9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2012 (12) TMI 615 - AT - Income TaxDeduction u/s 10A - whether exchange fluctuation gains to be included as part of export turnover - Held that - Held that - Section 10A prescribes a formula for the arithmetic computation of deduction provides for the deduction in respect of profits derived by the undertaking from the export of articles or things or computer software - the Explanation to section 10A has defined the term export turnover refers to amount of sale proceeds received in foreign exchange. It also defines what are the items that are to be excluded from such definition. It is important to highlight that section 10A does not provide for exclusion of any item, including foreign exchange gain for the purpose of computing the eligible profits The Statement of Work & Invoice as submitted by assessee are such pieces of evidence which support her contention that the assessee-company is engaged in the development of software. To crown this fact, the evidence in the form of Transfer Pricing Order for assessment year 2002-03 dated 14.12.2005, in which the assessee-company has been treated as doing software development cannot be ignored. Therefore, the exclusion of these expenses from export turnover is not correct. The decision of ITAT Chennai Special Bench in the case of Zylog Systems 2010 (11) TMI 76 - ITAT, CHENNAI also supports the contention - in favour of assessee. If the expenses are excluded from the export turnover these should also be excluded from the total turnover as decided in Commissioner of Income-Tax Versus Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME COURT - there has to be parity between the export turnover and total turnover. Interest u/s 234B - Held that - Direct the Assessing Officer to recalculate the interest consequent upon the sustained addition. Inclusion of refunds from Central Sales Tax(CST) in eligible profits for deduction u/s 10A - Held that - The assessee is entitled to a refund of the CST from the STPI Authorities on the basis of a periodic statement detailing the indigenous purchases made. Thus, such a refund so generated has a direct nexus and connectivity with the eligible undertaking making it entitled for the deduction u/s 10A. In this regard, the decision rendered in the case of Dy. CIT vs Aarti Industries 2005 (2) TMI 428 - ITAT AHMEDABAD-C also supports the above view - in favour of the assessee Provision of workstations - assessee has treated as loss from other sources - Held that - Income from leasing activity cannot be considered as part of total turnover because this activity by itself cannot be considered as part of assessee s business activity in the regular course. Therefore, no adjustment to the profits of eligible undertaking or to the total turnover is necessitated for the purpose of computing deduction u/s 10A - in favour of the assessee. Exclusion of expenditure incurred in foreign currency from export turnover for computing deduction u/s 10A - Held that - The exclusion effected by the AO is not in accordance with the provisions of the Statute. The definition of export turnover requires expenses included in export turnover to be excluded. Going through assessee s paper book it can be concluded that the assessee is engaged in the business of software development and not in providing technical services . The decision of ITAT, Special Bench, Chennai, in the case of Zylog Systems 2010 (11) TMI 76 - ITAT, CHENNAI is directly on the issue and supports the claim of the assessee. Unyielding of revenue from export turnover - Held that - The assessee has been consistently following Accounting Standard 9 issued by the ICAI and in case the action of the AO is endorsed the figure of total turnover will get reduced to a figure lower that the export turnover. Therefore, the ingredients that go to make up the export turnover should also be the same for the total turnover.
Issues Involved:
1. Exclusion of foreign currency expenses from export turnover for computing deduction under section 10A. 2. Inclusion of foreign exchange gain in eligible profits for deduction under section 10A. 3. Inclusion of CST refunds in eligible profits for deduction under section 10A. 4. Treatment of loss from provision of workstations. 5. Disallowance under section 14A. 6. Treatment of software cost as capital expenditure. 7. Parity between export turnover and total turnover. Issue-wise Detailed Analysis: 1. Exclusion of Foreign Currency Expenses from Export Turnover: The primary issue was whether expenses incurred in foreign currency for travel and other activities should be excluded from export turnover while computing deduction under section 10A. The assessee argued that these expenses should not be excluded as they were part of 'software development' and not 'technical services.' The Tribunal found in favor of the assessee, noting that the company was engaged in software development, supported by evidence such as the STPI approval and Transfer Pricing Order. The Tribunal also noted that if these expenses were excluded from export turnover, they should also be excluded from total turnover to maintain parity, as supported by several judicial precedents. 2. Inclusion of Foreign Exchange Gain in Eligible Profits: The Revenue challenged the inclusion of foreign exchange gain in the eligible profits for deduction under section 10A. The Tribunal upheld the CIT(A)'s decision to include the foreign exchange gain, noting that it had a direct nexus with the business of the undertaking. The Tribunal referenced decisions from other cases, such as Pentasoft Technologies Ltd and M/s Mysodet (P) Ltd, which supported the assessee's position. 3. Inclusion of CST Refunds in Eligible Profits: The Revenue contested the inclusion of CST refunds in the eligible profits for deduction under section 10A. The Tribunal upheld the CIT(A)'s decision, agreeing that the CST refund had a direct nexus with the eligible undertaking. The Tribunal referenced the decision in Dy. CIT vs Aarti Industries, which supported the inclusion of such refunds in eligible profits. 4. Treatment of Loss from Provision of Workstations: The Revenue argued that the loss from leasing unutilized facilities should be included in the total turnover for computing deduction under section 10A. The Tribunal upheld the CIT(A)'s decision to treat the income from leasing as 'income from other sources' and not part of the total turnover, as this activity was not part of the assessee's core business. 5. Disallowance under Section 14A: The assessee did not press the issue regarding the disallowance of estimated 2% of dividend income under section 14A, leading to its dismissal. 6. Treatment of Software Cost as Capital Expenditure: The assessee did not press the issue regarding the treatment of software cost as capital expenditure, leading to its dismissal. 7. Parity between Export Turnover and Total Turnover: The Tribunal consistently held that there must be parity between export turnover and total turnover for the purpose of computing deduction under section 10A. The Tribunal referenced several judicial decisions, including the Hon'ble Supreme Court's decision in the case of Lakshmi Machine Works, which supported maintaining parity between the two figures. Summary of Results: - All appeals by the assessee were partly allowed. - All appeals by the Revenue were dismissed.
|
