GE India Exports Private Limited, Bangalore v. DCIT, Bangalore

ITA 187/BANG/2010 | 2004-2005
Pronouncement Date: 15-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 18721114 RSA 2010
Bench Bangalore
Appeal Number ITA 187/BANG/2010
Duration Of Justice 1 year(s) 4 month(s) 27 day(s)
Appellant GE India Exports Private Limited, Bangalore
Respondent DCIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 15-07-2011
Date Of Final Hearing 18-05-2011
Next Hearing Date 18-05-2011
Assessment Year 2004-2005
Appeal Filed On 18-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI N BARADHVAJA SANKAR VICE PRESIDENT AND SMT. P MADHAVI DEVI JUDICIAL MEMBER ITA NOS./185 186 & 187BANG/2010 (ASST. YEARS 2002-0 3 2003-04 & 2004-05) GE INDIA EXPORTS PRIVATE LTD. (FORMERLY GE POWER CONTROLS INDIA (P) LTD. 42/1 & 45/14 ELECTRONIC CITY PHASE II BANGALORE. . APPELLANT VS. THE DY. COMMISSIONER OF INCOME-TAX CIRCLE-11(3) BANGALORE. . RESPONDENT APPELLANT BY : SHRI KAUSHIK MUKARJEE RESPONDENT BY : SHRI ETWA MUNDA O R D E R PER BENCH : ALL THESE APPEALS ARE FILED BY THE ASSESSEE. THE R ELEVANT ASSESSMENT YEARS ARE 2002-03 2003-04 AND 2004-05. THE APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME-TAX (APPEALS) I AT BANGALORE DATED 23.11.2009. THE AP PEAL ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME-T AX ACT 1961. ITA NOS.185 186 & 187/B/10 2 2. SINCE MOST OF THE ISSUES RAISED IN ALL THESE TH REE APPEALS ARE COMMON THE APPEALS ARE HEARD AND DISPOSED OF BY TH IS COMMON AND CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.185/BANG/2010 3. THE GROUND NO.2 RELATES TO DISALLOWANCE OF PROVI SION FOR WARRANTY. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING LOW VOLTAG E ELECTRICAL PRODUCTS INCLUDING RESIDENTIAL AND INDUSTRIAL COMP ONENTS GENERAL PURPOSE CONTROL PRODUCTS AND ENCLOSURES. IT ALSO S PECIALIZES IN THE FIELD OF INSTALLATION AND COMMISSIONING OF A VARIET Y OF ELECTRICAL EQUIPMENT USED IN DIVERSE INDUSTRIAL SECTORS. 5. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME- TAX ACT THE ASSESSING OFFICER OBSERVED THAT THE AS SESSEE HAS MADE A PROVISION FOR WARRANTY OF RS.58 70 794/-. THE ASSE SSEE WAS ASKED TO ITA NOS.185 186 & 187/B/10 3 FURNISH THE DETAILS SUBSTANTIATING THE CLAIM. IN R ESPONSE THE ASSESSEE SUBMITTED THE DETAILS OF OPENING PROVISION FOR WARR ANTY PROVISION CHARGE FOR THE YEAR AND CLOSING PROVISION OF WARRAN TY AND WARRANTY EXPENSES INCURRED DURING THE YEAR. THE ASSESSING O FFICER ALSO CONSIDERED THE RELIANCE PLACED BY THE ASSESSEE UPON JUDICIAL PRONOUNCEMENT OF THE HONBLE SUPREME COURT IN THE C ASE OF BHARAT EARTH MOVERS VS. CIT REPORTED IN 245 ITR 428 AND AL SO THE DECISION OF BANGALORE TRIBUNAL IN THE CASE OF WIPRO GE MEDIC AL SYSTEMS