M/s. Headstrong Services India Pvt. Ltd., New Delhi v. DCIT, New Delhi

CO 391/DEL/2010 | 2006-2007
Pronouncement Date: 31-07-2012 | Result: Partly Allowed

Appeal Details

RSA Number 39120123 RSA 2010
Assessee PAN AABCT7650D
Bench Delhi
Appeal Number CO 391/DEL/2010
Duration Of Justice 1 year(s) 7 month(s) 23 day(s)
Appellant M/s. Headstrong Services India Pvt. Ltd., New Delhi
Respondent DCIT, New Delhi
Appeal Type Cross Objection
Pronouncement Date 31-07-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 31-07-2012
Date Of Final Hearing 09-07-2012
Next Hearing Date 09-07-2012
Assessment Year 2006-2007
Appeal Filed On 07-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) SHRI A.D. JAIN JUDICIAL MEMBER AND BEFORE SHRI B.C. MEENA ACCOUNTANT MEMBER ITA NO.4181/DEL./2010 (ASSESSMENT YEAR : 2006-07) ACIT CIRCLE 16 (1) VS. M/S. HEADSTRONG SERVICES INDIA PVT. LTD. NEW DELHI. (FORMERLY KNOWN AS TECHSPAN INDIA PVT . LTD.) 103 ASHOKA ESTATE 24 BARAKHAMBA ROAD NEW DELHI 110 001. (PAN : AABCT7650D) CO NO.391/DEL/2010 (IN ITA NO.4181/DEL./2010) (ASSESSMENT YEAR : 2006-07) ACIT CIRCLE 16 (1) VS. M/S. HEADSTRONG SERVICES INDIA PVT. LTD. NEW DELHI. (FORMERLY KNOWN AS TECHSPAN INDIA PVT . LTD.) 103 ASHOKA ESTATE 24 BARAKHAMBA ROAD NEW DELHI 110 001. (PAN : AABCT7650D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SALIL KAPOOR ADVOCATE REVENUE BY : SHRI SATPAL SINGH SENIOR DR ORDER PER B.C. MEENA ACCOUNTANT MEMBER : BOTH APPEAL BEING ITA NO.4181/DEL/2010 FILED BY TH E REVENUE AND CROSS OBJECTION NO.391/DEL/2010 FILED BY THE ASSESS EE EMANATE FROM THE ORDER OF THE CIT (APPEALS)-XIX NEW DELHI DATED 25. 06.2010. ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 2 2. THE ASSESSEE COMPANY INCORPORATED ON OCTOBER 5 1998 UNDER THE COMPANIES ACT 1956. THE ASSESSEE IS ENGAGED IN TH E DEVELOPMENT AND EXPORT OF COMPUTER SOFTWARE. THE BUSINESS ACTIVITI ES DURING THE YEAR UNDER CONSIDERATION WERE CARRIED OUT FROM NOIDA AND BANGA LORE. BOTH THE UNITS ARE SET UP IN ACCORDANCE WITH THE SOFTWARE TECHNOLO GY PARK (STP) SCHEME NOTIFIED BY MINISTRY OF COMMERCE AND INDUSTRY GOVE RNMENT OF INDIA. BOTH THESE UNITS WERE ELIGIBLE FOR DEDUCTION OF PROFITS AND GAIN DERIVED BY THEM U/S 10A OF THE INCOME-TAX ACT 1961. 3. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE READ AS UNDER :- 1. THE LD. CIT(A) HAS ERRED IN FACTS AND IN LAW BY DIRECTING THE AO TO INCLUDE THE GAINS OF ` 72 96 422/- ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE RATES IN THE ELIGIB LE PROFITS FOR COMPUTING DEDUCTION U/S 10A OF THE ACT IGNORING TH AT THE GAINS FROM FLUCTUATION IN FOREIGN EXCHANGE RATES IS ONLY ATTRIBUTABLE TO AND IS NOT DERIVED FROM THE EXPORT ACTIVITIES OF TH E ASSESSEE. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW BY SETTING ASIDE TO THE FILE OF THE AO THE ISSUE OF VERIFICATI ON OF ADDITIONAL EVIDENCE IN CONNECTION WITH CLAIM OF PAYMENT OF COM PENSATION OF ` 45 88 500/- IGNORING THAT : (I) THE POWERS OF LD. CIT(A) TO SET ASIDE ISSUES DECIDED IN SCRUTINY ASSESSMENT HAVE BEEN CURTAILED WITH EFFECT FROM 1.6.2001. . (II) BY NOT CALLING FOR A REMAND REPORT FROM THE A O ON THE ISSUES SET ASIDE FOR VERIFICATION THE LD. CIT( A) HAS NOT DECIDED THE APPEAL IN ACCORDANCE WITH THE BOARD'S CIRCULAR NO.14 DATED 12.12.2001 ON THE ISSUE. ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 3 (III) THE CONDITION LAID DOWN FOR ADMITTING ADDITI ONAL EVIDENCE UNDER RULE 46A ARE NOT SATISFIED IN THIS CASE.' 4. THE GROUNDS TAKEN BY THE ASSESSEE IN THE CROSS O BJECTION READ AS UNDER:- 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN DISALLOWING D EDUCTION UNDER SECTION 10A OF THE INCOME-TAX ACT 1961 ('THE ACT') TO THE DEFENDANT COMPANY IN RESPECT OF EXCESS PROVISION WR ITTEN BACK OF RS.841 810 (NOIDA UNIT RS.85 328 AND BANGALORE UNIT RS.756 482) AND IN RESPECT OF MISCELLANEOUS INCOME OF RS.673 700 (NOIDA UNIT RS.79 791 AND BANGALORE UN IT RS.593 909). PLACE NEW DELHI 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS FAILED TO COMPREHEND THAT EXCESS PROVISION WRIT TEN BACK AND MISCELLANEOUS INCOME ARE PROFITS OF BUSINESS OF THE UNDERTAKING AND ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. 5. THE CIT (A) HAS GRANTED THE RELIEF ON THE FOREIG N EXCHANGE FLUCTUATION GAIN IN PARA 13.1.1 OF HIS ORDER BY HOLDING AS UNDE R :- 13.1.1 FOREIGN EXCHANGE FLUCTUATION GAIN : RS. 30 38 650/- NOIDA UNIT RS. 42 57 772/- BANGALORE UNIT 13.1.2 THE AO EXCLUDED THE GAIN FROM ELIGIBLE PROFI TS ON THE GROUND THAT IT IS NOT RELATED TO EXPORTS AND AL SO INCLUDED THE SAME IN THE TOTAL TURNOVER. 13.1.3 THERE IS A GAIN ON ACCOUNT OF FLUCTUATION IN RATE OF EXCHANGE IN RESPECT OF SALES PROCEEDS OF EXPORT. TH E AO REDUCED THIS AMOUNT FROM ELIGIBLE PROFITS WHILE INCLUDING T HE SAME IN TOTAL TURNOVER WHICH HAS LED TO LESSER DEDUCTION U/ S 10A. 13.1.4 THE AR STATED THAT GAIN ON FOREIGN EXCHANGE FLUCTUATION IS PART OF SALES PROCEEDS AND IS PART O F ELIGIBLE PROFITS. IN CASE THE SAID AMOUNT IS TAKEN AS PART OF TOTAL T URNOVER THE ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 4 SAME SHOULD BE INCLUDED IN THE EXPORT TURNOVER ALSO ON THE PRINCIPLE OF PARITY. 13.1.5 EXCHANGE FLUCTUATION GAIN IS IN RESPECT OF SALE PROCEEDS ON ACCOUNT OF EXPORT. THERE IS NO ADVERSE FINDING TO THIS EFFECT. THE AO HAS NOT GIVEN ANY FINDING THAT THE AMOUNT IS ASSESSABLE UNDER INCOME FROM OTHER SOURCES. AFTER C AREFUL CONSIDERATION OF THE FACTS BROUGHT ON RECORD THE G AIN ON FOREIGN EXCHANGE FLUCTUATION IS RELATED TO SALES AND IS TO BE INCLUDED IN THE TURNOVER IN VIEW OF THE RATIO LAID DOWN IN THE FOLLOWING CASES: 1. ACIT CIRCLE 16(1) MUMBAI VS. PRAKASH L. SHAH 115 ITD 167 (MUM.) (SB) 2. CIT PATIALA VS. ROADMASTER INDUSTRIES OF INDIA 2 DTLONLINE 48 (PUNJ. & HAR.) 13.1.6 IN VIEW OF THE ABOVE DISCUSSION THE AO IS H EREBY DIRECTED TO INCLUDE THE GAIN IN THE ELIGIBLE PROFIT S TOTAL TURNOVER AND ALSO THE EXPORT TURNOVER. 6. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE IN DE TAIL. WE AGREE WITH CIT (A) THAT FOREIGN EXCHANGE FLUCTUATION GAIN WHEN IT IS FROM SALE PROCEEDS THEN IT IS PART OF TOTAL TURNOVER AND EXPORT TURNOV ER ALSO. THIS ISSUE IS ALSO COVERED BY VARIOUS DECISIONS IN FAVOUR OF THE ASSES SEE WHEREIN IT HAS BEEN HELD THAT FOREIGN EXCHANGE FLUCTUATION GAIN IS A PA RT OF EXPORT TURNOVER AND ALSO ELIGIBLE FOR DEDUCTION U/S 10A OF THE INCOME-T AX ACT 1961. THE FOREIGN EXCHANGE FLUCTUATION GAIN IS THE PART OF THE SALE P ROCEEDS AND THE FOREIGN EXCHANGE FLUCTUATION GAIN IS TAXABLE AS BUSINESS PR OFIT AS HELD IN VARIOUS CASES. IN THE CASE OF SUJATA GROVER VS. DCIT 74 TTJ 347 ITAT DELHI HELD AS UNDER :- ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 5 A.Y. 1994-95 THE GAINS MADE FROM EXCHANGE RATE FLU CTUATION IS PART OF THE EXPORT TURNOVER. IT IS NOT IN THE NATU RE OF BROKERAGE ETC. MENTIONED IN THE EXPLAN. (BAA). THEREFORE TH E INCOME FROM FOREIGN EXCHANGE FLUCTUATION WOULD BE ELIGIBLE FROM DEDUCTION UNDER SECTION 80HHC. IN THE CASE OF SONY INDIA (P) LTD. VS. DCIT 118 T TJ 865 ITAT DELHI BENCH HELD AS UNDER :- 23. WHILE FINALIZING ITS BOOKS OF ACCOUNT THE FOR EIGN CURRENCY TRANSACTIONS WERE REINSTATED BY THE TAXPAYER COMPAN Y AT THE EXCHANGE RATE PREVAILING ON THE BALANCE SHEET DATE AND THE RESULTING LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCT UATION ON SUCH REINSTATEMENT OF CURRENT ASSETS OR LIABILITIES AMOUNTING TO RS.31 33 745 WAS DEBITED TO THE PROFIT AND LOSS ACC OUNT. SIMILARLY THE GAIN DUE TO FLUCTUATION IN FOREIGN E XCHANGE AMOUNTING TO RS.14 00 761 WAS CREDITED IN THE PROFI T AND LOSS ACCOUNT. ACCORDING TO THE ASSESSING OFFICER THE CO RRESPONDING LIABILITIES HAVING NOT BECOME DUE IN THE YEAR UNDER CONSIDERATION AND THE SAME WERE PAYABLE IN THE SUBSEQUENT YEARS THE LOSS CLAIMED BY THE TAXPAYER ON ACCOUNT OF FOREIGN EXCHA NGE FLUCTUATION WAS ONLY NOTIONAL. HE THEREFORE DISAL LOWED THE SAID LOSS. THE LEARNED CIT(A) HOWEVER ALLOWED THE CLAI M OF THE TAXPAYER COMPANY FOR THE SAID LOSS HOLDING THAT IT WAS NOT A NOTIONAL LOSS AS ALLEGED BY THE ASSESSING OFFICER. 24. AT THE TIME OF HEARING BEFORE US THE LEARNED REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF HON'BLE DELHI H IGH COURT IN THE CASE OF CIT V. WOODWARD GOVERNOR INDIA P. LT D. 294 ITR 451 WHEREIN IT WAS HELD THAT THE LIABILITY ARISING OUT OF CONTRACTS HAD ALREADY ACCRUED THE MINUTE THE CONTRACT WAS ENT ERED INTO AND THE MERE POSTPONEMENT OF THE PAYMENT OF SUCH LIABIL ITY TO A FUTURE DATE WOULD NOT EXTINGUISH THE SAME SO AS TO RENDER IT NOTIONAL OR CONTINGENT. IT WAS ALSO HELD THAT ANY I NCREASE IN SUCH LIABILITY AS A RESULT OF FLUCTUATION IN THE VALUE O F FOREIGN CURRENCY IN RELATION TO INDIAN CURRENCY THUS WAS A FATE ACCO MPLI AND SUCH INCREASE IN LIABILITY AS PER THE EXCHANGE RATE PREV AILING ON THE LAST DATE OF THE FINANCIAL YEAR WAS ALLOWABLE AS DE DUCTION BEING NOT NOTIONAL OR CONTINGENT. RESPECTFULLY FOLLOWING THE SAID ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 6 JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT WE U PHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND DISMISS GROUND NO.6 OF THE REVENUE'S APPEAL. IN THE CASE OF CIT VS. RACHNA UDHYOG 230 CTR 72 HON'BLE BOMBAY HIGH COURT HELD AS UNDER :- 5. HAVING HEARD THE LEARNED COUNSEL APPEARING ON B EHALF OF THE APPELLANT AND LEARNED COUNSEL APPEARING FOR THE ASSESSEE WE ARE OF THE VIEW THAT THE DIFFERENCE ON ACCOUNT OF E XCHANGE RATE FLUCTUATION IS LIABLE TO BE ALLOWED UNDER SECTION 8 0IB. THE EXCHANGE RATE FLUCTUATION ARISES OUT OF AND IS DIRE CTLY RELATED TO THE SALE TRANSACTION INVOLVING THE EXPORT OF GOODS OF THE INDUSTRIAL UNDERTAKING. THE EXCHANGE RATE FLUCTUATI ON BETWEEN THE RUPEE EQUIVALENT OF THE VALUE OF THE GOODS EXPO RTED AND THE ACTUAL RECEIPTS WHICH ARE REALIZED ARISES ON ACCOUN T OF THE SALE TRANSACTION. THE DIFFERENCE ARISES PURELY AS A RESU LT OF A FLUCTUATION IN THE RATE OF EXCHANGE BETWEEN THE DAT E OF EXPORT AND THE DATE OF RECEIPT OF PROCEEDS SINCE THERE IS NO VARIATION IN THE SALE PRICE UNDER THE CONTRACT. THE VIEW WHICH W E HAVE TAKEN IS ALSO CONSISTENT WITH THE VIEW TAKEN BY A DIVISIO N BENCH OF THIS COURT ON 15TH DECEMBER 2009 IN THE CASE OF SYN TEL LIMITED (INCOME TAX APPEAL NOS.1974 1976 AND 1978 OF 2009) . IN THE CIRCUMSTANCES WE WOULD