M/s. Zylog Systems Limited, CHENNAI v. ACIT, CHENNAI

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH D : CHENNAI [BEFORE DR. O.K. NARAYANAN VICE-PRESIDENT AND SHRI HARI OM MARATHA JUDICIAL MEMBER] I.T.A NOS. 2297 2298 2299 & 2300/MDS/2008 ASSESSMENT YEASR : 2001-02 2002-03 2004-0 5 & 2005-06 M/S ZYLOG SYSTEMS LTD NO.155 THIRUVALLUVAR SALAI KUMARAN NAGAR CHENNAI 600 119 VS THE ACIT COMPANY CIRCLE III(3) CHENNAI [PAN - AAACZ1086G] (APPELLANT) (RESPONDENT) I.T.A NOS. 283 284 & 285/MDS/2009 ASSESSMENT YEARS : 2001-02 2004-05 & 2005- 06 THE ACIT COMPANY CIRCLE III(3) CHENNAI VS M/S ZYLOG SYSTEMS LTD NO.155 THIRUVALLUVAR SALAI KUMARAN NAGAR CHENNAI 600 119 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V.D. GOPAL DEPARTMENT BY : SHRI K.E.B RENGARAJAN JR. STANDING COUNSEL O R D E R PER HARI OM MARATHA JUDICIAL MEMBER: ALL THE CAPTIONED APPEALS ARE BEING DISPOSED O F BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 2 -: ASSESSMENT YEAR 2001-02 2. FOR THIS ASSESSMENT YEAR BOTH ASSESSEE AND REVE NUE ARE IN APPEAL. IN REVENUES APPEAL BEING I.T.A.NO. 283/M DS/09 ONLY ONE ISSUE RELATING TO PRODUCT DEVELOPMENT EXPENSES INCU RRED IN FOREIGN CURRENCY AMOUNTING TO ` 8 64 51 871/- IS INVOLVED. THE LD. CIT(A) HAS TAKEN A VIEW THAT EXPENDITURE FOR DEVELOPMENT OF PR ODUCTS CANNOT BE REDUCED FROM EXPORT TURNOVER AS AGAINST THE VIEW T AKEN BY THE ASSESSING OFFICER OTHERWISE. THE REVENUE IS AGGRIE VED AND HAS RAKED UP THIS ISSUE BEFORE US. 3. AT THE TIME OF HEARING IT WAS FOUND FOR A FACT THA T THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DEC ISION OF ITAT CHENNAI SPECIAL BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 IN I.T.A.NO.1138/MDS/2007 IN WHICH ONE OF US [JM] WAS A PARTY. THIS SPECIAL BENCH DECISION IS DATED 2.11.2 010. THE ASSESSEE HAD INCURRED EXPENSES IN FOREIGN CURRENCY FOR THE Y EAR ENDING 31.3.2001 AT ` 13 10 20 724/-. AS PER THE ASSESSING OFFICER IN VIEW OF THE DEFINITION OF EXPORT TURNOVER AS GIVEN IN CLA USE (III) OF EXPLANATION 2 OF SECTION 10-B EXPORT TURNOVER DOES NOT INCLU DE FREIGHT TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE IND IA AS EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECH NICAL SERVICES INCLUDING COMPUTER SOFTWARE OUTSIDE INDIA. THEREF ORE HE EXCLUDED ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 3 -: TECHNICAL SERVICES EXPENSES INCURRED OUTSIDE INDIA FROM THE EXPORT TURNOVER AND ACCORDINGLY DISALLOWED A SUM OF ` 4 83 46 037/-. APART FROM THE ABOVE THE ASSESSEE HAS INCURRED A SUM OF ` 1 64 51 871 EQUIVALENT IN FOREIGN CURRENCY TO DEVELOP THE PRODU CTS WHICH HAVE BEEN CAPITALIZED FOR THEIR ENDURING BENEFITS AND HA VE BEEN AMORTIZED OVER FIVE YEARS. THE CONTENTION OF THE ASSESSEE IS THAT THIS EXPENDITURE WAS NOT INCURRED FOR THE PURPOSE OF REN DERING TECHNICAL SERVICES OUTSIDE INDIA RATHER THE PRODUCT DEVELOPME NT EXPENDITURE IS FOR THE DEVELOPMENT OF COMPUTER SOFTWARE PRODUCTS W HICH IS