9911796707
Advanced Search 
TMI Blog2011 (6) TMI 735X X X X Extracts X X X X X X X X Extracts X X X X ..... o 7: the Ld. CIT (A) had erred in denying the claim of relief u/s 10A of the Act on account of non-maintenance of separate books of account; (2) Ground Nos. 10 to 11: the Ld. CIT (A) erred in holding that the assessee is ineligible to claim relief u/s 10A of the Act in respect of work sub-contracted as the assessee had provided disclaimers to such contractors etc., (3) Ground Nos.12 to 14: the Ld. CIT (A) erred in holding that the assessee to reduce expenses pertaining to freight, insurance and communication charges from 'export turnover' in computing relief u/s 10A of the Act; & (4) Ground Nos.15 & 16: the CIT(A) also erred in sustaining the AO's stand in disallowing bad debts of Rs. 12.72 crores holding that they have not become irrecoverable. 3. Briefly stated, the assessee, in the business of development of computer software for export, maintenance of computer equipment, consultancy in information technology systems integration etc., for the AY under challenge, had furnished its return of income, admitting an income of Rs. 2.21 crores after claiming deduction u/s 10A of the Act. However, the Ld. AO, for the reasons recorded in his impugned order, determined the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be named who is involved in availing double benefit of s.10A/80HHC. In fact, the word 'export' means 'direct export' and the benefit of deduction is always given to the direct exporter. There should not be any double claim of such allowance. This is the view of the Supreme Court in the cases of (i) Sea Pearl Industries and others v. CIT (2001) 247 ITR 578 (SC) and (ii) M.M.T.C v. R.C. Mishra (1993) 201 ITR 851 (SC) 13.3. After the survey though conducted in FY 2002-03 i.e., AY 2003-04, specific findings have been given by the AO that sub-contractors are not only doing the manufacture of software packages, but, also exporting them out of India on receipt of foreign exchange, therefore appellant is not entitled for any deduction on such subcontract work done by the sub-contractor u/s 10Aof I.T. Act. Thus facts before CIT (A) and ITAT while deciding the appeal of AY 2000-2001 has changed. On changed finding of fact by the AO, the grounds that the appellant is entitled for relief even on sub-contracted project are dismissed." (iii) With regard to reduce expenses on freight, insurance charges etc., from export turnover: Following his earlier finding and elaborately extracti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of books show such has not been done. Thus, even on the basis of lack of adoption of proper procedure of write off, the claim deserved to be refused. Hence, the disallowance of the claim of bad debt is upheld...." 5. Disillusioned with the treatment handed down by the Ld. CIT (A), the assessee has come up before this Bench with the present appeal. It was the case of the assessee that - (i) the provisions of s.10A of the Act do not require that separate books of account be maintained for each of the Software Technology Park [STP] Units as long as the taxpayer is able to arrive the profit/loss of each of the STP Units from its consolidated books of account; - the AO had not disputed the traceability of direct expenses to STP Units and non-STP Units and the only matter disputed by the AO was on the allocation of indirect costs between units on the basis of turnover. It would be clear from Form 56F and the P & L a/c that the assessee had maintained the accounts unit-wise; that it was the admitted position of the AO that the direct expenses have been property recorded and it was similar to the earlier year's assessment position of the assessee. The only grievance of the AO was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion does, as there was never a change in the legal position that the tax holiday was always undertaking-specific. Therefore, the ITAT having held (in the pre-amendment year AY 2000-01 in the assessee's own case that there was no requirement to maintain separate books of account for each undertaking and the same analogy will continue to apply even for the post amendment years i.e., AY 2001-02 onwards; That the Hon'ble Ahmedabad Tribunal in the case of ITO v. E-Infochips Ltd. [124 TTJ 176] held [in the context of the amended provisions of s.10A of the Act] that maintenance of separate books of accounts were not required to be maintained to claim relief u/s 10B of the Act - that the qualifying conditions are codified in sub-section 2 of s.10A of the Act. The section states that 'all' the following conditions are to be satisfied which indicates that the provisions are exhaustive and not inclusive or illustrative. When the Revenue had not codified that these conditions have not been complied with, no other conditions can be imposed into the law [Tarulata shyam - 108 ITR 345 (SC)]; - that the compliance of provisions of the STP scheme by the STP Units is to be overseen by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I. It is an undisputed fact that the Ld. AO had not disputed the traceability of direct expenses to STP and non-STP Units and the only issue on which the Ld. AO objected to, as highlighted by the assessee in its submission, was the allocation of indirect costs between units on the basis of turnover. On his part, the Ld. CIT (A) took a stand that consequent to substantial change in the provisions of s.10A (1) of the Act w.e.f. 1.4.2001, the assessee was required to maintain separate books of account which it had failed to do so and, thus, the assessee was not entitled to claim deduction u/s 10A of the Act. As rightly pointed out by the assessee, maintenance of separate books of account was not a pre-condition finding a place in the provisions of s.10A of the Act. The Commissioner of Income-tax(A)'s statement that there was substantive change in law w.e.f.1.4.2001 is correct. However, his further observation that law has moved to 'undertaking' specific deduction, which indicates that the books of accounts should be maintained unit wise, is without any legal basis. Section 10A tax holiday provisions were always 'undertaking' specific (even pre amended provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO arose on the premise that part of the expenditure which could be related to the exempted income which is not allowable to the assessee by virtue of the provisions contained in section 14A of the Act which could be disguised and allowed to be set off against taxable income and, thus, the assessee would be benefited by paying reduced tax which could have been avoided. On this issue, the objection of the AO as is seen from the remand report and as noted by the CIT (A) was with regard to allocation of the overhead expenses in the ratio of turnover. The reason given by the learned CIT (A) for not accepting the reasoning of the AO was as the assessee has three units at different place, the only plausible manner available for allocation of expenditure is in the ratio of turnover which is possibly the only indicator available and is a reasonable method of arriving at the expenses." Further, we venture to quote the ruling of the Hon'ble Supreme Court in the case of Smt. Tarulata Shyam and others v. CIT reported in 108 ITR 345 (SC) wherein it has been made implicitly clear that - "To us, there appears no justification to depart from the normal rule of construction according to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come eligible if they are located in STP, it is something that the Act provides and, therefore, the AO who is merely an implementer of the Act, has to necessarily only follow it and allow the exemption if the circumstances so warrant." In conformity with the reasoning of the Hon'ble earlier Bench cited supra, we are of the considered view that the assessee is entitled to relief u/s 10A of the Act in respect of the work subcontracted by IBM India. It is ordered accordingly. III. The assessee's claim for exclusion of foreign currency expenses from both the export turnover as well as total turnover was negated by the Ld. CIT (A) who by extensively quoting his reasoning in the case of M/s.Jaipuria Silk Mills (P) Ltd. However, the earlier Hon'ble Bench in the case of iGate Global solutions Limited v. ACIT reported in 112 TTJ 1002 had observed that - "9. Reliance was also placed on the number of judgments of the High Courts, vide which, it has been held that excise duty and sales-tax should not be included in the total turnover, as the same are not includible in the export turnover. The learned apex Court in the case of CIT vs. Lakshmi Machine Works (2007) 210 CTR (SC) 1 : (2007) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt. ...." (ii) The Hon'ble High Court of Himachal Pradesh in the case of Suresh Gaggal v. ITO reported in (2009) 222 CTR (HP) 96 had held that - "Once the assessee writes off the debt as irrecoverable, his claim for deduction cannot be rejected on the ground that the debt has not been established to have become irrecoverable. The aforesaid position is also supported by the amendment made to s.36(2) w.e.f. 1st April, 1989 and any doubt, if remaining, has been clarified by Circular No.551 dated: 23rd January, 1990. (iii) The Hon'ble Bombay High court, in the case of CIT v. Star Chemicals (Bombay) P. Ltd. reported in (2009) 313 ITR 126 (Bom), in its wisdom had held that 'under section 36(1)(vii) of the Income-tax Act, 1961 and Circular No.551 dated January, 23, 1990 if the assessee had written off the debt as a bad debt that would satisfy the purpose of the section." (iv) The Hon'ble highest judiciary of the land in its recent verdict in the case of T.R.F. Ltd. v. CIT reported in (2010) 323 ITR 397 (SC), observed that - "After the amendment of section 36(1)(vii) of the Income-tax Act, 1961, with effect from April 1, 1989, in order to obtain a deduction in relation to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
