Case Law Details
RELEVANT PARAGRAPH
3. The brief facts of the case are that the assessee is a software development company, situated at Infotech Park, Pune and having extension at Mumbai. It filed its return of income for A.Y. 2003-04 on 01.12.2003 declaring total income of Rs.3,29,54,277/ – as per normal provisions of the IX Act and book profits u/s. 115JB of the IX. Act at Rs.5,77,34,729/ -. The return of income was initially processed u/s. 143(1) of the Act and subsequently proceedings u/s. 143(3) were taken up by issuing necessary notices. The Assessing Officer considered the expenditure relatable to earning of dividend income and subsequently computed the business income as per the income tax provisions at Rs.3,30,33,027/ – and book profits at Rs.5,77,34,729/ -. Since the tax payable on the total income @ 35% is higher than the tax payable on book profits computed u/s. 115JB @ 7.5%, he assessed the total income as per Income Tax Act. Subsequently, the CIT issued a show cause notice dated 31.10.2007 stating that from the perusal of the assessment order u/s. 143(3) dated 20.03.2006 or A.Y. 2003-2004, it has been noticed that the Assessing Officer has allowed deduction u/s. 10A without carrying any adjustment in export turnover thereby resulting in excess deduction amounting to Rs.158.98 lakhs resulting in short levy of tax of Rs.58.42 lakhs. It was stated that the assessee company is engaged in exporting software services and development thereof and has incurred the expenses in foreign currency to the extent of Rs.11,33,24, 871/- in the A.Y. 2003-04, which are mainly in the nature of travel expenses (net of reimbursement) and sales and marketing expenses and as such these items should be excluded while working out the deduction u/s. 10A and not doing so has resulted in excess allowance of deduction u/s. 10A. He observed that the Assessing Officer has failed to apply the provisions of section 10A of the Act correctly and called for the assessee’s explanation as to why the assessment order passed by the Assessing Officer u/s. 143(3) dated 20,03.2006 for A.Y. 2003-04 should not be set aside with a direction to re-examine the exemption given u/s. 10A of the I.T. Act. In response to the same, the assessee submitted its reply dated 15.01.2008 stating that section 10A of the Act provides for the deduction of such profits and gains as are derived by an undertaking from the export of computer software for a period of 10 consecutive years, beginning with the assessment year relevant to the previous year in which undertaking begins to manufacture or produce computer software and this deduction is to be allowed from the total income of the eligible undertakings of the assessee. It was submitted that the clause IV of Explanation 2 to section 10A of the Art has defined the term “export turnover” 😮 mean 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 freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India. It was submitted that the expenses incurred in foreign currency by the assessee are for carrying on day to day software development work at the two units of the assessee company and are not in the nature of freight, telecommunication charges or insurance expenses which are attributable to the delivery of computer software outside India nor are they expenditure incurred for providing technical services outside India. Thus, it was submitted that the deduction u/s. 10A was rightly allowed by the assessee. However, without prejudice to the above claim, it was also submitted that if the expenditure is required to be reduced from the export turnover, then the same may also be reduced from the total turnover while computing the deduction u/s. 10A of the I.T. Act. The CIT after considering the assessee’s explanation proceeded to revise the assessment order u/s. 263 of the I.T. ACT on the following two grounds:
(1) The expenditure incurred in foreign currency has not been reduced while computing the deduction u/s. 10A of the I.T. Act.
(2) The sale proceeds of Rs.45,18,739/ – has not been received in India as per the note to the audit report dated 28.11.2003, to the effect that the assessee had made an application to the competent authority for granting approval for extension of the period for collection of the sales proceeds.
3.1 He therefore, held that the order of the Assessing Officer is erroneous in so far as it is prejudicial to the interests of revenue within the meaning of section 263 and set aside the same to the extent of deciding the claim of deduction u/s. 10A afresh after applying the section 10A in totality and after giving an opportunity of hearing to the assessee. Against this order of the CIT, the assessee is in appeal before us.
10. Having heard both the parties and having considered the rival contentions, we find that the CIT has revised the assessment order u/s. 143(3) by issuing show cause notice only with regard to not reducing the expenditure incurred in the foreign currency from the total export turnover while computing the deduction u/s. 10A of the I.T. Act. But in the revision order, the assessment was set aside also on the other ground that some of the sale proceeds was yet to be received by the assessee. The revision u/s. 263 is not like the reopening of the assessment where once the assessment is reopened entire assessment is open before the Assessing Officer to be reconsidered in accordance with law. In the revision proceedings, the CIT cannot travel beyond the reasons given by him for revision in the show cause notice. Therefore, we hold that the revision on the ground that part of the sale proceeds is yet to be received by the assessee is not tenable. As regards the ground on which the revision was sought to be made, we find that section 10A is a special provision relating to newly established undertaking in trading zones and the clause (iv) of Explanation (2) of the section 10A defines the export turnover, according to which, it is the consideration in respect of the export by the undertaking 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) i.e. 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 and it does not include freight, telecommunication charges or insurance charges attributable to the delivery of articles or things or computer software outside India. From the facts of the case it can be seen that the expenditure sought to be reduced from the export turnover is not in the nature of freight, telecommunication charges or insurance charges attributable to the delivery of the software outside India. The other expenditure which can be reduced is the expenditure incurred in foreign exchange in providing the technical services outside India. The nature of the expenditure incurred by the assessee is not in the nature of technical expenditure for providing the technical services outside India. Therefore, the assessee has correctly not reduced the same from the export turnover while computing the deduction u/s. 10A of the Act. This view is also fortified by the decision of the ITAT, Bangalore in the case of Infosys Technologies P. Ltd. (supra) and also ITAT, Hyderabad in the case of Patni Telecom (P.) Ltd. (supra). Further these decisions also were already delivered when the assessment order was passed on 20.03.2006 and the view adopted by the Assessing Officer is inconsonance with the said decision as held by the Hon’ble Supreme Court in the case of Max India Ltd. (supra) and Malabar Industrial Co. Ltd. (supra). When two different views existed when the commissioner was passing the order, it had to be taken into account and the commissioner has no jurisdictional power to revise u/s. 263. Similar view has also been expressed by the various other Hon’ble High Courts in the decisions relied upon by the Ld counsel for the assessee. Even the decision relied upon by the Ld DR points to legal proposition that the better wisdom lower counts must yield to the higher wisdom of the court above, meaning that the Commissioner of Income-tax should follow the decision of the Tribunal.
