Connor Information Technology Ltd.,, ... vs Assessee

Connor Information Technology vs. Income Tax Officer, Ward -

Ltd., Secunderabad. 1(2), Hyderabad.

PAN - AABCC4474 F (Appellant) (Respondent)

Assessee by : Shri P. Murali Mohan Rao Revenue by : Shri Ramakrishna Bandi

Date of hearing 04-06-2015 Date of pronouncement 19-06-2015

O RDE R

PER BENCH.:

These two appeals by assessee are directed against separate orders of ld. CIT(A)-II, Hyderabad both dated 10/02/2014 for the AY 2001-02 & 2002-03.

ITA No. 1032/Hyd/2014. 2. The only issue in this appeal is with regard to the direction of ld. CIT(A) that the amount of Rs. 99,60,023 spent by foreign customers should not be treated as part of export turnover.

3. Briefly the facts relating to the issue in dispute are assessee a company is engaged in the business of software development. For the AY under dispute, assessee filed its return of income declaring total income at 'nil' after claiming deduction u/s 10B of the Act.

2 ITA Nos. 1032 & 1033 /Hyd/2014 Connor Information Technology Ltd.

Assessment in case of assessee was originally completed u/s 143(3) of the Act vide order dated 24/03/2004 determining the total income at Rs. 1,07,84,430. Being aggrieved of such assessment order, assessee preferred appeal before ld. CIT(A). Ld. CIT(A) having confirmed the assessment order, assessee preferred appeal before the Tribunal. ITAT vide order dated 16/09/2011 set aside the issue relating to the claim of exemption u/s 10B of the Act to AO.

4. In the assessment proceeding in pursuance to the direction of ITAT, AO again called for information from assessee on the deduction claimed u/s 10B of the Act. During the proceeding, AO specifically called for information with regard to assessee's claim that the amount of Rs. 99,60,023 was incurred as expenditure by customer in USA on assessee's behalf, and whether it can be deemed to have been received in India for the purpose of computation of relief u/s 10B. In this connection, AO required assessee to produce evidence to show that permission was granted by RBI treating the amount of Rs. 99,60,023 to have been incurred as expenditure by the customer in USA is deemed to have been received in India. As noted by AO, in response to the query raised by AO, assessee submitted a letter stating therein that since information is awaited from RBI hearing may be adjourned. Ultimately AO alleging that assessee failed to produce required information, completed the assessment by again determining the income at Rs. 1,07,84,430 after reducing the exemption claimed u/s 10B of the Act. Being aggrieved of the assessment order, so passed, assessee preferred appeal before ld. CIT(A).

5. In course of hearing of appeal before ld. CIT(A), assessee submitted certain documents by way of additional evidence, viz., certificate issued by C.A. confirming the export turnover for the relevant FY and realization of exports, approval granted by RBI for regularization of bills and certificates of foreign inward remittances issued by the banks. On the basis of the additional evidence submitted by assessee, ld. CIT(A) called for remand report from AO.

3 ITA Nos. 1032 & 1033 /Hyd/2014 Connor Information Technology Ltd.

In the remand report, AO stated that assessee's claim that delayed foreign exchange remittances were permitted to be regularized by RBI appears to be acceptable. However, he stated in the remand report that as far as amount of Rs. 99,60,023 no evidence was submitted by assessee that the approval of RBI was there for incurring of such expenditure. Ld. CIT(A) after considering the submissions of assessee as well as remand report of AO, held as under:

"4.7 The AR did not submit his remarks. In any case, since the Reserve Bank of India has given post-facto approval to receive the export proceeds belatedly, the AO is directed to allow 10B deduction on the total turnover of US$ 819,994 equivalent to Indian Rs. 377,29,513. Therefore, the third and fourth grounds of appeal are allowed in favour of the appellant. With reference to the amount spent by foreign customer of Rs. 99,60,023, though this amount forms part of total turnover, it cannot be part of export turnover, as communication charges and expenses towards technical services are excluded from definition of export turnover as per Explanation 2(iii) of section 10B. Therefore, no 10B deduction can be allowed on this amount. Therefore, this ground is dismissed."

6. Ld. AR submitted before us, the amount of Rs. 99,60,023 is an onsite expenditure incurred by assessee and as such the same is allowable u/s 10B of the Act. Ld. AR referring to the approval granted by RBI submitted before us, since the expenditure incurred is approved/regularized by RBI, the same cannot be reduced from the profit while computing deduction u/s 10B. Ld. AR submitted, though, ld. CIT(A) in her order has allowed deduction u/s 10B on the total turnover of Rs. 3,77,29,513 which also includes the amount of Rs. 99,60,023 being the expenditure incurred by foreign customer on behalf of assessee, but, at the same time, she has held that this amount cannot form part of export turnover as per explanation 2(iii) to section 10B, hence, deduction u/s 10B cannot be allowed. Ld. AR submitted, not only the amount of Rs. 99,60,023 is allowable as deduction u/s 10B, but, even otherwise also, if it is excluded from the export turnover, the same has to be reduced from total turnover as per the matching principle propounded in several judicial precedents 4 ITA Nos. 1032 & 1033 /Hyd/2014 Connor Information Technology Ltd.

including the decision of Hon'ble Bombay High Court in case of CIT Vs. Jemplus Jewellery, 330 ITR 175 and ITO Vs Saksoft Ltd (313 ITR AT 353 (Chennai) (SB).

7. Ld. DR, on the other hand, submitted before us, assessee has not produced any evidence to show that the expenditure was incurred on behalf of assessee by the foreign customer so as to treat it as deemed to have been received in India. Ld. DR submitted before us, RBI permission submitted by assessee only relates to extending the period of bringing the remittance to India, but, it does not prove that the expenditure was actually incurred on behalf of assessee by foreign customer.

8. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. As can be seen from the operative part of the impugned order of ld. CIT(A), she has directed AO to allow exemption u/s 10B on the total export turnover of US $ 819,994 equivalent to Indian Rupees 3,77,29,513. Ld. CIT(A) has also accepted that amount of Rs. 99,60,023 being expenditure incurred by foreign customer also forms part of assessee's total turnover of Rs. 3,77,29,573. As the department has not preferred any appeal against the aforesaid order of ld. CIT(A), her direction for allowing deduction u/s 10B on the total turnover of Rs. 3,77,29,573 has become final. Therefore, the only issue which remains to be decided is, ld. CIT(A) having directed AO to allow deduction u/s 10B on total turnover of Rs. 3,77,29,573 can again say that the amount of Rs. 99,60,023 since cannot form part of export turnover no deduction u/s 10B is allowable. Assessee has demonstrated before us that on site expenditure of Rs. 99,60,023 forms part of the total turnover of Rs. 3,77,29,513. In our view, ld. CIT(A) having allowed exemption u/s 10B on total turnover of Rs. 3,77,29,513 was not justified in again holding that Rs. 99,60,023 being expenditure incurred towards communication charges and technical services cannot form part of export turnover, hence, 5 ITA Nos. 1032 & 1033 /Hyd/2014 Connor Information Technology Ltd.

deduction u/s 10B is not allowable. Therefore, to that extent, the order of ld. CIT(A) is not sustainable. Moreover, even assuming that the amount of Rs. 99,60,023 cannot form part of export turnover, in view of explanation 2(iii) of section 10B, then, also following the principles laid down by the Hon'ble Bombay High Court in case of CIT Vs. Gemplus Jewellery and the decision of Chennai Special Bench in case of ITO Vs Saksoft Ltd. (supra), the same has to be reduced from total turnover, in which case also, it will have the same effect. Accordingly, we direct AO to allow deduction u/s 10B of the Act for the amount of Rs. 99,60,023.

9. In the result, appeal of assessee is allowed.

ITA No. 1033/Hyd/2014. 10. The dispute in this appeal also relates to disallowance of deduction claimed u/s 10B of the Act.

11. Briefly, the facts are, assessee filed its return of income for the impugned AY declaring 'nil' income after claiming deduction u/s 10B of the Act. Assessment in case of assessee was originally completed u/s 143(3) vide order dated 21/03/2005 determining total income at Rs. 2,37,03,080. Being aggrieved of such assessment order, assessee preferred appeal before ld. CIT(A). Ld. CIT(A) having confirmed the assessment order, assessee preferred appeal before the Tribunal. ITAT vide order dated 16/09/2011 set aside the issue relating to the claim of exemption u/s 10B of the Act to AO. Being aggrieved of the assessment order, so passed, assessee preferred appeal before ld. CIT(A).

12. As it appears from the order of ld. CIT(A), since no details were submitted by assessee, ld. CIT(A) simply dismissed appeal of assessee without deciding the issue on merit. Being aggrieved assessee is before us.

6 ITA Nos. 1032 & 1033 /Hyd/2014 Connor Information Technology Ltd.

13. Though assessee has raised various grounds in the memorandum of appeal as well as some additional grounds, but, at the time of hearing, ld. AR submitted that since ld. CIT(A) has dismissed the appeal exparte without deciding on merit, matter may be remitted back to ld. CIT(A) to allow an opportunity to assessee to represent its case.

14. Ld. DR has no objection to the aforesaid submissions of ld. AR.

15. Having considered the submissions of the parties and perused the materials on record, we are inclined to set aside the impugned order of ld. CIT(A) since she has simply dismissed appeal of assessee without deciding it on merit. Accordingly, we remit the matter back to her file with a direction to decide the appeal on merit after considering the grounds raised by assessee. It is open to assessee to raise issues raised in additional grounds at the time of hearing before ld. CIT(*A).

16. In the result, this appeal of assessee is allowed for statistical purposes.

17. To sum up, appeal in ITA No. 1032/Hyd/2014 is allowed and appeal in ITA No. 1033/Hyd/2014 is allowed for statistical purposes.

Pronounced in the open court on 19 th June, 2015.

Sd/- Sd/- (INTURI RAMA RAO) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 19 th June, 2015 kv 7 ITA Nos. 1032 & 1033 /Hyd/2014 Connor Information Technology Ltd.

Copy to:-

1) Connor Information Technology Ltd., C/o Sri S. Rama Rao, Advocate, Flat No. 102, Shriya's Elegance, H. No. 3-6-643, St. No. 9, Himayat Nagar,, Hyderabad - 500 029

2) ITO, Ward - 1(2), Hyderabad

3) CIT(A)-II, Hyderabad

4) CIT-I, Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.