Income Tax Appellate Tribunal - Bangalore
Deputy Commissioner Of Income-Tax, ... vs M/S. Acropetal Technologies Limited,, ... on 20 September, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, VICE-PRESIDENT AND
SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER
ITA Nos. 1256 & 2199/Bang/2016
Assessment Years : 2011-12 & 2012-13
M/s. Acropetal
The Deputy Technologies Ltd.,
Commissioner of No. 2/10, Ajay Plaza,
Income Tax, Vs. I Main Road, N.S. Palya,
Circle - 1 (1) (1), Bannerghatta Road,
Bangalore. Bangalore - 560 076.
PAN: AADCA1623M
APPELLANT RESPONDENT
Assessee by : Shri C. Ramesh, CA
Revenue by : Smt. Vandana Sagar, CIT (DR)
Date of hearing : 27.08.2019
Date of Pronouncement : 20.09.2019
ORDER
Per Shri A.K. Garodia, Accountant Member
One appeal is filed by the revenue for Assessment Year 2011-12 which is directed against the order of ld. CIT(A)-1, Bangalore dated 15.03.2016 and the second appeal is also filed by the revenue which is directed against the order of ld. CIT(A)-1, Bangalore dated 04.08.2016 for Assessment Year 2012-13. Both these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.
2. First, we take up the appeal of the revenue for Assessment Year 2011-12.
The grounds raised by the revenue in this appeal are as under.
"1. The order of the Learned CIT (Appeals), in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case.
2. The Ld. CIT(A) erred in holding that the correct figure not realized within twelve months from the end of the previous year is Rs.4,23,73,388/-and all the other export receipts are within the time permitted by the RBI and there shall be no exclusion from the eligible deduction computed u/s 10A of the Act while the assessee himself at sl.no.8 of the Grounds of Appeal submitted before the CIT(A) has admitted that the proceeds received beyond 12 months period is ITA Nos. 1256 & 2199/Bang/2016 Page 2 of 10 Rs.16,36,53,777/- and has prayed that these may be allowed as an export turnover.
3. The Ld.CIT(A) ought to have appreciated the fact that as per RBI (Competent Authority in this regard) circular dtd. 3.6.2008, the Foreign Inward Remittances which are received within a period of one year from the date of export will stand qualified for the purpose of eligible remittances and the details submitted by the assessee company relating to revised claim of Rs.4,23,73,388/- are only FIRCs which have deficiency of mention of the relevant effective date of invoices raised.
4. The Ld.CIT(A) ought to have held that the export proceeds unrealized within 12 months from the year end amounting to Rs.16,36,53,777/- is not to be considered as Export Turnover for computation of deduction u/s 10A in view of the judgment of Hon'ble ITAT Mumbai 'C' Bench in the case of Core Jewellery P Ltd. in ITA No.715/MUM/2010 wherein it is held that the unrealized amount is not entitled for deduction under section 10A.
5. The CIT(A) erred in directing the AO to re-compute, the deduction u/s.10A after reducing expenses incurred in foreign currency to the tune of Rs.65,17,33,720/- from the export turnover as well as the total turnover while calculating deduction u/s.10A following the ratio laid down by the Hon'ble High Court in the case of Tata Elxsi Limited in 349 ITR 98 without appreciating the fact that there is no provision in Section 10A that such expenses should be reduced from the total turnover also, as clause (iv) of the Explanation to Section 10A provides that such expenses are to be reduced only from the export turnover.
6. The CIT(A) erred in not appreciating the fact that the jurisdictional High Court's decision in the case of Tata Elxsi Limited 349 ITR 98 has not been accepted by the department and an appeal has been filed before the Hon'ble Supreme Court, hence not reached finality.
7. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed and that of the Assessing Officer be restored.
