ACE SOFTWARE SOLUTIOONS (I) P. LTD, MUMBAI v. ITO WD 8(1)(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 NO.6572/MUM/2009 : ASST.YEAR 2005-2006 M/S.ACE SOFTWARE SOLUTIONS (I) PVT.LTD. UNIT NO.21 SDF-1 SEEPZ ANDHERI (EAST) MUMBAI 400 096. PAN : AADCA6067B. VS. THE INCOME TAX OFFICER WARD 8(1)(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MRS.AARTI VISSANJI RESPONDENT BY : MRS.KUSUM INGLE O R D E R PER R.S.SYAL AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE LEARNED CIT U/S.263 ON 26.11.2009 IN RELATION TO ASSESSMENT YEA R 2005-2006. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSMENT ORDER IN THIS CASE WAS PASSED U/S.143(3) ON 17.12.2007. THE LEARNED CI T ON THE PERUSAL OF THE ASSESSMENT RECORDS OBSERVED THAT THE ASSESSMENT OR DER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST. NOTICE U/S.263 DATED 2 1.10.2009 WAS ISSUED COPY OF WHICH IS AVAILABLE AT PAGE 11 OF THE APPEAL PAPERS. FOLLOWING REASONS HAVE BEEN SET OUT FOR CONSIDERING THE ASSESSMENT ORDER AS ERRONEO US AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. AS PER NOTES FORMING PART OF BALANCE SHEET AND PRO FIT & LOSS A/C. IN PARA 8 THE EXPENDITURE INCURRED IN FOREIGN CURR ENCY ON FOREIGN TRAVEL IS MENTIONED AT RS.21 86 859/-. THE A.O. CAL LED FOR DETAILS AND JUSTIFICATION OF EXPENSES. VIDE YOUR LETTER DATED 3 0.11.2007 YOU HAVE MENTIONED THAT THE EMPLOYEES OF THE ASSESSEE CO. H AVE CARRIED OUT FOREIGN TRAVEL FOR THE PURPOSE OF INSTALLATION IMP LEMENTATION AND SUPPORT SERVICES FOR THE PRODUCT CALLED AML AT TH E PREMISES OF VARIOUS CLIENTS.. THUS THE EXPENDITURE TO THE EX TENT OF RS.21 86 859/- INCURRED IN FOREIGN EXCHANGE WHICH R ELATED TO PROVIDE TECHNICAL SERVICES OUTSIDE INDIA WERE REQUIRED TO B E EXCLUDED FROM THE EXPORT TURNOVER. THE A.O. FAILED TO EXCLUDE SUC H EXPENSES FROM THE EXPORT TURNOVER DUE TO WHICH THE ASSESSMENT MA DE BY THE A.O. IS ITA NO.6572/MUM/2009 M/S.ACE SOFTWARE SOLUTIONS (I) PVT.LTD. 2 ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. THE CORRECT COMPUTATION OF ALLOWABLE DEDUCTION WOULD BE 16 58 785 X [3 11 21 423 21 86 859 = 2 89 34 564 ] = 15 42 224 -------------------------------------------------- ----------------- 3 11 21 423 AS AGAINST THE DEDUCTION ALLOWED AT RS.16 58 785. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE ASSESSEE WAS ENGAGED I N THE BUSINESS OF PROVIDING SOFTWARE SOLUTIONS ELIGIBLE FOR DEDUCTION U/S 10A. UNDER THIS SECTION THE RELIEF IS CALCULATED BY MULTIPLYING THE PROFITS OF THE BUSINE SS OF THE UNDERTAKING WITH THE AMOUNT OF EXPORT TURNOVER AS DIVIDED WITH THE AMOUN T OF TOTAL TURNOVER. THE PRESENT ASSESSEE HAD NO LOCAL TURNOVER. IN OTHER WO RDS THE AMOUNT OF EXPORT TURNOVER CONSTITUTES THE AMOUNT OF TOTAL TURNOVER. THE ASSESSEE FILED RETURN DECLARING TOTAL INCOME OF RS. NIL AFTER CLAIMING DE DUCTION U/S.10A AT RS.16 58 785. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S. 143(3) ACCEPTING THE TOTAL INCOME AT RS. NIL. HOWEVER THE VIEW POINT OF THE L EARNED CIT FOR INVOKING THE JURISDICTION U/S.263 IS THAT THE FOREIGN TRAVEL EX PENSES FOR THE PURPOSES OF INSTALLATION IMPLEMENTATION AND SUPPORT SERVICES F OR THE PRODUCT AML AT THE PREMISES OF VARIOUS CLIENTS OUGHT TO HAVE BEEN EXCL UDED FROM THE EXPORT TURNOVER. FROM THE SHOW CAUSE NOTICE RELEVANT PART OF WHICH HAS BEEN EXTRACTED ABOVE IT IS SEEN THAT THE LEARNED CIT IN APPLYING THE FORMULA FOR DETERMINING THE PROFITS DERIVED FROM THE EXPORT OF ELIGIBLE SOFTWARE MULT IPLIED THE `PROFITS OF BUSINESS WITH `EXPORT TURNOVER AS REDUCED BY THE AMOUNT OF SUCH FOREIGN TRAVEL EXPENSES BUT DID NOT REDUCE SUCH FIGURE FROM THE FIGURE OF ` TOTAL TURNOVER. HE CANVASSED THE VIEW THAT THE FOREIGN TRAVEL EXPENSES FOR INSTALLAT ION AND IMPLEMENTATION FOR THE PRODUCTS AT THE PREMISES OF VARIOUS CLIENTS WERE RE QUIRED TO BE REDUCED ONLY FROM THE FIGURE OF EXPORT TURNOVER ONLY. IN OUR CONSIDE RED OPINION THIS CONTROVERSY STANDS ANSWERED BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. GEM PLAST ITA NO.6572/MUM/2009 M/S.ACE SOFTWARE SOLUTIONS (I) PVT.LTD. 3 JEWELLERY INDIA LIMITED [(2011) 330 ITR 175 (BOM.)] IN WHICH IT HAS BEEN HELD THAT WHILE COMPUTING RELIEF U/S.10A THE FIGURE OF EXPORT TURNOVER AND TOTAL TURNOVER SHALL BE EXCLUSIVE OF FREIGHT AND INSURANCE. IN THA T CASE ALSO THE REVENUE AUTHORITIES EXCLUDED THE FIGURE OF FREIGHT AND INSURANCE FROM T HE AMOUNT OF EXPORT TURNOVER WITHOUT REDUCING IT FROM THE FIGURE OF TOTAL TURNOV ER IN THE DENOMINATOR. IT WAS UNDER SUCH CIRCUMSTANCES THAT THE HONBLE JURISDICT IONAL HIGH COURT CAME TO HOLD THAT IF ANY AMOUNT IS REDUCED FROM THE FIGURE OF EX PORT TURNOVER IN THE NUMERATOR SAME SHOULD ALSO BE EXCLUDED FROM THE FIGURE OF TOT AL TURNOVER IN DENOMINATOR AS THE FIGURE OF EXPORT TURNOVER IS IMPLICIT IN THE FI GURE OF TOTAL TURNOVER. THERE WILL NOT BE ANY DIFFERENCE IN THE FIGURE OF AMOUNT OF R ELIEF U/S 10A WHETHER THE AMOUNT OF FOREIGN TRAVEL EXPENSE ARE REDUCED OR NOT FROM T HE FIGURE OF TOTAL TURNOVER AND EXPORT TURNOVER BECAUSE THE AMOUNT OF NUMERATOR A ND DENOMINATOR IN BOTH THE CIRCUMSTANCES SHALL REMAIN THE SAME. RESPECTFULLY F OLLOWING THE PRECEDENT WE HOLD THAT NO FAULT CAN BE FOUND IN THE ASSESSMENT ORDER ACCEPTING THE ASSESSEES CLAIM IN THIS REGARD. WE THEREFORE OVERTURN THE VIEW OF TH E LEARNED CIT AND QUASH THE IMPUGNED ORDER. 4. IN THE RESULT THE APPEAL IS ALLOWED. ORDER PRONOUNCED ON THIS 18 TH DAY OF FEBRUARY 2011. SD/- SD/- (ASHA VIJAYARAGHAVAN) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : FEBRUARY 2011. DEVDAS* ITA NO.6572/MUM/2009 M/S.ACE SOFTWARE SOLUTIONS (I) PVT.LTD. 4 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI.