Income Tax Appellate Tribunal - Chennai
Covansys (India) Private Limited, ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH 'A' : CHENNAI
[BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER
AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER]
I.T.A.No.414/Mds/2007
Assessment year : 2003-04
M/s Covansys (India) Pvt. Ltd vs The ACIT
Unit 13, Block 2, SDF Buildings Company Circle I(3)
Madras Export Processing Zone Chennai
Tambaram
Chennai - 45
[PAN - AAACC1351M ]
(Appellant) (Respondent)
I.T.A.No.593/Mds/2007
Assessment year : 2003-04
The ACIT vs M/s Covansys (India)
Company Circle I(3) Pvt. Ltd
Chennai Chennai - 45
(Appellant) (Respondent)
Assessee by : Dr. Anita Sumanth
Department by : Shri Shaji P. Jacob
ORDER
PER HARI OM MARATHA, JUDICIAL MEMBER:
Both the parties are aggrieved against the order of the ld. CIT(A) - III, Chennai, dated 15.12.2006, for assessment year 2003-04. :- 2 -: ITA 414&593/07
2. Briefly stated, the facts of the case are that the assessee- company is engaged in the business of development of computer software and providing the related services. For the year under consideration, the assessee-company filed its return of income on 27.11.2003 declaring total income of `9,08,35,914/- after claiming deduction of `9,76,44,877/- u/s 80HHE and exemption of `1,35,170,946/- u/s 10B of the Act. But the assessment was completed u/s 143(3) on 10.3.2006 determining total income of the assessee at ` 13,21,26,100/-. In arriving at the above computation, the Assessing Officer made certain adjustments and additions in respect of deduction claimed u/s 80HHE and 10B of the Act. The grounds raised by the assessee in its appeal read as under:
"Issue-I, Chennai Unit II - Denial of claim under section 80HHE on 10 percent of the profits of the undertaking.
1. That the learned Commissioner of income-
tax(Appeals) [ld. CIT(A)] is not justified in holding that 10 percent of the profits of Chennai Unit II which was excluded from deduction u/s 10B are not entitled for deduction under section 80HHE of the Act.
Issue 2 - Expenditure incurred in foreign currency.
2. That the ld. CIT(A) is not justified in holding that expenses incurred in foreign exchange should be excluded from export turnover, but not from total turnover in computing deduction under section 10B of the Act.:- 3 -: ITA 414&593/07
3. Without prejudice to Ground No.2 above, the ld.
CIT(A) has erred in excluding the expenses incurred in foreign currency towards computer software development from export turnover, when such expenses were not incurred in providing technical services outside India.
Issue 3 - Telecommunication expenditure.
4. That the ld. CIT(A) is not justified in holding that telecommunication expenditure incurred in connection with the delivery of computer software outside India should be excluded from export turnover, but not from total turnover in computing deduction under section 10B of the Act."
3. We have considered the rival submissions and have carefully perused the entire material available on record. The first issue of assessee's appeal relates to a claim of deduction u/s 80HHE of the Act in respect of remaining 10% of eligible profits after allowance of deduction u/s 10B of the Act in respect of newly established (Unit II) 100% Export Oriented Undertaking (EOU) to the extent of 90% on such profits. The Chennai Unit-II of the assessee was eligible for 100% deduction of its business profit u/s 10B of the Act. But for assessment year 2003-04, i.e with effect from 1.4.2003 by way of a proviso inserted by the Finance Act, 2002, the permissible deduction was reduced to only 90% of the total eligible profits. The case of the assessee is that balance 10% of the profits on which deduction u/s 10B is not allowable as per the above amendment should be :- 4 -: ITA 414&593/07 considered for deduction u/s 80HHE whereunder also the assessee is eligible for deduction. The contention of the assessee as put forth through its ld.AR is that the provisions of section 10B(6)(iii) specifically excludes deductions u/s 80HH, 80HHA, 80-I, 80-IA and 80-IB but it does not exclude further deduction u/s 80HHE in relation to 'such profits' and therefore, deduction u/s 80HHE is available simultaneously with deduction u/s 10B of the Act. In other words, the contention of the ld.AR is that section 10B and 80HHE are exclusive to each other in view of the provisions of sub-section (5) of section 80HHE which uses the term 'such profits' for which deduction u/s 80HHE has been claimed cannot be considered u/s 10B of the Act, but vice-versa is possible. The ld.AR has relied on various decisions to substantiate her above contention. On the other hand, the ld.DR has countered the above contention with reference to the provisions of section 80A(4), the amended provision, which has a retrospective effect, and section 80HHE itself. According to him, assessee is eligible for this deduction only if it has got only one unit and not two units. Further he has referred to the finding of the ld. CIT(A) wherein he has held that specific amendment has been made in order to restrict the eligible claim to 90% instead of 100% with regard to the same and similar :- 5 -: ITA 414&593/07 profit, and to substantiate his arguments he has relied on various decisions.
