DCIT, Bangalore v. M/s KMG Infotech Ltd.,, Bangalore

ITA 1512/BANG/2012 | 2008-2009
Pronouncement Date: 12-07-2013 | Result: Dismissed

Appeal Details

RSA Number 151221114 RSA 2012
Assessee PAN AABCK2065P
Bench Bangalore
Appeal Number ITA 1512/BANG/2012
Duration Of Justice 7 month(s) 22 day(s)
Appellant DCIT, Bangalore
Respondent M/s KMG Infotech Ltd.,, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 12-07-2013
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 12-07-2013
Assessment Year 2008-2009
Appeal Filed On 20-11-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN JUDICIAL MEMBER AND SHRI JASON P. BOAZ ACCOUNTANT MEMBER ITA NO.1512/BANG/2012 ASSESSMENT YEAR : 2008-09 THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 11(5) BANGALORE. VS. M/S. KMG INFOTECH LTD. UNIT 201/202 VANGUARD RISE 163 5 TH CROSS KONENA AGRAHARA BANGALORE 560 017. PAN : AABCK 2065P APPELLANT RESPONDENT APPELLANT BY : DR. P.V. PRADEEP KUMAR SR.DR-I RESPONDENT BY : MR.PADAMCHAND KHINCHA C.A. DATE OF HEARING : 09.07.2013 DATE OF PRONOUNCEMENT : 12.07.2013 O R D E R PER N.V. VASUDEVAN JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER D ATED 30.08.2012 OF THE CIT(APPEALS)-I BANGALORE RELATING TO ASSESSMEN T YEAR 2008-09. ITA NO.1512/BANG/2012 PAGE 2 OF 9 2. GROUND NO.1 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND CALLS FOR NO ADJUDICATION. 3. GROUNDS NO.2 TO 6 RAISED BY THE REVENUE READS A S FOLLOWS:- 2. THE LEARNED CIT (A) HAS ERRED IN DIRECTING TH E ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION UNDER SECTION L0 B AFTER REDUCING THE TELECOMMUNICATION EXPENSES EXPENDITUR E INCURRED IN FOREIGN CURRENCY AND VARIATION IN WORK-IN-PROGRE SS FROM THE TOTAL TURNOVER ALSO. 3. THE LEARNED CIT (A) HAS ERRED IN NOT APPRECIATI NG THAT THERE IS NO PROVISION IN SECTION L0B WHICH REQUIRES THE CONCERNED EXPENSES WHICH IS REQUIRED TO BE REDUCED FROM THE EXPORT TURNOVER AS PER CLAUSE (IV) OF THE EXPLANATION TO S ECTION L0B TO BE REDUCED FROM THE TOTAL TURNOVER ALSO. 4. THE LEARNED CIT(A) ERRED IN ALLOWING THE RELIEF RELYING ON THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF CIT VS TATA ELXSI AND OTHERS IN THE CONSOLIDATED ORDER DT 30.8.2011 IN ITA NO. 70/2009 & OTHERS [2012] REPORTED IN 247 CTR 334 WITHOUT APPRECIATING THE FACT THAT THE ORDER OF THE HIGH COURT HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND A SLP HAS B EEN FILED BEFORE THE HONBLE SUPREME COURT. 5. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING TH E FACT THAT NO EVIDENCE WAS PRODUCED BY THE COMPANY TO PROVE TH AT THE SUM REPRESENTING THE VARIATION IN WORK IN PROGRESS WAS NOT BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE AS REQU IRED UNDER SUB- SECTION (3) OF SECTION L0B. 6. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING TH E FACT THAT THE BREAKUP OF THE TOTAL TURNOVER AS APPEARING IN THE PROFIT AND LOSS ACCOUNT WAS FURNISHED BY THE COMPANY DURING TH E ASSESSMENT PROCEEDINGS AND THE VARIATION IN WORK-IN-PROGRESS I S A PART OF SUCH TOTAL TURNOVER. 4. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF SOFTWARE DEVELOPMENT. THE ASSESSEE WAS ENTITLED TO CLAIM DE DUCTION U/S. 10B OF THE ITA NO.1512/BANG/2012 PAGE 3 OF 9 ACT. WHILE COMPUTING THE DEDUCTION U/S. 10B OF THE ACT THE AO EXCLUDED A SUM OF RS.37 95 213 WHICH WAS EXPENDITURE INCURRED ON TELECOMMUNICATION IN FOREIGN EXCHANGE FROM THE EXPO RT TURNOVER. SIMILARLY A SUM OF RS.4 57 17 280/- WHICH WAS VALUE OF UNBILL ED WORK AS ON 31.3.2007 WAS ALSO EXCLUDED FROM THE TOTAL TURNOVER . AS FAR AS VARIATION IN THE WORK-IN-PROGRESS IS CONCERNED THE FACTS ARE AS FOLLOWS. THE ASSESSEE RECOGNIZES REVENUE IN THE BOOKS OF ACCOUNTS IN RESP ECT OF CONTRACTS WHICH WERE NOT COMPLETED DURING THE PREVIOUS YEAR. THESE CONTRACTS WERE NOT COMPLETED IN THE SENSE THAT THEY DID NOT REACH THE BILLING STAGE. THE ASSESSEE CONSIDERS THE REVENUE THAT IS LIKELY TO BE REALIZED FROM SUCH UNCOMPLETED CONTRACTS AS AN UNBILLED REVENUE AND IS SHOWN AS VARIATION IN WORK-IN-PROGRESS. IT IS THE PLEA OF THE ASSESSEE THAT THE BILLS WERE RAISED IN THE NEXT FINANCIAL YEAR UPON THE WORK REACHING T HE BILLING STAGE. IT IS ALSO THE PLEA OF THE ASSESSEE THAT THE UNBILLED REVENUE WAS REALIZED WITHIN 12 MONTHS FROM THE DATE OF EXPORT. THE ASSESSEE DID N OT INCLUDE THE UNBILLED REVENUE EITHER IN THE EXPORT TURNOVER OR TOTAL TURN OVER. THE AO WHILE PASSING THE ORDER U/S. 143(3) OF THE ACT INCLUDED T HE SAME IN THE TOTAL TURNOVER BUT DID NOT INCLUDE THE SAME IN THE EXPOR T TURNOVER. BOTH THE AFORESAID ITEMS WERE HOWEVER NOT EXCLUDED FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S.10B OF THE ACT. 5. ON APPEAL BY THE ASSESSEE THE CIT(A) DIRECTED T HE AO TO EXCLUDE THE TELECOMMUNICATION EXPENSES AND VARIATION IN WOR K-IN-PROGRESS BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER. THE PLEA OF THE ITA NO.1512/BANG/2012 PAGE 4 OF 9 ASSESSEE WAS THAT BOTH THE AFORESAID ITEMS SHOULD N OT BE EXCLUDED FROM THE EXPORT TURNOVER AT ALL. ALTERNATIVELY THE ASSE SSEE PLEADED THAT WHATEVER IS EXCLUDED FROM THE EXPORT TURNOVER SHOUL D ALSO BE EXCLUDED FROM THE TOTAL TURNOVER. THE PLEA OF THE REVENUE ON THE OTHER HAND WAS THAT IT SHOULD BE EXCLUDED ONLY FROM THE EXPORT TUR NOVER AND NOT THE TOTAL TURNOVER. AGGRIEVED BY THE ORDER OF THE CIT(A) TH E REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE ALTERNATIVE RELIEF RAISED BY THE ASSESS EE AND WHICH WAS ALLOWED BY THE CIT(A) VIZ. WHEN THE TELECOMMUNICA TION EXPENSES AS WELL AS VARIATION IN WORK-IN-PROGRESS IS TO BE REDUCED F ROM THE EXPORT TURNOVER WHETHER THE SAME SHOULD BE REDUCED FROM THE TOTAL T URNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A IS NO MORE RES INTEGRA . 7. THE HONBLE MUMBAI HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (330 ITR 175) IN IDENTICAL CIRCUMSTANCES HELD THAT SINCE THE EXPORT TURNOVER FORMS PART OF THE TO TAL TURNOVER IF AN ITEM IS EXCLUDED FROM THE EXPORT TURNOVER THE SAME SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER TO MAINTAIN PARITY BETWEEN NUMER ATOR AND DENOMINATOR WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. THE RELEVANT FINDING OF THE HONBLE BOMBAY HIGH COURT READS AS FOLLOWS:- HELD : THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPO RT AND THE TURNOVER FROM LOCAL SALES. THE EXPORT TURNOVER CONS TITUTES THE NUMERATOR IN THE FORMULA PRESCRIBED BY SUBSECTION ( 4). EXPORT ITA NO.1512/BANG/2012 PAGE 5 OF 9 TURNOVER ALSO FORMS A CONSTITUENT ELEMENT OF THE DE NOMINATOR IN AS MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOT AL TURNOVER. THE EXPORT TURNOVER IN THE NUMERATOR MUST HAVE THE SAM E MEANING AS THE EXPORT TURNOVER WHICH IS CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR. THE LEGISLATURE HAS PR OVIDED A DEFINITION OF THE EXPRESSION EXPORT TURNOVER IN E XPLN.2 TO S.10A WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDE RATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES T HINGS OR COMPUTER SOFTWARE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGHT TELECOMMUNICATION CHARGES OR IN SURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES THING S OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TU RNOVER THE LEGISLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGH T AND INSURANCE CHARGES. THE SUBMISSION WHICH HAS BEEN URGED ON BEH ALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHARGES ARE LIABLE TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER A SIMILAR EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REVENUE HOWEVER MISSES THE POINT THAT THE EXPRESSION TOTAL TURNOVER HAS NOT BEEN DEFINED AT ALL BY PAR LIAMENT FOR THE PURPOSES OF S.10A. HOWEVER THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOVE R EXCLUDES FREIGHT AND INSURANCE. SINCE EXPORT TURNOVER HAS B EEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FRE IGHT AND INSURANCE THE EXPRESSION EXPORT TURNOVER CANNOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY IT WAS OPEN TO PARLIAMENT TO MAKE A PR OVISION WHICH HAS BEEN ENUNCIATED EARLIER MUST PREVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OTHER INTERPR ETATION WOULD LEAD TO AN ABSURDITY. IF THE CONTENTION OF THE REVE NUE WERE TO BE ACCEPTED THE SAME EXPRESSION VIZ. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATION OF THE S AME FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUA TION WHERE FREIGHT AND INSURANCE THOUGH THESE HAVE BEEN SPECI FICALLY EXCLUDED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUMERATOR WOULD BE BROUGHT IN AS PART OF THE EXPOR T TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMINATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVI SION WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOVE R A RECEIPT SUCH AS FREIGHT AND INSURANCE WHICH DOES NOT HAVE A NY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTAL TURNOVER. FR EIGHT AND ITA NO.1512/BANG/2012 PAGE 6 OF 9 INSURANCE CHARGES DO NOT HAVE ANY ELEMENT OF TURNOV ER. FOR THIS REASON IN ADDITION THESE TWO ITEMS WOULD HAVE TO B E EXCLUDED FROM THE TOTAL TURNOVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRIPTION TO THE CONTRARY CIT V SUDARSHAN CHEM ICALS INDUSTRIES LTD. (2000) 163 CTR (BOM) 596: (2000) 24 5 ITR 769 (BOM) APPLIED; CIT V LAKSHMI MACHINE WORKS (2007) 2 10 CTR (SC) 1: (2007) 290 ITR 667 (SC) AND CIT V CATAPHARM A (INDIA) (P) LTD. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) RELIED ON. 8. IN THE CASE OF SAK SOFT LTD. (SUPRA) THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF EXPORTING COMPUTER SOFTWARE AND CLA IMED DEDUCTION U/S 10B OF THE ACT. IN COMPLETING THE ASSESSMENT U/S 14 3(3) OF THE ACT THE AO REDUCED THE EXPENDITURE INCURRED IN FOREIGN EXCHANG E IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA FROM THE EXPORT T URNOVER WITHOUT CORRESPONDING REDUCTION FROM TOTAL TURNOVER THEREB Y REDUCING THE DEDUCTION CLAIMED BY THE ASSESSMENT U/S 10B OF THE ACT. IN L IGHT OF THE ABOVE FACTS THE SPECIAL BENCH HELD AS UNDER:- FOR THE ABOVE REASONS WE HOLD THAT FOR THE PURPOS E OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTION 10B T HE FREIGHT TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DE LIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE IND IA OR THE EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE IN P ROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE F ORMULA. THE APPEALS FILED BY THE DEPARTMENT ARE THUS DISMISSED . 