IN THE ITAT HYDERABAD BENCH ‘B’
Seven Hills Business Solutions
Assistant Commissioner of Income-tax
IT APPEAL NO. 414 (HYD.) OF 2012
M.A. NO. 186 (HYD.) OF 2012
[ASSESSMENT YEAR 2005-06]
DECEMBER 31, 2012
Chandra Poojari, Accountant Member
By this Misc. Application, the assessee seeks rectification of certain findings of the order dated 11-6-2010 of the Tribunal passed in ITA No.414/Hyd/2009 pertaining to the assessment year 2005-06.
2. The learned AR for the assessee submitted that the assessee raised a ground before the Tribunal that the CIT (A) erred in directing the AO to exclude US Branch sales from the total turnover as well as from the export turnover while computing the deduction u/s 10B of the Act. The Tribunal while deciding this issue gave a finding that it should be excluded from the export turnover as well as from the total turnover and the assessee is not entitled for benefit of section 10B on the branch sales and it is to be excluded both from export turnover as well as from total turnover. According to the learned AR, there is no necessity of physically bringing back actual receipts to India. The assessee has deposited the proceeds of foreign branch sales in a separate bank account with the approval of RBI which is in compliance of Explanation 2 to section 10A which states “the sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of RBI”. It is further submitted that the substantial part of work is carried out in India for the sales made in foreign branch and only on site development is carried out in branch, which is also to be included in export sale as per Explanation 3 to section 10A stated as ‘for the removal of doubts’, it is hereby declared that the profits and gains derived from the on site development of computer software including services for development of the software outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. The learned AR further submitted that the sales are billed from branch just for the sake of convenience regarding quick realization. Therefore, it should be considered as export sales. Alternatively, the amount which is shown as branch sale is only branch adjustment account. As the branch is only a liaison office acting as intermediary between the Indian Principal Company and foreign customer, the branch sales may be considered as head office sales and hence can be considered as export sales. Alternatively, the amount which is shown as branch sale is only branch adjustment account as the branch is only a liaison office acting as intermediary between the Indian Principal Company and foreign customer, the branch sales may be considered as head office sales and hence can be considered as export sales. In support his contention, the learned AR has relied on the judgment of Delhi High Court in the case of CIT v. Interra Software India (P.) Ltd.  199 Taxman 38. The learned AR relied on the order of the 3rd Member case in the case of Zylog Systems Ltd. v. ITO  128 ITD 105 wherein it held that AO is not justified in excluding a part of export proceeds retained by the assessee abroad in accordance with the RBI guidelines while computing the deduction u/s 10B of IT Act. In view of the above, the learned AR for the assessee prayed for recalling the order of the Tribunal in the instant case and rectify the same in according with the clarifications and submissions made in his petition.
3. On the other hand, the learned DR submitted that the issue of Special Bench is nothing to do with the case under consideration with regard to retention of the part of export proceeds abroad in accordance with RBI guidelines which is entitled for deduction u/s 10B of the Act. The assessee’s case is with regard to the branch sales and therefore the assessee is not entitled for deduction u/s 10B of the Act.
4. We have considered the submissions of rival parties and perused the material on record. The assessee contended that branch sales should be considered as exports. In our opinion, the term “exports out of India” has not been defined in the Act. The main and simple meaning of the term “export out of India” would entitle the transfer of goods out of territory of India. The goods must physically move out of India at least in so far as tangible goods are concerned. The learned counsel for the assessee urged before us the concept of “deemed exports” from the import and export policies. We are of the opinion that concept of ‘deemed exports’ in export policy, cannot be imported into the IT Act unless the said Act specifically says so. According to the learned counsel for the assessee, there is no need for the goods to cross the boundary of India so as to constitute exports out of India, is also not tenable. Section 10B speaks only of exports out of India, irrespective of the purchases. The facts remain that the goods have not been physically exported out of India and therefore the important and necessary condition precedent for claiming deduction u/s 10B has not been satisfied. The judgment cited by the learned AR is with regard to incurring of expenditure in foreign currency on computer software development on site at client’s place outside India and with regard to this, the Special Bench held that it should not be excluded from the export turnover for computing deduction u/s 10B of the Act. In the present case, we are dealing with branch sales outside India and not on site development expenditure outside India. Therefore, that judgment is not considered by us. Because the order is not in favour of the assessee, it cannot be said there is an error apparent from record. The Tribunal after taking due care and considering all relevant material on record, taken a concious decision and decided the issue against the assessee. The scope and ambit of application of section 254(2) is very limited. The same is restricted to rectification of mistakes apparent from the record. We shall first deal with the question of the power of the Tribunal to recall an order in its entirety. Recalling the entire order obviously would mean passing of a fresh order. That does not appear to be the legislative intent. The order passed by the Tribunal under s. 254(1) is the effective order so far as the appeal is concerned. Any order passed under s. 254(2) either allowing the amendment or refusing to amend gets merged with the original order passed. The order as amended or remaining un-amended is the effective order for all practical purposes. An order under s. 254(2) does not have existence de hors the order under s. 254(1). Recalling of the order is not permissible under s. 254(2). Recalling of an order automatically necessitates rehearing and re-adjudication of the entire subject-matter of appeal. The dispute no longer remains restricted to any mistake sought to be rectified. Power to recall an order is prescribed in terms of Rule 24 of the ITAT Rules, 1963, and that too only in case where the assessee shows that it had a reasonable cause for being absent at a time when the appeal was taken up and was decided ex-parte. Judged in the above background the order passed by the Tribunal is indefensible.
5. The words used in s. 254(2) are ‘shall make such amendment, if the mistake is brought to its notice’. Clearly, if there is a mistake, then an amendment is required to be carried out in the original order to correct that particular mistake. The provision does not indicate that the Tribunal can recall the entire order and pass a fresh decision. That would amount to a review of the entire order and that is not permissible under the IT Act. The power to rectify a mistake under s. 254(2) cannot be used for recalling the entire order. No power of review has been given to the Tribunal under the IT Act. Thus, what it could not do directly could not be allowed to be done indirectly. The Tribunal meticulously mentioned arguments of the assessee’s counsel, the points raised, relevant case-law relied on by the assessee and after considering the arguments of the assessee’s counsel passed the order.
6. Being so, the assessee has not fulfilled the conditions laid down in section 10B of the Act on the issues in dispute. As such, the assessee wants to review the order of the Tribunal in the instant case u/s 254(2) of the Act which is not permissible under ITAT Rules. After considering the totality of facts and the circumstances of the case, we are of the view that the arguments by the learned AR of the assessee are devoid of any merit and hence the same are rejected.
7. In the result, the Misc. Application filed by the assessee stands dismissed.