TMI Blog2016 (1) TMI 1019X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure required for the technical services performed by the assessee to its AE. These expenses as per the contentions of the assessee are mainly with respect to setting up of workstations i.e. Desktops/Laptops, Wide Area Network, leased line for data transfer between KSB AG and the assessee, printers, internet etc. Applications such as Unigraphics, Autocad, SAP, Ms-office, various other softwares, etc. Payment for technical consultancy services include, technical consultancy fees, off-shore salary paid by KSB AG to its technical representative deputed with the assessee, etc. As far as the third element i.e. reimbursement is concerned they relate to expenses incurred by holding company on behalf of the employees of the assessee when they visited Germany for training. These expenses include mainly rent, accommodation, conveyance, training etc. Therefore, these reimbursements do not form part of the expenditure eligible for deduction u/s. 10A. In the definition of the term “export turnover” it has been specifically stated that expenses incurred in foreign exchange in providing technical services outside India. Thus, the scope of the exclusion from the word “export turnover” cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years, the assessee claimed deduction u/s. 10A. In assessment year 2007-08, in scrutiny assessment proceedings, the Assessing Officer held that the assessee is providing technical services outside India and is not engaged in export of any articles or things or computer software as envisaged in section 10A of the Act. The Assessing Officer disallowed the amount of ₹ 4,04,29,000/- i.e. the expenditure incurred by assessee in foreign currency in providing technical services outside India. The Assessing Officer reduced the same from export turnover for the purpose of computing allowable deduction u/s. 10A of the Act. Aggrieved by the assessment order dated 31-12-2009, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). Before the Commissioner of Income Tax (Appeals) the assessee made first prayer in reversing the findings of the Assessing Officer in treating the amount of ₹ 4,04,29,000/- towards technical services outside India and restore the deduction u/s. 10A thereon. In an alternate prayer the assessee prayed for reducing the amount of ₹ 4,04,29,000/- from the export turnover as well as total turnover for computing deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have erred in coming to the conclusion that the assessee is engaged in providing technical services outside India. The ld. AR filed detailed work flow explaining the activities carried on by the assessee for its holding company. The work flow of the activities performed by the assessee is reproduced here-in-under: A) The nature of activities carried out by KSB Tech is explained below. General overview of the activities at KSB Tech Pvt. Ltd. 1. creation of 3D/2D CAD drawings, 2. carrying out flow/stress analysis, 3. developing pump/valve selection software, 4. designing of pumps and valves for the parent company KSB AG, Germany. Representative work flow: Step 1. Identification of task for KSB Tech, Pune communication with relevant department at KSB Tech, Pune - Done by KSB AG through e-mail, telephonic conversation etc. - In this step the engineers at KSB AG review development projects planned or underway at their end identify the tasks to be done from KSB Tech, Pune e.g. creation of new 3D/2D CAD drawings or carrying out flow/stress analysis or pumps / valves to be included in the selection software or designing of pum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tasks shares results with them Engineers at KSB AG review the results provide comments to engineers at KSB Tech, Pune - Engineers at KSB Tech, Pune review the comments received from engineers at KSB AG undertake revision in the tasks as per need. - Upon completion of the task, engineers at KSB Tech, Pune inform engineers at KSB AG transfers results to them. - Engineers at KSB AG review the results communicate their approval, - The assigned tasks thus get completed. All communications with KSB AG during these steps take place via E- mail, teleconferences or video conferences or personal visit of German engineers to KSB Tech, Pune. The ld. AR referred to pages 87 to 89 of the paper book no. 4 (for assessment year 2007-08 - Submitted on 25-11-2014), to show that the assessee is raising invoices on the parent company on the basis of actual work done. In support of his submissions, the ld. AR of the assessee placed reliance on the following decisions: i. Wills Processing Services (India) (P.) Ltd. Vs. Deputy Commissioner of Income Tax, 21 ITR (T) 1 (Mumbai-Trib.) and ii. Patni Telecom (P.) Ltd. Vs. ITO, 22 SOT 26. 8. Dr. Harshv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India; From the perusal of above definition of export turnover it is clear that export turnover means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange within the prescribed period but it does not include the following: a) Freight, b) Telecommunication charges, c) Insurance attributable to the delivery of the articles or things or computer software outside India, and d) Expenses, if any, incurred in foreign exchange in providing the technical services outside India. 11. In the present case from the work flow of the activities provided by the assessee which has been reproduced in para 7 above, it is evident that the assessee is not providing any end product such as computer software or design to its parent company in Germany. The assessee is providing technical services to its holding company. In so far as the findings of Commissioner of Income Tax (Appeals) on this aspect of the issue is concerned we are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raining. These expenses include mainly rent, accommodation, conveyance, training etc. Therefore, these reimbursements do not form part of the expenditure eligible for deduction u/s. 10A. In the definition of the term export turnover it has been specifically stated that expenses incurred in foreign exchange in providing technical services outside India. Thus, the scope of the exclusion from the word export turnover cannot be enlarged by excluding the expenses incurred in foreign exchange in providing the technical services from India. 15. In support of his submissions, the ld. AR has placed reliance on the decision of Mumbai Bench of the Tribunal in the case of Wills Processing Services (India) (P.) Ltd. Vs. Deputy Commissioner of Income Tax (supra). We find that the issue in the said appeal is at variance from the issue in appeal before us. Therefore, the ratio laid down in the said case will not be of any help to the assessee in the present case. 16. In view of our above detailed findings the appeals of the assessee for both the assessment years 2007-08 and 2008-09 are partly accepted. ITA No. 1714/PN/2012 (A.Y. 2007-08) 17. Now, we proceed to decide the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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