Commissioner Of Income Tax-I, Chennai v. M/S. Zylog Systems Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED :24.02.2021 CORAM THE HON'BLE MR. JUSTICE M. DURAISWAMYANDTHE HON'BLE MRS. JUSTICE T.V. THAMILSELVITax Case Appeal Nos.382 and 384 of 2011 Commissioner of Income Tax-I,Chennai. ... Appellant in both TCAsv. M/s. Zylog Systems Ltd.,No.155, Thiruvalluvar Salai,Kumaran Nagar,Chennai - 600 119.... Respondent in both TCAs Tax Case Appeals in T.C.A.Nos.382 and 384 of 2011 filedunder Section 260A of the Income Tax Act, 1961 against thecommon order of the Income Tax Appellate Tribunal, Chennai “D”Bench, dated 28.02.2011, passed in I.T.A.Nos.2299/Mds/2008, and284 /Mds/2009 for the Assessment Year 2004-05 against the order dated 31/10/2008 made in ITA No.672/07-08/A-III, ITA No.901/06-07/A-III on the file of the commissionerof Income Tax (Appeals)-III, chennai 34 for the assessment year2005-06,2004-05andagainsttheorderdated30.12.2007,27.12.2006 made in PAN GIR No. , on the fileof the Income Tax Officer company ward III(1), Chennai,Assistant Commissioner of Income Tax Company CircleIII(3),Chennai -34 for the assessment year 2005-06,2004-05. For Appellant : Mrs.V.Pushpain both TCAs Standing CounselFor Respondent : Mr. Bavishetty Sridharin both TCAs Deputy Official Liquidator High Court of Madras COMMON JUDGMENT (Judgment was delivered by M.DURAISWAMY, J.) These appeals, filed by the Revenue under Section 260A ofthe Income Tax Act, 1961 (for short, the Act) are directedagainst the common order dated 28.02.2011 made in I.T.A .Nos.2299/Mds/2008 and 284/ Mds/2009 on the file of the IncomeTax Appellate Tribunal, Chennai “D” Bench, (for brevity, theTribunal) for the Assessment Year 2004-05. 2. Since the issue involved in both the appeals areidentical, both the appeals are disposed of by this CommonJudgment. 3.1 The assessee company is engaged in the business ofSoftware Analysis, Design and Development and claims deductionunder Section 10B for the Assessment Year 2004-05. The assesseehad total export turnover of Rs.22,89,02,985/-. Out of thesame, the assessee had utilised the export profits to the tuneof Rs.6,00,07,757/- in U.S.A. for the purpose of carrying onexport activities. The Assessing Officer held that the saidamount had not been received in convertible foreign exchange inIndia within the prescribed time under section 10B(3) and thesaid amount could not be treated as part of export turnover forthe purpose of computation of deduction under section 10B.The assessee contended that as per Circular No.54, dated26.06.2004 of the RBI, the Overseas Branch of the SoftwareExporter may repatriate to India 100% of the contract value ofeach off-site contract as also atleast 30% of the contract valueof each onsite contract and may utilise the balance 70% of thecontract value of onsite contract for contract related expensesincluding branch expenses abroad. The Assessing Officer heldthat the RBI's Guideline for remittance under the FEMA was notapplicable in interpreting the term "export turnover" as definedin section 10B. The Assessing Officer also held that the totalturnover of Rs.14,73,76,574/- to be considered including theexpenses irrespective of whether such expenses were incurred inIndian currency or foreign currency. 3.2 . Regarding the disallowance of export proceeds tothe extent of Rs.6,00,07,757/- on the ground of "unrealizedonsite contract, the assessee relied on the RBI's Circulardated 26.06.2002. The assessee relied on certain decisionsrendered in the context of section 80-O. 3.3 . The next dispute before the Commissioner of IncomeTax (Appeals) was regarding the disallowance of foreign exchangeloss to the tune of Rs.1,25,42,287/-. The Assessing Officerheld that this was not an ascertained liability. 3.2 . Regarding the disallowance of export proceeds tothe extent of Rs.6,00,07,757/- on the ground of "unrealizedonsite contract, the assessee relied on the RBI's Circulardated 26.06.2002. The assessee relied on certain decisionsrendered in the context of section 80-O. 3.3 . The next dispute before the Commissioner of IncomeTax (Appeals) was regarding the disallowance of foreign exchangeloss to the tune of Rs.1,25,42,287/-. The Assessing Officerheld that this was not an ascertained liability. 3.4 Regarding the issue relating to expenditure incurredin foreign exchange on onsite development of computer software,the Tribunal following the Special Bench's decision in theassessee's case for the assessment year 2003-04, decided theissue in favour of the assessee. 3.5 . Challenging the Common orders passed by the IncomeTax Appellate Tribunal the Revenue has filed the above appeals. 4.The above appeals were admitted on the followingsubstantial questions of law : TCA No.382 of 2011 "(i) Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in holding that the expenditure ofRs.2,15,18,654/- incurred in foreign exchange forproviding technical services outside India should notbe excluded from the export turnover for the purposeof computing deduction under section 10B withoutproperly applying the provisions of Explanation 2 (iii) to section 10B? (ii) Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in holding that even if theexpenditure referred to in the prescribed ground wasto be excluded from the export turnover, the sameshould be excluded form the total turnover also?" TCA No.382 of 2011 "(i) Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in holding that loss on foreignexchange fluctuation should be allowed as claimed bythe assessee contrary to the decision of the Hon'bleJurisdictional High Court in the case of IndianOverseas Bank (250ITR 146)? (ii) Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in not dealing with the groundraised by the Revenue that unrealised onsitedevelopment revenue should be excluded from the exportturnover?" 5. When the appeals were taken up for hearing, Mr.Bavishetty Sridhar, learned Deputy Official Liquidator, https://hcservices.ecourts.gov.in/hcservices/ appearing for the respondent submitted that the issueinvolved in the present appeals is covered by the decision ofthe Hon'ble Supreme Court of India reported in 2020 (113)Taxmann.com 74 (SC) [Commissioner of Income-Tax III v. MphasisLtd.], wherein, the Hon'ble Supreme Court of India held asfollows : “1. The instant petition is filed by thepetitioner-Revenue assailing the judgment dated01.08.2014 passed by the High Court of Karnataka atBangalore in I.T.A. No. 1075 of 2008. 2. When the petition is taken up for considerationMr. Vikramjit Banerjee, learned Additional SolicitorGeneral appearing for the petitioner-Revenue and Mr.Parcy Pardiwala, learned senior counsel appearing forthe respondent, are in agreement that SLP(C)No.2373/2015 preferred by the Revenue in respect ofconnected ITA NO.196 of 2009 which was disposed of bythe very same common Order dated 01.08.2014, wasdismissed by this Court on 28.01.2019 having takennote similar grounds raised in the special leavepetition. 3. Hence taking note of the fact that in respectof common judgment this Court has already dismissedSLP(C)No.2373 of 2015 relating to the Assessment Year2004-2005 and in the present case except that issuerelates to Assessment year 2003-2004 all other aspectsare on the very same point, we are not inclined toentertain the instant petition. 4. Accordingly, the special leave petition shallstand dismissed. Pending applications, if any, shallalso stand disposed of.” 3. Hence taking note of the fact that in respectof common judgment this Court has already dismissedSLP(C)No.2373 of 2015 relating to the Assessment Year2004-2005 and in the present case except that issuerelates to Assessment year 2003-2004 all other aspectsare on the very same point, we are not inclined toentertain the instant petition. 4. Accordingly, the special leave petition shallstand dismissed. Pending applications, if any, shallalso stand disposed of.” 6. The learned Deputy Official Liquidator submitted thatthe issue involved in the present appeals had already beendecided by this Court in Tax Case Appeal Nos. 255 to 257 of 2011[Commissioner of Income Tax-I,Chennai v.M/s.Tata Consultancy Services Ltd., Chennai] by Common Judgmentdated 19.02.2021 wherein this Bench, following the Judgmentreported in 2020 (113) Taxmann.com 74 (SC) [cited supra.] andthe Judgment reported in 2016 (74) Taxmann.com 274 (Karnataka)[Commissioner of Income-Tax, Bangalore v. Mphasis Ltd.],decided the issue in favour of the assessee. The learnedDeputy Official Liquidator further submitted that in view ofthe Judgments of the Hon'ble Supreme Court and this Court, theappeals are liable to be dismissed. 7.We do not find any contra Judgment in support of theRevenue on the issue involved in the present appeals. Followingthe Judgments of the Hon'ble Supreme Court and this Court, hequestions of law raised in the above appeals are decided infavour of the assessee and the appeals are dismissed. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant RegistrarRjTo1.The Income Tax Appellate Tribunal, Chennai “D” Bench,Chennai.2.The Commissioner of Income Tax(Appeal)-III,121, mahatma Gandhi Road,Chennai-34.3.The Income Tax OfficerCompany wardIII(1),Chennai-344.The Assistant Commissioner of Income Tax , company Circle III(3), Chennai -34.+1 cc to M/s.M.Swaminathan, Advocate Sr.No. 11661 GMR(CO)RMP(18/03/2021) Tax Case Appeal Nos.382 and 384 of 2011