DIFFERENT FROM THE EXPENDITURE INCURRED FOR RENDERING TECHNIC AL SERVICES. IT WAS STATED THAT THIS PART OF THE AMORTIZED EXPENDITURE HAS NOT BEEN REDUCED FROM THE EXPORT TURNOVER IN ASSESSMENT YEAR 2003-04 HENCE THIS EXPENDITURE SHOULD NOT BE REDUCED FROM THE EXP ORT TURNOVER. THE LD. CIT(A) HAS DELETED THIS ADDITION BY FOLLOWING T HE TRIBUNAL ORDERS BY THE TIME THE DECISION OF SPECIAL BENCH HAS ALSO COM E WHICH CONFIRMS THE FINDING OF THE LD. CIT(A) THAT DEVELOPMENT OF P RODUCT IS DIFFERENT FROM RENDERING OF TECHNICAL SERVICES AND THEREFORE IT IS NOT REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER. CONSEQUENTLY BY RESPECTFULLY FOLLOWING THE SPECIAL BENCH DECISION(SUPRA)WE CANNO T ALLOW THE GROUNDS RAISED BY THE REVENUE. 4. IN THE RESULT THE REVENUES APPEAL IN I.T.A.NO.283 /MDS/2009 FOR ASSESSMENT YEAR 2001-02 STANDS DISMISSED. ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 4 -: 5. IN ASSESSEES APPEAL I.T.A.NO. 2297/MDS/2008 FOR ASSESSMENT YEAR 2001-02 THE FIRST ISSUE RELATES TO REOPENING OF ASSESSMENT U/S 147 R.W.S 148. THE LD. CIT(A) HAS DISCUSSED THIS I SSUE IN PARA 4 AND 4.2 OF HIS ORDER AND HAS GIVEN HIS FINDING IN PARA 5.4 OF HIS ORDER. WE ARE IN AGREEMENT WITH THE LD. CIT(A) AS THE ASSESSI NG OFFICER HAS FORMED THE OPINION THAT INCOME TO THAT EXTENT HAS E SCAPED ASSESSMENT. PARA 5.4 OF THE LD. CIT(A)S ORDER IS EXTRACTED AS UNDER: I HAVE CONSIDERED THE ISSUE CAREFULLY AND I AM INC LINED TO FOLLOW MY PREDECESSOR ON THIS ISSUE. FURTHER THE A PPELLANT ADMITS THAT THE ENTIRE EXPENSES INCURRED IN FOREIGN CURRENCY ARE PURELY FOR RENDERING TECHNICAL SERVICES WITHOUT WHICH THE COMPANY COULD NOT HAVE GENERATED THE REVENUE. IF IT IS SO THE DEFINITION OF THE EXPORT TURNOVER AS PROVI DED IN THE ACT REQUIRES EXCLUSION OF THESE ITEMS FROM EXPORT T URNOVER. HENCE I CONFIRM THE ACTION OF THE ASSESSING OFFICE R IN EXCLUDING A SUM OF ` 4 43 19 916/- FROM EXPORT TURNOVER FOLLOWING THE ORDER OF THE CIT(A)-III IN A.Y 2003-0 4 ON THE SAME ISSUE IN THE CASE OF THE APPELLANT ITSELF. TH E APPELLANT FAILS ON THIS GROUND. THEREFORE GROUND NO.II OF THIS APPEAL STANDS DISM ISSED. 6. THE NEXT ISSUE RAISED VIDE GROUND NO.IV RELATES TO CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN EXCLUDING ` 4 43 19 916/- AS NOT FORMING PART OF EXPORT TURNOVER WHO HAS EXCLUDED T HIS AMOUNT ON THE REASONING THAT THE AMOUNT REPRESENTED EXPENSES INCU RRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE IN DIA. THE FACTS OF THIS ISSUE HAVE ALREADY BEEN NARRATED ABOVE. ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 5 -: 7. AFTER HEARING BOTH SIDES ON THIS ISSUE WE FIND THA T IN VIEW OF THE SPECIAL BENCH DECISION (SUPRA)IN ASSESSEES OWN CAS E WHEREIN IT HAS BEEN HELD THAT SUCH AMOUNT CANNOT BE EXCLUDED FROM EXPORT TURNOVER THIS ADDITION CANNOT SURVIVE. CONSEQUENTLY BY FOL LOWING THE SPECIAL BENCH DECISION(SUPRA) WE ORDER TO DELETE THE IMPUGN ED ADDITION. 8. THE NEXT ISSUE OF THIS APPEAL TAKEN VIDE GROUND NO. V RELATES TO FOREIGN TRAVEL EXPENSES. IT WAS STATED BEFORE US T HAT DESPITE THE FACT THAT THE ASSESSEE HAD EVIDENCE IN THIS REGARD YET COULD NOT PRODUCE BEFORE THE ASSESSING OFFICER SO IT WAS PLEADED TH AT THIS ISSUE MAY BE REMANDED BACK TO THE ASSESSING OFFICER SO THAT EVID ENCE CAN BE PRODUCED AND JUSTICE CAN BE DONE TO THE ASSESSEE. DESPITE THE LD.DRS OBJECTION WE FIND IT A FIT CASE FOR REMANDING THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DO SUBSTANTIAL JUSTICE IN THE CASE. ACCORDINGLY WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFF ICER WITH A DIRECTION THAT HE SHALL DECIDE THIS ISSUE AFRESH AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE. 9. THE OTHER GROUNDS RAISED ARE GENERAL IN NATURE AND THEREFORE REQUIRE NO SPECIFIC ADJUDICATION. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 6 -: ASSESSMENT YEAR 2002-03 11. FOR THIS ASSESSMENT YEAR THERE IS NO REVENUES APP EAL. IN THE ASSESSEES APPEAL IN I.T.A.NO. 2298/MDS/2008 THE FIRST ISSUE IS REGARDING REOPENING OF THE ASSESSMENT U/S 147 R.W. S 148 OF THE ACT. WE CANNOT ALLOW THIS GROUND IN VIEW OF THE REASONIN G THAT THE ASSESSING OFFICER HAS FORMED HIS OPINION ON THE BAS IS OF OBJECTIVE MATERIAL AVAILABLE WITH HIM AND THEREFORE THE ASSE SSMENT WAS VALIDLY REOPENED AFTER RECORDING VALID REASONS AS PER THE LAW. 12. THE SECOND ISSUE RAISED VIDE GROUND NO. IV RELATES TO EXCLUSION OF ` 32 34 01 504/- BEING EXPENSES INCURRED IN FOREIG N CURRENCY ON ONSITE DEVELOPMENT WHICH WERE EXCLUDED FROM EXPORT TURNOVER. IN THIS REGARD THE PERUSAL OF THE LD. CIT(A)S ORDER WHICH HAS BEEN APPEALED AGAINST IT IS FOUND THAT THE LD. CIT(A) HAS ALREAD Y GIVEN DIRECTION TO THE ASSESSING OFFICER TO VERIFY THIS FACT AND ALLOW THE CLAIM IF IT IS IN THE LINE OF THE GROUND RAISED BEFORE HIM. IT WAS STATE D BY THE LD.AR AT THE TIME OF HEARING THAT THE ASSESSING OFFICER HAS VERI FIED AND ALLOWED THE RELIEF. THEREFORE NO GRIEVANCE SURVIVES IN THIS REGARD. CONSEQUENTLY WE DISMISS THIS GROUND OF APPEAL AS CAUSE OF ACTION DOES NOT SURVIVE ANY LONGER. 13. THE NEXT ISSUE RELATES TO EXPENDITURE ON FOREIGN TR AVEL AMOUNTING TO ` 44 26 416/- RAISED VIDE GROUND NO.6. THE LD. CIT (A) HAS DISCUSSED THE ISSUE IN PARA 4 AT PAGE 9 OF HIS ORDER. WE ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 7 -: REPRODUCE PARA 4 FOR UNDERSTANDING THE FACTS AND TH E FINDING OF THE LD. CIT(A): 4. OTHER EXPENSES: THE APPELLANT COMPANY HAS INC URRED A SUM OF ` 44 26 416/- AS TRAVEL EXPENSES UNDER THE HEAD OTHER EXPENSES IN FOREIGN CURRENCY. THE APPELLANT HAS NOT PRODUCED ANY EVIDENCE BEFORE ME IN SUPPORT OF THE C LAIM. HENCE THE ACTION OF THE ASSESSING OFFICER IN EXCLUD ING THE AMOUNT FROM THE EXPORT TURNOVER IS CORRECT AND SAME IS CONFIRMED . 