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Income Tax Appellate Tribunal, BANGALORE BENCHES “ A ” BENCH: BANGALORE
Before: SHRI A.K. GARODIA & SHRI PAVAN KUMAR GADALE
O R D E R
PER SHRI PAVAN KUMAR GADALE, JM :
The Revenue has filed an appeal against different orders of Commissioner of Income Tax (Appeals)-IV, Bangalore for the 2 IT(T.P) A Nos.843 & 844/Bang/2013 C.O. Nos.170 & 171/Bang/2015 Asst. Years 2005-06 & 2008-09 and the assessee has filed Cross Objections in Revenue’s appeals. Since the issues are common in both the appeals and C.Os, they are clubbed together and heard and consolidated order is passed.
At the time of hearing, it was brought to the knowledge of the Bench that the Revenue’s appeal in A.Y. 2005-06 where the tax effect in the appeal is below Rs.50 lakhs. Hence covered by CBDT Circular No.17/2019 Dt.8.8.2019. We find as per the CBDT Circular No.17/2019 Dt.8.8.2019, no appeal shall be filed by the Revenue before the Tribunal where the tax effect is below Rs.50 lakhs and ld. DR has accepted the Tax Effect. Accordingly, the tax demand raised by the Revenue authorities is below Rs.50 lakhs and circular is applicable to the pending appeals. Hence we dismiss the Revenue’s appeal on maintainability and low tax effect. 3. In the result, appeal of the Revenue in IT (T.P) A No.843/Bang/2013 is dismissed for low tax effect. 4. The assessee has filed C.O. No.170/Bang/2015 for the Asst. Year 2005-06 in support of the CIT (Appeals) order. Since the 3 IT(T.P) A Nos.843 & 844/Bang/2013 C.O. Nos.170 & 171/Bang/2015 Revenue’s appeal is not maintainable due to low tax effect and the C.O. is also not maintainable and accordingly dismissed.
Now we take up the Revenue’s appeal in IT(TP)A No.844/Bang/2013 and the facts narrated therein. The Revenue has raised the following grounds of appeal :
4 IT(T.P) A Nos.843 & 844/Bang/2013 C.O. Nos.170 & 171/Bang/2015
The brief facts of the case are that the assessee is engaged in software development services and also in the business of providing data process, computer programming and IT Enabled Services to Ariba Inc., USA. The assessee company filed its Return of Income for the Asst. Year 2008-09 on 29.09.2008 with 5 IT(T.P) A Nos.843 & 844/Bang/2013 C.O. Nos.170 & 171/Bang/2015 total income of Rs.22,669/-. Subsequently the case was selected for scrutiny and Notice under Section 143(2) was issued. In compliance the ld. AR of the assessee appeared before the Assessing Officer from time to time and submitted the details. Whereas the Assessing Officer on perusal of the financial statements found that the assessee conducted business operations from STPI units and claimed deduction under Section 10A of the Act of Rs.3,63,25,870 from the profits of STPI units. Whereas the Assessing Officer considering the total turnover and profit and further has restricted the claim under Section 10A of the Act to the extent of Rs.3,56,66,576 with observations / findings at pages 2 & 3 of the assessment order. Similarly the Assessing Officer on perusal of the tax Audit Report in Form 3CD found that an amount of Rs.66,95,186 is payable towards leave encashment and Rs.6,77,741 towards the bonus payment as was not paid till the date of audit report and the assessee has not provided proof of payments and the Assessing Officer made disallowance of Rs.70,72,927. Further, in the F.Y. 2007-08, the assessee has international transactions and the ld. A.O referred the matter to the TPO with the prior approval of CIT. Whereas the TPO has made 6 IT(T.P) A Nos.843 & 844/Bang/2013 C.O. Nos.170 & 171/Bang/2015 an adjustment of ALP of Rs.2,19,04,893 and passed order under Section 92CA of the Act on 31.10.2011. Subsequently, the Assessing Officer has passed the Draft assessment order on 23.12.2011 and was received by the assessee. Further the assessee company has filed a letter on 18.01.2012 mentioning that the assessee is not filing the objections with Dispute Resolution Panel (DRP) in respect of Transfer Pricing Adjustments and prefers to file an appeal before the CIT(A). The Assessing Officer find that the adjustment towards leave encashment payable and bonus is considered by the assessee in the computation of income therefore no addition is proposed under Section 43B of the Act and finally the Assessing Officer assessed the total income with disallowance of claim under Section 10A of the Act and TPO adjustment under Section 92CA of Rs.2,25,86,856 and passed the order under Section 143(3) r.w.s. 92CA of the Act on 17.02.2012. Aggrieved by the order, the assessee company has filed an appeal with the CIT (Appeals) whereas the CIT (Appeals) considering the submissions and the grounds of appeal, transfer pricing issues and corporate tax and other grounds has granted partial relief and 7 IT(T.P) A Nos.843 & 844/Bang/2013 C.O. Nos.170 & 171/Bang/2015 partly allowed the assessee's appeal. Aggrieved by the order of CIT (Appeals), the Revenue has filed an appeal with the Tribunal.
