Income Tax Appellate Tribunal - Ahmedabad
The Dcit, (Osd), Circle-8,, Ahmedabad vs M/S. Zydus Hospira Oncology Pvt. Ltd., ... on 2 July, 2018
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'A' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No. 2788/Ahd/2014 ( नधा रण वष / Assessment Year : 2010-11) D.C.I.T.(OSD), बनाम/ M/s. Zydus Hospira Circle-8, Ahmedabad Vs. Oncology Pvt. Ltd., Plot No.3, Pharmez, Sarkhej Bvala Highway, Ta. Matoda, Dist. Sanand, Ahmedabad-13 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACZ2327A (अपीलाथ /Appellant) .. ( यथ / Respondent) अपीलाथ ओर से /Appellant by : Shri Saurabh Singh, Sr.D.R. यथ क ओर से / Shri Mukesh M. Patel, A.R. Respondent by :
सन ु वाई क तार ख / Date of Hearing 18/06/2018 घोषणा क तार ख /Date of 02/07/2018 Pronouncement आदे श/O R D E R PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Revenue against the order of the CIT(A)-XIV, Ahmedabad ('CIT(A)' in short), dated 04.07.2014 arising in the assessment order dated 28.03.2014 passed by the Assessing Officer (AO) u/s. 143(3) of the Income Tax Act, 1961 (the Act) concerning assessment year 2010-11.
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2. The substantive grounds of appeal raised by Revenue reads as under:
"1). "Whether the Commissioner of Income-Tax (Appeals) erred in law and on facts in allowing depreciation @ 60% on computer software purchased separately (SAP Software) against 25% applicable to intangible assets ignoring the findings of AO".
2). "Whether the Commissioner of Income-Tax (Appeals) erred in law and on facts in allowing the assessee's claim of deduction u/s.10AA of the Act on exchange fluctuation gain, which is not of first degree and not derived from export".
3. Ground no.1 concerns eligibility of depreciation on computer software purchases separately by the assessee at an accelerated rate of 60% claimed by the assessee. It is case of the Revenue that depreciation on the computer software is eligible @25% as applicable to intangible assets instead of claim @60% made by the assessee. When the matter was called for hearing, the learned DR supported the order of the AO and contended that the computer software has been purchased separately and is in the nature of application software and therefore cannot be considered as integral part of the computer system. This being the case, the AO has correctly restricted the depreciation allowance @25% as applicable to intangible assets and the CIT(A) has misdirected himself in law in admitting the depreciation claim at accelerated rate of 60% wrongly claimed by the assessee.
4. Learned AR, on the other hand, submitted at the outset that the issue is academic owing to the fact that the assessee is an undertaking eligible for 100% exemption/deduction under s.10A of the Act and hence any increase in profit due to lower depreciation would lead to corresponding higher deduction under s. 10A of the Act in tandem. It was further asserted that, notwithstanding aforesaid contention, the assessee is eligible for 60% claim on computer software as claimed. I T A N o . 2 7 8 8 / Ah d / 1 4 [ D C I T ( O S D ) v s . M / s . Z y d u s H o s p i r a O n c o l o g y P v t . L t d . ] A. Y . 2 0 1 0 - 1 1 - 3 -
The computer software so installed albeit separately is a long term software having regard to the special needs of the assessee company. It was submitted that without such software, the computer installed cannot be used at desired level having regard to the industry in which the assessee by placed in. The learned AR, thereafter, pointed out that the issue is no longer res integra and is covered in favour of the assessee by the decision of the co-ordinate bench of the Tribunal ACIT vs. Zydus Infrastructure (P.) Ltd. [2016] 72 taxmann.com 199 (Ahmedabad-Trib.). Learned AR submitted that in one of group cases as pointed out, the identical issue came up wherein in similar facts, it was held that assessee is eligible for accelerated depreciation year- after-year and therefore, higher depreciation in initial years would ultimately lead to lower depreciation in the subsequent years and accordingly, over a period of time, the entire exercise would be revenue neutral. The learned AR accordingly asserted that no interference with the order of CIT(A) is called for.
5. We have carefully considered the rival submissions and perused the orders of the authorities below. We find substantial weight in the counter plea raised on behalf of the assessee for eligibility of accelerated depreciation is noted above. In view of the fact that higher or lower depreciation will not lead to any change in taxable income of the 10-A unit, the entire issue is academic. Secondly, in view of the similarity in facts, the conclusion drawn by the CIT(A) is consistent with the decision of the co-ordinate bench in Zydus Infrastructure (P.) Ltd. (supra). Thus, we do not see any good reason to interfere with the order of the CIT(A).
6. In the result, Ground No.1 of the Revenue's appeal is dismissed. I T A N o . 2 7 8 8 / Ah d / 1 4 [ D C I T ( O S D ) v s . M / s . Z y d u s H o s p i r a O n c o l o g y P v t . L t d . ] A. Y . 2 0 1 0 - 1 1 - 4 -
7. Ground no.2 concerns eligibility of foreign exchange fluctuation gains for the purposes of exemption under s.10A of the Act.
8. Briefly stated, in the course of scrutiny assessment, the AO inter alia observed that the assessee has claimed deduction under s.10AA in respect of exchange rate fluctuation gains of Rs.3,15,33,058/-. The AO was of the view that the aforesaid fluctuation gains does not fall within the swip of expression 'derived from' which is a condition precedent for eligibility of profits as contemplated in Section 10AA(1) of the Act. It was the case of the AO that the foreign exchange fluctuation gains is merely 'attributable to' export in distinction to the expression 'derived from' as provided in Section 10AA(1) of the Act. In essence, it is the case of AO that the fluctuation gains is not derived from export of articles or things etc. per se but is merel y attributable to profits and gains from export and consequently not eligible for deduction under s.10AA of the Act. The AO accordingly denied claim of deduction under s.10AA of the Act in respect of business profits by way of foreign exchange fluctuation gains.
9. The CIT(A), in first appeal, revisited the entire issue at length. The CIT(A) took note of the provisions of Section 10AA(7) of the Act which provides for the manner in which the profits derived from exports of articles or things etc. under s. 10AA(1) of the Act is required to be computed. The CIT(A) also took note of the decision of Hon'ble Gujarat High Court in the case of CIT vs. Priyanka Gems (2014)367 ITR 575 (Guj) and also the decision of Hon'ble Bombay High Court in the case of CIT vs. Amber Export (India) and concluded the issue in favour of the assessee. The relevant operative part of the order of the CIT(A) is reproduced hereunder:
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"I am inclined with appellant. Firstly the appellant is following a consistent method of accounting such foreign exchang e fluctuation as per accounting standard AS-II and tax auditor has not made any adverse remarks. The appellant submitted that it fulfilled all the eligible condition to claim deduction u/s.10AA of the Act for its eligible unit in Special Economic Zone(SEZ). The appellant though reduced such gain from the export turn over but the same was included as business income / profit of eligible undertaking thereby correctly followed the provisions. As per provisions it is profit & gains of eligible unit at SEZ from the export of goods/article/services and the same be realized in foreign exchange. It is undisputed that on account of day to day fluctuation of foreign exchange, such variation in reporting of sale as per invoice and realization of such export being in two different time frames will result into such gain or loss. I am inclined with appellant that as per the ratio of Hon'ble Gujarat High Court decision in the case of Priyanka Gems upholding the Hon'ble ITAT, Ahmedabad order in the same case, such gain and loss are part and parcel of the sale of export. I am also inclined with appellant that Hon'ble Bombay High Court for same issue and in similar facts (deduction u/s.10A of the Act) following its judgement in the case of CIT vs. Amber Export (India) & Hon'bl e Gujarat High Court judgement in the case of CIT vs. Amba Impex (2006) 282 ITR 144 held in favour of assessee for large amount realized in terms of Indian Rupees as a result of a foreign exchange fluctuation that took place in the course of the export transaction. Similarly Hon'ble Mumbai ITAT in the case of Renaissance Jewellery (P)Ltd. (supra) after considering ratio of various case laws held that-
"There is no material difference between the requirement of section 80HHC and section 10A. The profit on account of foreign exchange gain is directly referable to the articles and things exported by the assessee. Such profits are, therefore, in the same nature as the sale proceeds and there is no reason while deduction under section 10A should not be allowed in respect of such exchange gain."
Two important aspects in this regards required to be considered.
(a) The intention of legislature with purpose of this section is to promote export and foreign exchange earnings.
(b) There may be various accounting standard to record a particular transaction in the books of accounts but ultimate nature of such transaction will be considered for the phrase 'derived from.' In this regard, it is undisputed that appellant realized foreign exchange on account of export from eligible unit at SEZ. Further in value terms there are two entries i.e. entry of sale on the date of I T A N o . 2 7 8 8 / Ah d / 1 4 [ D C I T ( O S D ) v s . M / s . Z y d u s H o s p i r a O n c o l o g y P v t . L t d . ] A. Y . 2 0 1 0 - 1 1 - 6 -
export as per invoice and entry of gain / loss on account of realisation of such sale. There is no other activity of sale or services but it is on account of two different value of foreign currency for two different time frames related to one sale, hence such gain / loss is part and parcel of sale and profit / income of the eligible unit entitled for deduction u/s.10AA of the Act.
