Income Tax Appellate Tribunal - Panji
Symantec Software India Pvt. Ltd.,, ... vs Deputycommissioner Of Income-Tax,, on 10 November, 2017
आयकर अपील
य अ धकरण पण
ु े यायपीठ "ए" पण
ु े म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE MS. SUSHMA CHOWLA, JM AND
SHRI ANIL CHATURVEDI, AM
ITA No.864/PUN/2013
Assessment Year : 2005-06
M/s Symantec Software India Pvt. Ltd.,
(Earlier known as Veritas Software
India Pvt. Ltd.),
ICON, S.No.3/8, Baner Road,
Pune - 411 045.
PAN : AAACV6015F ....Appellant.
Vs.
The Dy. Commissioner of Income Tax,
Circle - 7, Pune. ...Respondent
ITA No.961/PUN/2013
Assessment Year : 2005-06
The Asstt. Commissioner of Income Tax,
Circle-7, Pune. ...Appellant
Vs.
Symantec Software India Pvt. Ltd.,
(Formerly Veritas Software India Pvt. Ltd.),
S.No.210/1A, Symphony, Range Hills,
Pune - 411 020.
PAN : AAACV6015F ....Respondent
CO No.70/PN/2014
(Arising out of ITA No.961/PUN/2013)
Assessment Year : 2005-06
M/s Symantec Software India Pvt. Ltd.,
(Formerly Veritas Software India Pvt. Ltd.),
EON Free Zone, 0-05 Floor, Wing 1,
Cluster B, Plot No.1, Survey No.77,
MIDC, Knowledge Park, Kharadi,
Pune - 411 014.
PAN : AAACV6015F ...Cross-Objector/
Appellant.
Vs.
The Dy. Commissioner of Income Tax,
Circle - 7, Pune. ...Respondent
2
ITA No.611/PN/2015
ITA No.664/PN/2015
Assessee by : Shri Rajendra Agiwal.
Revenue by : Shri Rajeev Kumar, CIT.
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing : 23.08.2017 Date of Pronouncement: 10.11.2017
आदे श / ORDER
PER ANIL CHATURVEDI, AM :
1. The cross appeals filed by the assessee and the Revenue and the Cross-Objection filed by assessee are directed against the order of Commissioner of Income Tax (Appeals)-IT/TP, Pune 06.02.2013 for the assessment year 2005-06.
2. Both the captioned appeals and Cross Objection are being disposed of by this consolidated order.
3. The relevant facts as culled out from the materials on record are as under :-
Assessee is a company stated to be engaged in the business of software development services, rendering technical support services and related services. The assessee filed its return of income for assessment year 2005-06 on 28.11.2005 declaring total income at Rs.
Nil. The case was selected for scrutiny. It was noticed by the AO that assessee had entered into international transactions and accordingly reference was made by him to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of the international transactions. Thereafter, Addl. CIT(TP)-II, Pune (TPO) vide order dated 19.09.2008 passed an order under section 92CA(3) and determined the 3 ITA No.611/PN/2015 ITA No.664/PN/2015 total adjustment of Rs.23,36,53,039/- which was required to be made to the international transactions. On receipt of the said order from TPO notice under section 142(1) of the Act was issued by AO and after considering the submissions of the assessee, assessment order was framed under section 143(3) of the Act vide order dated 19.12.2008 and the total taxable income was determined at Rs.26,41,00,550/-.
Aggrieved by the order of AO, assessee carried the matter before the Ld.CIT(A), who vide a consolidated order dated 06.02.2013 for assessment years 2005-06 to 2008-09 granted partial relief to the assessee. Aggrieved by the order of Ld.CIT(A), assessee and the Revenue are now in appeal before us. The effective grounds raised by the assessee in its appeal in ITA No.864/PUN/2013 reads as under :-
"Based on the facts and circumstances of the case, the Appellant respectfully craves leave to prefer an appeal against the order dated 6 February 2013 passed by the Hon'ble CIT(A) under section 250 of the Act on the following grounds, which are independent of and without prejudice to one another:
On the facts and in circumstances of the case and in law, the Hon'ble CIT(A) has:
1. Ground 1:
Erred in upholding the action of the Assessing Officer in disallowing deduction under section 10A of the Act on liabilities written-back of Rs.14,13,817/-
2. Ground 2:
Erred in upholding the action of the Assessing Officer in disallowing deduction under section 10A of the Act on interest income of Rs.22,03,994/-"
4. On the other hand, the grounds raised by the Revenue in its appeal in ITA No.961/PUN/2013 reads as under:-
"1. On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that the assessee is entitled to claim deduction u/s. 10A on the profit of Unit B also.4 ITA No.611/PN/2015 ITA No.664/PN/2015
2. On the facts and circumstances of the case, learned CIT(A) has erred in holding that the gain from fluctuation of foreign exchange is directly related with the export activities and should as income derived from export in the year in which export took place.
