TaxTMI 
TaxTMI 
TaxTMI 
2012 (6) TMI 450
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....rnished by the assessee to the Assessing Officer on 5.11.2008 (pages 1 to 5 of paper book). The assessee was also asked to furnish an explanation on the activities carried out abroad, break up of the foreign currency expenses for each quarter and a note on foreign currency expenses. These were furnished to the Assessing Officer on 26.11.2008 (pages 19 to 21 of paper book). The Assessing Officer completed the assessment passing an order under section 143(3) of the Act on 31.12.2008 determining the income of the assessee at Rs. 8,44,77,660. The difference between the income returned and income assessed was on account of disallowance under section 14A, disallowance of software expenses and variation in computation of deduction allowed under section 14A. 2.2 The assessee filed an appeal against the order of assessment passed under section 143(3) on 31.12.2008 before the CIT(A) which is said to be pending disposal. 2.3 The learned CIT, Bangalore I, Bangalore (herein after referred to as CIT ) issued a notice proposing action. 263 on 29.11.2010 (copy on pages 22 and 23 of paper book), stating that the assessment order passed under section 143(3) is both erroneous and prejudicial to the....
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....r section 10A. It was submitted that the appellant is engaged in the business of BPO and the activity is regarded as 'computer software' under clause (b) of the definition of the term 'computer software' as per Explanation 2 to section 10A read with CBDT's Notification NO.SO 890(E) dt.26.9.2000. It was submitted that the assessee is engaged in the business of 'computer software' and not in rendering of technical services. The assessee placed reliance on the decisions of the co-ordinate bench of the Tribunal in the case of Infosys Technologies Ltd and of the decision of Special Bench in the case of Zylog Systems Ltd. (135 TTJ 129) in support of the proposition that foreign currency expenses should not be reduced from 'export turnover' in computing the deduction under section 10A. It was also submitted that since foreign currency expenses were not recovered from the customers, the same cannot be excluded from 'export turnover' in computing deduction under section 10A. Alternatively and without prejudice, it was submitted that if foreign currency expenses are reduced from 'export turnover', the same should also be reduced from 'total turnover' in computing deduction under section 10A.....
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....al High Court in the case of Himatasingike Seide Ltd. (supra) and the decision of the co-ordinate bench of the Tribunal in the case of Intellinet Technologies Pvt Ltd. Vs. ACIT dt.12.3.2010 in support of the view that deduction under section 10A is to be computed and allowed after setting off losses of other STPI units, brought forward losses and unabsorbed depreciation. The learned CIT in the order under section 263 observed that even though the assessee referred to a number of Tribunal decisions not following or impliedly distinguishing the decision of the Hon'ble Karnataka High Court in the case of Himatasingike Seide Ltd. (supra), the assessee had not referred to the decision of the co-ordinate bench of the Tribunal in the case of Intellinet Technologies Pvt. Ltd. which followed the decision in Himatasingike Seide Ltd. (supra) and also held that the decision of the Tribunal in the case of KPIT Cummins Infosystems (Bangalore) Ltd. (supra) did not reflect the correct position of law. 2.9 In respect of reduction of foreign currency expenses from 'export turnover', the learned CIT held that there is no requirement under law that the expenditure incurred in foreign currency for ren....
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....t previous year, was engaged in development of computer software and not in providing technical services outside India; (iv) the jurisdictional ITAT as also the Special Bench of ITAT has held that development of computer software cannot be regarded as rendering of technical services and no reduction of foreign currency expenses should be made from 'export turnover' in computing deduction under section 10A. 2.3 On facts and circumstances of the case and law applicable, expenses incurred in foreign currency should not to be reduced from 'export turnover' in the process of computation of deduction under section 10A. 2.4 Assuming without admitting that expenses incurred in foreign currency is to be reduced from 'export turnover', learned Commissioner of Income Tax, Bangalore 1, Bangalore has erred in concluding that the said expenditure should not be reduced from 'total turnover' in computing deduction under section 10A. 2.5 The learned Commissioner of Income Tax, Bangalore 1, Bangalore has erred in not appreciating that 'export turnover' being part and parcel of 'total turnover', expenses reduced from 'export turnover' should also be reduced from 'total turnover' in computing dedu....
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....-07 Date on which the order under section 143(3) was passed 31.12.2008 Date on which the notice under section 263 was issued 29.11.2010 Date on which the order under section 263 was passed 20.1.2011 DECISIONS AVAILABLE AS ON THE DATE OF ISSUE OF NOTICE U/S.263 I. Activities of Computer Software cannot be regarded as rendering of technical services. 1. Infosys Technologies Ltd v JCIT -Bangalore ITAT 31.3.2005 2. Infosys Technologies Ltd v JCIT 108 TTJ 282 5.7.2005 3. Infosys Technologies Ltd v ACIT ITA No.627/Bang/2003 9.9.2005 4. Infosys Technologies Ltd v JCIT 109 TTJ 631 7.4.2006 5. Infosys Technologies Ltd v DCIT (SR)-35-ITA No.3086/Bang/1995 5.10.2006 6. ACIT v Infosys Technologies Ltd ITA No.653 & 969/Bang/2006 17.10.2007 7. ACIT v Infosys Technologies Ltd ITA No.635/Bang/2006 2.11.2007 8. DCIT v Infosys Technologies Ltd ITA No.1202/Bang/2009 8.10.2010 9. Tata Elxsi Ltd v DCIT ITA No.56 & 57/Bang/05 31.12.2007 10. ACIT v Hewlett Packard Global Soft Ltd, ITAT, Bangalore. 19.9.2008 11. ACIT v Kshema Technologies Ltd 29.5.2009 12. i-Gate Global Solutions Ltd v ACIT ITA No.2291/Bang/2004 11.8.2006 II/ Deduction u/s.10A is to be allowed without s....
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.... forward losses and unabsorbed depreciation. It is submitted that the Assessing Officer has taken a possible view in respect of computation of deduction under section 10A and the impact of losses of STPI units. The learned Authorised Representative drew our attention to the following observation made by the learned CIT at page 10 of the order: "Though the assessee has referred to a number of ITAT decisions where the Tribunal has impliedly distinguished / not followed the decision in the case of Himatasingike Seide Ltd., the assessee has not referred to the case of Intellinet Technologies Pvt Ltd. in ITA No.1021/Bang/2009 dated 12.03.2010 also decided by the ITAT, Bangalore Bench in which the decision in the case of Himatasingike Seide Ltd was expressly followed in the context of the amended provisions of section 10A for the detailed reasons recorded in the Tribunal's order, in which it was held inter alia that they brought forward business loss / unabsorbed depreciation is required to be set off against the profits of the eligible unit while computing the deduction under section 10A of the IT Act, 1961. The Tribunal also held that the earlier decision in the case of KPIT Cummins I....
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....s filed and on application of mind and merely because the issues accepted by the Assessing Officer do not find place in the assessment order, this cannot be a ground to treat the order as erroneous and prejudicial to the interest of Revenue. The learned counsel for the assessee submitted extracts of various decisions under section 263 in support of the contention that no order can be passed under section 263 if the order sought to be revised has been passed after verification of all the details filed. The learned counsel for the assessee filed a copy of the decision of the jurisdictional High Court in the case of CIT Vs. Infosys Technologies Ltd. (ITA No.3098 of 2005 and 3160 of 2005 dt.4.1.2012) in support of which the learned counsel for the assessee submitted that if the Assessing Officer records the reasons for his conclusion in the assessment order, howsoever brief it may be, the order so passed cannot be set aside by the CIT under section 263 of the Act. 4.4 The learned counsel for the assessee also submitted a list of decisions in support of the argument that there is a difference between 'lack of inquiry' and 'inadequate inquiry' and that no order can be passed under secti....
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....d of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it ;is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." Under sub-section 1 of section 263, the CIT may revise the order of assessment passed by the Assessing Officer provided the said order is erroneous in so far as it is prejudicial to the interest of Revenue. Section 263 requires the satisfaction of two conditions viz. (i) the order sought to be revised is erroneous; and (ii) it is prejudicial to the interests of Revenue. If one of them is absent i.e. if the order sought to be revised is erroneous but not prejudicial to the interest of Revenue or if it is not erroneous but is prejudicial to the interests of Revenue, the provisions of section 263(1) of the Act are not attracted as the phrase 'prejudicial to the interests of Rev....
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....t by order under section 143(3) of the Act on 31.12.2008. In para 2 thereof the Assessing Officer states that the assessment is completed after verification of the books and discussions with the A.R. In the assessment order, the Assessing Officer varied the deduction claimed by the assessee under section 10A, by computing the profits in respect of the STPI units at Bangalore and Pune separately without reducing the loss of 2nd STPI unit at Bangalore. The Assessing Officer also concluded that deduction so computed under section 10A is to be allowed from 'total income' of the assessee after setting off of the brought forward losses. The Assessing Officer's observation in the order are as under : " .............. After claiming the deduction under section 10A the assessee has set off the brought forward unabsorbed depreciation. It is the contention of the 'a' that S.10A is an exemption section and therefore adjustment for brought forward depreciation after deduction 10A has been claimed. Section 10A is placed in Chapter III of the Act, which deals with incomes which do not form part of total income. Section 10A was initially in the nature of an exemption. The provision was substitut....
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....ave also been defined under S. 80HHE of the Act. It is the contention of the assessee company that since S. 10A does not define the term 'total turnover' then the meaning assigned to it in the other provisions of the Act will be have to be adopted. 5.2 The contention of the assessee is applicable in a case where if the term is not defined in the said section then the meaning assigned to the term 'total turnover' in the defining provision of the Income Tax Act to section 2 should be made applicable. However, section 2 does not define the term 'total turnover'. The next step would be to consider the meaning assigned to the term 'total turnover' in any other provision of the Income Tax Act. However the meaning assigned to the term in other sections could be adopted only if the restrictive clause is not present. In the instant case all the sections wherein the term 'total turnover' has been defined commences with obstante clause "For the purposes of this section'. Therefore, as per the principles of interpretation of the statue it would not incorrect to extend such meaning to all provisions of the Act, thereby rendering the restrictive clause redundant. Therefore, the only course woul....
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....r any claim put forth by the assessee is denied. 28. We are of the clear opinion that there cannot be any dichotomy of this nature as every conclusion and finding by the assessing authority should be supported by reasons, however brief it may be, and in a situation where it is only a question of computation in accordance with relevant articles of a double taxation avoidance agreements and that should be clearly indicated in the order of the assessing authority, whether or not the assessee had given particulars or details of it. It is the duty of the assessing authority to do that and if the assessing authority had failed in that, more so in extending a tax relief to the assessee, the order definitely constitutes an order not merely erroneous but also prejudicial to the interest of the Revenue and therefore while the commissioner was justified in exercising the jurisdiction. 263 of the Act, the Tribunal was definitely not justified in interfering with this order of the commissioner in its appellate jurisdiction." In the above discussion, the Hon'ble jurisdictional High Court has held that if the reasons for the conclusion and findings of the Assessing Officer are not forthcoming i....
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....essment proceedings. The Hon'ble Apex Court observed as follows : "We think there is force in the argument on behalf of the assessee that, in the face of all the details and statement placed before the Income Tax Officer at the time of the original assessment. It is difficult to take the view that the Income Tax Officer had not at all applied his mind to the question whether the surplus is taxable or not. It is true that the return was filed and the assessment was completed on the same date. Nevertheless, it is opposed to normal human conduct that an officer would complete the assessment without looking at the material placed before him. It is not as if the assessment record contained a large number of documents or the case raised complicated issues rendering it probable that the Income Tax Officer had missed these facts. It is a case where there is only one contention raised before the Income Tax Officer and it is, we think, impossible to hold that the Income Tax Officer did not at all look at the return filed by the assessee or the statements accompanying it. The more reasonable view to take would, in our opinion, be that the Income Tax Officer looked at the facts and accepted t....
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....en note of on which the assessee's explanations are rejected and additions / disallowances are made. We agree. Applying the principles laid down by the Full Bench of this court as well as the observations of the Punjab and Haryana High Court, we find that if the entire material had been placed by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse." The above two referred decisions in the cases of Kelvinator of India Ltd. (2002) 256 ITR 1 (supra) and Eicher Ltd. (supra) have been affirmed by the Hon'ble Apex Court in Kelvinator of India Ltd. (2010) 320 ITR 561. 6.9 In the present case, the Assessing Officer has passed the assessment order under ....
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.... Officer takes one view with which the CIT does not agree, the order cannot be treated as erroneous in so far as it is prejudicial to the interests of Revenue. The decisions of the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. (supra) and Max India Ltd. (supra) confirm the above position of law and therefore the order passed by the CIT under section 263 is bad in law. 6.10 It is also a matter of record that on the date the CIT passed the order under section 263 of the Act, there were decisions in favour of the assessee in respect of the issues revised by him. The Hon'ble Apex Court has held in the case Max India Ltd. (supra) that action under section 263 is impermissible under such circumstances. The Hon'ble Bombay High Court in the case of Hindustan Unilever Ltd. Vs. DCIT (2010) 325 ITR 102 dt.1.4.2010 has held that deduction under section 10A should be computed in respect of profits of each unit without setting off of the losses of other unit. The co-ordinate bench of the Tribunal in the cases of I-Gate Global Solutions Ltd (supra) and Tata Consultancy Services Ltd. Vs. ACIT dt. 14.11.2008 has also held that deduction under section 10A should be computed in respe....
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....g, 2007 submitted the reasons for claiming benefit u/s 10A before setting off the brought forward losses. It is the contention of the assessee that sec.10A is an exemption section. Section 10A is placed in Chapter III of the Act, which deals with incomes which do not form part of total income. Section 10A was initially in the nature in exemption. The provision was substituted w.e.f 1.4.2001 and thereafter in an exemption sec. it was converted into a deduction section. While the loss of a 10A unit was not eligible to be carried forward initially, after the amendment brought about by the Finance Act, 2000 the loss of a sec. 10A unit is eligible to be carried forward and set off against profits of subsequent years. This is in terms of sec. 10A(6) of the I.T Act. The Karnataka High Court in the case of Himatasingike Seide Ltd., 286 ITR 255 stated that the computation of total income has to be in terms of the IT Act. The judgment of the High Court makes it clear that the computation of eligible profits for sec. 10A has to be in accordance with the provisions of the Act and the profit of the undertaking cannot be determined in isolation of the other provisions of the Act. It is therefore....
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....s view of the matter, the conclusion of the learned CIT in the instant case that foreign currency expenses should be reduced from 'export turnover' in computing the deduction under section 10A is incorrect. Whether the activities of Business Process Outsourcing is tantamount to 'technical services' under section 10A is also an issue which has contrasting views and therefore the learned CIT was also not correct in concluding that foreign currency expenses should be reduced from 'export turnover' in the course of proceedings under section 263. 7.3 On the date the order under section 263 was passed, the decisions of the Special Bench of Chennai Tribunal in ITO Vs. Sak Soft Ltd. (2009) 313 ITR (AT) 35 dt.6.3.2009 and of the co-ordinate bench of the Tribunal in Tata Elxsi Ltd. (supra) had held that expenses reduced from 'export turnover' should also be reduced from 'total turnover' in computing deduction under section 10A of the Act. In this view of the matter, the conclusion of the CIT that expenses reduced from 'export turnover' should not be reduced from 'total turnover' is not correct. 7.4 The learned Departmental Representative submitted that section 10A is to be interpreted on t....
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....ct of which "apparently" was netting in relation to the foreign exchange inflow and outflow and not because such expenses were part of the export turnover. The bench further observed that there can be no logical reason to exclude from the total turnover what was never part of it in the first instance. The concept of net inflow of foreign exchange, with respect, seems inappropriate to the definition of 'export turnover' in section 10B because, as pointed out on behalf of the intervener, this concept cannot in the very nature of things apply to freight, telecom charges and insurance attributable to the delivery of the goods outside India because these expenses were not required to be incurred in foreign exchange; the assessee could incur them in India currency in which case there is no question of net inflow of foreign exchange so far as these expenses are concerned. It cannot possibly be argued that the concept is limited to that part of the definition which requires the expenses to be incurred in foreign exchange." In para 49 of the said order on page 396 thereof the Chennai Special Bench of Tribunal went onto hold : "In California Software Co. Ltd. (2008) 118 TTJ 842, the Chenna....