2012 (6) TMI 595 - AT - Income Tax

Exemption under section 10B - Expenses attributable to delivery of goods outside India exclusion of the expenses both from the export turnover and the total turnover Held that - As decided in Commissioner of Income-tax Versus Tata Elxsi Ltd. 2011 (8) TMI 782 (HC) that while computing the exemption u/s 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded from the total turnover (denominator) - since the export turnover forms part of the total turnover, if an item is excluded from the export turnover, the same should also be reduced from the total turnover - in favour of assessee.

Summary

Issues Involved:
- Whether certain expenses deducted from export turnover should also be excluded from total turnover for determining exemption under section 10B of the Income Tax Act.

Detailed Analysis:
1. Issue 1: Exclusion of Expenses from Total Turnover
- The appeal was filed by the revenue against the order of the Ld. CIT(A) directing the Assessing Officer to exclude expenses of Rs. 43,37,002 from both export turnover and total turnover for calculating exemption under section 10B of the Income Tax Act.
- The Assessing Officer had reduced various expenses from export turnover but not from total turnover, resulting in a higher total income assessment.
- The CIT(A) relied on Tribunal orders and the Special Bench decision in similar cases to support the exclusion of expenses from both turnovers for maintaining parity between numerator and denominator in the formula for calculating deductions under section 10B.
- The Hon'ble jurisdictional High Court and the Mumbai High Court in separate cases had held that if an item is excluded from export turnover, it should also be reduced from total turnover to align with the legislative intent and avoid anomalies.
- The Special Bench decision further clarified that expenses attributable to delivery of goods outside India should be excluded from both export and total turnover components in the formula under section 10B.

2. Judicial Precedents and Interpretation of Total Turnover
- The Hon'ble jurisdictional High Court emphasized the importance of excluding certain expenses from both export and total turnover to promote exports and provide incentives under section 10B.
- The Mumbai High Court also highlighted that the definition of export turnover excludes certain charges, and for consistency, these exclusions should apply to both export and total turnover components in the formula.
- The Special Bench decision reiterated that expenses related to the delivery of goods outside India must be excluded from both export and total turnover to ensure a correct interpretation of the legislative intent behind section 10B.

3. Conclusion
- Based on the legal precedents and interpretations provided by the Hon'ble High Courts and the Special Bench, the Appellate Tribunal upheld the CIT(A)'s decision to exclude the expenses from both export and total turnover while calculating the deduction under section 10B of the Income Tax Act.
- The appeal filed by the revenue was dismissed, affirming the direction to exclude the expenses from both turnovers, thereby maintaining consistency and aligning with the legislative intent of promoting exports and providing incentives under section 10B.

(Order pronounced in the open court on 15.2.2012)