TMI Blog2011 (3) TMI 1661X X X X Extracts X X X X X X X X Extracts X X X X ..... ustments and additions in respect of deduction claimed u/s 80HHE and 10B of the Act. The grounds raised by the assessee in its appeal read as under: Issue-I, Chennai Unit II Denial of claim under section 80HHE on 10 percent of the profits of the undertaking. 1. That the learned Commissioner of income tax( Appeals) [ld. CIT(A)] is not justified in holding that 10 percent of the profits of Chennai Unit II which was excluded from deduction u/s 10B are not entitled for deduction under section 80HHE of the Act. Issue 2 Expenditure incurred in foreign currency. 2. That the ld. CIT(A) is not justified in holding that expenses incurred in foreign exchange should be excluded from export turnover, but not from total turnover in computing deduction under section 10B of the Act. 3. Without prejudice to Ground No.2 above, the ld. CIT(A) has erred in excluding the expenses incurred in foreign currency towards computer software development from export turnover, when such expenses were not incurred in providing technical services outside India. Issue 3 Telecommunication expenditure. 4. That the ld. CIT(A) is not justified in holding that telecommunication expenditure in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to the same and similar profit, and to substantiate his arguments he has relied on various decisions. 4. A piquant situation has arisen due to the amendment made in the provisions of section 10B of the Act. It is true that the provisions of section 10B(6)(iii) specifically excludes section 80HH but it does not exclude section 80HHE deduction but still a million dollar question remains to be replied as to whether deductions under sections 10B and 80HHE can be allowed simultaneously or not. In other words, it is to be seen if whether sections 10B and 80HHE are exclusive to each other or they have to be treated inclusive one. For arriving at the correct reply of this ticklish puzzle, we have to carefully read both these provisions in harmony. Section 10B of the Act, as it stands today, reads as under: Special provisions in respect of newly established hundred per cent export-oriented undertakings. 10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.- For the purposes of this sub-section, the expression competent authority means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Explanation 2.- 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 the Reserve Bank of India. [(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment year. (7) The provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA. [(7A) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger- ( a ) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and ( b ) the provisions of this section shall, as far as may be, apply to the amalgamated or resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or the demerger had not taken place.] (8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.] [ Explanation 4.- For the purposes of this section, manufacture or produce shall include the cutting and polishing of precious and semiprecious stones.] 5. The above section lays down a special provision in respect of newly established 100% export oriented undertakings. In so far as the Unit-II of the assessee-company is concerned, it is a 100% export oriented undertaking and this unit is also eligible for 100% deduction u/s 10B. The heading of this section speaks of undertakings and not a undertaking. Clause (iii) of sub-section (6) of section 10B specifically excludes allowance of deductions under sections 80HHA, 80-I, 80-IA and 80-IB, in respect of the profits and gains of such undertakings, but conspicuously the deduction u/s 80HHE has not been so excluded. Let us now understand the deduction in relation to section 80HHE from export of computer software, etc. This section reads as under: Deduction in respect of profits from export of computer software, etc. 80HHE. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent of such profits for an assessment year beginning on the 1st day of April, 2001; [( ii ) seventy per cent thereof for an assessment year beginning on the 1st day of April, 2002; ( iii ) fifty per cent thereof for an assessment year beginning on the 1st day of April, 2003; ( iv ) thirty per cent thereof for an assessment year beginning on the 1st day of April, 2004,] and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year.] (2) The deduction specified in sub-section (1) shall be allowed only if the consideration in respect of the computer software referred to in that sub-section is 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 ].-The said consideration shall be deemed to have been received in India where it is credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. [ Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed deduction under this section : Provided that the certificate specified in clause ( b ) shall be duly certified by the auditor auditing the accounts of the exporting assessee under the provisions of this Act or under any other law.] (5) Where a deduction under this section is claimed and allowed in respect of profits of the business referred to in sub-section (1) for any assessment year, no deduction shall be allowed in relation to such profits under any other provision of this Act for the same or any other assessment year. Explanation .-For the purposes of this section,- ( a ) convertible foreign exchange shall have the meaning assigned to it in clause ( a ) of the Explanation to section 80HHC; [( b ) computer software means,- ( i ) any computer programme recorded on any disc, tape, perforated media or other information storage device; or ( ii ) any customised electronic data or any product or service of similar nature as may be notified1 by the Board, which is transmitted or exported from India to a place outside India by any means;] ( c ) export turnover means the consideration in respect of computer software received in, or brought into, Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. Earlier when such eligible units were entitled for 100% deduction u/s 10B, such a situation would have never arisen. The legislature in its wisdom has reduced 100% deduction u/s 10B to 90% and has retained 10% profit of such unit to be charged to tax. It seems the legislature was conscious about such a situation as that is why it has specifically excluded deductions u/s 80HH, 80-I, 80-IA and 80-IB but has not excluded under section 80HHE. Section 10B(6)(iii) has specifically mentioned about certain sections under which no simultaneous deduction can be claimed and allowed after claiming deduction u/s 10B of the Act from such profits. But provisions of section 80HHE have not been included and or to say has been specifically excluded meaning thereby the assessee is permitted to claim simultaneous deductions under both sections. It would not be a case of double deduction at all, as has been canvassed by the ld.DR. Let us now tread through the precedents, if any, available in regard to our above finding. The ld.AR has placed reliance on the decision of the Hon'ble Madras High Court rendered in the case of CIT vs M/s Ambatture Clothing Ltd, in Tax Case (Appeal) No.695 of 2010, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity to have invoked Section 154 of the Act, in order to state that, that can be considered as an error apparent, inasmuch as, there was no error at all, much less, apparent error to be rectified by the Assessing Authority. 7. Thus, the Hon'ble Madras High Court has specifically held that there is no scope for invoking the provisions of section 154 when the deduction under both the sections is specifically available to the assessee. We are not in agreement with the objection of the ld.DR that the decision rendered by the Hon'ble High Court was in the context of rectificatory provision of section 154. The reason for the same are self-explanatory as contained in paragraphs 4 5 of the decision of Hon'ble Madras High Court. Hence, the Hon'ble Madras High Court s decision supports our above finding. 8. Further, the decision of the ITAT, Kolkata, in the case of Hindustan Gum and Chemicals Ltd vs ITO, [2008] 23 SOT 143, again is on the same issue, in which it has been held that the remaining 10% taxable income is part of profits and gains of business or profession. This finding supports the conclusion taken in this regard. 9. Another decision is of ITAT, Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over because there is no such provision in the Act. But to substantiate its claim, the ld.DR has drawn our attention towards the decisions taken with reference to the provisions of section 80HHE vis- -vis section 10B of the Act to the effect that the ratio of the decisions rendered on similar issues u/s 80HHE in which it was held that certain expenses are excluded from the export profits and some are excluded from the total turnover also are very much relevant for this issue as well. The difficulty in applying the Special Bench decision(supra) to the facts of this case arises when the facts of the given case are not clear because in this case the assessee had deputed the technical manpower outside India and incurred expenses on their traveling, boarding and lodging and their emoluments for the relevant period in foreign currency outside India. But at the same time, the claim of the assessee is that no such expenses were incurred in providing technical services outside India. The assessee has not specifically included these expenses for providing technical services in sale/service invoices raised by it against foreign clients but they, by their natural implication, must have incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liabilities as on 31.3.03. Treating this as notional loss, the Assessing Officer has rejected the claim of the assessee, to that extent, from the business profits. The case of the assessee is that loss has been computed on the basis of Accounting Standard 11 issued by the Institute of Chartered Accountants of India(ICAI) which has been modified in the year 1996. There is no dispute with regard to the fact that whatever loss is claimed is actually related to the business of the assessee-company. The assessee has filed complete details in this regard. The ld. CIT(A) has agreed with the assessee and now the Revenue has challenged this finding. 16. After considering the rival submissions, we find that the assessee has filed the relevant details to support the loss in question which pertains to the sundry debtors relating to sales and the traveling expenses incurred for the purpose of business of the assessee- company. In this way, the entire loss is related to revenue transactions only. This loss is not found to be related to any capital transactions. The assessee has been consistently following this system of re-statement of assets and liabilities as on the end of the accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X
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