M/s. ORBITECH LTD., MUMBAI v. ACIT Rg. - 8(2), MUMBAI

ITA 6645/MUM/2005 | 2002-2003
Pronouncement Date: 09-02-2010 | Result: Dismissed

Appeal Details

RSA Number 664519914 RSA 2005
Assessee PAN AAACC5736G
Bench Mumbai
Appeal Number ITA 6645/MUM/2005
Duration Of Justice 4 year(s) 2 month(s) 25 day(s)
Appellant M/s. ORBITECH LTD., MUMBAI
Respondent ACIT Rg. - 8(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-02-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 09-02-2010
Assessment Year 2002-2003
Appeal Filed On 14-11-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI A.L.GEHLOT AM & SMT. P.MADHAVI DEVI JM I.T.A.NOS.3209/M/05 & 6645/M/05 A.YS. 2001-02 & 2002-03 O R D E R PER P.MADHAVI DEVI JM: THESE CROSS APPEALS ARE CONSOLIDATED AND HEARD TO GETHER AND THEY ARE DISPOSED OF BY THIS COMMON ORDER. 2. I.T.A.NO.3209/M/05 A.Y 2001-02 : IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL- 1) ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AN D IN LAW THE LEARNED CIT[A] HAS ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER ON THE ERRONEOUS GROUND T HAT M/S ORBITECH LTD. [FORMERLY CITICORP OVERSEAS SOFTWARE LTD. 133/SDF 5 SEEPZ ANDHERI [E] MUMBAI 400 096 AAACC 5736 G VS. DY.COMMISSIONER OF I.T. RANGE 8 [2] MUMBAI (APPELLANT) (RESPONDENT) AND I.T.A.NOS.3560/M/05 & 6955/M/05 A.YS. 2001-02 & 2002-03 DY. COMMISSIONER OF I.T. RANGE 8[2] MUMBAI VS M/S ORBITECH LTD. [FORMERLY CITIGROUP OVERSEAS SOFTWARE LTD.] MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ARVIND SONDE. REVENUE BY : SHRI S.K.POHWA CIT 2 THE APPELLANT IS NOT ENTITLED TO DEDUCTION UNDER SE CTION 10A OF THE ACT IN RESPECT OF ITS PROFITS OF RS.11.9 1 CRORES DERIVED FROM THE INDUSTRIAL UNDERTAKING LOCATED AT CHENNAI SINCE IN THE OPINION OF THE ASSESSING OFFIC ER THERE WAS ALLEGED CONTRAVENTION OF THE PROVISIONS O F SUB- SECTION [IX] OF SECTION 10A OF THE INCOME TAX ACT. 2) ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AN D IN LAW THE LEARNED CIT[A] HAS ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER BY TREATING EXPENDITURE I NCURRED ON THE APPLICATION SOFTWARE OF RS.5 34 86 960/- AS CAPITAL EXPENDITURE AND NOT OF A REVENUE NATURE ALTHOUGH CIT[A] HAS GIVEN DIRECTION FOR GRANTING DEPRECIATION ON TH E SAID SUM OF RS.5 34 86 960/-. 3) ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW THE LEARNED CIT[A] WHILST HOLDING THAT REIMBURSEMENT OF EXPENSES INCURRED ON EMPLOYEES FOR ONSITE DEVELOPMENT OF COMPUTER SOFTWARE IS BUSINESS INCOME FAILED TO GIVE A FINDING THAT THE SAID REIMBURSEMENT IS INEXTRICABLY LINKED WITH THE EXPOR T OF COMPUTER SOFTWARE SINCE HAD THE EMPLOYEES NOT GONE ABROAD AFTER INCURRING THE NECESSARY EXPENSES THE ONSITE BUSINESS OF COMPUTER SOFTWARE WOULD NOT HAVE MATERIALIZED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF EXPORT OF COMPUTER