2012 (5) TMI 484 - AT - Income Tax

CIT(A) directing AO to exclude telecommunication expenses amounting from the total turnover for the purpose of computation of deduction u/s 10A Held that - For the purpose of applying the formula under sub-section (4) of section 10B, the freight, telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula as the provisions of sections 10A and 10B are identical on all material aspects the order of the CIT(A) cannot be perverse - against revenue

Summary

Issues involved:
Whether telecommunication expenses should be excluded from total turnover for the purpose of computation of deduction u/s 10A of the IT Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT, Bangalore involved a dispute regarding the exclusion of telecommunication expenses from the total turnover for calculating deduction u/s 10A of the IT Act, 1961. The assessee, a Company engaged in information technology services, had filed its return of income for the relevant assessment year, claiming deduction u/s 10A. The Assessing Officer (AO) reduced the deduction by excluding telecommunication expenses from the export turnover but not from the total turnover, resulting in an increased tax liability for the assessee. The CIT(A) directed the AO to exclude these expenses from both the export turnover and the total turnover based on relevant case laws. The department appealed this decision.

During the proceedings, the department's representative relied on the AO's findings, while the assessee's representative cited judgments from the Hon'ble Bombay High Court and a Special Bench decision to support the exclusion of telecommunication expenses from both turnovers. The Tribunal examined the legal precedents cited, particularly the Gem Plus Jewellery India Ltd. case and the Sak Soft Ltd. case. The Mumbai High Court's ruling emphasized maintaining parity between the export turnover and total turnover to calculate deduction u/s 10A, excluding items like freight and insurance from both turnovers. The Special Bench decision reiterated the exclusion of specific expenses from both turnovers for accurate computation of export profits.

Ultimately, the Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeal and directing the AO to exclude telecommunication expenses from both the export turnover and the total turnover while calculating the deduction u/s 10A of the IT Act. The Tribunal reasoned that the principles established in the cited cases applied equally to section 10A, aligning with the formula for computing export profits under section 10B. The decision highlighted the necessity of consistent treatment of expenses in both turnovers to ensure a fair and accurate determination of the deduction allowable under the Act.