AFFIRM THE JUDGMENT OF THE TRIBUNAL IN SO FAR AS THE QUESTION OF EXCHANGE RATE FLUCTUATION IS CONCERNED. IN THE CASE OF SHARP CREDIT LIMITED VS. DCIT 83 T TJ 1056 THE ITAT DELHI HELD AS UNDER :- 4. ON DUE CONSIDERATION OF THE MATTER WE ARE OF T HE VIEW THAT THE ASSESSEES DESERVES TO SUCCEED. THE TERM 'TOTAL TURNOVER' HAS BEEN DEFINED IN A NEGATIVE MANNER NOT TO INCLUDE FR EIGHT INSURANCE OR INCENTIVES EARNED BY THE ASSESSEE. WHE N THE DEFINITION SPECIFICALLY EXCLUDES CERTAIN ITEMS FROM THE 'TOTAL TURNOVER' IT AUTOMATICALLY FOLLOWS THAT THE REMAIN ING ITEMS SHALL FORM PART OF THE TOTAL TURNOVER. EVEN OTHERWISE TH E AMOUNT RECEIVED BY THE ASSESSEE ON ACCOUNT OF EXCHANGE DIF FERENCE IS NOTHING BUT REALISATION OF THE GOODS EXPORTED BY IT AND HENCE SUCH PROCEEDS HAVE TO BE CONSTRUED AS THE TURNOVER OF THE ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 7 ASSESSEE ONLY. WE FIND SUPPORT FROM THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SUJATA GROVER VS. DY. CIT (2002) 74 TTJ 347 (DEL) WHEREIN IT HAS BEEN SPECIFI CALLY HELD THAT EXCHANGE RATE FLUCTUATION DIFFERENCE IS NOTHIN G BUT PART OF SALES. IT IS FURTHER OBSERVED THAT UNDER ALL CIRCUM STANCES THE BASIC CHARACTER OF THE RECEIPT OF FOREIGN CURRENCY REMAIN S THE SAME I.E. IT REMAINS ATTRIBUTABLE TO THE EXPORT EFFECTE D BY THE ASSESSEE. WHETHER THERE IS A PROFIT OR A LOSS IT ULTIMATELY GOES TO INCREASE OR REDUCE THE FIGURES OF EXPORT TURNOVER RECORDED I NITIALLY BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. IN VIEW OF THIS P OSITION OF LAW WE UPHOLD THE CLAIM OF THE ASSESSEE AND DIRECT THAT THE ASSESSEE BE GRANTED DEDUCTION UNDER S. 80HHC OF THE ACT. IN THE CASE OF INFOSYS TECHNOLOGIES LTD. VS. JCIT 109 TTJ 631 THE ITAT BANGALORE HELD AS UNDER :- 12.3 IN VIEW OF THE FINDING OF THIS TRIBUNAL IN APP ELLANT'S CASE FOR ASST. YR. 1999-2000 THE EXCHANGE RATE FLUCTUAT ION IS TO BE CONSIDERED AS PART OF EXCHANGE (SIC-EXPORT) TURNOVE R AND TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION UNDER S. 80HH E OF THE ACT. SIMILAR VIEW HAS BEEN HELD BY THE TRIBUNAL IN THE CASE OF ENCORE SOFTWARE LTD. IN ITA NO. 794/BANG/2005 WHER EIN IT WAS HELD AS UNDER: 'WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE FORE IGN EXCHANGE GAIN ARISES BECAUSE OF THE FLUCTUATION IN THE FOREIGN EXCHANGE RATE. WHEN THE SALES ARE EFFECTED THE SAL ES ARE ACCOUNTED IN INDIAN RUPEES ON THE BASIS OF EXCHANGE RATE PREVAILING AT THE TIME OF SALE. SUBSEQUENTLY WHEN T HE SALE PROCEEDS ARE RECEIVED IN CONVERTIBLE FOREIGN EXCHAN GE THE ASSESSEE REALIZED HIGHER SUM. INSTEAD OF ACCOUNTING THE SAME AS TURNOVER OR SALES THE SAME IS ACCOUNTED AS FORE IGN EXCHANGE FLUCTUATION GAIN. THOUGH IT IS WORDED AS FOREIGN EX CHANGE CURRENCY FLUCTUATION IT IS NOTHING BUT PART OF EXP ORT TURNOVER AND A SORT OF ADDITIONAL SALE PRICE. THUS THE SAME IS PROFIT OF THE ELIGIBLE UNDERTAKING FOR CLAIMING DEDUCTION UND ER S. 10B. SIMILARLY IT CANNOT BE TREATED AS OTHER RECEIPTS F OR EXCLUDING 90 PER CENT OF THE SAME UNDER S. 80HHE. WE ACCORDIN GLY HOLD THAT SUCH SUM BEING FOREIGN EXCHANGE GAIN IS NOT TO BE EXCLUDED WHILE COMPUTING PROFIT ELIGIBLE FOR DEDUCT ION UNDER S. ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 8 10B AS WELL AS FOR COMPUTING PROFITS OF THE BUSINES S FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER S. 80HHE. THE DECISIONS OF TRIBUNAL DELHI BENCH IN THE CASE OF S MT. SUJATA GROVER VS. DY. CIT (2002) 74 TTJ (DEL) 347 AND THE DECISION OF TRIBUNAL BANGALORE IN THE CASE OF INFOSYS TECHN OLOGIES LTD. VS. ASSTT. CIT (ITA NO. 471/BANG/2003) RELIED BY LEARNED COUNSEL FOR ASSESSEE IS SQUARELY APPLICABL E'. IN THE CASE OF CHANGEPOND TECHNOLOGIES (P.) LTD. VS . ACIT 119 TTJ 18 THE ITAT CHENNAI HELD AS UNDER :- 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AS WEL L AS THE MATERIAL ON RECORD. IN THE CASE OF RENAISSANCE JEWE LLERY (P.) LTD. (SUPRA) THE MUMBAI BENCH OF THIS TRIBUNAL HAS HELD AS UNDER: '26. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS M ADE BEFORE US BY BOTH THE SIDES AND HAVE GONE THROUGH T HE PROVISIONS OF LAW AND THE PRECEDENTS RELIED UPON BY LEARNED COUNSEL FOR THE ASSESSEE. IN OUR VIEW THIS ISSUE I S COVERED IN THE ASSESSEE'S FAVOUR BY SEVERAL CASES RELIED UPON BY LEARNED COUNSEL FOR THE ASSESSEE AND DISCUSSED ABOVE. THERE IS NO MATERIAL DIFFERENCE BETWEEN THE REQUIREMENT OF SECT ION 80HHC AND SECTION 10A. THE PROFIT ON ACCOUNT OF FOREIGN E XCHANGE GAIN IS DIRECTLY REFERABLE TO THE ARTICLES AND THIN GS EXPORTED BY THE ASSESSEE. SUCH PROFITS ARE THEREFORE IN THE S AME NATURE AS THE SALE PROCEEDS AND THERE IS NO REASON WHY DEDUCT ION UNDER SECTION 10A SHOULD NOT BE ALLOWED IN RESPECT OF SUC H EXCHANGE 1 GAIN. THEREFORE WE VACATE THE ORDER OF THE LEARN ED COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ISSUE. WE ARE ALSO OF THE VIEW THAT THE GAIN FROM THE FLUC TUATION OF FOREIGN EXCHANGE IS DIRECTLY RELATED WITH THE EXPOR T ACTIVITIES AND SHOULD BE CONSIDERED AS INCOME DERIVED FROM EXP ORT ACTIVITIES. IT IS PERTINENT THAT SUCH GAIN DUE TO F LUCTUATION OF FOREIGN EXCHANGE ARISES ONLY DUE TO THE EXPORT AND NOT DUE TO OTHER ACTIVITIES OF THE ASSESSEE. IF THE ASSESSEE H AS NOT EXPORTED ANY ARTICLE THEN THE QUESTION OF ANY GAIN OR LOSS D UE TO FOREIGN EXCHANGE DOES NOT ARISE. THEREFORE WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND SET ASIDE THE ORDER OF T HE C.I.T. ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 9 (APPEALS). ACCORDINGLY GAIN ON FOREIGN EXCHANGE WO ULD BE INCLUDED IN THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. IN THE CASE OF CIT VS. PENTASOFT TECHNOLOGIES LTD. HON'BLE HIGH COURT OF MADRAS HELD AS UNDER :- 4. IN ORDER TO ALLOW A CLAIM UNDER SECTION 10A OF THE ACT WHAT ALL IS TO BE SEEN IS WHETHER SUCH BENEFIT EARN ED BY THE ASSESSEE WAS DERIVED BY VIRTUE OF EXPORT MADE BY TH E ASSESSEE. THE EXCHANGE VALUE BASED ON UPWARD OR DOWNWARD OF T HE RUPEE VALUE IS NOT IN THE HANDS OF THE ASSESSEE. I N OTHER WORDS THE ASSESSEE DOES NOT DETERMINE THE EXCHANGE VALUE OF THE INDIAN RUPEE. IT HAS TO BE REMEMBERED BUT FOR THE FACT THAT THE ASSESSEE IS AN EXPORT HOUSE THERE WAS NO QUEST ION OF EARNING ANY FOREIGN EXCHANGE. THEREFORE WHEN THE FLUCTUATION IN FOREIGN EXCHANGE RATE WAS SOLELY RELATABLE TO TH E EXPORT BUSINESS OF THE ASSESSEE AND THE HIGHER RUPEE VALUE WAS EARNED BY VIRTUE OF SUCH EXPORTS CARRIED OUT BY THE ASSESSEE THERE IS NO REASON WHEY THE BENEFIT OF SECTION 10(A ) SHOULD NOT BE ALLOWED TO THE ASSESSEE. IN VIEW OF THESE FACTS WE ARE OF THE CONSIDERED VI EW THAT THE ORDER OF THE CIT (A) DESERVES TO BE SUSTAINED ON THIS ISSUE. IN THE RESULT THE GROUND NO.1 OF REVENUES APPEAL STANDS DISMISSED. 