4. A piquant situation has arisen due to the amendment made in the provisions of section 10B of the Act. It is true that the provisions of section 10B(6)(iii) specifically excludes section 80HH but it does not exclude section 80HHE deduction but still a million dollar question remains to be replied as to whether deductions under sections 10B and 80HHE can be allowed simultaneously or not. In other words, it is to be seen if whether sections 10B and 80HHE are exclusive to each other or they have to be treated inclusive one. For arriving at the correct reply of this ticklish puzzle, we have to carefully read both these provisions in harmony. Section 10B of the Act, as it stands today, reads as under:
"Special provisions in respect of newly established hundred per cent export-oriented undertakings8. 10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the 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 articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee :
Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this :- 6 -: ITA 414&593/07 sub-section only for the unexpired period of aforesaid ten consecutive assessment years :9
[Provided 10 [further] that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software:] Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 11[2012] and subsequent years :12
[Provided also that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section
139.] (2) This section applies to any undertaking which fulfils all the following conditions, namely :--
(i) it manufactures or produces any articles or things or computer software;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re- establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section ;
(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Explanation.--The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section.
(3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.
:- 7 -: ITA 414&593/07Explanation 1.--For the purposes of this sub-section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.
Explanation 2.--The sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.
13 [(4) For the purposes of sub-section (1), the profits derived from 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 the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.] (5) The deduction under sub-section (1) shall not be admissible for any assessment year beginning on or after the 1st day of April, 2001, unless the assessee furnishes in the prescribed form 14 , along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section. (6) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year,--
(i) section 32, section 32A, section 33, section 35 and clause
(ix) of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years 15 [ending before the 1st day of April, 2001], in relation to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii) of sub-section (2) of section 33, sub-section (4) of section 35 or the second proviso to clause (ix) of sub- :- 8 -: ITA 414&593/07
section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction;
(ii) no loss referred to in sub-section (1) of section 72 or sub-
section (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set-off where such loss relates to any of the relevant assessment years 16 [ending before the 1st day of April, 2001];
(iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking; and
(iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment year.
(7) The provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA.
17[(7A) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger--
(a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and
(b) the provisions of this section shall, as far as may be, apply to the amalgamated or resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or the demerger had not taken place.] (8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment year. (9) 18[Omitted by the Finance Act, 2003, w.e.f. 1-4-2004.] (9A) 19[Omitted by the Finance Act, 2003, w.e.f. 1-4-2004.] Explanation 1.-- 20[Omitted by the Finance Act, 2003, w.e.f. 1-4-2004.] :- 9 -: ITA 414&593/07 Explanation 2.--For the purposes of this section,--
(i) "computer software" means--
(a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or
(b) any customized electronic data or any product or service of similar nature as may be notified21 by the Board, which is transmitted or exported from India to any place outside India by any means;
(ii) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder or any other corresponding law for the time being in force;
(iii) "export turnover" means the consideration in respect of export 22 [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;
(iv) "hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 1423 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act;
(v) "relevant assessment years" means any assessment years falling within a period of ten consecutive assessment years, referred to in this section.] 24 [Explanation 3.--For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.] 25 [Explanation 4.--For the purposes of this section, "manufacture or produce" shall include the cutting and polishing of precious and semi- precious stones.] :- 10 -: ITA 414&593/07
5. The above section lays down a special provision in respect of newly established 100% export oriented undertakings. In so far as the Unit-II of the assessee-company is concerned, it is a 100% export oriented undertaking and this unit is also eligible for 100% deduction u/s 10B. The heading of this section speaks of 'undertakings' and not a undertaking. Clause (iii) of sub-section (6) of section 10B specifically excludes allowance of deductions under sections 80HHA, 80-I, 80-IA and 80-IB, in respect of the profits and gains of such undertakings, but conspicuously the deduction u/s 80HHE has not been so excluded. Let us now understand the deduction in relation to section 80HHE from export of computer software, etc. This section reads as under:
" Deduction in respect of profits from export of computer software, etc.85 80HHE. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of,--
(i) export out of India of computer software or its transmission from India to a place outside India by any means;
(ii) providing technical services outside India in connection with the development or production of computer software, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, 86[a deduction to the extent of the profits, referred to in sub-section (1B),] derived by the assessee from such business :87
[***] [Provided that if the assessee, being a company, engaged in the export out of India of computer software, issues a certificate referred to in clause (b) of sub-section (4A), that in :- 11 -: ITA 414&593/07 respect of the amount of the export specified therein, the deduction under this sub-section is to be allowed to a supporting software developer, then the amount of deduction in the case of an assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export, the same proportion as the amount of the export turnover specified in such certificate bears to the total export turnover of the assessee.89
[Explanation.--For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.] (1A) Where the assessee, being a supporting software developer, has during the previous year, developed and sold computer software to an exporting company in respect of which the said company has issued a certificate under the proviso to sub-section (1), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee a deduction of the profits derived by the assessee from the developing and selling of computer software to the exporting company in respect of which the certificate has been issued by the said company 90[to such extent and for such years as specified in sub-section (1B)].] 90 [(1B) For the purposes of sub-sections (1) and (1A), the extent of deduction of profits shall be an amount equal to--
(i) eighty per cent of such profits for an assessment year beginning on the 1st day of April, 2001;
9 1 [(ii) seventy per cent thereof for an assessment year beginning on the 1st day of April, 2002;
(iii) fifty per cent thereof for an assessment year beginning on the 1st day of April, 2003;
(iv) thirty per cent thereof for an assessment year beginning on the 1st day of April, 2004,] and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year.] (2) The deduction specified in sub-section (1) shall be allowed only if the consideration in respect of the computer software referred to in that sub-section is received in, or brought into, India by the assessee in convertible foreign exchange, within a period :- 12 -: ITA 414&593/07 of six months from the end of the previous year or, 92[within such further period as the competent authority may allow in this behalf]. Explanation 93[1].--The said consideration shall be deemed to have been received in India where it is credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. 93 [Explanation 2.--For the purposes of this sub-section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.] (3) For the purposes of sub-section (1), profits derived from the business referred to in that sub-section shall be the amount which bears to the profits of the business, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.
94 [(3A) For the purposes of sub-section (1A), profits derived by a supporting software developer shall be,--
(i) in a case where the business carried on by the supporting software developer consists exclusively of developing and selling of computer software to one or more exporting companies solely engaged in exports, the profits of such business;
(ii) in a case where the business carried on by a supporting software developer does not consist exclusively of developing and selling of computer software to one or more exporting companies, the amount which bears to the profits of the business, the same proportion as the turnover in respect of sale to the respective exporting company bears to the total turnover of the business carried on by the assessee.] (4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form95, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.
96[(4A) The deduction under sub-section (1A) shall not be admissible unless the supporting software developer furnishes in the prescribed form along with his return of income,-- *(i) the report of an accountant97, as defined in the Explanation below sub-section (2) of section 288, certifying that the :- 13 -: ITA 414&593/07 deduction has been correctly claimed on the basis of the profits of the supporting software developer in respect of sale of computer software to the exporting company; and †(ii) a certificate98 from the exporting company containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the exporting company has not claimed deduction under this section :
Provided that the certificate specified in clause (b) shall be duly certified by the auditor auditing the accounts of the exporting assessee under the provisions of this Act or under any other law.] (5) Where a deduction under this section is claimed and allowed in respect of profits of the business referred to in sub-section (1) for any assessment year, no deduction shall be allowed in relation to such profits under any other provision of this Act for the same or any other assessment year.
Explanation.--For the purposes of this section,--
(a) "convertible foreign exchange" shall have the meaning assigned to it in clause (a) of the Explanation to section 80HHC;99
[(b) "computer software" means,--
(i) any computer programme recorded on any disc, tape, perforated media or other information storage device; or
(ii) any customised electronic data or any product or service of similar nature as may be notified1 by the Board, which is transmitted or exported from India to a place outside India by any means;]
(c) "export turnover" means the consideration in respect of computer software received in, or brought into, India by the assessee in conver-tible foreign exchange in accordance with sub-section (2), but does not include freight, telecommunication charges or insurance attri-butable to the delivery of the computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India;2
[(ca) "exporting company" means a company referred to in sub-
section (1) making actual export of computer software;]
(d) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by--
(1) ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and :- 14 -: ITA 414&593/07 (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India;
(e) "total turnover" shall not include--
(i) any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28;
(ii) any freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India; and
(iii) expenses, if any, incurred in foreign exchange in providing the technical services outside India;] 2 [(ea) "supporting software developer" means an Indian company or a person (other than a company) resident in India, developing and selling computer software to an exporting company for the purposes of export.]
