• Oct
  • 21
  • 2012

New provisions of section 10A provides for deduction & not exemption

IN THE ITAT PUNE BENCH ‘B’

Opus Software Solutions (P.) Ltd.

versus

Assistant Commissioner of Income-tax

IT Appeal Nos. 466 (PN) of 2011 & 1179, 1205 & 1206 (PN) OF 2009

[Assessment years 2003-04, 2004-05 & 2007-08]

July 27, 2012

ORDER

G.S. Pannu, Accountant Member

The captioned cross-appeals by the assessee and the Revenue involving some common issues were heard together and are being disposed of by way of a combined order for the sake of convenience and brevity.

2. We shall first take up assessee’s appeal vide ITA No 1179/PN/09 for the assessment year 2003-04. This appeal is directed against the order of the Commissioner of Income-tax (Appeals)-II, Pune dated 22.07.2009 which, in turn, has arisen from the order dated 28.02.2006 passed by the Assessing Officer under section 143(3) of the Income-tax Act, 1961, (in short “the Act”), pertaining to the assessment year 2003-04.

3. In this appeal, the substantive dispute raised by the assessee is with regard to the expenditure of Rs 2,77,07,736/- incurred towards product development. The assessee had claimed such expenditure as revenue expenditure whereas the income-tax authorities have denied the claim of the assessee and, instead treated the expenditure as capital expenditure.

4. The background of the dispute can be summarized as follows. The appellant is a company incorporated under the provisions of the Companies Act, 1956 and it is engaged in the business of development of software products. In the return of income filed for the assessment year 2003-04, it declared a loss of Rs 2,42,68,399/-, which was subject to scrutiny assessment under section 143(3) of the Act whereby the total income has been determined at a loss of Rs 24,11,209/- as per the normal provisions of the Act, whereas the income under the provisions of section 115JB of the Act has been determined at Rs 2,66,185/-. Be that as it may, the dispute before us relates to an expenditure of Rs 2,77,07,736/- incurred by the assessee towards product development, which has been disallowed. The assessee explained that it was engaged in the development of various software packages, like Trade Now, Electra ATM, Electra Card and Electra Payment Gateway (EPG), etc. It was explained that the software packages developed by the assessee are basically used in the banking sector. The assessee explained that the expenditure incurred on development of such products was to be tune of Rs 2,77,07,736/-and the same was claimed as revenue expenditure. The Assessing Officer and, thereafter, the Commissioner of Income-tax (Appeals) has held that such development expenditure was capital in nature and against such a disallowance, the assessee is in further appeal before us.

5. From the orders of the authorities below, it emerges that the objections of the Department against the assessee’s claim of treating it as revenue expenditure are three-fold. Firstly, as per the Department, the assessee has itself treated such expenditure in its account books as deferred revenue expenditure and it has been claimed as a revenue expenditure only in the computation of income for income-tax purposes. According to the department, assessee cannot take a different stand while computing its income under the Act. Secondly, as per the Department the expenditure in question has resulted in development of new products and, therefore, assessee has obtained an advantage of enduring nature and thus the expenditure was capital in nature. Thirdly, as per the Department, assessee was in the process of registering the products with the Registrar of Trade Mark and thus, the expenditure was for acquisition of an intangible asset and hence the same constituted capital expenditure. For all the above reasons, as per the Department the expenditure in question resulted in an enduring benefit to the assessee and, therefore, the expenditure of Rs 2,77,07,736/- was to be regarded as a capital expenditure.

6. Per contra, the plea of the assessee before the authorities below was that the expenditure has been incurred towards development of different software packages, which are being sold by the assessee and therefore, the expenditure has been rightly claimed as revenue expenditure. The assessee pointed out that the expenditure was mainly in respect of the salaries of the employees who worked on development of such software products and other direct expenses. It was explained before the lower authorities that the software development process consists of a series of processes wherein system analysis and design constitute the research activity and the programming, quality control, debugging and testing etc. constitute the development activity. It was pointed that the impugned expenditure has not resulted in creation of any fixed asset, inasmuch as the products which are manufactured are intended for sale. It was in this background, the assessee pointed out that the software packages developed by the assessee support multiple types of financial instruments and transactions on the internet, which are used by the banking industry. The assessee further submitted that the treatment in the account books was not a conclusive factor to determine the nature of expenditure and in that context, relied upon the judgment of the Hon’ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC). Secondly, the assessee also pointed out that it was in the business of software development since 1999 and that it was not as if the impugned expenditure resulted in any new business, whereas it was an expenditure directed towards obtaining products for sale in the existing business. Therefore, according to assessee, such expenditure was liable to be treated as a revenue expenditure. With regard to the registration of the products with the Registrar of Trade Marks, it was submitted that the same was no criteria to hold that the expenditure in question was a capital expenditure or an expenditure incurred towards acquisition of an intangible asset. All the aforesaid pleas set up by the assessee have not found favour with the income-tax authorities. The Commissioner of Income-tax (Appeals) noticed that the products resulting as a consequence of the impugned expenditure were being sold by the assessee on license basis even in the subsequent years and, therefore, it could not be said that there was no enduring benefit to the assessee. According to the Commissioner of Income-tax (Appeals), in fact the expenditure on development of the products has resulted in an enduring benefit to the assessee. The Commissioner of Income-tax (Appeals) also referred to the decision of the Special Bench in the case of Amway India Enterprises v. Dy. CIT [2008] 111 ITD 112 (Delhi)(SB) wherein it has been held that a timeframe of more than 2 years validity of a software would be considered to treat an expenditure on acquisition of a software to be capital expenditure and only when the validity of the software was less than 2 years, it could be treated as revenue expenditure. According to the Commissioner of Income-tax (Appeals), it was clear that the software developed by the assessee in question was valid year after year and was being sold in future years also and, therefore, the expenditure in development of such software was capital in nature. In this manner, as per the Commissioner of Income-tax (Appeals), the expenditure incurred on development of new software products for use in banking and financial sector as claimed by the assessee was a capital expenditure resulting in acquisition of an intangible asset. Accordingly, the Commissioner of Income-tax (Appeals) affirmed the action of the Assessing Officer in treating the expenditure as resulting in acquisition of an intangible asset and allowing of depreciation on the same.

7. Before us, the learned Counsel for the assessee has primarily reiterated the submissions that were putforth before the lower authorities and which have been already adverted to in the earlier part of this order. Apart therefrom, the learned Counsel referred to the details of the expenditure in question in terms of which it was sought to be pointed out that the entire expenditure was even otherwise revenue in nature, inasmuch as majority of the expenditure is towards employee costs, administrative cost and other costs, namely, software consultancy, training expenses, printing and stationery, etc. as per the details on record. It was vehemently pointed out that the assessee was already in the business of software development since 1999 and that the expenditure was incurred on developing of products in the existing line of business and, therefore, it could not be said that the same was a capital expenditure. In support of such proposition, reliance was placed on following decisions:

 (i)  Glaxo Smith Kline Consumer Healthcare Ltd. v. Asstt. CIT [2007] 112 TTJ 94 (Chd.);

(ii)  Softlink International (P.) Ltd, v. Asstt.CIT vide ITA No 417 to 419/PN/08; dated 14.02.2011 and,

(iii)  Renu Electronics P Ltd, v. Dy. CIT, vide ITA No 1709/PN/05, dated 30.4.2009.

Further, it is sought to be pointed out that even if the assessee was obtaining a benefit of enduring nature, the same was to be considered on revenue account and, for that matter, such expenditure was liable to be treated as revenue expenditure in terms of the decision of the Hon’ble Supreme Court in the case of Empire Jute Co Ltd. v. CIT [1980] 124 ITR 1. Further, the learned Counsel pointed out that merely because the assessee had made an application to the Registrar of Trade Marks of such products would not make such expenditure as capital expenditure. Apart therefrom, the learned Counsel also made an alternative plea to the effect that the expenditure is also otherwise fully allowable while computing the business income in terms of section 35(1)(iv) of the Act. As per the assessee, the expenditure in question was incurred on research and development and was in the nature of scientific research as understood for the purposes of section 35(1)(iv) of the Act and, therefore, on this alternative plea also the expenditure was fully allowable.

8. On the other hand, the learned Departmental Representative, appearing for the Revenue, has defended the orders of the authorities below by placing reliance on the same. The pertinent point made out by the learned Departmental Representative is to the effect that enduring benefit results in the hands of the assessee, inasmuch as the products that have been developed are sold by the assessee even n the subsequent periods and, therefore, it could not be the case that the entire expenditure incurred on product development was a revenue expenditure allowable in the instant year. Moreover, as per the learned Departmental Representative, the assessee itself has treated the expenditure as a deferred revenue expenditure in its account books which further supports the conclusion of the Assessing Officer that the expenditure was capital in nature, notwithstanding the fact that in the computation of income, the assessee had claimed this as a revenue expenditure.

9. We have carefully considered the rival submissions. Before we proceed to adjudicate the controversy relating to the nature of the product development expenditure, it would be appropriate to briefly touch upon the nature of business carried out by the assessee. The appellant company is engaged in developing various software products, which are in turn used in the banking sector. The assessee had explained that expenditure in question has been incurred on development of various products, like, Trade Now, Electra ATM, Electra Card and Electra Product Gateway (EPG). From the explanation of the assessee rendered to the lower authorities, it emerges that the product Electra Product Gateway (EPG) is an end-to-end software solution product which can support multiple types of financial instruments and transactions on the internet. The assessee explained that it was in the business of software development since 1999 and the various products developed by it are sold to different customers. A pertinent factor which was brought out and has also been articulated by the learned Counsel before us is to the effect that the products developed and sold by the assessee are not customer-specific, but are developed specific to the business processes. For instance, the software packages, namely, EPG, Electra Card and Electra ATM are products which are developed for use in the banking and financial services sector. In this background of the nature of business being carried out by the assessee, we may now examine the expenditure referred to as product development expenditure of Rs 2,77,07,736/-, which is in dispute. Details of such expenditure show that the same comprises of employees’ salaries, software consultancy/training expenses and indirect costs by way of administrative/ other expenses, e.g. power and fuel, printing & stationery, marketing expenses, rent, professional fees, office expenses, rates and taxes, books and periodicals, etc. The details of such expenditure are found placed in the Paper Book as submitted at the time of hearing. Be that as it may, it is quite evident that the expenditure in question cannot be said to have resulted in acquisition of any new asset. So, however, the plea of the Revenue is that such expenditure has resulted in development of software products, which in turn are being sold by the assessee to various customers over a period of time including in the subsequent years and, therefore, it results in an enduring benefit, and accordingly, such expenditure was to be held as capital expenditure.

10. In our considered opinion, the aforesaid proposition of the Revenue is quite alien to the business realities under which the assessee is operating. Quite clearly, the assessee is in the business of software development which entails fast technological changes and in that view, there is no permanence attached to any product developed. In fact, it is quite understandable that the business of the assessee is exposed to volatility of new and upcoming technological advances and the products developed by it may not be sustainable over a period of time to compete in the market place. Therefore, in this background one has to examine as to whether the expenditure incurred on development and launching of new products in the same line of business results in an advantage in the revenue field or in the capital field. The Hon’ble Supreme Court in the case of Empire Jute Co Ltd (supra) has held that the true test to ascertain the nature and import of the expenditure is to examine the same from a commercial perspective. Even if, it has to be accepted that the expenditure results in an enduring benefit to the assessee, yet following discussion by the Hon’ble Supreme Court would show that each and every incidence of enduring benefit would not result in classification of expenditure as a capital expenditure:

“There may be cases where expenditure even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may breakdown. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is nature of the principle laid down in this test. What is material to consider is nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee’s trading operations or enabling the management and conduct of the assessee’s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be of revenue account, even though the advantage may endure for an indefinite future.”

In the present case, in our view, the expenditure on development of new product in the line of business being carried out by the assessee is an expenditure related to such business and benefit to the assessee is in the revenue field, inasmuch as it seeks to improve the profitability of the assessee and the enduring benefit cannot be regarded to be in the capital field. The parity of reasoning laid down by the Hon’ble Apex Court in the case of Empire Jute Co Ltd (supra), as extracted above, clearly supports the stand of the assessee, inasmuch as the expenditure in question merely results in development of new products by the assessee in its existing line of business. Even otherwise, it is noteworthy that none of the expenditures in question are of capital nature and in fact, the expenditure which has been referred to by us in the earlier paragraph clearly are such expenditure, which are incurred in the course of carrying on of business.

11. The other objection of the Revenue that the assessee had treated the impugned expenditure as a deferred revenue expenditure in the books of account and claimed it as a revenue expenditure in the computation of income, is of no consequence. The Hon’ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd (supra) and also thereafter in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172 and Sutlej Cotton Mills Ltd v. CIT [1979] 116 ITR 1 (SC) has supported the proposition that the entries in the books of account cannot be demonstrative of the true nature of a transaction. The true nature of a transaction is to be assessed not on the basis of the entries in the books of account alone, but having regard to the realities of the transaction. In this view of the matter, the aforesaid objection is of no consequence.

12. Regarding the objection of the Revenue to the effect that the assessee was seeking to register its trade-mark in relation to the produces developed, same, in our view, is irrelevant to decide the nature of the expenditure incurred on development of products. In section 32(1)(ii), a trade-mark is considered as an intangible asset, so however, it is clear that in the present case the expenditure is not incurred on a trade-mark developed and accordingly, the plea of the Revenue that such expenditure resulted in creation of an intangible asset is quite irrelevant. Similarly, the reference made by the Commissioner of Income-tax (Appeals) to the decision of the Special Bench of the Tribunal in the case of Amway India Enterprises (supra) is also of no help, inasmuch as it deals with expenditure on acquisition of a software package in the hands of a customer and the dispute in the present case stands on a qualitatively different footing, inasmuch as in the present case the assessee has developed the products in order to market the same in its line of business of development and selling of software packages.

13. In conclusion, having regard to the aforesaid discussion, in our considered opinion, the expenditure in question which has been incurred on development of various software packages, for being sold in the assessee’s business of software development and selling, is to be regarded as in the nature of revenue expenditure. Thus, on this issue the assessee succeeds.

14. The only other Ground in this appeal raised by the assessee is with regard to its alternative plea that in case the expenditure of Rs 2,77,07,736/- of product development is not held to be revenue expenditure, then the same is allowable in terms of section 35(1)(i) or section 35(1)(iv) of the Act while computing business income as expenditure in the nature of scientific research expenditure. Since the assessee has succeeded on its substantive plea that the impugned expenditure is of revenue nature, the alternative plea is rendered academic and is, therefore, not being adjudicated at the present.

15. In the result, the appeal of the assessee, vide ITA No 1179/PN/09 for the assessment year 2003-04 is allowed.

16. Now, we take up Revenue’s appeal vide ITA No 1205/PN/09 for the assessment year 2003-04. This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-II, Pune dated 22.7.2009 which, in turn, has arisen from the order passed by the Assessing Officer under section 143(3) of the Act, pertaining to the assessment year 2003-04.

17. In this appeal, the first issue raised by the Revenue is with regard to the decision of the Commissioner of Income-tax (Appeals) in holding that the assessee was eligible to carry forward loss incurred in respect to the undertaking which is otherwise eligible for the benefits of section 10A of the Act.

18. In brief, the relevant facts are that the assessee filed a return of income declaring loss of Rs 2,42,68,399/-. The Assessing Officer also noticed that for assessment year 2001-02, assessee had brought forward loss of Rs 79,40,665/- and similarly for the assessment year 2002-03, assessee had brought forward loss of Rs 2,12,42,622/- and brought forward unabsorbed depreciation of Rs 1,27,06,747/-. In this manner, the Assessing Officer noted that on a cumulative basis assessee had claimed carried forward loss/depreciation of Rs 6,61,58,433/-. While determining the total income, the Assessing Officer assessed the income of the current year at a loss of Rs 24,11,209/- under the normal provisions of the Act while computing a positive income in terms of section 115JB of the Act. Be that as it may, in so far as the present dispute is concerned, it would suffice to observe that the Assessing Officer has denied the assessee’s claim of carried forward loss/depreciation. As per the Assessing Officer, the assessee was eligible to claim benefit of section 10A of the Act and as section 10A was contained in Chapter III of the Act which dealt with “incomes which do not form part of total income”, therefore, assessee was not eligible to carry forward unabsorbed loss/depreciation.

19. In appeal before the Commissioner of Income-tax (Appeals), assessee contended that though section 10A of the Act was contained in Chapter III, so however, in terms of the amendment to section 10A(1) inserted by the Finance Act of 2000, with effect from 1.4.2001, it is abundantly clear that section 10A was not a provision in the nature of an exemption, but it provided for a deduction and, therefore, the losses suffered by such an undertaking was to be treated as per the normal provisions of the Act. It was sought to be brought out that with effect from 1.4.2001, an income which was entitled to deduction under section 10A of the Act would be part of the total income and thereafter the deduction eligible under section 10A of the Act was allowable. The assessee also referred to the specific provisions of section 10A(6)(ii) of the Act which disentitled carried forward of losses which related to assessment years prior to the assessment year 2001-02. The assessee, however, pointed out that the losses sought to be carried forward by the assessee pertained to the assessment year 2001-02 and subsequent assessment years.

20. Considering the aforesaid submissions of the assessee, the Commissioner of Income-tax (Appeals) upheld the stand of the assessee and observed that there was no bar in section 10A to carry forward unabsorbed depreciation/losses and has referred to the provisions of section 10A(6)(ii) of the Act in this regard. Against the aforesaid, Revenue is in appeal before us.

21. Before us, the learned Departmental Representative submitted that the Commissioner of Income-tax (Appeals) erred in allowing the plea of the assessee, inasmuch as section 10A(6)(ii) of the Act does not specifically permit the carried forward and set off losses relating to the assessment year 2001-02 onwards. In this manner, the action of the Commissioner of Income-tax (Appeals) is sought to be assailed before us.

22. On the other hand, the learned Counsel for the respondent-assessee pointed out that the order of the Commissioner of Income-tax (Appeals) is in terms of the provisions of the Act and it is further pointed out that the plea of the assessee to the effect that after amendment to section 10A with effect from 1.4.2001, provision of section 10A is no longer a provision granting exemption of tax, but is a provision for a deduction as approved by the Hon’ble jurisdictional High Court in the case of Hindustan Unilever Ltd. v. Dy. CIT [2010] 325 ITR 102, though in the context of section 10B of the Act. At this point, it has also been pointed out by the learned Counsel that the amendment to section 10B of the Act with effect from 1.4.2001, which was the subject-matter of consideration by the Hon’ble Bombay High Court in the case of Hindustan Unilever Ltd. (supra) was pari materia with the amendment to section 10A of the Act made with effect from 1.4.2001. It was, therefore, pointed out that the proposition upheld by the Hon’ble High Court with respect to section 10B is duly applicable in the present case also.

23. We have carefully considered the rival submissions. Ostensibly, while denying the assessee’s claim of carried forward unabsorbed loss/depreciation assessed under the normal provisions of the Act, the Assessing Officer has proceeded on the basis that section 10A of the Act provides an exemption and, therefore, loss suffered in such unit is not allowed to be set off or carried forward for further set off against other normal business income. In this context, we find that section 10A was substituted by Finance Act, 2000 with effect from 1.4.2001. In this regard, we may refer to the provisions of section 10A(1) of the Act as amended with effect from 1.4.2001 which read as under:

“10A(1):Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee:”

24. From its perusal, it is quite clear that the provision envisages and allows a deduction of profits and gains specified therein and it is no longer a provision which provides for excluding an income from the total income of an assessee. Therefore, there is weight in the plea set up by the assessee that in so far as the nature of section 10A with effect from 1.4.2001 is concerned, it is a section which seeks to allow a deduction of the prescribed profits while computing total income of the assessee and not a provision which provides for an exemption or to exclude certain income from the total income of the assessee. In coming to such conclusion, we have been guided by the parity of reasoning laid down by the Hon’ble jurisdictional High Court in the case of Hindustan Unilever Ltd. (supra), wherein similar phraseology contained in section 10B of the Act inserted with effect from 1.4.2001 was the subject-matter of consideration. In this context, we, therefore, are unable to subscribe to the view of the Assessing Officer that the provisions of section 10A as it stood with effect from 1.4.2001 continued to be a provision for exemption. Further-more, section 10A(6)(ii) of the Act, which reads as under, clearly provides that no loss which relates to the business of the undertaking shall be carried forward or set off where such loss relates to any of the relevant assessment years ending before 1.4.2001:

“(ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years ending before the 1st day of April 2001.”

Quite clearly, losses which are sought to be carried forward by the assessee are for the assessment year ending after 1.4.2001 and, therefore, do not fall in the restriction contained in section 10A(6)(ii) of the Act. As a consequence, therefore, we find no reasons to interfere with the conclusion drawn by the Commissioner of Income-tax (Appeals) to the effect that the assessee is eligible to carry forward the unabsorbed depreciation/loss, since the same related to assessment year 2001-02 and onwards, Thus, on this Ground Revenue fails.

25. The only other issue raised by the Revenue in this appeal is with regard to assessee’s claim for deduction under section 10A of the Act with respect to an amount of Rs 4,31,073/- on account of ‘other income’. As per the Assessing Officer, the amount of Rs 4,31,073/- was excludible for the purposes of computing deduction under section 10A of the Act as such income could not be said to be profits and gains derived by an undertaking from the export of computer software, which was a requirement of section 10A(1) of the Act.

26. In appeal, the Commissioner of Income-tax (Appeals) has held that out of the total amount of Rs 4,31,073/-, only an amount of Rs 77288/-representing gain on foreign exchange fluctuation was eligible for claim of deduction under section 10A of the Act. For the remaining amount, the Commissioner of Income-tax (Appeals) has upheld the stand of the Assessing Officer. Against the stand of the Commissioner of Income-tax (Appeals)on the income by way of foreign exchange fluctuation, Revenue is in appeal before

27. The learned Departmental Representative pointed out that having regard to the decision of the Hon’ble Supreme Court in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278, the Commissioner of Income-tax (Appeals) ought to have held that even the sum of Rs 77,288/- representing the gain on foreign exchange fluctuation was also ineligible for the claim of deduction under section 10A of the Act.

28. On the other hand, the learned Representative for the assessee submitted that the foreign exchange in question was clearly derived from the export of computer software, inasmuch as it reflected increased collection of export proceeds and, therefore, the Commissioner of Income-tax (Appeals) made no mistake in considering such income as eligible for the benefit of section 10A of the Act.

29. Quite clearly, provisions of section 10A(1) of the Act envisage deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software. The prescription that an income is to be derived by an undertaking from export of articles or things or computer software is not disputed by both the parties before us, so however, it is canvassed by the Revenue that the foreign exchange fluctuation gain of Rs 77,288/- cannot be said to have been derived from the export of software. In our considered opinion, as long as gain on foreign exchange fluctuation is on account of collection of export proceeds, it has a direct nexus with the exports undertaken by the assessee and, to that extent, it will also form part of an income eligible for claim of deduction under section 10A of the Act and the Commissioner of Income-tax (Appeals), in our view, made no mistake in holding so. Thus, the Revenue fails on this Ground.

30. In the result, Revenue’s appeal, vide ITA No 1205/PN/09 is dismissed.

31. We now take up Revenue’s appeal, vide ITA No 1206/PN/09 for the assessment year 2004-05. This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-II, Pune dated 22.07.2009 which, in turn, has arisen from the order passed by the Assessing Officer under section 143(3) of the Act, pertaining to the assessment year 2004-05.

32. In this appeal, the first issue raised by the Revenue is with regard to the decision of the Commissioner of Income-tax (Appeals) in holding that the assessee was eligible to carry forward loss incurred in respect to the undertaking which is otherwise eligible for the benefits of section 10A of the Act. Similar issue has been considered by us in the Revenue’s appeal for the assessment year 2003-04, vide ITA No 1205/PN/09, wherein we have affirmed the order of the Commissioner of Income-tax (Appeals). The facts and circumstances and arguments of both sides being similar, our decision given in Revenue’s appeal for the assessment year 2003-04 will apply mutatis mutandis to the assessment year 2004-05 also. On the parity of reasoning, therefore, we reject this Ground of appeal of the Revenue. Revenue accordingly fails on this Ground.

33. The next Ground raised by the Revenue in this appeal is with regard to assessee’s claim for deduction under section 10A of the Act with respect to an amount of Rs 3,12,829/- on account of ‘other income’. Similar issue has been considered by us in the Revenue’s appeal for the assessment year 2003-04, vide ITA No 1205/PN/09, wherein we have affirmed the order of the Commissioner of Income-tax (Appeals). The facts and circumstances and arguments of both sides being similar, our decision given in Revenue’s appeal for the assessment year 2003-04 will apply mutatis mutandis to the assessment year 2004-05 also. On the parity of reasoning, therefore, we reject this Ground of appeal of the Revenue. Revenue accordingly fails on this Ground.

34. In the result, Revenue’s appeal, vide ITA No 1206/PN/09 is dismissed.

35. We shall now take up Revenue’s appeal, vide ITA No 466/PN/11 pertaining to the assessment year 2007-08.

36. This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-II, Pune dated 21.1.2011 which, in turn, has arisen from the order passed by the Assessing Officer under section 143(3) of the Act, pertaining to the assessment year 2007-08.

37. In this appeal, the dispute raised by the Revenue relates to the computation of deduction eligible to the assessee under section 10A of the Act in relation to the profits and gains derived by the assessee from the export of article or thing or the computer software. In brief, the facts are that the assessee was, inter alia, engaged in the business of development and export of computer software in its undertaking located in the STPI unit and claimed exemption on such profits in terms of section 10A of the Act. While computing the eligible deduction under section 10A of the Act, the Assessing Officer excluded an amount of Rs 81,95,159/- from the sale proceeds of the computer software exported and, accordingly, the deduction was scaled down to the extent of Rs 24,88,707/-. Sub-section (3) of section 10A prescribes that the deduction envisaged under section 10A applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation 1 thereof further explains that the expression ‘competent authority’ as ‘Reserve Bank of India’ or such other authority as is authorized under the law for the time being in force for regulating payments and dealings in foreign exchange.

38. In terms of section 10A(3) of the Act, the Commissioner of Income-tax (Appeals) noted that out of the sum of Rs 81,95,159/- excluded by the Assessing Officer from the export proceeds, an amount of Rs 37,34,412/- was received in convertible foreign exchange by the assessee within the extended period allowed by Reserve Bank of India and, therefore, same was eligible to be considered for computing deduction under section 10A of the Act. Accordingly, the Commissioner of Income-tax (Appeals) has directed the Assessing Officer to recompute the deduction under section 10A of the Act. Against such a direction of the Commissioner of Income-tax (Appeals), Revenue is in appeal before us.

39. At the time of hearing, the learned Departmental Representative, appearing for the Revenue, has not brought out any substantive reasoning to negate the directions of the Commissioner of Income-tax (Appeals) which clearly are in line with the statutory provisions contained in section 10A(3) of the Act. As noted earlier, sub-section (3) of section 10A of the Act permits an assessee to bring into India sale proceeds in convertible foreign exchange within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. The finding of the Commissioner of Income-tax (Appeals) is in accordance with the aforesaid provisions and does not require any interference from our side.

40. So, however, the learned Representative for the respondent-assessee pointed out that subsequent to the finalization of assessment under section 143(3) of the Act on 22.12.2009 wherein the amount of Rs 81,95,159/- was excluded from the export proceeds, the assessee had moved an application seeking rectification of mistake under section 154 of the Act. The said application has since been disposed of by the Assessing Officer on 27.1.2011 whereby the amount of Rs 36,14,071/- has been found to be includible as export proceeds for the purpose of computing deduction under section 10A, since the said sums have been received within the norms prescribed in section 10A(3) of the Act. The learned Representative pointed out that the correct amount is Rs 36,14,071/- as determined by the Assessing Officer in the proceedings under section 154 of the Act and not Rs 37,34,412/- as considered by the Commissioner of Income-tax (Appeals) in the impugned order. As per the learned Representative for the respondent-assessee, the assessee has no objection if the direction of the Commissioner of Income-tax (Appeals) is modified to the said extent. In this view of the matter, while dismissing the Ground of appeal raised by the Revenue, the Assessing Officer is directed to consider the fact-position brought out by the assessee while giving appeal effect to the order of the Commissioner of Income-tax (Appeals). Resultantly, the Ground of appeal raised by the Revenue is dismissed.

41. The next issue raised by the Revenue is with regard to the decision of the Commissioner of Income-tax (Appeals) in holding that the assessee was eligible to carry forward loss incurred in respect to the undertaking which is otherwise eligible for the benefits of section 10A of the Act. Similar issue has been considered by us in the Revenue’s appeal for the assessment year 2003-04, vide ITA No 1205/PN/09, wherein we have affirmed the order of the Commissioner of Income-tax (Appeals). The facts and circumstances and arguments of both sides being similar, our decision given in Revenue’s appeal for the assessment year 2003-04 will apply mutatis mutandis to the assessment year 2004-05 also. On the parity of reasoning, therefore, we reject this Ground of appeal of the Revenue. Revenue accordingly fails on this ground.

42. In the result, Revenue’s appeal, vide ITA No 466/PN/11 is dismissed.

Sandeep Kanoi

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