DCIT, Bangalore v. M/s GE India Technology Centre Pvt. Limited, Bangalore

ITA 453/BANG/2011 | 2005-2006
Pronouncement Date: 24-02-2012 | Result: Dismissed

Appeal Details

RSA Number 45321114 RSA 2011
Assessee PAN AABCG0559J
Bench Bangalore
Appeal Number ITA 453/BANG/2011
Duration Of Justice 10 month(s) 3 day(s)
Appellant DCIT, Bangalore
Respondent M/s GE India Technology Centre Pvt. Limited, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 24-02-2012
Assessment Year 2005-2006
Appeal Filed On 21-04-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N.K.SAINI ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K JUDICIAL MEMBER I.T.A. NO.453/BANG/2011 (ASSESSMENT YEAR : 2005-06) DY. COMMISSIONER OF INCOME TAX CIR. 11(3) NRUPATHUNGA ROAD BANGALORE. . APPELLANT. VS. M/S. GE INDIA TECHNOLOGY CENTRE PVT. LTD. EPIP PHASE II HOODI VILLAGE WHITEFIELD BANGALORE-560 066 .. RESPONDENT. PAN AABCG 0559J APPELLANT BY : MR. ETWA MUNDA. RESPONDENT BY : MR. K. N. GANESH. DATE OF HEARING : 14.2.2012. DATE OF PRONOUNCEMENT : 24.2.2012. O R D E R PER SHRI N.K. SAINI A.M. : THIS IS AN APPEAL BY THE DEPARTMENT AND IS DIRECT ED AGAINST THE ORDER DATED 22.2.2011 OF LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) LTU BANGALORE. 2. THE FOLLOWING GROUNDS HAVE BEEN RAIS ED IN THIS APPEAL : THE ORDER OF THE LEARNED CIT(A) IN SO FAR AS I T IS PREJUDICIAL TO THE INTEREST OF REVENUE IS OPPOSED TO LAW AND THE FACTS AND CIR CUMSTANCES OF THE CASE. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO RECOMPUTED THE DEDUCTION ALLOWABLE UNDER SECTION 10A OF THE I.T. ACT 1961 AFTER REDUCING THE COMMUNICATION CHARGES OF RS.4.36 CRORES BOTH FROM THE 2 ITA NO.453/BANG/2011 EXPORT TURNOVER AND THE TOTAL TURNOVER WITHOUT APP RECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THAT THERE IS NO PROVISION IN SECTION 10A WHICH REQUIRES THE COMMUN ICATION CHARGES REDUCED FROM THE EXPORT TURNOVER AS PER CLAUSE (IV) OF EXPL ANATION 2 TO SECTION 10A TO BE REDUCED FROM THE TOTAL TURNOVER ALSO. THE LEARNED CIT(A) OUGHT TO HAV E CONSIDERED THE FACT THAT THE VARIOUS DECISIONS OF THE ITAT BANGALORE BENCH RELI ED UPON BY HER HAVE NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEALS HAVE BE EN FILED BEFORE THE HON'BLE HIGH COURT OF KARNATAKA. FOR THESE AND SUCH OTHER GROUNDS TH AT MAY BE URGED AT THE TIME OF HEARING IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED IN SO FAR AS THE ABOVE MENTIONED ISSUE IS CONCERNED AND THAT OF THE ASSESSING OFFICER BE RESTORED. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER TO AMEND OR TO DELETE ANY OF THE GROUNDS THAT MAYBE URGED AT THE TIME OF HEARING OF THE APPEAL. 3. FROM THE ABOVE GROUNDS IT IS GATHERED T HAT ONLY GRIEVANCE OF THE DEPARTMENT RELATES TO THE DEDUCTION UNDER SECTION 10A OF THE I NCOME TAX ACT 1961 (HEREIN AFTER REFERRED AS 'THE ACT') WHICH WAS COMPUTED BY THE AS SESSING OFFICER BY REDUCING THE COMMUNICATION CHARGES FROM THE EXPORT TURNOVER BUT THE LEARNED CIT(A) DIRECTED THE ASSESSING OFFICER TO REDUCE THE SAME FROM EXPORT TU RNOVER AS WELL AS THE TOTAL TURNOVER. 4. THE FACTS OF THE CASE IN BRIEF A RE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF EXPORT OF CUSTOMIZED ELECTRONIC DATA C OMPUTER SOFTWARE ARTICLES OR THINGS GENERATED FROM ENGINEERING ANALYSIS AND RESEARCH & DEVELOPMENT ETC. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.9.2005 DECLARING A TOTAL INCOME OF RS.1 02 99 700 AFTER CLAIMING DEDUCTION UNDER SECTION 10A OF THE ACT TO THE EXTEN T OF RS.14 85 04 996. THE SAID RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. SUB SEQUENTLY THE CASE WAS SELECTED FOR 3 ITA NO.453/BANG/2011 SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD INCURRED TELECOMMUNICATION EX PENSES ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE INDIA. HE WAS OF THE VIEW THAT THE SAID EXPENSES SHOULD HAVE BEEN REDUCED FROM THE EXPORT TURNOVER BUT THE PROVISIONS OF SECTION 10A DO NOT PROVIDE THAT SUCH EXPENDITURE SHOULD BE REDUCED FROM THE TOTAL T URNOVER. HE THEREFORE EXCLUDED THE COMMUNICATION EXPENSES AMOUNTING TO RS.4 36 61 936 ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE INDIA FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. ACCORDINGLY EXCESS CLAIM UNDER SECTION 10A OF THEACT WAS WORKED OUT AT RS.24 48 668 WHICH WAS ADDED TO THE I NCOME OF THE ASSESSEE. 5. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND THE SUBMISSION MADE BEFORE HIM AS MENTIONED IN PARA 12. 1.1 OF THE IMPUGNED ORDER WHICH REPRODUCED VERBATIM AS UNDER : 12.1.1 THE APPELLANTS ARGUMENTS VIDE ITS WRIT TEN SUBMISSIONS ARE BROADLY SUMMARIZED AS UNDER : I) IT WAS SUBMITTED THAT THE TELECOMMUNICATION EXPE NSES WERE USED FOR CONNECTIVITY WITHIN INDIA AS WELL AS OUTSIDE INDIA AND THAT IT WAS PRACTICALLY IMPOSSIBLE TO DETERMINE THE USAGE OF THE SAME TO TH E EXTENT ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE INDIA. II) RELIANCE WAS PLACED ON THE SUPREME COURT DECIS ION IN THE CASE OF B.C. SRINIVASA SETTY 128 ITR 294 WHEREIN IT WAS HELD THA T THE CHARGING SECTION AND THE COMPUTATION PROVISIONS TOGETHER CONSTITUTE AN I NTEGRATED CODE. IN OTHER WORDS WHEN THERE IS A CASE TO WHICH THE COMPUTATIO N PROVISIONS CANNOT APPLY AT ALL IT IS EVIDENT THAT SUCH A CASE WAS NOT INTENDE D TO FALL WITHIN THE CHARGING SECTION. III) EVEN ASSUMING THAT THE ABOVE EXPENDITURE SHOU LD BE REDUCED FROM THE EXPORT TURNOVER A CORRESPONDING DEDUCTION SHOULD A LSO BE MADE FROM THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTIO N 10A IN VIEW OF THE 4 ITA NO.453/BANG/2011 DECISIONS OF THE AP HIGH COURT IN CIT VS. DREDGING CORPORATION OF INDIA (1988) 174 ITR 682 AND THE DECISION OF THE ITAT CHENNAI B ENCH IN THE CASE OF NEYVELI LIGNITE CORPORATION LTD. VS. ACIT (2004) 93 TTJ 685 WHEREIN IT WAS HELD THAT TOTAL TURNOVER WOULD COMPRISE OF BOTH EXP ORT TURNOVER AND DOMESTIC (NO-EXPORT) TURNOVER AND THAT CONSEQUENTLY THERE SH OULD BE PARTLY OF BASIS BETWEEN THE NUMERATOR AND THE DENOMINATOR. IN SUPP ORT OF THE CONTENTION THAT THE NUMERATOR AND THE DENOMINATOR SHOULD BE RE DUCED BY LIKE ITEMS THE APPELLANT PLACED RELIANCE ON THE FOLLOWING DECISION S. * CIT VS. BHARAT EARTH MOVERS LTD. (2004) 268 ITR 2 32 (KAR) * CIT VS. SUDARSHAN CHEMICALS INDUSTRIES LTD. (2000 ) 245 ITR 769 (BOM) * CIT VS. KANTILAL CHHOTALAL (2000) 246 ITR 439 (BO M) * CIT VS. CHLORIDE INDIA LTD. (2000) 130 TAXMAN 352 (CAL) * CIT VS. ABAD FISHERIES (2002) 258 ITR 641 (KER) * CIT VS. H.M. EXPORTS LTD. 276 ITR 299 (CAL) III) THE PROVISIONS OF SECTION 10A OF THE ACT HAVE BEEN INSERTED IN THE STATUTE TO ENCOURAGE THE ESTABLISHMENT OF EXPORT ORIENTED I NDUSTRIES IN FREE TRADE ZONES ETC. THUS THE PROVISIONS OF SECTION 10A OF T HE ACT SHOULD BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE OF THE SECTION AND N OT TO FRUSTRATE IT. IV) THE APPELLANT PLACED RELIANCE ON VARIOUS JUDIC IAL PRECEDENTS TO SUPPORT ITS VIEW THAT SECTION 10A IS AN INCENTIVE PROVISION AND THE SAME SHOULD BE INTERPRETED LIBERALLY ESPECIALLY THE SUPREME COURT DECISIONS IN THE CASE OF BAJAJ TEMPO LTD. VS. CIT (1992) 196 ITR 149. ACCOR DINGLY THE DEFINITION OF TOTAL TURNOVER AS GIVEN IN SECTION 80HHE AND AS C LARIFIED BY CBDT CIRCULAR NO.564 DATED 5.7.1990 IN THE CONTEXT OF THE DEFINIT ION OF TOTAL TURNOVER UNDER SECTION 80HHC SHOULD BE FOLLOWED FOR THE PURP OSE OF COMPUTING DEDUCTION UNDER SECTION 10A. V) FINALLY THE APPELLANT RELIED ON RECENT DECISIO NS OF THE HON'BLE ITAT HYDERABAD BENCH IN THE CASE OF ITO VS. M/S. DE BLO CK INDIA SOFTWARE PRIVATE LIMITED (ITA NO.983 AND 984/HYD/2006) AND THE DELHI BENCH IN THE CASE OF DCIT VS. BINARY SEMANTICS LTD (109 TTJ 556) WHICH H ELD THAT EXPENSES EXCLUDED FROM THE EXPORT TURNOVER OUGHT TO BE EXCLU DED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UND ER SECTION 10A. RELIANCE WAS ALSO PLACED ON THE SUPREME COURT DECISIONS IN C IT VS. LAKSHMI MACHINE WORKS (2007) 290 ITR 667 AND CIT VS. CATAPHARMA (IN DIA) (P) LTD (2007) 292 ITR 641 WHEREIN IT HAS BEEN HELD THAT EXCISE DUTY A ND SALES TAX SHOULD NOT BE INCLUDED IN THE TOTAL TURNOVER AS THE SAME ARE NOT INCLUDIBLE IN THE EXPORT TURNOVER. 5 ITA NO.453/BANG/2011 6. THE LEARNED CIT(A) AFTER CONSIDER ING THE SUBMISSIONS OF THE ASSESSEE DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE EXPEN DITURE INCURRED ON TELECOMMUNICATION CHARGES FROM THE EXPORT TURNOVER AS WELL AS THE TOT AL TURN OVER AND THE RELEVANT FINDINGS GIVEN BY HIM MENTIONED IN PARAS 12.1.2 AND 12.1.3 O F THE IMPUGNED ORDER WHICH WERE AS UNDER : 12.1.2 IN THIS CONNECTION IT IS PERTINENT TO N OTE THAT THE ISSUE HAS BEEN LAID TO REST AFTER THE DECISION OF THE HON'BLE ITAT BANGAL ORE BENCH IN THE CASE OF TATA ELXSI LTD. VS. ACIT 115 TTJ 423 WHEREIN THE TRIBUNA L HAS RULED AS UNDER : A. THE FORMULA PRESCRIBED FOR COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT IS THE SAME AS PRESCRIBED IN SECTION 80HHE OF THE A CT. B. SECTION 10A OF THE ACT HAS INCORPORATED IN ENTI RETY THE PHILOSOPHY OF SECTION 80HHE OF THE ACT. C. THE DEFINITION OF THE TERMS COMPUTER SOFTWARE AND CONVERTIBLE FOREIGN EXCHANGE IN SECTION 10A ARE THE SAME AS IN SECTION 80HHE. HOWEVER FROM OUT OF THE THREE TERMS RELEVANT FOR APPLYING THE FORMULA SECTION 10A DEFINES ONLY ONE TERM NAMELY EXPORT TURNOVER. THE OTHER TWO TERMS PROFITS OF THE BUSINESS AND TOTAL TURNOVER ARE NOT DEFINED. SINCE THE SECTIO N PROCEEDS BROADLY ON LINES SIMILAR TO SECTION 80HHE IN THE ABSENCE OF THE DEF INITION OF ANY TERM IN SECTION 10A ONE COULD REFER TO THE DEFINITION OF A SIMILAR TERM IN SECTION 80HHE. THUS THE TERM TOTAL TURNOVER FOR SECTION 10A PURPOSES SHOULD BE THE SAME AS UNDERSTOOD FOR THE PURPOSES OF SECTION 80HHE. D. THE TERM TOTAL TURNOVER WOULD BE AN ENLARGEME NT OF THE TERM EXPORT TURNOVER. IN OTHER