DCIT CIR 3(1), MUMBAI v. AGILISYS I.T. SERVICES P. LTD ( FORMERLY KNOWN AS NET DECISIONS P. LTD), MUMBAI

ITA 2226/MUM/2011 | 2003-2004
Pronouncement Date: 28-04-2015 | Result: Dismissed

Appeal Details

RSA Number 222619914 RSA 2011
Assessee PAN AABCN0192Q
Bench Mumbai
Appeal Number ITA 2226/MUM/2011
Duration Of Justice 4 year(s) 1 month(s) 11 day(s)
Appellant DCIT CIR 3(1), MUMBAI
Respondent AGILISYS I.T. SERVICES P. LTD ( FORMERLY KNOWN AS NET DECISIONS P. LTD), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-04-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted K
Tribunal Order Date 29-04-2015
Date Of Final Hearing 16-04-2015
Next Hearing Date 16-04-2015
Assessment Year 2003-2004
Appeal Filed On 18-03-2011
Judgment Text
K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH MUMBAI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI N.K. BILLAIYA AM ./ I.T.A. NO.2113 /MUM/2011 ( / ASSESSMENT YEAR : 2003-2004 M/S AGILISYS IT SERVICES INDIA PVT. LTD. (FORMERLY KNOWN AS NETDECISIONS PVT. LTD. ) 201-202 WINDFALL SAHAR PLAZA COMPLEX J.B. NAGAR M.V. ROAD ANDHERI (E) MUMBAI - 59. / VS. INCOME TAX OFFICER - WARD 9(2)3 2 ND FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI- 20. ./ PAN : AABCN 0192Q ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.2226 /MUM/2011 ( / ASSESSMENT YEAR : 2003-2004 INCOME TAX OFFICER - WARD 9(2)3 2 ND FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI- 20. / VS. M/S AGILISYS IT SERVICES INDIA PVT. LTD. (FORMERLY KNOWN AS NETDECISIONS PVT. LTD. ) 201-202 WINDFALL SAHAR PLAZA COMPLEX J.B. NAGAR M.V. ROAD ANDHERI (E) MUMBAI - 59. ./ PAN : AABCN 0192Q ( / APPELLANT ) .. ( / RESPONDENT ) ITA 2113/M/11 ITA 2226/M/11 & C.O. 89/MUM/2011 2 /C.O. NO. 89/MUM/20 11 ARISING OUT OF ITA NO. 2226/MUM/2011 M/S AGILISYS IT SERVICES INDIA PVT. LTD. (FORMERLY KNOWN AS NETDECISIONS PVT. LTD. ) 201-202 WINDFALL SAHAR PLAZA COMPLEX J.B. NAGAR M.V. ROAD ANDHERI (E) MUMBAI - 59. / VS. INCOME TAX OFFICER - WARD 9(2)3 2 ND FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI- 20. ./ PAN : AABCN 0192Q ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI YOGESH A THAR REVENUE BY SHRI N.K. CHAND . /01 2 34 / DATE OF HEARING : 16-4-2015 5678 2 34 / DATE OF PRONOUNCEMENT : 29-4-2015 [ 9: / O R D E R PER BENCH . : ITA NO. 2113/M/11 AND ITA NO. 2226/M/11 ARE CROSS A PPEALS BY THE ASSESSEE AND REVENUE RESPECTIVELY AGAINST THE VERY SAME ORDER OF THE LD. CIT(A) VISAKHAPATNAM DATED 12-1-2011 PERTAINING TO ASSESSMENT YEAR 2003- 04. THE C.O. NO.89/M/ IS FILED BY THE ASSESSEE. FIRST WE SHALL TAKE UP ITA NO. 2113/M/11 FILED BY T HE ASSESSEE. 2. GROUND NO. 1 RELATES TO ENLARGEMENT OF THE SCOPE OF THE ORDER PASSED BY THE CIT - 1UNDER SECTION 263 OF THE INCOME TAX ACT 1961. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND EXPORT OF SOFT WARE AND IS A REGISTERED 100% EOU WITH THE DEVELOPMENT COMMISSIONER VSEZ VI SAKHAPATNAM. THE ITA 2113/M/11 ITA 2226/M/11 & C.O. 89/MUM/2011 3 RETURN FOR THE YEAR WAS FILED ON 24-11-2003 WHEREIN THE ASSESSEE CLAIMED EXEMPTION U/S 10B OF THE ACT. THE ASSESSMENT WAS C OMPLETED U/S 143(3) OF THE ACT ON 29-3-2006. THE CIT -1 VISAKHAPATNAM VI DE HIS ORDER U/S 263 OF THE ACT NOTICED FROM THE COMPUTATION OF INCOME THAT AN AMOUNT OF RS. 4 09 45 804/- WAS ADDED TO THE TAXABLE INCOME TOWAR DS TRANSFER PRICING ADJUSTMENT. AS PER THE PROVISIONS OF SECTION 10B(3 ) OF THE ACT THE DEDUCTION IS ALLOWED ON THE SALE PROCEEDS THAT ARE BROUGHT TO INDIA IN CONVERTIBLE FOREIGN EXCHANGE. AS THE INCREASED PROFIT OF RS. 4 09 45 80 4/- ADDED ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT WAS NOT BROUGHT INTO IN DIA THE CIT-1 VISHAKHAPATNAM HELD THAT THE ORDER U/S 143(3) OF TH E ACT DTD. 29-3-2006 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF RE VENUE. THE CIT-1 FURTHER NOTICED THAT THE EXPORT TURNOVER WAS TO THE TUNE OF RS. 6.56 CRORES THEREFORE THE A.O. SHOULD HAVE REFERRED THE MATTER TO THE TRA NSFER PRICING OFFICER (TPO) FOR THE DETERMINATION OF ARMS LENGTH PRICE AS PER INSTRUCTION NO. 3 OF CBDT DATED 20-5-2003. THE CIT -1 ACCORDINGLY DIRECTED TH E A.O. TO REFER THE QUESTION OF DETERMINATION OF TRANSFER PRICING TO TH E TPO AND FINALISE THE ASSESSMENT DE NOVO. 4. PURSUANT TO THE DIRECTION OF THE CIT -1 U/S 263 OF THE ACT THE A.O. PROCEEDED BY ISSUE OF NOTICE U/S 143(2) OF THE ACT. THE MATTER WAS REFERRED TO THE TPO AND AFTER CONSIDERING THE FACTS AND DETAIL SUBMISSION OF THE ASSESSEE THE A.O. FINALLY COMPUTED THE INCOME AS UNDER:- TOTAL SALES AS SHOWN IN ROI : RS.6 27 75 153/- LESS: W/W THE FOREIGN EXCHANGE NOT REALIZED : RS. 4 09 45 804/- ELIGIBLE SALES TURNOVER FOR THE PURPOSE OF EXEMPTION U/S 10B : RS.2 18 29 348/- PROFIT AS PER PROFIT & LOSS ACCOUNT : RS.4 68 57 438/- ADD: DEPRECIATION AS PER BOOKS CONSIDERED SEPARATELY : RS. 47 85 741/- : RS.5 16 43 179/- LESS: DEPRECIATION AS PER I.T. ACT : RS. 72 18 482/- : RS.4 44 24 697/- ADD: DISALLOWANCE MADE BY THE ASSESSEE IN ITA 2113/M/11 ITA 2226/M/11 & C.O. 89/MUM/2011 4 STATEMENT OF COMPUTATION OF INCOME : RS. 26 49 333/- RS.4 70 74 030/- LESS: EXPENSES/ALLOWANCES CLAIMED BY THE ASSESEE AS DEDUCTION : RS . 61 33 648/- TOTAL INCOME BEFORE EXEMPTION U/S 10B RS.4 09 40 382/- ELIGIBLE PROFIT U/S 10B= 4 09 40 382 X 2 18 29 34 8 6 27 75 153 EXEMPTION U/S 10B WORKS OUT = RS. 1 42 36 553/- TAXABLE INCOME AFTER ALLOWING EXEMPTION 10B (RS.4 09 40 382 RS. 1 42 36 553 : RS. 2 67 03 829/- TAX THEREON : RS. 93 46 340/- ADD: SURCHARGE @ 5% : RS. 4 67 317/- : RS. 98 13 657/- ADD: INTEREST U/S 234B : RS. 44 16 146/- TOTAL REFUNDABLE : RS. 1 42 29 803/- 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BY STRONGLY SUBMITTING THAT THE A.O. HAS ENLARGED THE SCOPE OF THE ORDER PASSED BY THE CIT-1 U/S 263 OF THE ACT. AFTER CONSIDERING THE FAC TS AND THE SUBMISSION AND THE ORDER PASSED BY THE CIT-1 U/S 263 OF