3. On the facts and circumstances of the case, learned CIT(A) has erred in directing the Assessing officer to reduce the telecommunication charges not only from the export turnover but also from the total turnover."
5. We first take up assessee's appeal in ITA No.864/PUN/2013 and also the grounds of the Revenue to the extent they are inter-connected with the assessee's appeal.
6. The first ground is with respect to disallowing deduction under section 10A on the liability written-back of Rs.14,13,817/-. This ground of assessee's appeal is inter-connected with ground no.2 of Revenue's appeal and therefore both are considered together.
7. On perusal of the records and the details of income, it was noticed that assessee had claimed deduction on income from exchange gain (Rs.1,96,72,868/-), interest income (Rs.24,61,093/-), liabilities no longer required written-back (Rs.14,13,817/-) and the aggregate of such income being Rs.2,35,47,778/-. The AO was of the view that the aforesaid income was not derived from export of articles or things or computer softwares and further the assessee in the notes to the financial statements had itself shown the income as "other income". He accordingly denied the claim of deduction under section 10A of the Act on such income. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who after considering the submissions of the assessee decided the issue :-
5ITA No.611/PN/2015 ITA No.664/PN/2015
"Ground 2 Disallowance of deduction u/s10A on foreign exchange gain, interest income and liabilities no longer required written back.
2.2.1 The learned AO denied the deduction on the above items of income totaling Rs 2,35,47,778. According to him, these incomes are not derived from the export of articles or things or computer software.
2.2.2 The Appellant has submitted that this issue is covered in favour of the Appellant by my predecessor's Order for the AY 2004-05. The CIT(A) held that Section 10A(4) provides for computational mechanism of 'profits of the business of the eligible undertaking'. On this basis, it was held that the items credited to Profit and Loss account would be eligible for the deduction u/s10A because they are part of the 'profits of the business of the eligible undertaking', The Appellant also relied on the following decisions:
i. Livingstones Jewellery (P) Ltd vs DCIT (31 SOT 323 ) (Mum ITAT) ii. Wipro Ltd Vs DCIT ( 34 DTR 493) (Bang ITAT) iii. CIT Vs Motorola India Electronics (P) Ltd ( 112 TTJ 562) (Bang ITAT) iv. CIT Vs Eltek SGS (P) Ltd (215 CTR 279) (Delhi HC) Findings 2.2.3 I have considered the arguments of the Appellant and gone through the case-laws relied on by it. As far as foreign exchange gain is concerned, It has been held by the jurisdictional High Court in the case of CIT v Gem Plus Jewellery India Ltd (2011) 330 ITR 175 (Bom) that the gain from fluctuation of foreign exchange is directly related with the export activities and should be considered as income derived from export in the year in which the export took place. Accordingly, deduction u/s 10A on foreign exchange gain is allowable. I direct the learned AO to allow the deduction on foreign exchange gain.
..............
2.2.5. On liabilities written back, I am of the view that the liabilities written back are not derived from the export activity. Liabilities written off may relate to export business however, liabilities written back cannot be considered to have been derived from the export activity when they are credited to profit and loss account. Therefore, I confirm the decision of the learned AO to deny the deduction on liabilities written back." Aggrieved by the order of CIT(A), assessee and Revenue are now in appeal before us.