WORDS THE SUM TOTAL OF EXPORT TURNOVER AND DOMESTIC TURNOVER WOULD CONSTITUTE TOTAL TURNOVER. THE TE RM EXPORT TURNOVER WOULD THEN BE A COMPONENT OR PART OF THE DENOMINATOR; THE OTH ER COMPONENT BEING DOMESTIC TURNOVER. IN OTHER WORDS TO THE EXTENT OF EXPORT TURNOVER THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINAT OR OF THE FORMULA. IN VIEW OF THE COMMONALITY THE UNDERSTANDING SHOULD ALSO B E THE SAME. E. IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES THE SAME SHOULD ALSO BE EXCLUDED I N COMPUTING THE TOTAL TURNOVER IN THE DENOMINATOR. F. THOUGH THERE IS NO DEFINITION OF THE TERM TOTA L TURNOVER IN SECTION 10A THERE IS ALSO NOTHING IN THE SAID SECTION TO MANDATE THAT WHAT IS EXCLUDED FROM THE 6 ITA NO.453/BANG/2011 NUMERATOR (EXPORT TURNOVER) WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. ONE WOULD HAVE TO APPLY CONSISTENT STANDARDS IN UND ERSTANDING AND APPLYING A TERM PARTICULARLY WHEN SUCH TERM I.E. EXPORT TUR NOVER HAS AN INDEPENDENT FUNCTION AND AT THE SAME TIME A PART OF A LARGER TE RM TOTAL TURNOVER. THUS IF SOME EXPENSES FOR ANY REASON ARE EXCLUDED IN ARRIV ING AT EXPORT TURNOVER THE SAME SHOULD BE REDUCED FROM TOTAL TURNOVER ALSO. G. THE TRIBUNAL ALSO OBSERVED THAT IN THE CONTEXT OF SECTION 80HHC WHERE A SIMILAR FORMULA IS APPLICABLE IT HAS BEEN HELD THA T THE COMPONENTS ENTERING INTO EXPORT TURNOVER AND THE TOTAL TURNOVER SHOULD BE TH E SAME. IN OTHER WORDS ONE SHOULD COMPARE APPLES WITH APPLES AND NOT APPLES WI TH ORANGES. IN THIS REGARD THE HON'BLE TRIBUNAL BANGALORE BENCH RELIED ON TH E FOLLOWING JUDGMENTS OF VARIOUS HIGH COURTS RENDERED IN THE CONTEXT OF SECT ION 80HHC/HHE : * CIT VS. SUDARSHAN CHEMICALS INDUSTRIES LTD. (245 ITR 769) (BOM) * CIT VS. CHLORIDE INDIA LTD. (256 ITR 625) (CAL) * CIT VS. BHARAT EARTH MOVERS LTD. (268 ITR 232) (K AR) * CIT VS. LAKSHMI MACHINE WORKS (290 ITR 667) (SC) * CIT VS TRANS LOTUS TRAVEL P. LTD. (290 ITR 1) (DE L) 12.1.3 IT WAS ALSO HELD BY THE HON'BLE ITAT BAN GALORE BENCH IN THE CASE OF ACIT/DCIT CIRCLE 11(4) BANGALORE VS. M/S. INFOSYS TECHNOLOGIES LTD. BANGALORE (ITA NO.653 & 969 (BANG)/2006 DT.17.10.2007) THAT E XPENDITURE INCURRED IN FOREIGN CURRENCY BY THE ASSESSEE SHOULD BE EXCLUDED FROM THE TOTAL TURNOVER AS THE SAME IS NOT TO BE CONSIDERED IN EXPORT TURNOVER BY RELYING ON ITS EARLIER DECISION IN THE CASE OF M/S. TATA ELXSI LTD. (SUPRA ). IN YET ANOTHER DECISION OF THE HON'BLE ITAT BANGALORE BENCH B NAMELY M/S. IGAT E GLOBAL SOLUTIONS LTD. (ITA NO. 248 & 249/BANG/2007) IT WAS HELD FOLLOWING TH E SAME REASONING THAT UPLINKING/TELECOMMUNICATION CHARGES WHICH ARE REDUC ED FRO ASCERTAINING THE EXPORT TURNOVER ARE NOT TO BE CONSIDERED FOR THE PU RPOSES OF TOTAL TURNOVER AS TOTAL TURNOVER IS THE SUM TOTAL OF EXPORT TURNOVER AND INTERNAL TURNOVER. THE HON'BLE ITAT BANGALORE BENCH IN THE CASE OF ISEVA SYSTEMS PVT. LTD. (ITA NO.401/BANG/2007 DATED 7.12.2007) FOLLOWING ITS EA RLIER DECISION IN THE CASE OF M/S. IGATE GLOBAL SOLUTIONS LTD. (SUPRA) ALSO HELD THAT TELECOMMUNICATION CHARGES WHICH WERE REDUCED FRO ASCERTAINING THE EXPORT TURN OVER ARE NOT TO BE CONSIDERED FOR THE PURPOSE OF TOTAL TURNOVER IN VIEW OF THE FA CT THAT THE TOTAL TURNOVER IS THE SUM TOTAL OF EXPORT TURNOVER AND