TMI Blog2012 (12) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee-company has been treated as doing ‘software development’ cannot be ignored. Therefore, the exclusion of these expenses from export turnover is not correct. The decision of ITAT Chennai Special Bench in the case of Zylog Systems [2010 (11) TMI 76 - ITAT, CHENNAI] also supports the contention - in favour of assessee. If the expenses are excluded from the export turnover these should also be excluded from the total turnover as decided in Commissioner of Income-Tax Versus Lakshmi Machine Works [2007 (4) TMI 202 - SUPREME COURT] - there has to be parity between the export turnover and total turnover. Interest u/s 234B - Held that:- Direct the Assessing Officer to recalculate the interest consequent upon the sustained addition. Inclusion of refunds from Central Sales Tax(CST) in eligible profits for deduction u/s 10A - Held that:- The assessee is entitled to a refund of the CST from the STPI Authorities on the basis of a ‘periodic statement’ detailing the indigenous purchases made. Thus, such a refund so generated has a direct nexus and connectivity with the eligible undertaking making it entitled for the deduction u/s 10A. In this regard, the decision rendered in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are that the assessee is a private limited company, primarily engaged in the business of software development. For this year, the company filed its return of income on 31.10.2002 admitting total income of Rs. 19,69,840/-. This return was processed u/s 143(1) on 12.3.2003 but subsequently, assessment was made u/s 143(3) determining total income at Rs. 1,13,46,149/-. Being aggrieved against the additions made in the returned income, the assessee preferred first appeal and from the ld. CIT(A) it has been successful in getting a part relief. Not being fully satisfied, a second appeal has been filed against the sustained addition. 4. The first issue of this appeal is against exclusion of certain expenses, incurred for travel, etc. in foreign currency, from export turnover while computing deduction u/s 10A of the Act as against the assessee having included the same. The assessee has claimed that these expenses should not have been excluded, but in the alternative, it is pleaded that, in case these expenses are to be excluded then these have to be excluded both from the total turnover as well as export turnover for the purpose of computing the deduction u/s 10A so that correct interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any is engaged in the development of software. To crown this fact, the evidence in the form of Transfer Pricing Order for assessment year 2002-03 dated 14.12.2005, in which the assessee-company has been treated as doing software development cannot be ignored. Therefore, the exclusion of these expenses from export turnover is not correct. The decision of ITAT Chennai Special Bench in the case of Zylog Systems 135 TTJ 129, inter alia, supports her contention. We have to accept this contention of the ld.AR mainly because we are convinced after running through the various pieces of evidence referred to above that the assessee is engaged in the business of software development , therefore, we decide this issue in favour of the assessee and against the Revenue. 8. The alternative plea although is now of academic interest, but we would like to mention that if the expenses are excluded from the export turnover these should also be excluded from the total turnover. The decision of Hon'ble Supreme Court rendered in the case of Lakshmi Machine Works,290 ITR 667, and that of Mumbai High Court in the case of Gem Plus Jewellery India Ltd, 330 ITR 175 and the decision of ITAT Special Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same time, the company debits the account of the foreign buyer with equal amount. At the end of the year, if the sale proceeds are not received by the assessee-company, the foreign buyer is shown as sundry debtor . If the proceeds are not received in the same financial year and received after one or two years, the fluctuation arising at that time will have any relevance to the turnover reported for the previous year in which the sale took place or not is the puzzle of this issue. In the opinion of the Assessing Officer, the assessee loses its rights over the sold items on the very despatch of the same and as per Accounting Standard prescribed by the ICAI, foreign currency transactions are to be recorded at the date of the transactions applying the exchange rate between the reporting currency and the foreign currency as on such date of transaction(s). Thus, according to the Revenue, the sale proceeds should be the value recorded in the books and any increase or decrease in exchange fluctuation on the bill amount is only a subsequent event after the completion of the transaction; it is only an accretion to the amount due to be