9. FURTHER IN THE CASE OF JAIPURIA SILK MILLS (P) LTD. V ACIT (ITA NO.1112/BANG/2009) THE BANGALORE TRIBUNAL HAD PLACED RELIANCE ON ITA NO.1512/BANG/2012 PAGE 7 OF 9 THE DECISION OF CHENNAI SPECIAL BENCH IN THE CASE O F SAK SOFT LTD. (SUPRA) AND HAD CONCLUDED THAT THE FREIGHT AND INSU RANCE EXPENSES ARE TO BE REDUCED BOTH FROM THE EXPORT TURNOVER AND TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION U/S 10A OF THE ACT. 10. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TATA ELXSI LTD. 247 CTR 344 (KARN) HAS ALSO TAKEN IDENTICAL VIEW. 11. AS FAR AS EXCLUDING THE VARIATION IN WORK-IN-PR OGRESS BOTH FROM THE TOTAL TURNOVER AND EXPORT TURNOVER IT WAS BROUGHT TO OUR NOTICE THAT THE CHENNAI BENCH OF THE ITAT IN THE CASE OF INAUTIX TECHNOLOGIES INDIA PVT. LTD. V. ACIT IN ITA NO.541/MDS/2006 & OTHER APPEALS ORDER DATED 09.08.2011 HAS CONSIDERED THE ISSUE OF UNBIL LED REVENUES AND HELD AS FOLLOWS:- 32. AFTER HEARING BOTH SIDES IN THE LIGHT OF AVAI LABLE EVIDENCE ON RECORD WE FIND THAT THE ASSESSEE HAS BEEN CONSI STENTLY FOLLOWING ACCOUNTING STANDARD 9 ISSUED BY THE ICAI AND IN CASE THE ACTION OF THE ASSESSING OFFICER IS ENDORSED THE FIGURE OF TOTAL TURNOVER WILL GET REDUCED TO A FIGURE LOWER THAT TH E EXPORT TURNOVER. THEREFORE WE ARE ALSO OF THE OPINION THA T THE INGREDIENTS THAT GO TO MAKE UP THE EXPORT TURNOVER SHOULD ALSO BE THE SAME FOR THE TOTAL TURNOVER. WE HAVE ALREADY TA KEN A VIEW WHILE DECIDING SIMILAR ISSUE IN OTHER ASSESSMENT YE AR ALSO IN THE FORMER PART OF THIS ORDER. CONSEQUENTLY WE CONFIRM THE FINDING OF THE LD. CIT(A) AND CANNOT ALLOW THE GROUNDS RAIS ED BY THE REVENUE IN THIS REGARD. ITA NO.1512/BANG/2012 PAGE 8 OF 9 12. IN VIEW OF THE ABOVE DECISION OF THE CHENNAI BE NCH OF THE ITAT WE ARE OF THE VIEW THAT THE AFORESAID SUM SHOULD ALSO BE TAKEN AS PART OF EXPORT TURNOVER. 13. AN IDENTICAL ISSUE HAD COME UP FOR CONSIDERATIO N IN ASSESSEES OWN CASE FOR THE A.Y. 2006-07 IN ITA NO.70/BANG/2012 AN D THIS TRIBUNAL BY ITS ORDER DATED 31.10.2012 AFFIRMED THE ORDER OF THE CI T(APPEALS) WHEREBY THE CIT(APPEALS) DIRECTED THAT THE VARIATION IN THE WORK-IN-PROGRESS SHOULD BE TAKEN AS PART OF THE EXPORT TURNOVER. 14. IN THE LIGHT OF THE ABOVE REASONING GIVEN BY TH E TRIBUNAL IN ASSESSEES CASE FOR THE EARLIER ASSESSMENT YEARS W E ARE OF THE VIEW THAT THE ALTERNATIVE RELIEF SOUGHT BY THE ASSESSEE TO EX CLUDE THE SUMS REFERRED TO BY THE REVENUE IN THEIR GROUNDS FROM BOTH TOTAL TURNOVER AND EXPORT TURNOVER WAS RIGHTLY ACCEPTED BY THE CIT(A). THE GR OUNDS RAISED BY THE REVENUE ARE DISMISSED. 15. IT IS ALSO NOT IN DISPUTE THAT BEFORE US THAT I N ASSESSEES OWN CASE IN ITA NO.580 TO 586/BANG/2010 FOR THE AYS 2002-03 TO 2004-05 AND 2005- 06 THE ISSUE WITH REGARD TO EXCLUDING TELECOMMUNIC ATION CHARGES BOTH FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S.10-B OF THE ACT HAVE BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE AND THOSE ORDERS HAVE ALSO BEEN CON FIRMED BY THE HONBLE KARNATAKA HIGH COURT IN ITA NO.404 TO 406/BANG/2011 JUDGMENT DATED 23.01.2012 . ITA NO.1512/BANG/2012 PAGE 9 OF 9 16. IN VIEW OF THE ABOVE WE DO NOT FIND ANY MERITS IN THIS APPEAL BY THE REVENUE AND THE SAME IS DISMISSED. 17. IN THE RESULT THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF JULY 2013. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE DATED THE 12 TH JULY 2013. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT BANGALORE.