LTD. VS. ACIT IN ITA NOS. 320 TO 398/BANG 2001. AFTER C ONSIDERING THE FACTS OF THE CASE AND THE ABOVE LEGAL PRECEDENTS T HE AO HELD THAT THE PROVISION MADE BY THE ASSESSEE IN RESPECT OF WARRAN TY GIVEN AT THE TIME OF SALES CANNOT BE ALLOWED AS A DEDUCTION AS T HE DISCHARGE OF THE OBLIGATION DEPENDS ON THE HAPPENING OF SO MANY EVEN TS AND ALSO THAT THE CONTENTION THAT WHEN THE GOODS ARE SOLD THE SA LE CONSIDERATION INCLUDES ADDITIONAL CHARGE FOR WARRANTY IS NOT ACCE PTABLE HE THEREFORE HELD THAT A CONTINGENT LIABILITY IS NOT A LLOWABLE AND DISALLOWED THE PROVISION FOR WARRANTY. ON APPEAL THE CIT(A) CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS I N SECOND APPEAL BEFORE US. ITA NOS.185 186 & 187/B/10 4 6. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI KAUSHI K MUKARJEE REITERATED THE SUBMISSIONS MADE BY THE ASSESSEE BEF ORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE SELLS VARIOUS PRODUCTS WITH VARYING WARRANTY PERIOD SUCH AS 18 MONTHS FROM THE DATE OF SALE OR 12 MONTHS FROM THE DATE OF INSTALLATION OR IN CERTA IN CASES 2 TO 3 YEARS FROM THE DATE OF SALE. HE SUBMITTED THAT DEPENDING ON THE PERIOD OF WARRANTY THE PROVISION IS MADE. HE SUBMITTED THAT THE ASSESSEE HAS BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND MAKING PROVISION FOR WARRANTY THROUGHOUT THE PERIOD OF WAR RANTY OF THE PRODUCTS SOLD WHICH IS 1% OF THE ELIGIBLE SALES EVE RY YEAR. HE DREW OUR ATTENTION TO PG. NO. 9 OF THE WRITTEN SUBMISSIO NS FILED BY HIM TO DEMONSTRATE THAT THE WARRANTY PERIOD VARIES FROM P RODUCT TO PRODUCT AND HAS ALSO DRAWN OUR ATTENTION TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S ROTORK CONTROLS IN DIA (P) LTD. VS. CIT 314 ITR 62 AND ALSO IN THE CASE OF BHARAT EART H MOVERS REPORTED IN 245TR 428 WHEREIN IT HAS BEEN HELD THAT A BUSINE SS LIABILITY WHEN ARISES IN AN ACCOUNTING YEAR DEPENDING ON A PAST EV ENT IT MAY NOT BE CALLED AS A CONTINGENT LIABILITY AND IT HAS TO BE A LLOWED PROVIDED THE ASSESSEE ADOPTS REASONABLE METHOD FOR PROVIDING PRO VISION FOR WARRANTY. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE SINCE THE ITA NOS.185 186 & 187/B/10 5 ASSESSEE HAS BEEN FOLLOWING SCIENTIFIC METHOD IN MA KING THE PROVISION FOR THE WARRANTY THE SAME IS ALLOWABLE. HE ALSO HAS DRAWN OUR ATTENTION TO PAGE 6 OF THE CIT(A)S ORDER WHER EIN THE DETAILS OF THE PROVISION FOR WARRANTY FOR THE ASSESSMENT YEARS 2000-01 TO 2003- 04 AND ALSO THE ACTUAL EXPENSES INCURRED HAS BEEN R EPRODUCED. HE SUBMITTED THAT IN THE ASSESSMENT YEAR 2001-02 TO 20 02-03 IT IS CLEAR THAT THE ACTUAL EXPENSES INCURRED ARE NEARLY 30% TO 40% OF THE PROVISION MADE. THUS ACCORDING TO HIM THE PROVIS ION IS ON A REASONABLE BASIS. 