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Income Tax Appellate Tribunal, “A” BENCH KOLKATA
Before: SHRI RAJPAL YADAV & SHRI GIRISH AGRAWAL
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH KOLKATA BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.2292/Kol/2018 Assessment Year: 2009-10 Assistant Commissioner of Ixia Technologies Pvt. Income-tax, Circle-2(1), Limited (now merged with Kolkata. Keysight Technologies India Vs. Pvt. Limited) Infinity Tower-II, Block-GP, Sector-V, 8th Floor, Salt lake City, Kolkata-700091. (PAN: AACCC5468K) (Appellant) (Respondent)
Present for: Appellant by : Shri Rahul Shah, AR Respondent by : Shri B. K. Singh, JCIT, Sr. DR Date of Hearing : 24.07.2023 Date of Pronouncement : 11.10.2023
ORDER PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the revenue is against the order of Ld. CIT(A)-1, Kolkata dated 23.08.2018 passed against assessment order passed by DCIT, Circle-2(1), Kolkata u/s. 154/143(3) of the Income- tax Act, 1961 (hereinafter referred to as the “Act”), dated 10.07.2015 for AY 2009-10.
Revenue has raised the following grounds of appeal:
“1. In the facts and circumstances and law point of the case, the order of the Ld. CIT(A) is erroneous as because the mistake in computation of relief u/s. 10 was apparent from record.
2 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 2. The appellant craves the leave to make any addition, alteration, modification etc. of the grounds either before the appellate proceedings, or in the course of appellate proceedings.” 3. Brief facts as culled out from records are that Ixia Technologies Private Limited (in short “ITPL”), now merged with Keysight Technologies India Private Limited (in short “KTIPL) is incorporated in India with principal business of software designing and development for network testing systems and services and other products. Assessee filed its return on 23.09.2009, reporting total income of Rs.68,56,130/- after claiming deduction u/s. 10A of the Act of Rs.1,13,05,508/-. Assessment proceedings were completed u/s. 143(3) wherein deduction u/s. 10A of the Act was duly examined and allowed. Thereafter, rectification proceedings u/s. 154 of the Act were initiated. Ld. AO passed a rectification order u/s. 154/143(3) of the Act dated 10.07.2015, denying the claim of deduction u/s. 10A of the Act on the component of refund of service tax received by the assessee. Aggrieved, assessee went in appeal before the Ld. CIT(A).
3.1. Ld. CIT(A) had decided the case in favour of the assessee by stating that Ld. AO erred in initiating rectification proceedings on an issue which is debatable and on which two opinions are conceivable. Against the said order passed by the Ld. CIT(A), Revenue is in appeal before the Tribunal.
3.2. Appeal filed by the revenue had been dismissed by the ITAT coordinate Bench vide order dated 28.08.2019, since tax effect involved in the said appeal was below the limit of Rs.50,00,000/-, as prescribed vide Circular 17 of 2019. Thereafter, a Misc. Application was filed by the revenue, seeking reinstatement of the appeal on the ground that monetary limits of tax effect for filing of departmental appeal shall not apply in the instant case since it relates to an audit
3 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 objection which has been accepted by the department. Misc. application was allowed and appeal was reinstituted.
In the present case, assessee had claimed deduction u/s. 10A of the Act of an amount of Rs.1,13,05,508/- which included deduction claimed on the refund of service tax received by it. Ld. AO in the proceedings u/s. 154 was of the view that deduction u/s. 10A on refund of service tax shall not be available in view of the following:
(i) Refund of service tax was included in ‘Other Income’ segment of the accounts of the eligible undertaking;
(ii) Section 10A uses the phrase ‘deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software’ and refund of service tax does not fall under this phrase.
4.1. In this regard, assessee submitted that initiation of rectification proceedings in the instant case is not warranted in view of the following:
(i) Rectification powers can be exercised only to rectify 'any mistake apparent from record', viz., self-evident errors which are not debatable issues and do not require a lot of reasoning. An issue which is debatable and on which there may be conceivably two opinions cannot be subjected to proceedings u/s 154. The aforesaid principle finds support from the decision of the Hon'ble Apex Court in T.S. Balaram, ITO vs. Volkart Brothers (1971) 82 ITR 50 and Hon'ble Gujarat High Court in ACIT vs. Saurashtra Kutch Stock Exchange Limited (2003) 130 Taxman 316 (upheld by the Hon'ble Apex Court in (2008) 173 Taxman 322);
4 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 (ii) An issue which has already been subject to detailed enquiry and application of mind by the Ld. AO at the time of assessment, should not be subjected to proceedings u/s 154 since powers u/s 154 are not given to review or reconsider an order already passed. The aforesaid principles find support from the decision of the Hon'ble Chandigarh Tribunal in City Clinic Pvt. Ltd vs. ACIT (ITA No. 112/Chd/2017) and the Hon'ble Delhi High Court in CIT vs. R.K. Shrivastav (HUF) (2008) 298 ITR 53.
4.2. It was further contended that the issue whether service tax refund would be considered as ‘profits/gains derived from the eligible undertaking’ is a subject matter of debate, in respect of which two views are possible. Therefore, refund of service tax could not be a subject matter of rectification u/s 154 for the purpose of disallowing claim u/s. 10A. Reliance in this regard was placed on the decision of the Hon'ble Karnataka High Court in the case of CIT vs. TTK Prestige Limited (2009) 184 Taxman 18 wherein the Hon'ble Court has held that section 154 cannot be invoked when the original assessment did not contain any adverse finding and the Ld. AO subsequently initiated rectification proceedings to add back the deduction allowed u/s 80-IA to the extent of export incentive received by the assessee had been claimed as deduction as a part of profits of the eligible undertaking. The Hon'ble High Court held that the matter of allowability of export incentive as part of the profits of the eligible undertaking was a matter of debate and hence not subject to rectification.
Ld. CIT(A) decided the issue in favour of the assessee stating that Ld. AO erred in initiating rectification proceedings on an issue which is debatable and on which two opinions are conceivable. Relevant extract of the order of the Ld. CIT(A) is being reproduced below for ready reference:
5 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 "In view of the above facts and circumstances of the case, I am of the view that the A. 0 was not justified in rectification of a mistake which is on a debatable issue viz. allowability of exemption u/s 10A of the I. T. Act, 1961 in respect of receipt/income from refund of service tax amounting to Rs.20,69,000/- which is not a patent mistake of fact of law but requires decision through a long-drawn process of reasoning on points on which there may be conceivably two opinions and is a debatable one as held by the ratio of the decision of the Hon'ble Supreme Court in the case of T.S. Balaram, ITO vs. Volkart Brothers and ors.(supra} and the Hon'ble Gujarat High Court in the case of ACIT vs. Saurashtra Kutch Stock Exchange Limited(supra). Therefore, I am of the view that the A.O was not justified in resorting rectification u/s 154 on a debatable issue, which does not comprise a mistake apparent from the face of record. This ground is allowed." 6. Aggrieved, revenue is in appeal before the Tribunal on the sole issue of applicability of section 154 of the Act.
Before us, Ld. Sr. DR placed reliance on the order of Ld. AO and submitted that it was from the accounts of the assessee and from Form No. 56F that Ld. AO noted about inclusion of refund of service tax in the total income which has been reported as ‘other income’ but was taken into account for computing claim of exemption u/s. 10A of the Act. According to Ld. Sr. DR, notice u/s. 154 was rightly issued and served on the assessee to set right the claim of exemption u/s. 10A in respect of refund of service tax of Rs.20,69,000/-, which as per the Ld. AO is not profits derived from the export of articles or things or computer software as contained in section 10A of the Act.
7.1. In support of this understanding of the Ld. AO, he placed reliance on the decision of Hon’ble Supreme Court in the case of CIT Vs. Liberty India Ltd. 317 ITR 218 and CIT Vs. Sterling Foods 237 ITR 579. In view of these two judgments, according to Ld. AO, the receipt from refund of service tax is not a profit derived from the exports of articles or things or service and hence, do not form part of the net profit eligible for deduction u/s. 10A of the Act. Since this was not excluded from the profit of the eligible unit for computing the
6 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 deduction u/s. 10A, it is an inadvertent error resulting in excess allowance u/s. 10A of the Act.
7.2. Ld. Sr. DR also placed on record, copy of decision of the Hon’ble Supreme Court in the case of Saraf Exports Vs. CIT [2023] 453 ITR 625 (SC), wherein it was held that where assessee received income in the form of receipts from Duty Entitlement Pass Book (DEPB) and from Duty Drawback Scheme (DDS), said income could not be said to be derived from an industrial undertaking and thus assessee would not be entitled to claim deduction u/s. 80IB with respect to such receipts. Ld. Sr. DR thus, strongly contended that Ld. AO has rightly disallowed the claim u/s. 10A in respect of receipt of refund of service tax by the assessee.
Per contra, Ld. Counsel for the assessee, at the outset submitted that rectification powers can be exercised only to rectify self-evident errors which are not debatable issues and do not require a lot of reasoning upon which two views are possible. He placed reliance on the decision of the Hon’ble Supreme Court in the case of T.S. Balaram, ITO Vs. Volkart Brothers (supra) wherein it has been held that in case of proceedings under section 154 of the Act what is rectifiable is a mistake apparent from record. The Hon'ble Court went on to hold that a mistake to be apparent must be obvious and patent and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. According to him, similar view was taken by the Hon'ble Gujarat High Court in the case of ACIT Vs Saurashtra Kutch Stock Exchange Limited reported in 130 Taxman 316 wherein it was held that a mistake to be rectified should be self-evident and should not be a debatable issue. He pointed that this case and the principles propounded therein has been upheld by the Hon'ble Apex Court in
7 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 173 Taxman 322 wherein it was held that “an error cannot be said to be apparent on the face of the record if one has to travel beyond the record to see whether the judgment is correct or not, an error apparent on the face of the record means an error which strikes the eye on merely looking at it and does not need long-drawn-out process of reasoning on points where there may conceivably be two opinions, Such an error should not require any extraneous matter to show its incorrectness. To put it differently, it should be so manifest and clear that no Court would permit it to remain on record.”
8.1. Ld counsel submitted that instant case of the assessee is an example of a situation where the matter stands in favour of the appellant but the Ld. AO on review of his earlier order has gone into the general principles of law to make the adjustment on account of refund of service tax, stating it not to be a source "derived" from the eligible business. According to him, general principles as held by the Hon’ble Courts are specific to those cases facts and cannot be applied generally without relating it to the nature of income and the words used in the law. Given these principles once applied to facts of any case, there are divergent views possible whether a particular income forms or does not form part of the eligible undertaking and accordingly is eligible or not eligible for deduction. The matter does not stand apparently evident until and unless it is a clear cut case of similar facts already adjudicated by any court.
8.2. It was contended by the Ld. Counsel that case of the assessee is not a plain and simple case of a glaring error which needs to be rectified at the first look of it or, is so apparent that there are no doubts regarding it being a mistake crept into the original order as has been treated by the Ld. AO, rather it is a complete contrasting position, and stands in favour of the assessee when the same
8 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 principles as relied upon by the Ld. AO are applied to the present case. Ld. Counsel strongly submitted that it is a case of change in the view of the Ld. AO which he has originally arrived after taking into consideration detailed explanation and documentary evidences placed on record in the original assessment proceedings.
8.3. In the proceedings initiated u/s. 154, ld. AO has resorted to a view which is solely based on the decision of the Hon’ble Supreme Court in the case of Liberty India (supra) and Sterling Foods (supra) which in itself demonstrates that it is a case of long drawn discussion on which debate can be made and then a conclusion can be arrived at. To support this contention, Ld. Counsel elaborated on the two decisions which were relied on by the Ld. AO in the impugned order passed u/s. 154 read with section 143(3) of the Act.
8.4.1. He first referred to the decision of Liberty India (supra). In the said case, while dealing with the question as to whether duty drawback/DEPB benefits are entitled for deduction, being profits and gains derived from the eligible undertaking u/s 80IB of the Act, the Court answered in favour of the revenue. The decision though pronounced in respect of section 80IB read with the provisions of the Section 80-1 and section 80-IA, fully applies to the instant case as these sections also use the word "derived from" which words are present in section l0A of the Act. The Court further explained that the meaning of the term 'derived from' is narrower than 'attributable to' and stated that section 80-IB(1) vide the usage of the words 'derived from' purports to restrict the quantum of deduction.
8.4.2. The Hon'ble Court in respect of duty drawback (which is also a form of remission of excise and customs paid by an assessee) held that duty drawback is a provision under the relevant Act whereby
9 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 the average of the amount of duty paid on materials used in the manufacture of items ultimately exported is refunded to the assessee, The Court further explained that it is not a refund of the amount arithmetically equal to the customs or central excise duty actually paid rather it is an incentive payment flowing from the Central Government. Similarly, for DEPB, the Court was of the view that since it is an export incentive given under the Duty Exemption Remission Scheme and although its purpose is to neutralize the incidence of customs duty payment on the import content of export product, still credit is available only at rates specified by DGFT for import of raw materials, components, etc. Accordingly, the Court went on to conclude that duty drawback/ DEPB are flowing to the undertaking because of 'the incentive scheme framed by the Government and not as part of the operation of the undertaking and would not fall within the ambit of the phrase "profits and gains derived from the undertaking”.
8.4.3. On the above, ld. Counsel mentioned that Hon'ble Apex Court acknowledged that these incentives were independent sources of revenue only on account of the fact that these were calculated on the basis of certain percentage or rate applied to an underlying relevant item and were not a plain- vanilla return of the exact amount paid. However, case of the assessee is different as it is entitled to the refund of exact amount of input service tax paid which have been utilised in connection with the export of goods and there is no percentage or rate which is applied for calculation of the refund to be made to the assessee. Accordingly, it is to be considered as first source of revenue having immediate nexus with the operation of the eligible business.
8.5.1. Similarly, in the second decision referred to by the Ld. AO of Sterling Foods (supra), ld. Counsel elaborated on the same that the
10 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 term 'derived from' would mean a direct nexus between the profits and gains of the industrial undertaking. The Hon’ble Court went on to hold that the facts of the case present before them showed that the assessee had received import entitlements granted by the Central Government under an Export Promotion Scheme as it was carrying out the export of prawns, sea food, etc. The Hon'ble Court went on to hold that the source of import entitlements were the Export Promotion Scheme of the Central Government and not the industrial undertaking. The Court held that the industrial undertaking can at best be termed as an incidental source of the import entitlements.
8.5.2. According to the Ld. Counsel this ruling relied upon by the Ld. AO can be distinguished from the facts present in the assessee’s case as this ruling deals with an income received which has no direct and immediate nexus with the operations of the undertaking carrying out for the export of marine products. The income was at best an incentive to the businesses carrying out export of marine products which does not have an operational link to the business being carried out. While in the present case of the assessee, refund of service tax and that too of the exact amount of input service tax paid, is directly and operationally linked to the eligible undertaking. So, accordingly, applying the same principles of the rulings relied upon by the Ld. AO, it can be seen that the matter stands in favour of the assessee, contended the Ld. counsel.
8.6. Further, Ld. Counsel submitted that rectification u/s. 154 cannot be carried out if issue has already been subjected to detail enquiry at the time of assessment itself. For this, Ld. Counsel referred to the queries raised by the Ld. AO which were duly replied along with all the corroborative documentary evidences, all of which are placed on record forming part of the paper book. According to the Ld.
11 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 Counsel, all the details were furnished covering various possible enquiries related to the claim of exemption u/s. 10A, the assessment order was passed after proper application of mind by the Ld. AO and, therefore, it cannot be a subject matter of rectification u/s. 154 of the Act where there is no mistake apparent from record.
8.7. On the merits of the claim in respect of refund of service tax, Ld. Counsel submitted that the impugned refund of service tax has a direct nexus with the operation of the undertaking eligible for deduction u/s. 10A of the Act. This refund has been provided as per notification no. 12/2005-service tax dated 19.04.2005 issued by the Central Government. It was paid on input service availed in the form of renting of immovable property service, maintenance or repair services, telecommunication services. internet services, chartered accountant's services and management & consultancy services, which were all availed directly for the operation of the STP undertaking engaged in the export of computer software and hence its refund shall constitute part of the receipts of the undertaking and thereby allowable u/s 10A being derived from the business. According to him, asessee had paid the service tax on input services used directly in the course of operation of the undertaking eligible for deduction. When the refund of the same amount of service tax is made then it should also be construed as being directly linked to the operation of the eligible undertaking and accordingly should be allowed as a deduction falling within the meaning of the term 'derived from'. He further submitted that service tax paid on input service is an expense which is debited to the profit and loss account when incurred and goes on to reduce the profits eligible for deduction in the year of its incurrence. Similarly, the refund of service tax should be considered as recovery of the expenses already made, considered and offered in the earlier year and has a direct nexus to the operations of the undertaking. Hence, refund
12 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 of service tax is recovery of cost incurred in the operations of the undertaking and goes on to reduce the operating cost of the eligible undertaking. He also stated that when the taxes were paid, the same was offered and reduced the eligible deduction u/s 10A, similarly, on its refund the same should be allowed as a deduction u/s 10A considering it as one derived from the undertaking.
8.8. Thus, Ld. Counsel submitted that Ld. AO is not justified in resorting to rectification of a mistake which is a debatable issue. It is not a patent mistake of fact or law but requires decision through a long drawn process of reasoning on point of which there may be conceivably two opinions and is a debatable one. Thus, he claimed that the impugned order passed u/s. 154 read with sec. 143(3) be quashed.
We have heard the rival contentions and perused the material available on record and gone through the judicial precedents referred by both the sides. Essentially, the moot point before us is to consider and decide upon whether the refund of service tax is eligible for claim of exemption u/s. 10A in the context of rectification of mistake apparent from record referred to by the Ld. AO by applying the provisions of section 154. Thus, the point of focus for us is whether there is a mistake apparent from record in respect of refund of service tax. Before proceeding, we first appraise ourselves with the relevant part of provisions of section 154 which is reproduced as under:
“154. (1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may,- (a) amend any order passed by it under the provisions of this Act; (b) amend any intimation or deemed intimation under sub-section (1) of section 143) (c) amend any intimation under sub-section (1) of section 200a) (d) amend any intimation under sub-section (1) of section 206CB”
13 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 9.1. On the phrase ‘mistake apparent from record’, Hon’ble Supreme Court in the case of ACIT Vs. Saurashtra Kutch Stock Exchange Ltd. [2008] 305 ITR 227 (SC) has dealt it extensively and explained it as under:
“37. In our judgment, therefore, a patent, manifest and self-evident error which does not require discussion of evidence or argument to establish it, can be said to be an error apparent on the face of the record and can be corrected while exercising certiorari jurisdiction. An error cannot be said to be apparent on the face of the record if one has to travel beyond the record to see whether the judgment is correct or not. An error apparent on the face of the record means an error which strikes on mere looking and does not need long-drawn out process of reasoning on points where there may conceivably be two opinions. Such error should not require any extraneous matter to show its incorrectness. To put it differently, it should be so manifest and clear that no Court would permit it to remain on record. If the view accepted by the Court in the original judgment is one of the possible views, the case cannot be said to be covered by an error apparent on the face of the record.” 9.2. From the perusal of the assessment order passed u/s. 143(3) and the queries raised by the Ld. AO and submissions made by the assessee thereon vis-à-vis refund of service tax forming part of claim u/s. 10A, we note that Ld. AO had passed the original assessment order after examining the details furnished by the assessee. He did not dispute the computation made by the assessee which included refund of service tax in the claim made u/s. 10A.
9.3. From the perusal of the impugned order passed u/s. 154 read with sec. 143(3) of the Act, we note that Ld. AO has formed a view after a long drawn process of reasoning passed on the decision of Hon’ble Supreme Court in the case of Liberty India (supra) and Sterling Foods (supra) to dislodge the claim of the assessee in respect of refund of service tax.
To our mind, the view taken by the Ld. AO in the proceedings initiated u/s. 154 tantamount to a change in view resulting into review of his own order which is not permissible under the provisions of section 154 of the Act. When the Ld. AO has consciously taken a
14 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 view to frame the original assessment by making certain additions/disallowances, he is not empowered to take contrary view by adopting a review process for the assessment already completed.
10.1. We are in agreement with the submissions made by the Ld. Counsel on the restricted powers available u/s. 154 to rectify a mistake which is apparent from record, which cannot be otherwise resorted to under the garb of review or reconsideration of the order already passed. It is well settled law that a power to rectify a mistake does not include a power to review which can be exercised only where the statute itself grant such power. In the absence of grant of such power of review under the said section, it is not possible for the Ld. AO to review his own order. Thus, in our considered view, Ld. AO is not justified in adopting provisions of section 154 which deals with rectification of a mistake apparent from record which in the present case is on a technical issue i.e. allowability of exemption u/s. 10A in respect of receipt of refund of service tax. To buttress our decision, we find force from the decision of Hon’ble Supreme Court in the case of Saurashtra Kutch Stock Exchange Ltd. (supra).
10.2. Considering the facts and circumstances of the case and the judicial precedence referred above and discussed in detail, we hold that Ld. AO is not justified in resorting to rectification u/s. 154 on a debatable issue. Accordingly, ground taken by the revenue is dismissed.
In the result, appeal of the revenue is dismissed.
Order is pronounced in the open court on 11th October, 2023.
Sd/- (Rajpal Yadav) Sd/-(Girish Agrawal) Vice President Accountant Member JD, Sr. P.S. Date:11th October, 2023
15 ITA No.2292/Kol/2018 Ixia Technologies Pvt. Ltd., (now merged with Keysight Technologies India Pvt. Limited) AY 2009-10 Copy to: 1. The Appellant: 2. The Respondent: 3. CIT(A)-1, Kolkata 4. CIT, 5. DR, ITAT, Kolkata Bench, Kolkata //True Copy// By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata