2017 (6) TMI 1329 - AT - Income Tax

Computation of deduction u/s 10A - exclusion of expenditure incurred by the assessee in foreign currency towards communication expenses, project travel, software development charges, etc. - HELD THAT - As carefully gone through the provisions of Section 10A. For the purpose of maintaining parity, the factors which were excluded from the export turnover should also be excluded from total turnover. Since, admittedly, the expenses incurred in foreign currency towards communication expenses, project travel cost, software development charges, overseas project expenses were excluded from export turnover, the same shall also be excluded from total turnover. CIT(Appeals) has rightly directed the AO to exclude the same from total turnover. Hence, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Disallowance u/s 14A r.w.r. 8D - mandation of recording satisfaction - HELD THAT - Whenever the Assessing Officer is not satisfied that the claim made by the assessee towards expenditure for earning the income is not correct, he can recompute the same by applying Rule 8D. This Tribunal is of the considered opinion that computation of expenditure under Rule 8D is mandatory. The method of computation by applying Rule 8D is not in dispute. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Exclusion of expenditure incurred in foreign currency while computing deduction u/s 10A - HELD THAT - This Tribunal specifically found that both export turnover and total turnover shall be of the same factor, therefore, when the expenditure incurred in foreign currency is not included in the total turnover, the same cannot also be included in the export turnover. There should be a parity between export turnover and total turnover. Hence, whatever expenditure incurred is not included in the export turnover, the same cannot form part of total turnover also.

Summary

Issues:
1. Exclusion of expenditure incurred in foreign currency towards communication expenses, project travel, software development charges, etc.
2. Disallowance made under Section 14A of the Act.
3. Exclusion of expenditure incurred in foreign currency while computing deduction under Section 10A of the Act.

Issue 1: Exclusion of Expenditure Incurred in Foreign Currency:
The Tribunal heard both the Revenue and assessee's appeals together. The main issue was the exclusion of expenses in foreign currency from total turnover. The CIT(A) directed the Assessing Officer to exclude these expenses from total turnover since they were already excluded from export turnover. The Tribunal upheld this decision citing Section 10A of the Income-tax Act, emphasizing the need for parity in excluding factors from both export and total turnover. Thus, the Tribunal confirmed the direction to exclude these expenses from total turnover.

Issue 2: Disallowance under Section 14A of the Act:
In the assessee's appeal, the issue was the disallowance made by the Assessing Officer under Section 14A of the Act concerning dividend income. The Assessing Officer computed the disallowance using Rule 8D of the Income-tax Rules, 1962, based on interest paid on borrowed funds and changes in investments and asset values. The Tribunal noted that Rule 8D computation is mandatory when the Assessing Officer is not satisfied with the assessee's claim. The Tribunal upheld the disallowance, stating that the method of computation under Rule 8D is undisputed.

Issue 3: Exclusion of Expenditure in Foreign Currency for Section 10A Deduction:
The Tribunal addressed the exclusion of expenditure in foreign currency for computing deduction under Section 10A of the Act. It reiterated the need for parity between export turnover and total turnover, emphasizing that if expenses in foreign currency are not included in export turnover, they cannot be part of total turnover. Therefore, the Tribunal dismissed both the Revenue and assessee's appeals, confirming the exclusion of such expenditure for computing deduction under Section 10A.

In conclusion, the Tribunal's judgment upheld the exclusion of expenses in foreign currency from total turnover, the disallowance under Section 14A of the Act, and reiterated the importance of maintaining parity between export and total turnover for computing deductions under Section 10A. Both appeals were dismissed, and the order was pronounced on 29th June 2017 in Chennai.