TMI Blog2010 (1) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the help of primary records relating to the expenses under different heads, exercise of allocation of expenses, or of examining the allocation of expenses is to be done afresh by the Assessing Officer after giving due and fair opportunity of hearing to the assessee and after dealing with the contentions of the assessee by way of a speaking order in accordance with law, order of the Commissioner of Income-tax set aside, appeal filed by the assessee is allowed for statistical purpose. - I.T.A. No. 6625/Mum/2008 - - - Dated:- 20-1-2010 - Pramod Kumar, V. Durga Rao, JJ. Dinesh Vyas for the Appellant S.S. Rana for the Respondent ORDER V. Durga Rao Judicial Member.- This appeal filed by the assessee is directed against the order of the Commissioner of Income-tax-7, Mumbai, dated September 10, 2008, passed under section 263 of the Income-tax Act, 1961, for the assessment year 2004-05. The assessee has raised the following grounds in its appeal: "1. The learned Commissioner of Income-tax erred in setting aside the assessment order passed under section 143(3) by the learned Deputy Commissioner of Income-tax-7(3) ("DCIT"). He erred in not appreciating that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax issued notice under section 263 of the Income-tax Act, to the assessee as under: "(a) As per the provisions of section 10A of the Act, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software manufactured or produced, shall be allowed from the total income of the assessee. Further as per sub-section (4), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the 'total turnover' of the business carried on by the undertaking. Explanation 2(iv) below sub-section (9A), does not provide inclusion of expenses, among other, incurred in foreign exchange in providing the technical services outside India for the meaning of export turnover. However, no such provision is included in the section ibid to mean the total turnover. The working of deduction under section 10A in the statement of computation of total income shows that export turnover and total turnover of the undertaking are the same as Rs.4, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange in providing the technical services outside India are not to be included. The term 'total turnover' has not been defined under section 10A of the Act. However, for the purpose of maintaining harmony and for aligning both numerator and denominator on a common basis, the denominator in the formula, i.e., the 'total turnover' also needs to be adjusted by excluding the total expenses incurred in providing services outside India which had been done by the assessee in the present case. The assessee has taken further plea that the provisions and method of computation of deduction under section 10A of the Act are similar to the provisions contained in sections 80HHC and 80HHE of the Act. It has been submitted that the definition of the term 'total turnover' under section 80HHC was included by the Finance (No.2) Act, 1991 with a view to clarify that 'total turnover' also will not include such freight or insurance as in the case of 'export turnover'. Section 80HHE inserted with effect from April 1, 1991, it is submitted, contains the definition of 'total turnover' excluding expenses incurred in foreign exchange in providing the technical services outside India. It is further submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , software written off, vehicle maintenance, staff training and recruitment expenses, office meeting expenses and office maintenance expenses, it is stated that expenses specific to the STP unit are allocated to the SIP unit and the balance amount allocated between the STP and non STP unit on the basis of the turnover of the undertaking in Bangalore. It is further submitted that expenses like share of expenses of Tata Services Ltd., brokerage, site survey expenses, legal expenses, hire charges, bank guarantee charges and IBIS expenses have not been included in the establishment expenses of the STP unit. Since these expenses have no relation, direct or indirect, to the STP unit and are for corporate purposes. It is also stated that expenses like computer charges have already been included as part of 'repairs and maintenance - others' in schedule 4 to the profit and loss account of the STP unit and were reduced from the receipts of the STP unit while computing its profits. Hence, if pro-rata allocation at 8.42 per cent. of turnover is made, that will amount to a double deduction of expenses leading to reduction of profits in the hands of the assessee. In view of this and also in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of the Assessing Officer to suggest such a considered discussion. 5.1 One of the important arguments taken by the assessee was that for the purpose of maintaining harmony and for aligning both numerator and denominator on a common basis, the denominator in the formula, i.e., the 'total turnover' also needs to be adjusted by excluding the total expenses incurred in providing services outside India. It had been done by the assessee in the present case. This, in my opinion, is not a sound and an acceptable argument. The judgment in the case of CIT v. K. Ravindranathan Nair [2007] 295 ITR 228 (SC) does not support this kind of argument. In the said case, the assessee had included the income by way of processing charges as part of the profits of the business. At the same time, it was argued on the assessee's behalf that the processing charges should not be made part of the 'total turnover' of the assessee. It was held by the hon'ble apex court that the processing charges constituted 'independent incomes' like brokerage, commission, interest, etc., as mentioned in clause (baa) of the Explanation to section 80HHC and, therefore, 90 per cent, of the processing charges has to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous view in the matter. There are no specific questions asked and nothing has been recorded in the assessment order as to the manner in which the figure of 'total turnover' was arrived at. In view of this, it would not be correct to state that the Income-tax Officer has taken one 'view' and the Commissioner of Income-tax is differing from the view taken. The decision in the case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom) as relied upon by the assessee is also not appropriate since there is no conscious application of mind by the Assessing Officer as already stated. At best, it is a case of omission on part of the Assessing Officer. As regards sustainability in law, the issue admits of legal controversy which is yet to get settled at the highest judicial forum." In view of the above, the Commissioner of Income-tax set aside the order of the Assessing Officer with a direction to pass a fresh assessment order after recomputing the deduction under section 10A of the Act after excluding the expenses incurred in foreign exchange in providing technical services outside India for the purpose of computing the "total turnover" and after examining the manner of allocation of the establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 in Form No.56F by the chartered accountant. At pages 30 to 35 of the paper book are the annexures to Form No.56F. Inviting our attention to the abovementioned pages of the paper book, the assessee-company explained the allocation of establishment expenses to the STP unit on the basis of ratio of the total turnover of the assessee to the turnover of the STP unit. It is seen from records that the Assessing Officer vide his letter dated August 30, 2006, placed at pages 36 to 38 of the paper book, requisitioned certain information on the points and/or matters as per annexure enclosed. In response to that, the assessee-company vide its letter dated September 7, 2006 (from pages 39 to 53 of the paper book) submitted the reply to the Assessing Officer. The main point for consideration of this issue is whether the Assessing Officer has applied his mind with regard to the allocation expenses or not during the course of assessment proceedings. It is seen from records that the Assessing Officer has called for certain details from the assessee-company in connection with scrutiny assessment and in response to that, the assessee submitted the details which are at pages 39 to 53 of the pap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the stage of issuance of notice (extracted at pages 4 and 5 of this order) also stand vacated. This exercise of allocation of expenses, or of examining the allocation of expenses is to be done afresh by the Assessing Officer after giving due and fair opportunity of hearing to the assessee and after dealing with the contentions of the assessee by way of a speaking order in accordance with law. So far as the second issue with regard to the computation of total turnover under section 10A of the Act is concerned, the learned authorised representative submitted that the issue is covered by the decision of the Special Bench of the Chennai Tribunal in ITO v. Sak Soft Ltd. [2009] 313 ITR (AT) 353. The learned Departmental representative fairly conceded the same. As the issue regarding the computation of total turnover under section 10A of the Act is squarely covered by the decision of the Special Bench of the Chennai Tribunal in Sak Soft Ltd. (supra), we allow this ground of appeal raised by the assessee. In view of our decision cited above, we set aside the order of the Commissioner of Income-tax on this issue. In the result, the appeal filed by the assessee is allowed for statist ..... X X X X Extracts X X X X X X X X Extracts X X X X
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