2016 (3) TMI 288 - AT - Income Tax

Computation of deduction under S.10A - Interpretation of Total Turnover - whether communication charges are to be excluded from the total turnover for the purpose of computing deduction under S.10A - Held that - The communication charges having been excluded from the export turnover, it should also be excluded from the total turnover for the purpose of computation of deduction under S.10A of the Act. Since the view taken by the CIT(A) is in conformity with the view taken in the aforesaid decisions, we do not find any infirmity in the order passed by the learned CIT(A). See CIT V/s. Tata Elxsi Ltd. (2011 (8) TMI 782 - KARNATAKA HIGH COURT ),CIT V/s. Gem Plus Jewellery India Ltd. (2010 (6) TMI 65 - BOMBAY HIGH COURT ) as well as Sak Soft Ltd. 2009 (3) TMI 243 - ITAT MADRAS-D - Decided against revenue

Summary

Issues:
Computation of deduction under S.10A of the Act - Exclusion of communication charges from total turnover.

Analysis:
The judgment pertains to an appeal by the Revenue against the order passed by the Commissioner of Income-tax (Appeals) III, Hyderabad for the assessment year 2005-06. The sole issue raised in this appeal concerns the computation of deduction under Section 10A of the Income Tax Act. Specifically, the question is whether communication charges should be excluded from the total turnover for the purpose of calculating the deduction under Section 10A.

The appellant, engaged in software development services and IT-enabled services, claimed a deduction under Section 10A of the Act. The Assessing Officer disallowed a portion of the claimed deduction, amounting to communication charges incurred by the appellant. The Assessing Officer contended that these charges should not be included in the export turnover for the purpose of computing the deduction under Section 10A.

The appellant argued that the communication charges were incurred in Indian currency and were not reimbursed in foreign currency, thus should not be excluded from the export turnover. Additionally, the appellant contended that even if these charges were to be deducted from the export turnover, they should also be excluded from the total turnover while computing the deduction under Section 10A.

The CIT(A) accepted the appellant's alternative contention, citing a decision of the Chennai Special Bench, which held that any expenditure excluded from the export turnover should also be excluded from the total turnover for the purpose of computing the deduction under Section 10A. The Revenue, aggrieved by this decision, appealed before the ITAT Hyderabad.

During the hearing, the ITAT considered various decisions by High Courts and Special Benches, including a ruling by the Hon'ble Karnataka High Court. These decisions emphasized the need for uniformity in excluding certain expenditures from both export turnover and total turnover to avoid producing anomalies or absurd results in the computation of profits from export business.

Ultimately, the ITAT upheld the decision of the CIT(A), stating that communication charges, having been excluded from the export turnover, should also be excluded from the total turnover for calculating the deduction under Section 10A of the Act. Therefore, the appeal filed by the Revenue was dismissed, affirming the order passed by the CIT(A).