2010 (6) TMI 525 - AT - Income Tax

Revision - Deduction u/s 10A - Export turnover - Exclusion of freight telecommunication charges or insurance attributable to delivery of articles or things or computer software outside India or expense if any incurred in foreign exchange in providing the technical services outside India - The claim of the assessee has been that the reimbursements have been made on actual basis without any involvement of profit element and even the Commissioner has not disputed the same - Tribunal in the case of Siemens Information Systems Ltd Vs Addl CIT (2010 -TMI - 204017 - ITAT MUMBAI BENCH I ) has on materially identical facts and by following Special Bench decision in the case of ITO Vs Sak Soft Limited (2009 -TMI - 70680 - ITAT MADRAS-D) quashed the revision proceedings - In the result the appeal is allowed - Decided in favor of assessee.

Issues Involved:
1. Jurisdiction under section 263 of the Income Tax Act.
2. Setting aside the order under section 143(3) by the Assessing Officer (A.O.).
3. Verification of the claim of deduction under section 10A.
4. Reimbursement of expenses as part of total turnover.
5. Adjustment of expenses from export turnover for the purpose of computing deduction under section 10A.

Issue-wise Detailed Analysis:

1. Jurisdiction under section 263 of the Income Tax Act:
The appellant contended that the learned Commissioner of Income Tax (CIT) erred in assuming jurisdiction under section 263, rendering the order bad in law, illegal, void, and without jurisdiction. The Tribunal noted that the justification for assuming jurisdiction under section 263 was that the Assessing Officer did not apply his mind to ascertain the nature of expenses incurred in foreign exchange and their relevance to the delivery of software outside India or providing technical services outside India. The Tribunal analyzed the CIT's reliance on Supreme Court judgments in the cases of Rampyari Devi Sarogi and Tara Devi Agarwal, which supported the proposition that an assessment is erroneous if the Assessing Officer fails to make necessary inquiries. However, the Tribunal concluded that the facts did not warrant further inquiry and the CIT's reliance on these judgments was misplaced. The Tribunal upheld the grievance of the assessee and quashed the revision order as devoid of jurisdiction.

2. Setting aside the order under section 143(3) by the A.O.:
The CIT set aside the order passed under section 143(3) by the A.O. without considering the submissions and details filed by the appellant. The Tribunal observed that the CIT's action was based on the premise that the A.O. did not make necessary inquiries regarding the nature of expenses incurred in foreign exchange. However, the Tribunal found that the A.O. had indeed considered the relevant facts and the nature of the services provided by the assessee. The Tribunal noted that the CIT's action was not justified as the A.O. had applied his mind and made a reasoned decision.

3. Verification of the claim of deduction under section 10A:
The CIT held that the A.O. did not apply his mind in verifying the claim of deduction under section 10A made by the appellant. The Tribunal noted that the A.O. had considered the nature of the services provided by the assessee, which included data collection, formatting services, and retransmission of data in a specified format. The A.O. allowed the deduction under section 10A after making minor adjustments. The Tribunal concluded that the A.O. had applied his mind and verified the claim of deduction, and there was no need for further inquiry.

4. Reimbursement of expenses as part of total turnover:
The CIT rejected the appellant's contention that reimbursement of expenses cannot be considered part of the total turnover of the business. The Tribunal noted that the nature of services provided by the assessee did not involve any element of profit in the reimbursements. The CIT's grievance was that adjustments should be made to the export turnover even if there was a reimbursement element without profit involvement. The Tribunal found that the CIT's suspicion was not justified and that the A.O. had correctly considered the reimbursements in the total turnover.

5. Adjustment of expenses from export turnover for the purpose of computing deduction under section 10A:
The CIT rejected the appellant's plea that if any expenses are reduced from the export turnover, such sums should also be reduced from the total turnover of the undertaking for computing deduction under section 10A. The Tribunal noted that the CIT's tentative suspicions were not sufficient to exercise revision powers. The Tribunal referred to the Bombay High Court's observation that revision powers should not be used to start fishing and roving inquiries in matters already concluded. The Tribunal upheld the appellant's grievance and quashed the revision order.

Conclusion:
The Tribunal allowed the appeal, quashing the revision order passed by the learned Commissioner under section 263 of the Income Tax Act. The Tribunal found that the Assessing Officer had applied his mind and made necessary inquiries, and the CIT's action was not justified. The Tribunal upheld the appellant's grievances on all issues and provided relief accordingly. The appeal was pronounced in the open court on 25th June 2010.

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