ATOS ORIGIN INDIA P. LTD, MUMBAI v. ADDL CIT RG 8(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI R.S.SYAL AM AND SMT.ASHA VIJAYARAGHAVA N JM ITA NOS.6478 & 6483/MUM/2009 : ASST.YEARS 2003-200 4 & 2005-2006 M/S.ATOS ORIGIN INDIA PRIVATE LIMITED 126/127 SDF-IV SEEPZ ANDHERI (EAST) MUMBAI 400 096. PAN : AAACO2461J. VS. THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 8(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KANCHAN KAUSHAL RESPONDENT BY : SHRI S.K.PAHWA O R D E R PER R.S.SYAL AM : THESE TWO APPEALS BY THE ASSESSEE RELATE TO THE ASS ESSMENT YEARS 2003-2004 AND 2005-2006. SINCE SOME OF THE ISSUES RAISED IN THESE APPEALS ARE COMMON WE ARE THEREFORE PROCEEDING TO DISPOSE OF THESE APPEAL S BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ASSESSMENT YEAR 2003-2004 2. THE ASSESSEE HAS FILED SOLITARY CONCISE GROUND R EADING AS UNDER:- ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) XVI [CIT(A) ] ERRED IN CONFIRMING THE DECISION OF THE ADDL.COMMISSIONER OF INCOME-TAX RANGE 8-1 (AO) IN REDUCING EXPENSES INCURRED IN F OREIGN CURRENCY FOR PROVIDING TECHNICAL SERVICES OUTSIDE INDIA ONLY FROM THE EXPORT TURNOVER (ETO) AND NOT FROM THE TOTAL TURNOVER ( TTO) FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.10A AND 10B OF T HE INCOME TAX ACT 1961 (ACT). ITA NOS.6478 & 6483/MUM/2009 M/S.ATOS ORIGIN INDIA PRIVATE LIMITED. 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSMENT IN THIS CASE WAS INITIALLY COMPLETED U/S.143(3). THEREAFTER NOTICE W AS ISSUED U/S.148 REOPENING THE ASSESSMENT WITH THE FOLLOWING REASONS:- FOR THE PURPOSE OF ALLOWING DEDUCTION U/S.10A & 10 B OF THE I.T.ACT THE EXPORT TURNOVER IS THE CONSIDERATION RECEIVED I N CONVERTIBLE FOREIGN EXCHANGE IN RESPECT OF EXPORTS BUT DOES NOT INCLUDE THE EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. FOR THE A.Y.2003-04 IT IS SEEN THAT THE ASSESSEE HAD INCURRED THE FOLLOWING EXPENSES IN FOREIGN CURRENCY: TRAVEL EXPENSES RS.4 34 36 401 OTHERS RS.2 81 71 608 LIAISON OFFICE EXPENSES IN FOREIGN RS.1 40 31 56 3 -------------------- TOTAL RS.8 56 39 572 ========= AS THESE EXPENSES OF RS.8 56 39 572 WERE INCURRED IN FOREIGN CURRENCY FOR PROVIDING THE SERVICES IT WAS REQUIRED TO BE D EDUCTED FROM EXPORT TURNOVER. IT HAS NOT BEEN DONE SO WHILE COMPUTING T HE DEDUCTION U/S.10A AND 10B. CONSEQUENTLY THE ASSESSEE HAS BEE N ALLOWED EXCESS DEDUCTION U/S.10A AND 10B TO THE EXTENT OF RS.1 63 72 621 THEREBY RESULTING IN ESCAPEMENT OF INCOME. THUS I HAVE REASON TO BELIEVE THAT THE INCOME OF THE ASSESSEE TO THE EXTENT OF RS.1 63 72 621 HAS ESCAPED THE ASSESSMENT BEING EXCESS DEDUCTION ALLOWED U/S.10A AND 10B. THEREFORE THE C ASE IS BEING REOPENED BY ISSUE OF NOTICE U/S.148 OF THE INCOME T AX ACT 1961. 4. THE ASSESSING OFFICER OPINED THAT THE CLAIM FOR DEDUCTION U/S.10A / 10B WAS INAPPROPRIATE INASMUCH AS PROPORTIONATE FOREIGN EXP ENSES WERE REQUIRED TO BE REDUCED FROM THE EXPORT TURNOVER. IT WAS ALSO HELD THAT THE TOTAL TURNOVER OF THE UNDERTAKING AS PER FORM NO.56F AND 56G WOULD REMAIN THE SAME. ACCORDINGLY DEDUCTION U/S.10A / 10B WAS RECOMPUTED AND THE EXCE SS AMOUNT SO DETERMINED WAS DISALLOWED. NO RELIEF WAS ALLOWED IN THE FIRST APPE AL. ITA NOS.6478 & 6483/MUM/2009 M/S.ATOS ORIGIN INDIA PRIVATE LIMITED. 