2016 (8) TMI 23 - AT - Income Tax

Deduction u/s 10A - Held that - The issue in dispute is squarely covered by the decision of the coordinate bench in the case of M/s Patni Telecom P. Ltd. (2008 (1) TMI 452 - ITAT HYDERABAD-A ) wherein it was held that the deduction of expenses incurred in foreign exchange both from the amount of total turnover and also from the export turnover for the purpose of computation of the amount of deduction u/s 10A . The Special Bench of the Chennai Tribunal in the case of ITO Vs Saksoft Ltd (2009 (3) TMI 243 - ITAT MADRAS-D ) held that expenses excluded from export turnover should also be excluded from the total turnover . - Decided against revenue.

Summary

Issues:
Appeal against delay in filing, Deduction u/s 10A, Treatment of foreign exchange expenses in calculating deduction, Appeal against CIT(A) order on reducing foreign exchange expenses from turnover.

Analysis:
1. Delay in Filing Appeal:
The Revenue filed an appeal against the order of the Commissioner of Income-tax(A) for AY 2010-11, with a delay of 8 days. The assessee explained the delay due to the unavailability of records. The Tribunal condoned the delay and admitted the appeal for hearing.

2. Deduction u/s 10A:
The assessee, engaged in software product sales, claimed a deduction u/s 10A for AY 2010-11. The AO noted discrepancies in the claim, specifically related to foreign exchange expenses not deducted from the export turnover. The AO reduced the allowable deduction to ?2,43,97,528 from the claimed amount of ?4,21,76,012. The assessee relied on a decision by ITAT Hyderabad in a similar case to support their position.

3. Treatment of Foreign Exchange Expenses:
The AO reduced foreign exchange expenses from the export turnover only, not from the total turnover. The CIT(A), following the ITAT decision, directed the AO to reduce these expenses from both export and total turnover. The Revenue challenged this decision on the grounds that the law does not require the reduction from total turnover.

4. Appeal Against CIT(A) Order:
The Tribunal upheld the CIT(A) order, citing precedents that support reducing foreign exchange expenses from both export and total turnover for calculating deduction u/s 10A. The Tribunal referenced decisions by the Chennai Tribunal and the Karnataka High Court in similar cases. Consequently, the appeal of the Revenue was dismissed, affirming the direction to reduce foreign exchange expenses from the total turnover.

In conclusion, the Tribunal's decision clarified the treatment of foreign exchange expenses in calculating deductions u/s 10A, emphasizing the need to reduce such expenses from both export and total turnover. The judgment aligns with established precedents and ensures consistency in interpreting tax laws related to deductions for eligible businesses.