2011 (12) TMI 758 - AT - Income Tax

Summary

Issues Involved:
1. Exclusion of foreign exchange and telecommunication expenses from export turnover and total turnover.
2. Deletion of interest charged u/s 234D.
3. Exclusion of expenses incurred in foreign currency towards computer software development from export turnover.
4. Exclusion of telecommunication expenditure incurred in Indian currency from export turnover.
5. Disallowance u/s 14A of the Act.
6. Inclusion of disallowed expenditure in the computation of income u/s 80HHE.
7. Levy of interest u/s 234B.

Summary:

Issue 1: Exclusion of Foreign Exchange and Telecommunication Expenses
The Revenue contended that excluding foreign exchange and telecommunication expenses from both export turnover and total turnover would nullify the effect of their exclusion from export turnover. The CIT(A) had followed the decision of the Special Bench in the case of Sak Soft Ltd. The Tribunal upheld the CIT(A)'s decision, citing the Karnataka High Court's ruling in Tata Elxsi Ltd. and the Bombay High Court's decision in Gem Plus Jewellery India Ltd., which supported the exclusion of such expenses from both export turnover and total turnover.

Issue 2: Deletion of Interest Charged u/s 234D
The Revenue argued that interest u/s 234D was correctly levied as the assessment order was passed after the introduction of section 234D. The Tribunal reversed the CIT(A)'s decision, following the jurisdictional High Court's ruling in Commissioner of Income Tax-III, Chennai v. Indian Overseas Bank, which supported the levy of interest u/s 234D for assessments completed after the section's introduction.

Issue 3: Exclusion of Expenses Incurred in Foreign Currency
The assessee challenged the exclusion of expenses incurred in foreign currency towards computer software development from export turnover. The Tribunal dismissed these grounds, noting that they did not arise from the CIT(A)'s order, which was based on a direction u/s 263.

Issue 4: Exclusion of Telecommunication Expenditure
The assessee also challenged the exclusion of telecommunication expenses incurred in Indian currency from export turnover. The Tribunal dismissed these grounds for the same reason as Issue 3, stating that they did not arise from the CIT(A)'s order.

Issue 5: Disallowance u/s 14A
The assessee did not press grounds related to the disallowance u/s 14A, leading the Tribunal to dismiss these grounds as not pressed.

Issue 6: Inclusion of Disallowed Expenditure in Income Computation u/s 80HHE
The assessee argued that disallowed expenditure u/s 14A should be included in computing eligible income for deduction u/s 80HHE. The Tribunal found that the disallowance was based on exempted income, not administrative expenditure, and upheld the Assessing Officer's treatment of the disallowance as "income from other sources."

Issue 7: Levy of Interest u/s 234B
The assessee's ground regarding the levy of interest u/s 234B was not specifically addressed in the summary provided.

Conclusion:
The appeal of the Revenue was partly allowed, and the appeal of the assessee was dismissed. The order was pronounced in the court on 23/12/2011.