3 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE SHORT CONTROVERSY REQUIRING OUR DECISI ON IS TO DECIDE WHETHER THE FOREIGN EXPENSES TAKEN NOTE OF BY THE ASSESSING OFF ICER WERE NOT LIABLE TO BE EXCLUDED FROM THE TOTAL TURNOVER WHEN THESE WERE R IGHTLY REDUCED FROM THE EXPORT TURNOVER. THE ASSESSING OFFICER HELD THAT SUCH FOR EIGN EXPENSES ALBEIT LIABLE FOR DEDUCTION FROM EXPORT TURNOVER COULD NOT BE REDUCED FROM THE TOTAL TURNOVER FOR THE PURPOSES OF CALCULATING THE BENEFIT OF DEDUCTION U /SS 10A/10B. ON THE OTHER HAND THE VIEW POINT OF THE ASSESSEE IS THAT SUCH FOREIGN EXPENSES WHICH ARE REDUCED FROM THE EXPORT TURNOVER SHOULD BE DEDUCTED FROM THE FIG URE OF TOTAL TURNOVER AS WELL. IT IS SEEN THAT THE BENEFIT OF DEDUCTION U/S.10A / 10B IS COMPUTED BY MULTIPLYING PROFITS FROM THE BUSINESS OF UNDERTAKING WITH THE E XPORT TURNOVER AS DIVIDED BY THE TOTAL TURNOVER. TOTAL TURNOVER IN THE DENOMINATOR COMPRISES NOT ONLY THE EXPORT TURNOVER BEING THE NUMERATOR BUT ALSO LOCAL TURNOV ER. IT IS SIMPLE AND PLAIN THAT IF ANY AMOUNT IS REDUCED FROM THE FIGURE OF EXPORT TUR NOVER IT WOULD ALSO STAND EXCLUDED FROM THE FIGURE OF TOTAL TURNOVER. IF A P ARTICULAR PART IS HELD TO BE NOT CONSTITUTING EXPORT TURNOVER THAT WILL AUTOMATICAL LY STAND EXCLUDED FROM THE TOTAL TURNOVER BECAUSE THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER PLUS LOCAL TURNOVER. IN OUR CONSIDERED OPINION THE LEARNED CIT(A) WAS NOT J USTIFIED IN UPHOLDING THE VIEW OF THE ASSESSING OFFICER IN REDUCING THE FOREIGN EX PENSES FROM THE EXPORT TURNOVER ONLY AND NOT GIVING CONSEQUENTIAL EFFECT TO THE FIG URE OF TOTAL TURNOVER. OUR VIEW IS FORTIFIED BY THE RECENT JUDGEMENT OF THE HONBLE BO MBAY HIGH COURT IN CIT VS. GEM PLAST JEWELLERY INDIA LIMITED [(2011) 330 ITR 1 75 (BOM.)] . SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE F OR THE EARLIER YEAR A COPY OF WHICH ORDER HAS BEEN PLACED ON RECORD. WE THEREF ORE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE. 6. IN THE RESULT THE APPEAL IS ALLOWED. ITA NOS.6478 & 6483/MUM/2009 M/S.ATOS ORIGIN INDIA PRIVATE LIMITED. 4 ASSESSMENT YEAR 2005-2006 7. THE ASSESSEE HAS FILED CONCISE GROUNDS FOR THIS YEAR AS WELL. GROUND NO.1 IS SIMILAR TO THE ONLY GROUND OF ASSESSMENT YEAR 2003- 2004 ASSAILING THE FINDING OF THE LEARNED CIT(A) IN NOT REDUCING EXPENSES INCURRE D IN FOREIGN CURRENCY FROM THE TOTAL TURNOVER WHILE REDUCING THEM FROM THE EXPORT TURNOVER. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THIS GROUND ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF ASSESSMENT YEAR 2003-2004. FOLL OWING THE VIEW TAKEN HEREINABOVE WE MODIFY THE IMPUGNED ORDER ON THIS IS SUE AND ALLOW THIS GROUND OF APPEAL. 8. GROUND NO.2.2 READS AS UNDER:- FURTHER THE LEARNED CIT(A) ALSO FAILED TO APPRECIA TE THAT THE DETAILS IN RELATION TO THE CLAIM MADE BY THE APPELLANT WITH RE SPECT TO THE REALIZATION OF THE ENTIRE EXPORT PROCEEDS PERTAINI NG TO THE SALE EFFECTED BY THE ELIGIBLE UNIT WERE NEVER CALLED FOR BY THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS AND ALL THE DETAILS WHICH WE RE CALLED FOR BY THE AO WERE DULY FURNISHED BY YOUR APPELLANT DURING SUC H PROCEEDINGS. 9. IT IS SEEN FROM THE IMPUGNED ORDER THAT GROUND N O.6 HAS BEEN SET OUT IN PARA 7 PAGE 12. THE FINDING IS GIVEN IN PARA 7.1 BY HOLD ING THAT THIS GROUND IS CONSEQUENTIAL AND HENCE NO ADJUDICATION IS REQUIRED . THE LD. AR SUBMITTED THAT THIS GROUND IS NOT CONSEQUENTIAL BUT REQUIRES DISTINCT ADJUDICATION. IT WAS PRAYED BY THE LEARNED A.R. THAT FOR THE PURPOSE OF DECIDING THIS GROUND CERTAIN FACTUAL VERIFICATION IS ALSO REQUIRED AND HENCE THE MATTER MAY BE SENT T O THE ASSESSING OFFICER INSTEAD OF LEARNED CIT(A). NO SERIOUS OBJECTION WAS RAISED ON BEHALF OF THE DEPARTMENT. IN SUCH CIRCUMSTANCES WE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REMIT THIS MATTER TO THE FILE OF A.O. FOR TAKING A FRESH DECIS ION AS PER LAW AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. ITA NOS.6478 & 6483/MUM/2009 M/S.ATOS ORIGIN INDIA PRIVATE LIMITED. 5 10. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 4 TH DAY OF FEBRUARY 2011. SD/- SD/- (ASHA VIJAYARAGHAVAN) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 4 TH FEBRUARY 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - XVI MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI.