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Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: SHRI LALIET KUMAR & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER SHRI MADHUSUDAN SAWDIA, A.M: This appeal is filed by M/s. Corteva Agriscience Services India Pvt. Ltd., (Formerly known as E.I. DuPont Services Centre India Pvt. Ltd.), Hyderabad (“the assessee”) against the order of Learned Commissioner of Income tax(Appeals)-5 (“Ld. CIT(A)”) dated 30.11.2016 for the AY 2011-12. The grounds of appeal raised by the assessee read as under: 2.
“ 1. That on the facts and circumstances of the case, the appellate order dated 30 November
2016 issued by the learned Commissioner of Income-tax (Appeals) - 5, Hyderabad ['CIT(A)'] pursuant to an appeal against the final assessment order dated 07 May 2016 passed by the Deputy Commissioner of Income-tax, Circle - 17(1), Hyderabad (`A0') u/s 143(3) read with section 144C(4) of the Income-tax Act, 1961 ('Act') and order dated 27 January 2015 issued by Transfer Pricing Officer ('TPO') u/s 92CA(3) of the Act, is bad in law and void ab-initio.
Transfer Pricing General
That on the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming transfer pricing adjustment made by learned AO/ TPO on account of provision of business support services by the Appellant to its Associated Enterprises ('AEs').
That on the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the rejection of the transfer pricing documentation maintained by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ('Rules'), and allowing undertaking a fresh economic analysis during the course of assessment proceedings, thereby holding the adjustment made by learned AO/ TPO to the international transactions as valid.
Error in computation of net margin of the Appellant
That on the facts and circumstances of the case, the learned CIT(A) erred in considering interest on short term loans of Rs. 54,28,741 as part of operating cost for the purpose of computation of operating margins of the Appellant without appreciating that it was considered as non- operating cost by the learned TPO also.
That on the facts and circumstances of the case, the learned CIT(A) erred in considering rent equalization reserve as part of operating cost for the purpose of computation of operating margins of the Appellant.
6. That on the facts and circumstances of the case, the learned CIT(A) erred in not treating donations, loss on sale of fixed assets and interest payment on MSMED as non-operating in nature.
That on the facts and circumstances of the case, the learned CIT(A) erred in not adjudicating, in the impugned order, upon the nature of donations, loss on sale of fixed assets and other interest costs for the purpose of computation of operating margins of the Appellant.
8. Without prejudice to Ground number 5, 6 and 7 above, the learned CIT(A) erred in not appreciating that rent equalization reserve, donations, loss on sale of fixed assets and other interest costs were already offered to tax in the income-tax return filed by the Appellant for the year under consideration.
Selection of uncomparable companies
9. That on the facts and the circumstances of the case and in law, the learned CIT(A) erred in accepting the following companies as selected by the learned TPO:
a) Empire Industries Limited; b) India Cements Capital Ltd; c) HSCC (India) Ltd; and d) Kitco Ltd.
Error in computation of net margin of comparable companies
10. That on the facts and the circumstances of the case and in law, the learned CIT(A) erred in confirming the learned TPO's stand of treating the provision for bad and doubtful debts as non- operating expenses for the purpose of margin computation of comparable companies as selected by learned TPO, completely ignoring the jurisdictional judicial precedents.
Rejection of comparable companies
11. That on the facts and circumstances of the case, the learned CIT(A) has erred in rejecting Ma Foi Management Consultants Limited as a comparable company.
That on the facts and circumstances of the case and in law, the learned CIT(A) erred in sending back to the learned AO, the matter relating to inclusion of the following comparable companies, and leaving it to the discretion of the learned AO:
a) EDICL (India) Limited; and b) Quippo Valuers and Auctioneers Private Limited.
Use of different financial year filter
13. That on facts and circumstances of the case and in law, the learned CIT(A) erred in upholding the use of different financial year end filter for rejecting comparable companies while undertaking the fresh economic analysis.
Use of multiple year data
14. That on facts and circumstances of the case and in law, the learned CIT(A) erred in rejecting the use of multiple year data and using data for FY 2010-11 only.
Adjustment for risk differences
That on the facts and circumstances of the case and in law, the learned CIT(A) erred in disregarding the risk profile of the Appellant vis-a-vis alleged comparable companies selected by the learned TPO and not allowing risk adjustment under the provisions of Rule 10B(1)(e) of the Rules.
That on the facts and circumstances of the case and in law, the learned CIT(A) has erred in disregarding the working of risk adjustment submitted by the Appellant under the Capital Asset Pricing Model.
Arm's length range of 5%
That the learned AO be directed to re-work the profit margins of the Appellant vis-à-vis the resultant comparable companies and to allow the benefit of + /- 5% range as provided in proviso to Section 92C(2) of the Act.
Corporate tax
That on the facts and circumstances of the case, the learned CIT(A) has erred in not granting additional deduction of Rs. 18,71,030 under section 10AA of the Act claimed by the Appellant during the course of assessment proceedings on the amounts realized from export turnover subsequent to the filing the return of income, and ignoring, in law, that Section 10AA of the Act does not explicitly provide the time line for realization of export proceeds.
The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal.”
3. Brief facts of the case is that, the assessee is a captive services provider engaged in providing administrative support services to DuPont Group Companies ('Associated Enterprises' or the 'AEs), and is remunerated on a cost plus mark-up of 5%. For A.Y. 2011-12, the assessee filed its return of income declaring total income at Rs. 42,13,688/- after claiming deduction u/s 10AA of the Income-tax Act, 1961(“the Act”). The learned Assessing Officer (“Ld. AO”) completed the assessments u/s 143(3) r.w.s. 144C(4) of the Act on 07/05/205 making the Transfer pricing (“TP”) adjustment of Rs. 4,62,29,187/- and disallowing additional claim of exemption u/s 10AA of the Act to the tune of Rs. 18,71,030/- made by the assessee during the assessment proceedings, thereby assessing the total income at Rs. 5,04,42,875/-.
4. The assessee is in appeal on as many as on 18 grounds. During the appellate proceedings, the Learned Authorised Representative (“Ld. AR”) submitted that, they are pressing only Ground No.9 related TP, which is on comparable issue and Ground No. 18 related to corporate tax . Hence the grounds other than Ground no. 9 & Ground no. 18, do not require any specific adjudication, being not pressed. The Ground No.9 as reproduced herein above, talks about the exclusion of the following four comparable companies : a) Empire Industries Limited. b) India Cements Capital Limited. c) HSCC (India) Limited and d) Kitco Limited.
5. It is the contention of the Ld. AR that these comparable companies selected by the Transfer Pricing Officer (“Ld. TPO”) and approved by the Ld. CIT(A) are functionally not comparable with the assessee, therefore, they are required to be excluded. In this regard, the Ld. AR had filed a written submission in support of his contention, which is to the following effect : “Exclusion of comparable companies chosen by TPO - Ground no. 9 In this Ground, the appellant is seeking exclusion of the following four companies: a) Empire Industries Ltd b) India Cements Capital Ltd
c) HSCC(India) Ltd d) Kitco Ltd. Empire Industries Ltd. * This company is in the business of manufacture of glass bottles for pharma industry - Page No. 599 of Paper book * The company has reported two segments, namely Manufacturing, Trading & Indenting - Page No. 627 of Paper book * The TPO has erroneously considered the Trading & Indenting activity as purely "indenting" activity and has held that it is in the nature of business support services akin to the appellant's services * There are several decisions of the Hon'ble Tribunal that Empire Industries is not comparable to purely service providing companies * In the case of Hitachi Data Systems for AY 2011-12,, which was a service providing entity ( copy of the order at S.No. 1 of the case law compendium), the Hon'ble Tribunal has held that Empire industry is into trading segment and a major chunk of its revenue is from trading activity and not comparable to service providing entity - Page 4 & 5 of case law compendium) * In the case of CISCO Systems (copy of the order at S.No. 2 of the case law compendium), while dealing with support services, the Hon'ble Tribunal has held that Empire Industries is not comparable to service providing companies - Page 59 to 61 of case law compendium) India Cements Capital Ltd * This company is a NBFC and provides financial services like a NBFC - Pages 641, 643, 670 and 691 of Paper Book * The business of the company is not even remotely connected with the Business and administrative support services rendered by appellant * This company is functionally not comparable * The CIT(A) has misdirected himself in giving reverse arguments to consider this company as a comparable * Whether the Financial services, rendered by this company is functionally similar to the business and administrative support services rendered by the appellant is the issue to be decided which has not been done by a proper FAR analysis. The issue has been decided on surmises and conjectures HSCC(India) Ltd and Kitco Ltd. - common submission - Govt. companies Both these companies HSCC(India) Ltd and Kitco Ltd are Government companies, as can be seen from their Annual Reports.
It is settled principle that Government companies cannot be adopted as comparable to private companies. In this regard, reliance is placed on the following decisions: i) WSP Consultants Vs DCIT, A.Y 2011-12 ( S. No 4 in case law compendium) - Page No. 102 of case law compendium ii) Bechtel India Vs DCIT ITA No. 344/Del/2016 ( S.No 5 in case law compendium) - Page No. 122 to 124 of case law compendium iii) Rolls Royce Vs DCIT, (2016) 69 taxmann.com 426 ( S. No. 6 in case law compendium) - Page No. 174 to 178 of case law compendium iv) AT & T Communication Vs ACIT ITA No. 1016/Del/2015 ( S.No. 7 in case law compendium) - Page No. 198 to 200 of case law compendium v) Boeing International Vs DCIT ITA No. 1127/Del/2015 ( S. No. 8 in case law compendium) - Page No. 212 of case law compendium vi) Bechtel India Vs Addin CIT ITA No. 7234/B/Del/2017 - placed on record HSCC(India) Ltd. - Functionally dissimilar and Govt company * It is a Govt. Company and shares are held by Government of India and The President is authorised to issue directives - Page 696, 701, 711 and 713 of Paper Book * The company has MoU with Ministry for more than a decade- Page 699 of Paper book * The functions A.O. this company are architectural planning, Design Engineering & Project Management Services, not comparable with the support services of the appellant - Page 705 of paper book * This company has been specifically excluded from the set of comparables, for being a Govt company (Bechtel India at vi) above) KITCO - Functionally dissimilar and Govt Company * This is a Government connected company as share capital is held by SIDBI - Page No. 785 of paper book * The company is into various activities like Project consultancy, Management consultancy and training, Engineering assignments and Technical services - Page 789 of paper book * The above services are functionally different from that of the support services of the appellant * This company has been excluded being a Government company, in a plethora of decisions, as mentioned above.”
6. On the other hand, the Learned Department Representative (“Ld. DR”) had drawn our attention to para Nos.7.3 to 10.2 of the order passed by the Ld. CIT(A), which are reproduced as under :
“ 7.3 Empire Industries Limited: Summary of Appellant's contentions is: i. Empire is functionally not similar - Empire is into manufacturing of glass bottles for pharmaceutical industry and also trading in industrial machineries. ii. The actual segment is Trading and Indenting' segment which involves trading of goods deriving revenue from the same. iii. The trading and indenting activity cannot be compared with the low-end business support services provided by the Appellant. iv. The Trading of the goods involve buying and selling of the finished goods and the company operating as a trader, is functionally not similar to the activities performed by the Appellant. V. Carrying cost of inventories in Empire clearly indicate ownership in inventory, which is functionally not similar to that of the Company. vi. None of the segments of Empire, as disclosed in the segmental data to its annual report, is comparable to the Appellant's functions (i.e. relating to provision of low-end business support services). vii. Empire has R&D activities, and the methods adopted for calculating depreciation are different from asset to asset. It is observed that the Company has segmental data available for indenting services which is in the nature of business support services similar to the taxpayer. (13) Segment wise information for the year ended 31st March, 2011 : Segments have been identifiedin line with the 'Accounting standard on segment reporting' (AS-17) taking nto account, the nature of preducts and services, the organisation and internal reporting structure as well as differential risk of these segments. Informaton about Prmary Business Segments Revenue 201--2011 (Rs. In lakhs) 2009-2010 (Rs. In lakhs) Inter- Inter- External segment Total External segment Total 8,447.05 -- 8,447.05 7,777.47 -- 7,777.47 Manufacturing Trading & Indenting 9,160.91 -- 9,160.91 7,487.94 -- 7,487.94 Others 4,325.10 -- 4,325.10 3,933.94 -- 3,933.94 Total Revenue 21,933.06 -- 21,933.06 19,199.35 -- 19,199.35 Result Segment Result Manufacturing 387.30 515.19 Trading & Indenting 1832.53 1506.87 Others 2407.10 2609.81 4626.93 Total Result 4631.87
Unallocated Expenditure Net of unallocated (339.78) income (380.47) (448.10) Interest Expenses (625.25) 177.04 Interest income 73.76 0.05 Dividend income 0.05 4616.14 Profit before Taxation 3699.96 1162.83 Provision for Taxation 1116.69 2853.31 Net profit 2593.27
N. NOTES TO THE ACCOUNTS (Contd.) Other Information Segment Assets Segment Liabilties 2010-2011 2010-11 2009-2010 2009-2010
4460.35 1,366.09 1,1941.41 Manufacturing 4558.68 Trading & Indenting 4606.17 3824.30 2010.37 1468.87 Others 14164.21 10678.99 9493.13 7518.47 Capital Expenditure Depreciation 213.09 215.14 Manufacturing 30.84 47.86 180.80 207.48 Trading & Indenting 182.84 109.76 205.62 223.82 231.27 Others 202.68
Non-cash expenses other than depreciation Nil Nil (ii) Information about Secondary Business Segments Revenue by Geographical Market
15,143.07 13,462.40 India 6,789.99 6,736.95 Outside India 21,933.06 19,199.36 Segment Assets 23,229.06 18,983.64 India -- -- Outside India 23,229.06 18,983.64 Capital Expenditure 416.36 363.24 India -- -- Outside India 416.36 363.24
The annual report for FY 2010-11 discloses business activities of 4 different functions i.e. manufacturing, agency service, vending business, trading and SEZ units. However, segment information is available for 3 segments namely 'Manufacturing', Trading & Indenting' and 'Others'. Thus, I don't find any infirmities in the order of the TPO in selecting as a comparable.
India Cements Capital Ltd: The appellant has contended that the company is functionally different as it is classified as a Non-Deposit taking NBFC and mainly provides financial services in the nature of foreign exchange money changer, forex advisory service and ticketing service for domestic and international travel. Further, it is contended that the financial services cannot be compared with the low end business support services provided by the assessee. The company also fails RPT<10% filter applied by the assessee. 8.1 The summary of the Appellants contentions is: - India Cements is functionally not comparable as India Cements is a NBFC, operating under the directions of the Reserve Bank of India. -- The company fails RPT filter of 10% as applied by the Appellant -- Without prejudice, incorrect margin calculations of 19.26% need to be corrected to 17.96% 8.2 The Company is providing financial services, which is in the nature of business support services similar to taxpayer. Further, the profile of this comparable is similar to Provestment Services Limited, which is selected by the taxpayer in its TP study. It is inappropriate on the part of the appellant to exclude India Cements only on the ground that it is showing better margin. Further, the related party tansactions are less than 25%, which is the filter universally used by the TPOs and hence, this cannot be a reason to exclude the Company. In view of the above, the objection of the appellant is rejected and this comparable retained.
HSCC (India) Ltd. The appellant has contended that HSCC is providing high-end technical consultancy services for architectural planning, design engineering, project management and procurement management services. It also provides studies and training services for medical colleges and feasibility studies for multi-specialty hospitals. Moreover, it does not provide any segmental data to differentiate between the design and architectural consultancy services vis-a-vis the project consultancy services. 9.2 The appellant company is providing consultancy services which is in the nature of business support services similar to the assessee company. Further, the profile of this comparable is similar to that of ICRA Management Consultancy which has also been selected by the taxpayer in its TP study. In view of the above, the objection of the assessee is rejected and this comparable is retained, 10. Kitco Limited: The appellant has contended that the functionally different as it provides high-end technical and engineering consultancy services as well as conducts training programmes, which is not comparable to low-end business support services rendered by the Assessee. 10.2 The appellant company is providing a consultancy service which is in the nature of business support services similar to taxpayer. Further, the profile of this comparable is similar to that of ICRA Management Consultancy which has also been selected by the taxpayer in its TP study. In view of the above, the objection of the assessee is rejected and this comparable is retained. In the result, the ground No.6 is dismissed.”
We have heard both sides and perused the material available on record. First coming to the profile of the comparable company, namely, Empire Industries, the Ld. AR submitted that, the particulars are evident that the company is into manufacturing of Amber Glass Bottles, trading and indenting services. There is no segmental information available with respect to the indenting services business. In view of the above, it was submitted tha,t this company is required to be excluded. The Ld.AR relied
upon the decisions rendered by the Tribunal in the case of Aavya India Pvt. Ltd.
2020(3) TMI – 278 - ITAT Delhi dated Aug 30, 2019 – AY 2011-12, in which it was held as under :
“ 21. Turning to Empire Industries Limited, while referring to the annual report of this company, the contention of the assessee is that this company is functionally dissimilar to the assessee inasmuch as Empire Industries Ltd. is engaged in the business of manufacturing and distribution of hightech machines and pharmaceuticals. It also has been engaged in trading of goods, apart from which they receive commission on trading and indenting business. He submitted that this aspect has been covered by the decisions of Philip Morris Services India SA (India Branch) v. ADIT [2016] 73 taxmann.com 264 (Delhi-Trib)
The learned Departmental representative heavily placed reliance on the orders of the authorities below.
