2021 (6) TMI 1010 - HC - Income Tax

Disallowance of deduction u/s 10B - AO disallowed the claim of the assessee for deduction under section 10B for want of rectification accorded by the Board of Approval appointed for this purpose by the Government of India - assessee has presented before the AO that if at all the claim under section 10B is not allowed, the same may be considered under section 10A - HELD THAT - The issue involved in the present appeals is covered by the decision of M/S MPHASIS LTD. (FORMERLY KNOWN AS MPHASIS BFL LTD.) 2019 (11) TMI 1383 - SUPREME COURT AND Mphasis Ltd. 2014 (8) TMI 690 - KARNATAKA HIGH COURT wherein held that if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the denominator cannot be different. Therefore, though there is no definition of the term 'total turnover' in Section 10-A, there is nothing in the said Section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. - Also see M/S. ZYLOG SYSTEMS LIMITED 2020 (3) TMI 181 - MADRAS HIGH COURT - Decided in favour of assessee.

Summary

Issues:
Challenge to order disallowing deduction under section 10B, alternative claim under section 10A rejected, appeal to Tribunal allowed claim, substantial questions of law admitted, reliance on Supreme Court and Karnataka High Court judgments.

Analysis:
The case involved a challenge to an order disallowing a deduction under section 10B for the Assessment Year 2009-2010. The assessee, a resident company engaged in software and IT services export, claimed a deduction of ?12,55,03,000 under section 10B. The Assessing Officer disallowed the claim due to lack of rectification by the Board of Approval and rejected the alternative claim under section 10A. The Commissioner of Income Tax partly allowed the appeal, but the Tribunal directed verification under section 10A and allowed the claim, leading to the Revenue's appeal.

The substantial questions of law admitted included whether the Tribunal was correct in allowing the appeal when the assessee changed its claim from section 10B to 10A due to lack of supporting approval and whether reliance on a pending decision of the Special Bench was appropriate. During the hearing, the appellant cited a Supreme Court judgment regarding a similar issue, where the Court dismissed a petition related to the same grounds, indicating consistency in the interpretation of the law.

Furthermore, the appellant referred to a Karnataka High Court judgment emphasizing the need for uniformity in calculating profits for export businesses under sections 10A and 80HHC. The judgment highlighted the importance of consistency in determining export turnover components and the formula for deduction under section 10A. Additionally, a Division Bench judgment supported the assessee's position, aligning with the Supreme Court's interpretation.

In conclusion, the Court, considering the precedents and submissions, decided against the Revenue and in favor of the assessee based on the consistent interpretation of the law. The Tax Case Appeal was dismissed following the principles established in the cited judgments without imposing any costs.