Microsemi India Priv... v. Deputy Commissioner ..., Income Tax Appellate Tribunal, Judgment, Law, casemine.com

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Case Number

I.T.A No. 49.HYD/2014 Assessment Year: 2010-11

Attorney(S)

For Assessee: Shri Arun Chhabra & Shri Vaibhav Gupta, ARs
For Revenue: Shri Rama Krishna, Bandi, DR

Judges

P. Madhavi Devi, J.M
B. Ramakotaiah, A.M

Acts

provisions or rules of IT Act.9. Clause (iv) of Explanation 2 to Section 10A
SECTION 7 FOREIGN EXCHANGE MANAGEMENT ACT 1999
U/s. 10A of the Income Tax Act [Act].

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Smart Summary

Factual and Procedural Background

The assessee, engaged in providing Information Technology (IT) and IT enabled services, operated through a unit in the Software Technology Park (STP) entitled to claim tax holiday under Section 10A of the Income Tax Act for the Assessment Year (AY) 2010-11. During the year, the assessee's entire revenue was from export of services. An invoice dated 31 March 2010 amounting to USD 321,352 (Rs. 1,48,72,171) was raised for services rendered in March 2010. The assessee submitted a Software Export Declaration (SOFTEX) Form as compliance with Foreign Exchange Regulations. The STPI authorities provided export clearance on 6 May 2010 and endorsed the invoice for bank submission. The Assessing Officer (AO) denied the claim of deduction under Section 10A for this invoice in AY 2009-10, reasoning that STPI clearance occurred in FY 2010-11, thus excluding it from export turnover for FY 2009-10, but allowed its claim for the subsequent year. The Commissioner of Income Tax (Appeals) upheld this view. The assessee appealed against this order raising four grounds, with the primary dispute focusing on the treatment of the invoice amount for deduction under Section 10A.

Legal Issues Presented

Whether the invoice raised on 31 March 2010 should be included in the export turnover of AY 2009-10 for the purpose of claiming deduction under Section 10A of the Income Tax Act.
Whether the exclusion of the invoice amount from export turnover but inclusion in total turnover by the AO is legally valid.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner Of Income-Tax v. Fine Jewellery (India) Ltd. [2011] 330 ITR 175 / [2010] 194 Taxman 192	Principle that any amount excluded from export turnover should also be excluded from total turnover.	Approved the principle that AO cannot exclude part of turnover only from export turnover while including it in total turnover.
ITO v. Saksoft Ltd. [2009] 30 SOT 55 (Chennai) (Special Bench)	Same principle as above regarding consistent exclusion from both export and total turnover.	Supported the view that exclusion from export turnover must be matched by exclusion from total turnover.

Court's Reasoning and Analysis

The court analyzed the statutory provisions under Section 10A of the Income Tax Act, particularly the definition of 'export turnover' in Explanation 2(iv) and the requirement under Sub-section (3) that sale proceeds must be received in convertible foreign exchange within six months from the end of the previous year or within an extended period allowed by the competent authority. The court held that the AO's and CIT(A)'s reliance on the timing of STPI clearance and SOFTEX form submission as a condition for inclusion in export turnover was misplaced and not supported by the Act or industry practice.

The court further examined the Foreign Exchange Management Act, 1999 (FEMA) and related RBI regulations, noting that the SOFTEX form and STPI certification are procedural, post-facto formalities to ensure realization of export proceeds. These procedures do not alter the year in which export turnover is recognized for tax purposes.

Given that the assessee received advance payment during the relevant year, the invoice dated 31 March 2010 must be included in the export turnover for that year. The court also found AO's selective exclusion of the invoice amount from export turnover but retention in total turnover to be unjustified and motivated by an intent to restrict Section 10A deduction.

Consequently, the court directed the AO to include the invoice amount in export turnover and allow the deduction accordingly, setting aside the orders of the AO and CIT(A).

Holding and Implications

The appeal is allowed.

The court held that the invoice raised on 31 March 2010 must be treated as export turnover for AY 2009-10 for the purpose of claiming deduction under Section 10A. The AO’s action of excluding this amount from export turnover was not supported by law or facts. The AO is directed to include the amount in export turnover and grant the deduction accordingly. The decision reverses the earlier orders by the AO and CIT(A). No new precedent was established beyond affirming the correct application of existing statutory provisions and regulatory framework. The ruling directly benefits the assessee by allowing the claimed deduction for the relevant year.

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Microsemi India Private Limited., Hyderabad v. Deputy Commissioner Of Income Tax, Circle-16(2), Hyderabad

ORDER

B. Ramakotaiah, Accountant Member - This is an assessee's appeal against the order of the Commissioner of Income Tax (Appeals)-V, Hyderabad dated 23-09-2013 for the AY. 2010-11.

2. During the year under consideration, assessee was primarily engaged in the provision of Information technology ('IT') and IT enabled services. Assessee carried on its business through a unit in Software Technology Park ('STP'), which was entitled for the claim of tax holiday U/s. 10A of the Income Tax Act [Act]. During the year, assessee's 100% revenue came from export of these services.

3. During the year under consideration, the assessee raised an invoice on 31 March 2010 for a value of USD 3,21,352 equivalent to Rs. 1,48,72,171 [Invoice number ACT/2009-10/006] for the services rendered in the month of March 2010. In compliance with the Foreign Exchange Regulation, assessee submitted a declaration of the software exports in a 'Software Export Declaration ('SOFTEX') Form' with the STPI authorities.

4. The STPI authorities vide a letter dated 6th May 2010 provided export clearance required for collection of foreign remittance against the said invoice. The authorities also endorsed the invoice raised on 31st March 2012 for furnishing it to the bank.

5. The Assessing Officer (AO) held that that invoice issued on 31st March 2010 was cleared by STPI authority on 6 May 2010, i.e. in FY 2010-11, hence, the same cannot be considered as an export turnover for the FY. 2009-10. AO denied consequent claim of deduction u/s 10A by re working the eligible amount excluding the above amount from export turnover, while retaining the same in total turnover. This view was upheld by the Ld. CIT(Appeals), who further held that assessee is at liberty to claim the amount of Rs. 1.48 Crores in the export turnover of the subsequent FY. i.e. 2010-11 for AY. 2011-12. Aggrieved, assessee preferred the present appeal raising four grounds.

6. Ground Nos. 1 & 4 are general in nature. Ground No.3 pertaining to disallowance of depreciation on certain used Fixed Assets of Rs. 4,83,158/- was not pressed.

7. Ground No. 2 is on the denial U/s. 10A on turnover of Rs. 1,48,72,171/- by the AO while calculating the deduction U/s. 10A. Ground No. 2.2 is an alternate claim that if the above amount is excluded from the export turnover, the same should also be reduced from the total turnover.

8. After considering the rival contentions and perusing the submissions and orders of the authorities, we are of the opinion that the action of AO and CIT(A) is not in accordance with the provisions of the Act. There is no dispute with reference to receipt of foreign exchange pertaining to the invoice raised on 31-03-10 as assessee received advance and adjusted the sale proceeds from the amount received earlier. The only dispute is with reference to treatment of such value as pertaining to next year on the basis of Softex form submitted. The view canvassed by AO and supported by CIT(A) is not according to provisions or rules of IT Act.

9. Clause (iv) of Explanation 2 to Section 10A defines 'export turnover' as follows:

"'export turnover' means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into. India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India;"

Further, Sub-section 3 of Section 10A provides as under:

"(3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf."

From above, one can clearly infer that the only condition for software exported from India to be considered in an year is receipt of consideration of sales proceeds within six months from the end of previous year (or within period extended by RBI) in convertible foreign exchange. Importing of any other condition such as furnishing of SOFTEX Form or obtaining of STPI clearance in the definition of 'export turnover' by the Ld. AO is completely unwarranted and against the industry practice.

10. Further, Section 7 of The Foreign Exchange Management Act, 1999 provides for furnishing of a declaration to the Reserve Bank or to such other authorities as may be specified, containing particulars in relation to payment for such services by the exporter of services. The Section provides as follows:

"7. Export of goods and services. - (1) Every exporter of goods shall—

(a) furnish to the Reserve Bank or to such other authority a declaration in such form and in such manner as may be specified, containing true and correct material particulars, including the amount representing the full export value or, if the full export value of the goods is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions, expects to receive on the sale of the goods in a market outside India;

(b) furnish to the Reserve Bank such other information as may be required by the Reserve Bankfor the purpose of ensuring the realization of the export proceeds by such exporter.

(2) The Reserve Bank may, for the purpose of ensuring that the full export value of the goods or such reduced value of the goods as the Reserve Bank determines, having regard to the prevailing market conditions, is received without any delay, direct any exporter to comply with such requirements as it deems fit.

(3) Every exporter of services shall furnish to the Reserve Bank or to such other authorities a declaration in such form and in such manner as may be specified. containing the true and correct material particulars in relation to payment for such services."

11. The Reserve Bank of India in exercise of the powers conferred by clause (3) of Section 7 of The Foreign Exchange Management Act, 1999, notified software export declaration requirements in Para 6 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. The relevant regulations are extracted herein below:

"6. Authority to whom declaration is to be furnished and the manner of dealing with the declaration:

C. Declaration in Form SOFTEX

(3) (i) The declaration inform SOFTEX in respect of export of computer software and audio/video/television software shall be submitted in triplicate to the designated official of Department of Electronics of Government of India at the Software Technology Parks of India (STPIs) or at the Free Trade Zones (FTZs) or Export Processing Zones (EPZs) in India.

(ii) After certifying all three copies of the SOFTEX form, the said designated official shall forward the original directly to the nearest office of 'the Reserve Bank and return the duplicate to the exporter. The triplicate shall be retained by the designated official for record.

D. Submission of duplicate declaration forms to the Reserve Bank

On realisation of the export proceeds, the authorised dealer shall, after due certification, submit the duplicate of the GR/SDF, PP or as the case may be, SOFTEX form to the nearest office of the Reserve Bank."

12. On perusal of above regulations, it is amply clear that the furnishing of the SOFTEX Form and certification of the said form by STPI is a post- facto procedure prescribed by the Reserve Bank of India to ensure timely and appropriate collection of export proceeds.

13. The legislature in its wisdom has provided a period of six months from the end of previous year for such collection. Thus, the procedural compliance in the course of collection of such export proceeds i.e. furnishing of SOFTEX Form in accordance with Para 6.C.3.1 and certification by STPI authority in accordance with Para 6.C.3.2 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 within the stipulated period six months from the end of the financial year should not result in revenue from export of software made in FY 2009-10 to be treated as 'export turnover' of the subsequent year i.e. FY 2010-11.

14. Considering the above, we are of the opinion that exports made vide invoice dt. 31-03-2010 has to be considered as part of the turnover of this year and AO's action in excluding the same cannot be supported either on facts or on law. As stated earlier the proceeds of this invoice was already received during the year as advance. So the furnishing of form under FEMA is only a formality. Therefore, AO is directed to include the turnover and allow the deduction accordingly.

15. Ground No. 2.2 is on the alternate claim that if the invoice which was raised on 31-03-2010 was excluded the same should also be excluded from the total turnover. Since we have upheld assessee's contentions in Ground No. 2.1, this contention is academic in nature at present. We also observe that AO's action in excluding only from export turn over cannot be supported on the reason that if assessee has not exported the goods as claimed then, the total turnover also should not include the about amount. AO cannot exclude a part of the turnover only from export turnover while including the same in the total turnover. He should have excluded the same on the same reasoning which he has adopted for excluding the above invoice from the export turnover. This was not done for the simple reason that AO's intention seems to be to restrict deduction U/s. 10A. Therefore, action of the AO cannot be justified at all. Since we have already adjudicated that the invoice of 31-03-2010 has to be considered as part of export turnover of the year, there is no need to adjudicate on this contention. The principle that whatever amount is excluded from export turnover has to be excluded from total turn is approved by the Hon'ble Bombay High Court in the case of Commissioner Of Income-Tax v. Fine Jewellery (India) Ltd. [2011] 330 ITR 175/[2010] 194 Taxman 192 and also by Special Bench of ITAT in ITO v. Saksoft Ltd. [2009] 30 SOT 55 (Chennai) . Suffice to say that assessee has merit in its contentions.

16. Therefore, AO is directed to allow the claim of assessee and include the invoice amount as part of export turnover of the year. To that extent, order of the CIT(A) and AO are set aside and assessee's grounds are allowed.

17. In the result, appeal is allowed.

VARSHA

Microsemi India Priv... v. Deputy Commissioner ...