2016 (5) TMI 260 - AT - Income Tax

Calculation of deduction u/s 10A - exclusion of telecommunication expenses and foreign travel expenditure from export turnover for the purpose of deduction - Held that - We direct the AO to exclude the above mentioned expenses both from the export turnover as well as from the total turnover while calculating deduction u/s 10A of the Act. See CIT Vs. Gem Plus Jewellery India 2010 (6) TMI 65 - BOMBAY HIGH COURT wherein held that since the export turnover forms part of the total turnover, if an item is excluded from the export turnover, the same should also be reduced from the total turnover to maintain parity between numerator and denominator while calculating deduction u/s 10A of the Act

Summary

Issues:
1. Transfer Pricing Adjustment
2. Exclusion of telecommunication expenses and foreign travel expenditure from export turnover for deduction under Section 10A
3. Charging of interest under Sections 234B & 234C

Transfer Pricing Adjustment:
The appeal was against the assessment order passed under Section 143(3) rws 144C following the directions of the Dispute Resolution Panel (DRP). The appellant contested the income adjustment proposed by the Transfer Pricing Officer (TPO) for international transactions. However, during the hearing, it was revealed that the issue of transfer pricing was resolved under the Mutual Agreement Procedure (MAP) as per the Indo USA DTAA. The parties accepted the MAP Resolution, rendering the transfer pricing adjustment issue moot. Consequently, the ground related to Transfer Pricing Adjustment was dismissed as withdrawn.

Exclusion of Expenses for Deduction under Section 10A:
The issue revolved around excluding telecommunication expenses and foreign travel expenditure from export turnover for deduction under Section 10A. Citing precedents, including judgments from the Karnataka High Court and the Mumbai High Court, it was established that expenses excluded from export turnover should also be excluded from total turnover to maintain consistency between the numerator and denominator while calculating the deduction under Section 10A. Therefore, the Assessing Officer (AO) was directed to exclude the mentioned expenses from both export turnover and total turnover for the purpose of computing the deduction under Section 10A.

Charging of Interest under Sections 234B & 234C:
The issue of charging interest under Sections 234B & 234C was deemed consequential in nature. The appeal partially allowed the assessee's appeal, with the direction to exclude specified expenses from export and total turnover for Section 10A deduction calculation. The order was pronounced on April 27, 2016.

This judgment highlights the importance of consistency in excluding expenses from turnover calculations for deductions under Section 10A and the significance of resolving transfer pricing disputes through mutual agreement procedures to streamline tax assessments effectively.