We have gone through the record. In the director's report, in respect of operations it is mentioned that- "Operation : The division manufacturers amber glass bottles of international quality for the pharmaceutical industry. Over 11.80 lakhs bottles are manufactured even-day on four fully automatic production lines.
During the year under review demand for pharma bottles was good and the division achieved 9.16 per cent. higher turnover at ₹ 8361.14 lakhs. Over 20 per cent. of the bottles produced were exported."
In the case of Philip Morris Services India (supra), a co-ordinate Bench of this Tribunal found that Empire Industries Ltd. is engaged in the distribution and sale support of highly technical machines and pharmaceuticals, besides trading and day indenting of the industrial and medical equipment and machine tools, arid therefore, cannot be said as a comparables to the company rendering market support services.
There is no dispute that the Empire Industries Ltd. is sought to be compared with the assessee in its marketing support services and the functional profile of this two companies do not match. A company primarily deriving its income from manufacturing/trading and indenting services cannot be a good comparable to a company rendering market support services. We, therefore, directed the deletion of this company from the list of comparables.”
The Ld.AR also relied upon the decisions rendered by the Tribunal in the case of HARSCO INDIA SERVICES PVT. LTD. 2019 (4) TMI 869 - ITAT HYDERABAD dated 29 March 2019 – AY 2012-13, in which it was held as under : “ 6.2 Considered the rival submissions and perused the material on record. In the case of Hellosoft India Pvt. Ltd. (supra), the coordinate bench of this Tribunal observed as under: “17. We have heard the submissions of the parties in this regard. The materials on record clearly prove the fact that the assessee is a captive service provider. It has transactions only with its AE. It is also a fact that all the risks lies with the AE. Different benches of the Tribunal have also taken a divergent view on this issue. The Income-tax Appellate Tribunal, Mumbai Bench in the case of Simontech (supra) has held that no separate adjustment is required on account of risk and functional difference, the Income-tax Appellate Tribunal Delhi Bench in the case of Sony India (P.) Ltd. (supra) has held that deduction on account of ownership of intangibles, risk factors can be allowed. In aforesaid view of the matter, we are inclined to accept the view favorable to the assessee. We therefore uphold the direction of the CIT(A) in this regard in allowing the benefit of risk adjustments at 1%. Accordingly, the ground raised by the department is dismissed.” Following the said decision, we direct the AO/TPO to allow the risk adjustment in accordance with the Rule 10B(1)(e) considering the fact that assessee is a captive service provider to its AEs. Accordingly, ground raised by the assessee is allowed for statistical purposes.”
6.1 In view of the submission made by the Ld. AR , we find that this company is predominantly into trading activity and is not comparable to the assessee. Accordingly, we exclude this company from the list of comparable. India Cements 7. With respect to India Cements as a comparable company, the profile of the company is entirely different for the assessee. This company is into financial services which is in the nature of providing services like NBFC. On perusal of the financials of this company also, it is clear that this company is into business of financial services and other related services. The Ld. AR drawn our attention to the Paper Book pages 640 to 670, on perusal of the paper book it is clear that the company is into services which are not comparable with that of the assessee. 7.1 We have heard both sides and perused the material available on record. In the light of the above, we are of the opinion that this company is not comparable with the assessee and therefore we exclude this company from the list of comparable companies. HSCC (India) Limited 8. With respect to HSCC (India) Ltd., the Ld. CIT(A) has rejected the contention of the assessee to exclude the company from the list of comparable by his observation contained in paras no. 9 & 9.2 of his order, which are reproduced as under :
“ 9. HSCC (India) Ltd. : The appellant has contended that HSCC is providing high end technical consultancy services for architectural planning, design engineering, project management and procurement management services. It also provides studies and training services for medical colleges and feasibility studies for multi speciality hospitals. Moreover, it does not provide any segmental data to differentiate between the design and architectural consultancy services viz-a-vis the project consultancy services. 9.2 The appellant company is providing consultancy services which is in the nature of business support services similar to the assessee company. Further, the profile of this comparable is similar to that of ICRA Management Consultancy which has also been selected by the taxpayer in its TP study. In view of the above, the objection of the assessee is rejected and this comparable is retained.”
8.1 The submission of the assessee before us is that this company is not comparable with the assessee company as it primarily earns the revenue from the Government contracts and to justify the same our attention was drawn to pages 701 & 710 of the paper book. Further it was also submitted by the Ld. AR that this company is earning the revenue from the construction contract activities which is more than 83% of its total revenue and this company is not a comparable company with the assessee.
8.2 Per contra, Learned DR, heavily placed reliance on the orders of the Revenue authorities and requested to uphold the order of the Revenue authorities. 8.3 We have heard both sides, perused the material available on record and also the documents before us. The company, HSCC (India) Ltd. is primarily into construction contract activity. This company is compared with the profile of the assessee and it is clear that the assessee is comparable with the HSCC (India) Ltd. as the comparable company is also into back end services. While applying the TNMM method, this company is a comparable company with the assessee since the activities of this company are into primarily undertaking software services. Therefore in our opinion the functions of this company are similar to . Further we are of the opinion that merely the HSCC (India) Ltd. is an government undertaking that will not make it not comparable with the assessee. In view of the above, we disapprove the contention of the assessee and refuse to exclude this company from the list of comparables. Kitco Ltd.
9. With respect to this company, the TPO has mentioned that this company is into consultancy services which are in nature of business support service similar to services provided by the assessee. 9.1 Feeling aggrieved, the assessee has raised the issue before the Ld. CIT(A). The Ld. CIT(A) has rejected the assessee's contention under paras no. 10 & 10.2 of his order, which are reproduced as under : “ 10. Kitco Limited : The appellant has contended that the functionally different as it provides high end technicaland engineering consultancy services as well as conducts training programmes, which is not comparable to low end business support services rendered by the assessee. 10.2 The appellant company is providing a consultancy service which is in the nature of business support services similar to taxpayer. Further, the profile of this comparable is similar to that of ICRA Management Consultancy which has also been selected by the taxpayer in its TP study. In view of the above, the objection of the assessee is rejected and this comparable is retained.” 9.2 It was submitted by the Ld. AR that out of total revenue of Rs.23.38 Crores; Rs.12.92 Crores are from the construction contracts and it was further submitted that no segmental information for management consultancy services are available for this company. 9.3 Per contra, Learned DR, heavily placed reliance on the orders of the Revenue authorities and requested to uphold the order of the Revenue authorities. 9.4 We have heard both sides and perused the material available on record. Since in the present case, the profile of the comparable Kitco Ltd. is matching with that of the assessee and we do not find any infirmity in the order of Ld. CIT(A) and accordingly we reject the contention of the assessee to exclude this company.
Now coming to the Corporate Ground i.e. Ground no. 8 of the assessee, which is related to not granting the additional deduction of Rs.18,71,030/- u/s.10AA of the Act claimed by the assessee during the course of assessment proceedings on the amounts realised from export turnover subsequent to the filing the return of income. In support of the realisation of export turnover the assessee filed the Form no. 56F, which is required to be filed as contemplated u/s 10AA(8) r.w.s. 10A(5) & 10A(6) of the Act, before us on 10/05/2024 as an additional evidence. The Ld. AR submitted that the Ld. AO did not allow the claim without giving any reason for his denial. However the Ld. CIT(A) did not allow the claim due the reason that the export proceeds were not realised within the period of six months from the date of the export. In support of the claim of the assessee, the Ld. AR submitted that, there is no stipulation u/s 10AA of the Act, which explicitly provide that, the time line for realisation of export proceeds should be within period of six months from the date of export . It was also submitted by the Ld. AR that the ground of the assessee’s claim u/s.10AA of the Act is covered in favour of the assessee by the decision of the Tribunal in the case of Uni Design Jewellery Pvt. Ltd. Vs. DCIT (ITA No.3006 to 3008/Mum/2022 Dt.28.02.2023), wherein at para no 18 to 20 the order, the Tribunal had held as under :
“ 18. We have considered the rival submissions and perused the material on record.
We find that the solitary issue raised in the present appeal stands decided in favour of the Appellant/Assessee by the decision of Delhi bench of the Tribunal bench in the case of BT e- Serv (India) Private Limited (Supra) wherein it was held as under:
“ 24. Ground Nos. 14 to 22 are with respect to disallowance of deduction of Rs. 16639234/- u/s.10AA of the Act on the basis that export proceeds have not been realized within a period of six months from the end of the previous year. Ld Assessing Officer was of the view that as the assessee is a unit established under SEZ, therefore, if the proceeds have not been received in convertible exchange on or before 30th September 2010 then, the deduction u/s 10AA cannot be granted. Assessee submitted that there is no specific provision u/s 10AA requiring the realization of export proceeds within a prescribed time limit. Further, assessee relied on the master circular on export of goods and services issued by the RBI under FEMA. The ld Assessing Officer rejected the contention of the assessee for the reason that according to section 10AA(8) which makes applicable sub- section 5 and 6 of section 10A to this section i.e. 10 AA of the act, and according to form No. 56F, the realization of export proceeds is required to be shown. In that form assessee has shown that full consideration in convertible foreign exchange for exports made by the undertaking was brought into in India within a period of 6 months from the end of the previous year. The auditor has also certified the above fact as correct. Therefore, the ld Assessing Officer considered the export turnover at Rs. 190912493/- instead of Rs. 265997897/- and computed the deduction at Rs. 42306994/. The ld DRP on objection by the assessee confirmed the action of ld Assessing Officer. Therefore, assessee is in appeal before us.
The ld AR reiterated the same argument as advanced before the lower authorities and ld DR vehemently relied upon the orders of lower authorities.
We have carefully considered the rival contentions. According to section 10 AA of the act the profits derived from the export of articles or things or services (including computer software) shall be the amount which bears to the profits of the business of the undertaking, being the Unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on by the undertaking. Explanation 1(i) For the purposes of this section, defines “export turnover”, & it means the consideration in respect of export by the undertaking, being the Unit of articles or things or services received in, or brought into, India by the assessee but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things outside India or expenses, if any, incurred in foreign exchange in rendering of services (including computer software) outside India. Explanation 1 (ii) defines export as “export in relation to the Special Economic Zones” taking goods or providing services out of India from a Special Economic Zone by land, sea, air, or by any other mode, whether physical or otherwise. Therefore primarily there should be export and consideration for export should be brought in to India. The Ld. assessing officer as well as the Ld. DRP has disallowed the claim of the assessee on the sum of Rs. 75085404/. The above sum comprises a sum of Rs.480000000/-being foreign currency received of the export amount received by the assessee on 04/02/2011 and 24/2/2011. A sum of Rs. 27085404/- is unbilled revenue of the assessee. The unbilled revenue is like work in progress in case of ITES industries. The explanation 1 (ii) defines export means taking goods or providing services out of India from SEZ by land, sea, or by any other mode whether physical or otherwise. Regarding the unbilled revenue the assessee has not exported the goods and therefore such sum do not fall in the definition of export and therefore it cannot fall into the definition of export turnover. Hence, according to us the deduction under section 10 AA of the income tax act cannot be allowed on this sum as it does not qualify the definition of export and export turnover. Even otherwise assessee has not given any details of receipt of foreign exchange and therefore the consideration in respect of that is either received in or brought into India by the assessee. Hence, we confirm the finding of the lower authorities regarding disallowance of deduction under section 10 AA of the income tax act on this sum. With respect to the other sum of Rs. 4.80 crores The assessee has given foreign inward remittance certificates and such sum has also been received in India on 04/02/2011 and 24/2/2011. The provisions of section 10AA does not provide any time-limit of bringing such consideration into India like section 10A(3) which provides for receipt of consideration or sale proceeds in India in convertible foreign exchange within a period of 6 months from the end of the previous year, or within such further period as the competent authority may allow in this behalf. Further the contention of the revenue that provision of sub- section (5) and (6) of section 10A shall apply by virtue of the provision of section 10AA(8) of the Act. The provision of section 10A(5) speaks about the audit of the accounts and submission of report of an accountant in specified Performa. In this case same has been complied with by the assessee. Further section 10A(6) speaks about the restrictions of other deduction during the holiday period, which is not the dispute in this case. In view of this it is apparent that there is no time-limit prescribed for bringing the consideration of export into India. Admittedly, the consideration has been received in India, albeit Subsequent to filing of the return by the assessee. However, merely because the consideration has been received after 6 months from the close of the financial year the deduction cannot be denied to the assessee on the sum. In view of this we direct the Ld. assessing officer to consider a sum of Rs. 4.80 crores as export turnover of the assessee and accordingly grant deduction to the assessee under section 10 AA of the income tax act. Accordingly, Ground No. 14 to 22 of the appeal of the assessee are partly allowed.
We are in agreement with the above decision of the Tribunal since Section 10AA does not prescribe any time limit for realization of export proceeds, the benefit of Section 10AA cannot be denied to an Assessee merely because the export proceeds were realized after the expiry of 6 months from the end of relevant previous year in which export sales were made. In our view, in case an assessee is able to show that the consideration in respect of exports was received in India or brought into India, the deduction under Section 10AA of the Act should be allowed. In the present case the Appellant had filed the details of realization of export sales with the Assessing Officer and the CIT(A). Therefore, we direct the Assessing Officer to allow deduction to the Appellant under Section 10AA of the Act by taking into account the export sales realized by the Appellant. Accordingly, the order passed by the Assessing Officer and the CIT(A) are set aside. Ground No. 1 raised in the appeal is allowed. In result the present appeal by the Assessee is allowed.”
10.1 On the basis of the aforesaid submission, the Ld. AR also submitted that, there is no stipulation u/s 10AA of the Act, which explicitly provide that, the time line for realisation of export proceeds should be within six months from the date of export and hence the assessee is entitled for deduction u/s.10AA of the Act and therefore the grounds of the assessee is required to be allowed.
10.2 Per contra, the Ld. DR has submitted that, since the additional evidence was filed by the assessee, the matter may be referred to the Ld. AO with a direction to examine, whether the export of sales were happened in this year or not and whether the assessee is entitled to deduction u/s.10AA of the Act or not.
10.3 We have heard both sides and perused the material available on record. Without commenting on the entitlement of the assessee, in case of failure on the part of assessee to receive the export sale proceeds within a period of six months, we deem it fit to decide first on the additional evidence filed before us in the Form 56F on 10.05.2024. In our view, the entitlement of the assessee u/s.10AA of the Act is required to examine in the light of the duty cast on the assessee to fulfil the requirements as contemplated u/s.10AA(8) r.w.s. 10A (4 & 5) of the Act. A concise reading of the provisions make it abundantly clear that the assessee was duty bound to file the Form no. 56F before the specified date referred to in section 44AB. However the assessee has filed the said form before us on 10.05.2024, which is filed much latter that the specified due date. In our view the delay in filing the Form no. 56F after the specified date is not permissible as held by the Hon'ble Supreme Court in the case of DCIT Vs. Wipro Ltd. 446 ITR 001 (SC), wherein while deciding similar issue u/s 10B of the Act, the Hon'ble Supreme Court has held that for claiming the deduction, the statutory requirement of filing of forms is strictly complied with. The findings of Hon'ble Supreme Court is as under :
“ 12. Even the submission on behalf of the assessee that the assessee had a substantive statutory right under Section 10B (8) to opt out of Section 10B which cannot be nullified by construing the purely procedural time requirement regarding the filing of the declaration under Section 10B (8) as being mandatory also has no substance. As observed hereinabove, the exemption provisions are to be strictly and literally complied with and the same cannot be construed as procedural requirement.
So far as the submission on behalf of the assessee that against the decision of the Delhi High Court in the case of Moser Baer (supra), a special leave petition has been dismissed as withdrawn and the revenue cannot be permitted to take a contrary view is concerned, it is to be noted that the special leave petition against the decision of the Delhi High Court in the case of Moser Baer (supra) has been dismissed as withdrawn due to there being low tax effect and the question of law has specifically been kept open. Therefore, withdrawal of the special leave petition against the decision of the Delhi High Court in the case of Moser Baer (supra) cannot be held against the revenue.
In view of the above discussion and for the reasons stated above, we are of the opinion that the High Court has committed a grave error in observing and holding that the requirement of furnishing a declaration under Section 10B (8) of the IT Act is mandatory, but the time limit within which the declaration is to be filed is not mandatory but is directory. The same is erroneous and contrary to the unambiguous language contained in Section 10B (8) of the IT Act. We hold that for claiming the benefit under Section 10B (8) of the IT Act, the twin conditions of furnishing a declaration before the assessing officer and that too before the due date of filing the original return of income under section 139(1) are to be satisfied and both are mandatorily to be complied with. Accordingly, the question of law is answered in favour of the Revenue and against the assessee. The orders passed by the High Court as well as ITAT taking a contrary view are hereby set aside and it is held that the assessee shall not be entitled to the benefit under Section 10B (8) of the IT Act on non- compliance of the twin conditions as provided under Section 10B (8) of the IT Act, as observed hereinabove. The present Appeal is accordingly Allowed. However, in the facts and circumstances of the case, there shall be no order as to costs.”
10.4 Respectfully following the decision of the Hon'ble Supreme Court(Supra), since admittedly, the Form no. 56F was not filed within the specified date, we do not find any merit in the argument of Ld. AR. Accordingly the Ground No.18 of the assessee’s appeal is dismissed. 10.5 In the result, the Ground No.18 of the assessee’s appeal is dismissed.
To sum up, the appeal of the assessee is partly allowed for statistical purpose.