TaxTMI 
TaxTMI 
2025 (5) TMI 1417
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....w in upholding the exclusion of expenditure incurred in foreign currency in relation to on-site software development from the purview of export turnover for the purpose of computation of deduction under Section 10A and 80HHE of the Income Tax Act? (iii)Whether on the facts and in the circumstances of the case, the Tribunal was right in law in not noting the distinction between 'manufacture of computer software' and the provision of 'technical services'? (iv)Whether on the facts and in the circumstances of the case, the Tribunal was right in law in remitting back to the Assessing Officer without giving its finding on the issue relating to the exclusion of the component of unrealized sale proceeds both from export turnover and total turnover? (v)Whether on the facts and in the circumstances of the case, the Tribunal was right in law in setting aside the order of the Assessing Officer without giving its finding on the issue relating to deduction under Section 80HHE towards the balance 10% of the profits not available as deduction under Section 10A? and (vi)Whether on the facts and in the circumstances of the case, the Tribunal was ri....
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....05.01.2005, the Appellant/Assessee claimed a deduction of Rs. 34,46,11,336/- under Section 10A of the Act, as it stood during the period in dispute. The matter was referred to the Transfer Pricing Officer (TPO). The Transfer Pricing Officer (TPO) passed an Order dated 21.02.2006 under Section 92CA of the Act, wherein, it was confirmed that no adjustment is considered necessary for the value of international transactions entered into by the Appellant/Assessee. 10. Thereafter, an Assessment Order dated 29.03.2006 was passed for the Assessment Year 2003-2004 under Section 143(3) read with Section 94CA(4) of the Act. The Assessing Officer noticed that the Appellant/Assessee has incurred an aggregate expenditure of Rs. 90,40,04,020/- in foreign currency towards transfer and other project expenses in respect of its export turnover under Section 10A and Section 80HHE of the Act. 11. In the Assessment Order dated 29.03.2006, passed under Section 143(3) read with Section 94CA(4) of the Act, as it stood then, the Assessing Officer disallowed several claims of Appellant/Assessee for deductions in the taxable income in the revised Returns of Income filed by the Appellant/Assessee on 05.0....
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....y the Appellant/Assessee Rs.60,93,27,584/- Less: Expenses incurred by the Appellant/Assessee in Foreign country Rs.18,99,79,814/- Adj.ETO (B) Rs.41,93,47,770/- Profits of the business (adopted by the Appellant/Assessee) (A) Rs.13,80,09,678/- Deduction u/s. 80HHE = A x B/C =13,80,09,678 x 41,93,47,770/61,02,15,432 = Rs. 9,48,41,997/- Eligible deduction for the Assessment Year 2003-2004 @ 50% = Rs. 4,74,20,998/- Computation of Deduction u/s. 10A of the Act Consolidated ETO adopted by the Appellant/Assessee Rs. 2,29,01,09,853/- Less: (1) unrealised foreign exchange 2,97,28,983 (2) Expenses incurred in foreign currency 71,40,24,206 Rs. 74,37,53,189/- Export Turnover Rs. 1,54,63,56,664/- Consolidated Total Turnover Rs. 2,65,39,38,843/- Profits of the business Rs. 45,19,79,052/- Deduction under Section 10A Rs. 26,33,52,270/- Eligible deduction for the Assessment Year 2003-2004 @ 90% of Rs. 26,33,52,270/- Rs. 23,70,17,043/- 14. The Assessing Officer thus assessed the revised Returns of Income filed by the Appellant/Assessee on 05.01.2005 in the Assessment Order dated 29.03.2006 as Rs. 32,76,....