THE ACT T HE LD. CIT(A) AT PARA 6.1 OF HIS ORDER HELD AS UNDER:- AFTER CONSIDERING THE LEARNED AUTHORIZED REPRESENTA TIVE AND ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO THE ISSUE I T MAY BE STATED THAT THERE IS SUBSTANTIAL FORCE IN THE CONTENTION OF THE APPEL LANT THAT THE ASSESSING OFFICER OUGHT NOT TO HAVE TOUCHED UPON ISSUES THAT WERE NOT DIRECTED BY THE COMMISSIONER IN THE PROCEEDINGS U/S 263 OF THE ACT. HOWEVER IT NEEDS TO BE STATED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) BEING THE FIRST APPELLATE AUTHORITY HIS POWERS UNDER THE ACT ARE COTERMINOUS WITH THAT OF THE ASSESSING OFFICER AND FURTHER HE IS VESTED WITH PLENARY POWERS DO WHAT AN ASSESSING OFFICER CAN DO AS WELL DO THAT AN ASSESSING OFFICER HAS FAILED TO DO IN ACCORDANCE WITH LAW. S INCE A DECISION HAS BEEN RENDERED TO THE EFFECT THAT THE EXPENDITURE IN CURRED AT MUMBAI ON RESEARCH AND DEVELOPMENT HAS A DIRECT NEXUS WITH TH E EXPORT BUSINESS OF THE APPELLANT AT VIZAG AND SUCH EXPENDITURE MUST H AVE TO BE TREATED AS ITA 2113/M/11 ITA 2226/M/11 & C.O. 89/MUM/2011 5 AN INTEGRAL REVENUE EXPENDITURE OF THE APPELLANTS EXPORT BUSINESS THE GROUNDS RELATING TO THIS ISSUE HAVE BEEN RENDERED R EDUNDANT AND OTIOSE. AGGRIEVED BY THIS THE ASSESSEE IS BEFORE US. 6. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT THE LD. CIT(A) HAS ADMITTED THAT THE A.O. HAS TRAVE LLED BEYOND THE SCOPE OF THE DIRECTIONS ISSUED BY THE CIT-1 U/S 263 OF THE ACT Y ET THE LD. CIT(A) CONFIRMED THE ASSESSMENT ORDER THEREFORE THE ORDER OF THE L D. CIT(A) IS ERRONEOUS. IN SUPPORT OF HIS CONTENTION THE LD. COUNSEL HAS RELI ED UPON THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF GEOMETRIC SOFTWARE S OLUTIONS CO. LTD. VS. ACIT [2009] 32 SOT 428 DELHI TRIBUNAL ORDER IN TH E CASE OF MAXPAK INVESTMENT LTD. VS. ACIT [2007] 13 SOT 67 AND KOL KATA TRIBUNAL IN THE CASE OF VESUVIUS INDIA LTD. VS. CIT [2012] 54 SOT 172. 6. THE LD. DR COULD NOT BRING ANY DISTINGUISHING DE CISION IN FAVOUR OF THE REVENUE. 7. WE HAVE CAREFULLY PERUSED THE ORDER OF THE AUTHO RITIES BELOW AND THE JUDICIAL DECISIONS BROUGHT TO OUR NOTICE. ADMITTED LY IN THIS CASE THE ORIGINAL ASSESSMENT WAS SET ASIDE BY THE CIT -1 VIDE HIS ORD ER DATED 27-9-2007. WE HAVE CAREFULLY GONE THROUGH THE DIRECTIONS ISSUED B Y THE CIT-1 THIS ORDER OF THE CIT-1 WAS CONFIRMED BY THE TRIBUNAL IN ITA NO. 468/VIZAG/07 DATED 11-12-2013. THERE IS NO DISPUTE THAT THE CIT-1 HAS ISSUED DIRECTIONS FIRSTLY IN RESPECT OF THE CLAIM OF DEDUCTION U/S 10B OF THE ACT KEEPING IN MIND THE PROVISIONS OF SECTION 10B(3) OF THE ACT AND SUBSEQU ENTLY THE CIT -1 DIRECTED THE A.O. TO REFER THE MATTER TO THE TPO. CONSIDERIN G THE ASSESSMENT ORDER MADE BY THE A.O. PURSUANT TO THE DIRECTIONS OF THE CIT-1 U/S 263 OF THE ACT WE HAVE NO HESITATION TO HOLD THAT THE A.O. HAS ENL ARGED THE SCOPE OF THE ORDER OF THE CIT-1. THE OBSERVATION OF THE LD. CIT( A) THAT THE POWER OF THE ITA 2113/M/11 ITA 2226/M/11 & C.O. 89/MUM/2011 6 CIT(A) ARE PLENARY POWER AND THE CIT(A) CAN DO WHAT THE A.O. CAN DO IS MISPLACED FOR THE SIMPLE REASON THAT THE CIT(A) CAN NOT DO WHAT THE A.O. CANNOT DO. IN THE CASE IN HAND THE A.O. CANNOT ENL ARGE THE SCOPE OF THE DIRECTIONS OF THE CIT ISSUED U/S 263 OF THE ACT TH EREFORE THE CIT(A) ALSO CANNOT ENLARGE THE SAME. WE ACCORDINGLY SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND ALLOW GROUND NO. 1 OF THIS APPEAL. 8. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF DEDU CTION U/S 10B IN RESPECT OF THE ADDITION SUO MOTU MADE BY THE ASSESS EE U/S 92-C OF THE ACT. 9. WHILE SCRUTINIZING THE RETURN OF INCOME THE A.O . NOTICED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS MADE EXPORT TURNOVER OF RS. 6 27 75 153/- AND DERIVED NET PROFIT OF RS. 4 69 58 722/- FROM STPI UNIT. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS ADM ITTED TOTAL INCOME OF RS. 9 63 989/- WHICH WAS SET OFF AGAINST BROUGHT FORWAR D LOSSES. THE TOTAL INCOME BEFORE EXEMPTION U/S 10B OF THE ACT AMOUNTING TO RS . 50 26 347/- WAS CLAIMED. THE A.O. FURTHER NOTICED THAT THE ASSESSEE ITSELF HAS ADMITTED THAT FOREIGN EXCHANGE TO THE TUNE OF RS. 4 09 45 804/- W AS NOT REALIZED IN INDIA WITHIN SIX MONTHS THEREFORE AS PER THE PROVISIONS OF SECTION 10B(3) OF THE ACT THE ASSESSEE WAS NOT ENTITLED FOR THE EXEMPTION. TH E ASSESSEE WAS ASKED TO EXPLAIN ITS CLAIM. THE ASSESSEE VIDE ITS LETTER DAT ED 13-11-2009 STATED THAT ALL THE EXPORT TURNOVER REPORTED IN THE BOOKS HAVE BEEN RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE WITHIN THE STIPULATED TIME THEREF ORE THE CLAIM OF EXEMPTION SHOULD BE ALLOWED. THIS SUBMISSION OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE A.O. WHO WAS OF THE FIRM BELIEF THAT THE INCREA SED PROFIT OF RS. 4 09 45 804/- ON ACCOUNT OF TRANSFER PRICING ADJUST MENT WAS NOT BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHAN GE THEREFORE DEDUCTION U/S 10B HAS TO BE RECALCULATED AFTER EXCLUDING THE AMOU NT OF RS. 4 09 45 804/-. THE ASSESSEE CARRIED THIS MATTER BEFORE THE LD. CIT (A) BUT WITHOUT ANY SUCCESS. ITA 2113/M/11 ITA 2226/M/11 & C.O. 89/MUM/2011 7 10. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY SUBMITTED THAT THE PROVISIONS OF SECTION 92-C(4) WOULD COME INTO O PERATION ONLY WHEN THE ENHANCEMENT OF EXPORT INCOME TAKES PLACE CONSEQUENT TO DETERMINATION OF THE ARMS LENGTH PRICE BY THE A.O. U/S 92-C(3) OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT IN THIS CASE THE ASSESSEE HIMSELF HAS MADE TRANSFER PRICING ADJUSTMENT. OUR ATTENTION WAS DRAWN TO PAGE 36 & 37 OF THE PAPER BOOK. THE TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSEE WAS ACCEPTED IN TOTO BY THE TPO THEREFORE IT CANNOT BE SAID THAT TH ERE HAS BEEN ENHANCEMENT. REFERRING TO THE PROVISO TO SECTION 92-C OF THE ACT THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE PROVISO REFERS TO THE