2012 (12) TMI 634 - AT - Income Tax

Deduction u/s 10A - whether exchange fluctuation gains to be included as part of export turnover - Held that - Considering the judgment of ACIT v. Inautix Technologies India (P) Ltd 2012 (12) TMI 615 - ITAT CHENNAI Fluctuation is part of export turnover for the purpose of computation of deduction under section 10A. Engineering and design charges - Held that - As per CBDT notification No. 890(E) dated 26.09.2000 specifying that engineering and design services are information technology enabled products entitled to be treated as software and when transmitted to foreign countries they have to be treated as exports for the purpose of deduction under section 10A in favour of assessee.

Summary

Issues:
1. Inclusion of exchange fluctuation gains in export turnover for deduction under section 10A.
2. Inclusion of income from engineering and design charges in export turnover for deduction under section 10A.

Issue 1: Inclusion of exchange fluctuation gains in export turnover for deduction under section 10A

The appeal involved a dispute between the Revenue and the assessee regarding the inclusion of exchange fluctuation gains in the export turnover for the purpose of deduction under section 10A. The Revenue contended that these gains should be excluded, while the assessee argued that they should be included based on the direct nexus with the business of the eligible unit. The Commissioner of Income Tax (Appeals) allowed the claim of the assessee, citing previous Tribunal decisions and the application of Accounting Standard 11. The Commissioner held that the gains were an integral part of the export proceeds earned by the company and arose solely due to exports. The Tribunal upheld the order of the Commissioner, stating that the gains had a direct nexus with the business of the eligible unit and should be included in the export turnover for computing the deduction under section 10A.

Issue 2: Inclusion of income from engineering and design charges in export turnover for deduction under section 10A

The second issue revolved around the inclusion of income from engineering and design charges in the export turnover for the purpose of deduction under section 10A. The assessee argued that these charges should be included based on a notification by the CBDT specifying that engineering and design services are to be treated as software and exports of such services qualify as exports. The Commissioner of Income Tax (Appeals) referred to the CBDT notification and a decision by the Bangalore Bench of ITAT to direct the Assessing Officer to include the income from engineering design and drawings in the export turnover. The Tribunal upheld this decision, stating that it was in accordance with the CBDT notification. Consequently, the grounds raised by the Revenue regarding this issue were dismissed.

In conclusion, the Tribunal dismissed the appeal of the Revenue and the Cross Objection of the assessee, upholding the orders of the Commissioner of Income Tax (Appeals) regarding the inclusion of exchange fluctuation gains and income from engineering and design charges in the export turnover for the purpose of deduction under section 10A.