2020 (5) TMI 53 - AT - Income Tax

Computation of deduction u/s 10A - expenditure incurred towards date link charges / telecommunication charges and foreign travel expenses attributable to delivery of computer software for providing technical services outside India to be excluded both from export turnover and total turnover for the purpose of computation of deduction - HELD THAT - This issue is squarely covered by the judgment of the Hon ble Supreme Court in the case of CIT v. HCL Technologies Limited 2018 (5) TMI 357 - SUPREME COURT wherein it was held that the expenditure incurred towards telecommunication charges and foreign travel expenses attributed to the delivery of computer software for providing technical services outside India to be excluded both from export turnover and total turnover for the purpose of computation of deduction u/s 10A of the Act. Being so, we do not find any infirmity in the order of the CIT(A) in following the judgment of CIT v. Tata Elxsi Limited 2011 (8) TMI 782 - KARNATAKA HIGH COURT and the same is confirmed. Deduction u/s 10A - enhanced income arising out of disallowance u/s 40(a)(ia) against non-deduction of tax on rent payment u/s.194I - HELD THAT - This issue is squarely covered by the judgment in the case of CIT v. Gem Plus Jewelery India Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT wherein held that the assessee is entitled to exemption u/s 10A of the Act with reference to the addition of disallowance of payments as a plain consequence of the disallowance and the add back made by the AO is an increase in the business profit of the assessee. Being so, we do not find any infirmity in the order of the CIT(A), hence, the same is confirmed. Deduction u/s 10A - assessee has offered the additional income as business profit in the revised return of income - HELD THAT - In the present case, the assessee has offered the subsequent realized export income by filing a revised return. Therefore, the same should be considered for granting deduction u/s 10A of the Act, and there is no necessity to rectify the same after completion of assessment as held by the Delhi Tribunal in the case of ITO v. M/s.PCL Exports 2011 (3) TMI 1802 - ITAT DELHI . MAT Computation - Additional revenue to be included in computing book profits u/s 115JB - such amount was not credited to the profit and loss account in the said year - HELD THAT - Assessee has revised the return of income by including the additional revenue in its total income. However, the assessee did not modify the book profit u/s 115JB of the Act. The Assessing Officer re-computed the book profit by adding the additional income on account of subsequent realization of export profit. In our opinion, the AO book profit, in such cases where the additional revenue was not shown by the assessee in the books of account, as held by the Hon ble Supreme Court in the case of Apollo Tyres Limited v. CIT 2002 (5) TMI 5 - SUPREME COURT held AO has the limited power of making increase and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J - Decided in favour of assessee.

Summary

Issues Involved:
1. Exclusion of telecommunication charges and foreign travel expenses from export turnover and total turnover for deduction u/s 10A.
2. Allowance of deduction u/s 10A on enhanced income due to disallowance u/s 40(a)(ia) for non-deduction of tax on rent payment.
3. Eligibility of additional revenue for deduction u/s 10A when sale proceeds were not received within stipulated timelines.
4. Inclusion of additional revenue in computing book profits u/s 115JB.

Issue-wise Detailed Analysis:

1. Exclusion of Telecommunication Charges and Foreign Travel Expenses:
The Revenue questioned whether the CIT(A) was justified in excluding telecommunication charges and foreign travel expenses from both export turnover and total turnover for the purpose of deduction u/s 10A. The Tribunal found that the issue was covered by the Supreme Court's judgment in CIT v. HCL Technologies Limited, which mandated such exclusions from both export and total turnover. Consequently, the Tribunal upheld the CIT(A)'s decision, confirming the application of the Karnataka High Court's judgment in CIT v. Tata Elxsi Limited.

2. Deduction u/s 10A on Enhanced Income:
The Revenue challenged the CIT(A)'s decision to allow deduction u/s 10A on enhanced income arising from disallowance u/s 40(a)(ia) due to non-deduction of TDS on rent payment. The Tribunal referred to the Bombay High Court's judgment in CIT v. Gem Plus Jewelry India Ltd., which held that disallowance leads to an increase in business profit, and thus, the assessee is entitled to exemption u/s 10A on such enhanced income. The Tribunal found no infirmity in the CIT(A)'s order and confirmed it.

3. Eligibility of Additional Revenue for Deduction u/s 10A:
The assessee contended that additional revenue should be eligible for deduction u/s 10A, despite the sale proceeds not being received within the stipulated timelines. The Tribunal noted that the RBI Circular No.FEMA 23/RB-2000 allows for the realization of export value within six months from the date of export, defined as the date of invoice. Since the invoice was raised on 29.03.2011 and the amount was received on 31.03.2011, the Tribunal held that the export turnover was received within the stipulated period. The Tribunal also cited the Pune Bench's decision in Approva Systems Pvt. Ltd. v. DCIT and the Delhi Bench's decision in ITO v. M/s. PCL Exports, supporting the inclusion of subsequent realized export income for deduction u/s 10A. Thus, this ground raised by the assessee was allowed.

4. Inclusion of Additional Revenue in Book Profits u/s 115JB:
The assessee argued against the CIT(A)'s decision to include additional revenue in computing book profits u/s 115JB, which was not credited to the profit and loss account. The Tribunal referred to the Supreme Court's judgment in Apollo Tyres Limited v. CIT, which held that the Assessing Officer cannot alter the book profit except as provided in the Explanation to section 115J. The Tribunal concluded that the Assessing Officer lacked jurisdiction to modify the book profit by adding additional revenue not shown in the books. Therefore, this ground raised by the assessee was allowed.

Conclusion:
The appeal by the Revenue was dismissed, and the appeal by the assessee was allowed. The Tribunal's decision was pronounced on 27th April 2020.