M/S Good Rich Aerospace Services Pvt. ... vs Department Of Income Tax

The Income Tax Officer, Vs. M/s. Good Rich Aerospace Ward 11(2), Services Pvt. Ltd., Bangalore. Sy.No.14/1 & 15/1, Maruthi Industrial Estate, Phase-2, Hoody Village, Whitefield Road, K.R. Puram Hobli, Bangalore - 560 048.

PAN: AAACB 8857H APPELLANT RESPONDENT

CO No.3/Bang/2015 [in IT(TP)A No.594/Bang/2012] Assessment year : 2007-08

M/s. Good Rich Aerospace Vs. The Income Tax Officer, Services Pvt. Ltd., Ward 11(2), Bangalore - 560 048. Bangalore. PAN: AAACB 8857H CROSS OBJECTOR RESPONDENT

Revenue by : Shri P. Dhivahar, Jt. CIT(DR) Assessee by : Shri K.R. Girish, C.A.

Date of hearing : 25.03.2015 Date of Pronouncement : 27.03.2015 ITA No.594/Bang/2012 & CO No.3/Bang/2015 Page 2 of 6

ORDER

Per N.V. Vasudevan, Judicial Member

The appeal is by the revenue and the cross objection by the

assessee against the order of the CIT(Appeals)-I, Bangalore relating to

assessment year 2007-08.

2. The assessee is engaged in the business of manufacture, repair,

overhaul and maintenance services for aircraft safety and evacuation

systems. The manufacturing activities are carried out by a 100% EOU

division. The profits of EOU division were entitled to deduction u/s. 10B of

the Act. During the previous year relevant to A.Y. 2007-08, the assessee

had set up a new business line of providing design services for certain

components manufactured by other group of companies. In this regard, the

assessee had set up a new unit 'India Design Centre' and registered the

same as a 100% EOU under STPI scheme. The profits of this unit were

entitled to claimed deduction u/s. 10A of the Act.

3. While computing the eligible deduction u/s. 10A/10B of the Act, the

Assessing Officer reduced from the export turnover the following sales:-

Particulars Break-up Amount (Rs.) Telecommunication expenses Postage & telegram 20,518 Telephone and trunk call 891,366 Telephone data lines 3,774,738 Telephone local/cell 1,408,229 Freight outwards 16,598,961 Foreign travel 11,888,267 ITA No.594/Bang/2012 & CO No.3/Bang/2015 Page 3 of 6

4. According to the AO, clause (iv) to Explanation 2 to Section 10A

defines the term "export turnover" as follows:-

"export turnover" means the consideration in respect of export by the Undertaking of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include

(i) freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or

(ii) ......"

Clause (iii) of Explanation to section 10B of the Act also provides an identical definition to the term "export turnover."

5. According to the AO, in view of the aforesaid definition of export

turnover, telecommunication expenses, freight outwards and foreign travel

expenses had to be excluded from the export turnover for the purpose of

computing deduction u/s. 10A/10B of the Act. The plea of the assessee

before the AO was that telecommunication and freight expenses incurred

by the assessee did not form part of its export turnover. The entire export

turnover accounted for by the assessee during FY 2006-07 represented

consideration for export of services/articles to Goodrich entities outside

India. These expenses incurred by Goodrich India were not separately

charged-back to Goodrich entities. Sample copy of the invoices evidencing

the above were also furnished.

ITA No.594/Bang/2012 & CO No.3/Bang/2015 Page 4 of 6

6. Without prejudice to the above, the assessee also submitted that if

the aforesaid expenditure is excluded from the export turnover, they should

also be reduced from the total turnover for the purpose of computing

deduction u/s. 10A/10B of the Act.

7. The AO did not agree with the aforesaid submissions on behalf of

the assessee and excluded the aforesaid expenses from the export

turnover alone.

8. On appeal by the assessee, the CIT(Appeals) directed the AO to

exclude the expenses in question both from the export turnover as well as

total turnover. In doing so, the CIT(Appeals) relied on the decision of the

Hon'ble High Court of Karnataka in CIT v. Tata Elxsi Ltd., 349 ITR 98

(Karn).

9. Aggrieved by the order of the CIT(Appeals), the Revenue has

preferred the present appeal before the Tribunal.

10. In the Cross Objection, the assessee apart from supporting the

order of the CIT(Appeals), has also contended that the telecommunication

expenses were not attributable to the delivery of computer software outside

India and that the travel and freight expenses were not incurred for

rendering any technical services outside India and therefore, ought not to

have been excluded from the export turnover.

ITA No.594/Bang/2012 & CO No.3/Bang/2015 Page 5 of 6

11. We have heard the rival submissions. As far as the appeal of the

Revenue is concerned, the only grievance of the Revenue is that the

decision of Hon'ble High Court of Karnataka in Tata Elxsi (supra) has not

attained finality and a SLP by the department is pending before the Hon'ble

Supreme Court. We are of the view that as of today, law declared by the

Hon'ble High Court of Karnataka which is the jurisdictional High Court is

binding on us. We therefore hold that the order of CIT(A) does not call for

any interference and accordingly the same is confirmed.

12. As far as the cross objection of the assessee is concerned, we are

of the view that no adjudication on the grounds raised in the CO is

necessary at this stage. The question is therefore left open for

adjudication, if and when the issue raised by the assessee in the CO

requires adjudication.

13. In the result, the appeal by the revenue as well as the CO by the

assessee is dismissed.

Pronounced in the open court on this 27th day of March, 2015.

Sd/- Sd/-

( ABRAHAM P. GEORGE ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member

Bangalore, Dated, the 27th March, 2015. /D S/ ITA No.594/Bang/2012 & CO No.3/Bang/2015 Page 6 of 6

Copy to:

1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

By order

Assistant Registrar/ Senior Private Secretary ITAT, Bangalore.