2024 (12) TMI 1176 - HC - Income Tax

Deduction u/s 10A - loss on account of foreign exchange fluctuation while computing deductions - HELD THAT - We find that the same has been decided against the assessee by order of the CIT (Appeals). That order has attained finality since the assessee, who is aggrieved, has not chosen to challenge the same. Strangely, the Income-Tax Department has raised a ground in this regard, despite the issue having been decided adverse to the assessee by the first appellate authority.Tribunal has affirmed the conclusions of the Commissioner of Income-Tax (Appeals) on a mistaken premise that the appeal has been filed by the assessee. Substantial question of law no.1 is misconceived as that issue does not arise from the order of the Income Tax Appellate Tribunal, and is hence returned unanswered. Telecommunication expenditure should be excluded both from the export turnover and the total turnover for the purpose of computing deduction u/s 10A - HELD THAT - Issue arising in substantial question no.2 is covered by a judgment of the Supreme Court in the case of Commissioner of Income-Tax, Central III v HCL Technologies Ltd 2018 (5) TMI 357 - SUPREME COURT wherein held that expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was correct in deleting additions for foreign exchange fluctuation loss under Section 10A deductions?
2. Whether the Income Tax Appellate Tribunal was correct in excluding telecommunication expenditure from export and total turnover for Section 10A deduction calculation?

Analysis:

Issue 1:
The appellant challenged the deletion of additions for foreign exchange fluctuation loss by the Income Tax Appellate Tribunal. The Tribunal's decision was based on the interpretation of Section 10A deductions. The appellant cited a Supreme Court judgment in the case of Commissioner of Income-Tax v HCL Technologies Ltd., emphasizing that expenses excluded from export turnover should also be excluded from total turnover to avoid illogical results. The judgment provided a formula for calculating deductions under Section 10A and highlighted the need for consistent interpretation regarding expenses like telecommunication and technical services. The court found the appellant's challenge against the Tribunal's decision on this issue lacking merit.

Issue 2:
Regarding the exclusion of telecommunication expenditure from export and total turnover for Section 10A deduction calculation, the court referred to the Supreme Court judgment mentioned earlier. The judgment clarified that deductions for expenses related to export business should be allowed proportionately from both export and total turnover to maintain the formula's integrity. The court upheld the Tribunal's decision on this issue, following the principles established in the Supreme Court judgment.

The court also addressed a separate issue related to the first substantial question of law, which had already been decided against the assessee by the Commissioner of Tax (Appeals). The court noted that the issue did not arise from the Tribunal's order, leading to the question being returned unanswered. Despite the Income-Tax Department raising a ground on this issue, the court found it misconceived due to the previous decision by the first appellate authority.

In conclusion, the court dismissed the tax case appeal, emphasizing that the issues raised had been adequately addressed and resolved based on existing legal interpretations and precedents.