Hon'ble ITAT, Ahmedabad 'A' Bench in the case of M/s.Zaveri & Co. Pvt. Ltd. vs. CIT-IV, Ahmedabad in ITA No.1395/Ahd/2013 & ITA No.1396/Ahd/2013 vide order dated 07.05.2014 considered the issue of business income of eligible unit and claim of deduction though in reference to different grounds as follows:
"Since the foreign exchange fluctuation gain or loss is in Indian Rupees being realized as per exchange rate, provisions of section 10AA (7) of the Act which provide the manner in which the profits derived from "Export of articles or things or securities is to be computed for the purpose of 10AAdeduction reflect that-
"The profits of the business of the undertaking are to be computed as per the provisions of Chapter IV D of the Act and the only adjustment which is permitted by the legislature to be made to such profits of the business is to apportion the same in the proportion of export turnover of the eligible services to the total turnover of the business carried on by the assessee. It is significant to note here that th e specific provisions like explanation (baa) of Section 80HHC of the Act which provide for exclusion of 90% of interest income from th e profits of business to arrive at the profits of the business has not been provided by the legislature in section 10AA of the Act."
In the present case of appellant, such gains were reduced from the export turnover but not from the profit / business income of the eligible unit as per the provisions of section 10AA(7) of the Act but A.O. reduced such gain from the business profit also. It is therefore such interpretation of A.O. and giving effect to these gain by completely excluding from deduction U/S.10AA of the Act is neither justified being not as per the provision nor sustainable in view of various legal propositions as discussed above and also relied on by appellant. The AO is directed not to reduce Rs.2,32,88,197 foreign exchange gain from profits of business while computing deduction u/s.10AA of the Act. The appellant already reduced the same from export turnover. The AO at para 4.12 of the impugned order computed deduction u/s.10B (wrongly mentioned, it should be 10AA) of the Act by increasing business profit with reference to disallowance of depreciation and decreasing business profit with reference to foreign exchange gain at Rs.33,03,05,531 and disallowed excess claim of deduction u/s.10AA of the Act of Rs.2,14,08,877 (35,17,14,408 - 33,03,05,531) but now considering the relief granted for depreciation at para 5.1 above and treating I T A N o . 2 7 8 8 / Ah d / 1 4 [ D C I T ( O S D ) v s . M / s . Z y d u s H o s p i r a O n c o l o g y P v t . L t d . ] A. Y . 2 0 1 0 - 1 1 - 7 -
such gain as part of business profit, the appellant's claim u/s.10AA of the Act will be worked out at Rs.35,17,14,408. The AO is directed to allow such deduction. This ground is therefore treated as allowed."
10. Aggrieved by the reversal of the action of the AO, the Revenue is in appeal before the Tribunal.
11. We have carefully considered the rival submissions on the issue and perused the orders of the authorities below. We have no hesitation in endorsing the view of the CIT(A) in this regard. The issue is substantially covered in favour of the assessee by the decision of the Hon'ble Gujarat High Court in the case of Priyanka Gems (supra) and CIT vs. Gem Plus Jewellery India Ltd. [2010] 194 TAXMAN 192 (BOM.). The issue is also settled in favour of the assessee by long line of judicial precedents where a consistent view has been taken that foreign exchange gains arising out of the fluctuation in the rate of foreign exchange cannot be divested from the export business of the assessee. Once export is made, the foreign exchange gains/loss may occur due to variety of reasons at the time of remission of export sale proceeds. In this view of the matter, the foreign exchange fluctuation gains required to be taken as integral part of the business profits derived from exports. Even, independently, in so far as Section 10AA of the Act is concerned, sub- Section 7 thereof explicitly explains the term 'profit derived from the export of articles or things' to mean the amount which bears to be 'profits of the undertaking', the same proportion as the export turnover bears to the total turnover of the business carried on by the undertaking. Thus, what is required to be determined is 'profits of the business of the undertaking' which is ostensibly wider than 'profits & gains derived by the undertaking'. In short, the profits derived from export have been equated when business profits of the undertaking in I T A N o . 2 7 8 8 / Ah d / 1 4 [ D C I T ( O S D ) v s . M / s . Z y d u s H o s p i r a O n c o l o g y P v t . L t d . ] A. Y . 2 0 1 0 - 1 1 - 8 -
view of the formula provided in Section 10AA(7) of the Act. In view of the aforesaid discussion, we do not see any infirmity in the conclusion drawn by the CIT(A) in favour of the assessee and against the Revenue. We, thus, decline to interfere.
12. In the result, Ground No.2 of the Revenue's appeal is dismissed.
13. In the result, the appeal of the Revenue is dismissed.
This Order pronounced in Open Court on 02/07/2018
Sd/- Sd/-
(MADHUMITA ROY) (PRADIP KUMAR KEDIA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad: Dated 02/07/2018
True Copy
S. K. SINHA
आदे श क त!ल"प अ#े"षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं*धत आयकर आयु,त / Concerned CIT
4. आयकर आयु,त- अपील / CIT (A)
5. 0वभागीय 3त3न*ध, आयकर अपील य अ*धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड9 फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपील य अ*धकरण, अहमदाबाद ।