BMC Software India Pvt.Ltd., v. ACIT,Cir.1(1),

ITA 1423/PUN/2008 | 2004-2005
Pronouncement Date: 13-08-2010 | Result: Partly Allowed

Appeal Details

RSA Number 142324514 RSA 2008
Assessee PAN AABCB6110E
Bench Pune
Appeal Number ITA 1423/PUN/2008
Duration Of Justice 1 year(s) 9 month(s) 6 day(s)
Appellant BMC Software India Pvt.Ltd.,
Respondent ACIT,Cir.1(1),
Appeal Type Income Tax Appeal
Pronouncement Date 13-08-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 13-08-2010
Assessment Year 2004-2005
Appeal Filed On 07-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NO.1423/PN/2008 (ASSTT. YEAR : 2004-05) BMC SOFTWARE INDIA PRIVATE LIMITED ICC TECH PARK TOWER A SENAPATI BAPAT ROAD PUNE-411006 PAN : AABCB6110E .. APPELLANT V. ACIT CIRCLE 1(1) PMT BUILDING SWARGATE PUNE-411037 . RESPONDENT APPELLANT BY :SHRI. S.N. INAMDAR RESPONDENT BY : S/SHRI R. KAUSHAL/SHISHIR DHAMIJA ORDER PER D. KARUNAKARA RAO AM THIS IS THE APPEAL OF THE ASSESSEE AGAINST THE ORDE R OF THE CIT(A)- I PUNE DATED 18.8.2008 FOR THE A.Y. 2004-05. THE GROUNDS RE AD AS UNDER : GROUND NO 1 : THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE INCOM E ON ACCOUNT OF FOREIGN EXCHANGE GAIN IS TAXABLE AS I NCOME FROM OTHER SOURCES AND IN DISALLOWING THE DEDUCTION UNDER SECTI ON 10A OF THE ACT ON SUCH FOREIGN EXCHANGE GAIN. GROUND NO 2: THE LEARNED CIT(A) ERRED IN HOLDING THAT INCOME FROM FOREIGN EXCHANGE GAIN ARISING ON ADVANCE RECEIVED AGAI NST EXPORTS IN THE EEFC ACCOUNT BEING ADJUSTED AGAINST ACTUAL EXPORTS IS DUE TO APPLICATION OF INCOME AND NOT PART OF PROFITS OF THE BUSINESS OF TH E APPELLANTS UNDERTAKING. B. THE LEARNED CIT(A) SHOULD HAVE APPRECIATED THE FAC T THAT THE EEFC ACCOUNT IS STRICTLY OPERATED AS PER THE REGULATIO NS ISSUED BY THE RESERVE BANK OF INDIA UNDER THE FOREIGN EXCHANGE MANAGEMENT A CT AND THAT THE ADVANCES RECEIVED AGAINST EXPORTS HAVE TO BE SET OFF AGAINST ACTUAL EXPORTS AND HENCE THE LEARNED CIT(A) ERRED IN REJECTING THE CO NTENTION OF THE ASSESSEE THAT THE FOREIGN EXCHANGE GAINS ARE PART OF T HE PROFITS OF THE BUSINESS. GROUND NO 3: THE LEARNED CIT(A) HAS FAILED TO RECOGNISE THE EFFECT S OF THE AMENDMENTS IN SECTION 10A BROUGHT IN BY FINANCE ACT 2000. INCLUDING SPECIFICALLY THE INTRODUCTION OF SUBSECTION (4) OF SECTION 10A WHICH PROVIDES AN ARTIFICIAL MEANING TO PROFITS DERIVED FROM EXPORT OF COMPUTER SOFTWARE. ITA NO 1423/PN/2008 BMC SOFTWARE INDIA PVT. LTD. A.Y.2004-05 PAGE OF 4 2 GROUND NO 4: A. THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE VALIDITY OF THE REASSESSMENT PROCEEDINGS AGAINST THE APPELLANT FOR AY 2004-05. B. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT T HAT THE ACTION OF THE ASSESSING OFFICER IS MERELY RECORDING THE REASONS FOR REOP ENING THE ASSESSMENT UNDER SECTION 147 OF THE ACT CANNOT BE U PHELD AS EXISTENCE OF REASONS TO BELIEVE FOR REASSESSMENT PROCEEDINGS. 2. AT THE VERY OUTSET THE LD COUNSEL HAS REFERRED TO T HE ABOVE GROUNDS AND MENTIONED THAT GROUND 4 RELATING TO RE-OPENING OF THE ASSESSMENT U/S. 148 IS NOT PRESSED. THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. 3. REFERRING TO OTHER GROUNDS 1 TO 3 THE COUNSEL MENTI ONED THAT THE CORE ISSUE THAT ARISE FROM THESE GROUNDS RELATE TO IF THE FOREIGN EXCHANGE GAINS ARE TO BE ALLOWED A DEDUCTION U/S. 10A AGAINST THE FINDING O F THE LOWER AUTHORITIES THAT THE SAID GAIN CONSTITUTE INCOME FROM OTHER SOURCES. IN TH IS REGARD LD COUNSEL FOR THE ASSESSEE ARGUED STATING THAT IT IS A DECIDED ISSUE A T VARIOUS JUDICIAL FORUMS THAT SUCH GAINS ARE HELD DERIVED FROM THE UNDERTAKING AND THEREFORE ENTITLED FOR DEDUC TION U/S. 10A. TO START WITH THE COUNSEL RELIED ON THE B OMBAY ITAT JUDGMENT IN THE CASE OF RENAISSANCE JEWELLERY PVT. LTD. 104 TTJ 382 (MUM) AND BOMBAY HIGH COURT JUDGMENT IN THE CASE OF RACHNA UDHYOG 230 CTR 72. THE LD D.R. RELIED ON THE ORDERS OF THE REVENUE. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE PAPER BOOK AND ALSO THE JUDICIAL PRONOUNCEMENTS ON TH E ISSUE UNDER CONSIDERATION. TO START WITH WE HAVE PERUSED THE MUMBAI BENCH DECIS ION IN THE CASE OF RENAISSWANCE JEWELLERY (PVT.) LTD. PLACED AT PAGE 4 0 OF THE PAPER BOOK. THE CONCLUSION OF THE TRIBUNAL ON THIS ISSUE READS AS UND ER : CONCLUSION: PROFIT ON ACCOUNT OF FOREIGN EXCHANGE GAIN IS DIREC TLY REFERABLE TO THE ARTICLES AND THINGS EXPORTED BY THE ASSESSEE AND IS THEREFORE IN THE SAME NATURE AS THE SALE PROCEEDS HENCE ELIGIBLE FO R EXEMPTION UNDER S. 10A. 5. FURTHER WE HAVE ALSO PERUSED THE JURISDICTIONAL HIG H COURT JUDGMENT IN THE CASE OF RACHNA UDHYOG(SUPRA) WHICH IS PLACED ON PAGE 113 OF THE PAPER BOOK. PARA 4 & 5 ARE RELEVANT WHICH READS AS UNDER :- 4. HOWEVER IN SO FAR AS THE QUESTION OF DIFFERENC E IN THE RATE OF EXCHANGE IS CONCERNED THE SUBMISSION OF THE ASSESS EE BEFORE THE ASSESSING OFFICER WAS THAT EXCHANGE RATE FLUCTUATION FORMS PA RT OF THE SALE PROCEEDS ITA NO 1423/PN/2008 BMC SOFTWARE INDIA PVT. LTD. A.Y.2004-05 PAGE OF 4 3 ELIGIBLE FOR DEDUCTION U/S. 870IB. ACCORDING TO TH E ASSESSEE THE RECEIPT WAS DIRECTLY RELATED TO THE PROCESS OF CARRYING ON THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. THE EXPORT INVOICES WERE MADE IN US $ TERMS. WHEN THE SALE PROCEEDS OF GOODS EXPORTED ARE RECEIVED IN INDIA IN CONVERTIBLE FOREIGN EXCHANGE THE RUPEE EQUIVALENT OF THE SALE PROCEEDS IS LIABLE TO VARY CONSEQUENT UPON THE FLUCTUATION IN THE RATE OF FORE IGN EXCHANGE BETWEEN THE DATE WHEN THE GOODS ARE EXPORTED AND THE DATE ON WH ICH THE SALE PROCEEDS ARE RECEIVED IN INDIA. IN OTHER WORDS IT WAS THE CONTENTION OF THE ASSESSEE THAT THE VALUE OF THE GOODS EXPORTED REMAINS THE SA ME BUT THE RUPEE EQUIVALENT IS LIABLE TO VARY DUE TO FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE. CONSEQUENTLY A BOOK ENTRY IS MADE IN ORDER TO ENSU RE THAT THE RUPEE EQUIVALENT OF THE VALUE OF THE GOODS EXPORTED OUT O F INDIA IS CORRECTLY REFLECTED IN THE BOOKS OF ACCOUNT SINCE THE BOOKS ARE MAINTAINED IN RUPEE TERMS. 5. HAVING HEARD THE LEARNED COUNSEL APPEARING ON BE HALF OF THE APPELLANT AND LEARNED COUNSEL APPEARING FOR THE ASSESSEE WE ARE OF THE VIEW THAT THE DIFFERENCE ON ACCOUNT OF EXCHANGE RATE FLUCTUATION IS LIABLE TO BE ALLOWED UNDER SECTION 80IB. THE EXCHANGE RATE FLUCTUATION ARISES OUT OF AND IS DIRECTLY RELATED TO THE SALE TRANSACTION INVOLVING THE EXPORT OF GOODS OF THE INDUSTRIAL UNDERTAKING. THE EXCHANGE RATE FLUCTUAT ION BETWEEN THE RUPEE EQUIVALENT OF THE VALUE OF THE GOODS EXPORTED AND T HE ACTUAL RECEIPTS WHICH ARE REALIZED ARISES ON ACCOUNT OF THE SALE TRANSACT ION. THE DIFFERENCE ARISES PURELY AS A RESULT OF A FLUCTUATION IN THE RATE OF EXCHANGE BETWEEN THE DATE OF EXPORT AND THE DATE OF RECEIPT OF PROCEEDS SINCE T HERE IS NO VARIATION IN THE SALE PRICE UNDER THE CONTRACT. THE VIEW WHICH WE H AVE TAKEN IS ALSO CONSISTENT WITH THE VIEW TAKEN BY A DIVISION BENCH OF THE COURT ON 15 TH DECEMBER 2009 IN THE CASE OF SYNTEL LIMITED (INCOME TAX APPEAL NO. 1974 1976 AND 1978 OF 2009). IN THE CIRCUMSTANCES WE W OULD AFFIRM THE JUDGMENT OF THE TRIBUNAL IN SO FAR AS THE QUESTION OF EXCHANGE RATE FLUCTUATION IS CONCERNED. 6. CONSIDERING THE ABOVE SETTLED POSITION AT THE LEV EL OF BOTH JURISDICTIONAL HIGH CURT WHICH IS BINDING ON US WE ARE OF THE CONSIDERED OPINION THAT ASSESSEE IS ENTITLED TO DEDUCTION U/S. 10A IN RESPECT OF THE FORE IGN EXCHANGE GAINS. ACCORDINGLY GROUNDS 1 TO 3 ARE ALLOWED. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13TH DAY OF AUG UST 2010. SD/- SD/- (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER (D. KARUNAKARA RAO ) ACCOUNTANT MEMBER PUNE DATED THE 13TH AUGUST 2010 US ITA NO 1423/PN/2008 BMC SOFTWARE INDIA PVT. LTD. A.Y.2004-05 PAGE OF 4 4 COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT I PUNE 4. THE CIT(A)-I PUNE 5. THE D.R. A BENCH PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE