Dcit Circle 8 1 Hyd Hyderabad v. Value Labs Hyd Hyderabad

Ita Nos 836 815 816 916 817 An D 475 Value Labs Hyderabad Page 1 Of 10 In The Income Tax Appellate Tribunal Hyderabad B Bench Hyderabad Before Smt P Madhavi Devi Judicial Member And Shri S Rifaur Rahman Accountant Member Ita Nos 836 815 816 817 Hyd 2016 916 Hyd 2017 Assessment Years 2004 05 2007 08 2008 09 2009 1 0 Dy Commissioner Of Income Tax Circle 8 1 Hyderabad Vs M S Value Labs Hyderabad Pan Aaefv 9532 G Appellant Respondent Ita No 475 Hyd 2017 A Y 2012 13 M S Value Labs Hyderabad Pan Aaefv 9532 G Vs Dy Commissioner Of Income Tax Circle 8 1 Hyderabad Appellant Respondent For Assessee Shri P Soma Sekhar Reddy Dr For Revenue Shri P Murali Mohan Rao O R D E R Per Smt P Madhavi Devi J M Above Appeals Are Filed By The Revenue As Well As The Assessee For The A Ys 2004 05 2007 08 To 2009 10 2012 13 Ita No 836 Hyd 2016 A Y 2004 05 2 This Appeal Is Filed By The Revenue Against The Order Of The Cit A 2 Hyderabad Dated 26 2 2016 Direct Ing The Ao To Date Of Hearing 07 12 2017 Date Of Pronouncement 15 1 2 2017 Ita Nos 836 815 816 916 817 An D 475 Value Labs Hyderabad Page 2 Of 10 Allow Expenditure Claimed By The Assessee U S 10 B O F The Act Even Though The Assessee Has Not Been Approved As A 100 Eou By The Board Appointed In This Behalf By The Centra L Govt 3 Brief Facts Of The Case Are That The Assessee Is Engaged In The Business Of Rendering Software Development S Ervices To Its Associate Enterprises Ae Located In Various Place S Outside India For The A Y 2004 05 The Assessee Filed Its Return Of Income On 1 11 2014 Declaring An Income Of Rs 1 66 03 779 An Order U S 143 3 Was Passed On 29 12 2006 Determining The Tax Able Income Of The Firm At Rs 2 55 79 796 After Disallowing The Excess Of The Exemption Claimed U S 10 B Of The Act Aggregating To Rs 65 95 053 Thereafter The Ao Noticed That The C Laim Made By The Assessee Firm U S 10 B Of The Act Is Not Correct Therefore The Assessment Was Reopened U S 147 Of The Act By Issua Nce Of The Notice U S 148 Dated 28 3 2011 During The Re Asses Sment Proceedings The Ao Observed That U S 10 B Of The Ac T The Assessee Should Be An Undertaking Which Has Been Ap Proved As A 100 Export Oriented Undertaking By The Board A Ppointed In This Behalf By The Central Govt In Exercise Of The Powers Conferred By Section 14 Of The Industries Developm Ent And Regulation Act 1951 And The Rules Made Thereunder The Ao Also Observed That The Assessee Is Only Registered As A 100 Eou By Stpi Therefore He Disallowed The Claim Of Dedu Ction U S 10 B Of The Act And Brought To Tax Aggrieved The Asses See Filed An Appeal Before The Cit A Who Allowed The Same And Aggrieved By The Relief Granted By The Cit A The Revenue Is I N Appeal Before Us Ita Nos 836 815 816 916 817 An D 475 Value Labs Hyderabad Page 3 Of 10 4 The Learned Dr Relied Upon The Order Of The Ao W Hile The Learned Counsel For The Assessee Supported The Order Of The Cit A And Has Also Placed Reliance Upon The Decis Ion Of The Coordinate Bench In The Case Of Secunderabad Softwa Re Services Pvt Ltd Vide Ita No 1501 Hyd 2011 Dated 10 04 201 2 Wherein Under Similar Set Of Facts And After Following The Various Decisions Of The Coordinate Benches Of This Tribunal It Has Been Held That Where The Assessee Is Registered Under The Stpi As A 100 Eou It Is Entitled For Deduction U S 10 B Of The Act Re Levant Paragraphs Are Reproduced Hereunder For Ready Refer Ence 6 We Heard The Parties And Perused The Impugned Orders Of The Lower Authorities The Only Question That Clinches The Issue Involved In This Appeal Is Wheth