TaxTMI 
TaxTMI 
2010 (1) TMI 891
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.... Officer to recompute the deduction under section 10A after excluding the expenditure incurred in foreign exchange in providing technical services outside India, for the purposes of computing the 'total turnover' under section 10A. 3. The learned Commissioner of Income-tax erred in directing the Assessing Officer to recompute the deduction under section 10A after examining the manner of allocation of the establishment expenses between the Software Technology Park ('STP') unit and the non-STP unit and to reallocate the expenses on a most rational and scientific basis. Your appellants submit that the learned Commissioner of Income-tax has not recorded any specific finding as to how the allocation of expenses made by the appellant could be considered to be erroneous and prejudicial to the interests of the Revenue. The learned Commissioner of Income-tax further erred in not directing the Assessing Officer as to the basis on which the expenses were to be allocated between the STP and non-STP units, for the purposes of computing the deduction under section 10A of the Act. Your appellants pray that the order under section 263 under appeal issued by the Commissioner of Income-t....
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..... Non consideration of correct total turnover resulted in excess allowance of deduction of Rs.30,61,437 (Rs.1,27,88,876 - Rs.1,58,50,314) which further results in underassessment of income to the same extent. (b) Without prejudice to the above it is seen that total turnover of the assessee-company is Rs.66,20,97,000 and that of STP (EOU) units Rs.5,57,57,406 (which is 8.42 per cent.) total turnover of the company. However establishment expenses of the undertaking as per the separate profit and loss account for STP shows expenses of Rs.77,86,632 out of total charges Rs.14,99,07,000 of the company. The assessee has shown only 5.19 per cent. expenses under the head establishment charges which includes travel and conveyance Rs.4.06 crores, postage and telephone Rs.0.88 crores (Rs.88.54 lakhs), printing and stationery Rs.1.27 crores, electricity Rs.1.27 crores, etc. Besides, expenditure on managerial remuneration of Rs.34.85 lakhs has not been allocated to STP unit. Based on the percentage of sales at 8.42 per cent., i.e., Rs.5,57,57,406/Rs.66,20,97,000 the expenses should have been allocated under this head and deduction allowed accordingly. The expenses as per 8.42 per cent. works ....
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....elied upon the decisions of the Tribunal in the case of I Gate Global Solutions Ltd. v. Asst. CIT [2007] 112 TTJ (Bang) 1002 (I.T.A. Nos. 248 and 249/Bang/2007), Tata Elxsi Ltd. v. Asst. CIT [2008] 115 TTJ (Bang) 423 (I.T.A. No.315/Bang/2005), Asst. CIT v. M/s. Infosys Technologies Ltd. (I.T.A. Nos. 653, 969, 632 and 862/Bang/2006) and Patni Telecom P. Ltd. v. ITO [2009] 308 ITR (AT) 414 (Hyd) ; 22 SOT 26. Further, the assessee-company had drawn attention of the Commissioner of Income-tax to the decision of the hon'ble Bombay High Court in the case of CIT v. Sudarshan Chemicals Inds. Ltd. [2000] 245 ITR 769 in which it has been held that "total turnover" shall not include excise duty and sales tax. The Commissioner of Income-tax noted that regarding allocation of establishment expenses to the STP units on the basis of the ratio of the total turnover of the assessee to the turnover of the STP unit, a detailed reply was given by the assessee as under: "The assessee has set-up engineering consultancy services in Bangalore comprising of the STP unit and a non-STP unit. It has been submitted that while considering the establishment expenses of Rs.77,86,632 for the STP unit, the as....
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.... section 263 of the Act. In this connection, the observations of the hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 has been pointed out to the effect that where two views are possible and the Income-tax Officer has taken one view with which the Commissioner of Income-tax does not agree, the order cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. The assessee has also drawn support from the decision of the hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 in this respect." After considering the submissions of the assessee, the Commissioner of Income-tax deliberated upon the issues as under: "5.0 I have considered the submissions of the assessee as above. I find that there has been no conscious application of mind by the Assessing Officer while excluding the expenses incurred in foreign exchange in providing the technical services outside India for the purposes of computing the 'total turnover'. It is an admitted position that there is no independent definition provided under section 10A of the....
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.... were not to be given the same treatment as per the aforesaid judgment as rent, commission, etc., because whereas 90 per cent, of rent, commission, etc., is excluded for working out the profits of the business, they are also not included as part of the turnover in the formula. With the judgment of the hon'ble apex court in the aforesaid case, the contention that for maintaining harmony and for aligning both numerator and denominator on common basis, similar adjustments are required does not hold good. If this theory were to be accepted alone as the basis, the hon'ble apex court would not have held that even while 90 per cent, of the processing charges were excluded, the same were to be part of the 'total turnover' also in the formula. The hon'ble apex court has also considered the decision in the case of CIT v. Lakshmi Machine Works [2007] 290 ITR 667 and has held that the said decision is not applicable in the aforesaid case. Under the circumstances, nothing should be imported from observations made in some other case in a different context. 5.2 As regards allocation of establishment expenses to the STP unit, I have considered the detailed reply of the assessee. However, the fa....
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....ssue to be decided in this appeal is with regard to the allocation of expenses to the STP unit and non-STP unit. The learned authorised representative submitted that all the details in respect of STP unit and non-STP unit were submitted before the Assessing Officer and it is not open for the Commissioner of Income-tax to invoke the provisions of section 263 of the Income-tax Act. To support his contention, the learned authorised representative relied on the judgment of the hon'ble Bombay High Court in the case CIT v. Gabriel India Ltd. [1993] 203 ITR 108 for the proposition that the Commissioner of Income-tax cannot revise order merely because he disagrees with conclusion arrived at by the Income-tax Officer. The learned authorised representative contended that the order of the Commissioner of Income-tax may be set aside. On the other hand, the learned Departmental representative supported the orders of the authorities below. We have heard the rival submissions and perused the records. Regarding the allocation of expenses to the STP unit and non-STP units, the Commissioner of Income-tax observed that: "As would be obvious from the submissions made by the assessee, the clai....
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....r to examine all the details filed by the assessee by applying his mind and has to pass a detailed order. This view of ours is fortified by the decision of the hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 wherein it has been observed as under (page 386): "The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word 'erroneous' in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circu....