2021 (6) TMI 987 - AT - Income Tax

Deduction u/s 10A - whether the expenditure incurred in foreign currency is required to be excluded from the export turnover or not when the assessee is exporting only software? - HELD THAT - As decided in own case 2014 (1) TMI 1751 - ITAT BANGALORE assessee is in the business of exporting computer software and therefore the expenses incurred in foreign exchange cannot be said to be one incurred by the assessee in connection with providing technical services outside India. The assessee does not claim exclusion of telecommunication charges or insurance attributable to the delivery of software outside India. The claim for exclusion from the export turnover is made by the assessee only in respect of expenses incurred in foreign currency in providing technical services outside India. We however do not have the break-up of the item of expenditure incurred in foreign currency outside India. A copy of the agreement between the Assessee and Robert Bosch Germany titled software project agreement (SPA) has been filed before us. We do not know as to whether the entire export turnover is in relation to this client alone or there were other clients for whom the Assessee rendered computer software development services. A perusal of the SPA filed before us shows that the Assessee agreed to carry out software development work for Robert Bosch Germany at Germany also. The terms of the agreement for rendering services on-site at clauses-5.2 to 5.2.6 of the agreement does not involve rendering of any technical services. The question as to whether the entire expenditure incurred in foreign exchange outside India relates to providing technical services outside India cannot be decided in the absence of the required information as stated above. If the claim of the Assessee that the entire expenditure incurred in foreign exchange outside India does not relate to providing technical services outside India then the same cannot be excluded from the export turnover. Whether the amount deducted from export turnover is also required to be deducted from total turnover or not? - Since this issue is related to computation of deduction u/s 10A this issue also restored to the file of the Ld. CIT(A) with the direction to follow the decision rendered in the case of Tata Elixi Ltd. 2016 (3) TMI 460 - KARNATAKA HIGH COURT and also decision rendered in the case of HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT . Deduction of unrealized from the export proceeds while computing deduction u/s 10A on the ground that the same has not been realised within a period of 6 months - Ld. A.R. invited our attention to Master Circular No.9/2008-09 dated 1st July 2008 issued by RBI. The Ld. A.R. submitted that the RBI has granted general permission to realize the export proceeds within a period of 12 months from the date of export on or after 1st September 2004. We notice that the Ld. CIT(A) has not adjudicated this aspect. Accordingly we restore this issue also to his file for examining the same afresh by considering the circular issued by RBI. Claim of foreign tax credit - Since this is a legal ground and all facts are available on record we admit the same. Since this issue requires examination at the end of AO we restore this issue to the file of the A.O. for examining the claim of the assessee in accordance with law.

Summary

Issues:
1. Deduction allowed u/s 10A of the Act
2. Exclusion of foreign currency expenses from export turnover
3. Technical services rendered by the assessee
4. Unrealized export proceeds deduction
5. Additional foreign tax credit claim

Deduction allowed u/s 10A of the Act:
The assessee claimed a deduction under section 10A of the Income-tax Act, 1961, for the assessment year 2009-10. The Assessing Officer (AO) disallowed certain expenses like communication charges, expenditure in foreign currency, and unrealized export proceeds from the export turnover while computing the deduction. The AO also disallowed these expenses from the total turnover, contrary to the provisions of section 10A. The AO's decision was supported by a Tribunal decision. The assessee contended that the exclusion of expenses from the total turnover should align with the reduction from the export turnover. The assessee relied on previous court decisions to support this argument.

Exclusion of foreign currency expenses from export turnover:
The AO disallowed the unrealized sale consideration from the export turnover as it exceeded the stipulated 6-month period for realization. The assessee, holding an export house certificate with a 360-day realization period, contested this decision. The AO's interpretation of the 6-month period was based on section 10A of the Act. The assessee argued for the exclusion of expenses in foreign currency from the export turnover, citing previous court decisions and the nature of its business activities.

Technical services rendered by the assessee:
The CIT(A) determined that the assessee was involved in providing technical services in addition to software development services based on service agreements. This led to the requirement of segregating receipts into software services and technical services for computing deductions under section 10A. The assessee disagreed with this interpretation, claiming to provide only software development services. Previous court decisions were cited to support the assessee's position.

Unrealized export proceeds deduction:
The issue of deducting unrealized export proceeds of a specific amount from the export turnover, due to non-realization within the specified period, was not addressed by the CIT(A). The assessee referred to a circular issued by the RBI regarding the realization period for export proceeds. This aspect was restored to the CIT(A) for further examination in light of the RBI circular.

Additional foreign tax credit claim:
The assessee raised an additional ground seeking foreign tax credit. This legal ground was admitted, and the matter was referred back to the AO for examination in accordance with the law. The decision treated the appeal filed by the assessee as allowed for statistical purposes and dismissed the appeal of the revenue.

This detailed analysis of the judgment from the Appellate Tribunal ITAT Bangalore highlights the various issues addressed, including deductions under section 10A, treatment of foreign currency expenses, technical services rendered, unrealized export proceeds, and additional foreign tax credit claim. The arguments presented by the parties, interpretations of relevant legal provisions, and reliance on previous court decisions are outlined to provide a comprehensive understanding of the judgment.