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Issues involved: Interpretation of deduction u/s.10A of the Income-tax Act regarding exclusion of certain expenses from total turnover for computing deduction.
Summary: Issue 1: Exclusion of travel expenses and leased line charges from total turnover for deduction u/s.10A The assessee, a domestic company in the business of design and development, claimed deduction u/s.10A for the assessment year 2004-05. The Assessing Officer questioned the exclusion of travel expenses in foreign currency and leased line charges from the total turnover for computing the deduction. The assessee argued that as per the definition in clause (iv) of Explanation 2 of section 10A, these expenses should be excluded from the total turnover to maintain parity with the export turnover. The Assessing Officer, however, computed the deduction using a different method. On appeal, the Commissioner of Income-tax (Appeals) initially agreed with the Assessing Officer but later directed the deduction to be computed as claimed by the assessee, citing precedents from the Tribunal. The revenue appealed against this decision. Issue 2: Application of Special Bench decision on deduction from total turnover During the hearing, it was noted that a Special Bench decision in a similar context of section 10B had ruled that expenses deducted from export turnover should also be deducted from total turnover, even though the latter term was not defined. Given the similarity between sections 10A and 10B, the Tribunal affirmed the decision of the Commissioner of Income-tax (Appeals) based on the Special Bench ruling. The appeal by the revenue was dismissed in line with this interpretation. In conclusion, the Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) regarding the exclusion of certain expenses from the total turnover for computing deduction u/s.10A, based on the interpretation derived from a Special Bench decision related to a similar provision under section 10B.
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