2013 (11) TMI 7 - AT - Income Tax

Technical consultancy charges not to be included in export turnover for computation of deduction u/s 10A of the Income Tax Act Held that - Assessing Officer is directed to verify this fact and if on verification it is found that the assessee has not included the said amount while computing the deduction u/s 10A then there is no question of reducing it from export turnover for the purpose of computing deduction u/s 10A of the Act. Even otherwise also, the alternative contention of the assessee is not without substance. When any amount being in the nature of freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India are to be excluded from the export turnover, then the same is also required to be excluded from the total turnover for the purpose of computing deduction u/s 10A of the Act Reliance has been placed on the judgment in the case of CIT Vs. Gem Plus Jewellery India Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT Addition made on account of statutory disallowance is eligible for deduction u/s 10A of the Income Tax Act Held that - Reliance has been placed on the judgment in the case of CIT Vs. Gem Plus Jewellery India Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT - Held that the additions made to the income of the assessee by virtue of disallowance made u/s 43B of the Act, amounts to increase in the business profit of the assessee and therefore assessee is entitled to claim exemption u/s 10A with regard to the addition made on account of statutory disallowance Also, disallowance made u/s 40(a)(ia) for non deduction of TDS would result in increase in business profit of the assessee, hence the assessee would be entitled to claim deduction u/s 10A with reference to such addition made on account of disallowance u/s 40(a)(ia) Decided in favor of Assessee.

Summary

Issues:
1. Revision of assessment order under section 263 of the Income Tax Act, 1961.
2. Treatment of technical consultancy charges and disallowances for deduction under section 10A of the Act.

Issue 1: Revision of Assessment Order
The appeal was against an order passed under section 263 of the Income Tax Act, 1961, by the CIT-2, Hyderabad for the assessment year 2006-07. The CIT proposed to revise the assessment order as it was deemed erroneous and prejudicial to the interests of revenue. The main defects highlighted were related to technical consultancy charges not deducted at source and adjustments made to the profits of certain units affecting the deduction under section 10A of the Act.

Issue 2: Treatment of Technical Consultancy Charges and Disallowances for Deduction under Section 10A
The CIT proposed to reduce the technical consultancy charges incurred in foreign currency from the export turnover for computing deduction under section 10A. The CIT also directed the Assessing Officer to compute the deduction without including disallowances made under section 40(a)(ia) of the Act. The assessee objected to these proposals, arguing that the consultancy charges were for software development and not technical services, and that disallowances should not affect the deduction under section 10A.

The Appellate Tribunal considered the contentions of both parties. It was found that the technical consultancy charges were not included in the export turnover by the assessee while computing the deduction under section 10A. Therefore, there was no basis for reducing these charges from the export turnover. Additionally, it was established that if any amount needed to be excluded from the export turnover, it should also be excluded from the total turnover for computing the deduction under section 10A. This view was supported by legal precedents from the Hon'ble Bombay High Court and the Income-tax Appellate Tribunal Chennai Bench.

Regarding the disallowances made under section 40(a)(ia) of the Act, the Tribunal held that such disallowances should be considered as part of the business profit of the assessee for claiming exemption under section 10A. Citing decisions from the Hon'ble Bombay High Court and the Income-tax Appellate Tribunal Hyderabad Bench, the Tribunal ruled in favor of the assessee, allowing the claim for exemption under section 10A with respect to the disallowances made under section 40(a)(ia).

In conclusion, the appeal was allowed in part, with directions given to the Assessing Officer to compute the exemption under section 10A in accordance with the Tribunal's rulings.

---