9911796707
TMI Blog2013 (11) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... as a failure on the part of the AO in this regard, the appropriate action can only be under section 263 of the Act - Initiation of reassessment proceedings is not valid – Decided in favor of Assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses incurred in foreign currency. In other words, the assessee took a stand that expenses incurred in foreign exchange in providing technical services outside India, should not be excluded from the export turnover. The AO completed the assessment by rejecting the claim of the assessee and by making the following observations:- 2.5 In the papers submitted before the Transfer Pricing Officer, the assessee has done a functional analysis of the transactions carried out by it. An extract from the same is reproduced below:- "Contracting DGS enters into contracts with HP Group entities for providing technical call centre and support services. HP Group entities enter into contracts with its various clients for providing product and services. The HP Group entities contracts with clients for providing support services, parts/portions of which are subcontracted to DGS. 2.6 It is clear from the assessee's above submissions that the assessee is engaged in providing support services, which are nothing but technical services. The expenditure in foreign exchange is incurred for both development of software and providing technical services. However, the assessee has not been able to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny filed return of income on 30/10/2004 declaring an income of Rs. 15,00,92,060/-. The order u/s 143(3) was passed on 27-03-2006 assessing the total income at Rs. 27,64,39,400/-. While computing deduction u/s l0A the export turnover was recomputed after reducing the expenditure incurred in foreign currency on travel abroad for providing technical services at Rs. 34,51,45,781/-. This means that deduction u/s 10A has been allowed on profits from rendering technical services abroad. Since explanation 2(1) u/s. 10A and Boards Notification No.890(E) dated 26/9/00 pertains only to the term "computer software", deduction u/s. l0A on profits from providing technical services abroad should be excluded while computing deduction u/s. 10A. The same may be eligible for deduction u/s 80.HHE only. Therefore notice u/s. 148 has been issued to reassess the income." 7. It can be seen from the reasons recorded for issue of notice u/s.148 of the Act, that the AO wanted to hold that the entire sum towards Employees' salary Rs.128,75,49,201, Overseas travel Rs. 25,30,33,924 in all totaling Rs. 154,05,83,125 towards expenditure incurred in foreign currency for rendering technical services outside In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e held that employees were being sent abroad in large numbers in large frequency to different places to render technical assistance and services to the clients which is not covered as ITES in Notification No. S.O. 890 (E) dated September 26, 2000. Therefore neither receipt nor expenditure on account of providing technical services form part of export turnover and hence not eligible for deduction u/s.10A of I.T.Act. Therefore, I see no reason in the above argument of the A.R. Section 10A provides for deduction from the profits of the undertaking engaged in export of the computer software and ITES (so far this case is concerned). No doubt the appellant claims to have done both but it is half truth. It is only exporting software developed by it in India. It is not engaged in ITES. But it is engaged in sending technical personal to develop software in their clients place outside India. Such is sometimes called technically onsite development of software. In the case of - California Software Co. Ltd., Vs. ACIT (2008) 118 TTJ (Chennai-Trib) it had been held in specific terms that the payment, by a software company registered as STPI in foreign currency as salary or travel expenses to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done even by resort to S.154 of I.T.Act. Nevertheless I find detailed reasons has been given for reopening the assessment and therefore I consider the reassessment is not at all bad in law. Thus the major issue Nos. (ii) and No.(iv) vide page 6 (para 9) of this order are decided against the appellant." (emphasis supplied) 10. In short, the reasoning of the CIT(A) is that the charges paid for employee cost and their travel by the Assessee in foreign currency was for development of software at the clients place overseas (Onsite Development of software) and that income derived by such services were also entitled to deduction u/s.10A of the Act only after insertion of Explanation 3 to S.10A by F.A. 2003 w.e.f. 01-04-2004 i.e., A.Y. 2004-05, which provides that the profits and gains derived from onsite development 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 for the purpose of Sec.10A of the Act. 11. It can be seen from the order of the CIT(A) that he has taken a view that while completing the original proceedings u/s. 143(3) of the Act, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of Rs.38,51,45,781 from the export turnover on the ground that it was expenditure incurred in foreign exchange for providing technical services outside India. In the reasons recorded for reopening the assessment, he has taken the view that the aforesaid sum cannot be considered as income derived from export of articles or things or computer software at all. Though the stand taken by the AO in the reasons recorded before issuing notice u/s. 148 of the Act is a different facet of allowing deduction under section 10A of the Act, yet it cannot be disputed that this is a stand which the AO ought to have taken while he completed the assessment proceedings u/s. 143(3) of the Act initially. Having failed to look into a different dimension on which the deduction u/s. 10A could be disallowed to the assessee, the AO cannot be permitted to take recourse to reassessment proceedings u/s. 147 of the Act. Assuming there was a failure on the part of the AO in this regard, the appropriate action can only be under section 263 of the Act. We may clarify that the observation as above may not be construed as any direction by us. The law is well settled that to assume jurisdiction u/s. 147 of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
