CIT vs. 3D PLM Software Solutions Ltd. [ Income tax Appeal no 46 of 2014, 110 of 2014 & 112 of 2014 dt : 09/06/2016 (Bombay High Court)].
[3D PLM Software Solutions Ltd vs. ITO, Range-10(2) (1). [ITA Nos. 4538/MUM/2010, 5839/MUM/2010, 123/ MUM/2011, 178/MUM/2012 ; Bench : D; dated 03/07/2013; A Y: 2005- 2006, 2006-2007, 2007-2008. Mum. ITAT ]
The assessee was engaged in the business of software development and filed the return of income declaring the total income of Rs. 18,65,361/-. As a result of scrutiny assessment assessed income of the assessee was determined at Rs.39,05,180/-.
The AO invoked the provisions of Explanation (2) to section 10A of the Act and proposed to adjust the Export Turnover (ETO ) qua the insurance and telecommunication expenses for the purpose of computing the deduction u/s 10A of the Act. The AO held that the insurance expenses of Rs. 14,37,288/- and communication expenses of Rs. 41,96,206/- were not to be reduced from the Export Turnover for computing the deduction u/s 10A of the Act.
The assessee submitted that for downward revision of the ETO , the expenses are in the nature of freight telecommunication charges or insurance must be attributable to the export of computer software and only then such expenditure can be reduced from the export turnover.
Further, he explained that no such expenditure is required to be reduced in this case for the reason that expense on telecommunication and insurance expenses incurred for software development were not incurred in foreign exchange attributable to the delivery of stocks outside India. Assessee also explained that the said expenditure was incurred in local currency for carrying on day-to-day software development work from the locations within India. As per the assessee, these expenses are not attributable to export of computer software outside India. Therefore, the export turnover need not be adjusted qua telecommunication expenses.
On considering the submissions of the assessee, CIT(A) appreciated that the impugned expenses were not incurred outside India and they are attributable to the delivery of articles within India. He also appreciated the fact that while making disallowance, AO should have come to a clear finding as to why the telecommunication and insurance expenses were attributable to the said computer software outside India. On the above said facts, CIT (A) granted relief to the assessee.
Being aggrieved by the order of CIT(A), the Revenue filed an appeal to Tribunal . The Tribunal observed that the issue for adjudication relates to the applicability of the provisions of clause-(iv) to the Explanation-2 to section 10A of the Act. Clause (iv) provides for definition of “export turnover”.
The Tribunal held that the export turnover means consideration in respect of the export received by the assessee in convertible foreign exchange. But it does not include freight telecommunication charges or insurance attributable to the delivery of the stocks outside India or expenses incurred in foreign exchange in providing technical services outside India. Thus, the expenses incurred in local currency in India on account of telecommunications and insurance are outside the scope of the above said definition given in clause-(iv). . Therefore, grounds raised by the Revenue was dismissed.
The Revenue filed an appeal before High Court. The Hon. High court found that the Assessing Officer has in the order not given any finding with regard to assessee’s contention that this expenditure had been incurred only in India and not with regard to export of software outside India. The CIT (A) as well as the Tribunal have rendered finding of fact that this telecommunication and insurance expenses have been incurred in local currency in India and not with regard to providing software services outside India. This concurrent finding of fact has not been shown to be perverse in any manner. On the above finding of fact, it is evident that exclusion part of Explanation 2(iv) of section 10A of the Act will not apply to the present facts. Therefore , the question raised by revenue does not give rise to any substantial question of law. Accordingly appeal was dismissed.
