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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI PRAMOD KUMAR & SMT. P. MADHAVI DEVI
&1464/Bang/2014 M/s.Testree Solutions Pvt. Ltd. Page 2 of 7 O R D E R Per Smt. P.MADHAVI DEVI, JM: These cross appeals are by the assessee as well as the revenue against the order of the CIT(A)-III, Bangalore, dated 25/08/2014 for the assessment year 2010-11.
Brief facts of the case are that the assessee-company, which is engaged in the business of software development services, had filed its return of income for the assessment year 2010-11 on 29/09/2010 admitting total income of Rs.5,53,753/- after claiming exemption u/s 10A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] amounting to Rs.60,14,839/-. During the assessment proceedings u/s 143(3) of the Act, the Assessing Officer (AO) observed that the assessee has incurred certain expenditure on account of communication expenses and having regard to Explanation 2, clause (iv) to section 10A of the Act which defines ‘export turnover’, he held that the assessee-company ought to have reduced such charges from export turnover to arrive at the claim of deduction u/s 10A of the Act, as such charges incurred are, directly attributable to the delivery of computer software expenditure outside India. He, accordingly, excluded the same from the export turnover for the purpose of computation of deduction u/s 10A of the Act. He further observed that the assessee is eligible for deduction u/s 10A of the Act of Rs.56,05,378/- only though the assessee has claimed an amount of Rs.60,14,839/-. He observed that in Form &1464/Bang/2014 M/s.Testree Solutions Pvt. Ltd. Page 3 of 7 56F, the Auditor had stated that assessee had made an application to Standard Chartered Bank for extension of the time limit up to 18 months from the invoice date and that the approval is pending. The AO made enquiries with the concerned bank, who replied that the bank has not received any request from the assessee seeking extension for realization of export sales proceeds for financial year 2009-10. Assessee’s explanation was called for to which assessee explained that the bank is authorized to take on record an extension letter only on submission of STPI Approval Invoices (Softex Forms) and that the assessee has applied for Softex forms which are yet to be received. The assessee also submitted copies of the letter submitted for Softex forms. On perusal of the same, AO observed that the assessee has not made any efforts to obtain Softex forms and therefore assessee has not fulfilled the requisite conditions and therefore the same is not allowable as deduction u/s 10A of the Act. He, accordingly, disallowed a sum of Rs.60,14,839/-.
Aggrieved, the assessee preferred an appeal before the CIT(A) who partly allowed the same and both the assessee as well as the revenue are in appeal before us. As regards deduction of communication expenses from the export turnover for the purpose of computation of deduction u/s 10A of the Act is concerned, we find that the CIT(A) has followed the decision of the jurisdictional High Court in the case of CIT vs. Tata Elxsi &1464/Bang/2014 M/s.Testree Solutions Pvt. Ltd. Page 4 of 7 (349 ITR 98) to direct the AO that if any expenditure is reduced from the export turnover the same has to be reduced from the total turnover as well while computing deduction u/s 10A. Against such relief given by the CIT(A), the revenue is in appeal before us. We find that this issue is covered in favour of the assessee by the decision of the jurisdictional High Court which has been followed by the CIT(A). In view of the same, we do not see any reason to interfere with the order of the CIT(A) and the revenues ground of appeal is rejected.
4. As regards the receipt of export receipts after the stipulated period of six months from the end of the relevant previous year or within the time allowed by the competent authority as per the provisions of sec.10A(3) of the Act, we find that the CIT(A) has upheld the disallowance and the assessee is in appeal before us. The learned counsel for the assessee submitted that the as per the provisions of sec.10A(3), the assessee is required to receive the export proceeds within a period of six months from the end of the relevant previous year or within time allowed by the competent authority and the competent authority is the RBI which has delegated such powers to the respective banks. He submitted that the assessee had made an application to its bank for extension of time and the amount was received subsequently and therefore the same has to be allowed for the purpose of deduction u/s 10A of the Act. In support of his contention, the learned counsel for the assessee &1464/Bang/2014 M/s.Testree Solutions Pvt. Ltd. Page 5 of 7 has placed reliance upon the decision of the jurisdictional High Court in the case of CIT vs. Tyco Electronics Corporation India P.Ltd. (2012) 22 Taxman.com 267(Kar.). The learned Departmental Representative, on the other hand, supported the orders of the authorities below.
5. Having regard to the rival contentions and the material on record, we find that the Hon’ble High Court of Karnataka, in the above referred case of Tyco Electronics Corporation India P.Ltd.(cited supra) has held as under:
“9a. The statute does not prescribe any time-limit within which the application is to be made for such an extension of time and the period within which the competent authority has to pass an order. The object behind this provision appears to be that once the sale proceeds are received in India though late and the authority vested with the power to extend the time, exercises the discretion, the assessee should be entitled to the benefit. In that view of the mater, the Tribunal was justified in setting aside the order of the Appellate Commissioner as well as the Assessing Officer and in extending the said benefit. It is in consonance with the express words used in the statute. Therefore, we do not find any substance in the said contention. Therefore, the first substantial question of law is answered in favour of the assessee and against the revenue.”
In the case before us, it is not disputed that the assessee had filed a letter before the bank for extension of time, and it is also not disputed that the bank cannot and did not take th said letter on record because the letter was not accompanied by Softex Forms. It is also undisputed fact that the assessee has filed necessary letters with details before the STPI authorities for issuance of Softex Forms and they were pending before the &1464/Bang/2014 M/s.Testree Solutions Pvt. Ltd. Page 6 of 7 authorities. The AO has observed that the assessee did not pursue the matter with STPI authorities, but there is no positive evidence to come to this conclusion. Further, as held by the jurisdictional High Court, in the above case (cited supra) the object behind this provision appears to be that once sale proceeds are received in India, though late and the authority vested with the power to extend the time, exercises this discretion, the assessee should be entitled to the benefit. As recorded by the CIT(A) in para 5.1 of his order, the assessee has received the sale proceeds by 8th of September 2011. Therefore, the competent authority i.e. the bank has allowed the assessee to realize the sale proceeds. Therefore, in our opinion, the judgment of the jurisdictional High Court in the above case (cited supra) is applicable to the facts of the case before us. Therefore, we hold that the export proceeds received after the expiry of the period of six months from the end of the relevant previous year is to be allowed as a deduction u/s 10A of the Act, the grounds of appeal raised by the assessee are allowed.