8. The appellant craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of appeal."
3. It was submitted by ld. DR of revenue that ground nos. 1, 7 and 8 are general and hence, we hold that regarding these grounds, no separate adjudication is called for. Regarding ground nos. 5 and 6, it was fairly conceded by ld. DR of revenue that issue involved in these two grounds is covered against the revenue by the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Tata Elxsi Ltd. as reported in 349 ITR 98. She submitted that ITA Nos. 1256 & 2199/Bang/2016 Page 3 of 10 still, she supports the assessment order. The ld. AR of assessee supported the order of ld. CIT(A) in which ld. CIT(A) has followed the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Tata Elxsi Ltd. (supra).
4. We have considered the rival submissions. We find that the dispute in these two grounds is regarding computation of deduction allowable to the assessee u/s. 10A because for computing this deduction, the AO has reduced the amount of Rs. 65,17,33,720/- from the export turnover but it has not been reduced from the total turnover and as per the directions of ld. CIT(A), he directed the AO to reduce this amount from total turnover also. As per the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Tata Elxsi Ltd. (supra) it was held that total turnover is sum total of export turnover and domestic turnover and if an amount is reduced from export turnover then the total turnover also goes down by the same amount automatically. Since the direction of ld. CIT(A) on this issue is in line with this judgment of Hon'ble Karnataka High Court, we decline to interfere in the order of ld. CIT(A) on this issue. Accordingly ground nos. 5 and 6 of the revenue's appeal are rejected.
5. Regarding ground nos. 2, 3 and 4 of revenue's appeal, it was submitted by ld. DR of revenue that the decision of ld. CIT(A) on this aspect of the matter is as per para no. 4 on page nos. 5 and 6 of his order. She pointed out that as per this para, ld. CIT(A) has followed the Tribunal order rendered in the case of ACIT Vs. Tara Jewels Exports Pvt. Ltd. in ITA No. 662/Mum/2012 dated 29.01.2014. She pointed out that in that case, the assessee was in SEZ and therefore, as per RBI Master Circular No. 10/2011-12, copy available on pages 2 to 4 of the paper book filed by the Department, it was specified in para B.3 of this circular that by Units in Special Economic Zones (SEZs), no specific time period has been stipulated to realise the export proceeds. She submitted that the present assessee is not in SEZ. In support of her contention, she submitted that the copy of prospectus of assessee company dated 25.02.2011 is available on pages 5 to 8 of the paper book filed by the revenue and she drawn our attention to para no. 30 of this prospectus and pointed out that it is stated by the assessee in this para that ITA Nos. 1256 & 2199/Bang/2016 Page 4 of 10 the assessee is registered as a Software Technology Park (STP). She submitted that because of this factual difference, the Tribunal order rendered in the case of ACIT Vs. Tara Jewels Exports Pvt. Ltd. (supra) is not applicable. She submitted a copy of this Tribunal order and pointed out that it is noted by the Tribunal in para 4 of this Tribunal order that assessee is a unit located in SEZ.
6. In reply, the ld. AR of assessee stated that the amount of realization not made within prescribed time is wrongly computed by the AO at Rs. 16,36,53,777.48 on page no. 6 of the assessment order. He submitted that before ld. CIT(A), this was the claim of the assessee that the amount of export proceeds not realized within the stipulated time is only Rs. 4.23 Crores and for the same also, the assessee has obtained extension from RBI. He submitted that RBI extension letter dated 28.02.2013 for realization of export proceeds is available on pages 26 and 27 of the paper book, as per which RBI has granted permission for extension of time up to 30.06.2013 for realizing the outstanding export proceeds in respect of Export invoices amounting to USD 4,590,641.00. He submitted that the details of this amount is available on pages 28 and 29 of the paper book and although, most of the invoices are of next Assessment Year but one invoice is dated 20.03.2011 of USD 230,071 and the second invoice is dated 15.03.2011 of USD 152,365 and the third invoice is dated 20.03.2011 of USD 280,118. He also submitted that only these three invoices of this year are noted in this order of RBI because the payment of remaining invoices were already realized by assessee before 28.02.2013 being the date of letter from RBI. Therefore, those invoices were not noted in this letter but extension stands granted regarding those invoices also. At this juncture, the ld. DR of revenue pointed out that as per the Note on page no. 26 of the paper book being the letter of RBI dated 28.02.2013, it has been specified that this communication is issued from the Foreign Exchange angle under the provisions of FEMA and should not be construed to convey the approval by any other Statutory Authority or Government under any other laws/legislations. She pointed out that as per the provisions of section 10A of the IT Act, as per sub-section (3) of section 10A of the IT Act, the extension of time should be authorized by the competent authority for the ITA Nos. 1256 & 2199/Bang/2016 Page 5 of 10 purpose of section 10A of the IT Act. She submitted that since this extension is only for FEMA purpose, this extension cannot be considered for the purpose of section 10A of the IT Act.
7. We have considered the rival submissions. First of all, we reproduce para 4 from the order of ld. CIT(A) because ld. CIT(A) has decided this issue as per this para of his order. This para reads as under.
"4. As has been mentioned above the proceeds is not realized within the stipulated time is said to be Rs.4.23 crores. If the figure is correct, it should not be taken as Rs.16.36 crores. It is seen that the appellant gets RBI approval to receive the export proceeds up to June 28'2013. The appellant submits in the case of ACIT Vs. Tara Jewels Exports Pvt. Ltd. ITA 662/MUM/2012 Asst. Year 2003-04, the Honour ITAT have allowed relying the Master Circular No 10/2011-12 (dt. 01/07/2011/PB Pages 19/23) that no specific time limit has been prescribed in respect of units in SEZs for realisaiton and repatriation of the export proceeds. The appellant has received the export proceeds within 12 months from the end of the previous year. The remand report was sought from the AO. He has however stated that the assessee is only relied on FIRG without mentioning effective date of in raised. According to the appellant the details regarding invoices dates were not asked for. As the export proceeds have been relying within the time permitted by the RBI, the exclusion of sum of Rs.16,36,53,777/- from the computation of eligible deduction u/s 10A of the Act by the AO is not correct. In any case it has been submitted that the correct figure not realized within twelve months from the end of the previous year is Rs.4,23,73,388/- and all the other export receipts are within the time permitted by the RBI, there shall be no exclusion from the eligible deduction computed u/s 10A of the Act."
8. From the above para, it is seen that ld. CIT(A) has referred to the Tribunal order rendered in the case of ACIT Vs. Tara Jewels Exports Pvt. Ltd. (supra) and Master Circular No. 10/2011-12 dated 01.07.2011 and noted that as per this Master Circular of RBI, no specific time limit has been prescribed in respect of units in SEZs for realization and repatriation of the export proceeds. But he has not given any finding as to whether the assessee is a SEZ or not. The ld. DR of revenue has shown before us that as per the prospectus of assessee company dated 25.02.2011, the assessee is STP and not SEZ. Hence this Tribunal order is not applicable in the present case. As per the RBI Master Circular No. 10/2011-12 available on pages 2 to 4 of the paper book filed by the revenue, it is seen that for STP units, time allowed for collection of export proceeds in India is 12 months from the date of export and hence, it has to be seen as to whether the amount of export in question ITA Nos. 1256 & 2199/Bang/2016 Page 6 of 10 was received in India in foreign currency within the period of 12 months from the date of export. There is no finding available in the order of ld. CIT(A) on this aspect. The working of this amount of Rs. 4,23,73,388/- is also not available before us in the paper book and hence, we feel it proper to restore this aspect of the matter back to the file of ld. CIT(A) for fresh decision with the direction that he should determine the actual amount of export proceeds not received within 12 months from the date of export. Regarding the extension granted by RBI also, he should examine the copy of request made by the assessee for obtaining such extension of time and the actual permission granted by the RBI because we find that the permission of RBI brought on record by the assessee available on page 26 to 27 of the paper book is regarding USD 4,590,641.00 and it includes invoices for both years i.e. Assessment Years 2011-12 and 2012-13. On page no. 4 of the paper book is the detail regarding outstanding amount as on 31.03.2012 of Rs. 4,23,73,388/- but there is no invoice date available in this statement and date of realization during Financial Year 2011-12 is also not available to conclude that such realization made in Financial Year 2011-12 is within 12 months from the date of export or not. The ld. CIT(A) should examine and decide all these aspects by way of a speaking and reasoned order after providing adequate opportunity of being heard to both sides. Accordingly ground nos. 2, 3 and 4 are allowed for statistical purposes.
