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Income Tax Appellate Tribunal, BANGALORE BENCH ‘B’, BANGALORE
Before: SHRI A. K. GARODIA & SMT ASHA VIJAYARAGHAVAN
Date of hearing : 20-10-2016 Date of pronouncement: : 03-11-2016 O R D E R PER SHRI A.K.GARODIA, AM
This appeal is filed by the revenue and it is directed against the order ld.CIT(A)-II, Bangalore dated 23-07-2015 for A. Y. 2007-08.
The revenue has raised the following grounds:-
“1. The order of the learned CIT(A) is contrary to the facts . and circumstances of the case and hence not sustainable..
2. The learned CIT(A) has erred in relying on the decision of the jurisdictional Hon’ble High Court in the case of M/s Tata Elxsi Ltd. Vs ACIT 349 ITR 98 and an SLP filed by the Revenue is still pending before the Apex Court.
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3. The CIT(A) has erred in relying on the decision the case of Infosys Technologies Ltd. Vs JCIT(109 TTJ 631) and cannot be accepted as the Hon’ble High Court of Karnataka has remanded the matter back to the AO for fresh consideration in accordance with law.
4. For these other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the O may be restored.
.5. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above”. is not justified in passing the impugned order u/s. 263 of the Act since the very notice issued u/s. 263 of the Act was illegal in as much as the same was only for the purposes of conducting fishing and roving enquires as there were no grounds stated by the learned CIT for invoking the provisions of section 263 of the Act and the appellant was merely called upon the appear before the learned CIT and give details and thus, the very initiation of the proceedings u/s. 263 of the Act, is illegal and void ab-initio
3. Without prejudice to the above, the learned C.I.T. failed to appreciate that there was no error much less an error prejudicial to the interest of the revenue in the order passed by the learned Assessing Officer warranting revision u/s.263 of the Act and consequently, the order passed by the C.I.T. is opposed to law and facts of the appellant's case and requires to be cancelled.
4. The learned CIT, failed to appreciate that there was no requirement to set-aside the issue relating to the source of the amounts invested by the appellant in business as the same was explained by the appellant before the learned A.O. and thus, the assessment order passed cannot be considered as erroneous and 3 IT(TP)A No.1278(Bang)2010
prejudicial to the interest of revenue.
5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
It was submitted by the ld. DR of the revenue that ground no.1 is general in nature. Regarding ground no.2, it was fairly conceded that this issue is covered against the revenue by the judgment of the Hon’ble jurisdictional High Court rendered in the case of Tata Elxsi Ltd. Vs ACIT 349 ITR 98 but the SLP is filed by the revenue before the Hon’ble Supreme Court, and it is still pending.
Regarding ground no.3, he supported the assessment order and reliance was placed by him on the judgment of the Hon’ble Karnataka High Court rendered in the case of CIT Vs Infosys Technologies Ltd. as reported in 34 Taxman.com 91(Kar.) wherein similar issue was restored back by the Hon’ble Karnataka High Court to the file of AO. He submitted that in view of this judgment of the Hon’ble Karnataka High Court, in the present case also, the issue involved in the revenue’s appeal should be restored back to the file of the AO for fresh decision after examining the factual aspects that whether the expenditure incurred in foreign currency was for providing technical services outside India or not. As against this, the ld. AR of the assessee supported the order of the ld.CIT(A).
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We have considered the rival submissions. Regarding ground no.1, we hold that this ground is general in nature and no specific adjudication is called for.
Ground no.2 is dismissed by following the judgment of the Hon‘ble Karnataka High Court rendered in the case of M/s Tata Elxsi Ltd Vs ACIT(Supra)
For Ground no.3, we find that the issue in dispute has been decided by the ld. CIT(A) as per para-4.4 of his order which is re-produced herein below:
“4.4 The question for consideration is whether the appellant was engaged in rendering technical services so as to be deprived of the benefit of deduction u/s 10A. However, from the materials placed before me during the appeal hearings, it is noticed that the appellant is engaged only in developing software. It has been held in the case of Infosys Technologies Ltd V JCIT (109 TTJ 631) that where an assessee is engaged in the development of computer program it should not be regarded as being engaged in rendering technical services but in the development of computer software. The appellant has relied on the decision in Zylog Systems Ltd (ITA No.1138/Mds/2007) to drive home the point that expenses incurred with staff in a foreign branch do not relate to rendering technical services as it is connected with the object of developing computer software. In view of these decisions, I hold that the AO erred in reducing the expenses mentioned above from the export turnover to restrict the deduction u/s 10A of the Act and direct the AO to allow the appellant’s claim in this regard”.
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From the above Para of the ld. CIT(A)’s order, it is seen that he has followed the Tribunal order rendered in the case of M/s Infosys Technologies Ltd Vs JCIT(Supra), but in this case afterwards, the matter travelled up to Hon’ble Karnataka High Court and as per the judgment reported in 34 Taxman.com 91(Kar.), Hon’ble Karnataka High Court has restored the matter back to the file of the AO for fresh decision after examining this aspect as to whether the expenditure incurred in foreign currency was for providing technical services outside India. In the present case, the Bench wanted the ld. AR of the assessee to furnish the agreement/contracts with various buyers as per which the assessee was required to send its employees to the place of customers to find out whether the employees of the assessee company were sent to the place of customers in connection with supply of software to them or whether the employees of the assessee company were sent to the place of customers for rendering technical services and then only the issue can be decided as to whether such expenses incurred in foreign currency for deputing the employees of the assessee company to the place of foreign companies was in connection with supply of computer software or were in connection with rendering technical services but he replied that no such material is readily available. The ld.CIT(A) has also not given any clear finding about this factual aspect and he has passed a cryptic order on this issue by saying that as per the materials placed before him during the appellate proceedings, it is noticed by him that the assessee is engaged only in developing software but this is not coming out as to what was the material placed before him and on what basis, he came to this conclusion. Under these facts and in view of the 6 IT(TP)A No.1278(Bang)2010 subsequent judgment of the Hon’ble Karnataka High Court cited by the ld. DR of the revenue having been rendered in the case of CIT Vs M/s Infosys Technologies Ltd.(Supra), we feel it proper that this matter should go back to the file of the AO for a fresh decision after examining the factual aspect as to whether the employees of the assessee company were deputed to the place of foreign customers as a part of the agreement with them for supplying computer software, but if it is found that as per the agreement with foreign customer regarding supply of software, the assessee was under no obligation to depute their employees to the place of customer, than it may be a case of rendering technical services outside India which has been accounted for by the assessee as sale of computer software. Hence, we set aside the order of the ld. CIT(A) on this issue and restore the matter back to the file of AO for fresh decision on this aspect as per above discussion after providing reasonable opportunity of being heard to the assessee. Ground no.3 of the appeal of the revenue is allowed for statistical purposes.
In the result, the appeal of the revenue is partly allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.