14. A PERUSAL OF ABOVE FINDING CLEARLY EVIDENCES THAT T HE ASSESSING OFFICER HAS CORRECTLY DENIED THIS CLAIM OF EXPENDIT URE BECAUSE NO EVIDENCE WAS PRODUCED BEFORE IN THIS REGARD. SECON DLY ANY CLAIM OF EXPENDITURE BEING NOT SUPPORTED BY ANY EVIDENCE CA NNOT BE ALLOWED BY US ALSO. NO EVIDENCE HAS BEEN PRODUCED BEFORE U S AS WELL. WE THEREFORE DISMISS THIS GROUND. 15. IN THE RESULT THE APPEAL OF THE ASSESSEE FOR ASSES SMENT YEAR 2002-03 STANDS DISMISSED. ASSESSMENT YEAR 2004-05 16. FOR THIS ASSESSMENT YEAR CROSS APPEALS HAVE BEEN F ILED. IN THE REVENUES APPEAL BEING I.T.A.NO. 284/MDS/2009 THE FIRST ISSUE IS REGARDING DISALLOWANCE OF EXCHANGE FLUCTUATION LOSS WHICH HAS BEEN TAKEN AGAINST THE FINDING OF THE LD. CIT(A) BY FOLL OWING THE DECISION OF ITAT CHENNAI IN THE CASE OF M/S INDIA INTELLISYS TECHNOLOGY PVT. LTD. IN I.T.A.NO.835/MDS/2007 ORDER DATED 14.9.2007. T HE LD.DRS ARGUMENT IS THAT THE DECISION OF HON'BLE MADRAS HIG H COURT IN THE CASE ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 8 -: OF INDIAN OVERSEAS BANK IS APPLICABLE WHICH IS AGAI NST THE CLAIM OF THE ASSESSEE WHEREBY THE EXCHANGE FLUCTUATION LOSS CAN NOT BE ALLOWED. THE ARGUMENT OF THE LD.AR IS THAT THE RATIO IN THE CASE OF INDIAN OVERSEAS BANK IS NOT APPLICABLE AS IT INVOLVES A NO TIONAL LOSS BY A BANK TRADING IN FOREIGN CURRENCY. TO THE CONTRARY HE H AS RELIED ON THE DECISION OF HON'BLE SUPREME COURT RENDERED IN THE C ASE OF SUTLEJ COTTON MILLS LTD VS CIT 116 ITR 1 WHICH IS IN FAV OUR OF THE ASSESSEE. IN ADDITION TO THE ABOVE THE LD.AR HAS RELIED ON T HE OTHER DECISIONS OF THIS BENCH AS WELL AS THAT OF THE MUMBAI BENCH RE NDERED IN THE CASE OF RENAISSANCE JEWELLERY 289 ITR AT 65. IT HAS BE EN SUBMITTED THAT THE ASSESSEE HAS CLAIMED LOSS IN TRADING RECEIPTS AND THIS METHOD OF ACCOUNTING HAS BEEN CONSISTENTLY FOLLOWED. 17. WE HAVE FOUND THE ARGUMENTS OF THE LD.AR IN ORDER A ND CONSEQUENTLY BY FOLLOWING THE HON'BLE SUPREME COUR TS DECISION AS WELL AS THE OTHER DECISIONS OF THE TRIBUNAL RELIED ON BEFORE US WE CONFIRM THE FINDING OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS GROUND NO.2 OF THIS APPEAL RAISED BY THE REVENUE. 18. THE NEXT ISSUE RAISED VIDE GROUND NO.3 OF THIS APPE AL OF THE REVENUE RELATES TO EXPENDITURE INCURRED IN FOREIGN EXCHANGE ON ONSITE DEVELOPMENT OF COMPUTER SOFTWARE . THIS ISSUE STAN DS COVERED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH DECISIO N REFERRED TO ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 9 -: ABOVE. HENCE WE DECIDE THIS ISSUE IN FAVOUR OF TH E ASSESSEE AND DISMISS THE GROUND RAISED BY THE REVENUE. 19. GROUND NO.4.1 AND 4.2 OF THIS APPEAL READ AS UND ER: 4.1 THE LD. CIT(A) ERRED IN DIRECTING THE ASSESS ING OFFICER TO ALLOW THE EXPENSES CLAIMED BY THE ASSESS EE WITH REGARD TO TAKING OVER OF CONTRACTS WITH CLIENT S ALONGWITH THEIR BUSINESS AS CLAIMED BY THE ASSESSEE (AT 1/5 TH ) 4.2 THE LD. CIT(A) FAILED TO NOTE THAT THE EXPEND ITURE INCURRED BY THE ASSESSEE IS FOR THE PURPOSE OF WARD ING OF COMPETITION AND HENCE THE SAME IS TO BE DISALLOWED AS CAPITAL IN NATURE. 