2013 (4) TMI 867 - AT - Income Tax

Summary

Issues Involved:
1. Exclusion of telecommunication expenditure from export turnover while computing deduction u/s 10A without corresponding exclusion from total turnover.
2. Disallowance u/s 14A of the Act.
3. Grounds of appeal not adjudicated by the learned CIT(A).

Summary:

Issue 1: Exclusion of telecommunication expenditure from export turnover while computing deduction u/s 10A without corresponding exclusion from total turnover

The Assessing Officer excluded 30% of telecommunication expenses incurred outside the country from the export turnover. The ld. CIT(A) upheld this exclusion. The assessee argued that if telecommunication expenditure is excluded from export turnover, it should also be excluded from total turnover. The Tribunal referred to the decision in ITO vs Sak Soft Ltd., [2009] 30 SOT 55 (Chennai)(SB), which held that items excluded from export turnover should also be excluded from total turnover. The Tribunal confirmed the exclusion of Rs. 40,62,697/- from export turnover but allowed the assessee's alternate contention to exclude the same from total turnover, following the principle of parity as upheld by the Hon'ble Supreme Court in CIT vs Lakshmi Machine Works, 290 ITR 667(S.C).

Issue 2: Disallowance u/s 14A of the Act

The Assessing Officer disallowed Rs. 70,55,114/- as expenditure attributable to earning exempt dividend income by invoking Rule 8D. The ld. CIT(A) held that Rule 8D was applicable from assessment year 2008-09 onwards and estimated the disallowance at 5% of the dividend income, reducing it to Rs. 13,53,635/-. The Tribunal, following the decision of the Hon'ble Madras High Court in M/s Simpson and Co. Ltd vs DCIT, restricted the disallowance to 2% of the gross dividend income, modifying the ld. CIT(A)'s order.

Issue 3: Grounds of appeal not adjudicated by the learned CIT(A)

The assessee raised additional grounds before the ld. CIT(A) which were not adjudicated. These grounds included issues related to the computation of deduction u/s 10A, disallowance u/s 14A, depreciation on computer software and electrical installations, computation of education cess, and levy of interest u/s 234B. The Tribunal restored these grounds to the file of the ld. CIT(A) for fresh adjudication as per law, after allowing reasonable opportunity of hearing to both parties.

Conclusion:

The appeal of the assessee is partly allowed, and that of the Revenue is dismissed. Order pronounced on Friday, the 05th of April, 2013, at Chennai.