7. THE LEARNED DR ON THE OTHER HAND SUBMITTED THAT THE ASSESSEE HAS NOT ADOPTED ANY SCIENTIFIC BASIS FOR MAKING PRO VISION FOR WARRANTY AND THERE IS NO EVIDENCE OF REVERSAL OF EXCESS PRO VISION MADE IN ANY PARTICULAR YEAR. HE PLACED RELIANCE UPON THE DECIS ION OF THE DELHI HIGH COURT IN THE CASE OF ERICSSON COMMUNICATIONS P VT. LTD. REPORTED IN 318 ITR 340 TO SUBMIT THAT ANY PROVISIO N FOR WARRANTY MADE WITHOUT ANY SCIENTIFIC BASIS IS NOT ALLOWABLE. 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THEIR RIVAL CONTENTIONS WE FIND THAT THE ASSESSEE IS SELLING I TS GOODS AND THE ITA NOS.185 186 & 187/B/10 6 WARRANTY PERIOD VARIES FROM PRODUCT TO PRODUCT. ON CE THE PRODUCT IS SOLD WITH A WARRANTY THE ASSESSEE HAS AN OBLIGATIO N TO FULFILL THE WARRANTY OBLIGATION AND HAS TO PROVIDE FOR THE SAME AND AS SEEN FROM THE FIGURES REPRODUCED BY THE CIT(A) AT PAGE 6 OF ITS ORDER THE ASSESSEE HAS IN FACT INCURRED CERTAIN EXPENDITURE F OR FULFILLING ITS OBLIGATION OF THE WARRANTY. THEREFORE IT CANNOT BE SAID THAT IN THE ASSESSEES PRODUCTS THERE ARE NEITHER ANY DEFECTS N OR THAT THEY ARISE NO OBLIGATION ON THE PART OF THE ASSESSEE DUE TO THE W ARRANTY PROVISIONS. ONCE IT IS ESTABLISHED THAT THE ASSESSEE HAS INCUR RED EXPENDITURE FOR DISCHARGING ITS LIABILITY TOWARDS A WARRANTY IT IS ALSO TO BE ACCEPTED THAT A PRUDENT BUSINESS MAN HAS TO PROVIDE FOR SUCH A WARRANTY. THEREFORE DEPENDING UPON THE PERIOD OF WARRANTY AND THE POSSIBLE DEFECTS IN THE GOODS AND ALSO ON THE BASIS OF PAST EXPERIENCE THE ASSESSEE WILL HAVE TO PROVIDE FOR WARRANTY OBLIGATI ON. IN THE CASE BEFORE US THE ASSESSEE HAS BEEN SELLING THE GOODS WITH WARRANTY AND HAS BEEN MAKING A PROVISION FOR WARRANTY AT 1% OF E LIGIBLE SALES OUT OF WHICH EVERY YEAR THE ASSESSEE HAS TO SPEND 30 TO 40 PERCENT. THIS METHOD OF MAKING THE PROVISION OF 1% OF THE ELIGIBL E SALES ON THE BASIS OF THE METHOD FOLLOWED BY IT WORLDWIDE CANNO T BE SAID TO BE AN AD -HOC METHOD OR NOT ON A SCIENTIFIC BASIS. THE HONB LE SUPREME COURT ITA NOS.185 186 & 187/B/10 7 IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD. HAS CONSIDERED THE PROVISION OF WARRANTY AT LENGTH AND HAS HELD THAT W HERE A RELIABLE ESTIMATE OF AN OBLIGATION IS MADE THE PROVISION FO R WARRANTY IS ALLOWABLE. SIMILAR VIEW HAVE BEEN EXPRESSED BY THE HONBLE DELHI HIGH COURT ALSO IN THE CASE OF ERICSSON COMMUNICATI ON PVT. LTD (CITED SUPRA). IN OUR OPINION THE DECISION OF THE HONBLE SUPREME COURT AND THAT OF THE DELHI HIGH COURT ARE VERY MUC H APPLICABLE TO THE FACTS OF THE CASE BEFORE US AND RESPECTFULLY FO LLOWING THE SAME WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 9. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF PROV ISION MADE BY THE ASSESSEE FOR OBSOLETE AND SLOW MOVING INVENTORY . 10. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE WAS ASKED TO PRODUCE THE DETAILS OF PROVISION MADE FOR OBSOLETE AND SLOW MOVING INVENTORY TO SUBSTANTIATE ITS CLAIM. THE ASSESSEE FILED A LETTER DATED 17.3.2005 STATING THAT THE SAID PROVISION HAS BEEN CREATED BASED ON COMPANIES INVENTORY POLICY FOR OBSOLETE AND SLOW MO VING STOCK TAKING INTO ACCOUNT INVENTORY AGING SCHEDULE OF TH E CONCERN. THE AO HELD THAT SUFFICIENT DETAILS HAVE NOT BEEN PRODUCED TO PROVE THAT THE ITA NOS.185 186 & 187/B/10 8 PROVISION IS MADE FOR AN ASCERTAINABLE LIABILITY. HE THEREFORE HELD IT TO BE CONTINGENT LIABILITY AND DISALLOWED THE SAME . 11. AGGRIEVED BY THIS THE ASSESSEE PREFERRED AN AP PEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO AND THE AS SESSEE IS IN SECOND APPEAL BEFORE US. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS FOLLOWING THE ACCOUNTING STANDARD NO.2 WHICH PRO VIDES FOR THE VALUATION OF THE INVENTORY AT STOCK OR MARKET PRIC ES WHICHEVER IS LOWER. HE SUBMITTED THAT PROVISION FOR OBSOLETE A ND SLOW MOVING STOCK WAS MADE ON A SCIENTIFIC BASIS BASED ON INVEN TORY AGING SCHEDULE AND THAT PROVISION WHICH HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT FOR THE CURRENT YEAR IS THE DIFFERENCE BETWEEN THE CLOSING PROVISION COMPUTED FOR THE CURRENT YEAR AND THE CLO SING PROVISION FOR THE IMMEDIATELY PRECEDING YEAR. IN SUPPORT OF ITS CONTENTION THAT WHERE THE PROVISION IS MADE ON A SCIENTIFIC BASIS I T HAS TO BE ALLOWED HE PLACED RELIANCE UPON THE FOLLOWING DECISIONS : 1. CHAINRUP SAMPATRAM VS. CIT 24 ITR 481 ITA NOS.185 186 & 187/B/10 9 2. INVESTMENT LTD VS. CIT 77 ITR 533 3. BRITISH PAINTS INDIA LTD. VS. CIT 188 ITR 44 4. CIT VS. UCO BANK 200 ITR 68 13. HE ALSO DREW OUR ATTENTION TO PAGE 11 OF THE WR ITTEN SUBMISSIONS SHOWING THE POLICY OF THE COMPANY IN MA KING THE INVENTORY PROVISION. 14. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE H AS NOT FURNISHED ANY EVIDENCE BEFORE THE CIT(A) IN SUPPORT OF ITS CO NTENTION THAT THE BASIS FOR MAKING THE PROVISION IS SCIENTIFIC. HE DREW OUR ATTENTION TO THE CIT(A)S FINDING THAT THE ASSESSEE HAS ONLY PUT FORWARD THE LEGAL ARGUMENT AND NO FACTUAL DETAILS HAVE BEEN PROVIDED IN SUPPORT OF ITS CONTENTION. THUS ACCORDING TO HIM THE EVIDENCE FI LED BY THE ASSESSEE BEFORE US IS ADDITIONAL AND FRESH EVIDENCE AND THE SAME CANNOT BE CONSIDERED. 15. IN THE REJOINDER THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT ALL THESE ARE EVIDENCES FILED BEFORE THE AUTHO RITIES BELOW AND HE ITA NOS.185 186 & 187/B/10 10 DREW OUR ATTENTION TO THE ASSESSEES LETTER DATED 2 2.3.2006 ADDRESSED TO THE AO AND PARA D THEREON EXPLAINING THE METHOD OF PROVIDING FOR THE PROVISION AND ALSO ANNEX 2 2A 2D ANX. THERETO . HE SUBMITTED THAT THE ASSESSEE HAS FILED ALL THE DETAILS BUT THE AUTHORITIES HAVE NOT CONSIDERED THE SAME. 16. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS WE FIND THAT THE ASSESSMENT ORDER IS D ATED 31.3.2005 AND THE ORDER OF THE CIT(A) IS DATED 22.11.2009 WHILE T HE LETTER OF THE ASSESSEE IS DATED 22.3.2006. THUS IT IS CLEAR THA T THE LETTER FILED BY THE ASSESSEE IS AFTER CONCLUSION OF THE ASSESSMENT PROC EEDINGS AND THEREFORE THEY HAVE NOT BEEN TAKEN INTO ACCOUNT BY THE ASSESSING AUTHORITY AND ALSO SINCE THESE DOCUMENTS HAVE BEEN FILED AFTER THE CONCLUSION OF THE ASSESSMENT PROCEEDINGS THEY MIGH T NOT HAVE BEEN TAKEN ON RECORD AND CONSIDERED BY THE CIT(A) ALSO. THEREFORE WE HAVE TO DEAL THE EVIDENCE AS ADDITIONAL EVIDENCE A S THE ADJUDICATION OF THE ISSUE IS DEPENDENT UPON THE ASSESSEES SUBMI SSIONS AND THIS ADDITIONAL EVIDENCE. IN THE INTEREST OF JUSTICE WE DEEM IT FIT AND PROPER TO REMIT THE ISSUE TO THE FILE OF THE ASSESS ING AUTHORITY TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW AFTER T AKING INTO ACCOUNT ITA NOS.185 186 & 187/B/10 11 THE EVIDENCE FILED BY THE ASSESSEE AND ALSO THE LEG AL PRECEDENTS ON THE ISSUE. THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 17. THE GROUND NO.4 RELATES TO THE DEDUCTION U/S 10 A OF THE INCOME-TAX ACT. 18. WHILE MAKING DEDUCTION U/S 10A THE ASSESSING O FFICER REDUCED THE TELECOMMUNICATION EXPENSES FROM THE EXP ORT TURNOVER BUT RETAINED THE SAME IN THE TOTAL TURNOVER. 19. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE CHEN NAI SPECIAL BENCH IN THE CASE OF SAK SOFT LTD. 313 ITR 353 (AT) AND HE SUBMITTED THAT THE CIT(A) WAS NOT RIGHT IN DISTINGUISHING THE SAID DECISION WITHOUT ANY BASIS. 20. THE LEARNED DR HOWEVER SUPPORTED THE ORDERS OF THE CIT(A). ITA NOS.185 186 & 187/B/10 12 21. HAVING HEARD BOTH THE PARTIES WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CHENNAI SPECIAL BENC H IN THE CASE OF SAK SOFT LTD. CITED SUPRA WHEREIN IT HAS BEEN HEL D IF TELECOMMUNICATION EXPENSES ARE TO BE REDUCED FROM T HE EXPORT TURNOVER THE SAME ARE TO BE EXCLUDED FROM THE TOTA L TURNOVER ALSO. THEREFORE THIS GROUND OF APPEAL IS ALLOWED AND AO IS DIRECTED TO REDUCE THE SAME FROM TOTAL TURNOVER ALSO. 22. IN THE RESULT THE ASSESSEES APPEAL FOR THE AS SESSMENT YEAR 2002-03 IS ALLOWED. ITA NO.186/BANG/2010 23. GROUND NO. 2 IS SAME AS IN THE ASSESSMENT YEAR 2002-03 AND AS PER THE DETAILED REASONS THEREIN THIS GROUN D OF APPEAL IS ALSO ALLOWED. 24. GROUND NO. 4 IS SAME AS GROUND NO.3 FOR THE ASS ESSMENT YEAR 2002-03 AND FOR THE DETAILED REASONS GIVEN THEREIN THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.185 186 & 187/B/10 13 25. GROUND NO. 5 IS SAME AS GROUND NO.4 FOR THE ASS ESSMENT YEAR 2002-03 AND FOR THE DETAILED REASONS GIVEN THEREIN THIS GROUND OF APPEAL IS ALSO ALLOWED. 26. THE GROUND NO.3 RELATES TO DISALLOWANCE OF SOFT WARE EXPENDITURE. 27. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD PURCHASED SOFTWARE DURING THE PREVIOUS YEAR REL EVANT TO THE ASSESSMENT YEAR 2002-03 AND CLAIMED THE SAME. THE ASSESSING OFFICER HOWEVER ALLOWED 1/3 RD OF THE SAME FOR THE ASSESSMENT YEAR 2002-03 AND 1/3 RD FOR THE ASSESSMENT YEAR 2003-04. THE CIT(A) HOWEVER ERRONEOUSLY CONFIRMED THE ADDITION MADE BY THE AO AND DISALLOWED THE SOFTWARE EXPENSES WITHOUT CONSIDERIN G THE FACT THAT THE AO HAS ALLOWED 1/3RD OF EXPENDITURE. AGGRIEVED BY THIS THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 28. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS WE FIND THAT THE ASSESSING OFFICER HAS ALREADY ALLOWED ITA NOS.185 186 & 187/B/10 14 1/3 RD OF THE EXPENSES DURING THE RELEVANT ASSESSMENT YEA R AND THE ASSESSEE HAS NO GRIEVANCE AGAINST THE SAME. THEREF ORE THIS GROUND NEEDS NO ADJUDICATION. 29. IN THE RESULT THE APPEAL FOR THE ASSESSMENT YE AR 2003-04 IS ALSO ALLOWED. ITA NO.187/BANG/2010 30. THE GROUND NO. 2 RELATES TO DISALLOWANCE OF PRO VISION FOR WARRANTY TO THE EXTENT OF RS.19 616 088/-. 31. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE CIT(A) DISALLOWED THE CLAIM OF PROVISION FOR WARRAN TY FOR THE ASSESSMENT YEAR 2002-03 AND 2003-04 BUT HE FAILED T O GIVE ANY DIRECTION TO THE ASSESSING OFFICER TO GRANT THE ASS ESSEE THE ALLOWANCE OF PROVISION FOR WARRANTY ON THE BASIS OF UTILIZATI ON FOR THE ASSESSMENT YEAR 2004-05. WE FIND THAT THE CIT(A) HAS NOT ADJU DICATED THE ISSUE FOR THE ASSESSMENT YEAR 2004-05. THEREFORE THIS G ROUND OF APPEAL IS ITA NOS.185 186 & 187/B/10 15 SET ASIDE TO THE FILE OF THE CIT(A) TO CONSIDER THE SAME AND GIVE APPROPRIATE DIRECTION TO THE ASSESSING AUTHORITY. 32. THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. 33. GROUND NO.3 RELATES TO THE CLAIM OF THE ASSESSE E FOR SOFTWARE EXPENDITURE. 34. FOR THE ASSESSMENT YEAR 2002-03 ONLY 1/3 RD OF THE SOFTWARE EXPENSES HAS BEEN ALLOWED BY THE ASSESSING AUTHORIT Y FOR THE ASSESSMENT YEAR 2002-03 AND ANOTHER FOR THE ASSESSM ENT YEAR 2003- 04. BUT HE FAILED TO ALLOW THE SAME FOR THE ASSESS MENT YEAR 2004-05. 35. THE ASSESSEE PRAYED THAT DIRECTION MAY BE GIVE N TO THE AO TO ALLOW THE SAME FOR THE RELEVANT ASSESSMENT YEAR ALS O. 36. THE LEARNED DR HOWEVER OPPOSED THE SAME STATIN G THAT THE ASSESSEE SHOULD HAVE FILED AN APPLICATION U/S 154 B EFORE THE ASSESSING AUTHORITY AND CANNOT MAKE A CLAIM BEFORE THE TRIBUN AL. ITA NOS.185 186 & 187/B/10 16 37. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS WE FIND THAT FOR THE ASSESSMENT YEARS 2002-03 & 2003-04 THE ASSESSING OFFICER HAS TAKEN A STAND THAT THE SO FTWARE EXPENDITURE IS TO BE ALLOWED 1/3RD IN EACH OF THE YEARS. HE HA S ALLOWED THE SAME FOR THESE ASSESSMENT YEARS AND MUST HAVE ALSO ALLOW ED THE SAME FOR THE ASSESSMENT YEAR 2004-05 ALSO. WE THEREFORE D IRECT THE AO TO RECONSIDER THE ISSUE AND AFTER DUE VERIFICATION ALL OW THE SAME IF IT IS NOT ALLOWED. 38. THIS GROUND IS ALSO ALLOWED FOR STATISTICAL PUR POSES. 39. GROUND NO.4 RELATES TO THE SAME AS GROUND NO.3 FOR THE ASSESSMENT YEAR 2002-03. FOR THE DETAILED REASONS G IVEN THEREIN THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S. 40. GROUND NO.5 HAS TWO PARTS ONE IS DEDUCTION OF TELECOMMUNICATION CHARGES FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A AND NOT REDUCIN G THE SAME FROM THE TOTAL TURNOVER AND SECOND IS OF REDUCING FREIG HT EXPENSES FROM THE ITA NOS.185 186 & 187/B/10 17 EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION U/S 10B OF THE INCOME-TAX ACT. 41. AS REGARDS THE ISSUE OF TELECOMMUNICATION CHARG ES BEING REDUCED FROM THE EXPORT TURNOVER AND NOT REDUCED FR OM TOTAL TURNOVER FOR THE PURPOSES OF DEDUCTION U/S 10A OF THE INCOME -TAX WE FIND THAT IT IS COVERED BY THE DECISION OF THE HONBLE CHENN AI SPECIAL BENCH IN THE CASE OF SAK SOFT LTD. 313 ITR 353 (AT) AND IT IS ACCORDINGLY ALLOWED. 42. AS REGARDS THE ISSUE OF EXCLUSION OF FREIGHT EX PENSES FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10B I S CONCERNED THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEES GOODS ARE ALL SOLD FREE ON BOARD AND THE EXPORT TURNOVER DOES NOT INCLUDE IN THE FREIGHT CHARGES. THEREFORE ACCORDING TO HIM THEY ARE NOT INCLUDED IN BOTH EXPORT TURNOVER AND TOTAL TURNOVER AND NEED NOT BE REDUCED FROM THE SAME. 43. THE LEARNED DR HOWEVER SUBMITTED THAT THIS FACT NEEDS VERIFICATION BY THE ASSESSING AUTHORITY. ITA NOS.185 186 & 187/B/10 18 44. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE MATERIAL ON RECORD WE DEEM IT FIT AND PROPER TO RE MIT THIS ISSUE TO THE FILE OF THE ASSESSING AUTHORITY WITH A DIRECTION TO VERIFY IF THE FREIGHT CHARGES ARE INCLUDED IN THE EXPORT TURNOVER AS WELL AS IN THE TOTAL TURNOVER AND IF THEY ARE NOT INCLUDED THEN THEY CA NNOT BE REDUCED WHILE COMPUTING THE DEDUCTION U/S 10B OF THE INCOME -TAX ACT. THE AO IS DIRECTED TO DECIDE THE SAME AFTER VERIFICATIO N OF THE ABOVE FACTS IN ACCORDANCE WITH LAW AND IN ACCORDANCE WITH THE D ECISION OF HONBLE CHENNAI SPECIAL BENCH IN THE CASE OF SAK SO FT LTD. 313 ITR 353 (AT). 45. IN THE RESULT THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15TH JUL 2011. SD/- SD/- (N BARADHVAJA SANKAR) (P MADHAVI DEVI) VICE PRESIDENT JUDICIAL MEMBER VMS. BANGALORE DATED : 15/07/2011 ITA NOS.185 186 & 187/B/10 19 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR I TAT BANGALORE.