6. There is no dispute regarding eligibility of this assessee for deductions under both these sections. The assessee is eligible to claim deduction u/s 10B as well as under section 80HHE. But still the question remains if the assessee can simultaneously claim deductions under both these sections or it can claim under either one or the other. When the assessee is entitled to deduction under both these sections, can it claim deduction u/s 80HHE out of the remnant, which remained behind after allowance of 90% deduction u/s 10B. The conjoint reading of these sections in our considered opinion clearly establishes that the assessee is eligible under both sections to claim respective deductions. Otherwise, the provisions of section 80HHE would not be in harmony with the provisions of section 10B and would become redundant or otiose, in so far as eligibility of any undertaking falling under both these sections. Earlier when such eligible units were :- 15 -: ITA 414&593/07 entitled for 100% deduction u/s 10B, such a situation would have never arisen. The legislature in its wisdom has reduced 100% deduction u/s 10B to 90% and has retained 10% profit of such unit to be charged to tax. It seems the legislature was conscious about such a situation as that is why it has specifically excluded deductions u/s 80HH, 80-I, 80-IA and 80-IB but has not excluded under section 80HHE. Section 10B(6)(iii) has specifically mentioned about certain sections under which no simultaneous deduction can be claimed and allowed after claiming deduction u/s 10B of the Act from such profits. But provisions of section 80HHE have not been included and or to say has been specifically excluded meaning thereby the assessee is permitted to claim simultaneous deductions under both sections. It would not be a case of double deduction at all, as has been canvassed by the ld.DR. Let us now tread through the precedents, if any, available in regard to our above finding. The ld.AR has placed reliance on the decision of the Hon'ble Madras High Court rendered in the case of CIT vs M/s Ambatture Clothing Ltd, in Tax Case (Appeal) No.695 of 2010, judgment dated 2.8.2010, which is unreported judgment, a copy of which was filed before the Bench. In this decision, in our opinion, the issue involved is exactly identical to the issue involved in the present appeal. In the case before the Hon'ble Madras High Court, the :- 16 -: ITA 414&593/07 assessee, an export concern, claimed the benefits u/s 10A/10B apart from claiming deduction u/s 80HHC of the Act, for the remaining 10% of the profits. According to the Assessing Officer, such a claim u/s 80HHC in respect of remaining 10% of the profit amounted to double deduction, which is not permissible. So, he rectified the order after invoking section 154 of the Act when originally the Assessing Officer had allowed such a deduction. The Tribunal had struck down the confirmation of 154 order made by the ld. CIT(A) by observing that when two possible views were available on the issue, rectification u/s 154 cannot be passed. But the Hon'ble High Court has decided this issue in favour of the assessee apart from the conclusion of the Tribunal by observing as under:
"4. When we examine the issue raised in this appeal, at the very outset, it will have to be pointed out that even under Section 10A(6)(ii) of the Act, there is a specific provision, which reads as under : "No deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking; and
5. The very statutory provision prescribing a prohibition in respect of the deductions in relation to the profits and gains itself, has not specifically included Section 80HHC. Apparently, it therefore would only mean that there was no prohibition for claiming any deduction under Section 80HHC while applying the benefits provided under Section 10A of the Act. If that is the statutory prescription, by which the assessee was entitled to claim a benefit under Section 80HHC in relation to the profits and gains while invoking Section 10A, it will have to be concluded that the assessment order in having allowed such a deduction of the remaining 10% of the profits earned by the assessee, was not erroneous. In any event, having regard to such a statutory prescription available for the assessee to claim the benefit under :- 17 -: ITA 414&593/07 Section 80HHC in respect of the profits earned from Section 10A of the Act, there is absolutely no scope for the Assessing Authority to have invoked Section 154 of the Act, in order to state that, that can be considered as an error apparent, inasmuch as, there was no error at all, much less, apparent error to be rectified by the Assessing Authority."