INTERNAL TURNOVER MEANING THEREBY THAT WHATEVER IS REDUCED FROM THE EXPORT TURNOVER AHS TO BE REDUCED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UND ER SECTION 10A. IT IS ALSO NOTEWORTHY THAT THE HON'BLE ITAT SPECIAL BENCH D CHENNAI HAVING DISCUSSED THIS ISSUE AT LENGTH IN THE CASE OF ITO VS. M/S. SA K SOFT LTD. CHENNAI (2007) 313 ITR 353 WAS IN RESPECTFUL AGREEMENT WITH THE VIEW E XPRESSED BY THE BANGALORE 7 ITA NO.453/BANG/2011 BENCH IN THE CASE OF TATA ELXSI (SUPRA) WITH REFERE NCE TO SECTION 10A OBSERVING THAT THE PROVISIONS OF SECTIONS 10A AND 10B WERE ID ENTICAL IN ALL MATERIAL RESPECTS BEFORE ARRIVING AT THE FOLLOWING : FOR THE ABOVE REASONS WE HOLD THAT FOR THE PURPO SE OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTION 10B THE FREIGHT TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER WHICH ARE THE NUMERATO R AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. FURTHER IN THE CASE OF JAIPURIA SILK MILLS (P) LTD . VS. ACIT (ITA NO.1112 (BANG)/2009) THE JURISDICTIONAL TRIBUNAL PLACED RE LIANCE ON THE DECISION OF THE CHENNAI SPECIAL BENCH IN THE CASE OF SAK SOFT (SUPR A) IN CONCLUDING THE FREIGHT & INSURANCE EXPENSE WERE TO BE REDUCED FROM BOTH THE EXPORT TURNOVER AND TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10 A. I AM THEREFORE OF THE VIEW THAT THE APPELLANT SUCCEEDS IN THE ALTERNATIVE SUBMISSION MADE. RESPECTFULLY FOLLOWING THE DECISIONS OF THE JURISDICTIONAL TRIBU NAL (SUPRA) AND THE DECISION OF THE SPECIAL BENCH (SUPRA) I ACCORDINGLY DIRECT T HE ASSESSING OFFICER TO EXCLUDE THE EXPENDITURE INCURRED ON TELECOMMUNICATION CHARG ES FROM THE TOTAL TURNOVER AS WELL. 7. NOW THE DEPARTMENT IS IN APPEAL. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRON GLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER WHILE THE LEARNED COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMI TTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE ITAT CHENNAI (SPECIAL BENCH) IN THE CASE OF ITO VS. M/S.SAK SOFT LTD. (2009) 313 IT R (AT) 353 AND JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. (2010) 330 ITR 175 (BOM). 9. WE HAVE CONSIDERED THE SUBMISSIONS OF B OTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PR ESENT CASE IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT. HOWEVER THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT COMPUTED THE DEDUCTION UNDER SECTION 10A OF THE ACT BY REDUCING EXPENDITURE INCURRED IN FOREIGN 8 ITA NO.453/BANG/2011 EXCHANGE ON ACCOUNT OF FREIGHT THE TELECOMMUNICATI ON CHARGES ATTRIBUTABLE TO DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSE IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICE S OUTSIDE INDIA AMOUNTING TO RS.4 36 61 936/- FROM THE EXPORT TURN OVER AND NOT FROM THE TOTAL TURN OVER. 10. THIS ISSUE NOW HAS BEEN SETTLED BY THE SPECIAL BENCH OF ITAT CHENNAI IN THE CASE OF ITO VS. M/S.SAK SOFT LTD. (2009) 313 ITR (A T) 353 (CHENNAI (SB) BY HOLDING AS UNDER : TO SAY THAT IN THE ABSENCE OF ANY DEFINITION OF TOTAL TURNOVER FOR THE PURPOSE OF SECTION 10B THERE IS NO AUTHORITY TO EX CLUDE ANYTHING FROM THE EXPRESSION AS UNDERSTOOD IN GENERAL PARLANCE WOULD BE WRONG AS THERE HAS TO BE AN ELEMENT OF TURNOVER IN THE RECEIPT IF IT HAS TO BE INCLUDED IN