Income Tax Appellate Tribunal - Hyderabad
Magna Infotech Pvt Limited, Hyderabad vs Department Of Income Tax on 20 December, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA Nos. 287/HYD/2009 & 1119/Hyd/2010
Assessment Years: 2005-06 & 2006-07
The Asst. Commissioner of Income-tax, ... Appellant
Circle - 16(2), Hyderabad
Vs.
Magna Infotech Pvt Ltd., ...Respondent
Hyderabad
(PAN - AACM0914A)
C.O. No. 6/Hyd/2009
(in ITA No. 287/HYD/2009
Assessment Year: 2005-06)
Magna Infotech Pvt Ltd., ...Cross Objector
Hyderabad
(PAN - AACM0914A)
Vs.
The Asst. Commissioner of Income-tax, ... Appellant
Circle - 16(2), Hyderabad
Revenue by : Smt. Amisha S. Gupt
Assessee by : Shri Kishore Kumar Kabra
Date of Hearing : 20/12/2012
Date of Pronouncement : 20/12/2012
ORDER
PER ASHA VIJAYARAGHAVAN, J.M.:
Both these appeals preferred by the revenue are directed against the respective orders of the CIT(A), Hyderabad, for the assessment years 2005-06 & 2006-07. The assessee also filed C.O. 2 ITA NOs. 287/Hyd/2009 & 1119/10& C.O. 06/H/09 M/s Magna Infotech Pvt. Ltd.
against the said order of the CIT(A). Since identical issues are involved in these appeals, they were clubbed and heard together and, therefore, a common order is passed for the sake of convenience.
2. To dispose of these appeals, we refer to the facts of the case in AY 2006-07. Briefly the facts of the case are that the assessee company is engaged in the business of computer software development/services. For the AY 2006-07, it filed its return of income on 24/11/2006 admitting an income of Rs. 90,33,922/-. The Assessing Officer completed the assessment u/s 143(3) of the Act determining the total income of the assessee at Rs. 1,27,83,399/-.
3. The assessee had claimed exemption u/s 10A of the Act to the extent of Rs. 37,24,685/-. During the course of assessment proceedings the Assessing Officer noticed that the expenditure of Rs. 5,90,30,186/- towards technical services was incurred in foreign exchange. Further, the assessee had also incurred internet connection charges of Rs. 11,41,298/- for delivery of the software. The Assessing Officer disallowed the expenditure incurred in foreign exchange towards providing technical services outside India and internet charges for delivery of article or thing amounting to Rs. 6,01,71,484/- and recomputed the eligible exemption u/s 10A of the Act.
4. On appeal, before the CIT(A) the assessee stated that in its own case for AY 2005-06 the CIT(A) had decided the issue partly in its favour. The present CIT(A) quoted the order of his predecessor for 2005-06 in his order at pages 3 to 4. The CIT(A) relying on the 3 ITA NOs. 287/Hyd/2009 & 1119/10& C.O. 06/H/09 M/s Magna Infotech Pvt. Ltd.
decision of the Patni Telecom Pvt. Ltd. Vs. ITO [2008] 22 SOT 26 (Hyd) and following the decision of his predecessor in assessee's own case for AY 2005-06 held that the expenditure incurred in foreign exchange towards providing technical services outside India and internet charges for delivery of software amounting to Rs. 6,01,71,484/- should not be excluded from the export turnover for the purpose of deduction u/s 10A of the Act. Accordingly, he allowed the appeal of the assessee.
5. Aggrieved, the revenue is in appeal before us and has raised the following grounds of appeal, which are common in both the appeals under consideration:
"1. The learned CIT(A) erred in directing the Assessing Officer to exclude the foreign exchange payments made outside India towards technical services/salaries from Export Turnover.
2. The explanation 2 to sub-section (4) of section 10A clearly defined Export Turnover for the purpose of section 10A.It clearly states that the Export Turnover does not include expenses, if any, incurred in foreign exchange in providing the technical services outside India.
3. The decision relied on by the CIT(A) in the case of Patni Telecom (P) Ltd. Vs. ITO, is not accepted by the Department and further appeal is preferred by the Department."
6. We have heard the arguments of the learned DR Smt. Amisha S. Gupt and the learned counsel for the assessee Shri B. Satyanarayana Murthy. We find that the issue under consideration is squarely covered by the Special Bench decision of ITAT, Chennai "CIT (A)" Bench in the case of M/s Zylog Systems Ltd. for AY 2003- 04 in ITA Nos. 1138/Mds/2007(Assessee's appeal) and 1141/Mds/2007 (Revenue's appeal) vide order dated 02/11/2012 wherein the Special Bench has held as under:-
4 ITA NOs. 287/Hyd/2009 & 1119/10& C.O. 06/H/09 M/s Magna Infotech Pvt. Ltd.
"24........................whatever the expenditure has been incurred on foreign soil in a sum of Rs. 3,33,46,592/- were incurred in connection with development of software by the employees of the assessee company at foreign branch and nothing has been incurred on managerial or technical services rendered to any outsider in foreign soil. In view of this discussion, we are inclined to allow the ground of the assessee that Rs. 3,33,46,592/- should not be excluded from the export turnover for computing deduction u/s 10B of IT Act."
7. Respectfully following the special bench decision of the ITAT, Chennai Bench in the case of M/s Zylog Systems Ltd. (supra) we confirm the order of the CIT(A) for AY 2006-07 in holding that the expenditure incurred in foreign exchange towards providing technical services outside India and internet charges for delivery of software amounting to Rs. 6,01,71,484/- should not be excluded from the export turnover for the purpose of deduction u/s 10A of the Act.
8. As far as the AY 2005-06 is concerned, the CIT(A) directed the Assessing Officer to exclude 50% of the internet charges out of Rs. 6,94,763/- from the export turnover. Respectfully following the Special Bench decision of the ITAT, Chennai Bench (supra), we direct the Assessing Officer to exclude 100% of the internet charges from the export turnover. Accordingly, the order of the CIT(A) is modified.
9. In the C.O. filed by the assessee, the following cross objection has been raised:
"The Hon'ble CIT(A) is not justified in directing the Assessing Officer to deduct, in determining the export turnover, an amount of Rs. 3,47,382/- out of Rs. 6,94,763/- being expenditure on internet charges incurred by the company. The Assessing Officer erred in giving such direction in so far as the 5 ITA NOs. 287/Hyd/2009 & 1119/10& C.O. 06/H/09 M/s Magna Infotech Pvt. Ltd.
amount incurred amount incurred by the company on internet charges has not bearing on export turnover."
10. Since we have modified the order of the CIT(A) in AY 2005-06 by way of giving direction to the Assessing Officer to exclude 100% internet charges from the export turnover, the CO filed by the assessee becomes infructuous. Therefore, the CO is dismissed as infructuous.
11. In the result, appeals of the revenue and C.O. filed by the assessee are dismissed.
Pronounced in the open court on 20 th December, 2012 upon conclusion of hearing.
Sd/- Sd/-
(CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 20 th December, 2012.
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Copy to:-
1) ACIT,Circle 16(2), 6 th Floor, Aayakar Bhavan, Hyderabad.
2) M/s Magna Infotech Pvt. Ltd., 6-2-47, AC Guards, Veturu
Towers, Hyderabad - 500 004.
3) The CIT (A)-V, Hyderabad
4) The CIT-VI, Hyderabad,
5) The Departmental Representative, I.T.A.T., Hyderabad.
6 ITA NOs. 287/Hyd/2009 & 1119/10& C.O. 06/H/09
M/s Magna Infotech Pvt. Ltd.
Description Date Intls
S.No.
1. Draft dictated on Sr.P.S./P.S
2. Draft placed before author Sr.P.S/PS
Draft proposed & placed before JM/AM
3 the second Member
4 Draft discussed/approved by JM/AM
second Member
5 Approved Draft comes to the Sr.P.S./P.S
Sr.P.S./PS
6. Kept for pronouncement on Sr. P.S./P.S.
7. File sent to the Bench Clerk Sr.P.S./P.S
8 Date on which file goes to the
Head Clerk
9 Date of Dispatch of order