2009 (7) TMI 915 - AT - Income Tax

Tax Tribunal: Jurisdiction issue under section 263 resolved in favor of taxpayer

The Tribunal held that the Commissioner of Income Tax had no jurisdiction to revise the order under section 263. The Assessing Officer's order was deemed ... Revision u/s 263 - as per CIT Assessee claimed excess deduction u/s 10A on software units - Whether Order of the AO was prejudicial to the interest of revenue? - whether AO had allowed an excess deduction under section 10A without appreciating the fact that the appellant had two software undertakings and the figures considered by the ld. CIT were in respect of only one undertaking? - CIT u/s 263 has taken the total turnover of only one unit into consideration and has ignored the turnover of the second unit and cumulative deduction of both the units - HELD THAT:- We find that the CIT has revised the assessment order u/s143(3) by issuing show-cause notice only with regard to not reducing the expenditure incurred in the foreign currency from the total export turnover while computing the deduction u/s 10A. But in the revision order, the assessment was set aside also on the other ground that some of the sale proceeds was yet to be received by the assessee. The revision u/s 263 is not like the reopening of the assessment where once the assessment is reopened, entire assessment is open before the AO to be reconsidered in accordance with law. In the revision proceedings, the CIT cannot travel beyond the reasons given by him for revision in the show-cause notice. Therefore, we hold that the revision on the ground that part of the sale proceeds is yet to be received by the assessee is not tenable. We find that section 10A is a special provision relating to newly established undertaking in trading zones and the clause (iv) of Explanation (2) of section 10A defines the export turnover, according to which, it is the consideration in respect of the export by the undertaking articles or things or computer software received in or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), i.e., within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf and it does not include freight, telecommunication charges or insurance charges attributable to the delivery of articles or things or computer software outside India. The other expenditure which can be reduced is the expenditure incurred in foreign exchange in providing the technical services outside India. The nature of the expenditure incurred by the assessee is not in the nature of technical expenditure for providing the technical services outside India. Therefore, the assessee has correctly not reduced the same from the export turnover while computing the deduction u/s 10A. This view is also fortified by the decision of the ITAT, Bangalore in the case of Infosys Technologies (P.) Ltd.[2006 (4) TMI 447 - ITAT BANGALORE] and also ITAT, Hyderabad in the case of Patni Telecom (P.) Ltd.[2008 (1) TMI 452 - ITAT HYDERABAD-A]. Further these decisions also were already delivered when the assessment order was passed on 20-3-2006 and the view adopted by the AO is in consonance with the said decision as held by the Hon’ble Supreme Court in the case of Max India Ltd.[2007 (11) TMI 12 - SUPREME COURT] and Malabar Industrial Co. Ltd.[2000 (2) TMI 10 - SUPREME COURT]. When two different views existed when the Commissioner was passing the order, it had to be taken into account and the Commissioner has no jurisdictional power to revise u/s 263. In the result, the assessee’s appeal is allowed and the order of the AO u/s 143(3) is restored. Issues Involved:1. Jurisdiction under section 263 of the Income-tax Act.2. Erroneous nature of the Assessing Officer's order.3. Prejudice to the interest of revenue.4. Excess deduction under section 10A.5. Consideration of only one software unit's figures.6. Reconciliation of Export Sales in STPI return.7. Examination of the genuineness of Export Turnover.8. Reduction of aggregate expenses in foreign currency from Export Turnover.9. Definition of 'Total Turnover' for section 10A deduction.Detailed Analysis:1. Jurisdiction under Section 263 of the Income-tax ActThe assessee contested the jurisdiction of the CIT under section 263, arguing that the conditions prescribed by the section were not satisfied. The CIT assumed jurisdiction based on the premise that the Assessing Officer (AO) failed to apply the provisions of section 10A correctly, leading to an excess deduction and short levy of tax.2. Erroneous Nature of the Assessing Officer's OrderThe CIT held that the AO's order was erroneous for not reducing the expenditure incurred in foreign currency from the export turnover while computing the deduction under section 10A. The assessee argued that the expenditures were not in the nature of freight, telecommunication charges, or insurance attributable to the delivery of software outside India, nor were they for providing technical services outside India.3. Prejudice to the Interest of RevenueThe CIT contended that the AO's order was prejudicial to the interest of revenue due to the excess deduction under section 10A. The assessee countered that the deduction was correctly allowed based on the judicial pronouncements during the relevant period.4. Excess Deduction under Section 10AThe CIT observed that the AO allowed an excess deduction under section 10A without making necessary adjustments in the export turnover. The assessee maintained that the deduction was computed correctly, considering the nature of the expenditures.5. Consideration of Only One Software Unit's FiguresThe assessee argued that the CIT considered only one unit's turnover, ignoring the second unit's turnover of Rs. 10,62,284. The cumulative deduction for both units was Rs. 9,20,36,190, and the CIT's figures were incorrect.6. Reconciliation of Export Sales in STPI ReturnThe CIT held that the AO did not reconcile the Export Sales as reflected in the STPI return. The assessee contended that complete details were furnished during the assessment proceedings.7. Examination of the Genuineness of Export TurnoverThe CIT claimed that the AO did not examine the genuineness of the quantum of Export Turnover. The assessee argued that the AO's assessment was in line with judicial pronouncements and did not require further examination.8. Reduction of Aggregate Expenses in Foreign Currency from Export TurnoverThe CIT held that the aggregate expenses in foreign currency should be reduced from the Export Turnover. The assessee argued that such expenses were not attributable to the delivery of software outside India and should not be excluded from the export turnover.9. Definition of 'Total Turnover' for Section 10A DeductionThe CIT held that the expenses in foreign currency should be reduced only from the Export Turnover, not the Total Turnover, for computing the deduction under section 10A. The assessee contended that if such expenses were to be excluded from the Export Turnover, they should also be excluded from the Total Turnover.Conclusion:The Tribunal held that the CIT had no jurisdiction to revise the order under section 263. The expenditures in question were not in the nature of freight, telecommunication charges, or insurance attributable to the delivery of software outside India, nor were they for providing technical services outside India. The AO's order was in line with judicial pronouncements, and the CIT's revision was not tenable. The assessee's appeal was allowed, and the AO's order under section 143(3) was restored.