2012 (11) TMI 1310 - AT - Income Tax

Summary

Issues Involved:
1. Reduction of expenses incurred in foreign currency from export turnover for computing relief u/s 10A.
2. Exclusion of 50% of telecommunication charges from export turnover for computing relief u/s 10A.
3. Set off of brought forward loss of earlier years against income of the current year after allowing deduction u/s 10A.
4. Computation of profits for deduction u/s 10A as per books of accounts versus regular computation of income.
5. Eligibility of miscellaneous income (recovery of bad debts and reversal of provision for consultancy charges) for deduction u/s 10A.

Summary:

1. Reduction of Expenses Incurred in Foreign Currency from Export Turnover:
The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) directing the Assessing Officer not to reduce expenses incurred in foreign currency from the export turnover for computing relief u/s 10A. This decision was based on the Tribunal's earlier ruling in the assessee's own case for the Asst. Year 2003-04, which was followed by the Commissioner of Income Tax (Appeals) for the Asst. Years 2004-05 and 2005-06.

2. Exclusion of 50% of Telecommunication Charges from Export Turnover:
The Tribunal found no infirmity in the Commissioner of Income Tax (Appeals)'s decision to exclude 50% of telecommunication charges from export turnover. The Commissioner had justified this exclusion based on the definition of 'export turnover' in section 10A, which mandates the exclusion of telecommunication charges attributable to the delivery of computer software outside India.

3. Set Off of Brought Forward Loss of Earlier Years:
The Tribunal upheld the Commissioner of Income Tax (Appeals)'s direction to set off the brought forward loss of earlier years against the income of the current year only after allowing deduction u/s 10A. This decision was in line with the Tribunal's earlier rulings in the assessee's own case and the judgment of the Hon'ble Karnataka High Court in CIT v. Yokogawa India Ltd. and Others.

4. Computation of Profits for Deduction u/s 10A:
The Tribunal agreed with the Commissioner of Income Tax (Appeals) that for computing book profits u/s 115JB, the income and expenditure as per the books of accounts relating to income exempt u/s 10A should be considered, not the deduction as computed under normal provisions of the Act. This conclusion was based on the provisions of sec.10A and relevant case laws.

5. Eligibility of Miscellaneous Income for Deduction u/s 10A:
The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision that miscellaneous income comprising recovery of bad debts and reversal of provision for consultancy charges are part of business profits and eligible for deduction u/s 10A. This decision was supported by the Bangalore Bench of the ITAT and the Hon'ble Jurisdictional High Court.

Cross Objections by the Assessee:
The Tribunal partly allowed the cross objections by the assessee, agreeing that telecommunication charges should be excluded from both export turnover and total turnover for computing relief u/s 10A, in line with the Special Bench decision in the case of Sak Soft Ltd.

Conclusion:
The appeals filed by the Revenue were dismissed, and the cross objections filed by the assessee were partly allowed. The order was pronounced on 30th November 2012, at Chennai.