THE TOTAL TURNOVER. THAT ELEMENT IS MISSING IN THE CASE OF F REIGHT TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE GOODS OUTSIDE INDIA AND EXPENSES INCURRED IN FOREIGN EXCHANGE IN CONNECTION WITH THE PROVISION OF TECHNICAL SERVICES OUTSIDE INDIA. THESE RECEIPTS CAN ONLY BE RECEIVED BY THE ASSESSEE AS REIMBURSEMENT OF SUCH EXPENSES INCURRED BY HIM. ME RE REIMBURSEMENT OF EXPENSES CANNOT HAVE AN ELEMENT OF TURNOVER. IT IS ONLY IN RECOGNITION OF THIS POSITION THAT IN THE DEFINITION OF EXPORT TURNOVER IN SECTION 10B THE AFORESAID TWO ITEMS HAVE BEEN DIRECTED TO BE EXCLUDED. SECON DLY THE DEFINITION OF EXPORT TURNOVER CONTEMPLATES THAT THE AMOUNT RECEIV ED BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE SHOULD REPRESENT CONS IDERATION IN RESPECT OF THE EXPORT. ANY REIMBURSEMENT OF THE TWO ITEMS OF EXPENSES MENTIONED IN THE DEFINITION CAN UNDER NO CIRCUMSTANCES BE CONSIDERED TO REPRESENT CONSIDERATION FOR THE EXPORT OF THE COMPUTER SOFT WARE OR ARTICLES OR THINGS. THUS THE EXPRESSION TOTAL TURNOVER WHICH IS NOT D EFINED IN SECTION 10B SHOULD ALSO BE INTERPRETED IN THE SAME MANNER. THUS THE T WO ITEMS OF EXPENSES REFERRED TO IN THE DEFINITION OF EXPORT TURNOVER CANNOT FORM PART OF THE TOTAL TURNOVER SINCE THE RECEIPTS BY WAY OF RECOVERY OF S UCH EXPENSES CANNOT BE SAID TO REPRESENT CONSIDERATION FOR THE GOODS EXPORTED S INCE TOTAL TURNOVER IS NOTHING BUT THE AGGREGATE OF THE DOMESTIC TURNOVER AND THE EXPORT TURNOVER. IN THE FORMULA PRESCRIBED BY SECTION 10B(4) THE FIG URE OF EXPORT TURNOVER HAS TO BE THE SAME BOTH IN THE NUMERATOR AND IN THE DEN OMINATOR OF THE FORMULA. IT FOLLOWS THAT THE TOTAL TURNOVER CANNOT INCLUDE T HE TWO ITEMS OF EXPENSES RECOVERED BY THE ASSESSEE AND REFERRED TO IN THE DE FINITION OF EXPORT TURNOVER. 9 ITA NO.453/BANG/2011 IT HAS FURTHER BEEN HELD THAT - THE COMMON THREAD RUNNING THROUGH SECTIONS 80HHC 80HHE AND 80HHF IS THAT THEY ARE ALL PROVISIONS GRANTING RELIEF TO THE ASSESSES IN RESPECT OF PROFITS DERIVED FROM EXPORT. THE DIFFERENCE BETWEEN CHAPTE R III IN WHICH SECTION 10B FALLS AND CHAPTER VI-A IN WHICH THESE SECTIONS FALL IS THAT WHILE THE FORMER EXCLUDES THE INCOME IN QUESTION TOTALLY FROM THE PURVIEW OF TOTAL INCOME AND GIVES TOTAL EXEMPTION FROM TAX THE LATT ER GIVES DEDUCTION OF A PART OF THE PROFITS AND GAINS OF THE CONCERNED BUSINESS FROM THE GROSS TOTAL INCOME. BOTH HOWEVER ARE CHAPTERS WHICH GIVE RELIEF TO AS SESSES FROM TAXATION SUBJECT TO THE CONDITIONS BRING FULFILLED AND IN TH AT SENSE THEY ARE OF THE SAME GENRE. THE OBJECT OF THESE SECTIONS IS TO ENCOURAG E THE EARNING OF FOREIGN EXCHANGE AND PROVIDE INCENTIVE TO PROMOTE EXPORTS. IF SOME OF THE SECTIONS SUCH AS SECTIONS 80HHE AND 80HHF PROVIDE FOR A FORM ULA FOR CALCULATING THE DEDUCTION WHICH IS IDENTICAL WITH THE FORMULA PRESC RIBED BY SECTION 10B IT WOULD BE INCONGRUOUS TO INTERPRET SECTION 10B IN A MANNER DIFFERENT FROM THOSE TWO SECTIONS MERELY BECAUSE THERE IS NO DEFINITION OF TOTAL TURNOVER IN THAT SECTION. EXPORT TURNOVER AS DEFINED IN THESE SEC TIONS EXCLUDES FREIGHT TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DE LIVERY OF THE COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES IF ANY INCURRE D IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THUS S TATUTORY PARITY IS MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER IN THESE SECTIONS. THERE IS NO REASON WHY SUCH PARITY CANNOT BE MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER IN SECTION 10B JUST BECAUSE TOTAL TURNOVE R HAS NOT BEEN DEFINED IN THAT SECTION. 11. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. (2010) 330 I TR 175 (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER : UNDER SUB-SECTION 10A OF THE INCOME TAX ACT 196 1 A DEDUCTION IS ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE OF SUCH PROFI TS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR TH INGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS CO MMENCING FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS MANUFACTURE OR PRODUCTION. SUB-SECTION (4) OF SECT ION 10A PROVIDES THE MANNER IN WHICH THE PROFITS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE COMPUTED. UNDER SUB-SEC TION (4) THE PROPORTION BETWEEN THE EXPORT TURNOVER IN RESPECT OF THE ARTIC LES OR THINGS OR AS THE CASE MAY BE COMPUTER SOFTWARE EXPORTED TO THE TOT AL TURNOVER OF THE BUSINESS CARRIED OVER BY THE UNDERTAKING IS APPLIED TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN COMPUTING THE PROFIT S DERIVED FROM EXPORT. IN 10 ITA NO.453/BANG/2011 OTHER WORDS THE PROFITS OF THE BUSINESS OF THE UND ERTAKING ARE MULTIPLIED BY THE EXPORT TURNOVER IN RESPECT OF THE ARTICLES THI NGS OR AS THE CASE MAY BE COMPUTER SOFTWARE AND DERIVED BY THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. THE EXPRESSION TOTAL TURNO VER HAS NOT BEEN DEFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF SECTION 10A. HOWEVER THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOVER EXCLUDES FREIGHT AND INSURANCE. SINCE EXPORT TURNO VER HAS BEEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FRE IGHT AND INSURANCE THE EXPRESSION EXPORT TURNOVER CANNOT HAVE A DIFFEREN T MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURP OSES OF THE APPLICATION OF THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVIS ION WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOVER A RECEIPT SUC H AS FREIGHT AND INSURANCE WHICH DOES NOT HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTAL TURNOVER. FREIGHT AND INSURANCE CHARGES DO NOT HAV E ANY ELEMENT OF TURNOVER. FOR THIS REASON IN ADDITION THESE TWO ITEMS WOULD HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRIPTION TO THE CONTRARY. 12. A SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TATA ELEXI (2011) TIOL 684 (KARN.) AN D THE RELEVANT FINDING GIVEN THEREIN READS AS UNDER : THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY T HE UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPORT AND THE TURNOVER FROM L OCAL SALES. THE EXPORT TURNOVER CONSTITUTES THE NUMERATOR IN THE FORMULA P RESCRIBED BY SUB-SECTION (4). EXPORT TURNOVER ALSO FORMS A CONSTITUENT ELEMENT OF THE DENOMINATOR IN AS MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNO VER. THE EXPORT TURNOVER IN THE NUMERATOR MUST HAVE THE SAME MEANING AS THE EXP ORT TURNOVER WHICH IS CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DE NOMINATOR. THE LEGISLATURE HAS PROVIDED A DEFINITION OF THE EXPRESSION EXPORT TURNOVER IN EXPLN.2 TO S.10A WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDE RATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES THINGS OR COMPUTER SOFTWARE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE F OREIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGHT TELECOMMUNICATION CH ARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TURNOVER THE LEGISLATURE HAS M ADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURANCE CHARGES. THE SUBMISSION WHIC H HAS BEEN URGED ON BEHALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHARGES ARE LIABLE TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER A SIMILAR EX CLUSION 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 PARLIAMENT FOR THE PURPOSES OF S.10A. HOWEVER THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXP ORT TURNOVER EXCLUDES 11 ITA NO.453/BANG/2011 FREIGHT AND INSURANCE. SINCE EXPORT TURNOVER HAS B EEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FREIGHT AND IN SURANCE THE EXPRESSION EXPORT TURNOVER CANNOT HAVE A DIFFERENT MEANING WHEN IT F ORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICAT ION 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 CORR ECT STATUTORY INTERPRETATION. ANY OTHER INTERPRETATION WOULD LEAD TO AN ABSURDITY . IF THE CONTENTION OF THE REVENUE WERE TO BE ACCEPTED THE SAME EXPRESSION VI Z. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE THOUGH THESE HAVE BEEN SPECIFICALLY EXCLUDED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUMERATOR WOULD BE BROUGHT IN AS PA RT OF THE EXPORT TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMINATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISION WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOVER A RECEIPT SUCH AS FREIGHT AND I NSURANCE WHICH DOES NOT HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOT AL TURNOVER. FREIGHT AND INSURANCE CHARGES DO NOT HAVE ANY ELEMENT OF TURNOV ER. FOR THIS REASON IN ADDITION THESE TWO ITEMS WOULD HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCR IPTION TO THE CONTRARY CIT V SUDARSHAN CHEMICALS INDUSTRIES LTD. (2000) 163 CTR (BOM) 596: (2000) 245 ITR 769 (BOM) APPLIED; CIT V LAKSHMI MACHINE WORKS (200 7) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) AND CIT V CATAPHARMA (INDIA) (P) L TD. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) RELIED ON 13. FROM THE RATIO LAID DOWN IN THE AFO RESAID JUDICIAL PRONOUNCEMENTS BY THE HON'BLE JURISDICTIONAL HIGH COURT AND HON'BLE HIGH COURT OF BOMBAY IT IS CRYSTAL CLEAR THAT IF AN ITEM IS EXCLUDED FROM THE EXPORT TURN OV ER THE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURN OVER TO MAINTAIN PARITY BETWEEN THE NUMERATOR AND DENOMINATOR WHILE CALCULATING THE DEDUCTION UNDER SECTION 10A OF THE ACT. IN VIEW OF THE ABOVE WE DO NOT SEE ANY MERIT IN THE APPEAL OF THE DEPARTMENT. 14. IN THE RESULT THE APPEAL OF DEPARTMENT IS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 24.2.2012.) SD/- SD/- (GEORGE GEORGE) (N.K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEM BER BANGALORE DATED: 24.2. 2012. *REDDY GP 12 ITA NO.453/BANG/2011 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR - A BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR ITAT BANGALORE