SO FTWARE AND ITS TRANSMISSION FROM INDIA TO PLACES OUTSIDE INDIA AND IS ALSO PROVIDING TECHNICAL SERVICES OUTSIDE INDIA IN CONNECTION WITH THE DEVELOPMENT AND PRODUCTION OF COMPUTER SOFTWARE. THE ASSESSEE F ILED ITS RETURN OF INCOME FOR A.Y 2001-02 ON 31-10-2001 DECLARING TOTA L INCOME OF RS.4 95 08 280/-. DURING THE ASSESSMENT PROCEEDINGS U/S.143[3] ASSESSEE VIDE LETTER DATED 27/11/2003 SUBMITTED THA T THE ASSESSEE HAS ITS BUSINESS AT THREE DIFFERENT LOCATIONS VIZ. ON E IN MUMBAI SEEPZ AND THE OTHER TWO IN HYDERABAD & CHENNAI IN STP ZONES R ESPECTIVELY AND THAT DEDUCTION U/S.80HHE AMOUNTING TO RS.14.86 CROR ES PERTAINING TO MUMBAI UNIT WAS CLAIMED AND ALSO THAT THE ASSESSEE HAS CLAIMED 3 EXEMPTION U/S.10A OF THE ACT FOR HYDERABAD AND CHEN NAI UNITS AMOUNTING TO RS.11.91 CRORES AND RS.15.11 CRORES RE SPECTIVELY. THE AO ASKED THE ASSESSEE TO JUSTIFY THE APPLICABILITY OF SEC.10A IN ITS CASE. THE ASSESSEE VIDE ITS LETTER DATED 27-11-03 REPLIED THAT THE BUSINESS OF THE ASSESSEE AT HYDERABAD UNIT WAS SET UP IN 1997 A ND IT HAD COMMENCED ITS OPERATION ON 15 TH APRIL 97 AND ACCORDINGLY EXEMPTION U/S.80HHE WAS CLAIMED IN THE RETURN OF INCOME FOR A .Y 98-99 IN RESPECT OF HYDERABAD UNIT. AS REGARDS THE CHENNAI U NIT IT WAS SUBMITTED THAT THIS UNIT WAS SET UP IN 1998 AND IT HAD COMMENCED ITS OPERATION FROM DECEMBER 98 AND RELIEF U/S.80HHE WAS ALSO CLAIMED FOR THE CHENNAI UNIT FOR A.Y 99-2000. IT WAS SUBMITTED THAT BY VIRTUE OF THE AMENDMENT BROUGHT ABOUT BY THE FINANCE ACT 200 0 EFFECTIVE FROM A.Y 2001-02 THE DEDUCTION U/S.80HHE HAS BEEN PHASE D OUT OVER A PERIOD OF 5 YEARS AND AS REGARDS DEDUCTION UNDER SE C.10A NO SUCH PHASING OUT WAS INTRODUCED BY THE FINANCE ACT 2000 . THEREFORE THE ASSESSEE WAS ENTITLED TO CLAIM FULL EXEMPTION U/S.1 0A FOR A.Y 01-02 AND HENCE ASSESSEE ELECTED TO CHANGE THE METHOD OF CLAIMING RELIEF BY SHIFTING ITS CLAIM OF DEDUCTION TO SEC.10A INSTEAD OF U/S.80HHE. AS PER THE SCHEME OF SEC.10A DEDUCTION IS AVAILABLE FOR 5 OUT OF 8 YEARS BEGINNING WITH THE INITIAL ASSESSMENT YEAR OF MANUF ACTURE OR PRODUCTION AND IT WAS ENTIRELY THE OPTION OF THE AS SESSEE TO SPECIFY IN WRITING OR OTHERWISE OR INTIMATE TO THE DEPARTMENT IN ANY MANNER THAT A.Y 98-99 BEING THE INITIAL ASSESSMENT YEAR OF PROD UCTION IS THE YEAR FOR WHICH THE DEDUCTION WAS CLAIMED U/S.10A OF THE ACT. AS THE 4 ASSESSEE DID NOT MAKE ANY DECLARATION UNDER SUB-SEC .[7] OF SEC.10A TO OPT OUT OF AUTOMOTIVE DEDUCTION AVAILABLE TO IT AS SESSEE WAS ENTITLED TO CLAIM EXEMPTION U/S.10A OF THE ACT FOR ANY 5 OUT OF 8 YEARS BEGINNING WITH THE INITIAL ASSESSMENT YEAR I.E. A.Y 98-99 FOR BOTH THE UNITS I.E. HYDERABAD AND CHENNAI. THE ASSESSEE ALSO PLACED RELIANCE UPON VARIOUS JUDICIAL PRECEDENTS TO THE EFFECT THAT WHEN A PROVISION IS MADE IN THE CONTEXT OF LAW PROVIDING FOR CONCESSION AL RATE OF