M/s AXA Business Services Pvt. Ltd.,, Bangalore v. DCIT, Bangalore

PAGE 1 OF 8 ITA N O.1120/BANG/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B' BEFORE DR. O K NARAYANAN VICE PRESIDENT AND SHRI GEORGE GEORGE K J.M. ITA NO.1220/BANG/09 (ASST. YEAR 2005-06) M/S AXA BUSINESS SERVICES PRIVATE LIMITED NO.16/2 RESIDENCY ROAD BANGALORE-25. - APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(1) BANGALORE. - RESPONDENT APPELLANT BY : SHRI S PARTHASARATHI ADVOCATE RESPONDENT BY : SMT. PREETHI GARG CIT-III O R D E R PER GEORGE GEORGE : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE CIT(A)'S ORDER DATED 4.11.2009 IN RELATION TO ASST. YEAR 200 5-06. 2. THE ASSESSEE HAS RAISED EIGHT GROUNDS. THE FIR ST AND THE EIGHTH GROUND IS GENERAL IN NATURE AND HENCE NO SP ECIFIC ADJUDICATION IS CALLED FOR. 3. THE SIXTH AND SEVENTH GROUND IS CONSEQUENTIAL I N NATURE AND THE SAME IS DISMISSED. PAGE 2 OF 8 ITA N O.1120/BANG/2009 2 4. THE FIFTH GROUND IS NOT PRESSED BY THE COUNSEL FOR THE ASSESSEE DURING THE TIME OF HEARING AND THE SAME IS DISMISSED AS NOT PRESSED. 5. THE REMAINING EFFECTIVE GROUNDS READS AS FOLLOW S:- 2. (A) THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN NOT ALLOWING DEDUCTION U/S 10A OF THE ACT OF THE ENTIRE PROFIT O F THE UNDERTAKINGS REGISTERED WITH THE SOFTWARE TECHNOLOG Y PARK OF INDIA. (B) THAT THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING ON WHETHER THE AO WAS RIGHT IN TREATIN G THE DATA COMMUNICATION EXPENSES OF RS.58 020 929/- AS ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE OF INDIA. (C) THAT THE LEARNED CIT(A) ERRED IN NOT APPLYING THE PRINCIPLES OF SECTION 80HHE TO SECTION 10A. CONSEQUENTLY THE LEARNED CIT(A) ERRED IN NOT RELYI NG ON THE VARIOUS JUDICIAL DECISIONS ON THE SAID MATTE R. 3. WITHOUT PREJUDICE TO THE ABOVE THAT THE LEARNED CI T(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFIC ER OF NOT ADJUSTING THE 'TOTAL TURNOVER' BY REDUCING THE DATA COMMUNICATION EXPENSES OF RS.58 020 929/- CONSEQUENT TO AND AS A COROLLARY TO SUCH REDUCTION FROM 'EXPORT TURNOVER'. 4. THE LEARNED CIT(A) ERRED IN NOT RELYING ON THE VARI OUS JUDICIAL PRECEDENTS ON THE SAID MATTER. 6. THE RELEVANT FACTS READS AS FOLLOWS:- THE ASSESSEE IS ENGAGED IN THE BUSINESS OF IT ENA BLED SERVICES INCLUDING REMOTE DATA PROCESSING AND CALL CENTER. THE PAGE 3 OF 8 ITA N O.1120/BANG/2009 3 ASSESSEE FILED ITS RETURN OF INCOME FOR THE FINANCI AL YEAR 2004-05 RELEVANT TO THE ASST. YEAR 2005-06 ON OCTOBER 30 2 005 RETURNING AN INCOME OF RS. NIL UNDER THE NORMAL PROVISIONS OF TH E I T ACT 1961 AND REPORTED BOOK PROFITS OF RS.13 872 255/- U/S 11 5JB OF THE ACT AFTER MAKING NECESSARY ADJUSTMENTS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY BY ISSUE OF NO TICE U/S 143(2) OF THE ACT. THE ASSESSING OFFICER HAS PASSE D AN ORDER U/S 143(3) OF THE ACT DATED DECEMBER 22 2008. IN THE S AID ORDER THE ASSESSING OFFICER HAS RECOMPUTED THE DEDUCTION CLAI MED BY THE ASSESSEE U/S 10A OF THE ACT BY REDUCING THE DATA CO MMUNICATION EXPENSES AMOUNTING TO RS.58 020 929/- FROM THE EXPO RT TURNOVER OF THE COMPANY. THE SAME HAS NOT BEEN DEDUCTED FROM THE T OTAL TURNOVER OF THE COMPANY. AS A RESULT OF THE ACTION OF THE ASSE SSING OFFICER THE QUANTUM OF EXPORT TURNOVER IN THE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER STANDS REDUCED. HENCE THE DEDUCTION OF THE PROFITS OF THE