20. THE FACTS OF THIS ISSUE ARE THAT THE ASSESSEE COMPA NY HAD TAKEN OVER THE BUSINESS OF THREE COMPANIES COMPRISING HUM AN RESOURCES CLIENTEE AND OTHER RELATED BENEFITS FOR A LUMPSUM C ONSIDERATION OF ` 8 47 18 999/- [US $ 17 31 985] AND THE ASSESSEE HAS PROPOSED TO AMORTIZE THE SAID AMOUNT FOR A PERIOD OF FIVE YEAR S. DURING THIS YEAR AN AMOUNT OF ` 1 69 43 800/- WAS CHARGED TO PROFIT & LOSS ACCOUNT . AS PER THE ASSESSING OFFICER THE PROVISIONS OF SEC TION 35DD ARE APPLICABLE TO A CASE WHERE AN ASSESSEE BEING AN IN DIAN COMPANY INCURS ANY EXPENDITURE ON OR AFTER 1.4.1999 WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF AMALGAMATION OR DEMERGER OF AN UNDER TAKING THE ASSESSEE SHALL BE ALLOWED DEDUCTION OF AN AMOUNT E QUAL TO 1/5 TH OF SUCH EXPENDITURE FOR EACH OF THE FIVE SUCCESSIVE PR EVIOUS YEARS BEGINNING THE PREVIOUS YEAR IN WHICH THE AMALGAMATI ON OR DEMERGER ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 10 - : TAKES PLACE IN CASE THE DEMERGER OR AMALGAMATION IS IN PURSUANCE TO A SCHEME OF ARRANGEMENT U/S 391 TO 394 OF THE COMPANI ES ACT 1956 AND APPROVED BY THE CENTRAL GOVERNMENT. ACCORDING TO THE ASSESSING OFFICER IN THIS CASE THE TAKING OVER OF THE BUSIN ESS OF THE COMPANIES WAS NOT IN PURSUANCE OF ANY AMALGAMATION OR DEMERGE R ARRANGEMENT. HE DENIED THIS CLAIM OF DEDUCTION TO THE ASSESSEE. BUT IN APPEAL THE LD. CIT(A) AGREED WITH THE ASSESSEE ON THE PREMISE THAT THE ASSESSEE HAD ACQUIRED ONGOING BUSINESS CONTRACTS OF THOSE CO MPANIES WITH THEIR CLIENTS FOR SOFTWARE DEVELOPMENT ALONGWITH THE TECH NICAL RESOURCES INCLUDING EMPLOYEES ETC. TO EXECUTE THE CONTRACT. ACCORDING TO HIM NO CAPITAL ASSET HAS BEEN ACQUIRED BY THE ASSESSEE- COMPANY THEREFORE THIS EXPENDITURE IS FOR EXPANSION OF THE UNITS WITH AN ASSURANCE THAT THESE THREE COMPANIES WOULD NOT ENTE R INTO BUSINESS IN THE SAME LINE WITH THOSE CLIENTS. SO THE LD. CIT( A) HAS HELD THIS EXPENDITURE AS REVENUE IN NATURE. ACCORDING TO HIM SECTION 35DD WILL NOT APPLY. 21. AFTER HEARING BOTH SIDES WE FIND THAT THE FACTS O F THIS ISSUE ARE INCOMPLETE AND FURTHER INVESTIGATION OF FACTS REGAR DING APPLICATION OF 35DD OR OTHERWISE IS REQUIRED. THE TRIBUNAL BEING THE FINAL FACT FINDING BODY IT BECOMES IMPERATIVE THAT THE ISSUE SHOULD BE CHURNED AFRESH TO CULL OUT THE EXACT FACTS OF AN ISSUE. HE NCE WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE DE CISIONS RELIED ON BY ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 11 - : BOTH THE PARTIES ON THE ISSUE SHALL BE TAKEN INTO C ONSIDERATION BY THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DEC IDE THE ISSUE ANEW AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE . THE GROUNDS RAISED BY THE REVENUE ARE ALLOWED FOR STATISTICAL P URPOSES. 22. IN THE RESULT THE APPEAL OF THE REVENUE FOR ASSESS MENT YEAR 2004-05 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 23. IN ASSESSEES APPEAL IN I.T.A.NO.2299/MDS/2008 THE FOLLOWING GROUNDS HAVE BEEN RAISED: I. THE ORDER OF THE LEARNED CIT 'APPEALS' TO T HE EXTENT IT IS AGAINST THE APPELLANT IS CONTRARY TO LAW FACTS OF THE CASE AND THE MATERIALS AVAILABLE ON RECORD. II. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT 'A' SHOULD HAVE BEEN PLEASED TO ALLOW THE APPEAL IN FULL DIRECTING THE ASSESSING OFFICER TO ACCEPT THE INCOME RETURNED. III. A) THE LEARNED CIT 'A' ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN EXCLUDING ` 2 15 18 654/ - AS NOT FORMING PART OF EXPORT TURNOVER WHO HAD EXCLUDED THE ABOVE AMOUNT ERRONEOUSLY THINKING THAT THE AMOUNT REPRESENTED EXPENSES INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUT SIDE INDIA. B) THE LEARNED CIT 'A' SHOULD HAVE BEEN PLEASED TO HOLD PARTICULARLY IN VIEW OF THE VARIOUS ITAT DECISIONS THAT EXPENSES INCURRED IN FOREIGN EXCHANGE WERE INCURRED FOR EARNING PROFITS AND GAIN S ON THE ONSITE DEVELOPMENT OF COMPUTER SOFTWARE INCLUDING SERVICES FOR DEVELOPMENT OF SOFTWARE OUTSIDE INDIA AT THE CLIENT'S PLACE WITHIN THE MEA NING OF EXPLANATION 3 TO 8EC.10B(8) OF THE INCOME TAX ACT1961. ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 12 - : C) ASSUMING WITHOUT CONCEDING THAT THE SUM OF ` 2 15 18 654/- DESERVES TO BE EXCLUDED FROM THE EXPORT TURNOVER THE CIT 'A' SHOULD HAVE ALSO DIREC TED THE ASSESSING OFFICER TO EXCLUDE THE ABOVE SUM FROM TOTAL TURNOVER ESPECIALLY WHEN THE APPELLANT IS AN 100% EXPORT ORIENTED UNIT. IV A) THE LEARNED CIT 'A' ERRED IN STATING THAT T HE APPELLANT HAD NOT PRESSED GROUND RELATING TO S115 JB COMPUTATION MADE BY THE ASSESSING OFFICER. B) THE LEARNED CIT 'A' SHOULD HAVE DIRECTED THE BOO K PROFITS DECLARED BY THE APPELLANT SHOULD BE ACCEPTE D BY ASSESSING OFFICER. V. FOR THE ABOVE GROUNDS AND SUCH OTHER GROUNDS AS MAY BE SUBMITTED BEFORE OR AT THE TIME OF THE HEARI NG OF THE APPEAL THE APPELLANT PRAYS THAT THE HON'BLE ITAT MAY BE PLEASED TO ALLOW THE APPEAL DIRECTING THE LOWER AUTHORITIES TO ACCEPT THE INCOME RETURNED . 24. GROUND NO.III RELATES TO EXCLUSION OF EXPENDITURE IN FOREIGN CURRENCY ON ONSITE DEVELOPMENT AT CLIENTS PLACE FR OM EXPORT TURNOVER. THIS ISSUE STANDS COVERED BY THE SPECIAL BENCH DECI SION IN ASSESSEES OWN CITED SUPRA HENCE THIS GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE. 25. THE OTHER GROUNDS IN THIS APPEAL DO NOT ARISE FROM THE APPELLATE ORDER. THEREFORE THERE IS NO NEED TO DECIDE THEM ON MERITS. 26. IN THE RESULT THE APPEAL OF THE ASSESSEE FOR ASS ESSMENT YEAR 2004-05 IS PARTLY ALLOWED. ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 13 - : ASSESSMENT YEAR 2005-06 27. FOR THIS ASSESSMENT YEAR CROSS APPEALS HAVE BEEN FILED. IN THE APPEAL I.T.A.NO.285/MDS/2009 BY THE REVENUE O NLY ONE ISSUE REGARDING AMORTIZATION EXPENSES HAS BEEN RAISED. WITH THE REASONING GIVEN IN ASSESSMENT YEAR 2004-05 FOR AN IDENTICAL ISSUE WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING O FFICER WITH SIMILAR DIRECTION. 28. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 29. IN THE ASSESSEES APPEAL [I.T.A.NO. 2300/MDS/2008] FOLLOWING GROUNDS HAVE BEEN RAISED: I. THE ORDER OF THE LEARNED CIT 'APPEALS' TO TH E EXTENT IT IS AGAINST THE APPELLANT IS CONTRARY TO LAW FACTS OF THE CASE AND THE MATERIALS AVAILABLE ON RECORD. II. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT 'A' SHOULD HAVE BEEN PLEASED TO ALLOW THE APPEA L IN FULL DIRECTING THE ASSESSING OFFICER TO ACCEPT T HE INCOME RETURNED . III. A) THE LEARNED CIT 'A' ERRED IN CONFIRMING TH E ACTION OF THE ASSESSING OFFICER IN EXCLUDING ` 8 46 55 916/ - AS NOT FORMING PART OF EXPORT TURNOVER WHO HAD EXCLUD ED THE ABOVE AMOUNT ERRONEOUSLY THINKING THAT THE AMOUNT REPRESENTED EXPENSES INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUT SIDE INDIA. B) THE LEARNED CIT 'A' SHOULD HAVE BEEN PLEASED TO HOLD PARTICULARLY IN VIEW OF THE VARIOUS ITAT DECIS IONS THAT EXPENSES INCURRED IN FOREIGN EXCHANGE WERE INCURRED FOR EARNING PROFITS AND GAINS ON THE ONSIT E ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 14 - : DEVELOPMENT OF COMPUTER SOFTWARE INCLUDING SERVICES FOR DEVELOPMENT OF SOFTWARE OUTSIDE INDIA AT THE CLIENT'S PLACE WITHIN THE MEANING OF EXPLANATION 3 TO SEC.10B(8) OF THE INCOME TAX ACT 1961. C) ASSUMING WITHOUT CONCEDING THAT THE SUM OF ` 8 46 55 916/- DESERVES TO BE EXCLUDED FROM THE EXPORT TURNOVER THE CIT 'A' SHOULD HAVE ALSO DIREC TED THE ASSESSMG OFFICER TO EXCLUDE THE ABOVE SUM FROM THE TOTAL TURNOVER ESPECIALLY WHEN THE APPELLANT I S AN 100% EXPORT ORIENTED UNIT. IV. FOR THE ABOVE GROUNDS AND SUCH OTHER GROUNDS AS MAY BE SUBMITTED BEFORE OR AT THE TIME OF THE HEARI NG OF THE APPEAL THE APPELLANT PRAYS THAT THE HON'BLE ITAT MAY BE PLEASED TO ALLOW THE APPEAL DIRECTING T HE LOWER AUTHORITIES TO ACCEPT THE INCOME RETURNED. 30. THE FIRST EFFECTIVE GROUNDS III(A) AND (B) RELATE TO EXPENDITURE INCURRED IN FOREIGN CURRENCY ON ONSITE DEVELOPMENT AT THE CLIENTS PLACE. THIS ISSUE STANDS COVERED BY THE SPECIAL BE NCH DECISION HENCE THESE GROUNDS STAND ALLOWED IN THE SAME WAY AS HAS BEEN ALLOWED IN EARLIER YEARS. 31. GROUND NO.III(C) RAISES THE SECOND EFFECTIVE ISSUE WHICH IS AN ALTERNATE PLEA AS TAKEN IN EARLIER YEARS. THIS ALS O STANDS THUS DECIDED ALONGWITH GROUND III(A) & (B). 32. IN THE RESULT THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2005-06 STANDS ALLOWED. ITA 2297 2298 2299&2300/08 283 284 & 285/09 :- 15 - : 33. TO SUMMARIZE THE RESULT- A.Y 2001-02 2297/MDS/2008 - PARTLY ALLOWE D AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. 283/MDS/2009 - DISMISSED A.Y 2002-03 2298/MDS/2008 - DISMISSED A.Y 2004-05 2299/MDS/2008 - PARTLY ALLOWE D 284/MDS/2009 - PARTLY ALLO WED FOR STATISTICAL PURPOSES A.Y 2005-06 2300/MDS/2008 - ALLOWED 285/MDS/2009 - ALLOWE D FOR STATISTICAL PURPOSES ORDER PRONOUNCED IN THE OPEN COURT ON 28.2.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 28.2.2011 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR