2013 (5) TMI 731 - AT - Income Tax

Computation of deduction u/s 10A by excluding communication expenses from the total turnover as well - Held that - View taken by the CIT(A) that when the total turnover includes export turnover , the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover . Further, it is also noted that the total turnover is sum total of domestic turnover in the appellant s case, the export turnover will be equal to total turnover . Hence, if an item of expenditure is excluded from export turnover the same has to be excluded from total turnover as well relying upon Patni Telecom (P) Ltd.& Cymbal Information Services (P) Ltd. 2008 (1) TMI 452 - ITAT HYDERABAD-A & CIT vs Genpact India (2011 (11) TMI 119 - DELHI HIGH COURT). The judgement relied upon by the AO in the context of expression attributable to and derive from addresses, the settled legal position however in the facts and circumstances of the present case, the nature of expenses in the context of deduction u/s 10A in the peculiar facts and circumstances of the case has been considered. No contrary view of the Jurisdictional High Court or of the Hon ble Apex Court has been brought to notice in order to canvass that the impugned order deserves to be upset. Against revenue. Computer peripherals and accessories - whether eligible for depreciation @ 60% - Held that - The issue whether the computer peripherals i.e. printers, inverters, modems, routers for network connectivity, EPABX, tape drive etc. are integral parts of the computer is no longer in question as the issue has consistently been decided in favour of the assessee by various orders of the Tribunal following the judgments of the jurisdictional High Court of Delhi in CIT vs. BSES Yamuna Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT & CIT vs. Orient Ceramics & Inds. Ltd. 2011 (1) TMI 26 - DELHI HIGH COURT where depreciation @ 60% has been allowed on computer peripherals. In favour of assessee. Training expenses - revenue v/s capital - Held that - Expenses have been incurred for training programmes on regular basis provided to the employees of the assessee in order to update them on a continuous basis of the changes in the industry so as to better adapt them to the changing environment. Thus there can be no two opinions that training is an imperative exercise which when imparted to its employees necessarily impacts the better functioning of the employer. In the present case where the business needs of the assessee demand the training and upgradation of the skills of the staff of the employer and the assessee has incurred such an expenditure the same as per the settled legal position as considered by coordinate orders of various Benches of the Tribunal has to be allowed as a revenue expenditure. See Schneider Electric India (P) Ltd (2008 (8) TMI 778 - ITAT DELHI) & ACIT vs Hero Management Services Ltd. 2013 (5) TMI 730 - ITAT DELHI . In favour of assessee.

Summary

Issues Involved:
1. Computation of deduction under Section 10A by excluding communication expenses from the total turnover.
2. Eligibility of computer peripherals and accessories for depreciation at 60%.
3. Classification of training expenses as revenue expenses.

Issue-Wise Detailed Analysis:

1. Computation of Deduction under Section 10A by Excluding Communication Expenses from Total Turnover:
The primary issue was whether communication expenses should be excluded from the total turnover when computing the deduction under Section 10A. The assessee argued that if telecommunication expenses are excluded from the export turnover, they should also be excluded from the total turnover. The Assessing Officer (AO) excluded Rs. 13,78,384/- from the export turnover but not from the total turnover, recalculating the deduction under Section 10A. The CIT(A) allowed the assessee's appeal, referencing the Karnataka High Court's decision in the case of CIT vs. TATA Elxsi Ltd., which stated that if an item is excluded from the export turnover, it should also be excluded from the total turnover. The Tribunal upheld the CIT(A)'s decision, noting the jurisdictional High Court's judgment in CIT vs. Genpact India, which supported the exclusion of communication expenses from both export and total turnover.

2. Eligibility of Computer Peripherals and Accessories for Depreciation at 60%:
The second issue was whether computer peripherals and accessories qualify for depreciation at 60%. The AO disallowed the depreciation at 60%, allowing only 15% and adding Rs. 6,78,067/- to the income of the assessee. The CIT(A) reversed this, referencing the Delhi High Court's decisions in CIT vs. BSES Yamuna Powers Ltd., CIT vs. BSES Rajdhani Powers Ltd., and CIT vs. Orient Ceramics & Inds. Ltd., which supported 60% depreciation for computer peripherals. The Tribunal upheld the CIT(A)'s decision, affirming that computer peripherals such as printers, inverters, modems, routers, etc., are integral parts of the computer system and thus eligible for 60% depreciation as consistently decided by various orders of the Tribunal following the jurisdictional High Court's judgments.

3. Classification of Training Expenses as Revenue Expenses:
The final issue was whether training expenses amounting to Rs. 4,58,775/- should be classified as revenue expenses. The AO classified these as capital expenses, leading to a disallowance. The CIT(A) reversed this, accepting the assessee's argument that the expenses were incurred in the normal course of business, were recurring in nature, and did not result in the creation of any new asset or enduring benefit. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's judgments in Empire Jute Co. Ltd. vs. CIT and Dalmia Jain & Co. Ltd. vs. CIT, which supported the classification of such expenses as revenue expenditures. The Tribunal also noted that training expenses are necessary for maintaining the business and do not create any new asset, thus should be treated as revenue expenses.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all three issues. The judgment emphasized the need for parity in the treatment of expenses in computing deductions under Section 10A, supported the higher depreciation rate for computer peripherals, and classified training expenses as revenue expenditures based on established legal principles and precedents.