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2011 (8) TMI 462 - AT - Income TaxDeduction u/s 10A - whether the CIT(A) is justified in directing the AO to recompute deduction u/s 10A of the Act after excluding expenditure incurred on up-linking charges out of telecommunication expenses from both export turnover and the total turnover. - Held that - The Hon ble Mumbai High Court in the case of Gem Plus Jewellery India Ltd. (2010 -TMI - 76903 - BOMBAY HIGH COURT), in identical circumstances, held that since the export turnover forms part of the total turnover, if an item is excluded from the export turnover, the same should also be reduced from the total turnover to maintain parity between numerator and denominator while calculating deduction u/s 10A of the Act. - AO directed to exclude the above mentioned expenses both from the export turnover as well as from the total turnover while calculating deduction u/s 10A of the Act. - Decided in favor of assessee.
Issues Involved:
1. Whether the CIT(A) is justified in directing the AO to recompute the deduction u/s 10A of the Act after excluding expenditure incurred on up-linking charges from both export turnover and total turnover. Issue-wise Detailed Analysis: 1. Recomputing Deduction u/s 10A: The solitary issue in these appeals is whether the CIT(A) is justified in directing the AO to recompute the deduction u/s 10A of the Act after excluding expenditure incurred on up-linking charges from both export turnover and total turnover. Facts and Background: The assessee, a company engaged in software development and support services, filed returns for the assessment years 2004-05 and 2005-06, claiming deductions u/s 10A of the Act. The AO, during the assessment, reduced telecommunication expenses from the export turnover but did not reduce the same from the total turnover. The CIT(A) directed the AO to reduce these expenses from both the export turnover and the total turnover. Arguments by the Respondent: The respondent argued that the issue is covered by the jurisdictional Bangalore Tribunal in the case of Software & Silicon Systems India Private Limited and the respondent's own case, where it was held that telecommunication expenses should be excluded from both export turnover and total turnover to maintain parity. The respondent emphasized that the term 'total turnover' should be interpreted in a manner consistent with 'export turnover' to avoid anomalies and ensure uniformity. The respondent also cited various judicial pronouncements supporting this view, including decisions from the Bombay High Court in Gem Plus Jewellery India Ltd. and the Chennai Special Bench in Sak Soft Ltd. Arguments by the Appellant: The learned DR supported the orders of assessment for the said two assessment years. Tribunal's Findings: The Tribunal referred to the Bombay High Court's decision in Gem Plus Jewellery India Ltd., which held that since export turnover forms part of the total turnover, if an item is excluded from the export turnover, it should also be excluded from the total turnover to maintain parity. The Tribunal noted that the term 'total turnover' is not defined in section 10A, whereas 'export turnover' is specifically defined to exclude certain expenses. Therefore, the same exclusions should apply to both components in the formula for computing the deduction u/s 10A. The Tribunal also referred to the Special Bench decision in Sak Soft Ltd., which held that expenses attributable to the delivery of articles or things or computer software outside India should be excluded from both export turnover and total turnover for the purpose of applying the formula under section 10B. The Tribunal noted that the provisions of sections 10A and 10B are identical in all material aspects, thus the ratio laid down in Sak Soft Ltd. applies to section 10A as well. Conclusion: The Tribunal upheld the orders of the CIT(A) and directed the AO to exclude the telecommunication expenses from both export turnover and total turnover while calculating the deduction u/s 10A of the Act. The appeals filed by the revenue were dismissed. Order Pronouncement: The order was pronounced on Wednesday, the 17th day of August, 2011, at Bangalore.
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