9. In the result, the appeal filed by the revenue is partly allowed for statistical purposes.
10. Now we take up the appeal of the revenue for Assessment Year 2012-13.
The grounds raised by the revenue in this appeal are as under.
"1. The order of the Learned CIT (Appeals), in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case.
2. The Ld. CIT(A) erred in directing the AO to verify the source whether the funds are out of IPO proceeds and not with borrowed funds and to that extent give the relief as regards disallowance u/s 14A of Rs.94,60,849/-, because such a direction of the CIT(A) tantamount to setting aside the assessment and the CIT(A) does not have such powers consequent to the amendment of section 251(1)(a) by the Finance Act, 2001 w.e.f 01.06.2001.
ITA Nos. 1256 & 2199/Bang/2016 Page 7 of 10
3. With regard to foreign exchange gain/loss, the Ld. CIT(A) erred in directing the AO to verify the figures and details given by the assessee and accordingly allow the loss because such a direction of the CIT(A) tantamount to setting aside the assessment and the CIT(A) does not have such powers consequent to the amendment of section 251(1)(a) by the Finance Act, 2001 w.e.f 01.06.2001.
4. The Learned CIT(A), as an authority, whose powers are coterminous with that of the Assessing Officer, has erred in directing the AO to examine the details while the CIT(A) ought to have called for the remand report from the AO and decided the case on facts.
5. On the facts and in the circumstances of the case the learned CIT(A) erred in allowing the claim of the assessee regarding impairment of assets of Rs.8,17,26,101/- since the assessee had not furnished any proof for such impairment of the software applications during assessment proceedings and since the depreciation claimed by the assessee company in respect of impairment of assets is capital in nature.
6. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the Ld.CIT(A) be reversed and that of the Assessing Officer be restored.
7. The appellant craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of appeal."
11. It was submitted by ld. DR of revenue that ground nos. 1, 6 and 7 are general and hence, we hold that no adjudication is called for regarding these three grounds.
12. Regarding ground nos. 2, 3 and 4, it was submitted by ld. DR of revenue that in respect of these three issues, i.e. regarding disallowance u/s. 14A and regarding deletion of disallowance of foreign exchange gain / loss, ld. CIT(A) has restored the matter back to the file of AO as per para nos. 7 and 8.2 to 8.4 of his order. She submitted that since the ld. CIT(A) cannot restore back the matter to the AO, his order is not sustainable and the same should be set aside and the order of AO should be restored. Regarding ground no. 5, she submitted that this issue is decided by ld. CIT(A) as per para no. 9 of his order. She submitted that after the insertion of block of asset concept, the block of assets will get reduced only on sale of asset or on discard of asset or on demolition of asset and till none of these three happens, the block of assets will continue and assessee can claim depreciation but the value of WDV cannot be allowed as deduction. She submitted that the order of ld.
ITA Nos. 1256 & 2199/Bang/2016 Page 8 of 10 CIT(A) on this issue should also be set aside and that of AO should be restored. At this juncture, the bench made a query as to whether depreciation was allowed by the AO in the present year. In reply, it was submitted by ld. DR of revenue that apparently no depreciation was allowed by the AO because the AO has disallowed the entire amount of assessee's claim of Rs. 8,17,26,101/- on account of impairment of assets. The ld. AR of assessee supported the order of ld. CIT(A).
13. We have considered the rival submissions. We find that for the issues regarding disallowance u/s. 14A and foreign exchange gain / loss, ld. CIT(A) has not decided these issues and he has restored back the matter to the AO as per para nos. 7 and 8.2 to 8.4 of its order. These paras are reproduced hereinbelow for ready reference.