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.... dated 31.05.2007 passed by the Appellate Commissioner in I.T.A.No.192/2006-2007 for the Assessment Year 2003-2004, both the Appellant/Assessee and the Respondent/Income Tax Department filed appeals before the ITAT. 20. As regards, the alternative plea of the Appellant/Assessee that if the expenses are excluded from the export turnover, the same shall not form part of the total turnover, the Appellate Commissioner directed the Assessing Officer to exclude the expenditure in foreign exchange from the total turnover for the purpose of computing eligible deduction under Section 10A of the Act. 21. Regarding exlusion of expenses incurred in foreign currency, while computing deduction under Section 80HHE of the Act, the Appellate Commissioner modified the order of the Assessing Officer and directed the Assessing Officer to not to exclude certain expenses amounting to Rs. 64,77,794/- from the export and total turnover for the purpose of determination of eligible deduction under Section 80HHE of the Act. 22. Regarding claim under Section 80HHE of the Act with respect to 10% of the profit which was not considered for deduction under Section 10A of the Act, the Appellate Commission....
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.... Direction of the CIT (Appeals) to the Assessing Officer to exclude expenditure incurred in foreign exchange from the total turnover for the purpose of computation of eligible deduction under Section10A of the Act following the decision of the CIT (Appeals) for the assessment year 2001-02 vide order dated 29.11.2005 in ITA No. 164/2005-06 on the Ground That the Said Order Had Not Attained Finality. Answered against Respondent/Income Tax Department No Appeal. 2 The CIT (Appeals) erred in holding that the dividend received from which refund was a par with the dividend declared by the domestic company and therefore an eligible deduction under Section 80M of the Act in terms of the decision of the Bombay High Court in CIT versus State Bank of India, 262 ITR 662. Remitted back to the Assessing Officer to re-do the exercise. SUBMISSIONS ON BEHALF OF THE APPELLANT/ASSESSEE:- 26. The case of the Appellant/Assessee before this Court is that as far as Substantial Questions of Law Nos.(ii) and (iii) are concerned, the issues are already covered by the Division Bench of this Court in Appellant's/Assessee's own case in T.C.(Appeal) No....
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....re is absolutely no scope for the Assessing Authority to have invoked Section 154 of the Act, in order to state that, that can be considered as an error apparent, inasmuch as, there was no error at all, much less, apparent error to be rectified by the Assessing Authority. 6.This conclusion of ours is apart from the conclusion of the Tribunal in having held that in that situation what was held by the Assessing Authority in the original assessment order was a possible view and that cannot be considered as an error apparent on the face of the records." 29. As far as Substantial Question of Law No.(vi) is concerned, the learned counsel for the Appellant/Assessee would submit that substantial question of law has been answered by the Divisoin Bench of the Bombay High Court in "Commissioner of Income Tax Vs. State Bank of India", [2003] 129 Taxman 409 (Bombay), wherein, the Bombay High Court held that the income received from Union Trust of India was dividend and therefore the appellant therein namely, State Bank of India was entitled to the benefit of Section 80M of the Act. 30. It is submitted by the learned counsel for the Appellant/Assessee that there is no dispute that....
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....xtracted hereunder:- "5.1. As regards the substantial question of law framed in T.C.A.No.161 of 2010, the Division Bench of this Court, in T.C.A.Nos.1193 and 1194 of 2008 by order dated 12.10.2018, after following the decision of the Hon'ble Supreme Court in CIT, Central III Vs. HCL Technologies Limited [(2018) 404 ITR 719], dealt with the same question and answered the same in favour of the assessee, the relevant passage of which, is usefully extracted hereunder:- "3. The question of law framed above has been answered by the Hon'ble Supreme Court in the case of CIT, Central III Vs. HCL Technologies Limited [reported in (2018) 404 ITR 719] wherein it has been held as follows: "18. Accordingly, the formula for computation of the deduction under Section 10A of the Act would be as follows: Export Profit = total profit of the Business x Export turnover as defined in Explanation 2(IV) of Section 10A of the IT Act + domestic sale proceeds. 19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Tur....
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....d in terms of Explanation 2(iv) of the Act, the benefit of Section 80A of the Act would not inure as admittedly the Appellant/Assessee has not proved receipt of consideration in foreign exchange within the stipulated time and therefore it is submitted that the Tribunal has rightly remanded the case back to the Assessing Officer to pass a fresh order. 36. It is further submitted that the benefit of Section 10A of the Act during the period in dispute was confined to 90% of the Export Turn Over and the balance 10% of the Export Turn Over in the Software Techonology Part (STP) Unit cannot be allowed as deduction under Section 80HHE as it was claimed in the original return filed by the Appellant/Assessee on 28.11.2003 under Section 139(1) of the Act or in the revised Return of Income filed by the Appellant/Assessee under Section 139(5) of the Act on 05.01.2005. 37. Therefore, in this connection, the learned Senior Standing Counsel for the Respondent has placed reliance on the following decisions:- i. Goezte (India) Limited Vs. CIT, (2006) ITR 0323; ii. PCIT Vs. Wipro Limited, [2022] 140 taxmann.com 223 (SC); iii. Wipro Ltd Vs. PCIT, [2022] 142 taxmann.co....
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....on (1B) of Section 80HHE of the Act, an Indian Company or such person other than a company resident in India was entitled for deduction in respect of profit derived from, (i) export out of India of computer software or its transmission from India to a place outside India by any means; (ii) providing technical services outside India in connection with the development or production of computer software. 44. During the period in dispute which pertains to the Assessment Year 2003-2004, the benefit under Section 80HHE of the Act was confined to 50% of the profit derived from export of computer software or its transmission from India to a place outside India or for providing technical services outside India in connection with the development or production of computer software. 45. To claim deduction both under Section 10A and/or Section 80HHE of the Act, an Assessee is also required to furnish in the prescribed form along with the Return of Income filed by the Assessee, the report, as defined in the Explanation below sub-section (2) of Section 288 of the Act certifying that the deduction has been correctly claimed in accordance with the provisions of Section 10A o....
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....e" in Section 80HHE of the Act but also any expenses incurred in foreign exchange for providing technical services outside India cannot form part of "export turnover". In other words, it is the amount received in foreign exchange for the above purpose alone and not expenses incurred in foreign exchange can be considered for determining the "export turnover" under the respective provisions. 50. Under Section 80M of the Act, dividend income could be allowed as deduction while computing the total income which is equivalent to so much of the amount of income by way of dividends from another domestic company which does not exceed the amount of dividend distributed by the domestic company to an Assessee company. In other words, the dividend income in the hands of the Appellant/Assessee from the other domestic company could be allowed in as much the dividend income incurred by the Assessee is equivalent to the dividend distributed by such domestic company on or before the due date. 51. The Assessing Officer had found that the Appellant/Assessee had approximately incurred a sum of Rs. 90,40,04,020/- [Rs.71,40,24,206/- + Rs. 18,99,79,814/-] as expense in foreign exchange for 2 of its ....
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....ent Order shows that there were duplications. Thus, drastically, the taxable income of the Appellant/Assessee from business as also the deduction to arrive at the Assessed Income of Rs. 32,76,33,084/- was wrongly adopted. 56. The Appellant/Assessee was required to prove that the Appellant/Assessee had indeed exported "computer software" first to avail the benefit of deduction under Section 10A of the Act. 57. If Rs. 71,40,24,206/- was incurred as it was claimed by the Appellant/Assessee, an inference can be drawn that the Appellant/Assessee has indeed provided on-site service to its clients abroad but had wrongly claimed the benefit of Section 10A of the Act to avail higher deduction. 58.Under Section 10A of the Act only the amount received in "convertible foreign exchange" in India alone towards the consideration from export of "articles" or "things" or "computer softwares" alone were deductible under Section 10A of the Act. Thus, ITAT has correctly declined to interfere with the Order of the Appellate Commissioner. 59. A reading of the above definition of "export turnover" in Section 10A of the Act would show that a sum of Rs. 71,40,24,206/- purportedly incurred out o....
