Income Tax Appellate Tribunal - Mumbai
3Dplm Software Solutions Ltd , Mumbai vs Assessee on 31 July, 2014
ुं ई यायपीठ "डी" मब
आयकर अपील य अ धकरण, मब ुं ई
IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM)
सव ी बी.आर.बा करन, लेखा सद य एवं ी संजय गग, या यक सद य के सम
आयकर अपील सं./I.T.A. No. 5736/Mum/2012
( नधारण वष / Assessment Year :2008-09)
3DPLM Software Solutions Ltd., बनाम/ Income Tax Officer,
Plant No.6, Pirojshanagar, Vs. Range 10(2)(3), R No.430,
Vikhroli, Mumbai-400079 4th Floor,
Aayakar Bhavan,
M K Road,
Mumbai-400020
(अपीलाथ /Appellant) .. ( यथ / Respondent)
आयकर अपील सं./I.T.A. No. 5809/Mum/2012
( नधारण वष / Assessment Year :2008-09)
Income Tax Officer Range बनाम/ 3DPLM Software Solutions Ltd.,
10(2)(3), Vs. Plant No.6, Pirojshanagar,
431, 4th Floor, Vikhroli, Mumbai-400079
Aayakar Bhavan,
M K Road,
Mumbai-400020
(अपीलाथ /Appellant) .. ( यथ / Respondent)
And
Cross objection/ या ेप No.241/Mum/2013
In आयकर अपील सं./I.T.A. No.5809/Mum/2012
( नधारण वष / Assessment Year : 2008-09)
3DPLM Software Solutions Ltd., बनाम/ Income Tax Officer Range
Plant No.6, Pirojshanagar, Vs. 10(2)(3),
Vikhroli, Aayakar Bhavan,
Mumbai-400079 M K Road,
Mumbai-400020
(अपीलाथ /Appellant) .. ( यथ / Respondent)
2 I.T.A. No. 5736/Mum/2012
I.T.A. No. 5809/Mum/2012
C0 No.241/Mum/2013
थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. : AAACZ1421B
अपीलाथ ओर से / Assessee by : Shri Falee H Bilimoria
यथ क ओर से/Revenue by : Shri Sanjeev Jain
सन
ु वाई क तार ख / Date of Hearing : 16.7.2014
घोषणा क तार ख /Date of Pronouncement : 31 .7.2014
आदे श / O R D E R
Per B.R.BASKARAN, Accountant Member:
These cross appeals and the cross-objection filed by the assessee are directed against the order dated 01.06.2012 passed by Ld CIT(A) and they relate to the assessment years 2008-09.
2. In the appeal by the revenue, the decision of ld. CIT(A) in holding that the insurance expenses and telecommunication expenses are not required to be deducted from the Export turnover for computing deduction u/s 10A of the Act, is being assailed.
3. The Ld CIT(A), while deciding the issue in the manner cited in paragraph 2, did not adjudicate the alternative contention urged the assessee by considering the same as infructuous. The alternative contention urged by the assessee was that the insurance and telecommunication expenses, if held to be deductible from Export turnover, should also be deducted from the total turnover for computing deduction u/s 10A of the Act.
4. The assessee has filed appeal in respect of the following issues:-
(a) Disallowance of Rs.3,93,572/- made by invoking sec. 14A of the Act while computing income under normal provisions of the Act.3 I.T.A. No. 5736/Mum/2012
I.T.A. No. 5809/Mum/2012 C0 No.241/Mum/2013
(b) Addition of Rs.3,93,572/- while computing book profit u/s 115JB of the Act.
5. The facts relating to the above said issues are stated in brief. The assessee is engaged in the business of software development and it claimed deduction u/s 10A of the Act. The AO noticed that the assessee has debited insurance expenses of Rs.24,19,505/- and Communication expenses Rs.12,99,006/- in its Profit and Loss account. However, the assessee did not deduct the above said amounts from Export turnover while computing deduction u/s 10A of the Act. The AO, by placing reliance on the following definition of "Export turnover" given in Clause (iv) of Explanation 2 to section 10A of the Act, opined that the above said expenses should be deducted from Export turnover:-
"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."
Before the AO, the assessee submitted that it did not incur any freight expenses. It further submitted that the telecommunication charges and insurance expenses are not attributable to delivery of the computer software outside India. Accordingly, the assessee contended before AO that they are not required to be deducted from "Export turnover". However, the AO did not accept the said submissions and accordingly computed the deduction u/s 10A of the Act by deducting the amount of communication charges and insurance expenses referred above from the Export turnover. However while doing so, the assessing officer did not deduct the above said amount from "Total turnover". 4 I.T.A. No. 5736/Mum/2012
I.T.A. No. 5809/Mum/2012 C0 No.241/Mum/2013
6. The AO noticed that the assessee has earned dividend of Rs.15,07,890/- and claimed the same as exempt u/s 10(34) of the Act. The assessee submitted before AO that it has used only its surplus funds in making investments and also it did not incur any expense in earning the dividend income. The AO, however, did not accept the said contentions and computed the disallowance is required to be made out of general expenses in terms of Rule 8D(2)(iii) of the Act at 0.5% of the average investments, which worked out to Rs.3,93,579/-. The assessing officer disallowed the above said amount u/s 14A of the Act while computing income under normal provisions of the Act. The AO also made the said disallowance while computing "book profit" u/s 115JB of the Act.
7. The assessee challenged the order passed by the AO by filing appeal before the Ld CIT(A). With regard to the computation of deduction u/s 10A, i.e., about the necessity of deducting the communication and insurance expenses from Export turnover, the Ld CIT(A) noticed that an identical issue was considered by his predecessor in the assessee's own case in AY 2005-06, 2006- 07 and 2007-08 and it was held that the telecommunication and insurance expenses incurred by the assessee were not attributable to the delivery of computer software outside India and therefore, they were not required to be deducted from the Export turnover for working out deduction u/s 10A of the Act. Accordingly, by following the decision rendered by his predecessor for AY 2005- 06, 2006-07 and 2007-08, the ld CIT(A) directed the assessing officer not to deduct telecommunication and insurance expenses from the Export turnover for working out deduction u/s 10A of the Act. The assessee had urged an 5 I.T.A. No. 5736/Mum/2012 I.T.A. No. 5809/Mum/2012 C0 No.241/Mum/2013 alternative plea before Ld CIT(A) that the insurance and telecommunication expenses, if held to be deductible from Export turnover, should also be deducted from the total turnover for computing deduction u/s 10A of the Act. As stated earlier, the ld CIT(A) did not adjudicate the alternative contention by holding the same as infructuous.
8. With regard to the disallowance made u/s 14A of the Act, the ld CIT(A) noticed that there was movement in investment portfolios, which consisted of mutual fund units, i.e., from the opening balance of Rs.5.94 crores, the investment amount has moved up to Rs.9.80 crores at the year end. The Ld CIT(A) also noticed that the assessee has also sold some units during the year. The Ld CIT(A) held that the activities of selling, purchasing or not selling the existing investments requires decision to be made at managerial level which in turn requires incurring of administrative and managerial expenses. Accordingly, the Ld CIT(A) confirmed the disallowance made u/s 14A of the Act in the normal provisions of the Act.
9. With regard to the addition of the amount disallowed u/s 14A of the Act to the "Book Profit" computed u/s 115JB of the Act, the assessee contended before Ld CIT(A) that the said disallowance should not have been made, since the provisions of sec. 115JB is a separate code by itself is a separate code. However, the Ld CIT(A) noticed that the clause (f) of Explanation 1 to sec. 115JB of the Act provides that the expenditure relatable to any income to which sec. 10 of the Act applies is required to be added to the Book Profit. Accordingly, the ld CIT(A) dismissed the claim of the assessee.
6 I.T.A. No. 5736/Mum/2012
I.T.A. No. 5809/Mum/2012 C0 No.241/Mum/2013
10. Aggrieved, by the order passed by Ld CIT(A), both the parties have filed appeals / Cross objection before us on the issues discussed above.
11. We shall first take up the appeal filed by the revenue, wherein the question relates to the deduction of telecommunication charges and insurance expenses from the Export turnover for computing deduction u/s 10A of the Act. We have already noticed that the Ld CIT(A) had followed the decision rendered by his predecessor while deciding this issue in favour of the assessee, i.e., in the earlier years, the then Ld CIT(A) had accepted the contentions of the assessee that these expenses were not attributable to the delivery of articles or things or computer software outside India. We notice that the identical issue came to be considered by the co-ordinate bench of Tribunal in the assessee's own case in ITA No.4932/M/2010; ITA 6003/M/2010 and ITA 6194/M/2011 relating to AY 2005-06, 2006-07 and 2007-08.
12. In the above said years, the co-ordinate bench of Tribunal has taken the view that the telecommunication and insurance expenses, if incurred in local currency in India, is not required to be deducted from the Export Turnover. However on a careful perusal of the definition of the term "Export turnover", we notice that the restrictions that the expenditure should be incurred in foreign currency would apply only to "foreign technical services" provided outside India. With regard to the telecommunication and insurance charges, what is required to be deducted is the expenses of above said nature which is attributable to the delivery of the articles or things or Computer software outside India. Thus a portion of the telecommunication and insurance expenses, which can be attributed to the delivery of computer software outside India, is required to be 7 I.T.A. No. 5736/Mum/2012 I.T.A. No. 5809/Mum/2012 C0 No.241/Mum/2013 deducted from the Export turnover. Before us, the Ld A.R submitted that the expenses incurred by the assessee on telecommunication and insurance are not attributable to the delivery of computer software outside India. However, the details of those expenses; the reasons for which they were not incurred etc. were not furnished before us. In the absence of such kind of details, we are unable to appreciate the contentions of the assessee.
13. Accordingly, we are of the view that this issue requires fresh examination at the end of the assessing officer. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine the nature of telecommunication and insurance expenses incurred by the assessee and ascertain whether any portion of those expenses can be attributable to the delivery of articles or things or computer software outside India. If no portion of the expense can be attributed, then nothing is required to be deducted from the Export turnover while computing deduction u/s 10A of the Act. However, if any of the portion of those expenses is considered as attributable to the delivery of articles or things or computer software outside India, then that portion is required to be deducted from Export turnover.
14. In the cross objection, the assessee is contending that if any deduction made from Export turnover, then the deduction of corresponding amount should be made from the Total turnover also while computing the deduction u/s 10A of the Act. The contention of the assessee is that the reduction should be made both from the Export turnover and from Total turnover. We notice that the contention of the assessee gets support from the following decisions:- 8 I.T.A. No. 5736/Mum/2012
I.T.A. No. 5809/Mum/2012 C0 No.241/Mum/2013
(a) ITO Vs. Saksoft Ltd (313 ITR 353)(SB-Chennai)
(b) IBS software services Pvt Ltd (2011)(137 TTJ (Coch) 54
(c) Gem Plus Jewellery India Pvt Ltd (223 CTR 248)(Bom)
(d) CIT Vs. Dell Intl. Services India (P) Ltd (ITA No.450/2008)(Kar).
Following the above said decisions, we agree with the contentions of the assessee and accordingly direct the AO to deduct corresponding amount from total turnover also, if any amount is deducted from the Export turnover.
15. We shall now take up the appeal filed by the assessee. At the time of hearing, the Ld A.R fairly admitted that the issue relating to applicability of provisions of sec. 14A of the Act to the computation of "Book Profit" u/s 115JB of the Act has since been decided against the assessee by Hon'ble Delhi High Court in the case of CIT Vs. Goetze (India) Ltd (361 ITR 505). He further submitted that the decision rendered by the Co-ordinate bench of Mumbai ITAT in the case of RBK Stock Broking (P) Ltd (159 TTJ 16) is now upheld in the case of Goetze (India) Ltd (supra). In view of the above, we dismiss the grounds relating to the above said issue.
16. Now the only remaining ground relates to the computation of disallowance u/s 14A of the Act. The Ld Counsel submitted that the assessee had invested its surplus funds in the units of mutual funds in order to optimize its income. He submitted that the AO has disallowed only general expenses in terms of Rule 8D(2)(iii) of the IT Rules. He submitted the assessee did not incur any expenses in earning the dividend income and hence no disallowance is required to be made. We also heard Ld D.R on this issue, who supported the order of Ld CIT(A). On a perusal of the orders passed by the tax authorities, we notice that the quantum investments made by the assessee has gone up at the end of the 9 I.T.A. No. 5736/Mum/2012 I.T.A. No. 5809/Mum/2012 C0 No.241/Mum/2013 year, which we have already noticed. Further, the Ld CIT(A) has noticed that the assessee has liquidated part of investments also during the instant year. Hence, we notice that the assessee has carried out activities in relation to the investments. At this point, it is pertinent to note the decision rendered by Hon'ble Delhi High Court in the case of Maxopp Investment Ltd Vs. CIT (347 ITR
272), wherein the Hon'ble Delhi High Court has expressed the view that the assessing officer has to first reject the claim of the assessee with regard to the extent of expenditure by having regard to the accounts of the assessee and such rejection must be for disclosed cogent reasons. It is only then that the question of determination of expenditure u/s 14A by the assessing officer would arise. In the instant case, we notice that the claim of the assessee is not rejected by the assessing officer after having regard to the accounts of the assessee. Hence, we are of the view that the AO was not right in applying the provisions of Rule 8D(2)(iii) of the IT rules in the instant case. At the same time, we have noticed that the assessee has carried out investment activities of purchasing, liquidating etc. and has also received dividend income. Hence, the contention of the assessee that it did not incur any expenditure is not acceptable to us also. Hence, we are of the view that it would be proper to make disallowance of a portion of general expenses in terms of of sec. 14A of the Act. Accordingly, we are of the view that a round sum disallowance of Rs.25,000/- may be made to take care of sec. 14A of the Act and in our view, the same would meet the ends of justice. We order accordingly. The order of Ld CIT(A) stands modified accordingly.
10 I.T.A. No. 5736/Mum/2012
I.T.A. No. 5809/Mum/2012 C0 No.241/Mum/2013
17. In the result, the appeal filed by the revenue is treated as allowed for statistical purposes. The appeal filed by the assessee is partly allowed. The cross objection filed by the assessee is allowed.
The above order was pronounced in the open court on 31st July, 2014.
घोषणा खुले यायालय म दनांकः 31st July, 2014 को क गई ।
Sd Sd
(संजय गग /SANJAY GARG) (बी.आर.बा करन / B.R. BASKARAN)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मब
ुं ई Mumbai: 31st July,2014.
व. न.स./ SRL , Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु त(अपील) / The CIT(A)- concerned
4. आयकर आयु त / CIT concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मब
ुं ई /
DR, ITAT, Mumbai concerned
6. गाड फाईल / Guard file.
आदे शानस
ु ार/ BY ORDER,
True copy
सहायक पंजीकार (Asstt. Registrar)
आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai