2015 (10) TMI 2103 - AT - Income Tax

ITAT Hyderabad grants appellant's claim on Section 10A deduction, emphasizes export turnover inclusion

Microsemi India Private Limited. Versus Deputy Commissioner of Income Tax, Circle-16 (2), Hyderabad

The ITAT Hyderabad allowed the appeal, setting aside the orders of the CIT(A) and AO. It directed the inclusion of the invoice amount in the export ... Entitlement for the claim of tax holiday U/s. 10A - AO noticed that that invoice issued on 31st March 2010 was cleared by STPI authority on 6 May 2010, i.e. in FY 2010-11, hence, the same cannot be considered as an export turnover for the FY. 2009-10. - The only dispute is with reference to treatment of such value as pertaining to next year on the basis of Softex form submitted. Held that:- The only condition for software exported from India to be considered in an year is receipt of consideration of sales proceeds within six months from the end of previous year (or within period extended by RBI) in convertible foreign exchange. Importing of any other condition such as furnishing of SOFTEX Form or obtaining of STPI clearance in the definition of 'export turnover' by the Ld. AO is completely unwarranted and against the industry practice. The legislature in its wisdom has provided a period of six months from the end of previous year for such collection. Thus, the procedural compliance in the course of collection of such export proceeds i.e. furnishing of SOFTEX Form in accordance with Para 6.C.3.1 and certification by STPI authority in accordance with Para 6.C.3.2 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 within the stipulated period six months from the end of the financial year should not result in revenue from export of software made in FY 2009-10 to be treated as 'export turnover' of the subsequent year i.e. FY 2010-11. Considering the above, we are of the opinion that exports made vide invoice dt. 31-03-2010 has to be considered as part of the turnover of this year and AO’s action in excluding the same cannot be supported either on facts or on law. As stated earlier the proceeds of this invoice was already received during the year as advance. So the furnishing of form under FEMA is only a formality. Therefore, AO is directed to include the turnover and allow the deduction accordingly. AO’s action in excluding only from export turn over cannot be supported on the reason that if assessee has not exported the goods as claimed then, the total turnover also should not include the about amount. AO cannot exclude a part of the turnover only from export turnover while including the same in the total turnover. He should have excluded the same on the same reasoning which he has adopted for excluding the above invoice from the export turnover. This was not done for the simple reason that AO’s intention seems to be to restrict deduction U/s. 10A. Therefore, action of the AO cannot be justified at all. Since we have already adjudicated that the invoice of 31-03-2010 has to be considered as part of export turnover of the year, there is no need to adjudicate on this contention. The principle that whatever amount is excluded from export turnover has to be excluded from total turn is approved by the Hon‘ble Bombay High Court in the case of CIT Vs. Gemplus Jewellery India Ltd., [2010 (6) TMI 65 - BOMBAY HIGH COURT ] and also by Special Bench of ITAT in ITO Vs. Saksoft Ltd [2009 (3) TMI 243 - ITAT MADRAS-D]. - Decided in favour of assessee. Issues involved:1. Disallowance of deduction under Section 10A for the assessment year 2010-11.2. Treatment of invoice raised on 31st March 2010 as export turnover for the financial year 2009-10.3. Disallowance of depreciation on certain used Fixed Assets.4. Exclusion of invoice amount from export turnover but inclusion in total turnover.Issue 1: Disallowance of deduction under Section 10A for the assessment year 2010-11:The appellant, primarily engaged in IT and IT-enabled services, appealed against the Commissioner of Income Tax (Appeals) order for the AY 2010-11. The Assessing Officer (AO) denied the deduction under Section 10A by excluding an invoice amount from export turnover, which was upheld by the CIT(A). The ITAT Hyderabad held that the AO and CIT(A) actions were not in accordance with the provisions of the Income Tax Act. The only condition for software exported to be considered in a year is the receipt of sales proceeds within six months in convertible foreign exchange. The view of the AO and CIT(A) to treat the invoice amount as part of the next year's turnover based on Softex form submission was deemed unwarranted and against industry practice.Issue 2: Treatment of invoice raised on 31st March 2010 as export turnover for the financial year 2009-10:The AO excluded the invoice amount from export turnover for FY 2009-10 as it was cleared by STPI authority in FY 2010-11. However, the ITAT Hyderabad noted that the proceeds from the invoice were received during the year as an advance, making the furnishing of SOFTEX form a mere formality. The ITAT directed the AO to include the turnover and allow the deduction accordingly, emphasizing that the exports made via the invoice should be considered part of the same year's turnover.Issue 3: Disallowance of depreciation on certain used Fixed Assets:Ground No. 3 regarding the disallowance of depreciation on specific used Fixed Assets was not pressed by the appellant during the appeal proceedings.Issue 4: Exclusion of invoice amount from export turnover but inclusion in total turnover:The AO excluded the invoice amount from export turnover but retained it in total turnover, which the ITAT Hyderabad found unjustified. The ITAT directed the AO to include the invoice amount as part of the export turnover for the year, citing the principle that any amount excluded from export turnover should also be excluded from total turnover. The ITAT referred to judgments by the Hon'ble Bombay High Court and a Special Bench of ITAT to support the appellant's contentions.In conclusion, the ITAT Hyderabad allowed the appeal, setting aside the orders of the CIT(A) and AO, and directed the inclusion of the invoice amount in the export turnover for the year, thereby granting the appellant's claim.