2015 (10) TMI 2234 - AT - Income Tax

Deduction under Section 10A - assessee challenge the action of Assessing Officer and the DRP in excluding expenses incurred in foreign currency towards telecommunication and travel expenses towards delivery of software from export turnover while computing the deduction under Section 10A - Held that - Taking into consideration the decision rendered in the case of Tata Elxsi Ltd. (2011 (8) TMI 782 - KARNATAKA HIGH COURT) and of the co-ordinate bench of this Tribunal in the assessee s own case (2015 (8) TMI 712 - ITAT BANGALORE) are of the view that it would be just and appropriate to direct the Assessing Officer that telecommunication charges and travel expenses incurred in foreign currency are to be excluded from both export turnover as well as total turnover while computing the deduction under Section 10A of the Act, as has been prayed by the assessee. It is ordered accordingly.- Decided in favour of assessee.

Summary

Issues:
1. Assessment Year 2006-07 final order of assessment challenge under Section 143(3) rws 144C(13) of the Income Tax Act, 1961.
2. Exclusion of expenses incurred in foreign currency towards telecommunication and travel expenses from export turnover while computing deduction under Section 10A of the Act.

Issue 1: Assessment Year 2006-07 Final Order of Assessment Challenge
The appeal was against the final order of assessment for Assessment Year 2006-07 under Section 143(3) rws 144C(13) of the Income Tax Act, 1961. The assessee, engaged in exporting software development services, filed its return of income declaring total income after claiming a deduction under Section 10A of the Act. The Assessing Officer referred the international transactions to the Transfer Pricing Officer for determining the Arm's Length Price. Subsequently, a T.P. Adjustment was proposed, leading to a draft assessment order that restricted the deduction claimed by the assessee. The Dispute Resolution Panel partially allowed the assessee's objections, resulting in the final order of assessment where the income was computed with a restricted deduction under Section 10A of the Act.

Issue 2: Exclusion of Expenses from Export Turnover for Section 10A Deduction
The primary dispute in this appeal concerned the exclusion of expenses incurred in foreign currency towards telecommunication and travel expenses from export turnover while computing the deduction under Section 10A of the Act. The assessee argued that these expenses should be excluded from both export turnover and total turnover, relying on a decision of the Hon'ble Karnataka High Court and a co-ordinate bench of the Tribunal in a previous case. After hearing both parties, it was decided that telecommunication charges and travel expenses in foreign currency should be excluded from both export turnover and total turnover while computing the deduction under Section 10A of the Act. The decision was made in favor of the assessee, allowing their appeal for Assessment Year 2006-07.

In conclusion, the Appellate Tribunal ITAT BANGLORE ruled in favor of the assessee, allowing the appeal against the final order of assessment for Assessment Year 2006-07. The exclusion of expenses incurred in foreign currency towards telecommunication and travel expenses from export turnover while computing the deduction under Section 10A of the Act was upheld, aligning with previous legal decisions.