2013 (9) TMI 296 - AT - Income Tax

Deduction u/s 10A - Reduction of expenditure incurred in foreign currency from export turnover - DPO & Assessing Officer reduced the expenditure incurred in foreign currency from export turnover while computing the deduction under section 10A - Held that - The Assessing Officer has given a finding that the assessee has incurred these expenses in the process of exports of software. This expenditure incurred was in providing technical services outside India. Therefore, this expenditure was excluded from the export turnover by the Assessing Officer which was affirmed by the DRP. The assessee could not able to substantiate its claim that such expenditure was not incurred in rendering any technical services. In the circumstances, the contention of the assessee that this expenditure should not be excluded from the export turnover is rejected. However, we agree with the assessee that this expenditure having excluded from the export turnover, it should also be excluded from the total turnover, in view of the decision of the Special Bench Tribunal in the case of Sak Soft Ltd. (supra). Therefore, we direct the Assessing Officer to exclude the expenditure incurred in foreign currency which was excluded from export turnover from the total turnover for the purpose of computing relief under section 10A of the Act - Decided in favour of assessee. Disallowance u/s 14A - Whether DRP and the Assessing Officer ought to have granted deduction under section 10A on the enhanced income on account of the aforesaid disallowance - Held that - Though the counsel for the assessee submits that during this year there were no borrowings and all the investments were made out of own funds, therefore, the provisions of section 14A cannot be invoked as it becomes academic, in view of the alternative ground of the assessee that deduction under section 10A has to be granted on the enhanced income on account of disallowance made under section 14A. As we incline to accept the alternative ground of appeal that the deduction under section 10A has to be granted on enhanced income on account of disallowance under section 14A - Disallowance shall go to enhance the profit eligible for deduction under section 10A. Accordingly, we direct the Assessing Officer to enhance the disallowance made under section 14A as part of the eligible profit for the purpose of section 10A - Following decision of Godrej & Boyce Manufacturing Co. Ltd., Vs. DCIT. 2010 (8) TMI 77 - BOMBAY HIGH COURT - Decided in favour of assessee.

Issues Involved:
1. Condonation of delay in filing the appeal for the assessment year 2007-08.
2. Reduction of expenditure incurred in foreign currency from export turnover while computing deduction under section 10A.
3. Reduction of export proceeds not brought into India within the prescribed time limit from export turnover.
4. Disallowance of interest under section 14A.
5. Levy of interest under section 234B.

Detailed Analysis:

1. Condonation of Delay:
The assessee filed the appeal for the assessment year 2007-08 with a delay of 31 days. The assessee submitted a condonation petition explaining the reasons for the delay. The tribunal found a reasonable cause for the delay and, in the interest of justice, condoned the delay and admitted the appeal for disposal.

2. Reduction of Expenditure Incurred in Foreign Currency:
The assessee contested the reduction of expenditure incurred in foreign currency from export turnover while computing deduction under section 10A, arguing that such expenditure was not included in the export turnover initially. The tribunal noted that the Assessing Officer (AO) excluded this expenditure as it was incurred for providing technical services outside India. The assessee failed to substantiate its claim that the expenditure was not for technical services. Hence, the tribunal upheld the exclusion from export turnover but directed that the same should also be excluded from total turnover, following the decision in ITO Vs. Sak Soft Ltd.

3. Reduction of Export Proceeds Not Brought into India:
The assessee argued that the unrealized export proceeds not brought into India within the prescribed time should also be excluded from total turnover, not just export turnover. The tribunal referred to the Hon'ble Kerala High Court's decision in CIT Vs. Abad Fisheries, which held that such proceeds should be excluded from both export and total turnover. Therefore, the tribunal directed the AO to exclude the unrealized export proceeds from total turnover as well.

4. Disallowance of Interest under Section 14A:
The assessee contended that no expenditure was incurred for earning exempt income and that all investments were made from own funds. The AO, invoking section 14A read with Rule 8D, disallowed the expenditure. The tribunal, referencing the decision in M/s. Cognizant Technology Solutions India Pvt. Ltd., accepted the alternative ground that the deduction under section 10A should be granted on the enhanced income due to the disallowance under section 14A. Thus, the tribunal directed the AO to allow the deduction under section 10A on the enhanced income.

5. Levy of Interest under Section 234B:
The assessee raised an issue regarding the levy of interest under section 234B. However, due to the withdrawal of the impugned order for the assessment year 2007-08 by the Deputy Commissioner of Income Tax, the tribunal dismissed the appeal as infructuous.

Conclusion:
- The appeal for the assessment year 2007-08 was dismissed as infructuous.
- The appeal for the assessment year 2008-09 was partly allowed, with directions to exclude certain expenditures from both export and total turnover and to grant deductions under section 10A on enhanced income due to disallowance under section 14A.

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