2019 (12) TMI 400 - AT - Income Tax

Deduction u/s.10A - Inclusion of foreign exchange fluctuation gain for the purpose of export turnover - HELD THAT - The principle of parity demands inclusion of such gains in the definition of export turnover when the same are included in the definition of total turnover. The said principle stands now consolidated by the order in HCL TECHNOLOGIES LTD. 2018 (5) TMI 357 - SUPREME COURT Hon'ble Madras High Court in the case of CIT Vs. Pentasoft Technologies Ltd. 2010 (7) TMI 75 - MADRAS HIGH COURT is for treating the said foreign exchange fluctuation gains as part of the export sales for the purpose of deduction u/s.10A . Both on merits, such gain constitutes eligible income for the purpose of deduction. Therefore, the principle of parity demands inclusion of the said gains in both the denominator as well as the numerator of the formula laid down for the purpose of quantification of deduction u/s.10A of the Act. Accordingly, Ground No.2 is allowed as covered. Allowability of benefit of deduction claimed u/s.10A of the Act on the revenue account, corresponding to 12% of cross charges made by the assessee to its overseas foreign company (ATI Canada) - HELD THAT - As considered the arguments of assessee on the applicability of principle of consistency . The said rule demands that no disturbance is to be caused for in the assessment years when the facts of the issue are identical. In this regard, we also considered the binding judgment of CIT Vs. Gopal Purohit 2010 (1) TMI 7 - BOMBAY HIGH COURT . Despite the labour demonstrated by the Ld.DR for the Revenue, we find that no differential facts were brought to our notice for the AO to deviate from his line of accepting the claim of assessee in the past years. When the facts and circumstances are identical, the AO should be barred from taking a different view in the matter. The principle of res judicata is not attracted considering the principle of consistency . Therefore, without going to the merits of the issue i.e., allowability or otherwise of the said parties, we are of the opinion that on the legal principle of consistency itself, the assessee should get relief. Accordingly, Ground No.3 is allowed.

Summary

Issues Involved:
1. Dismissal of appeal by CIT(A) for not considering factual and legal submissions and not providing adequate opportunity for hearing.
2. Reduction of foreign exchange fluctuation gain from export turnover affecting deduction under section 10A.
3. Disallowance of benefit of deduction under section 10A on cross charges made to overseas parent company.

Analysis:

Issue 1:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals)-1, Hyderabad, for not considering factual and legal submissions and inadequate hearing opportunity. The Assessee raised grounds related to errors in the decision-making process by the authorities.

Issue 2:
The dispute arose from the Assessing Officer reducing foreign exchange fluctuation gain from export turnover, impacting the deduction under section 10A of the Income Tax Act. The Appellate Tribunal referred to various judgments, including CIT Vs. HCL Technologies Ltd., to support the inclusion of such gains in export turnover for calculating deductions under section 10A. The Tribunal allowed Ground No.2, stating that the gains should be included in both the denominator and numerator of the deduction formula.

Issue 3:
The third issue pertained to the allowance of deduction under section 10A on cross charges made to the overseas parent company. The Appellate Tribunal noted that the Assessing Officer denied the deduction without providing cogent reasons, contrary to past practices. Citing the principle of consistency, the Tribunal ruled in favor of the Assessee, emphasizing that identical facts should not lead to different treatment by the authorities. Ground No.3 was allowed based on the legal principle of consistency.

In conclusion, the Appellate Tribunal allowed the Assessee's appeal, addressing the issues of inadequate consideration of submissions, inclusion of foreign exchange fluctuation gains in export turnover for deduction calculation, and the denial of deduction on cross charges. The judgment emphasized the importance of consistency in decision-making across assessment years when facts remain the same.