The order of the Bench was delivered by
Smt. Asha Vijayaraghavan, Judicial Member - This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-II, Hyderabad dated August 13, 2013 for the assessment year 2009-10.
2. The assessee is engaged in the business of production of animated films. It had filed return of income on September 30, 2009, declaring total income of Rs. 70,61,684 under the normal provisions and Rs. 20,34,97,536 under section 115JB of the Act. In the return deduction under section 10A of Income-tax Act, 1961 at Rs. 11,43,06,038 was claimed. The assessee derived much of its income from export sales from its foreign clients. In the course of its business operations, the assessee incurred expenditure of Rs. 37,75,28,906 abroad. The gross receipts minus expenses incurred abroad i.e., net receipts were remitted to India through proper banking channels. In order to claim deduction under section 10A on this amount of Rs. 37,75,28,906 the assessee had to receive approval from the Reserve Bank of India (RBI). Since on the date of filing of return of income such permission was not received the claim of deduction under section 10A was restricted to the net receipt of Rs.78,80,30,073. The Reserve Bank of India vide its letter dated August 19, 2011 had given the permission for netting off of payables abroad against import receivables to the assessee. On receipt of such permission from the Reserve Bank of India the assessee filed a revised computation before the Assessing Officer requesting for deduction under section 10A at Rs. 37,75,28,906 also.
3. The Assessing Officer did not allow deduction under section 10A on this additional amount of Rs. 37,75,28,906 for the following reasons :
| (a) |
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That for the assessment year 2008-09, similar claim by the assessee was not accepted. |
(b) |
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That for the assessment year 2009-10, the assessee itself did not consider the receivables of Rs. 37,75,28,906 for the purpose of claim of deduction under section 10A. Hence, granting of deduction under section 10A on such amount does not arise. |
4. Aggrieved the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and submitted that there was a survey operation under section 133A on January 23, 2009 and much of the papers and records, books of account, computers were seized by the Department. Hence, the details for obtaining the permission from Reserve Bank of India could not be submitted in time. Therefore, resulting in delay in obtaining permission from Reserve Bank of India, the permission was received vide order dated August 19, 2011 whereas the time to file the revised return had lapsed by March 31, 2011 as per section 139(5). Since the permission from Reserve Bank of India was received late, by that time, the time to file revised return had already lapsed. The revised 10A claim was made through revised computation. The assessee is entitled to claim the deduction before the appellate authority, which was not claimed in the original or revised tax returns. The authorised representative relied on the decision in the case of CIT v. Pruthvi Brokers & Shareholders (P.) Ltd. [2012] 349 ITR 336/208 Taxman 498/23 taxmann.com 23 (Bom). Reliance was also placed on the decision of hon'ble Income-tax Appellate Tribunal, Mumbai, in the case of Pradeep Kumar Harlalka v. Asstt. CIT [2011] 47 SOT 204 (URO)/14 taxmann.com 42 where it was held that 'while the apex court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1 applies on Assessing Officer, the appellate authorities can entertain claim without revised return. It was submitted that unless the assessee seeks approval from the Reserve Bank of India, the assessee is not statutorily entitled to netting off or setting off of the amounts payable by the assessee to the foreign client against receivables due to the assessee. It was further submitted that the gross bills raised by the assessee is paid by the foreign client in convertible foreign exchange and then only the assessee makes payment to the foreign client from the same amount which in accounting terms is known as setting off or netting off and since the same is done with approval from Reserve Bank of India, the assessee is entitled to claim deduction under section 10A of the Act on the total amount of gross bill raised by the assessee as the same was received in convertible foreign exchange. It was pointed out that the netting off of payables against receivables for the purpose of section 10A was allowed by the Mumbai Tribunal in the case of Core Jewellery (P.) Ltd. v. ITO [2012] 50 SOT 5 (URO)/18 taxmann.com 82. It was further pointed out that the Tribunal decided this issue relying on the decision of the hon'ble Supreme Court in the case of J.B. Boda & Co. (P.) Ltd. v. CBDT [1997] 223 ITR 271 (SC).
5. The Commissioner of Income-tax (Appeals) observed that the assessee could not file the revised return as the time for filing the revised return had elapsed by March 31, 2011 and since no revised return could be filed the enhanced section 10A deduction was claimed by filing a revised computation. The Commissioner of Income-tax (Appeals) further observed that for the assessment year 2008-09 the Dispute Resolution Panel in its order dated September 14, 2012, had allowed netting off of amounts that were validly received in India for the purpose of deduction under section 10A of the Act. The Commissioner of Income-tax (Appeals) noted that the assessee was doing work for foreign clients and in the process had to incur certain expenses abroad. The Commissioner of Income-tax (Appeals) pointed out that instead of receiving the entire gross amount from the foreign clients and then remitting part of such amount to meet its expenses, in the present case the foreign clients had remitted the net amount.
6. The Commissioner of Income-tax (Appeals) held that in similar circumstances, the hon'ble Supreme Court in the case of J.B. Boda & Co. (P.) Ltd.(supra) had clearly held that receiving the gross amounts and then paying back the expenses, this two way traffic is an empty formality and a meaningless ritual. It was further held that the entire gross amount shall be treated as received for the purpose of deduction under section 10A. The Commissioner of Income-tax (Appeals) further held that the netting off of exports against imports for the purpose of section 10A was allowed by the hon'ble Income-tax Appellate Tribunal, Mumbai, in the case of Core Jewellery (P.) Ltd. (supra) and the Tribunal had followed the decision of the hon'ble Supreme Court in the case of J.B. Boda & Co. (P.) Ltd. (supra). Further, the Commissioner of Income-tax (Appeals) pointed out that since the claim made by the assessee was a lawful claim for which he was legally entitled to, the same cannot be denied merely on the ground that the claim was not made in the return of income. More particularly, when the assessee had satisfactorily explained the reasons as to why such claim could not be made in the absence of approval from the Reserve Bank of India. The Commissioner of Income-tax (Appeals) directed the Assessing Officer to allow the claim of deduction under section 10A on Rs. 37,75,28,906 also. Aggrieved the Revenue is in appeal before us and raised the following grounds :
| 1. |
The order of the learned Commissioner of Income-tax (Appeals) is erroneous in law and on facts and law. |
2. |
The learned Commissioner of Income-tax (Appeals) ought to have upheld the order of the Assessing Officer. |
3. |
The learned Commissioner of Income-tax (Appeals) ought to have appreciated the Assessing Officer's decision in denying the assessee's revised computation which is not a valid claim of deduction under section 10A and completed the assessment within the meaning and provisions of the Income-tax Act, 1961. |
4. |
The Commissioner of Income-tax (Appeals) failed to appreciate the facts while deciding the appeal that there is no original claim in the original return itself. |
5. |
The learned Commissioner of Income-tax (Appeals) ought to have noticed that the facts narrated in the apex court's case law i.e., J.B. Boda & Co. (P.) Ltd. (supra) were squarely not applicable in the assessee's case. |
7. The learned Departmental representative relied on the order of the Assessing Officer.
8. Learned counsel for the assessee reiterated the contentions made before the Commissioner of Income-tax (Appeals) and stated that the issue is covered by the decision of the Supreme Court in the case of J.B. Boda & Co. (P.) Ltd. (supra).
9. We have heard both the parties. In the case of J.B. Boda & Co. (P.) Ltd. (supra) the hon'ble apex court held as under (headnote) :
"Held, allowing the appeal, that the remittance to the foreign reinsurance company was made through the Reserve Bank of India in conformity with the agreement between the appellant and the foreign reinsurers, and that the remittance statement filed along with the application to the Reserve Bank showed that the amount due to the foreign reinsurers as also the brokerage due to the appellant and the balance due to the foreign reinsurers were expressed and remitted in U.S. dollars. The entire transaction effected through the medium of the Reserve Bank of India was expressed in foreign exchange and in effect the retention of the fee due to the appellant for the services rendered was in U. S. dollars. This was receipt of income in convertible foreign exchange. A formal remittance to the foreign reinsurers first and thereafter receipt of the commission from the foreign reinsurer was unnecessary. Moreover, the Central Board had by Circular dated December 20, 1995 (see [1996] 217 ITR (St.) 5), clarified the real scope and impact of section 80-O stating that the receipt of brokerage by a reinsurance agent in India from the gross premia before remittance to his foreign principal would also be entitled to the deduction under section 80-O of the Act. This was binding on the Board.".
10. Further the Supreme Court held as follows :
"By the court : 'A two-way traffic is unnecessary. To insist on a formal remittance first and thereafter to receive the commission from the foreign reinsurer, will be an empty formality and a meaningless ritual, on the facts of this case'."
11. We find that the issue in the present case before us is that the gross bills raised by the assessee are paid by the foreign clients in convertible foreign exchange and then only the assessee makes the payment to the foreign client from the same amount which in accounting terms is known as setting off or netting off. Since the same is done with the approval of the Reserve Bank of India the assessee is only to claim deduction under section 10A of the Act on the total amount of gross bills raised by the assessee as the same was received in convertible foreign exchange. The issue in the present appeal is similar to that ofJ.B. Boda & Co. (P.) Ltd. and, therefore, we find no infirmity in the order of the Commissioner of Income-tax (Appeals) in following the judgment of the hon'ble Supreme Court and the same is upheld.
12. In the result, the assessee's appeal is allowed.
The order pronounced in the open court on July 9, 2014.