SITU ATION WHERE THE AMOUNT OF INCOME HAS BEEN ENHANCED AFTER COMPUTATION OF INCOM E. IN SUCH SITUATION THERE SHALL BE NO DEDUCTION U/S 10B OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT IN THE CASE IN HAND THERE IS N O ENHANCEMENT MADE THEREFORE THERE IS NO QUESTION OF DENYING DEDUCTIO N U/S 10B OF THE ACT. TO SUBSTANTIATE HIS CLAIM THE LD. COUNSEL FOR THE ASS ESSEE RELIED UPON THE DECISION OF THE BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF I GATE GLOBAL SOLUTIONS LTD. VS. ACIT IN ITA NO. 248 & 249(BANG) OF 2007 ORDER DATED NOVEMBER 27 2007. 11. PER CONTRA THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE AUTHORITIES BELOW. IN ADDITION THE LD. D.R. RELIED UPON THE DECISION OF THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF DELOIT TE CONSULTING INDIA (P.) LTD. VS. DCIT [2012] 22 TAXMANN.COM 107 (MUMBAI) AN D DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. BECHTEL INDIA (P.) LTD. [2013] 29 TAXMANN.COM 376 (DELHI). 12. WE HAVE HEARD THE RIVAL SUBMISSION AND CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDICIAL DECISIONS RE LIED UPON BY BOTH THE SIDES. WHILE COMPUTING THE INCOME FOR THE YEAR UNDER CONSI DERATION THE ASSESSEE ITA 2113/M/11 ITA 2226/M/11 & C.O. 89/MUM/2011 8 HAS ADDED RS. 4 09 45 804/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT AS PER TRANSFER PRICING AUDIT RETURN ANNE. B FORM 3CEB. U NDISPUTEDLY THIS TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSEE WAS ACCEPTE D BY THE TPO. THE ISSUE BEFORE US IS TO DECIDE WHETHER THIS CONSTITUTES TO ENHANCEMENT OF INCOME WHEREBY THE CLAIM OF DEDUCTION U/S 10B OF THE ACT C AN BE DENIED TO THE ASSESSEE AS PER THE PROVISO TO SECTION 92-C OF THE ACT. THE PROVISO TO SECTION 92-C READ AS UNDER:- PROVIDED THAT NO DEDUCTION UNDER SECTION 10A OR SEC TION 10AA OR SECTION 10B OR UNDER CHAPTER VI-A SHALL BE ALLOWED IN RESPECT O F THE AMOUNT OF INCOME BY WHICH THE TOTAL INCOME OF THE ASSESSEE IS ENHANCED AFTER COMPUTATION OF INCOME UNDER THIS SUB-SECTION. SECTION 92-C(3) READ AS UNDER:- 92C. (3) WHERE DURING THE COURSE OF ANY PROCEEDING FOR THE ASSESSMENT OF INCOME THE ASSESSING OFFICER IS ON THE BASIS OF M ATERIAL OR INFORMATION OR DOCUMENT IN HIS POSSESSION OF THE OPINION THAT (A) THE PRICE CHARGED OR PAID IN AN INTERNATIONAL T RANSACTION OR SPECIFIED DOMESTIC TRANSACTION] HAS NOT BEEN DETERMINED IN AC CORDANCE WITH SUB- SECTIONS (1) AND (2); OR (B) ANY INFORMATION AND DOCUMENT RELATING TO AN INT ERNATIONAL TRANSACTION OR SPECIFIED DOMESTIC TRANSACTION] HAVE NOT BEEN KEPT AND MAINTAINED BY THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS CONTAINE D IN SUB-SECTION (1) OF SECTION 92D AND THE RULES MADE IN THIS BEHALF; OR (C) THE INFORMATION OR DATA USED IN COMPUTATION OF THE ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT; OR (D) THE ASSESSEE HAS FAILED TO FURNISH WITHIN THE SPECIFIED TIME ANY INFORMATION OR DOCUMENT WHICH HE WAS REQUIRED TO FURNISH BY A N OTICE ISSUED UNDER SUB- SECTION (3) OF SECTION 92D THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION OR S PECIFIED DOMESTIC TRANSACTION IN ACCORDANCE WITH SUB-SECTIONS (1) AND (2) ON THE BA SIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM: PROVIDED THAT AN OPPORTUNITY SHALL BE GIVEN BY THE ASSESSIN G OFFICER BY SERVING A NOTICE CALLING UPON THE ASSESSEE TO SHOW CAUSE O N A DATE AND TIME TO BE SPECIFIED IN THE NOTICE WHY THE ARMS LENGTH PRICE SHOULD NOT BE SO DETERMINED ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN THE POSSESSION OF THE ASSESSING OFFICER. ITA 2113/M/11 ITA 2226/M/11 & C.O. 89/MUM/2011 9 13. UNDOUBTEDLY THE EMPHASIS IS ON THE ENHANCEMENT OF THE TOTAL INCOME BY WAY OF TRANSFER PRICING ADJUSTMENT. THE ACT IS S ILENT IN RESPECT OF THE SUO MOTO ADJUSTMENT MADE BY THE ASSESSE AS DONE IN THE CASE IN HAND. IF SECTION 92-C OF THE ACT IS READ IN ISOLATION TO OTHER PROVI SIONS OF THE ACT THERE WOULD BE NO DIFFICULTY IN INTERPRETING THE WORD ENHANCE AS DONE BY THE BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF I GATE GLOBAL SOLUTIONS LTD. (SUPRA). HOWEVER IN THE PRESENT CASE WE HAVE TO READ THESE P ROVISIONS IN CONSONANCE WITH THE PROVISIONS OF SECTION 10B OF THE ACT. SECT ION 10B OF THE ACT IS A SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED 1 00% EOU WHEREIN A DEDUCTION IS ALLOWED TO 100% EOU FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE A SSESSMENT YEARS. SECTION 10-B(3) IS RELEVANT AND WHICH READ AS UNDER:- THIS SECTION APPLIES TO THE UNDERTAKING IF THE SAL E PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA ARE RECE IVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE WI THIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR WITHIN SUCH FU RTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. 14. THUS THE LEGISLATIVE INTENTION IS CLEAR TO GIVE INCENTIVE TO 100% EXPORT ORIENTED UNIT BUT AT THE SAME TIME EXPECTING SUCH E OU TO BRING THE SALE PROCEEDS IN THE CONVERTIBLE FOREIGN EXCHANGE IN IND IA WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR. THUS THE TAX HOLIDAY IS EXTENDED ONLY WHEN THE MONEY IS BROUGHT INTO INDIA IN CONVER TIBLE FOREIGN EXCHANGE. EXPORT IS BOOSTED AND AT THE SAME TIME THE FOREIGN EXCHANGE COFFERE IS FILLED. 15. COMING BACK TO THE CONDUCT OF THE ASSESSEE THE RE IS NO DOUBT THAT THE ASSESSEE HAS SUO MOTO MADE TRANSFER PRICING ADJUSTM ENT. AT THIS POINT ASSUMING THAT THERE IS NO ENHANCEMENT BY THE TPO AN D THE ASSESSEE IS ALLOWED THE BENEFIT OF SECTION 10B OF THE ACT THEN EVERY TAX PAYER WILL FIRST UNDER-PRICE ITS SALE WITH ASSOCIATED ENTERPRISES AN D THEREAFTER SUO MOTO ENHANCE THE SALE PRICE BY MAKING TRANSFER PRICING A DJUSTMENT AND CLAIMING ITA 2113/M/11 ITA 2226/M/11 & C.O. 89/MUM/2011 10 THE DEDUCTION U/S 10B OF THE ACT STATING THAT THE UNDER- PRICE SALE ORIGINALLY DECLARED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT HA VE BEEN BROUGHT IN INDIA IN CONVERTIBLE FOREIGN EXCHANGE THEREBY KEEPING A CERT AIN PORTION OF THE SALE ABROAD. 