7. Thus, the Hon'ble Madras High Court has specifically held that there is no scope for invoking the provisions of section 154 when the deduction under both the sections is specifically available to the assessee. We are not in agreement with the objection of the ld.DR that the decision rendered by the Hon'ble High Court was in the context of rectificatory provision of section 154. The reason for the same are self-explanatory as contained in paragraphs 4 & 5 of the decision of Hon'ble Madras High Court. Hence, the Hon'ble Madras High Court's decision supports our above finding.
8. Further, the decision of the ITAT, Kolkata, in the case of Hindustan Gum and Chemicals Ltd vs ITO, [2008] 23 SOT 143, again is on the same issue, in which it has been held that the remaining 10% taxable income is part of profits and gains of business or profession. This finding supports the conclusion taken in this regard.
9. Another decision is of ITAT, Delhi Bench, in the case of Dy. CIT vs Interra Software (India) (P) Ltd, [2007] 112 TTJ (Del) 982 [copy on record] also supports our above finding because in that case it has :- 18 -: ITA 414&593/07 been specifically held that sub-section (5) of section 80HHC does not debar claim for deduction under any other provision in respect of profits of the eligible business for any other assessment year and therefore, exemption u/s 10A cannot be denied to the assessee simply because it has availed the deduction u/s 80HHE in an earlier year. This decision also supports our conclusion that claiming deduction under sections 10B and 80HHE would not amount to double deduction in the given facts and circumstances of the case. As a result, we allow Ground No.1 of assessee's appeal.
10. The second issue of assessee's appeal is regarding the finding of the ld. CIT(A) that expenses incurred in foreign exchange should be excluded from 'export turnover' but not from 'total turnover' for the purpose of computing deduction under section 10B of the Act. According to the ld.AR, this finding is not correct. Such expenses have to be excluded from both i.e export as well as total turnover for computing deduction u/s 10B. In this regard, reliance has been placed on the decision of this Bench [Special Bench] in the case of Sak Soft Ltd, 313 ITR 353, which according to the ld.AR is directly on the issue and in favour of the assessee. We are totally in agreement with the ld.AR in regard to the legal proposition but we have to see if the facts of this case are exactly similar or not. In case the facts are :- 19 -: ITA 414&593/07 identical, Special Bench decision shall apply. The Assessing Officer has excluded the expenses incurred in foreign exchange and also telecommunication expenses from the export turnover while computing deduction u/s 10B. The assessee's case is that the Assessing Officer was not justified in doing so because he cannot do so by reducing the expenses only from the export turnover without reducing the same from total turnover also. The total expenses incurred in foreign exchange were stated to be `11.24 crores. These expenses have been excluded from the export turnover. Similarly, telecommunication expenses of ` 146 crores have been excluded from the export turnover without making corresponding adjustment in the total turnover. The case of the Revenue is that no such adjustment can be made in the total turnover because there is no such provision in the Act. But to substantiate its claim, the ld.DR has drawn our attention towards the decisions taken with reference to the provisions of section 80HHE vis- à-vis section 10B of the Act to the effect that the ratio of the decisions rendered on similar issues u/s 80HHE in which it was held that certain expenses are excluded from the export profits and some are excluded from the total turnover also are very much relevant for this issue as well. The difficulty in applying the Special Bench decision(supra) to the facts of this case arises when the facts of the :- 20 -: ITA 414&593/07 given case are not clear because in this case the assessee had deputed the technical manpower outside India and incurred expenses on their traveling, boarding and lodging and their emoluments for the relevant period in foreign currency outside India. But at the same time, the claim of the assessee is that no such expenses were incurred in providing technical services outside India. The assessee has not specifically included these expenses for providing technical services in sale/service invoices raised by it against foreign clients but they, by their natural implication, must have incurred for providing technical services abroad. It is true that the method of making entries in the books of account does not change the character or nature of the expenses incurred. Though the assessee has to clarify as to whether sale/service invoices raised by it also include the amount of expenses incurred on traveling of personnel for providing technical services abroad as well as the element of profit embedded therein or not. The reason for ascertaining this fact is related to clause(iii) to Explanation(2) of section 10B which is very clear in providing that expenses incurred in foreign exchange for providing technical services outside India are required to be excluded from the export turnover. It is not coming clearly as a fact as to why expenses in foreign exchange were incurred if these are not pertaining to earning of such income :- 21 -: ITA 414&593/07 which is claimed as exemption u/s 10B. Therefore, in our considered opinion, this issues needs to be restored to the file of the Assessing Officer to be decided afresh in the light of our above observation and seeking explanation from the assessee so that full and correct facts may come on record in this regard. Once the facts are settled then we are in agreement with the assessee that such expenses would also be reduced from the total turnover as per Explanation 2(iii) of section 10B. Hence, this ground is allowed for statistical purposes.
11. The third issue relating to exclusion of expenses from export turnover has not been pressed at the time of hearing, hence, the same stands dismissed, but the version taken in this ground also justifies our finding regarding Ground No.3 as above.
12. Ground No.4 is similar to Ground No.2. Therefore, this issue is also restored to the file of the Assessing Officer with similar directions as given while deciding Ground No.2. Ground No.4 is, therefore, allowed for statistical purposes only.
13. In the result, the appeal of the assessee is partly allowed and is partly allowed for statistical purposes.
14. In Revenue's appeal only two issues have been raised. The first issue relates to loss on account of foreign exchange fluctuation and :- 22 -: ITA 414&593/07 the second issue relates to levy of interest under section 234D of the Act.
15. The assessee has incurred a loss of ` 11,88,974/- on account of foreign exchange fluctuations arising further on account of re- statement of current assets and liabilities as on 31.3.03. Treating this as notional loss, the Assessing Officer has rejected the claim of the assessee, to that extent, from the business profits. The case of the assessee is that loss has been computed on the basis of 'Accounting Standard 11' issued by the Institute of Chartered Accountants of India(ICAI) which has been modified in the year 1996. There is no dispute with regard to the fact that whatever loss is claimed is actually related to the business of the assessee-company. The assessee has filed complete details in this regard. The ld. CIT(A) has agreed with the assessee and now the Revenue has challenged this finding.
16. After considering the rival submissions, we find that the assessee has filed the relevant details to support the loss in question which pertains to the sundry debtors relating to sales and the traveling expenses incurred for the purpose of business of the assessee- company. In this way, the entire loss is related to revenue transactions only. This loss is not found to be related to any capital :- 23 -: ITA 414&593/07 transactions. The assessee has been consistently following this system of re-statement of assets and liabilities as on the end of the accounting period and the system of accounting is in accordance with 'AS-11' issued by the ICAI. Such accounting has been upheld by the Hon'ble Supreme Court rendered in the case of CIT vs Woodward Governor India Pl Ltd, 312 ITR 254. Hence, we do not find any infirmity in the direction of the ld. CIT(A) and allow deduction of this loss from the business profits.
17. The second ground is regarding charging of interest u/s 234D. The ld. CIT(A) has found this issue to be covered in favour of the assessee by the decision of the Chennai Bench in the case of ACIT vs East Cost Construction and Industries Ltd in I.T.A.No. 234/Mds/05, order dated 31.5.2006, in which it has been held that the provisions of section 234D are not retrospective in nature and only effective from assessment year 2004-05, hence, not applicable fro assessment year 2003-04. But the Revenue is aggrieved and has relied on the decision of the Hon'ble Kerala High Court in the case of CIT vs Kerala Chemicals and Proteins Ltd, 323 ITR 584, as against which the ld.AR has relied on the ITAT Delhi Special Bench decision in the case of ITO vs Ekta Promoters Pvt. Ltd, 305 ITR (AT) 1, and that of Hon'ble Delhi High Court in the case of Jacabs Civil Incorcoprated in I.T.A.No. 491/2008, :- 24 -: ITA 414&593/07 unreported order dated 30.8.2010, a copy of which has been placed before us.
18. After considering the rival submissions, we find that there are divergent decisions of High Courts in this regard whereas the Special Bench decision of ITAT is in favour of the assessee. Therefore, by respectfully following the Special Bench decision and the Chennai Bench decision, we confirm the finding of the ld. CIT(A) in this regard and do not find any legal force in the submissions of the Revenue.
19. In the result, the appeal of the Revenue stands dismissed.
20. To summarize the result, the appeal of the assessee is partly allowed and partly allowed for statistical purposes whereas the appeal of the Revenue is dismissed.
The order pronounced in the open court on 18.3.2011.
Sd/- Sd/-
(B. RAMAKOTAIAH) ( HARI OM MARATHA )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 18.3.2011
RD
Copy to: Appellant /Respondent/CIT(A)/CIT/DR