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2015 (8) TMI 1500 - AT - Income TaxEligible deduction u/s.10B - whether expenditure incurred in foreign exchange towards telecommunication expenditure and travel expenditure deducted from export turnover should also be deducted from total turnover for arriving at the eligible deduction ? - HELD THAT - Issue is squarely covered by the decision of the Tribunal in the assessee s own case 2011 (10) TMI 619 - ITAT CHENNAI and case of ITO Vs. Sak soft Ltd. 2009 (3) TMI 243 - ITAT MADRAS-D wherein it was held that such expenditure ought to be excluded both from export turnover as well as from the total turnover. Also see M/S. ALLSEC TECHNOLOGIES LTD. 2015 (9) TMI 219 - ITAT CHENNAI . Loss on account of conversion of the amount outstanding in EEFC account in foreign currency to Indian currency - CIT held that the loss from EEFC account should be set off against the other business income or any other income of the assessee - HELD THAT - No infirmity in the order of the Ld. CIT (A). Any loss incurred by the assessee has to be allowed to be set off against the same business income or against the other business income or any other income as per the provisions of the Act - Tribunal on the earlier occasion in the assessee s own case has only decided the issue of granting deduction U/s.10B of the Act with respect to the gain derived from EEFC account which does not have direct nexus with the profits earned out of export by holding that such gains should be excluded for the purpose of deduction U/s.10B. This is only for the limited purpose of granting deduction U/s.10B - as per the provisions of the Act, any gain or loss incurred by the 10-B unit of the assessee, though not eligible for deduction while computing the income of the assessee, such gains or losses have to be considered in accordance with the normal provisions of the Act. Direction of AO to re-compute the deduction U/s.10B of the Act for the earlier years - CIT (A) directing the AO to re-compute the profit of the business eligible for deduction U/s.10B for the earlier years by not increasing the profit due to disallowance U/s.40(a)(ia) - HELD THAT - AO for the earlier years have incorrectly granted deduction U/s.10B of the Act i.e., even for the increase in profits due to disallowance U/s.40(a)(ia) - While granting deduction U/s.10B of the Act, the disallowance made U/s.40(a)(ia) cannot be taken into consideration for the purpose of granting the benefit of deduction because Section-10B is a provision with fiction and Section.40(a)(ia) is also a provision with fiction and a provision with fiction cannot be super imposed on another provision with fiction - CIT (A) has rightly directed the Ld. Assessing Officer to re-compute the deduction U/s.10B of the Act for the earlier years, however, subject to the period of limitation provided under the Act. Invoking the provisions of Section-14A - AO observed in his order that the management recharge expenses and software expenses were also expenses related to earning of exempt income U/s.10B of the Act and therefore, cannot be allowed against the taxable income in view of the provisions of section 14A - CIT (A) directed AO to re-compute the income of the assessee for the earlier assessment years 2002-03 to 2005-06 - HELD THAT - As assessee contented that CIT (A) had exceeded his jurisdiction by directing AO to re-comptue the deduction U/s.10B for the earlier assessment years other than the year under appeal, since we have already held in the earlier grounds that the Ld. CIT (A) has powers under the provisions of the Act to direct the Ld. Assessing Officer to modify the assessment of the earlier years based on the findings in the subsequent assessment year under appeal before the Ld. CIT (A), this ground is also accordingly disposed off.
Issues Involved:
1. Deduction of telecommunication and travel expenditure from export turnover and total turnover under Section 10B. 2. Treatment of loss on conversion of EEFC account to Indian Rupee under Section 10B. 3. Exclusion of telecommunication and foreign currency expenditure from export turnover. 4. Re-computation of deduction under Section 10B for earlier assessment years. 5. Invocation of Section 14A for earlier assessment years. Issue-wise Detailed Analysis: 1. Deduction of Telecommunication and Travel Expenditure from Export Turnover and Total Turnover under Section 10B: The Revenue contended that telecommunication and travel expenses incurred in foreign currency should only be deducted from the export turnover and not from the total turnover. The Assessee argued that these expenditures should be excluded from both the export turnover and the total turnover, citing the decision in ITO Vs. Sak Soft Ltd. The CIT(A) agreed with the Assessee, stating that if such expenses are excluded from export turnover, they should also be excluded from total turnover, following the principle laid down by the Special Bench of the Chennai Tribunal in ITO Vs. Sak Soft Ltd. The Tribunal upheld the CIT(A)'s decision, confirming that these expenditures should be excluded from both export turnover and total turnover for the purpose of computing the deduction under Section 10B. 2. Treatment of Loss on Conversion of EEFC Account to Indian Rupee under Section 10B: The Assessee raised an additional ground regarding the treatment of loss incurred on EEFC account. The CIT(A) held that the loss from EEFC account should be excluded while computing the profits eligible for deduction under Section 10B and should be considered as a business loss eligible for set-off against other business income or any other income. The Tribunal agreed with the CIT(A), stating that any loss incurred by the Assessee should be allowed to be set off against the same business income or any other income as per the provisions of the Act. 3. Exclusion of Telecommunication and Foreign Currency Expenditure from Export Turnover: The Assessee contended that the telecommunication and foreign currency expenditures were not included in the export turnover and should not be excluded again. The Tribunal directed the Assessing Officer to ensure that if these expenditures were already excluded by the Assessee, they should not be excluded again. The Tribunal also instructed the Assessing Officer to follow the decision in Sak Soft while giving effect to the order. 4. Re-computation of Deduction under Section 10B for Earlier Assessment Years: The Assessee was aggrieved by the CIT(A)'s direction to the Assessing Officer to re-compute the deduction under Section 10B for earlier years by not increasing the profit due to disallowance under Section 40(a)(ia). The CIT(A) held that the disallowance under Section 40(a)(ia) should not be considered for granting deduction under Section 10B, as it would lead to a double benefit. The Tribunal upheld the CIT(A)'s decision, confirming that the Assessing Officer should re-compute the deduction under Section 10B for earlier years, subject to the period of limitation provided under the Act. 5. Invocation of Section 14A for Earlier Assessment Years: The Assessee contended that the CIT(A) exceeded his jurisdiction by directing the Assessing Officer to re-compute the income for earlier assessment years under Section 14A. The Tribunal held that the CIT(A) has the powers to direct the Assessing Officer to modify the assessment of earlier years based on findings in the subsequent assessment year under appeal. Therefore, the Tribunal disposed of this ground, affirming the CIT(A)'s authority to issue such directions. Conclusion: Both the Revenue's appeal and the Assessee's appeal were dismissed, with the Tribunal upholding the CIT(A)'s decisions on all the issues involved. The Tribunal confirmed the principles laid down in ITO Vs. Sak Soft Ltd. regarding the exclusion of specific expenditures from both export turnover and total turnover for the purpose of computing deductions under Section 10B. The Tribunal also upheld the CIT(A)'s directions for re-computation of deductions and set-off of losses in accordance with the provisions of the Act.
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