TAX FOR THE PURPOSE OF ENCOURAGING AN INDUSTRIAL ACTIVITY A LIBERAL CONSTRUCTION SHOULD BE PUT UPON THE LANGUAGE OF THE STATUTE AND WHERE TWO VIEWS ARE POSSIBLE THE VIEW THAT FAVOURS THE ASSESSEE OR IS BENEFICIAL TO HIM SHOULD BE ADOPTED. THE AO WAS HOWEVER NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE. HE OBSERVED THAT SEC.1 0A PROVIDES THAT ASSESSEE SHOULD FULFILL THE CONDITIONS LAID DOWN TH EREUNDER FOR BEING ELIGIBLE FOR CLAIMING THE DEDUCTION U/S.10A. HE OBS ERVED THAT THE ENTIRE SHAREHOLDING OF THE ASSESSEE COMPANY WAS HELD BY CI TI BANK OVERSEAS INVESTMENT CORPORATION [COIC] TILL A.Y 2000-01 BUT THE SAME HAS BEEN TRANSFERRED TO CITICORP TECHNOLOGY HOLDINGS INC. [C THI] DURING THE CURRENT YEAR. HE OBSERVED THAT THE NAME OF THE ASSE SSEE IN THE CURRENT YEAR HAS ALSO BEEN CHANGED FROM CITICORP OVERSEAS S OFTWARE LTD. TO CTHI. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN THE CH ANGE IN THE OWNERSHIP IT WAS SUBMITTED THAT SINCE THE PARENT C OMPANY IS COMMON THERE IS NO TRANSFER OF OWNERSHIP OR BENEFICIAL INT EREST AS CONTEMPLATED BY SUB-SEC.[9] OF SEC.10A OF THE ACT. HOWEVER THE AO HELD THAT DURING THE RELEVANT PREVIOUS YEAR THE OWNERSHIP BY VIRTUE OF THE ENTIRE 5 SHAREHOLDING BEING TRANSFERRED HAS BEEN TRANSFERRED FROM COIC TO CTHI AND EVEN THE BENEFICIAL INTEREST IN THAT UNDE RTAKING HAS BEEN TRANSFERRED. HE THEREFORE CONCLUDED THAT BOTH THE CONDITIONS OF SUB- SEC.[9] OF SEC.10A HAVE BEEN FULFILLED BY THE ASSES SEE AND THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S.10A OF THE A CT. 4. AS REGARDS THE ALTERNATE CLAIM OF THE ASSESSEE I N THE RETURN OF INCOME FOR DEDUCTION U/S.80HHE FOR THE ASSESSEE AS A WHOLE AO HELD THAT THE FACT THAT THE ASSESSEE HAS MADE A CLAIM U/ S.10A AND ALSO ALTERNATIVE CLAIM U/S.80HHE SHOWS THAT THE ASSESSEE WAS FULLY AWARE OF THE NON APPLICABILITY OF THE PROVISIONS OF SEC.1 0A AND HAS CLAIMED IT IN THE RETURN OF INCOME TO CONFUSE THE ISSUE AND TO EVADE THE INCIDENCE OF TAXATION. THEREAFTER HE WORKED OUT AND ALLOWED THE DEDUCTION U/S.80HHE AT RS.39 37 20 619/- BY TAKING INTO CONSI DERATION VARIOUS ADDITIONS MADE TO THE INCOME RETURNED BY THE ASSESS EE. AGGRIEVED ASSESSEE FILED AN APPEAL BEFORE THE CIT[A] REITERA TING THE SUBMISSIONS MADE BEFORE THE AO. HOWEVER THE CIT[A] CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATI NG THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW SUBM ITTED THAT SEC.10A BEING A BENEFICIAL PROVISION SHOULD BE INTERPRETED LIBERALLY. HE SUBMITTED THAT SUB-SEC.[9] OF SEC.10A HAS BEEN SUBS EQUENTLY OMITTED FROM THE STATUTE BOOK BY THE FINANCE ACT 2003 WITH OUT ANY SAVING CLAUSE AND THEREFORE IT HAS TO BE CONSTRUED TO HA VE NEVER BEEN IN EXISTENCE. AS THE CASE IS BEING HEARD IN 2009 WHEN THE SAID PROVISION 6 IS NOT IN THE STATUTE BOOK ANY LONGER THE LD. COUN SEL FOR THE ASSESSEE SUBMITTED THAT IT CANNOT BE MADE APPLICABLE AT THIS STAGE. FOR THIS PROPOSITION HE PLACED RELIANCE UPON THE DECISION OF B BENCH OF THE TRIBUNAL AT BANGALORE IN THE CASE OF M/S GE THERMOM ETRICS INDIA PVT. LTD. IN I.T.A.NOS.257 & 258/BANG/08 FOR A.YS. 03-04 AND 04-05 DATED 30 TH MAY 2008 IN SUPPORT OF HIS CONTENTIONS. FURTHER O N MERITS ALSO HE SUBMITTED THAT THE ASSESSEE IS A 100% SUBSIDIARY OF COIC WHICH IN TURN IS 100% SUBSIDIARY OF CITI GROUP. THE TRANSFER OF OWNERSHIP OF SHARES OF ASSESSEE COMPANY IS FROM THE PARENT COMPA NY TO ANOTHER 100% SUBSIDIARY OF CITI GROUP AND THEREFORE ACCOR DING TO HIM THERE IS NO TRANSFER OF LEGAL OWNERSHIP AS FAR AS THE UNDERT AKING IS CONCERNED THE TRANSFER IS ONLY IN THE OWNERSHIP OF THE ASSESS EE COMPANY AND ALSO THERE IS NO TRANSFER OF BENEFICIAL INTEREST AS CONT EMPLATED U/S.10A[9] OF THE ACT. THUS ACCORDING TO HIM THE ASSESSEE IS EL IGIBLE FOR DEDUCTION U/S.10A OF THE ACT. 6. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORD ERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT DURING THE REL EVANT PERIOD THE PROVISION OF SUB-SEC.[9] OF SEC.10A WAS VERY MUCH I N FORCE AND THEREFORE IS APPLICABLE TO THE CASE OF THE ASSESSE E. 7. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THEIR RIVAL CONTENTIONS WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THE BANGALORE ITAT IN THE CASE OF M/S GE THEROMETRICS INDIA PVT. LTD. VS. DY. CIT IN I.T.A.N OS.257 & 258/BANG/2008 DATED 30 TH MAY 2008 WHEREIN WHILE DEALING WITH THE 7 PROVISIONS OF SUB SEC.(9) OF SEC.10B OF THE INCOME TAX ACT THE CO- ORDINATE BENCH RELIED UPON THE DECISIONS OF THE HON 'BLE SUPREME COURT IN THE CASES OF KOLHAPUR CANESUGAR WORKS LTD. VS. UOI (2 SCC 536) AND RAYALA CORPORATION P. LTD. VS. DIRECTOR OF ENFO RCEMENT (2 SCC 412) AND ALSO IN THE CASE OF GENERAL FINANCE CO. VS. ACI T 257 ITR 328 FOR COMING TO THE FOLLOWING CONCLUSION: 11. THEREFORE EVEN THOUGH THE FINANCE ACT 2003 M ENTIONS THAT THE AFORESAID SUB-SECTION (9) IS OMITTED WITH EFFEC T FROM 1-4-2004 IN VIEW OF THE FACT THAT THE SAID OMISSION IS DIFFEREN T FROM REPEAL THE SAVING CLAUSE PROVIDED IN SECTION 6 OF THE GENERAL CLAUSES ACT IS NOT APPLICABLE. THEREFORE THE LEARNED CIT[A] IS NOT JUSTIFIED IN NOT APPRECIATING THE FACT THAT SECTION 10B SHOULD BE RE AD AS THOUGH IT NEVER HAD THE SAID SUB-SECTION (9) IN IT IN ALL PRO CEEDINGS UNDER THE ACT. AS THE APPELLATE PROCEEDINGS ARE CONTINUATION OF THE ASSESSMENT PROCEEDINGS AS HELD BY THE HON'BLE SUPREME COURT I N THE CASE OF JUTE CORPORATION OF INDIA LTD. (187 ITR 686) EVEN FOR ASSESSMENT YEAR 2003-04 THE AFORESAID SECTION 10B HAS TO BE RE AD WITHOUT THE IMPUGNED SUB-SECTION (9). THEREFORE WE FIND MUCH F ORCE IN THE STAND TAKEN BY THE ASSESSEE IN VIEW OF THE DECISION OF THE SUPREME COURT. EVEN ON THIS ISSUE THE ASSESSEE IS BOUND TO SUCCEED. IT IS ORDERED ACCORDINGLY. 8. AS THE LD. DR HAS NOT BROUGHT TO OUR NOTICE ANY DECISION TO THE CONTRARY WE ARE INCLINED TO FOLLOW THE DECISION OF THE CO-ORDINATE BENCH OF THE ITAT BANGALORE. IN THE CASE BEFORE US THE ISSUE IS WITH REGARD TO THE APPLICABILITY OF THE OMITTED SUB-SEC. (9) OF SEC.10A OF THE ACT WHICH IS SIMILARLY WORDED AS SUB-SEC.(9) OF SEC .10B AND THE SAME DECISION IS APPLICABLE TO THE ISSUE BEFORE US ALSO. IN VIEW OF THE SAME WE ARE CONSTRAINED TO FOLLOW THE DECISION OF THE CO -ORDINATE BENCH OF THE TRIBUNAL AT BANGALORE AND HOLD THAT SUB-SEC.(9) OF SEC.10A CANNOT BE APPLIED TO THE CASE OF THE ASSESSEE IN THE RELEV ANT ASSESSMENT YEAR ALSO. ACCORDINGLY GROUND OF APPEAL NO.1 IS ALLOWED . 8 9. AS REGARDS GROUND NO.2 BOTH THE PARTIES AGREED THAT THIS ISSUE NEEDS TO BE RECONSIDERED IN THE LIGHT OF THE DECISI ON OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA EN TERPRISES REPORTED IN 111 ITD 112 [S.B] [DEL]. ACCORDINGLY WE REMAND THE ISSUE TO THE FILE OF THE AO FOR FRESH EXAMINATION IN THE LIGHT O F THE GUIDELINES PRESCRIBED IN THE ABOVE DECISION OF THE SPECIAL BEN CH OF THE TRIBUNAL. THIS GROUND IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 10. AS REGARDS GROUND NO.3 BRIEF FACTS ARE THAT TH E ASSESSEE COMPANY HAD INCURRED CERTAIN EXPENSES ON BEHALF OF ITS CUSTOMERS FOR SOFTWARE DEVELOPMENT OUTSIDE INDIA WHICH WERE REIMB URSED TO THE ASSESSEE BY THE CUSTOMERS. THE TOTAL AMOUNT SPENT B Y THE COMPANY IS RS.1 50 21 296/- WHILE THE ASSESSEE HAD RECOVERED AN EXCESS OF RS.59 24 923/-. THE ASSESSEE WAS ASKED TO GIVE DETA ILS OF EXPENSES INCURRED ON BEHALF OF THE CUSTOMERS AND THE ACCOUNT ING TREATMENT GIVEN TO THIS TRANSACTION. THE ASSESSEE VIDE LETTER DATED 25/1/2004 STATED THAT THE ASSESSEE COMPANY FIRST MEETS THE EX PENSES OF ITS EMPLOYEES WHO GO OUTSIDE INDIA TO PERFORM ON-SITE P ROJECTS AND THEN RECOVERS SUCH EXPENSES FROM THE CUSTOMERS AND THERE CAN BE SOME MARGINAL DIFFERENCES BETWEEN THE AMOUNT SPENT BY TH E COMPANY AND THE AMOUNT RECOVERED AND THIS DIFFERENCE IS INCLUDE D IN OTHER INCOME SHOWN UNDER THE HEAD EXCESS RECOVERIES OVER REIMBU RSABLE EXPENSES AS THE EXPENSES RELATE TO THE EMPLOYEES STAY EXPENS ES VISA PROCESSING CHARGES ETC. IT HAS RESULTED IN EXCESS RECOVERY OF RS.59 24 923/- AND HAS BEEN TREATED AS BUSINESS INC OME. AO HOWEVER 9 WAS NOT SATISFIED WITH THE ASSESSEES EXPLANATION A ND HELD THAT THE WORD REIMBURSEMENT DENOTES THE PAYMENTS MADE FOR BUSINESS EXPENSES ACTUALLY INCURRED ON BEHALF OF SOME ONE BU T AS THE ASSESSEE HAS MADE PROFITS BY STAKING AN EXCESS CLAIM OVER TH E ACTUALS IT CANNOT BE SAID TO BE ATTRIBUTABLE TO EITHER EXPORT OF SOFT WARE OR PROVIDING TECHNICAL SERVICES AS MENTIONED IN SEC.80HHE(1) OF THE ACT. HE THEREFORE TREATED THE SAME AS INCOME FROM OTHER SOU RCES AND ADDED IT BACK TO THE TOTAL INCOME OF THE ASSESSEE. HE ALSO R EDUCED THE CLAIM OF DEDUCTION U/S.80HHE TO THIS EXTENT. 11. AGGRIEVED ASSESSEE FILED AN APPEAL BEFORE THE C IT[A] WHO AGREED WITH THE ASSESSEES CONTENTION THAT THE RECE IPT OF EXPENSES OVER ACTUALS ARE PART OF BUSINESS PROFITS. HOWEVER HE DIRECTED THE AO TO APPLY ON THE SAID RECEIPTS PROVISIONS OF CLAUSE (D) OF THE EXPLANATION TO SEC.80HHE IN WORKING OUT THE DEDUCTI ON THEREUNDER. AGGRIEVED BY THIS DIRECTION OF THE CIT[A] THE ASSE SSEE IS IN APPEAL BEFORE US AND AGGRIEVED BY THE DIRECTION OF THE CI T[A] TO TREAT IT AS BUSINESS RECEIPT THE REVENUE IS ALSO IN APPEAL BEF ORE US VIDE GROUND NO.2 OF ITS APPEAL IN I.T.A.NO.6645/M/05. 12. BOTH THE PARTIES REITERATED THE SUBMISSIONS MAD E BEFORE THE AUTHORITIES BELOW AND AFTER CONSIDERING THE SAME W E ARE SATISFIED THAT THE REIMBURSEMENT OF THE EXPENSES INCURRED BY THE A SSESSEE ON BEHALF OF ITS CUSTOMERS IS NOT DISPUTED BY ANY OF THE AUTH ORITIES BELOW. FURTHER THE ISSUE OF APPLICATION OF PROVISIONS OF SEC.80HHE WOULD ARISE ONLY IF THE DEDUCTION U/S.10A IS NOT ALLOWABLE. WE HAVE ALREADY HELD 10 THAT THE DEDUCTION U/S.10A IS ALLOWABLE TO THE ASSE SSEE. IN VIEW OF THE SAME THE ISSUE NEEDS NO ADJUDICATION AS IT IS ONLY ACADEMIC. THEREFORE BOTH THE ASSESSEES GROUND OF APPEAL AND THE REVENUES GROUND OF APPEAL ARE REJECTED. 13. IN THE RESULT ASSESSEES APPEAL IN I.T.A.NO.32 09/M/05 FOR A.Y 01-02 IS PARTLY ALLOWED. 14. I.T.A.NO.3560/M/05 A.Y 01-02 [REVENUES APPEA L] : THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT[A] ERRED IN DIRECTING THE AO TO ALLOW THE DEPRECIATIO N AT 60% ON COMPUTER SOFTWARE INSTEAD OF AT 25% WITHO UT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT[A] ERRED IN HOLDING THAT THE RECEIPT ARISING OUT OF REIMBURSEMENT OF EXPENSES AMOUNTING TO RS.59 24 923 /- IS A PART OF BUSINESS PROFIT AND THEREBY DIRECTING THE A O TO CONSIDER THE SAID AMOUNT ELIGIBLE FOR DEDUCTION U/S.80HHE OF THE ACT WITHOUT APPRECIATING THE FACTS OF THE CASE. 15. AS REGARDS GROUND NO.1 WE FIND THAT THIS ISSUE ALSO NEEDS RECONSIDERATION IN THE LIGHT OF THE SPECIAL BENCH O F THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES REPORTED IN 111 ITD 112 [S.B] [DEL]. THEREFORE THIS ISSUE IS REMANDED TO THE FILE OF TH E AO FOR FRESH EXAMINATION IN THE LIGHT OF THE GUIDELINES PRESCRIB ED IN THE SAID JUDGMENT. THIS GROUND IS ACCORDINGLY ALLOWED FOR ST ATISTICAL PURPOSES. 15A. AS REGARDS GROUND NO.2 FOR THE REASONS GIVEN IN PARA 12 ABOVE IT IS REJECTED. 16. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. 