"7. As regards disallowance u/s 14A of Rs.94,60,849/-, it is the contention of the appellant that most of the advances/investments were made out of IPO proceeds and not with borrowed funds. He has requested that the CIT(A) may direct the AO to verify the sources and delete/reduce the disallowance u/s 14A of the Act. In view of the same the AO while giving appeal effect to verify the source whether the funds are out of IPO proceeds and not with borrowed funds and to that extent give the relief.
8.2 Forex Gain / Loss:
As per Accounting Standard (AS) 11 "The Effects of Changes in Foreign Exchange Rates", at each balance sheet date every company is required to report foreign currency monetary items like receivables, payables, 'cash, etc. using the closing rate.
8.3 Exchange differences arising on the settlement of monetary items or on reporting an enterprise's monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, should be recognised as income or as expenses (Foreign exchange gain / loss) in the period in which they arise.
8.4 Realised forex gain / loss is the foreign exchange gain which arises when the asset or liability is settled, whereas Unrealised (notional) forex gain / loss which arises on balance sheet date when monetary assets are reported using closing rate. It is the contention of the appellant that there was foreign exchange gain/loss of Rs.12,49,25,403/-. He has provided details concerned with this loss and also correspondence as proof of writing off of bad debts. It has been submitted that the AO can verify this. Prima facie contention appears to be correct. The AO may verify the figures and details given by the appellant and accordingly allow the loss."
ITA Nos. 1256 & 2199/Bang/2016 Page 9 of 10
14. From the above paras, it is seen that ld. CIT(A) has restored back both the matters to the file of AO for decision but now this is settled position of law that ld. CIT(A) cannot restore the matter back to the AO for fresh decision. The ld. CIT(A) should decide the issue himself and since, he has not done so, we set aside the order of ld. CIT(A) on both these issues and restore back these issues to his file for decision with the direction that he should decide the issue himself by way of a speaking and reasoned order after providing adequate opportunity of being heard to both sides. Accordingly ground nos. 2 to 4 of the revenue's appeal are allowed for statistical purposes.
15. Regarding ground no. 5 of revenue's appeal, we find that this issue was decided by ld. CIT(A) as per para 9 of his order and for ready reference, we reproduce this para from the order of ld. CIT(A).
"9. It is submitted by the appellant that certain software modules were required to be used for developing the products. The orders got cancelled and so they could not use software modules nor resale the same. Hence there was impairment to the assets and it has to be allowed as impairment of assets. There is force in the contention of the appellant. Accordingly, the claim for impairment of assets of Rs.8,17,26,101/- is hereby allowed."
16. We find that the order of ld. CIT(A) is very cryptic and there is no finding that assets in question were sold or discarded or demolished and hence, in our considered opinion, the order of CIT (A) on this issue is not sustainable. It may be that the claim of the assessee is not allowable but even in that case also, the assessee should be allowed depreciation. Hence we set aside the order of ld. CIT(A) on this issue also and restore back the matter to his file for fresh decision with the direction that he should decide the issue afresh by way of a speaking and reasoned order in the light of above discussion after providing adequate opportunity of being heard to both sides. Ground no. 5 is also allowed for statistical purposes.
17. In the result, the appeal filed by the revenue for Assessment Year 2012-13 is allowed for statistical purposes.
18. In the combined result, the appeal of the revenue for Assessment Year 2011- 12 is partly allowed for statistical purposes and for Assessment Year 2012- 13 stands allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/-
(N.V. VASUDEVAN) (ARUN KUMAR GARODIA)
Vice-President Accountant Member
Bangalore,
Dated, the 20th September, 2019.
/MS/
ITA Nos. 1256 & 2199/Bang/2016
Page 10 of 10
Copy to:
1. Appellant 4. CIT(A)
2. Respondent 5. DR, ITAT, Bangalore
3. CIT 6. Guard file
By order
Assistant Registrar,
Income Tax Appellate Tribunal,
Bangalore.