Er For Becoming Eligible To The Deduction Under S 10 B Of T He Act Whether It Is Enough If The Assessee Is Regist Ered With Software Technology Park Of India As A 100 Eo U Or It Is Also Necessary For The Assessee To Have Th E Approval Of The Board Constituted By The Central Government Under S 14 Of The Industries Developmen T And Regulation Act 1951 The Cit A Has Decided This Issue In Favour Of The Assessee And Held The Asses See As Eligible For Deduction Under S 10 B Of The Act Foll Owing The Decisions Of The Co Ordinate Benches Of The Tri Bunal In The Following Cases A Vsn Makro Technology P Ltd V S Acit Ita No 1057 Hyd 2010 Dated 13 1 2011 Wherein The Stil L Earlier Decision Of The Tribunal In The Case Of Inf Otech Enterprises Ltd Supra Relied By The Assessing O Fficer In The Impugned Assessment Order Has Been Considere D And The Same Has Been Held To Be Inapplicable As Th E Same Has Been Rendered Prior To Issuance Of Instruc Tion No 1 Dated 31 3 2006 By The Cbdt And Letter Dated 23 3 2006 Issued By The Ministry Of Communications And Technologies B Dcit V S Valliant Communication Ltd Ita No 2706 Del 2008 Dated 23 4 2010 2010 Tiol 452 Itat Del Wherein The Still Earlier Decision Of Th E Delhi Ita Nos 836 815 816 916 817 An D 475 Value Labs Hyderabad Page 4 Of 10 Bench In The Case Of Ito Vs Regency Creations Ltd Ita No 4006 Del 2006 Dated 13 4 2006 Has Been Followed C Smt K Sudha Rani V S Ito Ita No 1750 Hyd 2008 Date 30 10 2009 Consistent With The View Taken By Various Bench Of The Tribunal Including The Benches At Hyderabad In Similar Matters We Hold That The Assessee Having Been Registered With The Stpi Is Entitled For Deduction Under S 10 B Of The Act In That View Of The Matter We Fi Nd No Infirmity In The Impugned Order Of The Cit A Whic H Is Accordingly Confirmed And The Grounds Of The Revenu E Are Rejected 7 In The Result Appeal Of The Revenue Is Dismisse D Respectfully Following The Same The Ground Of Appe Al Is Rejected And Consequently The Revenues Appeal Is Dismissed Ita Nos 815 To 817 Hyd 2016 Ita No 916 Hyd 2017 A Ys 2007 08 To 2009 10 5 Ita No 815 Hyd 2016 Is For The A Y 2007 08 816 Hyd 2016 Is For The A Y 2008 09 And Ita Nos 817 Hyd 2016 And Ita No 916 Hyd 2017 Are For A Y 2009 10 All These Are The Appeals Filed By The Revenue For The Respective A Ys Ita No 817 Hyd 2016 Is An Appeal F Or The A Y 2009 10 For The Assessment Order Passed U S 143 3 Of The Act While For The Same A Y 2009 10 Ita No 916 Hyd 2017 Is For The Re Assessment Order Passed U S 143 3 R W S 147 Of The Act In All These Appeals The Common Ground Raised By The Revenue Is Against The Direction Of The Cit A To Reduce The Communication Charges And Band Width Voip Charges Both From Expor T Turnover Ita Nos 836 815 816 916 817 An D 475 Value Labs Hyderabad Page 5 Of 10 As Well As The Total Turnover For Computing Deducti On U S 10 A Of The Act According To The Revenue It Should Be Exc Luded Only From The Export Turnover And Not From The Total Tur Nover 6 Having Regard To The Rival Contentions And The Material On Record We Find That This Is Covered In Favour Of The Assessee By The Decision Of The Honble Karnataka H Igh Court In The Case Of Cit Vs Tata Elxsi Ltd Reported In 349 Itr 98 And Also The Honble Jurisdictional High Court In The Case O F B A Continuum Reported In Itta No 440 2017 We Find That The Cit A Has Followed Various Decisions Of The Itat Which Are In Consonance With The Decision Of The Honble Karnata Ka High Court Cited Supra Wherein It Has Been Held That F Or The Purpose Of Computation Of Deduction U S 10 B Of The Act If Any Expenditure Is Excluded