16. IN OUR CONSIDERED OPINION AND UNDERSTANDING OF THE LAW AND THE UNDERSTANDING OF THE LEGISLATIVE INTENTION WE CANN OT PERMIT THE ASSESSEE TO STRETCH THE BENEVOLENT PROVISION TO AVAIL THE BENEF IT WHICH THE LEGISLATURE NEVER INTENDED TO. IN THE CASE IN HAND THERE IS N O DISPUTE THAT THE ASSESSEE HAS UNDER PRICED ITS SERVICES TO AES AND THEREFORE MADE TRANSFER PRICING ADJUSTMENT SUO MOTO. THIS PECULIAR CONDUCT OF THE ASSESSEE IF ALLOWED TO CLAIM DEDUCTION U/S 10B OF THE ACT WILL GO AGAINST THE LEGISLATIVE INTENTION. WE THEREFORE DECLINE TO INTERFERE WITH THE FINDIN G OF THE LOWER AUTHORITIES. IN OUR CONSIDERED OPINION THE ASSESSEE IS NOT ENTITLE D FOR DEDUCTION U/S 10B OF THE ACT IN RESPECT OF THE ADDITION OF RS. 4 09 54 8 04/- SUO MOTO MADE BY THE ASSESSEE AS PER FORM 3CEB. THE CASES RELIED UPON BY THE ASSESSEE HAVE NOT CONSIDERED THE RELEVANT PROVISIONS OF THE ACT WITH LEGISLATIVE INTENT AND ARE THEREFORE DISTINGUISHED FROM PECULIAR FACTS AND MOD US OPERANDI OF THE CASE IN HAND. GROUND NO. 2 IS ACCORDINGLY DISMISSED. 17. GROUND NO. 3 IS CONSEQUENTIAL AND IS DIRECTLY R ELATED TO THE OUTCOME OF GROUND NO. 2 WHICH WE HAVE DECIDED AGAINST THE ASSE SSEE. 18. GROUND NO. 4 RELATES TO COMPUTATION OF AMOUNT E LIGIBLE FOR EXEMPTION U/S 10B OF THE ACT BY SETTING OF THE LOSSES OF NON- STPI UNIT. 19. IT IS THE CLAIM OF THE ASSESSE THAT THE AMOUNT ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT SHOULD BE COMPUTED WITH REGARD TO TH E BUSINESS PROFITS OF THE UNDERTAKING FOR THE YEAR UNDER CONSIDERATION ITSELF WITHOUT SETTING OFF THE ITA 2113/M/11 ITA 2226/M/11 & C.O. 89/MUM/2011 11 BROUGHT FORWARD LOSSES THERE FROM. THIS ISSUE IS SQ UARELY COVERED IN FAVOUR OF THE ASSESSE AND AGAINST THE REVENUE BY THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. BLACK AND VE ATCH CONSULTING PVT. LTD. [2012] 348 ITR 72 (BOM) WHEREIN THE HONBLE JURISDI CTIONAL HIGH COURT HAS HELD AS UNDER:- SECTION 10A OF THE INCOME-TAX ACT 1961 IS A PROVI SION WHICH IS IN NATURE OF A DEDUCTION AND NOT AN EXEMPTION. THE DEDUCTION UNDER SECTION 10A HAS TO BE GIVEN EFFECT TO AT THE STAGE OF COMPUTING THE PROFI TS AND GAINS OF BUSINESS. THIS IS ANTERIOR TO THE APPLICATION OF THE PROVISIONS OF SECTION 72 WHICH DEALS WITH THE CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. A DISTINCTION HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATING THE PROVISIO NS OF CHAPTER VI-A. SECTION 80 A(L) STIPULATES THAT IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE THERE SHALL BE ALLOWED FROM HIS GROSS TOTAL INCOME IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THE CHAPTER THE DEDUCTIONS SPECIFIED IN SECTIONS 80C TO 80U. SECTION 80B(5) DEFINES FOR THE PURPOSES OF CHAPTER VI-A 'GROSS TOTAL INCOME' TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH T HE PROVISIONS OF THE ACT BEFORE MAKING ANY DEDUCTION UNDER THE CHAPTER. THER EFORE THE DEDUCTION UNDER SECTION 10A HAS TO BE GIVEN AT THE STAGE WHEN THE P ROFITS AND GAINS OF BUSINESS ARE COMPUTED IN THE FIRST INSTANCE. THE TRIBUNAL WA S RIGHT IN HOLDING THAT THE DEDUCTION UNDER SECTION 10A IN RESPECT OF THE ALLOW ABLE UNIT UNDER SECTION 10A HAS TO BE ALLOWED BEFORE SETTING OFF BROUGHT FORWAR DED LOSSES OF A NON-SECTION 10A UNIT. 20. RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT WE SET ASIDE THE FINDING OF THE LD. CIT(A) A ND DIRECT THE A.O.TO COMPUTE THE AMOUNT ELIGIBLE FOR DEDUCTION U/S 10B OF THE AC T IN LINE WITH THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA). GROUND NO. 4 IS ALLOWED. 21. GROUND NO. 5 RELATES TO ALLOWING INTEREST U/S 2 34B AND 234C OF THE ACT. THE LEVY OF INTEREST IS MANDATORY THOUGH CONSEQUENT IAL THE A.O. IS DIRECTED TO CHARGE INTEREST AS PER THE PROVISIONS OF LAW. GROU ND NO. 5 IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 2226/MUM/2011 FOR A.Y. 2003-04 (REVENUES A PPEAL) 22. THE GROUND RAISED BY THE REVENUE READS AS UNDER :- ITA 2113/M/11 ITA 2226/M/11 & C.O. 89/MUM/2011 12 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT THE R&D EXPENSES O F RS.7 53 14 7384 1- HAD A DIRECT NEXUS WITH THE BUSI NESS OF THE EXPORT UNIT OF THE ASSESSEE AT VISAKHAPATNAM AND THAT THES E EXPENSES SHOULD BE SET OFF AGAINST THE EXPORT INCOME FROM THE STPI UNIT AT VISAKHAPATNAM DISREGARDING THE FINDING OF FACT BY THE ASSESSING OFFICER THAT THE AFORESAID EXPENDITURE WAS NOT INCU RRED IN RELATION TO THE BUSINESS OF THE EXPORT UNIT AND WAS THEREFORE N OT TO BE SET OFF AGAINST THE EXPORT INCOME WHILE COMPUTING DEDUCTION U/S 10B OF THE I.T. ACT. 23. WE FIND THAT THE GROUND RAISED BY THE REVENUE I N ITS APPEAL IS CONSEQUENTIAL AND IS DIRECTLY RELATED TO THE OUTCOM E OF GROUND NO. 1 IN ASSESSEES APPEAL WHICH WE HAVE DECIDED AGAINST THE REVENUE AND IN FAVOUR OF ASSESSEE. C.O. NO. 89/MUM/2011 (BY ASSESSEE) 24. THE C.O. FILED BY THE ASSESEE IS DIRECTLY RELAT ED TO GROUND NO. 1 IN ASSESSEES APPEAL IN ITA NO. 2113/MUM/2011. SINCE W E HAVE ALLOWED GROUND NO. 1 THE C.O. FILED BY THE ASSESSEE HAS BECOME IN FRUCTUOUS. 25. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND APPEAL FILED BY THE REVENUE AND C.O. FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL 2015. 9: 2 5678 . ; <= >9/ ? 29-04-2015 6 2 @1 A SD/- SD/- (I.P. BANSAL) (N.K. BILLAIYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER < . I1 MUMBAI ; >9/ DATED 29-04-2015 [ 0.J/../ R.K. SR. PS ITA 2113/M/11 ITA 2226/M/11 & C.O. 89/MUM/2011 13 ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. . K3 () / THE CIT(A) CONCERNED MUMBAI 4. . K3 / CIT- CONCERNED MUMBAI 5. N0O@ J3J/PQ 4 PQ8 < . I1 / DR ITAT MUMBAI G BENCH 6. @ST U1 / GUARD FILE. ' / BY ORDER N3 J3 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) < . I1 / ITAT MUMBAI