At the time of hearing, the learned Departmental Representative submitted that the CIT (Appeals) has erred in directing the Assessing Officer to recompute deduction under Section 10A of the Act in respect of telecommunication expenses and foreign currency incurred for foreign travel on total turnover whereas the Revenue has challenged the decision of jurisdictional High Court and SLP is pending before the Hon'ble Supreme Court and argued on the grounds of appeal
s 2 to 4. Whereas the learned Departmental Representative also emphasized and argued on the Transfer Pricing Adjustment of exclusion of comparables in Ground of appeal Nos.5 to 14 and prayed for allowing the Revenue’s appeal. Contra, the learned Authorised Representative supported the orders of the CIT (Appeals).
8. We heard the rival submissions and perused the material on record. On the disputed issue of claim of deduction under Section 10A of the Act, the learned CIT (Appeals) has considered the jurisdictional High Court decision in the case of CIT Vs. Tata 8 IT(T.P) A Nos.843 & 844/Bang/2013 C.O. Nos.170 & 171/Bang/2015 Elxsi Ltd. 349 ITR 98 (Kar), the CIT (Appeals) in paras 171 to 175 which read as under and allowed the ground of appeal of the assessee :
9 IT(T.P) A Nos.843 & 844/Bang/2013 C.O. Nos.170 & 171/Bang/2015 We found the jurisdictional High Court in the case of CIT Vs. Tata Elxsi Limited 349 ITR 98 held as under :
There should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Sec. 10A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of s. 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in s. 10A, the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. The export turnover would be a component, or part of a denominator, the other component being the domestic turnover. In other words, to the extent of export turnover, there would be a commonality between the numerator and the denominator of the formula. In view of the commonality, the understanding should also be the same. In other words, if the export turnover in the numerator is to be arrived at after excluding certain 10 IT(T.P) A Nos.843 & 844/Bang/2013 C.O. Nos.170 & 171/Bang/2015 expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the denominator cannot be different. Therefore, though there is no definition of the term ‘total turnover’ in s. 10A, there is nothing in the said section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, ‘export turnover’ is defined, and when the ‘total turnover’ includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. Therefore the formula for computation of the deduction under s. 10A, would be as under : Profits of the business of the Export turnover undertaking x (Export turnover + domestic turnover) total turnover We considering the provisions and the jurisdictional High Court decision, are of the opinion that though the Revenue has filed SLP against the jurisdictional High Court decision before the Hon'ble Supreme Court, the Tribunal is bound by the decision of the Hon'ble jurisdictional High Court and Accordingly we are of the substantive opinion that the learned CIT (Appeals) considered the provisions and the jurisdictional High Court decision and took a reasonable view and we uphold the same and dismiss the ground of appeal of Revenue on this disputed issue.
11 IT(T.P) A Nos.843 & 844/Bang/2013 C.O. Nos.170 & 171/Bang/2015 9. The learned Departmental Representative argued on the Grounds of appeal Nos.5 to 14 in respect of inclusion of comparables considering the size and turnover of the business and revenue filter. We found that the learned CIT (Appeals) has dealt on these issues and passed a reasoned and logical order and further it was brought to the notice of the Bench that the assessee has filed C.O. in the said appeal in respect of functionality test which was not decided by the CIT (Appeals). Though the learned CIT (Appeals) has considered the functional profile but there is no observation on these aspects. We heard the submissions of the learned Authorised Representative and we are of the substantive opinion that the matter has to be relooked on the basis of functional aspect which was not decided by the learned CIT (Appeals) and we restore these grounds of appeal to the file of CIT (Appeals) to adjudicate afresh and pass reasoned and speaking order and allow the grounds of appeal of the Revenue for statistical purposes.
In the result, the Revenue’s appeal is partly allowed for statistical purposes.
12 IT(T.P) A Nos.843 & 844/Bang/2013 C.O. Nos.170 & 171/Bang/2015 11. The assessee has filed Cross Objection No.171/Bang/2017. At the time of hearing, the learned Authorised Representative has filed revised grounds of Cross Objection and has submitted that the Ground Nos.1 to 7 are general in nature except Ground Nos.6 & 8 where the learned Authorised Representative has made submissions. The learned Authorised Representative submitted that the learned CIT (Appeals) has not given any findings or observations in respect of the functionality aspect and made submission in Revenue’s appeal and referred to the Ground No.9 of grounds of appeal filed before the CIT (Appeals) which is as under : “9. That the Ld. A.O./Ld. TPO erred in including companies in the comparability analysis of software development services which do not satisfy the test of comparability.”
12. We on perusal of the learned CIT (Appeals) order found that these aspects have not been dealt in the course of appellate proceedings on the functionality as rightly pointed out by the learned Authorised Representative. Therefore we found it is proper to restore entire disputed issues raised by the assessee in the C.O. to the file of learned CIT (Appeals) for findings on the functionality aspect and since the Revenue’s appeal on the grounds of comparable was restored to the file of learned CIT (Appeals). The C.O. of the assessee on this grounds are also restored to CIT (Appeals) to pass speaking order on functionality 13 IT(T.P) A Nos.843 & 844/Bang/2013 C.O. Nos.170 & 171/Bang/2015 test and the grounds of objections of the assessee are allowed for statistical purposes.
In the result, appeal of the Revenue in C.O. 171/Bang/2015 are dismissed and Revenue’s appeal No.844/Bang/2013 and C.O. No.171/Bang/2015 are partly allowed for statistical purposes.
Order pronounced in the open court on 27th Sept., 2019.