7. THE GROUND IN ASSESSEES CROSS OBJECTION WHEREIN LIABILITY WRITTEN BACK OF RS.85 328/- IN RESPECT OF NOIDA UNIT AND RS.7 56 482/- IN RESPECT OF BANGALORE UNIT HAVE NOT BEEN CONSIDERED TO BE INCLU DED IN THE TOTAL TURNOVER OF THE UNITS ELIGIBLE FOR DEDUCTION U/S 10A. THE M ISC. INCOME (RECOVERY OF NOTICE PERIOD WRITING OFF OF PROVISIONS FOR INTERN ET EXPENSES AND REFUND OF SALES-TAX FROM STP1) OF RS.79 791/- IN RESPECT OF N OIDA UNIT AND ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 10 RS.5 93 909/- IN RESPECT OF BANGALORE UNIT HAS NOT BEEN CONSIDERED TO BE ELIGIBLE TO INCLUDE IN THE TOTAL TURN OVER AND ELIG IBLE FOR DEDUCTION U/S 10A. THESE ITEMS OF INCOME HAVE BEEN TREATED AS NOT ELIG IBLE FOR DEDUCTION U/S 10A IN THE LIGHT OF JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT VS. K. RAVINDRANATHAN NAIR REPORTED IN 295 ITR 228. RELEV ANT PARA OF CIT (A) ORDER READ AS UNDER :- 13.3 INTEREST INCOME: RS.1 549/ - FROM NOIDA UNIT THE AR ADMITTED THAT INTEREST INCOME IS NOT FROM T HE BUSINESS ACTIVITY OF THE ELIGIBLE INDUSTRIAL UNDERT AKING. THE AO IS HEREBY DIRECTED TO EXCLUDE THIS FROM ELIGIBLE PR OFITS OF THE UNDERTAKING. AT THE SAME TIME THE AMOUNT CANNOT BE INCLUDED IN TOTAL TURNOVER. 13.4 EXCESS LIABILITY 85 328/- NOIDA UNIT 7 56 482/- BANGALORE UNIT MISCELLANEOUS INCOME 79 791/- NOIDA UNIT 5 93 909/- BANGALORE UNIT PROVISION FOR INCREASE IN THE VALUE OF INVESTMENT 7 337/- BANGALORE UNI T THESE ITEMS ARE NOT ELIGIBLE FOR DEDUCTION U/S 10A IN THE LIGHT OF DECISION OF HON'BLE SUPREME COURT IN THE C ASE OF CIT VS. K. RAVINDRANATHAN NAIR (295 ITR 228). AT THE S AME TIME THESE ITEMS CANNOT BE INCLUDED IN TOTAL TURNOVER OF THE UNITS ELIGIBLE FOR DEDUCTION U/S 10A. THE AO IS HEREBY DIRECTED TO RE-COMPUTE THE DEDUCT ION U/S 10A AS PER THE DISCUSSION ABOVE. ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 11 8. LD. AR PLACED RELIANCE ON THE DECISIONS OF ITAT DELHI BENCH IN ST MICRO ELECTRONICS PVT. LTD. VS. DCIT (ITA NO.1182 & 4743/DEL/2005) FOR ELIGIBILITY OF EXCESS LIABILITY WRITTEN BACK ELIGIB LE FOR SECTION 10A DEDUCTION AND JUBILIANT ENPRO LTD. VS. DCIT (12 SOT 194) FOR RECOVERY OF NOTICE PERIOD ELIGIBLE FOR SECTION 10A DEDUCTION AS INCOME DERIVE D FROM BY AN UNDERTAKING FROM EXPORT OF ARTICLE OR THINGS OR COMPUTER SOFTWA RE. ON THE OTHER HAND THE LD. DR RELIED ON THE ORDER OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. K. RAVINDRANATHAN NAIR CITED SUPRA AND ALSO ON THE D ECISION OF CIT (A). 9. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. IN THE CASE OF ST MICRO ELECTRONICS PVT. LTD. CITED SUPRA ON WHICH THE LD . AR RELIED THE ISSUE INVOLVED WAS WRITTEN BACK OF THE LIABILITY ON ACCOU NT OF COMMUNICATION CHARGES CLAIMED BY THE ASSESSEE AS DEEMED PROFIT & GAIN OF UNDERTAKING FOR THE PURPOSES OF COMPUTATION OF DEDUCTION U/S 10B. THE RELEVANT PARA OF THE ORDER IS 3.2.1 WHICH READ AS UNDER :- 3.2.1 WE HAVE CONSIDERED HE RIVAL SUBMISSIONS. TH E FACT THAT THE A.O. HIMSELF AGREED THAT THE WRITE BACK OF THE AMOUNT MORE SO THE REMISSION OF THE LIABILITY IS THE PROFI T & GAINS OF THE BUSINESS OF THE UNDERTAKING IN THE YEAR OF SUCH REM ISSION OF THE LIABILITY REMAINS UNDISPUTED. A PERUSAL OF THE PROV ISIONS OF SECTION 10B CLEARLY SHOWS THAT DEDUCTION AS PROVIDE D IN SECTION 10B IS THE PROFIT & GAINS AS DERIVED BY THE 100% EX PORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES AND THINGS OR SOFTWARE FOR THE PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS A S SPECIFIED THEREIN. A PERUSAL OF THE PROVISIONS OF SECTION 10B (3) OF THE ACT SHOWS THAT THE PROVISIONS OF SECTION 10B AVAILABLE TO THE UNDERTAKING IF THE SALES PROCEEDS OF THE ARTICLES A ND THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA IS RECEIVED IN OR BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE WITHIN THE ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 12 PERIOD OF 6 MONTHS FROM THE END OF THE PREVIOUS YEA R OR WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW. A REMISSION OF THE LIABILITY WHICH IS TREATED AS THE PROFIT & GAINS OF THE BUSINESS BY APPLYING THE PROVISIONS OF SECTION 41(1) OF THE ACT IS NOT ON ACCOUNT OF SALES PROCEEDS. A PERUSAL OF THE AUDIT REPORT AS FILED BEFORE US CLEARLY SHOWS THAT THE AU DITORS HAVE ALSO CATEGORICALLY GIVEN A CERTIFICATE THAT THE SALE PRO CEEDS HAVE BEEN RECEIVED IN INDIA WITHIN THE PRESCRIBED 6 MONTHS PE RIOD. THE REMISSION OF THE LIABILITY BEING CONSIDERED AS PROF IT & GAINS OF BUSINESS IS ON ACCOUNT OF LEGAL FICTION PROVIDED IN SECTION 41(1) OF THE ACT. THE REMISSION OF LIABILITY IS NOT BY PA YMENT OR RETURN OF MONEY PAID BY HE ASSESSEE. THE REMISSION OF LIAB ILITY IS NORMALLY DONE BY BOOK ENTRY. IN THESE CIRCUMSTANCE S AS THE REMISSION OF LIABILITY ITSELF IS NOT A PART OF SALE S PROCEEDS THE CONDITIONS SPECIFIED IN SECTION 10B(3) DO NOT APPLY TO THE REMISSION OF LIABILITY AND THE TREATMENT OF THE SAM E AS PROFITS & GAINS OF THE BUSINESS UNDER THE PROVISIONS OF SECTI ON 41 (1) OF THE ACT. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE FINDINGS OF LD. CIT(A) ON THIS ISSUE IS ON A RIGHT FOOTING AND DOES NOT CALL FOR ANY INTERFERENCE. IN THE ASSESSEES CASE THE ISSUE IS FOR DEDUCTION U/S 10A ON THE EXCESS PROVISION WRITTEN BACK. IN THE CASE OF S.T. MICRO ELECTRONICS PVT. LTD. IT WAS REMISSION OF LIABILITY. SECTION 10A DEDUCTION AVAI LABLE ON PROFITS AND GAINS DERIVED BY UNDERTAKING FROM EXPORT OF ARTICLE AND T HINGS OR COMPUTER SOFTWARE. FURTHER EVERY RECEIPT OR INCOME HAVING N O NEXUS WITH EXPORTS QUALIFIES FOR DEDUCTION U/S 10A OF THE ACT. THE FA CTS ARE AT VARIANCE FROM THE FACTS OF THE CASE OF S.T. MICRO ELECTRONICS PVT. LT D. RELIED UPON BY THE LD. AR. IN THE CASE OF JUBILIANT ENPRO LTD. VS. DCIT THE I SSUE WAS OF THE NOTICE PAY. THE FACT WAS THAT IT WAS DEBITED TO THE SOFTWARE DI VISION AND WHEN RECOVERED IT WAS TO BE TREATED AS INCOME DERIVED FROM INDUSTR IAL UNDERTAKING. HON'BLE SUPREME COURT IN THE CASE OF CIT VS. K. RAVINDRANAT HAN NAIR CITED SUPRA ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 13 HAS HELD THAT NATURE OF EVERY RECEIPT NEEDS TO BE E XAMINED IN ORDER TO FIND OUT WHETHER THE SAID RECEIPT FORMS PART OF / OR THAT IT HAS ATTRIBUTED OF AN EXPORT TURNOVER. INDEPENDENT INCOME WHICH HAD NO ELEMENT OF EXPORT TURNOVER DISTORT THE FIGURE OF EXPORT PROFITS. HON'BLE SUPR EME COURT HAD HELD THAT PROCESSING CHARGES WHICH WERE PART OF GROSS TOTAL I NCOME WAS AN INDEPENDENT INCOME. IN OUR CONSIDERED VIEW WHEN EXCESS PROVIS ION WRITTEN BACK THE SAME CANNOT BE SAID TO BE INCOME DERIVED FROM EXPOR T TURNOVER OF ARTICLE OR THING OR COMPUTER SOFTWARE. THE MISC. INCOME WHICH IS CONSISTING OF RECOVERY OF NOTICE PERIOD WRITING OFF PROVISION OF INTERNET EXPENSES AND REFUND FOR CST FROM STP1 REQUIRES FURTHER EXAMINATI ON TO DETERMINE WHETHER THESE ARE DERIVED FROM THE EXPORTS OF ARTICLE OR TH INGS OR COMPUTER SOFTWARE BY THE UNDERTAKING. SUCH AMOUNT MAY BE INCOME IN THE CONCEPTUAL SENSE UNDER THE INCOME-TAX ACT 1961 BUT FOR WORKING OUT THE DE DUCTION U/S 10A IT HAS TO BE THE RECEIPT DERIVED FROM THE EXPORTS OF ARTICLE OR THINGS OR COMPUTER SOFTWARE BY THE UNDERTAKING IN FREE TRADE ZONE. IN VIEW OF THESE FACTS WE RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION. THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED F OR STATISTICAL PURPOSES. 