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2020 (6) TMI 167 - AT - Income TaxComputing allowable deduction u/s 10A - CIT(A) directing the AO to exclude the expenses incurred in foreign currency outside India, from total turnover of the assessee - HELD THAT - As decided in TATA ELXSI LTD. 2011 (8) TMI 782 - KARNATAKA HIGH COURT total turnover is sum total of domestic turnover and export turnover. Therefore, if an amount is reduced from export turnover, then total turnover also goes down by the same amount automatically. In view of this, we find that the direction of the learned CIT(A), we decline to interfere in the order of CIT(A) on this issue. Reducing export sales on the ground of non-realization for the purposes of computing deduction u/s 10A - HELD THAT - We find that this issue was discussed by learned CIT(A) in para Nos. 3.3 to 3.5 and in para 3.5, a specific finding was given by learned CIT(A) that the assessee has himself admitted that it could not realize an amount of ₹ 20.23 Crores out of total export sales of ₹ 1880.48 Crores. Before us, learned AR of the assessee could not point out any mistake in this categorical finding of CIT (A) on the basis of assessee s own submissions and therefore, the facts of the present case are different because the export proceeds were not brought into India even after lapse of the prescribed time and hence, this tribunal order and in turn the judgment of Hon ble Karnataka High Court is not applicable in the present case. We, therefore, decline to interfere in the order of CIT (A) on this issue. Ground No.1 is rejected. Expenditure incurred in foreign currency should not be reduced from export turnover Eligible business profits for the purposes of computing deduction u/s 10A - Exclusion amount as profit from trading of third-party software - Appellant had done value addition to the third-party software before supplying it to its customers, thereby making it eligible for deduction u/s 10A - HELD THAT - We find that in this judgment in the case of CIT Vs. Hewlett Packard Global Soft Ltd. 2017 (11) TMI 205 - KARNATAKA HIGH COURT , the assessee was 100% EOU. We do not know whether in the present case also, the assessee is 100% EOU or not. In para No.2 of the Assessment Order, it is noted by the AO that the assessee is engaged in the business of developing Software Products for Billing, Wireless and Internet Space and it renders services to its clients both for maintenance as well as core development. Hence, the relevant facts are not on record as to whether the assessee is 100% EOU or not. We restore this matter back to the file of CIT (A) for fresh decision. TDS u/s 195 - HELD THAT - Commission payments made by the assessee to non residents cannot be treated as income deemed to accrue or arise in India and therefore, the provisions of section 195 are not applicable in the case in hand.
Issues Involved:
1. Exclusion of expenses incurred in foreign currency from total turnover for computing deduction under section 10A. 2. Restriction of deduction under section 10A due to non-realization of export sales. 3. Exclusion of expenses incurred in foreign currency from export sales. 4. Exclusion of profits from trading of third-party software from eligible business profits for deduction under section 10A. 5. Disallowance of payments due to non-deduction of tax. 6. Allowance of deduction under section 10A on returned income rather than assessed income. 7. Levy of interest under section 234B. Detailed Analysis: 1. Exclusion of Expenses Incurred in Foreign Currency from Total Turnover for Computing Deduction Under Section 10A: The Revenue's appeal for Assessment Year 2008-09 contested the CIT(A)'s direction to exclude foreign currency expenses from the total turnover. The Tribunal upheld the CIT(A)'s decision, referencing the Karnataka High Court's judgment in Tata Elxsi Ltd., which clarified that if an amount is reduced from export turnover, the total turnover must also decrease by the same amount. Consequently, the Revenue's appeal was dismissed. 2. Restriction of Deduction Under Section 10A Due to Non-Realization of Export Sales: The assessee's appeal for Assessment Year 2008-09 challenged the CIT(A)'s decision to uphold the AO's restriction of deduction under section 10A due to non-realization of export sales. The Tribunal noted that in previous years, similar issues were resolved in favor of the assessee if the foreign exchange remittances were eventually received. However, in this case, the export proceeds were not realized within the prescribed time, and thus, the Tribunal upheld the CIT(A)'s decision, rejecting the assessee's ground. 3. Exclusion of Expenses Incurred in Foreign Currency from Export Sales: The assessee argued that certain expenses incurred in foreign currency should not be excluded from export sales for computing deduction under section 10A. The Tribunal referred to a prior decision where similar claims were dismissed due to lack of detailed evidence. Consequently, the Tribunal upheld the CIT(A)'s decision, rejecting the assessee's ground. 4. Exclusion of Profits from Trading of Third-Party Software from Eligible Business Profits for Deduction Under Section 10A: The assessee contended that profits from trading third-party software, which had undergone value addition, should be eligible for deduction under section 10A. The Tribunal noted the need to verify whether the assessee was a 100% Export Oriented Unit (EOU), as per the Karnataka High Court's judgment in Hewlett Packard Global Soft Ltd. The matter was remanded back to the CIT(A) for fresh examination, allowing the assessee's ground for statistical purposes. 5. Disallowance of Payments Due to Non-Deduction of Tax: The assessee's appeal for Assessment Year 2008-09 included multiple grounds related to disallowance of payments due to non-deduction of tax. The Tribunal found that the CIT(A) had relied on the previous year's order, which detailed the assessee's failure to show that the income of foreign agents was not taxable in India. However, referencing a Tribunal decision in the assessee's favor for subsequent years, the Tribunal decided in favor of the assessee, allowing the ground. 6. Allowance of Deduction Under Section 10A on Returned Income Rather Than Assessed Income: The assessee argued that the deduction under section 10A should be allowed on the assessed income rather than the returned income. The Tribunal dismissed this ground, noting that it did not arise from the CIT(A)'s order and was not raised as an additional ground. 7. Levy of Interest Under Section 234B: The assessee contested the levy of interest under section 234B. The Tribunal dismissed this ground for the same reason as the previous one, as it did not arise from the CIT(A)'s order and was not raised as an additional ground. Appeal for Assessment Year 2009-10: The Tribunal noted that the issues and facts for Assessment Year 2009-10 were similar to those in Assessment Year 2008-09. Accordingly, the Tribunal decided the appeal for Assessment Year 2009-10 on similar lines, resulting in a partial allowance for statistical purposes. Conclusion: The Revenue's appeal for Assessment Year 2008-09 was dismissed, while the assessee's appeals for Assessment Years 2008-09 and 2009-10 were partly allowed for statistical purposes.
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