2017 (9) TMI 424 - AT - Income Tax

Claiming deduction u/s 10AA - ITES and Consultancy Services - Declaring NIL Income - Section 10AA of the Act being analogous to sec. 10A - reduction of the reimbursement of expenditure incurred in foreign currency - Held that - when certain expenses are excluded from the export turnover for the purposes of claiming deduction admissible under the Act, like u/s. 10A of the Act, such expenses are also to be excluded from total turnover, as export turnover forms part of total turnover. - Decision in the case of Tata Elxsi Ltd., (2011 (8) TMI 782 - KARNATAKA HIGH COURT) followed. - appeal of revenue is dismissed

Summary

Issues Involved:
- Disallowance of deduction u/s 10AA of the Income-tax Act
- Reduction of expenses incurred in foreign currency from export turnover
- Interpretation of provisions in Sec. 10A and Sec. 10AA
- Applicability of decisions by the Hon'ble Karnataka High Court

Analysis:

Issue 1: Disallowance of deduction u/s 10AA of the Income-tax Act
The case involved an appeal by the assessee against the order of the Commissioner of Income-tax (Appeals) for the Assessment Year 2010-11. The assessee, engaged in ITES and consultancy services, filed its return of income claiming a deduction u/s 10AA of the Act. The assessment was completed by the Assessing Officer disallowing the deduction claimed by the assessee. However, the CIT(A) allowed the appeal of the assessee based on the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Tata Elxsi Ltd., which supported the assessee's claim. The Tribunal upheld the decision of the CIT(A) and dismissed the Revenue's appeal, finding no merit in the grounds raised.

Issue 2: Reduction of expenses incurred in foreign currency from export turnover
The main contention in the Revenue's appeal was the direction by the CIT(A) to exclude reimbursement of expenditure incurred in foreign currency from both export turnover and total turnover while computing the deduction u/s 10AA of the Act. The Revenue argued that there was no provision mandating such reduction from total turnover. However, the Tribunal referred to the decision of the Hon'ble Karnataka High Court in Tata Elxsi Ltd., which held that when certain expenses are excluded from export turnover for claiming deductions, they should also be excluded from total turnover. The Tribunal found the decision applicable to the case at hand and upheld the CIT(A)'s direction, dismissing the Revenue's appeal.

Issue 3: Interpretation of provisions in Sec. 10A and Sec. 10AA
The Tribunal noted that the provisions of Sec. 10AA were analogous to Sec. 10A of the Act. It relied on the decisions of the Hon'ble Karnataka High Court and other cases to support the interpretation that expenses excluded from export turnover should also be excluded from total turnover for computing the eligible deduction u/s 10AA of the Act. This interpretation was crucial in deciding the outcome of the case and was in favor of the assessee.

Issue 4: Applicability of decisions by the Hon'ble Karnataka High Court
Throughout the judgment, the Tribunal heavily relied on the decisions of the Hon'ble Karnataka High Court, particularly in the case of Tata Elxsi Ltd., to support the arguments and conclusions made. The Tribunal found the decisions binding and applicable to the present case, especially concerning the computation of deductions under the relevant sections of the Income-tax Act.

In conclusion, the Tribunal dismissed the Revenue's appeal and the assessee's cross objection for the Assessment Year 2010-11 based on the detailed analysis and application of legal principles and precedents, particularly those set by the Hon'ble Karnataka High Court.