10. IN THE GROUND NO.2 OF THE REVENUES APPEAL THE ISSUE INVOLVED IS SETTING ASIDE THE ISSUE REGARDING THE CLAIM OF PAYMENT OF C OMPENSATION OF RS.45 88 500/- FOR VERIFICATION TO THE FILE OF THE ASSESSING OFFICER. THE CIT (A) HAS DEALT THIS ISSUE IN PARAS 17 TO 19.2 OF THE ORDER WHICH READ AS UNDER :- ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 14 17. THE AO DISALLOWED THE COMPENSATION OF RS.45 88 500/- PAID TO AGILENT TECHNOLOGIES MAINLY ON THE GROUND THAT THER E WAS NO PROOF OF FIR AND WHETHER MR. T.S. SHIV KUMAR IS AUTHORIZED TO DO SERVICES AND FOR THE OTHER REASONS MENTIONED IN THE ASSESSMENT ORDER. 18. THE FOLLOWING ARE THE DOCUMENTS WHICH ARE LED A S ADDITIONAL EVIDENCE: COPY OF THE EMPLOYMENT LETTER OF MR. SHIV KUMAR COPY OF THE TERMINATION LETTER ISSUED TO MR. SHIV K UMAR AN EMAIL SENT TO THE DIRECTORS AND OTHER SENIOR EMP LOYEES ABOUT THEFT OF INFORMATION 19.1 AFTER CAREFUL CONSIDERATION OF THE FACTS THES E DOCUMENTS ARE CRUCIAL TO DECIDE THE ISSUE ON HAND. ACCORDINGLY THESE DOC UMENTS MENTIONED ABOVE ARE ADMITTED AS ADDITIONAL EVIDENCE. IN VIEW OF THESE FACTS & CIRCUMSTANCES THE ISSUE IS SET ASIDE TO THE FILE O F THE AO FOR THE LIMITED VERIFICATION AND IF THE AO IS SATISFIED WITH THE GE NUINENESS OF DOCUMENTS & EXPLANATION OF THE AR NO ADDITION IS CALLED FOR. 19.2 THE ALTERNATE PLEA OF THE ASSESSEE MAY BE ADDR ESSED BY THE AO WHILE GIVING EFFECT TO THIS ORDER IN THE LIGHT OF D ECISION GIVEN WHILE DECIDING THE GROUND NOS.3 4 5 7 5.1 OF THE APPEAL . 11. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH E ASSESSEE SUBMITTED THE FOLLOWING DOCUMENTS BEFORE THE CIT (A) DURING THE A PPELLATE PROCEEDINGS AND ADMITTED THESE EVIDENCES :- COPY OF THE EMPLOYMENT LETTER OF MR. SHIV KUMAR COPY OF THE TERMINATION LETTER ISSUED TO MR. SHIV K UMAR AN EMAIL SENT TO THE DIRECTORS AND OTHER SENIOR EMP LOYEES ABOUT THEFT OF INFORMATION THE CIT (A) HAS ALSO HELD THAT THESE DOCUMENTS WERE CRUCIAL TO DECIDE THE ISSUE. THE REVENUES OBJECTION IS THAT THE CIT (A) HAS NO POWER TO SET ASIDE THE ISSUE TO THE ASSESSING OFFICER WITH EFFECT FROM 01.06.2001. THE CIT (A) SHOULD HAVE CALLED THE REMAND REPORT FROM THE ASSES SING OFFICER AND DECIDE THE ISSUE ACCORDINGLY. THE REVENUE ALSO OBJECTED T O ADMIT THE ADDITIONAL EVIDENCE UNDER RULE 46A. 12. WE HAVE HEARD BOTH THE SIDES. AFTER HEARING W E FIND THAT THE ADDITIONAL EVIDENCES SUBMITTED BY THE ASSESSEE ARE CRUCIAL TO DECIDE THE ISSUE. ITA NO.4181/DEL./2010 CO NO.391/DEL/2010 15 CIT (A) SHOULD HAVE CALLED THE REMAND REPORT AND DE CIDE THE ISSUE AT HIS LEVEL. THEREFORE WE SET ASIDE THE DIRECTION OF TH E CIT (A) AND DIRECT CIT (A) TO DECIDE THE ISSUE AT HIS LEVEL AFTER CALLING THE REMAND REPORT FROM THE ASSESSING OFFICER. 13. IN THE RESULT THE APPEAL OF THE REVENUE AND CR OSS OBJECTION OF ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF JULY 2012. SD/- SD/- (A.D. JAIN) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : THE 31 ST DAY OF JULY 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIX NEW DELHI. 5.CIT(ITAT) NEW DELHI. AR ITAT NEW DELHI.