2009 (5) TMI 937 - AT - Income Tax

Summary

Issues Involved:
1. Reduction of expenses incurred in foreign currency from total turnover while computing deduction u/s 10A.
2. Reduction of telecommunication expenses from total turnover besides export turnover for parity while computing deduction u/s 10A.
3. Exclusion of expenses incurred in foreign currency for providing software development services outside India from 'export turnover'.
4. Consideration of exchange fluctuation loss for reduction from 'total turnover'.

Summary:

Issue 1: Reduction of expenses incurred in foreign currency from total turnover while computing deduction u/s 10A
The Revenue contended that the CIT(A) erred in directing the AO to reduce the expenses incurred in foreign currency for providing software development from the total turnover while computing the deduction u/s 10A. The assessee argued that the disputed amount should also be reduced from the total turnover for parity. The CIT(A) directed the AO to reduce the disputed amount from the total turnover, applying the ratios of decisions in Tata Elexsi Limited, I Gate Global Solutions Ltd., and Mphasis Ltd. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.

Issue 2: Reduction of telecommunication expenses from total turnover besides export turnover for parity while computing deduction u/s 10A
The AO did not reduce the expenses from the total turnover, adopting the natural meaning of the total turnover. The CIT(A), following Tribunal decisions in similar cases, directed the AO to reduce the expenses from the total turnover. The Tribunal upheld the CIT(A)'s action, directing the AO to exclude the expenditure incurred in foreign currency from the total turnover.

Issue 3: Exclusion of expenses incurred in foreign currency for providing software development services outside India from 'export turnover'
The CIT(A) concluded that expenses incurred in foreign currency for providing software development services outside India could be excluded from the 'export turnover'. The assessee opposed this, citing the Tribunal's decision in MphasiS Limited. The Tribunal directed the AO not to exclude these expenses from the export turnover, following the decision in Infosys Technologies Ltd. vs. JCIT.

Issue 4: Consideration of exchange fluctuation loss for reduction from 'total turnover'
The CIT(A) upheld the AO's action, observing that the exchange fluctuation loss was incidental to the export business and could not be considered for reduction from the total turnover. The assessee's contention was cryptic, and no effective arguments were presented. The Tribunal, following the ITAT, Mumbai (Special Bench) decision in ACIT vs. Parkash L. Shah, directed the AO to allow deduction accordingly.

Conclusion:
The Revenue's appeal was dismissed, and the assessee's Cross Objection was partly allowed.