2019 (4) TMI 1107 - AT - Income Tax

Deduction allowable u/s. 10AA - whether expenses incurred on telecommunication expenses incurred in foreign currency for rendering services outside India is to be reduced from export turnover only or from total turnover also ? - HELD THAT - As per the judgement rendered in the case of CIT Vs. Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT it is held that total turnover is sum total of domestic turnover and export turnover and therefore, if any amount is reduced from export turnover then total turnover also goes down by the same amount automatically. Also approved by CIT Vs. HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT and therefore, we decline to interfere in the order of CIT (A) directing the AO to recompute the deduction allowable u/s 10A of the Act after reducing expenditure incurred in foreign currency towards telecommunication expenses foreign travel expenses from the export turnover. - Decided against revenue.

Summary

Issues:
1. Maintainability of revenue's appeal for Assessment Year 2012-13 due to low tax effect.
2. Treatment of expenses for computing deduction u/s 10A for Assessment Year 2013-14.

Analysis:
1. Issue 1 - Maintainability of revenue's appeal for Assessment Year 2012-13:
The revenue's appeal for Assessment Year 2012-13 was challenged on the grounds of low tax effect. The tax effect in the appeal was below the threshold of ?20 Lakhs as per CBDT Circular No. 3/2018. The total addition made by the Assessing Officer was ?54,77,248, with only a partial disallowance upheld by the CIT(A). The revenue contended that the tax effect for the deletions being appealed was less than ?20 Lakhs. The ITAT held that as per the CBDT instructions, the appeal of the revenue was not maintainable due to the low tax effect. Consequently, the appeal of the revenue for Assessment Year 2012-13 and both C.Os. of the assessee were dismissed.

2. Issue 2 - Treatment of expenses for computing deduction u/s 10A for Assessment Year 2013-14:
In the appeal for Assessment Year 2013-14, the revenue raised concerns regarding the deduction allowable under section 10A of the Income Tax Act. The dispute centered on whether expenses incurred in foreign currency for telecommunication and foreign travel should be reduced from export turnover only or total turnover as well. The CIT(A) directed the AO to recompute the deduction after reducing these expenses from export turnover. The revenue argued against this direction, citing no provision in Section 10A requiring such expenses to be reduced from total turnover. The ITAT noted that the issue was whether such expenses should affect total turnover, as per judgments of the Karnataka High Court and the Apex Court. Following the precedents, the ITAT upheld the CIT(A)'s order, dismissing the revenue's appeal for Assessment Year 2013-14.

In conclusion, both appeals of the revenue and both C.Os. of the assessee were dismissed based on the specific issues discussed and analyzed in the judgment.