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TMI Blog2012 (11) TMI 547X X X X Extracts X X X X X X X X Extracts X X X X ..... tal turnover as contended by the assessee and set aside the order of the AO for fresh consideration by the AO on the aspects discussed by the CIT in his order u/s 263 . AO has taken a possible view and the CIT cannot in exercise of powers u/s 263 seek to substitute his view with that of the AO. On this basis order u/s 263 cannot be sustained and the same is quashed – Appeal of assessee is allowed. - ITA No. 276(B)/2011 - - - Dated:- 31-7-2012 - SHRI N.BARATHVAJA SANKAR AND SHRI N.V.VASUDEVAN, JJ. Assesseee by : Shri Sriram Seshadri, CA Revenue by : Shri Farhat Hussain Qureshi, CIT-II ORDER PER SHRI N.V.VASUDEVAN, JM: This is an appeal by the assessee against the order dated 30- 12-2010 of CIT, Bangalore, relating to AY: 2005-06. 2. The assessee is a company engaged in the business of developing software. For assessment year 2005-06, the assessee filed its return of income declaring a loss of Rs.2,07,88,373/-. The asseseee was entitled to claim deduction u/s 10A of the IT Act, 1961. The eligible deduction u/s 10A of the Act is computed as follows; Export turnover x Eligible business profits Total turnover Export turnover has been defined un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in providing technical services outside India has to be excluded from the export turnover. Since the aforesaid expenses were incurred in connection with foreign travel expenses (which according to CIT were for providing technical services) were not reduced from the export turnover while computing deduction u/s 10A of the Act, the order of AO was erroneous and prejudicial to the interest of revenue. 6. In reply to the show cause noticed issued by the CIT, the assessee submitted that enquiries were made by the AO on the issue of what is export turnover and the assessee had made appropriate submissions and the AO, after having considered the submissions made and the objections raised by he assessee, had decided not to make any adjustment on account of the expenses incurred in foreign currency, it was a case of the AO having taken a plausible view on the matter. It was further submitted that the relevant clause of the Explanation requiring the expenses incurred in foreign currency to be reduced from the export turnover, is applicable only if the assessee is engaged in the business of rendering technical services outside India. It was submitted that the assessee was engaged in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export turnover as per the definition, then there is no scope to include such charges in the total turnover. 7. The CIT however, was of the view that the AO did not make any enquiries on the aspects set out in the show cause notice u/s 263 of the IT Act, 1961. The CIT was also of the view that clause (iv) of Explanation-2 to Sec.10A also envisages a situation where even a software developer can render technical services outside India. The CIT thereafter, proceeded to hold that there was non-application of mind by the AO on this aspect and therefore, the order of AO was erroneous and prejudicial to the interest of revenue. The CIT also held that what is excluded from the export turnover need not be excluded from the total turnover as contended by the assessee. The CIT finally, set aside the order of the AO for fresh consideration by the AO on the aspects discussed by the CIT in his order u/s 263 of the IT Act, 1961. The following were the relevant observation made by the CIT. In view of the above, it is necessary for the AO to examine in detail and ascertain the nature of the expenses of Rs.13,43,17,367/- incurred in foreign currency for foreign travel after verifying the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, the view taken by the AO is a possible view and where two views are possible the CIT cannot exercise his powers u/s 263 just because, he does not agree with the view taken by the AO. It was submitted that the jurisdiction u/s 263 cannot be exercised for substituting the view of the CIT with that of the AO. It was also submitted that even assuming that the aforesaid sum incurred in foreign exchange for travel abroad is to be excluded from the total turnover than the sum has to be excluded from the total turnover also and in this regard, the attention was drawn to the decision of the Hon ble Karnataka High Court in the case of M/s Tata Elxsi Ltd., (2012) 20-4 Taxman 321(Kar.) approving the aforesaid view. Finally, it was submitted that the action of the CIT cannot be sustained because, in any event it cannot be said that there was any prejudice to the interest of revenue and the whole exercise is revenue neural exercise. 10. The learned DR submitted that the view taken by the AO even if it is in consonance with the view expressed by the Tribunal in several decided cases, the same cannot be a bar for the CIT to exercise jurisdiction u/s 263 of the Act, because, in principle th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed not be reduced from the export turnover, in the case of an assessee who is engaged in the business of development of software. In other words, such adjustment can be made only if the assessee who is engaged in the business of providing technical services outside India. In the light of the aforesaid judicial pronouncement, the view taken by the AO was a possible view. The learned DR could not point out, as to why there are contrary views, expressed on the above issue by any higher forum to that of the ITAT. Nor was the DR was able to substantiate the aforesaid pronouncements were subject mater of appeal pending before the higher judicial forums. In the above circumstances, we are of the view that the decisions of the ITAT, Delhi Benches in the case of Hindustan Tin Works Ltd., (supra), will not be applicable to the facts of the present case. In the light of the above said judicial pronouncement cited by the counsel for the assessee, we are of the view that the AO has taken a possible view and the CIT cannot in exercise of powers u/s 263 seek to substitute his view with that of the AO. On this basis, we hold that the order u/s 263 cannot be sustained and the same is quashed. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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