Testree Solutions P Ltd, Bangalore vs Assessee

Date of hearing : 16/04/2015 Date of pronouncement: 11/06/2015 ITA Nos.1364&1464/Bang/2014 M/s.Testree Solutions Pvt. Ltd.

Page 2 of 7

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.

2. 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 ITA Nos.1364&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/-.

3. 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 ITA Nos.1364&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 ITA Nos.1364&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 ITA Nos.1364&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.

6. In the result, the assessee's appeal is allowed and the

revenue's appeal is dismissed. Pronounced in the open court on

Pronounced in the open court on 11th June, 2015.

sd/- sd/- (Pramod Kumar) (Smt. P.Madhavi Devi) ACCOUNTANT MEMBER JUDICIAL MEMBER eksrinivasulu ITA Nos.1364&1464/Bang/2014 M/s.Testree Solutions Pvt. Ltd.

Page 7 of 7 Copy to:

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

By order

Assistant Registrar Income-tax Appellate Tribunal Bangalore.