2008 (10) TMI 673 - AT - Income Tax

Summary

Issues involved: Appeal arising from order u/s 263 by CIT regarding deduction u/s 10A for communication expenses in export turnover computation.

Summary:

Issue 1: Incorrect computation of deduction u/s 10A by not excluding communication expenses:
The assessee company filed its return of income declaring total income. The CIT observed that communication expenses were not excluded from export turnover for deduction u/s 10A, resulting in excess claim allowed by AO. CIT issued notice u/s 263, directing exclusion of expenses attributable to software delivery. The AO's order was set aside for proper computation of expenses for export turnover.

Issue 2: Validity of CIT's order u/s 263:
The AR argued that the AO's order was not prejudicial to revenue as the assessee was not heard on the matter. The Tribunal held that for invoking sec. 263, the AO's order must be both erroneous and prejudicial to revenue. Merely disagreeing with AO's view does not make the order prejudicial unless it is legally unsustainable. The Tribunal found that the CIT was not justified in invoking sec. 263 in this case.

In conclusion, the Tribunal quashed the CIT's order, emphasizing the need for proper exclusion of communication expenses from export turnover for deduction u/s 10A.