2015 (9) TMI 280 - AT - Income Tax

Eligibility for deduction U/s.10B - whether expenditure incurred in foreign exchange towards telecommunication expenditure and travel expenditure deducted from export turnover should also be deducted from total turnover for arriving at the eligible deduction U/s.10B - Held that - As held in ITO Vs. Sak soft Ltd. 2009 (3) TMI 243 - ITAT MADRAS-D expenditure incurred towards freight charges and insurance premium in foreign exchange ought to be excluded from both export turnover as well as from the total turnover. Also see M/s. Allsec Technologies Ltd. case 2015 (9) TMI 219 - ITAT CHENNAI - Decided in favour of assessee. Loss on account of conversion of the amount outstanding in EEFC account in foreign currency to Indian currency - Held that - Any loss incurred by the assessee has to be allowed to be set off against the same business income or against the other business income or any other income as per the provisions of the Act. The Tribunal on the earlier occasion in the assessee s own case has only decided the issue of granting deduction U/s.10B of the Act with respect to the gain derived from EEFC account which does not have direct nexus with the profits earned out of export by holding that such gains should be excluded for the purpose of deduction U/s.10B of the Act. This is only for the limited purpose of granting deduction U/s.10B of the Act. However as per the provisions of the Act any gain or loss incurred by the 10-B unit of the assessee though not eligible for deduction while computing the income of the assessee such gains or losses have to be considered in accordance with the normal provisions of the Act. We do not find any bar on the claim of the assessee by any of the provisions under the Act. Therefore we do not find it necessary to interfere with the order of the Ld. CIT (A). - Decided in favour of assessee. Excluding Telecommunication expenditure and Travelling expenditure incurred in foreign currency from export turnover though the same were not included in the export turnover - Held that - Assessing Officer had excluded the Telecommunication expenditure and Travelling expenditure from the export turnover though it was not included in the export turnover. On this issue we have only to say that if these expenditures have already been excluded by the assessee the same need not be excluded once again - Decided in favour of assessee. Re-compute the deduction U/s.10B of the Act for the earlier years - Held that - Assessing Officer for the earlier years have incorrectly granted deduction U/s.10B of the Act i.e. even for the increase in profits due to disallowance U/s.40(a)(ia) of the Act. While granting deduction U/s.10B of the Act the disallowance made U/s.40(a)(ia) of the Act cannot be taken into consideration for the purpose of granting the benefit of deduction because Section-10B of the Act is a provision with fiction and Section.40(a)(ia) of the Act is also a provision with fiction and a provision with fiction cannot be super imposed on another provision with fiction. Therefore the Ld. CIT (A) has rightly directed the Ld. Assessing Officer to re-compute the deduction U/s.10B of the Act for the earlier years however subject to the period of limitation provided under the Act. If the Assessing Officer has the option to assess one or other of the entities in the alternative the Ld. CIT (A) can direct him to do what the Ld. Assessing Officer should have done in the circumstance of the case as held by the Hon ble Apex Court in the case CIT Vs. Kanpur Court Syndicate ( 1964 (4) TMI 18 - SUPREME Court). Therefore we hereby confirm the order of the Ld. CIT(A) subject to the adherence of the period of limitations provided under the Act. - Decided against revenue. Invoking the provisions of Section-14A for the earlier assessment years - whether IT (A) had exceeded his jurisdiction by directing the Ld. Assessing Officer to re-comptue the deduction U/s.10B of the Act for the earlier assessment years other than the year under appeal? - Held that - Since we have already held in the earlier ground at para 7.3 that the Ld. CIT (A) has powers under the provisions of the Act to direct the Ld. Assessing Officer to modify the assessment of the earlier years based on the findings in the subsequent assessment year under appeal before the Ld. CIT (A) this ground is also accordingly disposed off. - Decided against assessee.

Summary

Issues Involved:

1. Treatment of telecommunication and travel expenditure incurred in foreign exchange for Section 10B deduction.
2. Treatment of loss on conversion of amount in EEFC account for Section 10B deduction.
3. Exclusion of telecommunication and travel expenditure from export turnover.
4. Direction to re-compute deduction under Section 10B for earlier years.
5. Invoking Section 14A provisions for earlier assessment years.

Detailed Analysis:

1. Treatment of Telecommunication and Travel Expenditure:

The Revenue argued that telecommunication and travel expenses incurred in foreign exchange should only be deducted from export turnover, not from total turnover, for calculating the Section 10B deduction. The Ld. Assessing Officer, citing the Special Bench decision in ITO Vs. Sak Soft Ltd., held that such expenses should be excluded from both export turnover and total turnover. The CIT (A) upheld this view, stating that excluding expenses from export turnover should also mean excluding them from total turnover to maintain parity. This was further supported by the Chennai Tribunal's decision in the case of M/s. Allsec Technologies Ltd. The Tribunal agreed with these findings, referencing the Special Bench decision and confirming that such expenses should be excluded from both export and total turnover.

2. Treatment of Loss on Conversion of EEFC Account:

The CIT (A) allowed the assessee's claim that the loss from EEFC account should be treated similarly to gains, meaning it should be excluded from profits eligible for Section 10B deduction and considered as a business loss eligible for set-off against other income. The Tribunal found no infirmity in this decision, emphasizing that any gain or loss from the 10-B unit should be treated according to normal provisions of the Act, not affecting the Section 10B deduction.

3. Exclusion of Telecommunication and Travel Expenditure from Export Turnover:

The assessee contended that telecommunication and travel expenses were excluded from export turnover, though not included initially. The Tribunal directed the Assessing Officer to follow the Special Bench decision in Sak Soft Ltd. and ensure that if these expenses were already excluded, they should not be excluded again.

4. Direction to Re-compute Deduction for Earlier Years:

The CIT (A) directed the Assessing Officer to re-compute the Section 10B deduction for earlier years, ensuring that disallowances under Section 40(a)(ia) do not increase profits eligible for deduction. The Tribunal upheld this direction, noting that Section 10B and Section 40(a)(ia) are provisions with fiction, and one cannot be superimposed on the other. The Tribunal confirmed the CIT (A)'s plenary powers to direct such re-computation, subject to the limitation period.

5. Invoking Section 14A for Earlier Years:

The CIT (A) invoked Section 14A, directing the Assessing Officer to re-compute income for earlier years, considering that certain expenses related to exempt income under Section 10B. The Tribunal, referencing its earlier decision, upheld the CIT (A)'s authority to direct modifications for earlier years based on findings in the current assessment year.

Conclusion:

Both the Revenue's and the assessee's appeals were dismissed. The Tribunal upheld the CIT (A)'s decisions on all issues, confirming that telecommunication and travel expenses should be excluded from both export and total turnover, loss from EEFC account should be treated as a business loss, and re-computation of Section 10B deduction for earlier years was justified. The CIT (A) was also correct in invoking Section 14A for earlier assessment years.