2009 (8) TMI 1179 - AT - Income Tax

Summary

Issues involved: The judgment involves issues related to the reduction of expenditure incurred in foreign currency on travel from export turnover and total turnover for computing deduction u/s 10A of the IT Act, and the allowability of exemption u/s 10A without setting off the loss of the non-STPI Unit.

Reduction of Expenditure from Turnover: The first issue pertains to the reduction of expenditure incurred in foreign currency on travel from both export turnover and total turnover for the purpose of calculating deduction u/s 10A. The AO initially reduced the expenditure from export turnover, but the CIT(A) directed to exclude it from total turnover as well. The Tribunal upheld this decision, citing precedents and the similarity between the computation formula of u/s 10A and section 80HHE of the IT Act. The Tribunal reasoned that if certain expenses are excluded from export turnover, they should also be reduced from total turnover. This view was supported by a decision of the Chennai Special Bench.

Allowability of Exemption without Setting Off Loss: The second issue concerns the allowability of exemption u/s 10A without setting off the loss of the non-STPI Unit. The assessee contended that the STPI Unit is a separate undertaking eligible for deduction under sec.10A, and the profits of this unit should not be set off against the loss of other units. The Tribunal agreed with this interpretation, emphasizing that sec.10A deals with incomes not forming part of total income, and losses of non-exempt units should not be set off against profits of the software services division eligible for exemption u/s 10A. The Tribunal cited relevant case laws to support this position.

Conclusion: The Tribunal dismissed the revenue's appeals for both assessment years, upholding the decisions on both issues. It was held that the expenditure on travel should be reduced from both export and total turnover for u/s 10A computation. Additionally, the exemption u/s 10A was allowed without setting off the loss of the non-STPI Unit, in line with the provisions of the IT Act and relevant case laws.