8. Before us, at the outset, Ld. AR on the issue of deduction of liabilities written back, submitted that in A.Y. 2004-05, identical issue arose in assessee's own case before the Tribunal and Hon'ble Tribunal 6 ITA No.611/PN/2015 ITA No.664/PN/2015 decided the issue in faovur of assessee. Thereafter the matter was carried by Revenue before the Hon'ble High Court and Hon'ble High Court dismissed the appeal of the Revenue. On the issue of considering the gain from fluctuation from foreign exchange as being eligible for deduction u/s 10A being raised in Revenue's appeal, he submitted that the issue as noted by the Ld CIT(A) is covered by the decision of Hon'ble Bombay High Court in the case of CIT Vs. Gem Plus Jewellery (supra). He further submitted that the present ground is also squarely covered by the decision of the Hon'ble Bombay High Court in assessee's own case for assessment year 2004-05. He placed on record the copy of the Hon'ble Bombay High Court in ITA No.1534 of 2012, order dated 12.12.2014 and pointed to the relevant question before the Hon'ble High Court at page 6 of the order and the relevant observations of the Hon'ble High Court. He therefore submitted that since the facts of case in the year are identical to that of assessment year 2004-05 and therefore following the decision of Hon'ble Bombay High Court, the issue needs to be decided in favour of the assessee. The Ld. DR did not controvert the submissions of the assessee but however supported the order of lower authorities.
9. We have heard the rival submissions and perused the material on record. The issue in the present case in assessee's appeal is whether the amount of liability written-back is eligible for deduction under section 10A of the Act. We find that in assessee's own case in assessment year 2004-05 the issue was decided in assessee's favour by the Co-ordinate Bench of the Tribunal. Against the order of Tribunal, Revenue carried the matter before Hon'ble High Court. Hon'ble High 7 ITA No.611/PN/2015 ITA No.664/PN/2015 Court vide order dated 12.12.2014 in ITA No.1534 of 2012 upheld the order of Tribunal and dismissed the Revenue's ground. The relevant ground raised by the Revenue and Hon'ble High Court's observation are as under :
"9............
4(B) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that incomes by way of sales tax refund, liabilities no longer required written back and profit on sale of assets are eligible incomes for computing deduction u/s 10A for Unit-A?
14. Remaining question is question 4B. In relation to that question what the Tribunal has observed is that the manner of computing deduction under section 10A of the Act, according to the Revenue, enables it to compute the deduction and in the manner that while working out eligible profits under section 10A, the Assessee was required to exclude a sum of Rs.21,13,822/- being the sales tax refund, a sum of Rs.12,79,558/- being the liabilities no longer required and written back and Rs.74,104/- being the profit on sale of assets. The Commissioner negated this stand of the Revenue and reversed the order of the Assessing Officer. However, the Departmental Representative's argument before the Tribunal is that aforementioned amounts or incomes do not meet the test of having been "derived by an undertaking from the export of articles" as contained in section 10A of the Act.
15. The Assessee relied upon the Tribunal's order in the case of Livingstones Jewellery Pvt.Ltd. v/s. DCIT, and following that the Commissioner's order was upheld by the Tribunal in this case.
16. Mr.Tejveer Singh has attempted to support the finding of the Assessing Officer by urging that section 10A and section 80HH have to be seen and read together for the purposes of computation of deduction. He took us through section 10A and section 80HH to support his above. argument."
17. Two provisions read as under :
...............
............
18. Section 10A is setting out a special provision in respect of newly established undertakings in free trade zone. Sub-section 1 thereof states that subject to provisions of this section, a deduction of such profits and gain as are derived by an undertaking from export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from total income of the Assessee. Sub-section 4 thereof states that for the purpose of sub-section 1 and 1A the profits derived from the export of articles or things or computer software shall be the amount, which bears to the profits of the business of the undertaking, the same proportion as 8 ITA No.611/PN/2015 ITA No.664/PN/2015 the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried out by the undertaking.
19. There is some substance in the contention of Mr.Kaka that if the deduction shall be allowed from the total income of the Assessee in the manner set out by section 10A and the computation is also provided in that provision itself namely sub-section 4, then there is a complete Code which is evolved and formulated by the Legislature.
