2014 (7) TMI 710 - AT - Income Tax

Re-computation of deduction u/s 10A Exclusion of expenses incurred in foreign exchange from export turnover and total turnover Held that - AO was of the view that the assessee had incurred certain expenses in foreign currency and hence excluded the same from export turnover alone - The decision in Income-Tax Officer. Versus Sak Soft Limited 2009 (3) TMI 243 - ITAT MADRAS-D followed - whatever is to be excluded from export turnover should also be excluded from total turnover for the purpose of sections 10A and 10B of the Act CIT(A) has rightly directed the AO to reduce the expenditure incurred in foreign exchange from total turnover as well for the purpose of calculation of deduction u/s. 10A of the Act the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues:
Recomputation of deduction u/s. 10A by excluding expenses incurred in foreign exchange from export turnover and total turnover.

Analysis:
The appeal before the Appellate Tribunal ITAT Chennai was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-III, Chennai, relevant to the assessment year 2009-2010. The sole issue raised in the appeal was the recomputation of deduction u/s. 10A by excluding the expenses incurred in foreign exchange from both export turnover and total turnover. The assessee, a private limited company engaged in Information Technology support services, had filed its return of income claiming deduction u/s. 10A. The Assessing Officer observed that certain expenses in foreign currency were excluded from export turnover alone, leading to scrutiny assessment and subsequent appeal by the assessee.

During the course of assessment, the Assessing Officer noted specific expenses incurred by the assessee in foreign currency, including IT Co-ordination charges, Travel Expenses, and Onsite Training Expenses, totaling B3,36,42,939/-. The Commissioner of Income Tax (Appeals) directed the Assessing Officer to exclude these expenses from the total turnover for calculating relief u/s. 10A. The Commissioner relied on a previous Special Bench decision of the Tribunal, emphasizing that what is excluded from export turnover should also be excluded from total turnover for sections 10A and 10B of the Act.

The Appellate Tribunal, after hearing the submissions of the ld. DR and reviewing the orders of the authorities below, found the issue to be squarely covered by the Special Bench decision in the case of M/s. Sak Soft Ltd. The Tribunal upheld the Commissioner's direction to reduce the expenditure incurred in foreign exchange from the total turnover for calculating the deduction u/s. 10A. Consequently, the Tribunal dismissed the appeal, affirming the correctness of the Commissioner's order. Despite the service of notice, no one appeared on behalf of the assessee during the proceedings.

In conclusion, the Appellate Tribunal upheld the Commissioner's decision to exclude expenses incurred in foreign exchange from both export turnover and total turnover for the purpose of computing deduction u/s. 10A, based on the precedent set by the Special Bench decision. The Tribunal found no fault in the Commissioner's order and dismissed the Revenue's appeal, pronouncing the judgment on May 9, 2014, in Chennai.