received by the assessee and not an accretion to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains derived by the undertaking from the export of articles or thing or computer software has to be viewed from a narrow compass and as such cannot include refund of CST in eligible profit for the purpose of computing deduction u/s 10A. To counter this contention of ld. CIT/DR, it was argued by Dr.Sumanth that the assessee-company is a STPI unit and procures certain goods locally for the business of software development, for which the assessee is liable to pay sales tax and that on such supplies from the Domestic Operation Area to the STPI units are treated as Deemed Sales as per Foreign Trade Policy. In this regard, a copy of the Foreign Trade Policy has been filed. We have perused it and have found that the assessee is entitled to a refund of the CST from the STPI Authorities on the basis of a periodic statement detailing the indigenous purchases made. Thus, such a refund so generated has a direct nexus and connectivity with the eligible undertaking making it entitled for the deduction u/s 10A. In this regard, the decision rendered in the case of Dy. CIT vs Aarti Industries , 95 TTJ 14 , supports our above view. The ld. CIT(A) has also relied on this decision in which it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the order of the ld. CIT(A) dated 31.1.2007. In this appeal, following grounds have been raised: The grounds of appeal listed below are without prejudice to each other. Issue I - Software cost 1. The CIT(A) has erred in confirming the AO's order that software expenditure to the extent of lNR 4,397,448 incurred by the Appellant is capital in nature. Issue 2 Tax consultancy fee 2 The CIT(A) has erred in confirming AO's order by disallowing expenditure in the nature of tax consultancy fee incurred by the Appellant. Issue 3 Expenditure incurred in foreign currency for computing export turnover. 3. The CIT(A) has erred in confirming the order of the AO by excluding travel and certain other expenses incurred in foreign currency from the export turnover, when such items were not included in the export turnover in the first place. 4. Without prejudice to ground 3 above, that the CIT(A) has erred in confirming the order of the AO in treating travel and certain other expenditure incurred in foreign currency as expenditure incurred for providing technical services outside India when the Appellant is engaged in the business of development of computer softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after deducting certain expenditure incurred in foreign exchange. Thus, according to him, export turnover is restricted to actual export i.e freight, communication charges and insurance attributable to delivery of software are not included in the turnover. Any expense in foreign exchange in providing technical services outside India is also to be excluded. The proceeds from on-site development abroad being the profits derived from export has nothing to do with the explanation of the export turnover which quantifies the allowable deduction. He has further observed that exclusion of such expenditure is to compute the allowable deduction and it has nothing to do with the profit of the undertaking. So, according to him, allowable deduction of expenditure is restricted to the extent of net foreign exchange brought into India. He has also observed that for computation of allowable deduction, the nominator and denominator cannot be the same figure, therefore, the export turnover (nominator) is restricted to net convertible foreign exchange received in India. He has not adjusted the turnover to the extent of convertible foreign exchange received in India and has allowed the deduction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etion of income from provision of workstations taxed as income from other sources. During the accounting period ended 31.3.2003, the assessee-company had leased out certain unutilized facilities available with it including computer terminals, chairs, tables etc. to Satyam for a consideration. The company had received in all a sum of Rs. 174,65,942/- from this activity and after claiming an expenditure of Rs. 1,70,17,143/- a net income of Rs. 4,48,799/- has been shown and offered for tax under the head income from other sources . The Assessing Officer has included the entire sum of Rs. 1,74,65,942/- as forming part of business income of the assessee and has included this sum in the total turnover for the purpose of computing deduction u/s 10A. As we have already held in the earlier part of this order that this is an activity which is eligible for deduction u/s 10A therefore, we cannot reverse the finding of the ld. CIT(A) in this regard. 27. The next issue of Revenue s appeal is regarding finding of ld. CIT(A) that expenditure in foreign currency of Rs. 16,88,635/- should be excluded from the total turnover for the purpose of computing deduction u/s 10A. As per Revenue, the Leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer has given a specific finding that from the details of invoices raised and furnished by the assessee-company from the figure as per the Profit Loss Account, for the impugned accounting year, therefore, he has adopted the turnover figure as per the export invoices produced. The Assessing Officer has reduced a sum of Rs. 66,51,761/- from the total turnover. Similarly, he has reduced the figures relating to the earlier accounting period while adopting the figure of export turnover. The relevant figures are shown in the table below: Total turnover Rs. Export turnover Rs. As per appellant s working 85,73,37,819 85,73,37,819 As per Assessing Officer s working 85,17,16,058 84,49,93,829 Difference 56,21,761 1,23,43,990 30. According to the Assessing Officer, these figures relate to earlier accounting period and therefore, cannot be taken into consideration for the purpose of deduction u/s 10A of the Act of the impugned accounting period. The stand taken by the assessee would be clear from the submissions of the ld.AR made before the ld. CIT(A) as contained in para 7.2 at page 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffnungashutto Sterkarado (1992) (197 ITR 66)(Ori) 4. CIT Vs. Up State Industrial Corporation(1997)(225 ITR 703)(SC) 5. CIT Vs. Consulting Engineering Services (India)Ltd.(2001)(250 ITR 849)(Del.) 6. CIT Vs. Indo Nippon Chemicals Co.Ltd. (2003)(261 ITR 275)(SC) 7. DCIT Vs. Otis Elevator Co.(I) Ltd. Accordingly unbilled Revenue relating to financial year 2002- 03 had been recognized in the books of account. We hereby wish to submit that the unbilled revenues relating to the period should be included to form part of export turnover and total turnover in computing the profits of the business" 31. After considering this explanation, the ld. CIT(A) has found that when the Assessing Officer has excluded a sum of Rs. 1,23,43,990/- from the export turnover he ought to have excluded similar sum from the total turnover also. Therefore, he has found inconsistency in the stand taken by the Assessing Officer. According to the assessee, a sum of Rs. 56,21,761/- represented unbilled Revenue and it relates very much to the exports made during the impugned accounting period and therefore, the same form part of the total turnover. Similarly, a sum of Rs. 1,23,43,919/- was not realized d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of development of computer software Accordingly, the learned CIT(A) has erred in confirming the AO's order that such expenses need to be excluded from export turnover while computing deduction under section 10A. 5 The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, before commencement of/during proceedings before Tribunal . 35. The first issue regarding disallowance u/s 14A; and the second issue regarding Software cost, were not pressed at the time of hearing, and is also evident from the small compilation of the assessee where the expression Not Pressed is written. Therefore, both the issues stand dismissed as not pressed. 36. The third issue regarding travel expenditure incurred in foreign currency for computing export turnover has been decided in favour of the assessee by us in earlier assessment year. In the same way and manner we decide the issue in this year also, and that too, in favour of the assessee-company. 37. In the result, the appeal of the assessee for assessment year 2004-05 stands partly allowed. I.T.A.No. 2177/Mds/2010 A.Y 2004-05 by Revenue 38. This is cross appeal of the Revenue for assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. Therefore, this appeal also stands dismissed. 40. In the result, the appeal of the Revenue for assessment year 2004-05 stands dismissed. I.T.A.No. 2092/Mds/2010 A.Y 2005-06 By assessee 41. This appeal of the assessee for assessment year 2005-06, is directed against the order of the ld. CIT(A), dated 22.9.2010. In this appeal following grounds have been raised: Issue 1 Disallowance under section 14A 1. The learned Commissioner of Income tax (Appeals) ['CIT(A)'] has erred in confirming the order of the Assessing officer ('AO) that 2 percent of the dividend income (on an ad hoc basis) should be regarded as expenditure incurred for earning the dividend income and should accordingly be disallowed under section 14A, whereas, no expenditure was incurred by the Appellant towards earning such income. Issue 2 Software cost 2. The learned CIT(A) has erred in confirming the AO's order that software expenditure to the extent of Rs. 55,20,827 incurred by the Appellant is capital in nature. Issue 3 Travel expenditure incurred in foreign currency for computing export turnover. 3 The learned CIT(A) has erred in confirming the order of the AO by exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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