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....services necessary and attendant with the development and export of computer software. If this was the finding of the CIT(A), the resultant conclusion should have been that the assessee is only engaged in the development of the computer software and not rendering any technical services on 'standalone basis'. However, we find that the conclusion arrived at by the CIT(A) stating that the assessee is rendering technical services is an incorrect conclusion not supported by any reasons. We would add by stating that the CIT(A) was required to examine the documents produced by the assessee to find out as to whether there was any technical services rendered on 'standalone basis'. This is more so because, the CIT(A) accepted that the 'development of software' encompasses 'providing of technical services'. Therefore, unless and until there was a material available in the hands of the CIT(A) or the Assessing Officer to come to a conclusion that there is technical services on 'standalone basis' rendered by the assessee, the Assessing Officer and the CIT(A) were not justified in coming to a conclusion that the technical services were rendered by the asses....
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....nstrained to set aside the order passed by the Tribunal and answer the Substantial Question of Law No.1 in favour of the assessee." 63. In fact, in T.C.A.Nos.1193 and 1194 of 2008 filed by the Respondent/Income Tax Department in Appellant/Assessee's own case against the Order dated 19.12.2007 of the ITAT in I.T.A.Nos. 535/Mds/2006 and 536/Mds/2006 for the Assessment Years 2001-2002 and 2002-2003, the following substantial question of law came for consideration:- "Whether in the facts and circumstances of the case, the Tribunal was right in holding that the expenditure incurred in foreign exchange, which have been specifically excluded from export turnover by explanation 2(iv) to Section 10A would also form part of the total turnover for the purpose of Section 10A of the Act." 64. The Court in T.C.A.No. 1193 and 1194 of 2008 followed the decision of the Hon'ble Supreme Court in CIT Vs. HCL Technologies, Mad (2018) 404 ITR 719 and T.C.A.No.961 and 962 of 2008 and its decision in T.C.A. Nos. 961 and 962 of 2008 and dismissed the Respondent/Income Tax Department's appeal with the following observation:- "3. The question of law framed above has been a....
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....in the circumstances of the case, the Tribunal was right in holding that the expenditure incurred in foreign exchange whcih have been specifically excluded from export turnover by explanation 2(iv) to Section 10A would also not form part of the total turnover for the purpose of Section 10A of the Act?" 67. Operative portion of the Order dated 25.01.2022 in T.C.A.No. 161 of 2010 reads as under:- "5.1. As regards the substantial question of law framed in T.C.A.No.161 of 2010, the Division Bench of this Court, in T.C.A.Nos.1193 and 1194 of 2008 by order dated 12.10.2018, after following the decision of the Hon'ble Supreme Court in CIT, Central III Vs. HCL Technologies Limited [(2018) 404 ITR 719], dealt with the same question and answered the same in favour of the assessee, the relevant passage of which, is usefully extracted hereunder:- ..... 4. Following the above, these tax case appeals are dismissed and the substantial questions of law framed for consideration are answered in favour of the assessee and against the Revenue. No costs." 5.2. In the light of the aforesaid judgment, we answer the substantial questiion of law involved in T.C.A.....
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.... Commissioner of Income Tax Vs State Bank of India, 262 ITR 662 makes clear that deduction under Section 80M of the Act during the period in dispute deduction was confined to dividend received by a domestic company from another domestic company. This has been remitted back. 75. If the amount was not realized, benefit cannot be claimed. Therefore, Substantial Question of Law No. (i) is answered against the Appellant/Assessee. With regard to Substantial Question of Law (iv), since the issue has been remitted back as far as Substantial Question of Law (iv) is concerned, we are refraining to answer the same. 76. In the light of the decisions of this Court in the Appellant's/Assessee's own case (cited supra) the computation have to be made by the Assessing Officer after ascertaining whether indeed the Appellant/Assessee had indeed exported computer software as is contemplated in Section 10A/ 80HHE(1)(i) of the Act or had indeed provided technical services outside India under Section 80HHE(1)(ii) of the Act. 77. In the result, these Tax Case Appeals of the Appellant/Assessee are partly allowed by answering the Substantial Questions of Law Nos.(ii), and (iii) partly in favour....