Mphasis Software & Services (India) Private Limited, Bangalore v. ACIT, Bangalore

ITA 705/BANG/2010 | 2004-2005
Pronouncement Date: 31-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 70521114 RSA 2010
Bench Bangalore
Appeal Number ITA 705/BANG/2010
Duration Of Justice 8 month(s) 9 day(s)
Appellant Mphasis Software & Services (India) Private Limited, Bangalore
Respondent ACIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 31-01-2011
Date Of Final Hearing 31-01-2011
Next Hearing Date 31-01-2011
Assessment Year 2004-2005
Appeal Filed On 21-05-2010
Judgment Text
PAGE 1 OF 10 ITA NOS.704 & 705/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K. J.M. AND SHRI A MOHAN ALANKAMONY A.M. ITA NOS.704 & 705/BANG/2010 (ASST. YEARS 2003-04 & 2004-05) MPHASIS SOFTWARE & SERVICES (INDIA) PRIVATE LIMITED BAGMANE TECHNOLOGY APRK BYRASANDRA C V RAMAN NAGAR BANGALORE-560093. - APPELLANT VS THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE-12(1) BANGALORE. - RESPONDENT APPELLANT BY : SHRI T SURYANARAYANA ADVOCATE RESPONDENT BY : SHRI G V GOPALA RAO CIT-I O R D E R PER GEORGE GEORGE K : THESE TWO APPEALS INSTITUTED BY THE ASSESSEE ARE DIRECTED AGAINST SEPARATE ORDERS OF THE CIT(A)-III BOTH DATED 15.2.2010. THE RELEVANT ASSESSMENT YEARS ARE 2003- 04 AND 2004-05. 2. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEA LS THEY ARE HEARD TOGETHER AND DISPOSED OF BY THIS CONSO LIDATED ORDER FOR THE SAKE OF CONVENIENCE. PAGE 2 OF 10 ITA NOS.704 & 705/BANG/2010 2 3. SEVERAL GROUNDS ARE RAISED IN BOTH THE APPEALS. HOWEVER THE SOLITARY ISSUE THAT IS RAISED IN THESE APPEALS IS WHETHER THE CIT(A) IS JUSTIFIED IN DENYING EXEMPTION U/S 10A OF THE ACT ON EXPORT REVENUES OF RS.7 71 53 311/- AND RS.21 50 73 107/- FOR ASST. YEARS 2003-04 AND 2004 -05 RESPECTIVELY. 4. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT AND CALL CENTRE SERVICES. THE ASSESSEE HAD SET UP UNITS AT MUMBAI AND PUNE WHICH ARE REGISTERED AS SOFTWARE TECHNOLOGY PARK (STP UNIT S). THE ASSESSEE WAS ELIGIBLE FOR EXEMPTION U/S 10A OF THE I T ACT IN RESPECT OF THESE UNITS. FOR THE ASST. YEAR 2003-04 RETURN OF INCOME WAS FILED ON 25 TH NOVEMBER 2003 DECLARING A TOTAL INCOME OFRS.3 89 69 030/- AFTER CLAIMING RELIEF U/S 10A AM OUNTING TO RS.8 46 49 114/-. IN COMPUTING EXEMPTION U/S 10A O F THE ACT THE ASSESSEE HAD CONSIDERED THE EXPORT REVENUE UNREALIZ ED AMOUNTING TO RS.14 44 50 338/- AS PART OF THE EXPORT TURNOVER . ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT WHEREIN CLAIM O F EXEMPTION U/S 10A WAS RECOMPUTED BY THE A.O. THE AO DID NOT C ONSIDER THE UNREALIZED AMOUNT OF RS.7 71 53 311/- AS PART OF TH E EXPORT TURNOVER WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. 4.1 THE RELEVANT PORTION OF THE ASSESSMENT ORDER F OR ASST. YEAR 2003-04 READS AS FOLLOWS:- PAGE 3 OF 10 ITA NOS.704 & 705/BANG/2010 3 THE SUBMISSIONS OF THE ASSESSEE COMPANY HAS BEEN CONSIDERED. FROM THE DETAILS ON RECORD IT IS SEEN THAT THE ASSESSEE COMPANY HAS NOT BEEN ABLE TO FURNISH THE APPROVAL OF THE COMPETENT AUTHORITY GRANTING EXTENSION OF TIME AND OUT OF RS.14 44 50 338/- THE AMOUNT REALIZED IS RS.6 72 97 027/-. THE CLAIM FOR DEDUCTION U/S 10A ON THE AMOUNT OF RS.7 71 53 311/- IS DISALLOWED AS THE CONDITION LAID DOWN FOR THE GRANT OF DEDUCTION U/S 10A HAS NOT BEEN FULFILLED. 4.2 FOR ASST. YEAR 2004-05 THE ASSESSEE FILED THE RETURN OF INCOME ON 30 TH OCTOBER 2004 DECLARING A TOTAL INCOME OF RS.2 10 58 144/- AFTER CLAIMING RELIEF UNDER SECTIO N 10A AMOUNTING TO RS.3 13 76 885/-. IN COMPUTING EXEMPTION U/S 10 A OF THE ACT THE ASSESSEE COMPANY HAD CONSIDERED THE EXPORT REVEN UE OUTSTANDING AMOUNTING TO RS.21 50 73 107/- AS PART OF THE EXPORT TURNOVER FOR WHICH APPLICATION FOR SEEKING EXTENSIO N OF TIME FOR REALIZATION OF THE SAME WAS MADE TO THE COMPETENT A UTHORITIES. THE AO WHILE COMPLETING THE ASSESSMENT DID NOT CO NSIDER THE AMOUNT OF RS.21 50 73 107/- AS PART OF THE EXPORT T URNOVER SINCE THE SAME WAS NOT REALIZED WITHIN THE STIPULATED TIM E PRESCRIBED U/S 10A OF THE ACT. 5. THE ASSESSEE BEING AGGRIEVED BY THE ASSESSMENT COMPLETED FOR THE ASST. YEARS 2003-04 AND 2004-05 C ARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORI TY. 6. IT WAS CONTENDED BEFORE THE FIRST APPELLATE AUT HORITY THAT THE APPROVAL FOR EXTENSION SHALL BE DEEMED TO HAVE BEEN PAGE 4 OF 10 ITA NOS.704 & 705/BANG/2010 4 GRANTED IF COMMUNICATION ACCEPTING/REJECTING THE AP PLICATION WAS NOT RECEIVED AFTER A REASONABLE TIME. THE ASSESSEE IN ITS SUBMISSION HAS RELIED ON THE DECISION OF HONBLE M UMBAI TRIBUNAL IN THE CASE OF MORGAO STANLEY ADVANTAGE SERVICES (P) LI MITED V ITO (2009) 30 SOT 1 AND ALSO VARIOUS OTHER CASE LAWS TO SUBSTANTIATE THE ABOVE PROPOSITION. 6.1 IT WAS ALSO SUBMITTED THAT IN VIEW OF THE INSE RTION OF SUB-SECTION 11A TO SECTION 155 OF THE ACT THE ORDE R PASSED BY THE AO HAS TO BE RECTIFIED BY CONSIDERING THE EXPORT PRO CEEDS REALIZED BY THE ASSESSEE AS EXPORT TURNOVER. 7. THE FIRST APPELLATE AUTHORITY FAILED TO ADJUDICA TE THE ASSESSEES FIRST SUBMISSION NAMELY THAT THE APPROV AL FOR EXTENSION SHALL BE DEEMED TO HAVE BEEN GRANTED IF COMMUNICATI ON ACCEPTING/REJECTING THE APPLICATION WAS NOT RECEIVE D AFTER A REASONABLE TIME. THE SECOND CONTENTION OF THE ASS ESSEE MENTIONED SUPRA AT PARA 6.1 WAS REJECTED BY THE CIT(A) BY OBSE RVING ASSESSMENT YEARS CONCERNED ARE FOR A PERIOD PRIOR TO INSERTION OF SUB-SECTION 11A TO SECTION 155 OF THE ACT AND THUS THE BENEFICIAL PROVISIONS OF SECTION 155(11A) CANNOT BE GRANTED IN THE INSTANT CASE. 8. THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFO RE US. 9. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE INCOME TAX AUTHORITIES. HE ALSO PAGE 5 OF 10 ITA NOS.704 & 705/BANG/2010 5 RELIED ON THE DECISION OF THE BANGALORE TRIBUNAL IN THE CASE OF NOUS INFOSYSTEMS (P) LTD. (ITA NOS.606 & 607/BANG/08 AY 2004-05 & 2005-06) FOR THE PROPOSITION THAT SECTION 155(11A) OF THE ACT WILL HAVE APPLICATION TO THE FACTS OF THE INSTANT CASE. 10. THE LEARNED DR ON THE OTHER HAND STRONGLY SUP PORTED THE IMPUGNED ORDERS OF THE INCOME TAX AUTHORITIES. 11. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. FOR THE ASST. YEAR 2003-04 THE UNDISPUTED FACTS ARE AS FOLLOWS:- AS ON 30 TH SEPTEMBER 2003 THE ASSESSEE COMPANY HAD UNREALIZED EXPORT PROCEEDS AMOUNTING TO RS.14 4 4 50 338/-. THE ASSESSEE HAD APPLIED TO THE COMPETENT AUTHORITY FOR EXTENSION OF TIME LIMIT FOR RECEIPT OF UNREALIZED EXPORT PROC EEDS. OUT OF THE TOTAL UNREALIZED EXPORT PROCEEDS OF RS.14 44 50 338 /- AN AMOUNT OF RS.6 72 97 027/- WAS REALIZED SUBSEQUENT TO 30 TH SEPTEMBER 2003 TILL THE COMPLETION OF THE ASSESSMENT. THE BA LANCE UNREALIZED EXPORT PROCEEDS OF RS.7 72 53 311/- WERE NOT CONSID ERED BY THE AO AS EXPORT TURNOVER FOR THE PURPOSE OF SECTION 10 A OF THE ACT AS NO FORMAL APPROVAL GRANTING EXTENSION OF TIME WA S RECEIVED FROM THE COMPETENT AUTHORITY. ACCORDING TO ASSESSEE COMP ANY IT LATER REALIZED AN AMOUNT OF RS.6 25 48 905/- AND HAS FILE D AN APPLICATION U/S 155(11A) OF THE ACT WITH THE AO. PAGE 6 OF 10 ITA NOS.704 & 705/BANG/2010 6 11.1 FOR THE ASST. YEAR 2004-05 AS ON AS ON 30 TH SEPTEMBER 2004 THE ASSESSEE COMPANY HAD UNREALIZED EXPORT PROCEEDS AMOUNTING TO RS.21 50 73 197/-. THE ASSES SEE HAD APPLIED TO THE COMPETENT AUTHORITY FOR EXTENSION OF TIME LIM IT FOR RECEIPT OF UNREALIZED EXPORT PROCEEDS. THE UNREALIZED EXPO RT PROCEEDS OF RS.21 50 73 197/- AS ON 30/9/2004 WERE NOT CONSIDE RED BY THE AO AS EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION O F DEDUCTION UNDER SECTION 10A OF THE ACT. ACCORDING TO ASSESS EE OUT OF EXPORT PROCEEDS UNREALIZED AS ON 30.9.2003 AND 30.9 .2004 AMOUNTS OF RS.6 25 48 905/- AND RS.18 77 49 471/- W ERE LATER REALIZED AND BROUGHT INTO INDIA AS CONVERTIBLE FORE IGN EXCHANGE. WHEN THESE AMOUNTS WERE REALIZED AND WHETHER THEY WE RE REALIZED PURSUANT TO THE APPROVAL OF COMPETENT AUTHORITY IS N OT DISCERNABLE FROM THE RECORDS AVAILABLE. 11.2 HOWEVER IT IS NOT IN DISPUTE THAT THE ASSESS EE HAD COMPLIED WITH ALL THE FORMALITIES AND HAD APPLIED F OR EXTENSION TO COMPETENT AUTHORITY VIDE ITS LETTERS DATED 2/9/2003 & 5.11.2003. ONCE THE ASSESSEE HAS COMPLIED WITH ALL FORMALITIES AND THE REQUEST OF THE ASSESSEE FOR EXTENSION OF TIME IS NOT REJECT ED IT COULD BE PRESUMED THAT AFTER REASONABLE TIME THE EXTENSION OF TIME HAS BEEN GRANTED IN RESPECT OF THE AMOUNT REALIZED AND BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE. IN THIS CON TEXT WE REFER TO THE ORDER OF THE MUMBAI TRIBUNAL IN THE CASE OF MOR GAN STANLEY ADVANTAGE SERVICES (P) LTD. 30 SOT 1 (2009). THE R ELEVANT FINDING OF THE TRIBUNAL AT PARA 9 READS AS FOLLOWS:- PAGE 7 OF 10 ITA NOS.704 & 705/BANG/2010 7 FROM THE ABOVE LETTER IT IS EVIDENT THAT THE RESERVE BANK OF INDIA HAS EXTENDED THE TIME FOR REMITTANCE OF FOREIGN EXCHANGE UNDER FEMA. SO HOWEVER THERE IS NO FORMAL APPROVAL FOR THE PURPOSES OF SECTION 10A IN THE LIGHT OF THE AFOREMENTIONED NOTE. IN OUR CONSIDERED VIEW THE RESERVE BANK OF INDIA IN RESPONSE TO THE REQUEST OF THE ASSESSEE TO EXTEND THE TIME HAVING TAKEN THE REMITTANCES ON RECORD IMPLIES THAT THE ISSUING OF A LETTER EXTENDING THE TIME IS ONLY A FORMALITY. THE ASSESSEE HAVING APPLIED FOR EXTENSION AND HAVING COMPLETED ALL THE FORMALITIES; AND IN RESPONSE THE RESERVE BANK OF INDIA HAVING TAKEN THE REMITTANCES ON RECORD THE NON-ISSUE OF FORMAL LETTER FOR APPROVAL IN OUR VIEW CANNOT BE HELD AGAINST THE ASSESSEE FOR NONE OF ITS FAULTS. THE ASSESSEE HAVING APPLIED FOR EXTENSION AND THE SAME HAVING BEEN IMPLIEDLY GRANTED IN SUBSTANCE THE BENEFIT OF SECTION 10A HAS GOT TO BE ALLOWED TO THE ASSESSEE ON THE GROUND THAT THE EXTENSION IS DEEMED TO HAVE BEEN GRANTED. ONCE THE ASSESSEE HAS COMPLETED ALL THE FORMALITIES AND THE REQUEST OF THE ASSESSEE FOR EXTENSION OF TIME NOT HAVING BEEN REJECTED IT CAN BE PRESUMED AFTER A REASONABLE TIME THAT THE EXTENSION HAS BEEN GRANTED. THIS VIEW IS SUPPORTED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF LACHMAN CHATURBHUJ JAVA (SUPRA). IN THE LIGHT OF THE FACTS OF THIS CASE WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 10A EVEN IN RESPECT OF THE REMITTANCES OF RS.2 20 36 235. THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTED THE EXEMPTION UNDER SECTION 10A ACCORDINGLY. 11.3 MOREOVER SECTION 155(11A) WAS INTRODUCED FRO M 13/7/2006. SUB-SECTION 11A WAS INTRODUCED BY TAXATI ON LAW PAGE 8 OF 10 ITA NOS.704 & 705/BANG/2010 8 (AMENDMENT) ACT W.E.F. 14.07.2006 TO ENABLE RECTIFI CATION OF ASSESSMENTS. THE NOTES ON CLAUSES EXPLAINING THE P ROPOSED AMENDMENT ARE REPORTED IN (2005) 275 ITR ST.2 AT PA GE 18. 11.4 THE ABOVE SUB-SECTION WAS CONSIDERED BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF NOUS INFOSYSTEMS (P) LTD. VS ACIT (ITA NOS.589 & 666/BANG/08 DATED 7 /11/2008). THE TRIBUNAL REJECTED THE REVENUES OBJECTION THAT SINCE SECTION 155(11A) CAME INTO BEING ONLY W.E.F. 13.7.2006 THE SAME IS NOT APPLICABLE TO ASST. YEARS 2004-05 AND 2005-06. THE TRIBUNAL WAS OF THE VIEW THAT SECTION 155(11A) IS A PROVISION WH ICH PERMITS AMENDMENT OF ASSESSMENTS ALREADY COMPLETED DUE TO SU BSEQUENT DEVELOPMENTS TAKING PLACE AND POWER WAS GIVEN TO TH E AO TO CARRY OUT SUCH AMENDMENTS WITH EFFECT FROM 13/7/2006. TH E TRIBUNAL HELD THAT IN THE VERY NATURE OF THINGS THIS DATE (1 3/7/2006) CANNOT REFER TO ANY PARTICULAR ASSESSMENT YEAR AND T HE POWER HAVING BEEN CONFERRED UPON THE AO FROM THIS DATE T HE ASSESSMENT FOR ANY ASST. YEAR CAN BE AMENDED PROVIDED THE ASSESS EE APPLIES WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE PR EVIOUS YEAR IN WHICH THE EXPORT PROCEEDS ARE RECEIVED IN INDIA. T HE RELEVANT FINDING OF THE TRIBUNAL IN THE CASE CITED SUPRA AT PARA 10 READS AS FOLLOWS:- THUS IT WOULD HAVE BEEN OPEN TO THE ASSESSEE TO APPLY FOR RECTIFICATION OF ITS ASSESSMENTS FOR THE ASSESSMENT YEARS UNDER APPEAL WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE PREVIOUS YEAR IN WHICH THE EXPORT PROCEEDS WERE BROUGHT INTO PAGE 9 OF 10 ITA NOS.704 & 705/BANG/2010 9 INDIA. AS ALREADY NOTED THE EXPORT TURNOVER WERE BROUGHT INTO INDIA ON 14.11.2006 AND 24.1.2006 RESPECTIVELY. THUS THE ASSESSMENTS COULD HAVE BEEN RECTIFIED IF THE ASSESSEE APPLIED FOR THE SAME ON OR BEFORE 31.3.2011 AND 31.3.2010 RESPECTIVELY. IT NEEDS TO BE APPRECIATED THAT SECTION 155(11A) IS A PROVISION WHICH PERMITS AMENDMENT OF ASSESSMENTS ALREADY COMPLETED DUE TO SUBSEQUENT DEVELOPMENTS TAKING PLACE. POWER WAS GIVEN TO THE AO TO CARRY OUT SUCH AMENDMENTS WITH EFFECT FROM 13.7.2006. IN THE VERY NATURE OF THINGS THIS DATE CANNOT REFER TO ANY PARTICULAR ASST. YEAR. THE POWER HAVING BEEN CONFERRED UPON THE AO FROM THIS DATE ASSESSMENTS FOR ANY ASST. YEAR CAN BE AMENDED PROVIDED THE ASSESSEE APPLIES WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE PREVIOUS YEAR IN WHICH THE EXPORT PROCEEDS WERE RECEIVED IN INDIA. ASSUMING THE FACTS STATED BY THE ASSESSEE TO BE CORRECT THE AO WOULD HAVE BEEN BOUND TO CARRY OUT THE AMENDMENTS TO THE ASSESSMENT ORDERS IF THE ASSESSEE APPLIED WITHIN THE AFORESAID TIME LIMIT FOR AMENDMENT OF THE ASSESSMENTS FOR THE YEARS UNDER APPEAL. THIS IS WHAT THE CIT(A) HAS DIRECTED THE AO TO DO IN EFFECT AND SUBSTANCE. IT SHOULD BE REMEMBERED THAT AS HELD BY THE SUPREME COURT IN THE CASE OF KANPUR COAL SYNDICATE (53 ITR 225) THE POWERS OF THE CIT(A) ARE CONTERMINOUS WITH THOSE OF THE AO AND HE CAN DO WHAT THE AO CAN DO AND HE CAN DIRECT THE AO TO DO WHAT HE HAS FAILED TO DO. THEREFORE THE DIRECTION OF THE CIT(A) TO THE AO TO AMEND THE ASSESSMENTS BY INCLUDING THE EXPORT TURNOVER REALIZED ON 14.11.2006 AND 24.1.2006 IN THE FIGURES OF EXPORT TURNOVER AFTER DUE VERIFICATION OF THE FACTS AND AFTER BRINGING THE RELEVANT DETAILS ON RECORD IS WITHIN HIS POWERS AND AUTHORITY AND CANNOT BE QUESTIONED. FURTHER AS ALREADY NOTED THERE IS NO MERIT IN THE OBJECTION OF PAGE 10 OF 10 ITA NOS.704 & 705/BANG/2010 10 THE REVENUE THAT SECTION 155(11A) IS NOT APPLICABLE TO THE ASSESSMENT YEARS UNDER APPEAL SINCE IT CAME INTO BEING ONLY ON 13.7.2006. WE ACCORDINGLY DISMISS THE OBJECTION OF THE REVENUE FOR BOTH THE YEARS AND UPHOLD THE DIRECTION OF THE CIT(A). 11.5 IN THE LIGHT OF THE ABOVE REASONING WE REMIT THE MATTER BACK TO THE AO TO DETERMINE THE AMOUNT THAT IS REALIZED IN CONVERTIBLE FOREIGN EXCHANGE AND TO GRANT THE BENEF IT OF DEDUCTION IN RESPECT OF THE SUM SO REALIZED AND RECOMPUTED TH E DEDUCTION U/S 10A OF THE ACT. 12. IN THE RESULT THE APPEALS FILED BY THE ASSESSE E ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED ON TUESDAY THE 31 ST DAY OF JANUARY 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1) THE ASSESSEE (2) THE REVENUE (3) THE CIT(A) CONCERNED. (4) THE CIT CONCERNED. (5) THE DR (6) GUARD FILE. MSP/31.1. BY ORDER ASST. REGISTRAR ITAT BANGALORE.