20. In relation to this, we also find support in the judgment of this Court in the case of Black and Veatch Consulting Pvt.Ltd. This Court has observed and held as under:
"Section 10A is a provision which is in the nature of a deduction and not an exemption. This was emphasised in a judgment of a Division Bench of this Court, while construing the provisions of Section 10B, in Hindustan Unilever Ltd Vs. Deputy Commissioner of Income Tax [2010] 325 IRT 102 (Bom) at paragraph 24. The submission of the Revenue placed its reliance on the literal reading of Section 10A under which a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years is to be allowed from the total income of the assessee. The deduction under Section 10A, in our view, has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of Section 72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in Sections 80C to 80U. Section 80B(5) defines for the purposes of Chapter VIA "gross total income" to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the context of the deduction which is allowable under Section 10A, which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. In the circumstances, the decision of the Tribunal would have to be affirmed since it is plain and evident that the deduction under Section 10A has to be given at the stage when the profits and gains of business are computed in the first instance".
21. Therefore, when this Court has held that Chapter VIA provides for deduction to be made in computing the total income and section 80HH deals with deduction in respect of profit and gains from the newly established undertaking or Hotel business in backward areas, then the attempt of the Revenue to telescope Chapter VIA in the context of the deduction, which is permissible under section 10A falling in Chapter III, cannot be countenance.
22. It is essentially this approach which enables the Tribunal to conclude and consequently uphold the exercise of the Commissioner. The 9 ITA No.611/PN/2015 ITA No.664/PN/2015 Commissioner has in relation to this question held that the Revenue is seeking to deny deduction by making computation contrary to section 10A itself. That is how he proceeds in para 7.4 of his order. He proceeds to hold that in excluding income of Rs.92,33,705/- from the profits derived from export activities, the Assessing Officer has relied upon the judgment in the case of CIT v/s. Sterling Food Ltd., 237 ITR 579 rendered by the Hon'ble Supreme Court, but that is interpreting section 80HH. The Commissioner held that while applying ratio of this decision, one will have to bear in mind the distinction between section 80HH and section 10A. That cannot be lost sight of. Section 10A categorically clarifies that the profits derived from export of computer software, which is what is the activity referred to in the present case, shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such computer software bears to the total turnover of the business carried out by the Assessee. This is the deduction and computation of that deduction is to be found in section 10A itself. That is how the Commissioner proceeds and concludes so as to reverse the Assessing Officer's order. We do not see how the Commissioner could have taken assistance of either section 80HH or section 80HHC as is interpreted in the decision of the Hon'ble Supreme Court. Section 80HHC pertains to deduction in respect of profit retained for export business. When there is a specific section in the Act and the enactment contains a separate Chapter in relation to the deduction of profit and gains derived by an undertaking from export and when such undertakings are established in a free trade zone, then, we do not see any basis for the complaint made by Mr.Tejveer Singh. This finding of the Commissioner has been upheld by the Tribunal. We do not see as to how in such circumstances, the Tribunal's order can be termed as perverse or vitiated by any error of law apparent on the face of the record. The Tribunal has in arriving at the same conclusion relied upon its own order in the case of Livingstones Jewellery Pvt.Ltd. v/s. Deputy Commissioner of Income Tax. The Tribunal in that decision was concerned with the phraseology of section 10A particularly the expression 'derived from the export of articles". The Assessing Officer did not note the complete provision in this case, namely expression "profit derived from export of articles or things or computer software" as that is also appearing in sub- section 1. The manner in which the computation has to be made is to be found in sub-section 1 and particularly in sub-section 4 of section 10A. The Tribunal has, therefore, proceeded by relying upon the language of section 10A itself. It concluded in the earlier order in the case of Livingstone Jewellery that once the expression "derived from" has been specifically defined in the same section, then the meaning of such expression as understood in common parlance will not be applicable. The Tribunal may have referred to some rulings as to how such provisions have to be interpreted. However, we do not have to decide any wider controversy or question. Once we find that the view taken by the Tribunal in this case, and in upholding the conclusion of the Commissioner, is in consonance with the language of section 10A and also takes into consideration the relevant sub-section thereof namely sub-section 4 thereof, then it cannot be said that its conclusion or order is vitiated by any error of law apparent on the face of the record. The distinction and difference in the language and setting of section 80HHC, section 80HH and section 10A has been rightly noted in the present case to reject the Revenue's grounds.
23. We are, therefore, not required to go into any further questions and particularly as noted in the case of CIT v/s. Gem Plus Jewellery India Ltd., 2011, 330 ITR 175. The Division Bench in that case held that while 10 ITA No.611/PN/2015 ITA No.664/PN/2015 computation of turnover for the purpose of section 10A, freights and insurances should be excluded. We are not required to decide such a case or issue.
24. In such circumstances, we do not find that even question 4B can be termed as a substantial question of law, so as to enable us to entertain this Appeal."
10. As far as the issue of considering gain from foreign exchange fluctuation in Revenue's appeal is concerned, we find that Ld.CIT(A) relying on the decision of Hon'ble Bombay High Court in the case of CIT Vs. Jewellers India (supra) had decided the issue in assessee's favour. Before us, Revenue has not pointed any fallacy in the conclusion of Ld.CIT(A) nor pointed any contrary binding decision. We therefore find no reason to interfere with the order of Ld.CIT(A). Thus, the ground of assessee is allowed and that of Revenue is dismissed.
11. Ground no.2 is with respect to denying the deduction of interest income of Rs.22,03,994/-.
11.1. AO noticed that assessee had earned interest of Rs. 22,05,785/-. AO was of the view that the interest income earned by the assessee is not eligible for deduction u/s 10A as it was not derived from export of articles or things or computer software. He accordingly denied the claim of Assessee. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who confirmed the order of AO. Aggrieved by the order of CIT(A), assessee is now in appeal before us.
12. Before us, at the outset, Ld. AR submitted that there is typographical error in mentioning the amount in ground no.2 as Rs.22,03,994/- and the same be read as Rs.22,05,785/-. On the merits 11 ITA No.611/PN/2015 ITA No.664/PN/2015 of the ground, before us, the Ld. AR submitted that assessee had earned net interest of Rs.24,61,093/-. The breakup of which is as under :-
Name of the Bank Interest Amount
IDBI Bank Ltd. 22,05,785/-
National Housing Bank Ltd. 2,57,099/-
SBI 1,15,158/-
MSEB deposit 47,760
Total 24,61,093/-
13. He submitted that the assessee was denied the claim of deduction under section 10A on the aforesaid interest income as according to the AO, the interest income earned by the assessee was not derived from the business and the assessee was therefore not eligible for deduction under section 10A. The action of the AO was also upheld by CIT(A). Before us, Ld. AR submitted that with respect to interest of Rs.2,57,099/- received from National Housing Bank Ltd., interest of Rs.1,15,158/- received from SBI and interest of Rs.47,760/- received from MSEB deposit, he does not wish to press the said ground on account of smallness of amount. With respect to interest of Rs.22,05,785/- received from IDBI Bank Ltd., he reiterated the submissions made before the AO and CIT(A) and further submitted that the interest was received on the margin money placed with bank for issuing bank guarantees in favour of custom authorities and for availing non-fund based facilities from the bank. He therefore submitted that these incomes are derived from the business. He further submitted that on identical facts, in assessee's own case in A.Y 2003-04 (by order dated 30.4.2009), the issue was decided in 12 ITA No.611/PN/2015 ITA No.664/PN/2015 assessee's favour by the co-ordinate Bench of Tribunal. He placed on record the copy of the aforesaid order. He therefore submitted that since the issue is covered in favour of the assessee by the decision of the Tribunal in assesee's own case, the issue be decided in favour of Assessee. Ld DR on the other hand supported the order of lower authorities.
14. We have heard the rival submissions and perused the material on record. In view of the submission of the Ld AR we proceed to dispose of the ground only with respect to the interest of Rs 22,05,785 received from IDBI Bank Ltd. The issue in the present ground is with respect to allowability of deduction u/s 10A of the Act on the interest income. We find that identical issue arose in assessee's own case for A.Y. 2003-04 in ITA No.135/PN/2006 & ITA No.1374/PN/2006 order dated 30.04.2009. The issue was decided by the Co-ordinate Bench by observing as under :-
"4. Heard the submissions of both the sides. At the outset, it is pertinent to mention that now this issue is very well settled after elaborate discussion by the several courts. Before we cite all these decisions, it is worth to examine the nature of interest income which was under the following heads:
i) Interest received on FD kept for custom bonding of Rs.3,45,484/-
ii) Interest received on Money Flex Deposit of Rs.12,80,444/-
iii) Interest received from MSEB deposit of Rs.1,05,957/-
iv) Interest received on short term FDs of Rs.1,29,241/-
5. In respect of first item i.e. interest on FD kept for custom bonding, the short submission was that the appellant was required to keep the account in fixed deposit for the purpose of giving a bank guarantee required for custom bonding in respect of import of machineries.
5.1 The nature of interest in respect of item No.2 was related to the deposits made under Money Flex Deposit on the basis of assurance 13 ITA No.611/PN/2015 ITA No.664/PN/2015 given by the bank that certain non-fund based facilities such as reduction in margin money required for bank guarantee, foreign letters of credit etc. could be availed at reduced rates in lieu of such deposits. In respect of nature of interest as mentioned in item no.(iii) it was explained that the deposit was required to be compulsorily with MSEB for obtaining electricity connection. Finally, in respect of fourth item pertaining to interest on short term FD, the learned A.R has fairly mentioned not to contest this part of the ground.
6. Considering the nature of deposits and the case-law cited this issue is no more res integra being decided in favour of the assessee by following judgments.
(a) Rajesh Exports Ltd. - 2008-TIOL-457-ITAT-BANG - wherein it was held that interest on FDs as margin money with bank for opening LC had an inextricable link between the margin monies and the business of the undertaking, hence considering the provisions of section 10B(4) qualify for eligible exemption.
(b) ACIT Vs. Motorola India Electronics (P) Ltd. (2007) 12 TTJ (Bang) 562 - wherein interest on deposits with EEFC account was held as close nexus with the business activity of the assessee.
6.1 As far as eligibility of interest received from MSEB deposit is concerned, in our considered opinion, the same is covered in favour of the revenue by the respected Supreme Court decision in the case of Pandiyan Chemicals Ltd. (262 ITR 278) wherein it was held that interest derived by the industrial undertaking of the assessee on deposit with the Electricity Board for the supply of electricity for running an industrial undertaking could not be said to be a direct flow from the industrial undertaking itself, hence held that such interest was not profits and gains derived by the undertaking. Therefore, this ground deserves to be dismissed. We therefore, hold that interest on FD kept for custom bonding and interest from Money Flex Deposit are eligible for the claim u/s 10B of the Act and rest of interests are not eligible for such a claim. This ground is partly allowed."
15. Before us, Revenue has not pointed out any contrary binding decision nor pointed out any distinguishing features in the facts of the present case and that for assessment year 2003-04. In view of the aforesaid facts and following the decision of the Co-ordinate Bench and for similar reasons, we are of the view that the interest earned by the assessee of Rs 22,05,785/- is eligible for deduction under section 10A of the Act. Further, since the Ld AR has not pressed for the interest 14 ITA No.611/PN/2015 ITA No.664/PN/2015 earned from National Housing Bank Ltd, SBI and MSEB, the same are not adjudicated. Thus, this ground of assessee is partly allowed.
16. In the result, the appeal of the assessee is partly allowed.
17. Now, we take up Revenue's appeal in ITA No.961/PUN/2013.
18. Ground No 2 of Revenue's appeal is with respect to considering the profit form exchange fluctuation. This ground was considered while deciding the ground of assessee herein above and the ground of Revenue is thus dismissed.
19. Ground Nos. 1 and 3 being inter-connected are considered together and it is with respect to claim of deduction on profits of Unit B of assessee.
19.1 The AO observed that the assessee was carrying out its operations units located at different places after taking approval from STPI authorities. The details of the various units from which the assessee was carrying out operations are listed at page 2 of the assessment order. AO noticed that assessee had treated all the places as branches under Unit A and had called them as separate undertaking for claiming deduction u/s 10A. AO noticed that the offices located by at Pune IT Park, Bldg B at Aundh Road Pune and Bind View Office, near Sadhu Vaswani Chowk Pune (known as Unit B) were not eligible for deduction u/s 10B of the Act, as they were extension of existing business of the assessee. He also noticed that his predecessors in 15 ITA No.611/PN/2015 ITA No.664/PN/2015 assessment year 2004-05 on identical facts had also denied the claim of the deduction u/s 10B for Unit-B. He thereafter reworked the claim of deduction u/s 10B. While reworking the claim, he also excluded telecommunication charges (Rs 67.20 lacs (rounded off) and Rs.15.99 lacs from the export turnover of Unit A and Unit B respectively) for determining the export turnovers of Unit A and Unit B and thereafter determined the total deduction u/s 10B at Rs.2,59,21,094/- as against the claim of assessee of Rs.2,62,63,884/- and thereby denied the deduction to the extent of Rs.3,42,790/-. Aggrieved by the order of AO, assessee carried the matter before the CIT(A), who decided the issue in favour of the assessee by holding as under :-
"2.1.1 The learned AO restricted the deduction claimed u/s 10A as according to him, Appellant's Unit-B was an extension of the existing business. He stated that Unit-B is claiming deduction u/s 10A beyond ten years and hence is not eligible to claim the deduction. On this ground, the learned AO had restricted the deduction claimed u/s 10A in the AY 2004-05. The learned AO observed in the assessment Order that the facts of the case under consideration are identical with the facts of the AY 2004-05. Accordingly, he restricted the deduction claimed u/s 10A.
2.1.2 The Appellant submitted that this issue is covered in its favour by the Order of the honourable ITAT in its own case for AY 2004-05 (ITA 787/PN/09).
Findings 2.1.3 It is seen on the perusal of the Order that the ITAT has held that Unit-B is independent and distinct Unit from Unit-A, which is eligible to claim deduction u/s 10A. The Tribunal has given its decision in para 12 of its Order after considering the argument of the learned AO that Unit-B was claiming deduction beyond the period of ten years. Following the decision of the jurisdictional Tribunal, I hold that the Appellant is entitled to claim deduction u/s 10A also on the profits of Unit-B.
20. On the issue of exclusion of telecommunication charges, the Ld CIT(A) decided the issue by observing as under:
"Ground No 4 & 5 reducing the telecommunication charges from export turnover and not reducing the same from total turnover 16 ITA No.611/PN/2015 ITA No.664/PN/2015 "2.4.1 The Appellant has contended that the learned AO has erred in reducing telecommunication charges of Rs.83,19,616 from the export turnover without appreciating the fact that the same were not incurred in foreign currency. Therefore, the Appellant prayed that telecommunication charges should not be deducted from export turnover.
2.4.2 It was submitted without prejudice to the above that the learned AO has reduced telecommunication charges of Rs.83,19,616 and expenses incurred in foreign currency of Rs.1,57,38,805 without reducing the same from the total turnover to compute deduction u/s 10A. It was submitted that this issue is covered in favour of the Appellant by the following decisions of the honourable courts including the decision of the jurisdictional High Court:
i. CIT vs Gem Plus Jewellery India Limited 194 Taxman 192 (Bom HC) ii. ITO vs Sak Soft Ltd 313 ITR 353 (Chennai ITAT Special Bench) iii. SIP Technologies and Exports Ltd ITA No 2401/Mds/2005 (Chennai ITAT) iv. Binary Semantics Ltd 109 TT J 556 (Delhi ITAT) v. Infosys technologies Ltd (ITA No 653 and 969 (Bang)/2006 and ITA No.632 and 862 (Bang)/2006) Bangalore ITAT vi. Patni Telecom (P) Ltd Vs ACIT (2008) 22 SOT 26 (Hyd ITAT) vii. Mls Mphasis Ltd vs ACIT ( ITA No 884/20071Bang) (Bangalore ITAT) viii. ISeva Systems Pvt Ltd Vs ACIT ( ITA No 401/Bang/2007) ix. M/s Oracle Solutions Services (India) Pvt Ltd Vs CIT (ITA No 528/Bang/2007) x. MIs Goodrich Aerospace Services Pvt Vs DCIT [ITA No 58 (Bang/2008) xi. M/s Alternate Food Process Pvt Ltd Vs ITO [ITA No 52 (Bang)/2008) xii. ITO vs Motorola India Pvt Ltd ITA No 645/Bang/2008 xiii. ACIT Vs Novel! Software Development Information Technology (P) Ltd xiv. DCIT Vs Shobha Rennaissance Information Technology (P) Ltd.
xv. ACIT Vs I-Gate Solutions Ltd (ITA No 624/Bang/2009) 2.4.3 In view of the above, it was submitted that in case telecommunication expenses and expenses incurred in foreign currency are excluded from export turnover, then the same should also be excluded from the total turnover while computing deduction u/s 10A(4). 2.5.1 On reduction of telecommunication expenses and expenses incurred in foreign currency, I find that the learned AO has relied on the information contained in the Form 56F filed by the Applicant. In view of this facts and clear provisions of law on this subject, I uphold the decision of the learned; AO to reduce these expenses from the export turnover.
2.5.2. It is seen that the issue of reducing the same amounts also from the total turnover has been covered in the Appellant's favour by the Order of the honourable ITAT in the Appellant's own case of AY 2004-05. In view of the decision of the honourable Tribunal in the Appellant's case, 17 ITA No.611/PN/2015 ITA No.664/PN/2015 I direct the AO to reduce the above items of income also from the total turnover."
Aggrieved by the order of CIT(A), Revenue is now in appeal before us.
21. Before us, Ld. DR supported the order of AO. The Ld. AR, on the other hand, reiterated the submissions made before the AO and CIT(A) and supported the order of CIT(A). He further submitted that the identical issue arose before the Hon'ble Bombay High Court in assessee's own case for assessment year 2004-05 and it was decided in favour of the assessee. He pointed out to the relevant observations of the Hon'ble High Court. He thus supported the order of CIT(A).
22. We have heard the rival submissions and perused the material on record. We find that CIT(A) has decided the issue in favour of the assessee by following the order of the Tribunal in assessee's own case for A.Y. 2004-05 in ITA No.787/PUN/2009. We further find that the Hon'ble High Court in assessee's own case in earlier year has also decided the issue in favour of assessee. Before us, Revenue has not placed any material on record to demonstrate any distinguishing features in the facts of the present case and that of A.Y. 2004-05 nor has brought on record any contrary binding decision. In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A). Thus, the grounds of Revenue are dismissed.
23. In the result, the appeal of the Revenue is dismissed. 18 ITA No.611/PN/2015 ITA No.664/PN/2015 CO No.70/PUN/2014, A.Y. 2005-06 (By Assessee) :
24. The grounds raised by the assessee in the Cross-Objection reads as under:
"Cross objections with reference to Ground 3 of the Department's Appeal [Reduction of telecommunication expenses from total turnover]
1. Telecommunication charges ought not to have been reduced from export turnover.
Erred in reducing the telecommunication charges of Rs.83,19,616 from 'Export Turnover' without appreciating the fact that the same were not incurred in foreign currency."
25. Before us the Ld. AR submitted that if the appeal of the Revenue is dismissed, the grounds raised by the assessee in Cross Objection be treated as not pressed. Ld DR did not oppose the submission of Ld AR. We have heard the rival submissions and perused the material on record. While deciding the appeal of Revenue hereinabove, the grounds of the Revenue were dismissed. Therefore, in view of the Ld AR's submission, the grounds raised by the assessee in the present C.O are dismissed as not pressed.
26. In the result, the appeal of assessee is partly allowed and the appeal of Revenue and C.O of assessee are dismissed.
Order pronounced on this 10th day of November, 2017.
Sd/- Sd/-
(SUSHMA CHOWLA) (ANIL CHATURVEDI)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
पण
ु े Pune; दनांक Dated : 10th November, 2017.
Yamini.
19
ITA No.611/PN/2015
ITA No.664/PN/2015
आदे श क त ल प अ!े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. CIT(A)-IT/TP, Pune.
4. The DIT (TP/IT), Pune.
5. वभागीय #त#न$ध, आयकर अपील य अ$धकरण, "ए" / DR,
ITAT, "A" Pune;
6. गाड+ फाईल / Guard file.
आदे शानस
ु ार/ BY ORDER,
स या पत //True Copy//
व-र.ठ #नजी स$चव / Sr. Private Secretary
आयकर अपील य अ$धकरण, पुणे / ITAT, Pune