2011 (11) TMI 716 - AT - Income Tax

Summary

Issues Involved:
1. Exclusion of telecommunication and travel expenses from total turnover for deduction u/s 10A.
2. Set-off of brought forward business losses and unabsorbed depreciation before computing deduction u/s 10A.

Summary:

Issue 1: Exclusion of Telecommunication and Travel Expenses from Total Turnover for Deduction u/s 10A

The CIT(A) directed the AO to exclude telecommunication expenses and travel expenses from total turnover while computing deduction u/s 10A of the IT Act, 1961. The revenue appealed against this decision. The Hon'ble Karnataka High Court in the case of CIT v M/s Tata Elxsi Ltd. and Others held that if export turnover is to be arrived at after excluding certain expenses, the same should also be excluded from total turnover. This principle was supported by the Hon'ble Mumbai High Court in the case of Gem Plus Jewellery India Ltd. and the Special Bench decision in the case of Sak Soft Ltd. The Tribunal upheld the CIT(A)'s order, directing the AO to exclude the mentioned expenses from both export turnover and total turnover while calculating deduction u/s 10A. Consequently, the revenue's appeals were dismissed.

Issue 2: Set-off of Brought Forward Business Losses and Unabsorbed Depreciation Before Computing Deduction u/s 10A

The assessee contended that deduction u/s 10A should be computed before setting off carried forward business loss and unabsorbed depreciation. The CIT(A) dismissed the appeal, relying on the Tribunal's order in Intellinet Technologies India (P) Ltd. and the jurisdictional High Court's decision in Himatsingika Seide Ltd. However, the Hon'ble jurisdictional High Court in CIT v M/s Axa Business Services Pvt. Ltd. held that deduction u/s 10A is allowable without setting off brought forward loss and unabsorbed depreciation of other units. The Tribunal, following this dictum, directed the AO to calculate deduction u/s 10A without setting off carried forward business loss and depreciation. Thus, grounds no. 2 to 4 were allowed.

Ground Nos. 5 to 7 were dismissed as the alternative plea of the assessee was accepted by the CIT(A) and affirmed by the Tribunal in ITA Nos. 84 and 85/Bang/2011. The issue of whether telecommunication expenses attributable to the delivery of computer software outside India should be reduced from export turnover while computing eligible deduction u/s 10A was not adjudicated by the first appellate authority.

Conclusion:

In the result, the appeals filed by the revenue were dismissed, and the appeals filed by the assessee were partly allowed as indicated above.