UNDERTAKINGS U/S 10A HAS NOT BEEN GRANTED BY THE AS SESSING OFFICER. THE AO HAS ALSO ADDED BACK THE BROUGHT FORWARD BUSI NESS LOSS AND UNABSORBED DEPRECIATION AMOUNTING TO RS.14 543 968/ - TO THE INCOME RETURNED CLAIMING THAT THE SAME HAS BEEN SET OFF IN AN EARLIER ASST. YEAR. 7. THE FIRST APPELLATE AUTHORITY CONFIRMED THE AO' S ACTION. THE CIT(A) FOLLOWED HIS ORDER IN THE CASE OF M/S JA IPURIA SILK MILLS (P) LTD (ASST. YEAR 2006-07) WHICH WAS RENDERED ON IDENTICAL FACTUAL SITUATION. PAGE 4 OF 8 ITA N O.1120/BANG/2009 4 8. AGGRIEVED FOR REDRESSEL THE ASSESSEE IS IN APP EAL BEFORE US. 9. THE LEARNED AR SUBMITTED THAT THE ISSUE IN QUES TION IS DIRECTLY COVERED BY THE SPECIAL BENCH ORDER OF THE TRIBUNAL IN THE CASE OF ITO V SAK SOFT LTD. 313 ITR (AT) 353. 10. PER CONTRA THE LEARNED DR STRONGLY RELIED ON THE FINDING/CONCLUSION OF THE CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE DECISION OF THE CIT(A) IN THE CASE OF M/S JAIPURIA SILK MILLS (P) LTD. WAS TAKEN UP IN APPEA L BEFORE THE ITAT AND THE TRIBUNAL REVERSED THE ORDER OF THE CIT(A). THE RELEVANT FINDING OF THE TRIBUNAL IN THE CASE OF M/S JAIPURIA SILK MI LLS (P) LTD. IN ITA NO.1112/BANG/2009 DATED 12.4.2010 READS AS FOLLOWS: - '8. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL PLACED ON RECORD. THE ISSUE I N QUESTION STANDS COVERED DIRECTLY IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASST.YEAR 2005-06 (ITA NO.406/BANG/2008 DATED 10.7.2009) WHICH IN TURN FOLLOWED THE DECISION OF THE SPECIAL BENCH CITED SUPRA. THE RELEVANT PORTION OF THE TRIBUNAL'S ORDE R IN ASSESSEE'S OWN CASE CITED SUPRA READS AS FOLLOWS:- 'WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL PERUSAL OF THE FACTS AND PAGE 5 OF 8 ITA N O.1120/BANG/2009 5 CIRCUMSTANCES OF THE ASSESSEE'S CASE OUR CONSIDERED OPINION IS THAT NOW THE ISSUE STANDS SETTLED BY THE SPECIAL BENCH DECISION OF THE ITAT CHENNAI IN THE CASE OF ITO V SAK SOFT LTD. REPORTED IN 313 ITR (AT) 353 DATED 6.3.09 THEREFORE DOES NOT REQUIRE ANY FURTHER DELIBERATION. THE ISSUE STANDS COVERED AS ALSO HELD BY THE LEARNED CIT(A) WHICH DOES NOT CALL FOR ANY FURTHER INTERFERENCE'. 9. THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF ITO V SAK SOFT LTD. REPORTED IN 313 ITR (AT ) 353 WAS CONSIDERING AN IDENTICAL SITUATION WHEREIN IT WAS HELD AS FOLLOW S:- 'THE COMMON THREAD RUNNING THROUGH SECTIONS 80HHC 80HHE AND 80HHF IS THAT THEY ARE ALL PROVISIONS GRANTING RELIEF TO THE ASSESSEES IN RESPECT OF PROFITS DERIVED FROM EXPORT. THE DIFFERENCE BETWEEN CHAPTER III IN WHICH SECTION 10B FALLS AND CHAPTER VI-A IN WHICH THESE SECTIONS FALL IS THAT WHILE THE FORMER EXCLUDES THE INCOME IN QUESTION TOTALLY FROM THE PURVIEW OF TOTAL INCOME AND GIVES TOTAL EXEMPTION FROM TAX THE LATTER GIVES DEDUCTION OF A PART OF THE PROFITS AND GAINS OF THE CONCERNED BUSINESS FROM THE GROSS TOTAL INCOME. BOTH HOWEVER ARE CHAPTERS WHICH GIVE RELIEF TO ASSESSEES FROM TAXATION SUBJECT TO THE CONDITIONS BEING FULFILLED AND IN THAT SENSE THEY ARE OF THE SAME GENRE. THE OBJECT OF THESE SECTIONS IS TO ENCOURAGE THE EARNING OF FOREIGN EXCHANGE AND PROVIDE INCENTIVE TO PROMOTE EXPORTS. IF SOME OF THE SECTIONS SUCH AS SECTIONS 80HHE AND 80HHF PROVIDE FOR A PAGE 6 OF 8 ITA N O.1120/BANG/2009 6 FORMULA FOR CALCULATING THE DEDUCTION WHICH IS IDENTICAL WITH THE FORMULA PRESCRIBED BY SECTION 10B IT WOULD BE INCONGRUOUS TO INTERPRET SECTION 10B IN A MANNER DIFFERENT FROM THOSE TWO SECTIONS MERELY BECAUSE THERE IS NO DEFINITION OF 'TOTAL TURNOVER' IN THAT SECTION. 'EXPORT TURNOVER' AS DEFINED IN THESE SECTIONS EXCLUDES FREIGHT TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THUS STATUTORILY PARITY IS MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER IN THESE SECTIONS. THERE IS NO REASON WHY SUCH PARITY CANNOT BE MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER IN SECTION 10B JUST BECAUSE 'TOTAL TURNOVER' HAS NOT BEEN DEFINED IN THAT SECTION'. 10. THE FIRST APPELLATE AUTHORITY HAS ATTEMPTED TO DISTINGUISH THE CASES CITED ON THE BAS IS THAT THE WORD 'TOTAL TURNOVER' OR 'GROSS RECEIPT' A S IT APPEARS IN SECTION 44AB OF THE I T ACT 1961 BASED ON ICAI GUIDANCE NOTE INCLUDES ALL RECEIPTS INCLUDI NG REIMBURSEMENT OF EXPENSES. THE CONTEXT IN WHICH TH E WORDS 'TOTAL TURNOVER' AND 'GROSS RECEIPTS' APPEAR IN SECTION 44AB OF THE I T ACT 1961 IS TOTALLY DIFFER ENT TO THAT OF THIS CASE. THERE THE WORD 'TOTAL TURNOVER' IS USED TO BRING IN AMBIT OF TAX AUDIT ALL THE TRANSAC TIONS OF SALES AND SERVICES. THE DEFINITION IS REPRODUCED HEREIN BELOW:- 'THE AGGREGATE AMOUNT FOR WHICH SALES ARE EFFECTED OR SERVICES RENDERED BY AN ENTERPRISE. THE TERM 'GROSS TURNOVER' AND 'NET TURNOVER' (OR 'GROSS SALES' AND 'NET SALES') ARE SOMETIMES USED PAGE 7 OF 8 ITA N O.1120/BANG/2009 7 TO DISTINGUISH THE SALES AGGREGATE BEFORE AND AFTER DEDUCTION OF RETURNS AND TRADE DISCOUNTS'. THE WORD 'TOTAL TURNOVER' IS NOT DEFINED U/S 44AB OF THE I T ACT 1961. HENCE THIS DEFINITION IS BE ING CONSIDERED AS GUIDING DEFINITION TO DETERMINE TURNOVER FOR TAX AUDIT. THE FIRST APPELLATE AUTHORITY HAS ADOPTED THE MEANING OF WORDS STATED IN SECTION 44AB WHICH IS WHOLLY UNNECESSARY IN THE INSTANT CASE AND HAS CONCLUDED THAT TURNOVER AND GROSS RECEIPTS ARE SYNONYM AND CAN BE USED INTERCHANGEABLY. THIS LINE OF ANALYSIS CANNOT BE APPLIED IN THIS CASE BECAUSE GROSS RECEIPT IS USED FOR SERVICES RENDERED BY BUSINESS ENTERPRISE OR FOR PROFESSIONAL INCOME AND WORD 'TURNOVER' FOR SALES EFFECTED OR FOR BUSINESS INCOME. THE ASSESSEE'S BUSINESS IS WHOLLY OF EXPORT OF MANUFACTURED SILK FABRIC AND HENCE WORD 'GROSS RECEIPT' CANNOT BE APPLIED TO EXPORT TURNOVER HERE. 11. FOR THE ABOVE SAID REASONS WE REVERSE THE ORDER OF THE AUTHORITIES BELOW AND DIRECT THE ASSESSING OFFICER TO EXCLUDE FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER A SUM OF RS.96 39 523/- AND RS.2 43 763/- BEING FREIGHT AND INSURANCE EXPENSES RESPECTIVELY WHILE CALCULATING DEDUCTION U/S 10B OF THE ACT. 12. RESPECTUFLLY FOLLOWING THE COORDINATE BENCH DE CISION IN THE CASE CITED SUPRA WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO EXCLUDE A SUM OF RS .58 020 929/- BEING DATA COMMUNICATION EXPENSES BOTH FROM EXPORT TURNO VER AND TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 10A OF TH E ACT. HENCE GROUND NO.3 MENTIONED ABOVE IS ALLOWED. PAGE 8 OF 8 ITA N O.1120/BANG/2009 8 13. IN THE RESULT THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED AS INDICATED ABOVE. THE ORDER IS PRONOUNCED ON ..13TH....APRIL 2010 SD/- SD/- (DR. O K NARAYANAN) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBE R COPY TO : 1. THE ASSESSEE 2.THE REVENUE 3. THE CIT(A) CONCE RNED. 4. THE CIT CONCERNED. 5. THE DR 6. GUARD FILE. 7. GF ITAT NEW DELHI. MSP/12.4. BY ORDER ASST. REGISTRAR ITAT BANGALORE.