) -
5 ITA No. 2023/Ahd/2013 &
C.O. Nos. 39/Ahd/15 & 209/Ahd/12
. A.Y. 2010-11
"17.We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. In the instant case, the dispute is regarding valuation of closing stock in view of the insertion of provisions of section 145A of the Act, The Learned Assessing Officer observed that the assessee has not included (he element of excise, duty which was paid by the assessee on his purchases of raw material. In view of non-inclusion of this excise, duly in respect of which Modvat Credit wan available to the assesses according to the Learned Commissioner of Income Tax (Appeals), income of Rs. 26,95,884/- was understated by the assessee. On the other hand the claim of the assessee is that by inclusion of this excise duty in the closing stock there In view of the above will no effect in the profit as the corresponding amount will also be then included in the purchases. The assessee in support of the above argument relief upon the view expressed by the Institute of Chartered Accountants of India in its guidelines wherein it was explain that following of either inclusive method of accounting or exclusive method of accounting will not have any effect on the profit disclosed by the profit and loss account. The only effect of following inclusive method will be that the excise duty liability will appear in the balance sheet which will be added back to the income of the assessee in view of the provisions of section 43B to the extent not paid by the assessee before the due date of furnishing of return of income under section 139(1) of the Act. The above view was also expressed by this Bench of the Tribunal in the case of the Deputy Commissioner of Income Tax circle-1, Baroda vs. Gujarat Fluoro-chemicals Ltd in ITA NO. 3742/Ahd/2002 assessment Year 1999-00 order dated 28.09.2006. In our considered opinion the lower authorities have not property appreciated the effect of section 145A of the Act. The ld. CIT(A) by way of an illustration concluded that there will be a difference in the profit on following inclusive and exclusive method of accounting for excise duty. In the illustration cited in the order, the ld CIT(A) found that the difference At Rs. 80. According to the Ld CIT(A) in the inclusive method in the illustration the assessee profit worked out to Rs. 380 where as in the exclusive method, the assessee's profit comes to Rs. 300. Thus, there was a difference of Rs. 80. In the profit, we on a closer look at the illustration find that the difference has occurred due to any error by the ld. CIT(A) in not considering the excise duty expenditure of the assessee. It was observed from the illustration that assessee has collected excise duty of Rs. 180. By utilizing the raw material on which excise duty of Rs. 100 was paid to the Government. Thus, the assessee was liable to pay a further excise duty of Rs. 80 to the government. When the expenditure of Rs. 80 is takeninto account in the illustration given for inclusive method them the profit as per 6 ITA No. 2023/Ahd/2013 & C.O. Nos. 39/Ahd/15 & 209/Ahd/12 . A.Y. 2010-11 inclusive method also works out to Rs. 300/- which is exactly the same as per exclusive method. Further the Ld CIT(A) in the illustration cited in his order has not accounted for the amount of Modvat utilized by the assessee inpayment of excise duty in respect of raw material not utilized for manufacturing in the illustration the ld. CIT(A) has shown that assesseehas utilized amount of Rs. 180 out of amount of Rs. 200/- of excise duty paid on purchase against the excise duty liability of Rs. 180 on sales. However, this utilization of Rs. 180 was allowed to the assessee in respect of stock which was not used for manufacturing also to the extent of Rs. 80. The CIT(A) ignored the fact that if in future the closing stock is not utilized for manufacturing then the Modvat Credit utilized would be reversed and the assessee would be further liable to pay Rs. 80 to the Government. In a nutshell the ld. CIT(AA) arrived at a wrong conclusion because of not considering the assessee's liability for utilization of Modvat Credit in respect of unconsumed raw material. The issue can be looked into from another angle. Section 145A requires revaluation of not , lone but also requires revaluation of purchase and sales. On revaluation of purchase by including the amount off excise duty in respect of which Mo, vat Credit is available to the assessee, (he purchase of the assesses will increase resulting in corresponding (Increase in the profit of the assesses. The assessee's contention that value of dosing stock if credited in the profit and loss a 'count to set off the value of an consumed Items of purchase and therefore, both should have same basis cannot be controverted. The only exception to this theory is that when the Modvat value is less than the cost then effectively unrealised lass is allowed as a deduction to the assessee on the well settled principles. In the instant case, the lower authorities were not justified in revaluing only closing stock so as to include the amount of excise duty paid on purchase without revaluing the corresponding purchases. We have gone through the guidelines explained by the ICAI and find ourselves in agreement therewith that there will not be any effect on the profit of loss arrived at either by following inclusive method of accounting or exclusive method of accounting for excise duty. The only effect will he that the excise duty payable on closing stock of finished goods will be to the extent not deposited with the government before the due date of furnishing of return will be added to the Income of the assessee in view of provision of Section 43B of the. Act. In view of the discussion made hereinabove in our considered opinion t there will be no effect in the taxable profit of the assesses by including the amount of excise duty paid on purchases in the value of closing stock of raw material, whether as raw material or as farming part of work-in progress or finished goods. We therefore 7 ITA No. 2023/Ahd/2013 & C.O. Nos. 39/Ahd/15 & 209/Ahd/12 . A.Y. 2010-11 set aside the orders of the. lower authorities on this issue in both the year under appeal and allow the grounds of appeal of the. assessee. "
In view of the above facts and relying on the judgment of Ahmedabad ITAT in the Alpanil Industries (supra), the addition made u/s. 145A is directed to be deleted. The ground of appeal is accordingly allowed.
8. Now Revenue has come before us by way of second statutory appeal.
9. We have heard both the parties and gone through the relevant record. So far ground relating to addition of Rs. 31,11,757/- made u/s. 145A is concerned, ld.A.O. has made disallowance by applying the provision of section 145A. As we can see, after going through the Audit Report that assessee has already considered the application of section 145A in the audit report and the practice of showing the working of inclusion of cess and excise duty on the purchases, sales and the stock is being followed by the assessee company since last several years.
10. Section 145A requires the valuation of purchase and sale of goods or services and of the inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever have been called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on date of valuation. In our considered opinion, assessee is following the same method for several years and therefore this ground of Revenue is dismissed.
11. Now we come to next ground relating to deduction of Rs. 4,11,14,242/- . The assessee claimed deduction u/s. 10A if the claim of deduction u/s. 10B is disallowed as assessee unit is included in the business of trading of Computers, 8 ITA No. 2023/Ahd/2013 & C.O. Nos. 39/Ahd/15 & 209/Ahd/12 . A.Y. 2010-11 Computer Peripherals, software development etc. and was granted license setting up 100% EOU under STP scheme as per letter of permission:
"The assessee granted license for setting up 100% EOU under STP Scheme as per letter of permission no. STPIG/EXIM/S/S03/STIL-SWED/13 DATED 2-1-2007 by the Designated officer Software Technology Parks ofIndiafor carrying on business of computer software and IT enabled services. (Copy of certificate is enclosed in Annexure -A). In reference to LOP, assessee executed bond for warehouse as per the undertaking dated 25-1-2007. The Custom authority accepted the bond and issued Bond Acceptance Memo F No. VII/48-34/STP/100% EOU/2006-07 dated 2- 2-2007. Copy of undertaking and copy of bond acceptance memo are enclosed herewith (Annexure - B). The assessee changed the work location and on application, the Software Technology Park of India, Gandhinagar granted permissionfor change of address viderefno. STPIG/EXIM/S/503/Ch_LOC/ 3007 dated 27-9-2007. The Custom authority also issued for private bonded warehouse No 26/2007-8/STP-(100% EOU) vide letter no. F VIII/48- 34/STP/lOO%EOU/06-07 dated 19th/22nd October, 2007. Copy of both the above permissions are enclosed herewith (Annexure - C).
On granting permission for carrying on 100 % EOU, the assessee started business activity of software development and IT enabled services at the permitted business place. The director, STPI Gandhinagar vide letter ref. STPIG/EXIM/In_Tax/503/STTL-SWED/6062 dated 21st December, 2011 has clarified as under:
"The STP/EHTP scheme are governed by the Foreign Trade Policy and the handbook of procedures (Vol.1) of the Department of Commerce, Ministry of Commerce & Industry and the approvals issued for setting up STP/EHTP unit by the Designated officers of DIT(Jurisdictional Directors, STPI) under delegated powers in terms of handbook of procedures (Vol.1) meant approval under STP/EHTP scheme and no further ratification of approvals is requiredfrom the IMSC. Hence all the applications for setting up of STP/EHTP units approved by the Directors, STPI after 31-3-1999 stand automatically approved under the SPT/EHTP scheme "
12. In support of its contention, assessee has also filed copy of letter from STPI, Gandhinagar, Gujarat and assessee is reflecting on the website of Department 9 ITA No. 2023/Ahd/2013 & C.O. Nos. 39/Ahd/15 & 209/Ahd/12 . A.Y. 2010-11 of Electronics & Information Technology and assessee has also filed the copy of extract of the said website and which has not been disputed by the ld. A.O. and in the past, assessee has been claiming deduction u/s. 10A. Moreover, assessee company set up in the 100% EOU under STP Scheme as per letter of permission No. STPIG/EXIM/S/503/STTL-SWED/13 dated 2-1-2007 by the Designated officer Software and IT enabled services and same details were submitted before the lower authorities.
13. The assessee is in this business since 2007 and company has been set up in the 100% EOU under STP Scheme and all details have been submitted before the lower authorities. Since assessee has complied with all the condition for availing of benefit of section 10A. Therefore, we dismiss this ground of the revenue.
14. Now we come to next ground relating to allowing of foreign exchange gain in the claim of deduction u/s 10A.
15. The ld. A.O. noted that the export turnover shown in Form 56G was more than the FOB. Value realized. The assessee explained that the difference in due to the appreciation of foreign currency at the time of realization of the proceeds of goods exported on an earlier date. The A.O. held that income due to foreign exchange gain are not eligible for deduction.
16. In appeal before the ld. CIT(A), he granted relief to the assessee with the following observations:
I have carefully perused the assessment order and the submissions given by the appellant. The A. O. noted that the export turnover shown in Form 56G was more than the FOB value realized. The appellant explained that the difference is due to 10 ITA No. 2023/Ahd/2013 & C.O. Nos. 39/Ahd/15 & 209/Ahd/12 . A.Y. 2010-11 the appreciation of foreign currency at the time of realization of the proceeds of the goods exported on an earlier date. The A. O. after detailed discussion held that the income due to foreign exchange gain are no! eligible of deduction u/s. 10B as it is not income "derived from the exports". He accordingly reduced the amount and recalculated the eligible exemption / deduction u/s. 10B which resulted in a disallowance of Rs. 30,23,120/-. The appellant has submitted that the income is derived from STP Unit, If has further relied on the decision of Ahmedabad Tribunal in the case of Banyan Chemicals Ltd. [310 ITR 384]. It has also placed reliance on the decision of Bombay High Court in the case of Rachno Udyog [230 CTR 72].
After considering the information and the written submission, I am of the opinion that foreign exchange fluctuation gain is directly related to the sale transaction involving export of goods of the industrial undertaking and arises out of the business.
This difference arises purely as a result of fluctuation in the rate of exchange between date of export one date of receipt of proceeds, H is also to be noted that there is no variation in the sale price of the goods exported. It is only the convertible value of export that has appreciated on account of exchange rate fluctuation. Further, Hon'ble ITAT, Ahmedabad white deciding the case of Harsha Engineers Pvt. Ltd. [ITA No, 1331/And/2010] has decided similar issue where deduction u/s. 10B on exchange rate fluctuation was involved. The Hon'ble Bench, while deciding the appeal had followed its earlier order in ITA No.2186/Ahd/2009 dated 09/09/2009 in the case of same assessee i.e. Harsha Engineers Pvt. Ltd. The Honourable Bench had considered the decision of Hon'ble Gujarat High Court in the case of Arnba Impex [282 ITR 144] and the decision of ITAT, Ahmedabad Bench in the case of Banyan Chemicals Ltd. (Supra). If was held by the Hon'ble Bench that foreign exchange fluctuation gain is entitled for deduction u/s. 10B. For the sake of clarity, the relevant portion of the judgment is reproduced hereunder:
" We have heard the rival submissions and perused the orders of the lower authorities and thematerials available on record. In the instant case, the assessee earned exchange rate fluctuation of Rs. 17,10,678/- on sale proceeds of goods. Which was disallowed deduction under section 10B of the Act by the ld. A.O. In appeal, the Ld CIT(A) allowed deduction on the same. We find that the third member of the tribunal in the case of ITO vs. Banyan Chemicals Lt. (2009) 117 ITD 376, has held that the gain on account of exchange fluctuation results in the receipt of foreign currency due to export sales made by an assessee. It is a part of the receipt of sale proceeds converted in India rupee as held by the Hon'ble 11 ITA No. 2023/Ahd/2013 & C.O. Nos. 39/Ahd/15 & 209/Ahd/12 . A.Y. 2010-11 Gujart High Court in CIT vs. Amba Impax (2006) 282 ITR 144 (Guj.) Though it was a case under section 80HHC but he provisions of section 10B are in para material and therefore, the decision would apply mutatis matandis to section 10B. Respectfully following the same, we find that in the instant case, it is not the fact that the assessee has received sale proceeds of exports and deposited the same in any bank account and earned exchange fluctuation gain at the time of withdrawal from the said bank account. On the other hand, the facts of the case is that the assessee made an export sale and recorded the sale value at the value mentioned in the invoice and later on when it actually received the sale proceeds due to change in rate of exchange the assessee received more sale proceeds of exports and thereby earned exchange fluctuation gain. Therefore, respectfully, following the above cited decision of the Tribunal, we confirmed the order of the ld. CIT(A) and dismissed the ground of appeal of Revenue.
The facts of the present case are identical to the fads of the above case. The appellant has not deposited the export sole proceeds in a separate account and the gain is not account of appreciation of foreign exchange received earlier. The gain is on account of the appreciation at the time of the receipt of the foreign exchange proceeds. Respectfully following the judgment of the Honourable Tribunal the disallowance made by the A.O. is directed to be deleted. The grounds of appeal are accordingly allowed.
17. Now revenue has come before us against the order of ld. CIT(A). Since already we have confirmed the order of the ld. CIT(A) for granting relief to the assessee u/s 10A of the Act. We draw support in favour of assessee from the latest judgment of Hon'ble Madras High Court in the matter of CIT Chennai- III vs Pentasoft Technologies Ltd. wherein similar claim of the assessee was allowed by the Hon'ble Madras High Court.
18. In the matter of Nuwave Esolutions Pvt. Ltd. vs. CIT (Delhi), ITAT Delhi has also granted relief to the assessee and granted deduction in foreign exchange gain.
12 ITA No. 2023/Ahd/2013 &
C.O. Nos. 39/Ahd/15 & 209/Ahd/12
. A.Y. 2010-11
19. Therefore, in our considered opinion, assessee is eligible for exemption u/s. 10B of the Act and we do not find any reason to interfere in the order passed by the ld. CIT(A).
20. In the result, appeal filed by the Revenue is dismissed.
21. So far C.O. Nos. 209/Ahd/2012 and 39/Ahd/2015 are concerned, ld. A.R. stated that he does not want to press both the C.Os. and same are dismissed as not pressed.
Order pronounced in Open Court on 02 - 12- 2019
Sd/- Sd/-
(PRADIP KUMAR KEDIA) (MAHAVIR PRASAD)
ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER
Ahmedabad: Dated 0212/2019
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad