2012 (7) TMI 245 - AT - Income Tax

Deduction u/s 10A - assessee contending communication expenses and insurance expenses attributable to the delivery of software, which is reduced from export turnover in the numerator then the same is to be excluded from the total turnover in the denominator - Held that - Amount attributable to export which is to be reduced from export turnover, should also be reduced from total turnover while working out the deduction u/s 10A of the Act. Assessing Officer is directed to recompute deduction u/s 10A. See ITO vs Sak Soft lTd (2009 (3) TMI 243 (Tri)) - Decided in favor of assessee.

Summary

Issues:
1. Interpretation of deduction u/s 10A for communication and insurance expenses.
2. Whether the amount reduced from export turnover should also be reduced from total turnover for computation of deduction u/s 10A.

Analysis:
1. The appeal involved the interpretation of deduction u/s 10A of the Income-tax Act, 1961 for communication and insurance expenses. The appellant argued that certain expenses should be excluded from export turnover for deduction purposes. The Delhi High Court's decision in HCL Technologies vs. ACIT was cited in support. The Assessing Officer had relied on Explanation 2(iv) of sec. 10A, excluding specific expenses from export turnover. The Dispute Resolution Panel (DRP) directed the AO to verify the expenses attributable to the transfer of software and adjust the claim of exemption accordingly. The ITAT upheld the appellant's argument and directed the AO to recompute the deduction u/s 10A after reducing both export and total turnover by the amount attributable to the export of goods or software.

2. The second issue revolved around whether the amount reduced from export turnover should also be reduced from total turnover for computing the deduction u/s 10A. The ITAT referred to the Special Bench decision in the case of ITO vs. Sak Soft Ltd., which held that certain expenses excluded from export turnover should also be excluded from total turnover. The ITAT, following the precedent, directed the AO to adjust both turnovers by the amount attributable to exports while determining the deduction u/s 10A. Consequently, the appeal was allowed, and the AO was instructed to recalculate the deduction u/s 10A accordingly.

In conclusion, the ITAT's judgment clarified the treatment of communication and insurance expenses for deduction u/s 10A and established that the amount reduced from export turnover should also be deducted from total turnover. The decision provided guidance on interpreting relevant provisions and applied established legal principles to resolve the issues raised in the appeal.