2015 (8) TMI 662 - HC - Income Tax

Eligibility for deduction under Section 10A - expenses in foreign exchange and insurance and communication expenses which were not excluded from the export turnover within the meaning of Explanation 2 (iv) to Section 10A - ITAT noticed that since the Assessee had not incurred expenses in foreign exchange for providing technical services outside India, those were not included in the export turnover - Held that - Explanation 2 (iv) to Section 10A of the Act provides that freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India were not to be included in export turnover. The ITAT was of the coorect view that when the expenses were not included in export turnover, there was no question of exclusion of the same from the export turnover. The ITAT correctly upheld the order of the CIT (A) and dismissed the appeal of the Revenue. Decided against revenue.

Summary

Issues:
1. Appeal by Revenue under Section 260A of the Income Tax Act, 1961 against an order related to Assessment Year 2009-10.
2. Eligibility of deduction under Section 10A of the Act for a Business Process Outsourcing (BPO) unit.
3. Exclusion of certain expenses from export turnover for computing deduction under Section 10A.
4. Appeal process from Assessing Officer to Commissioner of Income Tax (Appeals) to Income Tax Appellate Tribunal (ITAT).
5. Justification of expenses exclusion from export turnover.
6. Lack of material to challenge factual findings.

Analysis:
The case involved an appeal by the Revenue under Section 260A of the Income Tax Act, 1961, challenging an order dated 14th November 2014 in relation to the Assessment Year 2009-10. The Assessee, engaged in Business Process Outsourcing (BPO), was eligible for deduction under Section 10A of the Act. The Assessing Officer (AO) noted certain expenses in foreign exchange not excluded from the export turnover as per Explanation 2 (iv) to Section 10A. The Assessee contended before the Commissioner of Income Tax (Appeals) [CIT (A)] that these expenses should also be excluded from the total turnover. The CIT (A) agreed with the Assessee, stating that the expenses identified by the AO should not be excluded from export turnover for computing the deduction under Section 10A. Additionally, the CIT (A) found no nexus between communication expenses and the export of services.

The Revenue appealed the CIT (A) order before the Income Tax Appellate Tribunal (ITAT). The ITAT observed that since the Assessee did not incur foreign exchange expenses for providing services outside India, they were not included in the export turnover. Furthermore, Explanation 2 (iv) to Section 10A specified expenses not to be included in export turnover. The ITAT upheld the CIT (A) order, emphasizing that when expenses were not part of the export turnover, there was no basis for their exclusion. The Court concurred with the factual findings of the CIT (A) and ITAT, noting the absence of material to challenge these findings, leading to the dismissal of the appeal. Consequently, no substantial question of law arose for determination, resulting in the dismissal of the appeal by the Court.