Pentasoft Technologies Ltd. Vs ITO (OSD)/The ACIT (ITAT Chennai)
ITAT Chennai held that deduction under section 10A of the Income Tax Act should be computed after excluding unrealized sale proceeds from export turnover as well as total turnover.
Facts-
The assessee has raised the ground that learned Commissioner of Income Tax (Appeals) has erred in not allowing the unrealized sale proceeds of Rs. 24,32,35,200 from profits as per the Hon’ble High Court of Madras order approving to writ off the same and no excluding the unrealized sale proceeds of Rs. 24,32,35,200 from the export turnover as well as total turnover.
Conclusion-
We find that the Hon’ble Madras High Court has considered the issue of allowing unrealized sale proceeds from profit or total turnover, and after considering relevant submissions held that the assessee could not furnish necessary evidences before the AO to prove that the RBI has permitted extension of time for remitting sale proceeds in foreign currency in India in order to allow the assessee to get the benefit.
In this view of the matter and by respectfully following the decision, we are of the considered view that there is no error in the reasons given by the
Ld.CIT(A) to sustain the additions made by the AO and thus, we reject the ground taken by the assessee.
The Hon’ble Kerala High Court in the case of CIT v. Abad Fisheries, held that unrealized sale proceeds have to be excluded from export turnover as well as total turnover. Therefore, considering the facts and circumstances of the case and also by following the decision of the Hon’ble Supreme Court in the case of HCL Technologies Ltd., we direct the AO to re-compute deduction u/s.10A of the Act, by excluding unrealized sale proceeds from export turnover as well as total turnover.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These two cross-appeals filed by the assessee as well as the Revenue are directed against the order of the Commissioner of Income Tax (Appeals)-V, Chennai, dated 20.04.20 11, and pertains to assessment year 2001-02. Since, the facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are being disposed off, by this consolidated order.
ITA No.1158/Chny/2011 for the AY 2001-02 – Assessee’s appeal:
2. The assessee has raised the following grounds of appeal:
1. The learned Commissioner of Income Tax (Appeals) has erred in rejecting the assessee’s claim that the income of Rs.33,3 7,093 may be treated as income derived from non-export activity only instead of income under Other Sources, so that the same could form part of domestic turnover.
2. The learned Commissioner of Income Tax (Appeals) has erred in not allowing the unrealized sale proceeds of Rs.24,32,35,200 from the profits as per the Hon’ble High Court of Madras order approving to write off of the same.
3. The learned Commissioner of Income Tax (Appeals) has erred in not excluding the unrealized sale proceeds of Rs.24,32,35,200 from the export turnover as well as total turnover in the light of the case of Abad Fisheries 258 ITR 641 KER
The Appellant craves permission to amend, add or alter the above grounds of appeal.
For these and other grounds that may be urged at the time of hearing of the above appeal, it is prayed that this appeal be allowed.
3. The first issue that came up for our consideration from Ground No.1 of the assessee’s appeal is assessment of other income under the head ‘income from other sources’. The AO has assessed other income reported in P & L A/c under the head ‘income from other sources’. Before the Ld. CIT(A), the assessee submitted that in absence of break up for the income, it should be considered as income derived from non-export activities instead of income under the head ‘income from other sources’.
3.1 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. Although, the assessee has reported a sum of Rs.33,37,093/- under the head ‘income from other sources’, but no details have been furnished to prove source and nature of income except stating that it should be considered as income derived from non-export activities. In absence of any specific details, it is difficult to accept the contentions of the assessee that it should be derived from business activity. Therefore, we are of the considered view that there is no error in the reasons given by the authorities below to assess a sum of Rs.33,37,093/- under the head ‘income from other sources’ and thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject the ground taken by the assessee.
4. The next issue that came up for our consideration from Ground No.2 of the assessee’s appeal is allowing unrealized sale proceeds of Rs.24,32,35,200/- from profits as well as from the total turnover. The Ld. Counsel for the assessee fairly agreed that this issue is held against the assessee by the Hon’ble Madras High Court in Tax Case (Appeal) Nos.1135 & 1196 of 2008 dated 25.11.2013 for the AYs 2001-02 & 2002-03. Therefore, the same is to be decided in accordance with law.
4.1 The Ld. DR, on the other hand, supporting the order of the Ld. CIT(A), submitted that this issue has been decided against the assessee by the Hon’ble Madras High Court.
4.2 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We find that the Hon’ble Madras High Court in Tax Case (Appeal) Nos.1135 & 1196 of 2008 dated 25.11.2013, has considered the issue of allowing unrealized sale proceeds from profit or total turnover, and after considering relevant submissions held that the assessee could not furnish necessary evidences before the AO to prove that the RBI has permitted extension of time for remitting sale proceeds in foreign currency in India in order to allow the assessee to get the benefit. The relevant findings of the Hon’ble Madras High Court are as under:
“….20. As rightly pointed out by learned Standing counsel appearing for the Revenue, when the so called loss has not crystallized as a business loss during the year under consideration, merely on the score of the amount not having been realized, one cannot allow the loss as business loss. The assessee’s contention before the Assessing Officer was that in respect of the said amount, they sought permission from Reserve Bank of India for extension of time for remitting the said amount. In the face of the facts pleaded, the Assessing Officer rejected the same stating that the assessee’s case could not be accepted for the grant of relief. Accordingly, the Tax Case (Appeal) stands dismissed. The order of the Income Tax Appellate Tribunal is confirmed”…..
4.3 In this view of the matter and by respectfully following the decision of the Hon’ble Madras High Court in the assessee’s own case in Tax Case (Appeal) Nos.1135 & 1196 of 2008 dated 25.11.2013 for the AYs 2001-02 & 2002-03, we are of the considered view that there is no error in the reasons given by the Ld.CIT(A) to sustain the additions made by the AO and thus, we reject the ground taken by the assessee.
5. The next issue that came up for our consideration from Ground No.3 of the assessee’s appeal is non-exclusion of unrealized sale proceeds of Rs.24,32,35,200/- from export turnover as well as total turnover. The Ld.AR submitted that when unrealized sale proceeds are excluded from export turnover, then same needs to be excluded from total turnover and this view is supported by the decision of the Hon’ble Supreme Court in the case of CIT v. HCL Technologies Ltd., reported in [2018] 404 ITR 719 (SC).
5.1 The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), fairly agreed that this issue is covered by the decision of the Hon’ble Supreme Court in the case of HCL Technologies Ltd. (supra).
5.2 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The issue of exclusion of expenditure including foreign currency loss or unrealized sale proceeds from export turnover and also from total turnover, is no longer res integra. The Hon’ble Supreme Court in the case of HCL Technologies Ltd.(supra), had considered an identical issue and held that expenses incurred in foreign currency, excluded from total turnover also needs to be excluded from total turnover. The Hon’ble Kerala High Court in the case of CIT v. Abad Fisheries reported in [2002] 258 ITR 0641 (Ker.), held that unrealized sale proceeds have to be excluded from export turnover as well as total turnover. Therefore, considering the facts and circumstances of the case and also by following the decision of the Hon’ble Supreme Court in the case of HCL Technologies Ltd.(supra), we direct the AO to re-compute deduction u/s.10A of the Act, by excluding unrealized sale proceeds from export turnover as well as total turnover.
6. In the result, the appeal filed by the assessee in ITA 1158/Chny/2011 is partly allowed.
ITA No.1248/Chny/2011 for the AY 200 1-02 – Revenue’s appeal:
7. Ground Nos.1 & 6 are general in nature and thus, Ground Nos.1 & 6 are not specifically adjudicated.
8. The next issue that came up for our consideration from Ground Nos.2 to 2.2 of the Revenue’s appeal is depreciation of Rs.84,78,14,130/- on STP assets being allowed despite non-furnishing of sufficient evidences. The AO has disallowed depreciation of Rs.84,78,14,130/- on STP assets on the ground that the assessee could not file supporting invoices for new assets acquired and installed during the Financial Year relevant to the assessment year 200 1-02. The Ld. CIT(A) has allowed depreciation on additions to fixed assets on the ground that there is no dispute that the assessee had incurred the expenditure and the accounts have been duly verified in the Audit. The Ld. CIT(A) further held that the claim cannot be disallowed merely in the absence of relevant documents.
8.1 The Ld. DR submitted that the Ld. CIT(A), erred in allowing depreciation on the basis of benefit of doubt without considering the fact that the assessee could not even file necessary bills & vouchers and invoices for additions to fixed assets made during the Financial Year relevant to the assessment year 2001-02. The Ld. DR, further submitted that the Ld. CIT(A) completely erred in allowing relief only on the basis of Audit Report and accounts without appreciating the fact that it is the duty of the assessee to furnish invoices to claim acquisition of new assets. The assessee itself admitted the fact that it could not file necessary evidences. But the Ld. CIT(A) has allowed relief on the basis of benefit of doubt. In this regard, he has filed detailed written submissions on this issue which is as under:
Issue -1: Claim of Depreciation:
The assessee company filed its return of income on 20/10/2001 by admitting total loss of Rs.66,51,25,802. They had both STPI and non STPI business in the relevant A Y. The tax computation given along with the ROI filed on 20/10/2001 is enclosed as annexurel. The audited P &L account is enclosed as annexure-2. As per the P&L account the net profit of the company for the AY 2001-02 was Rs. 126,64,38,471.