From The Export Turnover T Hen The Same Should Also Be Excluded From The Total Turnover Re Spectfully Following The Same We Do Not See Any Reason To Int Erfere With The Order Of The Cit A For All The A Ys And The Reven Ues Appeals Are Accordingly Dismissed Ita No 475 Hyd 2017 Assessees Appeal For A Y 201 2 13 7 This Is Assessees Appeal For The A Y 2012 13 I N This Appeal Though The Assessee Has Raised As Many As S Even Grounds Of Appeal And A Number Of Sub Grounds Under Each Of The Ground We Find That Only Two Issues Are Arisin G In This Appeal The Issues Are I Alp Adjustment In Respe Ct Of Software Development Services And Ii Interest On Receivab Les Ita Nos 836 815 816 916 817 An D 475 Value Labs Hyderabad Page 6 Of 10 8 As Regards The First Issue The Learned Counsel For The Assessee Submitted That The Ao Has Not Followed The Direction Of The Drp To Take The Profit Before Depreciation Of Both The Assessee As Well As Comparable Companies For Determ Ining The Alp As The Assessee Is A Partnership Firm While T He Comparables Taken By The Tpo Are Companies And The Rate Of Depr Eciation Is High In The Case Of The Firm He Has Drawn Our Atte Ntion To The Directions Of The Drp At Para 2 4 At Page 5 Of Its Order Wherein The Drp Has Directed The Ao To Consider The Margin In The Case Of The Assessee As Well As The Margins Of The Comparab Le Companies After Excluding The Depreciation He Submitted That The Ao Has Not Followed The Said Direction While Passing The F Inal Assessment Order 9 The Learned Dr However Supported The Orders Of The Authorities Below 10 Having Regard To The Rival Contentions And The Material On Record We Find That The Drp By Follow Ing The Decision Of The Honble Jurisdictional High Court I N The Case Of Ba Continuum In Itta No 440 2017 Has Directed The Ao To Consider The Margins Of The Assessee As Well As The Comparables After Excluding The Depreciation Since The Ao Has Not Followed The Said Method While Computing The Alp We Direct The Ao To Re Compute The Alp After Taking The Margins Of The Ass Essee As Well As The Comparables After Excluding The Depreciation In Accordance With The Directions Of The Drp The Grou Nds On This Issue Are Therefore Treated As Allowed For Statist Ical Purposes Ita Nos 836 815 816 916 817 An D 475 Value Labs Hyderabad Page 7 Of 10 11 As Regards Second Issue Of Interest On Receivab Les Is Concerned The Learned Counsel For The Assessee Sub Mitted That The Assessee Had Transactions With Both The Aes And Non Aes And Has Not Charged Interest On The Receivable Fr Om The Aes As Well As The Non Aes And Therefore It Should Not Be Treated As An International Transaction He Submitted That The Ao Has Charged Interest 14 75 On The Amount Receivable After Al Lowing Credit Period Of 30 Days Whereas The Drp Has Extended The Period To 60 Days He Submitted That When The Assessee Is Not Ch Arging Interest On Receivable From Non Aes Also And Since The Credit Period Allowed By The Assessee Is Not Extended Beyo Nd Six Months In Most Of The Cases And Beyond 12 Months In One Case The Interest Charged By The Department At 14 75 On The Total Of The Receivables Is Not Sustainable Even Otherwise He Submitted That Since The Payments Are From Aes Outside India The Interest Rates Prevalent In India Should Not Have Been Charg Ed 12 The Learned Dr However Supported The Orders O F The Authorities Below 13 Having Regard To The Rival Contentions And The Material On Record We Find That In Most Cases Of T He Aes The Amounts Were Received Within A Period Of Six Months Except In One Case Where It Was Received After 12 Months We Find That The Coordinate Bench Of This Tribunal In The Case Of Gs S Infotech Ltd In Ita No 497 Hyd 2015 Has Considered Similar Issue And At Para 10 To 12 Of Its Order Has Held As Under Ita Nos 836 815 816 916 817 An D 475 Value Labs Hyderabad Page 8 Of 10 10 Assessee Relied On The Following Case Law That No Interest Can Be Charged On Credit Which Are Given In The Cou Rse Of Business No Interest Can Be Charged On Mobilization Advance It Cannot Be Treated As Loan As It Has Been Given During The Course Of Business Pegasystems Worldwide India Pvt Limited Hyderabad Ita No 1758 H 2014 Indo American Jewellery Ltd Vs Dcit 9 2 Mumbai 2012 1 8 Taxmann Com 303 Mum Litnas India P Ltd Vs Acit 2012 27 Taxmann Com 300 Mumbai Trib Evonik Degussa India P Ltd Vs Acit Osd Circle 3 1 Taxmann Com 285 Mumbai Nimbus Communications Ltd Taxmann Com 298 Mumbai Trib Interest Charged On Receivables 10 1 The Dr However While Accepting That Levy Was For The Period Beyond The Accounting Year However Justified The Levy Of Interest On Receivables 11 We Have Considered The Issue And Examined The Contentions As Seen From Assessees Contentions Assessee Is Neither Charging Interest On Any Of The Receivables Outstanding There Is Also No Basis For Adopting Only Two Months As Credit Period Rbi Itse Lf Allows An Year For The Amounts To Be Realised If T Hey Are In Foreign Exchange Whether It Is Ae Or Non Ae It Is In The Interest Of Business That Assessee Rec Eives The Foreign Exchange Early So That It Can Claim Ita Nos 836 815 816 916 817 An D 475 Value Labs Hyderabad Page 9 Of 10 Deduction U S 10 A Therefore In Our View Putting A Limit Of Two Months Of Credit Period Itself Is Arbi Trary Moreover As Seen From The Calculation Provided In Page 7 Of The Assessment Order The Date Of Realiza Tion Was Shown As 02 02 2011 And Interest Was Levied From 01 04 2010 To 02 02 2011 Which Is Not Pertaining To The Year Under Consideration As Far As This Year Is Concerned The Invoices Raised On 31 1 2 2009 Were Outstanding Only For A Period Of Three Months By The End Of The Accounting Year We Are Of The Opinion That This Period Is Reasonable And So N O Interest Can Be Levied Just Because Amounts Are Shown As Outstanding Accordingly We Cancel The Interest Levied And Allow Assessees Contentions Grounds Are Considered Allowed 12 In The Result Appeal Is Considered Allowed For Statistical Purposes 14 Respectfully Following The Same We Hold That W Here The Assessee Is Not Charging Interest On Both Ae An D Non Ae Transactions And The Receivables Are Outstanding Fo R A Period Of Less Than Six Months No Interest Can Be Charged F Or The Receipts Beyond Six Months Also We Find That The Interest I S Not Chargeable Because The Assessee Has Not Charged Any Interest On Receivable From The Non Aes Therefore The Grounds Of Appeal Relating To This Issue Are Also Treated As Allowed 15 In The Result Assessees Appeal Is Partly Allo Wed For Statistical Purposes Ita Nos 836 815 816 916 817 An D 475 Value Labs Hyderabad Page 10 Of 10 16 To Sum Up Revenues Appeals For All The A Ys A Re Dismissed And Assessees Appeal For A Y 2012 13 Is Treated As Partly Allowed For Statistical Purposes Order Pronounced In The Open Court On 15 Th December 2017 Sd Sd S Rifaur Rahman Accountant Member P Madhavi Devi Judicial Member Hyderabad Dated 15 Th December 2017 Vinodan Sps Copy To 1 Dy Commissioner Of Income Tax Circle 8 1 6 Th Floor Room No 605 Signature Towers Kodapur Hyderabad 2 P Murali Co Cas 6 3 655 2 3 1 St Floor Somajiguda Hyderabad 500082 3 Cit A 2 Hyderabad 4 Pr Cit 2 Hyderabad 5 The Dr Itat Hyderabad 6 Guard File By Order