11 17. I.T.A.NO.6645/M/05 A.Y 02-03 [ASSESSEES APPE AL] : THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT[A] HAD ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER BY HOLDING THAT THE EXPENDITURE ON ACQUISI TION OF APPLICATION OF SOFTWARE OF RS.97 32 900/- WAS IN TH E NATURE OF CAPITAL EXPENDITURE ALTHOUGH THE ENTIRE EXPENDITURE IS PURELY OF A REVENUE NATURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT[A] WHILE AGREEING WITH THE APPELLANT THAT REIMBURSEMENT OF EXPENSES INCURRED ON EMPLOYEE ON O N-SIGHT DEVELOPMENT OF COMPUTER SOFTWARE IS BUSINESS PROFIT HAS SUBSEQUENTLY ERRED IN HOLDING THAT THE PROVISION OF CLAUSE (D)(1) OF THE EXPLANATION TO SUB-SECTION 5 OF SECTI ON 80HHE IS APPLICABLE IGNORING THE FACT THAT THE RECOVERY OF R EIMBURSABLE EXPENSES WERE PART AND PARCEL OF EXPORT TURNOVER AN D THAT IN THE CIRCUMSTANCES NO DEDUCTION OF 90% IS WARRANTED FROM PROFITS OF THE BUSINESS. 18. GROUND NO.1 IS REJECTED AS NOT PRESSED AS DEPRE CIATION HAS ALREADY BEEN GRANTED TO THE ASSESSEE. 19. AS REGARDS GROUND NO.2 WE FIND THAT THIS GROUN D OF APPEAL IS SIMILAR TO GROUND NO.3 IN ASSESSEES APPEAL FOR A.Y 2001-02 AND FOR THE REASONS GIVEN THEREIN THIS GROUND OF APPEAL IS REJE CTED. 22. IN THE RESULT ASSESSEES APPEAL IS DISMISSED. 21. I.T.A.NO.6955/M/05 A.Y 2002-03 [REVENUES APP EAL ] : THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE COMMISSIONER OF INCOME-TAX [APPEALS] ERRED IN D IRECTING THE AO TO ALLOW THE DEPRECIATION AT 60% ON COMPUTER SOFTWARE INSTEAD OF AT 25% WITHOUT APPRECIATING THE FACTS O F THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE COMMISSIONER OF INCOME-TAX [APPEALS] ERRED IN H OLDING THAT THE RECEIPT ARISING OUT OF REIMBURSEMENT OF EX PENSES AMOUNTING TO RS.27 32 170/- IS A PART OF BUSINESS P ROFIT AND THEREBY DIRECTING THE AO TO CONSIDER THE SAID AMOUN T ELIGIBLE FOR DEDUCTION U/S.80HHE OF THE ACT WITHOUT APPRECI ATING THE FACTS OF THE CASE. 12 22. GROUND NO.1 IS SIMILAR TO GROUND NO.1 IN REVENU ES APPEAL FOR A.Y 2001-02 AND FOR THE REASONS GIVEN THEREIN THIS GROUND IS ALSO REMANDED TO THE AO FOR RECONSIDERATION IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AM WAY INDIA ENTERPRISES REPORTED IN 111 ITD 112 [S.B] [DEL]. TH IS GROUND IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 23. AS REGARDS GROUND NO.2 WE FIND THAT THIS GROUN D IS ALSO SIMILAR TO GROUND NO.2 OF REVENUES APPEAL FOR A.Y 01-02 AN D FOR THE REASONS GIVEN THEREIN THIS GROUND OF APPEAL IS REJECTED. 24. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 9 TH DAY OF FEBRUARY 2010. SD/- SD/- (A.L.GEHLOT) (P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 9 TH FEBRUARY 2010. P/-* COPY TO- 1) APPELLANT 2) RESPONDENT 3) CITA MUMBAI. 4) CIT CITY MUMBAI 5) DR BENCH MUMBAI TRUE COPY BY ORDER DY/ ASST.REGISTRAR ITAT MUMBAI. 13 SR.NO. PARTICULARS DATE INITIALS 1 DRAFT DICTATED ON 25-1-10 P 2 DRAFT PLACED BEFORE AUTHOR 25-1-10 P 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO SR.PS/PS 6 ORDER KEPT FOR PRONOUNCEMENT 7 FILE SENT TO BENCH CLERK 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER