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Income Tax Appellate Tribunal, BANGALORE BENCHES “B” , BANGALORE
Before: Shri N.V.Vasudevan, Vice- & Shri Chandra Poojari
Per Chandra Poojari, AM:
These are cross appeals arising out of the order of the CIT(A), Bangalore, dated 04.09.2017, and they relate to the assessment year 2009-2010.
First, we shall take the Revenue’s appeal in ITA No.2510/Bang/2017.
ITA No.2510/Bang/2017 3. The ground Nos. 2 and 3 raised by the Revenue read as follow: -
2 ITA No.2510/Bang/2017 IT(TP)A No.133/Bang/2018 M/s.Yahoo Software Development Pvt.Ltd. “2. Whether on the facts and circumstances of the case, the CIT(A) was justified in law in holding that the expenditure incurred towards date link charges / telecommunication charges and foreign travel expenses attributable to delivery of computer software for providing technical services outside India to be excluded both from export turnover and total turnover for the purpose of computation of deduction u/s 10A of the Act, whereas such exclusion is permitted to arrive at the export turnover only as per the definitions given in sec.10A of the Act and total turnover has not been defined in the section? 3. Whether the CIT(A) is correct in law in following the judgments of jurisdictional High Court in the case of CIT v. Tata Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs are pending before the Hon’ble Apex Court?”
After hearing both the parties and perusing the material on record, we find that this issue is squarely covered by the judgment of the Hon’ble Supreme Court in the case of CIT v. HCL Technologies Limited [(2018) 404 ITR 719 (SC)], wherein it was held by the Hon’ble Supreme Court that the expenditure incurred towards telecommunication charges and foreign travel expenses attributed to the delivery of computer software for providing technical services outside India to be excluded both from export turnover and total turnover for the purpose of computation of deduction u/s 10A of the Act. Being so, we do not find any infirmity in the order of the CIT(A) in following the judgment of the Hon’ble Karnataka High Court in the case of CIT v. Tata Elxsi Limited [(2012) 349 ITR 98 (Kar.)], and the same is confirmed. Accordingly, ground Nos.2 and 3 raised by the Revenue are dismissed.
Ground No.4 raised by the Revenue is “whether on the facts and circumstances of the case, the CIT(A) is right in
3 ITA No.2510/Bang/2017 IT(TP)A No.133/Bang/2018 M/s.Yahoo Software Development Pvt.Ltd. allowing deduction u/s 10A on the enhanced income arising out of disallowance u/s 40(a)(ia) of the I.T. Act against non- deduction of tax on rent payment u/s.194I”
In this case, the profit of the assessee was increased on account of disallowance u/s 40(a)(ia) of the Act for non- deduction of TDS on rent payment. However, the Assessing Officer has not considered the enhanced income for granting deduction u/s 10A of the Act. The CIT(A) granted the deduction by placing reliance on the judgment of the Hon’ble Bombay High Court in the case of CIT v. Gem Plus Jewelery India Ltd. [(2010) 330 ITR 175 (Bom.)].
After hearing both the parties and perusing the material on record, we find that this issue is squarely covered by the judgment of the Hon’ble Bombay High Court in the case of CIT v. Gem Plus Jewelery India Ltd. (supra), wherein the Hon’ble Court held that the assessee is entitled to exemption u/s 10A of the Act with reference to the addition of disallowance of payments as a plain consequence of the disallowance and the add back made by the Assessing Officer is an increase in the business profit of the assessee. Being so, we do not find any infirmity in the order of the CIT(A), hence, the same is confirmed.
Now, we shall take the Assessee’s appeal in IT(TP)A No.133/Bang/2018.
4 ITA No.2510/Bang/2017 IT(TP)A No.133/Bang/2018 M/s.Yahoo Software Development Pvt.Ltd.
IT(TP)A No.133/Bang/2018 9. The assessee has raised ground No.15(f) before the CIT(A) as follows: - “Without prejudice to the above, the learned AO erred in not allowing deduction under section 10A of the Act with respect to the disallowance under section 40(a)(ia) of the Act amounting to Rs.3,869,891, in computing the total income of the company and consequent increase in profit eligible for deduction under section 10A of the Act.”
However, this ground had not adjudicated by the CIT(A). In our opinion, this ground is squarely covered by the judgment of the Hon’ble CIT v. Gem Plus Jewelery India Ltd. (supra). As discussed in the earlier paragraph, the assessee is entitled for deduction u/s 10A of the Act on the enhanced profit on account of disallowance made u/s 40(a)(ia) of the Act at Rs.38,69,891. Accordingly, this ground raised by the assessee is allowed.
Ground Nos.3A and 3B raised by the assessee read as follow: - “3A. That the learned CIT(A) erred in law and facts by holding that the additional revenue of Rs.157,993,598 would not be eligible for a deduction under section 10A and therefore, should be excluded from the `Export Turnover’ while computing the deduction under section 10A of the Act on the ground that the sale proceeds were not received within the stipulated time lines. 3B. That the learned CIT(A) erred in holding that the provisions of section 115(11A) would not be applicable in allowing the deduction under section 10A of the Act.”
The facts of this issue are that the Assessing Officer excluded additional revenue of Rs.15,79,93,598 in the revised
5 ITA No.2510/Bang/2017 IT(TP)A No.133/Bang/2018 M/s.Yahoo Software Development Pvt.Ltd. return of income filed on 31.03.2011. The assessee made a plea before the Assessing Officer that the invoice relating to this revenue was raised on 29.03.2011 and the amount was collected on 31.03.2011 and claimed deduction u/s 10A of the Act on this income. The Assessing Officer did not consider this amount for deduction u/s 10A of the Act for the reason that the sale proceeds were not received within the stipulated time limit. This view of the A.O. has been upheld by the CIT(A).
Aggrieved, the assessee is in appeal before us. Before us, it was the contention of the learned AR that as per RBI Circular No.FEMA 23/RB-2000 dated 03rd May, 2000, Clause 9 specifies that the period within which export value of goods / software to be realized. Clause 9 is reproduced as under: -
“9. Period within which export value of goods / software to be realized:-
The amount representing the full export value of goods or software exported shall be realized and repatriated to India within six months from the date of export;
Provided that where the goods are exported to a warehouse established outside India with the permission of the Reserve Bank, the amount representing the full export value of goods exported shall be paid to the authorized dealer as soon as it is realized and in any case within fifteen months from the date of shipment of goods.
Provided further that the Reserve Bank, or subject to the directions issued by that Bank in this behalf, the
6 ITA No.2510/Bang/2017 IT(TP)A No.133/Bang/2018 M/s.Yahoo Software Development Pvt.Ltd. authorized dealer may, for a sufficient and reasonable cause shown, extend the said period of six months or fifteen months, as the case may be.
Explanation:
For the purpose of this regulation, the “date of export” in relation to the export of software in other than physical form, shall be deemed to be the date of invoice covering such export.”
As per the above Explanation to clause 9 of RBI Circular No.FEMA 23/RB-2000 dated 03rd May, 2000, the “date of export” means the date of invoice made. In the present case, the date of invoice is 29.03.2011 and the amount has been received on 31.03.2011. Accordingly, the learned AR pleaded that the export turnover was received within the stipulated period. Further, he relied on the order of the Pune Bench of the ITAT in the case of Approva Systems Pvt.Ltd. v. DCIT [ITA No.1051/Pun/2015 – order dated 12.03.2018 for the proposition that once the assessee has offered the additional income as business profit, the same has to be considered for deduction u/s 10A of the Act. Further, this issue was also considered by the Delhi Bench of the Tribunal in the case of ITO v. M/s.PCL Exports [ITA No.3563/Del/2009]. The Tribunal vide its order dated 22.03.2011, held as under: -
“3. None attended on behalf of the assessee on 22.03.2011 although the case was fixed on a number of occasions earlier when either the assessee or the revenue sought adjournment. On 06.10.2010, the learned AR of the assessee had sought adjournment, which was granted to 22.03.2011. In absence of the assessee, the learned DR explained the facts of the
7 ITA No.2510/Bang/2017 IT(TP)A No.133/Bang/2018 M/s.Yahoo Software Development Pvt.Ltd. case. However, he could not point to any error in the impugned order, which requires corrections from us. On perusal of the order, we find that section 155(11A) permits a mechanism to modify the order in case sale proceeds are not received in convertible foreign exchange in India within the prescribed time but are received after the expiry of the limitation. In view thereof, it would not be proper to allow deduction at lower amount and thereafter rectify the order to grant correct deduction u/s 155(11A). In view thereof, we do not find any reason to interfere with the order of the learned CIT(A).”
Being so, in the present case, the assessee has offered the subsequent realized export income by filing a revised return. Therefore, the same should be considered for granting deduction u/s 10A of the Act, and there is no necessity to rectify the same after completion of assessment as held by the Delhi Tribunal in the case of ITO v. M/s.PCL Exports (supra). Accordingly, this ground of the assessee is allowed.
Ground No.4 raised by the assessee reads as under:-
“4A. That the learned CIT(A) erred in holding that the additional revenue of Rs.157,993,598 should be included in computing book profits under section 115JB of the Act, even though such amount was not credited to the profit and loss account in the said year. 4B. That the learned CIT(Appeals) erred in not following the principles laid down by Hon’ble Supreme Court in the case of Apollo Tyres Limited v. CIT (2002) 255 ITR 273 (SC).”
The facts of the case of this issue are that the Assessing Officer tinkered the book profit by adding the additional revenue on account of subsequent realization of export, while computing the book profit u/s 115JB of the Act. The assessee
8 ITA No.2510/Bang/2017 IT(TP)A No.133/Bang/2018 M/s.Yahoo Software Development Pvt.Ltd. has revised the return of income by including the additional revenue in its total income. However, the assessee did not modify the book profit u/s 115JB of the Act. The Assessing Officer re-computed the book profit by adding the additional income on account of subsequent realization of export profit. In our opinion, the Assessing Officer cannot tinker the book profit, in such cases where the additional revenue was not shown by the assessee in the books of account, as held by the Hon’ble Supreme Court in the case of Apollo Tyres Limited v. CIT [(2002) 255 ITR 273 (SC)]. The observation of the Hon’ble Supreme Court reads as follow:-
“4. For deciding this issue, it is necessary for us to examine the object of introducing section 115J which can be easily deduced from the Budget Speech of the then Finance Minister of India made in the Parliament while introducing the said section which is as follows: "It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so-called 'zero-tax' highly profitable companies deserves attention. In 1983, a new section 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a 'minimum corporate tax' on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30 per cent of its book profit. In other words, a domestic widely held company will pay tax of at least IS per cent of its book profit. This measure will yield a revenue gain of approximately Rs. 75 crores."
The above Speech shows that the income-tax authorities were unable to bring certain companies within the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net that section 115J was introduced in the Income-tax Act with a deeming provision which makes the company liable
9 ITA No.2510/Bang/2017 IT(TP)A No.133/Bang/2018 M/s.Yahoo Software Development Pvt.Ltd.
to pay tax on at least 30 per cent of its book profits as shown in its own accounts. For the said purpose, section 115J makes the income reflected in the companies' books of account as the deemed income for the purpose of assessing the tax. If we examine the said provision in the above background, we notice that the use of the words 'in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act' was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company. an Assessing Officer under the Income-tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by statutory auditors and will have to be approved by the company in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the revenue that it is still open to the Assessing Officer to rescrutinise the accounts and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion. reliance placed by the revenue on sub-section (1A) of section 115J in support of the above contention is misplaced. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the Income-tax Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income- tax. Beyond that we do not think that the said sub- section empowers the authority under the Income-tax Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of section 115J, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of Companies Act and another for the purpose of the Income-tax Act both maintained under the same Act. If the Legislature intended the Assessing Officer to reassess the company's income, then it would have stated in section 115J
10 ITA No.2510/Bang/2017 IT(TP)A No.133/Bang/2018 M/s.Yahoo Software Development Pvt.Ltd. that 'income of the company as accepted by the Assessing Officer'. In the absence of the same and on the language of section 115J, it will have to held that view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal. Therefore, we are of the opinion that the Assessing Officer while computing the income under section ll5J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increase and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J.” 18. In view of the foregoing reasons and respectfully following the judgment of the Hon’ble Supreme Court (supra), we allow this ground raised by the assessee.
In the result, the appeal filed by the Revenue is dismissed and the appeal filed by the assessee is allowed.
Order pronounced on this 27th day of April, 2020.
Sd/- Sd/- (N.V.Vasudevan) (Chandra Poojari) VICE-PRESIDENT ACCOUNTANT MEMBER Bangalore ; Dated : 27/4/2020. Devadas G*
Copy to: 1. The Appellant. 2. The Respondent. 3. The CIT(A)-7, Bengaluru. 4. The Pr.CIT-7, Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File.
Asst.Registrar/ITAT, Bangalore